Merlin Properties Socimi S.A.

Annual / Quarterly Financial Statement • Feb 28, 2023

959800L8KD863DP30X04-20221231-en 959800L8KD863DP30X042022-12-31iso4217:EUR959800L8KD863DP30X042021-12-31959800L8KD863DP30X042022-01-012022-12-31959800L8KD863DP30X042021-01-012021-12-31iso4217:EURxbrli:shares959800L8KD863DP30X042020-12-31ifrs-full:IssuedCapitalMember959800L8KD863DP30X042020-12-31ifrs-full:SharePremiumMember959800L8KD863DP30X042020-12-31ifrs-full:OtherReservesMember959800L8KD863DP30X042020-12-31mer:OtherEquityHolderContributionsMember959800L8KD863DP30X042020-12-31mer:ProfitLossAttributableToOwnersOfParentMember959800L8KD863DP30X042020-12-31mer:InterimDividendMember959800L8KD863DP30X042020-12-31ifrs-full:ReserveOfCashFlowHedgesMember959800L8KD863DP30X042020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember959800L8KD863DP30X042020-12-31ifrs-full:TreasurySharesMember959800L8KD863DP30X042020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember959800L8KD863DP30X042020-12-31ifrs-full:NoncontrollingInterestsMember959800L8KD863DP30X042020-12-31959800L8KD863DP30X042021-01-012021-12-31ifrs-full:IssuedCapitalMember959800L8KD863DP30X042021-01-012021-12-31ifrs-full:SharePremiumMember959800L8KD863DP30X042021-01-012021-12-31ifrs-full:OtherReservesMember959800L8KD863DP30X042021-01-012021-12-31mer:OtherEquityHolderContributionsMember959800L8KD863DP30X042021-01-012021-12-31mer:ProfitLossAttributableToOwnersOfParentMember959800L8KD863DP30X042021-01-012021-12-31mer:InterimDividendMember959800L8KD863DP30X042021-01-012021-12-31ifrs-full:ReserveOfCashFlowHedgesMember959800L8KD863DP30X042021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember959800L8KD863DP30X042021-01-012021-12-31ifrs-full:TreasurySharesMember959800L8KD863DP30X042021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember959800L8KD863DP30X042021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember959800L8KD863DP30X042021-12-31ifrs-full:IssuedCapitalMember959800L8KD863DP30X042021-12-31ifrs-full:SharePremiumMember959800L8KD863DP30X042021-12-31ifrs-full:OtherReservesMember959800L8KD863DP30X042021-12-31mer:OtherEquityHolderContributionsMember959800L8KD863DP30X042021-12-31mer:ProfitLossAttributableToOwnersOfParentMember959800L8KD863DP30X042021-12-31mer:InterimDividendMember959800L8KD863DP30X042021-12-31ifrs-full:ReserveOfCashFlowHedgesMember959800L8KD863DP30X042021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember959800L8KD863DP30X042021-12-31ifrs-full:TreasurySharesMember959800L8KD863DP30X042021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember959800L8KD863DP30X042021-12-31ifrs-full:NoncontrollingInterestsMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:IssuedCapitalMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:SharePremiumMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:OtherReservesMember959800L8KD863DP30X042022-01-012022-12-31mer:OtherEquityHolderContributionsMember959800L8KD863DP30X042022-01-012022-12-31mer:ProfitLossAttributableToOwnersOfParentMember959800L8KD863DP30X042022-01-012022-12-31mer:InterimDividendMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:ReserveOfCashFlowHedgesMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:TreasurySharesMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember959800L8KD863DP30X042022-01-012022-12-31ifrs-full:NoncontrollingInterestsMember959800L8KD863DP30X042022-12-31ifrs-full:IssuedCapitalMember959800L8KD863DP30X042022-12-31ifrs-full:SharePremiumMember959800L8KD863DP30X042022-12-31ifrs-full:OtherReservesMember959800L8KD863DP30X042022-12-31mer:OtherEquityHolderContributionsMember959800L8KD863DP30X042022-12-31mer:ProfitLossAttributableToOwnersOfParentMember959800L8KD863DP30X042022-12-31mer:InterimDividendMember959800L8KD863DP30X042022-12-31ifrs-full:ReserveOfCashFlowHedgesMember959800L8KD863DP30X042022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember959800L8KD863DP30X042022-12-31ifrs-full:TreasurySharesMember959800L8KD863DP30X042022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember959800L8KD863DP30X042022-12-31ifrs-full:NoncontrollingInterestsMember Merlin Properties SOCIMI, S.A. and Subsidiaries Consolidated Financial Statements for the year ended 31 December 2022 prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Consolidated Directors' Report MERLIN PROPERTIES SOCIMI, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF 31 DECEMBER 2022 (Thousand euros) ASSETS Notes 31/12/2022 31/12/2021 EQUITY AND LIABILITIES Notes 31/12/2022 31/12/2021 NON-CURRENT ASSETS EQUITY Note 13 Other intangible assets 1,746 1,594 Share capital 469,771 469,771 Property, plant and equipment 6,323 9,160 Share premium 3,541,379 3,647,876 Investment property Note 7 10,714,200 12,297,257 Reserves 3,023,630 2,566,276 Investments accounted for using the equity method Note 9 500,300 482,784 Other shareholder contributions 540 540 Non-current financial assets Note 10 211,048 359,791 Valuation adjustments 12,798 (67,420) Derivatives 18,882 167,080 Tresury shares (17,166) (32,305) Other financial assets 192,166 192,711 Interim dividend (444,815) (70,033) Deferred tax assets Note 17 78,646 83,808 Profit/(Loss) for the year attributable to the Parent 263,087 512,217 Total non-current assets 11,512,263 13,234,394 Equity attributable to the Parent 6,849,224 7,026,922 Total equity 6,849,224 7,026,922 NON-CURRENT LIABILITIES Debt instruments and other marketable securities Note 14 3,279,334 4,017,570 Long-term bank borrowings Note 14 189,866 1,641,139 Other financial liabilities Note 15 156,398 158,353 Deferred tax liabilities Note 15 y 17 613,479 681,013 Provisions Note 15 12,670 11,210 Total non-current liabilities 4,251,747 6,509,285 CURRENT LIABILITIES CURRENT ASSETS Debt instruments and other marketable securities Note 14 775,036 588,155 Inventories Note 5.2 44,508 38,697 Bank borrowings Note 14 2,806 14,853 Trade and other receivables Notes 10 y 11 49,840 39,625 Other current financial liabilities Note 15 9,020 7,864 Other current financial assets Note 10 2,960 82,919 Trade and other payables Note 16 146,850 114,155 Other current assets 12,463 10,481 Current income tax liabilities Note 17 5,234 3,935 Cash and cash equivalents Note 12 429,449 866,721 Other current liabilities Note 15 11,566 7,668 Total current assets 539,220 1,038,443 Total current liabilities 950,512 736,630 TOTAL ASSETS 12,051,483 14,272,837 TOTAL EQUITY AND LIABILITIES 12,051,483 14,272,837 The accompanying explanatory Notes 1 to 24 and Appendix I are an integral part of the consolidated statement of financial position as at 31 December 2022. 1 MERLIN PROPERTIES SOCIMI, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE PERIOD ENDED IN 2022 (Thousand euros) Notes Year 2022 Year 2021() CONTINUING OPERATIONS: Revenue Notes 6 y 18 439,038 382,830 Other operating income 2,650 4,277 Staff costs Note 18.c (39,673) (40,779) Other operating expenses Note 18.b (73,818) (68,594) Profit/(loss) on disposals of non-current assets Note 7 11,561 (1,900) Depreciation and amortisation charge (1,885) (1,858) Excessive provisions (160) 1,169 Change in fair value of investment properties Note 7 (249,272) 195,497 PROFIT/(LOSS) FROM OPERATIONS 88,441 470,642 Changes in the fair value of financial instruments- Note 10 y 14 41,226 10,352 Finance income Note 18.d 3,942 5,421 Profit/(loss) on disposal of financial instruments (283) (1,347) Finance expenses Note 18.d (109,203) (116,458) Share of results of companies accounted for using the equity Note 9 24,033 34,560 PROFIT/(LOSS) BEFORE TAX 48,156 403,170 Income tax Note 17 (6,800) (7,810) PROFIT/(LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS 41,356 395,360 DISCONTINUED OPERATIONS Profit/(loss) for the year from discontinued operations net of tax Note 3 221,731 116,857 PROFIT/(LOSS) FOR THE YEAR 263,087 512,217 Attributable to shareholders of the Parent 263,087 512,217 EARNINGS PER SHARE FROM CONTINUING OPERATIONS (in euros): Note 13.6 Basic 0.09 0.85 Diluted 0.09 0.85 EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS (in euros): Note 13.6 Basic 0.47 0.25 Diluted 0.47 0.25 () Reexpresed Financial Statements The accompanying explanatory Notes 1 to 24 and Appendix I are an integral part of the consolidated statement of financial position as at 31 December 2022. 2 MERLIN PROPERTIES SOCIMI, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD OF 2022 (Thousand euros) Notes Year 2022 Year 2021() PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO CONTINUING OPERATIONS 41,356 395,360 PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO DISCONTINUING OPERATIONS 221,731 116,857 PROFIT/(LOSS) PER INCOME STATEMENT (I) 263,087 512,217 OTHER COMPREHENSIVE INCOME: Income and expense recognised directly in equity- Arising from cash flow hedges () from continuing operations Note 13.7 12,781 — Arising from cash flow hedges () from discontinuing operations Note 3 90,577 23,202 OTHER COMPREHENSIVE INCOME RECOGNISED DIRECTLY IN EQUITY (II) 103,358 23,202 Transfers to the income statement from continuing operations Note 13.7 17 — Transfers to the income statement from discontinuing operations Note 3 (23,157) 8,915 TOTAL TRANSFERS TO THE INCOME STATEMENT (III) (23,140) 8,915 TOTAL COMPREHENSIVE INCOME (I+II+III) 343,305 544,334 Attributable to shareholders of the Parent from continuing operations 54,154 395,360 Attributable to shareholders of the Parent from discontinuing operations 289,151 148,974 Attributable to shareholders of the Parent 343,305 544,334 () Rexpresed Financial Statements () Amounts to be transferred to the profit and loss account in subsequent years The accompanying explanatory Notes 1 to 24 en the Consolidated Memory and Appendix I are an integral part of the consolidated statement of financial for the period ending in 2022. 3 MERLIN PROPERTIES SOCIMI, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED DECEMBER 31 2022 (Thousand euros) Share Capital Share premium Reserves Shareholder Contribution Profit/ (loss) for the year Interim Dividend Valuation adjustme nts Translation differences Treasury shares Equity attributed to the Parent Company Non- controlling interests Total Equity Balance as of 31 December 2020 469,771 3,813,409 2,509,875 540 56,358 — (99,537) — (54,149) 6,696,267 — 6,696,267 Consolidated comprehensive income for 2021 — — — — 512,217 — 32,117 — — 544,334 — 544,334 Distribution of 2020 profit — (25,467) 81,825 — (56,358) — — — — — — — Transactions with shareholders or owners Distribution of dividends — (140,066) — — — (70,033) — — — (210,099) — (210,099) Disposal of treasury shares — — — — — — — — 5 5 — 5 Recognition of share-based payments — — 8,758 — — — — — — 8,758 — 8,758 Share-based payments — — (33,813) — — — — — 20,896 (12,917) — (12,917) Delivery of share distribution scheme — — (369) — — — — — 943 574 — 574 Balance as of 31 December 2021 469,771 3,647,876 2,566,276 540 512,217 (70,033) (67,420) — (32,305) 7,026,922 — 7,026,922 Consolidated comprehensive income for 2022 — — — — 263,087 — 80,218 — — 343,305 — 343,305 Distribution of 2021 profit — — 442,184 — (512,217) 70,033 — — — — — — Transactions with shareholders or owners Distribution of dividends — (106,497) (10,614) — — (444,815) — — — (561,926) — (561,926) Changes in the scope of consolidation — — 51,217 — — — — — — 51,217 — 51,217 Acquisition/(sale) of treasury shares — — — — — — — — 142 142 — 142 Recognition of share-based payments — — 4,014 — — — — — — 4,014 — 4,014 Share-based payments — — (23,864) — — — — — 14,133 (9,731) — (9,731) Delivery of share distribution scheme — — (35) — — — — — 864 829 — 829 Other changes — — (5,548) — — — — — — (5,548) — (5,548) Balance as of 31 December 2022 469,771 3,541,379 3,023,630 540 263,087 (444,815) 12,798 — (17,166) 6,849,224 — 6,849,224 The accompanying explanatory Notes 1 to 24 and Appendix I are an integral part of the consolidated statement of changes in equity for the period ended as of 31 December 2022. 4 MERLIN PROPERTIES SOCIMI, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD PERIOD ENDED DECEMBER 31 2022 (Thousand euros) Notes Ejercicio 2022 Ejercicio 2021() CONTINUED OPERATIONS CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES: 222,155 162,463 Profit for the year before tax 48,156 403,170 Adjustments for- 283,772 (114,602) Depreciation and amortisation charge 1,885 1,858 Change in fair value of investment property Note 7 249,272 (195,497) Changes in operating provisions 4,174 11,079 Profit/(Loss) on derecognition and disposal of non-current assets Note 7 (11,561) 1,867 Finance income (3,942) (5,421) Finance expenses 109,203 116,426 Changes in fair value of financial instruments (41,226) (10,353) Share of results of investments accounted for using the equity method Note 9 (24,033) (34,560) Other adjustments to profit — (1) Changes in working capital- (9,637) (21,600) Inventories (5,811) (5,261) Accounts receivable (1,684) (5,703) Other current assets (2,987) 7,019 Accounts payable 19,614 (30,545) Other assets and liabilities (18,769) 12,890 Other cash flows from operating activities- (100,136) (104,505) Interest paid (100,588) (103,861) Interest received 1,980 3,011 Income tax recovered (paid) (1,528) (3,655) CASH FLOWS FROM/(USED IN) INVESTMENT ACTIVITIES: 1,184,254 (454) Payments due to investments- (997,196) (177,359) Net cash flow from business acquisitions Note 3 — (2) Investment property Note 7 (370,161) (182,389) Property, plant and equipment (644) (2,332) Contributions for discontinued activities (619,727) — Contributions to associates and other non-current investments (5,593) — Intangible assets (1,071) (1,342) Financial assets — 8,706 Proceeds from disposals- 2,181,450 176,905 Financial assets of discontinued operations Note 3 1,987,400 75,558 Investment property 109,402 101,347 Other disposals 84,648 — CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES: (1,700,436) 335,392 Proceeds and payments relating to equity instruments- (406,475) (158,545) Issue of equity instruments — — Treasury share purchases Note 13 (142) (5) Premium Refunds Note 4 (106,497) (140,066) Dividends Paid Note 4 (455,429) (70,033) Dividends Paid / Premium Refunds from subsidiaries 4,162 — Dividends paid from discontinued operations 51,144 51,559 Charges for discontinued activities 100,287 — Proceeds and payments relating to financial liabilities- (1,293,961) 493,937 Debt issuance with credit institutions Note 14 81,760 417 Cancellation of interest rate derivatives 24,329 — Issuance of debentures and bonds — 494,230 Repayment of bank borrowings Note 14 (851,750) (710) Return of debentures and bonds Note 14 (548,300) — NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (294,027) 497,401 Cash and cash equivalents at beginning of period 723,476 226,075 Cash and cash equivalents at end of period 429,449 723,476 5 Ejercicio Ejercicio DISCONTINUED OPERATIONS Notas 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Note 3 36,596 68,001 CASH FLOWS FROM INVESTING ACTIVITIES Note 3 — 110,685 CASH FLOWS FROM FINANCING ACTIVITIES Note 3 (174,872) (61,388) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (138,276) 117,298 Cash and cash equivalents at beginning of period 143,245 25,947 Cash and cash equivalents included for the transaction 4,969 — Cash and cash equivalents at end of period — 143,245 () Reexpresed Financial Statements The accompanying explanatory Notes 1 to 24 and Appendix I are an integral part of the consolidated statement of cash flows for the period ended as at 31 December 2022. 6 Merlin Properties SOCIMI, S.A. and Subsidiaries Notes to the consolidated financial statements for the year ended 31 December 2022 1. Nature and activity of the Group Merlin Properties SOCIMI, S.A. (the "Parent Company") was incorporated in Spain on 25 March 2014 under the Corporate Enterprises Act. On 22 May 2014, the Parent requested to be included in the tax regime for listed companies investing in the property market (REITs), effective from 1 January 2014. On 27 February 2017, the Parent changed its registered office from Paseo de la Castellana 42 to Paseo de la Castellana 257, Madrid, Spain. The Parent Company's corporate purpose, as 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 VAT Act; –The holding of equity interests in other REITs or in other non-resident entities in Spain with the same corporate purpose and which operate under a similar regime as that established for REITs with respect to the mandatory profit distribution policy enforced by law or by the bylaws; –The holding of equity interests 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 REITs with respect to the mandatory profit distribution policy enforced by law or by the bylaws, and which meet the investment requirements stipulated for these companies; and –The holding of shares or equity interests in collective real estate investment undertakings regulated by Law 35/2003, of 4 November, on collective investment undertakings, or any statute that may replace this in the future. In addition to the economic activity relating to the main corporate purpose, the Parent may also carry on any other ancillary activities, i.e., those that generate income, which in total represents less than 20% of its income in each tax period, or those that may be considered ancillary activities by law at the time. The activities included in the Parent's corporate purpose may be indirectly performed, either wholly or in part, through the ownership of shares or equity interests in companies with a similar or identical corporate purpose. The direct and, where applicable, indirect performance of any activities which are reserved under special legislation are excluded. If the law prescribes the need for a professional qualification, administrative authorisation, entry in a public register, or any other requirement for the purpose of exercising any of the activities within the corporate purpose, no such activity can be exercised until all the applicable professional or administrative requirements have been met. Merlin Properties SOCIMI, S.A. and Subsidiaries ("the Group") engage mainly in the acquisition and management (through leasing to third parties) of offices, industrial buildings, logistic centres, shops and shopping centres, and they may also invest, to a lesser extent, in other assets for lease. On 30 June 2014, the Parent was floated on the Spanish stock market through the issuance of EUR 125,000 thousand shares, with a share premium of EUR 1,125,000 thousand. Merlin Properties 7 SOCIMI, S.A.'s shares/securities have been listed on the electronic trading system of the Spanish stock exchanges since 30 June 2014. On 15 January 2020, the Parent's shares were listed on Euronext Lisbon under a dual listing. The Parent Company and the majority of its subsidiaries are governed by Spanish Law 11/2009, of 26 October, as amended by Spanish REITs Act (Ley 16/2012, de 27 de diciembre, por la que se regulan las Sociedades Anonimas Cotizadas de Inversion en el Mercado Inmobiliario). Article 3 of that Act sets out the investment requirements for these types of companies, namely: 1. At least 80% of a REIT's assets must be invested in urban real estate for leasing purposes and/or in land to be developed for leasing purposes provided that such development starts within three years of acquisition, along with investments in the capital or equity of other entities referred to in section 1, Article 2 of the Act. The value of the assets will be determined according to the average of the individual balance sheets for each quarter of the year, whereby the REIT may opt to calculate such value by taking into account the market value of the assets included in such balance sheets instead of their carrying amount, in which case that value would apply to all balance sheets for the year. For these purposes, the money and credit rights arising from the disposal of these properties or shareholdings, if applicable, during the same year or previous years will not be calculated, provided that, in this latter case, the reinvestment period referred to in Article 6 of this Act has not elapsed. 2.Similarly, at least 80% of the income for the tax period for each year, excluding that arising from the disposal of shareholdings and properties used in fulfilment of its primary corporate purpose, once the holding period referred to below has elapsed, should come from the lease of properties and from dividends or shares in profit from these investments. This percentage is calculated based on consolidated profit if the company is a Parent Company of a group, as defined in Article 42 of the Spanish Commercial Code, irrespective of the place of residence and the obligation to prepare consolidated financial statements. Said group will exclusively comprise the REIT and all the other entities referred to in section 1, Article 2 of that Act. 3.The REIT's real estate assets must be leased for at least three years. The time that the properties have been offered for lease, up to a maximum of one year, will be included for the purposes of this calculation. This period will be calculated: a)In the case of properties that are included in the REIT's assets before it avails itself of the regime, from the date of commencement of the first tax period in which the special tax regime set forth in this Act is applied, provided that the property is leased or offered for lease at that date. Otherwise, the following paragraph must be apply. b)In the case of properties developed or acquired subsequently by the REIT, from the date on which they were leased or offered for lease for the first time. c)Shares or equity investments in entities referred to in section 1, Article 2 of the Act must be kept in the REIT's asset base for a period of at least three years after their acquisition or, if applicable, from the beginning of the first tax period during which the special tax regime in the Law applies. As in transitional provision one of Law 11/2009, of 26 December, amended by Law 16/2012, of 27 December, governing listed companies investing in the property market, these companies may opt to apply the special tax regime under Article 13 of this Act, even when the requirements stipulated therein are not fulfilled, under the condition that such requirements are met within two years of the date application of the REIT tax regime is sought. 8 REITs are taxed at a rate of 0% for corporate income tax. However, where dividends distributed to an equity holder owning at least 5% of the REIT's share capital are exempt from taxation or taxed below 10%, such REIT will be subject to a special charge of 19% of the dividends distributed to said equity holder, in respect of corporate income tax. If deemed applicable, this special charge must be be paid by the REIT within two months after the dividend distribution date. With effect for financial years beginning on or after 1 January 2021, Law 11/2021, of 9 July, on measures to prevent and combat tax fraud amended Article 9 (4) of Spanish Law 11/2009, of 26 October, regulating REITs. Specifically, a special tax of 15% was introduced on the amount of profit obtained in the year which is not distributed, in the portion that arises from: a) income that has not been taxed at the general corporate income tax rate and, b) income that does not arise from the transfer of eligible assets, once the three-year maintenance period has elapsed, which has been included in the three-year reinvestment period in Article 6.1.b) of Law 16/2012, of 27 December. This special tax will be considered corporate income tax and will accrue on the day of the agreement to apply profit for the year by the general shareholders meeting or equivalent body. The self-assessment and payment of the tax must be performed within two months of the accrual. The transitional period in which the Company had to meet all requirements of this tax regime ended in 2017. Group management, based on the opinion of its tax advisers, assessed compliance with the requirements of the regime, concluding that such requirements were met at 31 December 2022. Consequently, the Group's consolidated financial statements and the individual financial statements of the Parent for 2022, prepared by its Directors, which are awaiting approval by the General Meeting, have been prepared under the REIT Regime. However, the directors of the Parent consider that the above financial statements will be approved without any material changes. On the other hand, the financial statements for 2022 for the companies that make up the Group are pending preparation by their respective Directors and are expected to be approved by their respective General Shareholders' or Partners' Meetings within the deadlines established by applicable law. The separate and consolidated financial statements published by Merlin Properties, SOCIMI, S.A. for 2021 prepared by its directors were approved by the Directors at the Annual General Meeting on 4 May 2022. The 2021 separate annual financial statements of the Group companies, which were prepared by their respective directors, were approved at the respective General Meetings within the periods in applicable tax legislation. In view of the business activities currently performed by the Group, it does not have any environmental liability, expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the consolidated financial statements. The Company did not change its corporate or trading name in 2021 or 2022. 2. Basis of presentation of the consolidated financial statements and consolidation principles 2.1 Regulatory framework The regulatory financial reporting framework applicable to the Group consists of the following: –The Spanish Commercial Code and all other Spanish commercial laws. –International Financial Reporting Standards (IFRSs) 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, administrative and social security measures, and applicable rules and circulars of the Spanish National Securities Market Commission (CNMV); 9 –Law 11/2009, of 26 October, amended by REITs Act and all other commercial law; and –All other applicable Spanish accounting legislation. 2.2 Basis of presentation of the consolidated financial statements The consolidated financial statements for 2022 were obtained from the accounting records and financial statements of the Parent and consolidated companies, and have been prepared in accordance with the regulatory financial reporting framework described in Note 2.1 and, accordingly, they constitute a fair presentation of the Group's consolidated equity and financial position at 31 December 2022 and the consolidated results of its operations, the changes in consolidated equity and the consolidated cash flows in the year then ended. Given that the accounting policies and measurement bases applied in preparing the Group's consolidated financial statements for 2022 may differ from those applied by some of the Group companies, the necessary adjustments and reclassifications were made on consolidation to unify these policies and bases and to make them compliant with IFRSs as adopted by the European Union To present the various items composing the consolidated financial statements in a uniform manner, the accounting, policies and measurement bases used by the Parent were applied to all the consolidated companies. 2.2.1 Adoption of Financial Reporting Standards and Interpretations effective as from 1 January 2022 In 2022 the following standards, amendments and interpretations entered into force, which, where applicable, were used by the Group in preparing these financial statements: Standards, Amendments and Interpretations Description Mandatory application in the financial years beginning on or after: Amendments to IFRS 3 Reference to the Conceptual Framework IFRS 3 is updated to align the definitions of assets and liabilities in a business combination with those in the conceptual framework In addition, certain clarifications are introduced regarding the recognition of contingent liabilities and assets. 1 January 2022 Amendment to IAS 16 Income before projected use The amendment prohibits a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Proceeds from selling such items, together with production costs, must be recognised in profit or loss. 1 January 2022 Amendment to IAS 37 Payable Contracts - Cost of performing a contract The amendment specifies that the direct cost of fulfilling a contract includes both the incremental costs of fulfilling that contract and an allocation of other costs that relate directly to fulfilling the contract. 1 January 2022 Improvements to IFRSs, 2018-2020 cycle Minor amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41. 1 January 2022 These standards and amendments have not had a significant impact. All accounting policies and measurement bases with a significant effect on the condensed consolidated financial statements were applied. 10 2.2.2 Standards not yet in force in 2022 The following standards were not yet in force in 2022, either because their effective date is subsequent to the date of the consolidated financial statements or because they had not yet been adopted by the European Union. Standards, Amendments and Interpretations Description Mandatory application in the financial years beginning on or after: Amendments to IAS 1 Breakdown of accounting policies Amendments that require companies to appropriately identify the material accounting policy information that should be disclosed in the financial statements. 1 January 2023 (1) Amendment to IAS 8 - Definition of a business Amendments and clarifications to help entities distinguish changes in accounting estimates. 1 January 2023 (1) Amendment to IAS 12 Deferred tax related to assets and liabilities arising from a single transaction Clarifications on how companies should account for deferred tax on transactions such as leases and decommissioning obligations. 1 January 2023 (1) Amendment to IFRS 17 Insurance Agreements - Initial application of IFRS 17 and IFRS 9. Comparative information Amendments to the transition requirements of IFRS 17 for insurers that simultaneously apply IFRS 17 and IFRS 9 for the first time. 1 January 2023 (1) IFRS 17 Insurance contracts and its amendments It replaces IFRS 4 and establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts to ensure that entities provide related and reliable information that gives a basis for users of the financial information to assess the effect that insurance contracts have on the financial statements 1 January 2023 (1) Amendment to IAS 1 Classification of liabilities as current and non-current and classification of non-current liabilities with covenants Clarifications regarding the presentation as current or non-current flows of liabilities, and in particular with maturity based on compliance with covenants. 1 January 2024 Amendment to IFRS 16 lease liability in a sale and leaseback This change clarifies the subsequent accounting of lease liabilities arising in sales and subsequent leasebacks. 1 January 2024 (1) Approved for use in the European Union At present, the Group is assessing the impacts that the future application of standards with a mandatory application date from 1 January 2023 could have on the consolidated financial statements once they come into force, although these impacts are not expected to be significant. 2.3Functional currency These consolidated financial statements are presented in euros, since the euro is the functional currency in the area in which the Group operates. 2.4 Comparative information The information relating to 2021 contained in these notes to the consolidated financial statements is presented solely for comparison purposes with similar information relating to the year ended 31 December 2022. 11 As detailed in Note 3, the consolidated income statement, consolidated statement of comprehensive income and consolidated cash flow statement included for comparison purposes in these consolidated financial statements corresponding to 31 December 2021 were reexpresed to be homogeneous and to reflect the effect of the discontinuation of the Net Lease business segment in 2022. 2.5 Responsibility for the information and use of estimates The information in these consolidated financial statements is the responsibility of the Parent's directors. In the Group's consolidated financial statements for 2022 estimates were occasionally made by the senior executives of the Group and of the consolidated companies, later ratified by the directors, to quantify certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates relate basically to the following: –The market value of the Group's property assets (see Note 5.1). The Group obtained valuations from independent experts at 31 December 2022. –The fair value of certain financial instruments (see Notes 5.5 and 5.6). –The assessment of provisions and contingencies (see Note 5.11) –Management of financial risk and, in particular, of liquidity risk and climate change risk (see Note 23). –The recovery of deferred tax assets and the tax rate applicable to temporary differences (see Note 5.13). –Compliance with the requirements that govern listed real estate investment companies (see Note 1). Changes in estimates: Although these estimates were made based on the best information available at 31 December 2022, future events may require that these estimates be modified prospectively (upwards or downwards), according to IAS 8. The effects of any change would be recognised in the corresponding consolidated income statement. 2.6Basis of consolidation applied All companies over which effective control is exercised by virtue of holding a majority of the voting rights in their representation and decision-making bodies and the power to determine the company's financial and operational policies were fully consolidated; and companies in which the Group owns more than a 20% interest and exercises significant influence without holding a majority of the voting rights were accounted for using the equity method (see Note 9). Likewise,a significant influence on the investments held by the Group with a participation rate of less than 20% is considered to exist if it has representation on the Board of these companies of the parties related to it. A number of adjustments have been made to align the accounting principles and measurement bases of Group companies with those of the Parent, including the application of International Financial Reporting Standards measurement bases to all Group companies and associates. It was not necessary to unify accounting periods since the balance sheet date of all the Group companies and associates is 31 December of each year. 12 2.6.1 Subsidiaries Subsidiaries are considered to be those companies over which the Parent directly or indirectly exercises control through subsidiaries. The Parent Company has control over a subsidiary when it is exposed or has rights to variable returns from its involvement with the subsidiary, and when it has the ability to exercise its power to affect its returns. The Parent Company has power when the voting rights are sufficient to give it the ability to direct the relevant activities of the subsidiary. The Parent Company is exposed or has rights to variable returns from its involvement with the subsidiary when its returns from its involvement have the potential to vary as a result of the subsidiary's performance. The financial statements of the subsidiaries are fully consolidated with those of the Parent. Accordingly, all material balances and effects of the transactions between consolidated companies are eliminated on consolidation. Any third-party interests in the Group's equity and profit or loss are recognised under "Non-controlling interests" in the consolidated statement of financial position and "Result attributable to non-controlling interests" in the consolidated income statement and consolidated comprehensive income statement. The results of subsidiaries acquired or sold during the year are included in the consolidated income statements from the effective date of acquisition or until the effective date of disposal, as appropriate. Appendix I includes information on Group companies and associates. 2.6.2 Associates The companies listed in Appendix I, over which Merlin Properties, SOCIMI, S.A. does not exercise control but rather has a significant influence, are included under "Investments accounted for using the equity method" in the accompanying consolidated statement of financial position and are measured using the equity method, which consists of the value of the net assets and any goodwill of the associate. The share of these companies' net profit or loss for the year is included under "Share of results of associates accounted for using the equity method" in the accompanying consolidated income statement. 2.6.3 Inter-group transactions Gains or losses on transactions between consolidated companies are eliminated on consolidation and deferred until they are realised with third parties outside the Group. The capitalised expenses of Group work on non-current assets are recognised at production cost, and any intra-Group results are eliminated. Receivables and payables between consolidated Group companies and any intra-Group income and expenses were eliminated. 2.6.4 First-time consolidation differences At the date of an acquisition, the assets and liabilities of a subsidiary are measured at their fair values at that date. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. When there is an negative difference between the acquisition cost and the fair values of the identifiable net assets acquired (i.e. a discount on acquisition), the valuations of the net assets are reviewed and, if applicable, said difference i is credited to profit or loss in the period in which the acquisition is made. 2.6.5 Business combinations The Group accounts for business combinations using the purchase method. The date of acquisition is the date on which the Group takes control of the acquiree. The consideration paid is calculated at the date of acquisition as the sum of the fair values of the assets delivered, the liabilities incurred and assumed and the equity instruments issued by the Group in exchange for control of the business acquired. Acquisition costs, such as professional fees, do not 13 form part of the cost of the business combination, but are taken directly to the consolidated income statement. Where applicable, the contingent consideration is recognised at the acquisition-date fair value. Subsequent changes to the fair value of the contingent consideration are taken to the consolidated income statement unless this change arises within the one-year period established as the provisional accounting period, in which case the business combination will be modified. Goodwill is calculated as the excess of the aggregate of the consideration transferred, any non- controlling interests, and the fair value of any previously acquired interest less the net identifiable assets acquired. If the acquisition cost of the identifiable net assets is less than their fair value, the related difference is recognised in the consolidated income statement for the year. 2.6.6 Scope of consolidation The companies composing the Merlin Group at 31 December 2022, along with information relating to the consolidation method, are listed in Appendix I of the consolidated financial statements. 2.7 Quantitative and qualitative information on the impacts arising from COVID-19 and the war in Ukraine The evolution in 2022 of the health crisis caused by COVID-19 allowed the Group to complete the commercial measures it implemented in 2020 and 2021. In this regard, no specific trade measures were performed in 2022 due to the impact of COVID-19 on lessees, although the Group closely monitored the various risks that were highlighted by the health and economic crisis. In this regard, the fair value methodology for investment property was performed normally, without any independent appraisers including any uncertainty in the outcome of their assessment, the Group's liquidity risk is not significant, nor is the credit risk of its customers. On 24 February 2022, on the other hand, a war between Russia and Ukraine began with uncertain geopolitical consequences at the global level both in the short, medium and long-term. Although the Group does not have any activity in the countries where the war is concentrated, nor have its operations been significantly impacted, the Group constantly monitors its performance and its effect on the macroeconomic variables to which the sector in which the Group operates is usually sensitive. Measurement of fair value of investment property The Group adjusted the fair value of its real estate investments according to IAS 40. This fair value is determined using the reference of the valuations made by independent third parties every six months so that, at the close of each six-month period, the fair value reflects the market conditions of the elements of the investment properties at that date. At 31 December 2022, the valuations performed by CBRE Valuation Adviser, S.A., Jones Lang LaSalle, S.A. and Savills Consultores Inmobiliarios, S.A. did not indicate any type of uncertainty regarding the market value of the Group's investment property. The measurement methodology described in Note 7 was not changed. Meanwhile, the details of main assumptions used in the appraisals at December 2022 and December 2021 based on the nature of the assets and the sensitivities to increases and decreases of those variables are included in Note 7. 14 Liquidity risk In the opinion of the Parent's directors, the current economic situation of high inflation and interest rate increases by the central banks may have a significant impact on the overall financial position of the companies, which could be divided into the liquidity risk of the companies or groups and the liquidity risk of customers (credit risk). In this context, at 31 December 2022, the Group had a leverage ratio, understood as a debt to the fair value of the assets (LTV) of 32.7% (this ratio is obtained from dividing the Company's net debt between the fair value of the assets including transaction costs) and cash and cash equivalents (including treasury shares) of EUR 446,615 thousand. The only significant debt maturities faced by the Group over the next twelve months are in April 2023, due to the maturity of a bond amounting to EUR 743 million. However, the Group has a liquidity position, including the corporate credit line and unarranged financing, amounting to EUR 1,839 million (see Note 14) which ensures liquidity needs to cover the negative working capital presented by the Group at 31 December 2022 (411,292 thousands of euros). The Parent's Directors and Management Team are constantly monitoring the evolution of the current situation and the effects it may have on the credit market, and they believe that the Group's situation at 31 December 2022 ensure that it will be solvent to fulfil the obligations on the balance sheet at 31 December 2022, and there is no material uncertainty about the continuity of the Group's operations. Credit risk The Directors continued to assess the credit risk of their tenants as a result of the COVID-19 crisis, having discontinued in 2022 the rental subsidy policies implemented in 2020 and 2021 since no relevant risk was identified in this regard. With respect to the application of the simplified approach of impairment and credit risk, and also taking into consideration other differential factors of the Group's portfolio of tenants and the characteristics of their leases, and the amounts collected thus far, the Group has concluded that the increased credit risk of its customers has not been significantly affected, this risk falling below 1% of turnover. In relation to its other financial assets exposed to credit risk, which mainly correspond to loans to associates and third parties, the Directors of the Parent have determined that there has not been a significant increase in the risk, considering the measures agreed in some cases with tenants and the long-term expectations based on the historical experience with those entities, which make it possible to estimate that the credit risk will remain in line with the previous year. War conflict in Ukraine The war between Russia and Ukraine has caused, among many other aspects, significant fluctuations in the cost of raw materials and energy, putting global economic growth in significant difficulties. The evolution of the conflict is uncertain at present and given the complexity of the markets, as a result of their globalisation, the Group's operations are exposed, albeit indirectly, to the evolution and extent of the conflict in the coming months, and to the reaction and adaptation capacity of all impacted economic agents. Although the Group's operations have not been directly affected by the development of the conflict, nor by the international sanctions imposed, the indirect effects, such as price escalation, the impact on construction and financing costs and the increase in energy cost, are currently affecting all economic operators in the sector, and the directors are therefore closely monitoring the situation. 15 3. Changes in the scope of consolidation 2022 The following changes in the scope of consolidation took place in 2022. •Departure of Tree Inversiones Inmobiliarias Socimi, S.A. ("Tree") from the scope (discontinuation of the Net Lease Segment) On 1 February 2022, the Group sent BBVA a communication that included, among other aspects, a proposed sale of 100% of the shares of Tree Inversiones Inmobiliarias Socimi, S.A. in accordance with the right to vote held by BBVA, on 1 April 2022 the Group received a communication from BBVA on its acceptance of the proposed sale of Tree sale, which was subject, inter alia, to the approval of the Spanish National Market Commission and the Competition (CNMC). On 1 June 2022, the CNMC authorised the transaction and the sale was finalised on 15 June 2022. Based on the above, the sale price of Tree Inversiones Inmobiliarias Socimi, S.A. amounted to EUR 1,987,400 thousand, which after early settlement of the debt associated with Tree and the transaction costs, generating a gain at a consolidated level of EUR 215,452 thousand. In addition, Tree Inversiones Inmobiliarias Socimi, S.A. has contributed EUR 6,279 thousand to the results up to the date of the sale, after considering the effects of the liquidation of derivative financial instruments that it held, and those that it had due to the application of IFRS 9 in past refinancings in previous financial years. Prior to the sale, on 21 March 2022, Tree Inversiones Inmobiliarias Socimi, S.A. agreed to distribute a dividend of EUR 53,908 thousand to Merlin Properties Socimi, S.A. charged to profit for 2021. Based on the above, at 31 December 2022, said Net Lease line of activity is presented as discontinued in these consolidated annual accounts, having reexpresed the comparative information of the consolidated income statement and the consolidated statement of cash flows from the previous period. On 17 December 2021, the Group also sold 32 of its 33 premises in Catalonia, which, together with the bank branches leased to BBVA, were part of the Net Lease segment. The impact that the sale of Tree Inversiones Inmobiliarias Socimi, S.A. had on the consolidated income statement at 31 December 2022 (in thousands of euros) is shown below: Item Net Lease Profit/(Loss) after tax generated prior to disposal 6,279 Loss from disposal 215,452 Profit for the year from discontinued operations net of tax 221,731 16 The income, expenses and profit/(loss) before tax for the discontinued operations recognised in the consolidated income statement are as follows (in thousands of euros): Income statement December 2022 () December 2021 Net Income (Note 18.a) 38,104 85,373 Other operating expenses (Note 18.b) (1,231) 12 Impairment and gains or losses on disposal of non-current assets 101 5,957 Changes in value of investment property (Note 7) - (18,489) PROFIT/(LOSS) FROM OPERATIONS 36,974 72,853 Finance costs (Note 18.d) (53,852) (19,943) Changes in fair value in financial instruments (Notes 13.7 and 14.3) 23,157 62,719 FINANCIAL PROFIT/(LOSS) (30,695) 42,776 PROFIT BEFORE TAX ON DISCONTINUED OPERATIONS 6,279 115,629 Income tax (Note 17) - 1,228 PROFIT/(LOSS) FOR THE PERIOD CORRESPONDING TO DISCONTINUED OPERATIONS 6,279 116,857 () 5-month and 14-day period The net cash flows attributable to the operating, investment and financing activities of the discontinued activities are as follows (in thousands of euros): December 2022 () December 2021 CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES: 36,596 68,001 CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES: - 110,685 CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES: (174,872) (61,388) () 5-month and 14-day period •Entrants in the scope of consolidation On 27 July 2022, Slack Tailwind Systems, S.L.U and Slow Rise Spain, S.L.U. entered into the scope of consolidation. The Parent Company acquired 100% of the shares of both companies for EUR 3 thousand each. Subsequently, on 29 July and 15 September 2022, these companies have purchased, respectively, part of the Serantes building in Madrid (see Note 7), this asset being their most relevant contribution to the consolidated financial statements as of 31 December 2022. On 3 August 2022, the Parent acquired 100% of the share capital of Generous Profile Unipessoal Lda. for EUR 9 thousand. Subsequently, on 12 August 2022, Generous Profile Unipessoal Lda acquired the Liberdade 195 building (see Note 7), and this asset was the most significant contribution to the consolidated financial statements at 31 December 2022. 17 •Liquidation of PK Hoteles 22, S.L. In 2022 the shareholders at the General Meeting of PK Hoteles 22, S.L. unanimously resolved to liquidate the company, which is 32.50% owned by the Group. This transaction generated EUR 289 thousand in losses in the 2022 income statement. 2021 On 27 January 2021, Edged Spain, S.L.U. entered the scope of consolidation. The Parent Company acquired 100% of the shares for EUR 3 thousand and subsequently sold 50% to Edged Global Services Iberia, S.L.U. on 30 March 2021. Edged Spain, S.L.U. is a data processing centre services company. The contribution to the consolidated financial statements at 31 December 2022 and 2021 was not significant. 4. Distribution of the Parent's profit The distribution of profit proposed by the Parent's directors for approval by its shareholders at the Annual General Meeting is as follows: Thousands of Profit/(Loss) for the year 910,716 Distribution: To legal reserves 19,860 To offset interim dividend 444,815 Dividends 113,350 To voluntary reserves 332,691 Other dividends distributed On 4 May 2022, the General Shareholders Meeting approved the distribution of a dividend charged to "share premium" in the amount of EUR 106,497 thousand, and the distribution of an additional dividend charged to 2021 profit for EUR 10,614 thousand. On 28 July 2022, the Board approved the distribution of an interim dividend charged to earnings for 2022 in the amount of EUR 351,169 thousand. On 10 November 2022, the Board approved the distribution of a dividend of EUR 93,646 thousand charged to the profit for 2022. In the last five years, the Company distributed the following dividends and Share Premium refunds: 2022 2021 2020 2019 2018 Shareholder remuneration 561,926 210,099 68,518 232,347 215,364 .. 5. Accounting policies The main accounting policies and measurement bases applied in preparing the Group's consolidated financial statements, which comply with the IFRSs in force at that date, are as follows: 18 5.1 Investment property Investment property comprises buildings under construction and development for use as investment property held (by the owner or by the tenant as an asset under usage rights), which are partially or fully held to generate revenue, profits or both, rather than for use in the production or supply of goods or services, or for the Group's administrative purposes or sale in the ordinary course of business. All assets and usage rights (through the corresponding administrative concession or area right granted by a public body) classified as real estate investments are in operation with various tenants. These properties are earmarked for leasing to third parties. The Parent Company's directors do not plan to dispose of these assets in the coming 12 months and have therefore decided to recognise them as investment property in the consolidated statement of financial position. Investment property is carried at fair value at the reporting date and is not depreciated. Investment property includes land, buildings, usage rights of concessionaire projects and other constructions held to earn rentals or with the aim of achieving gains on the sale as a result of future increases in the respective market prices. Gains or losses arising from changes in the fair value of investment property are included in the income statement for the year in which they arise. While construction work is in progress, the costs of construction work and finance costs are capitalised. The above assets are recognised at fair value when they become operational. According to 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 items at that date. This fair value is determined every six months based on the appraisals undertaken by independent experts. The market value of the Group's investment property at 31 December 2022, calculated based on appraisals performed by JLL and CBRE, independent appraisers not related to the Group, amounted to EUR 10,558,975 thousand (see Note 7). 5.2 Inventories Land held for sale or integration into property development is considered as inventories. The Group considers that its inventories do not meet the requirements of IAS 40 for consideration as investment property. At 31 December 2022, certain land acquired in 2020 was recognised as inventories, which form part of an increased development area and are considered to be inventories as they are intended for sale. Pursuant to the future sale agreement reached with a third party, the land resulting in final residential use will be transferred to said third party, once all the buildable areas corresponding to each of the uses are finally assigned by the approved and registered Reparcelling Project. . In accordance with the above, the intended use of the land will be its recovery through sale, and the Group's objective is not to obtain rental income on the land. Therefore, they were recognised as inventories at the end of 2022. In relation to them, the Group has agreements with third parties for the future sale of those intended for residential use and for which it has received, as of 31 December 2022, advance payments amounting to 17,031 thousand euros that are recorded in the heading "Other Current Financial Liabilities" of the consolidated statement of financial position. The Group values its inventories at acquisition cost (or at market value if the latter is lower), including both the acquisition cost of the land and plots, the urban planning costs, the construction costs and the personnel directly related to the real estate activity, and, where applicable, financial expenses to the extent that those expenses correspond to the period of urban planning and construction, provided that they are inventories that need a period of more than one year to be able to be sold. If the inventories 19 are registered at a cost price higher than their market value, the appropriate valuation adjustments are made, recording the corresponding impairment. 5.3 Investments accounted for using the equity method At 31 December 2022, this heading in the consolidated statement of financial position included the amount corresponding to the percentage of shareholders' equity of the investee relating to the Parent and accounted for using the equity method once aligned to the accounting criteria applied by the Group. In addition, and after accounting for these investments using the equity method, the Group decides whether or not an additional impairment loss needs to be recognised as regards the Group's net investment in the associate. 5.4 Leases At the beginning of a contract, the Group assesses whether the contract is or contains a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The group reassesses whether a contract is, or contains, a lease only if the terms of the contract change. 5.4.1 Tenant For a contract containing a lease component and one or more additional leases or non-leases, the Group will distribute the consideration of the contract to each component of the lease based on the relative price regardless of the lease component and the aggregate price independent of the components that are non-lease components. The relative price, independent of the lease and non-lease components, will be determined based on the price that the landlord, or a similar supplier, would charge an entity separately for that component or for a similar component. If there is no readily available separate observable price, the Group will estimate the separate price, maximising the use of observable information. The Group chose not to apply the recognition and measurement requirements indicated in IFRS 16 to short-term leases in which the underlying asset is of low value, recognising the lease payments associated with leases as a straight-line expense over the lease term. Initial recognition At the commencement date, a tenant recognises a right-of-use asset and a lease liability. At the commencement date, a tenant will measure a right-of-use asset at cost. The cost of the right-of-use asset includes: a)the amount of the initial measurement of the lease liability measured at the commencement date at the present value of the lease payments that were not paid at that date. Lease payments will be discounted using the interest rate specified in the lease, if that rate could be easily determined. If that rate cannot be easily determined, the tenant will use the tenant's incremental loan rate. b.lease payments paid before or from the commencement date, less leases received; c.the initial direct costs incurred by the tenant; and 20 d.an estimate of the costs incurred by the tenant when dismantling and eliminating the underlying asset, restoring the location where it is located or restoring the underlying asset to the condition required by the terms of the lease, unless those costs are incurred to produce inventories. The tenant could incur obligations as a result of these costs either at the commencement date or as a result of using the underlying asset for a specified period. At the start date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date: a.fixed payments, less any leases receivable; b.variable lease payments, which depend on an index or rate, initially measured using the index or rate at the commencement date; c.amounts expected to be paid by the tenant as guarantees of residual value; d.the exercise price of a call option if the tenant is reasonably confident of exercising that option; e.late lease payments if the lease term reflects that the tenant will exercise an option to terminate the lease. Subsequent measurement of the right-of-use asset After the commencement date, the Group will measure its right-of-use assets using the cost model, unless it applies the fair value model of IAS 40 'Investment properties' to its investment properties and rights of use that meet the definition of investment property (see Note 5.1). If the right of use of the assets relates to a class of property, plant and equipment to which the tenant applies the revaluation model of IAS 16, the tenant may choose to use that revaluation model for all right-of-use assets of assets related to that class of property, plant and equipment. Subsequent measurement of lease liabilities After the commencement date, the Group will measure a lease liability by: a)increasing the carrying amount to reflect interest on the lease liability; b.reducing the carrying amount to reflect the lease payments paid; and c.re-measuring the carrying amount to reflect the new measurements or changes in the lease and also to reflect the essentially fixed lease payments that have been revised. 5.4.2 Landlord A landlord will classify each lease as an operating lease or a finance lease. A lease will be classified as a finance lease when it substantially transfers all the risks and rewards inherent to owning an underlying asset. A lease will be classified as an operating lease if it does not substantially transfer all the risks and rewards inherent to owning an underlying asset. Finance leases At the commencement of the lease term, the Group recognises finance leases in the consolidated statement of financial position at amounts equal to the fair value of the leased asset or, if lower, the 21 present value of the minimum lease payments. To calculate the present value of the lease payments the interest rate in the finance lease is used. The cost of assets acquired under finance leases is presented in the consolidated statement of financial position based on the nature of the leased asset. These assets relate in full to investment property and are measured in accordance with that in Note 5.1. Operating leases A landlord recognises lease payments from operating leases as income on a straight-line basis or on another systematic basis. The landlord will apply another systematic basis if it is more representative of the structure with which the profit from the use of the asset is reduced. In relation to the rent subsidies that the Group granted to certain tenants during the COVID-19 pandemic, they did not entail any contractual changes and, therefore, the accounting treatment given to the subsidies was to recognise lower income, and not accruing any impact on the balance sheet. The Group will recognise the costs as expenses, including depreciation, incurred to obtain the lease income. It will also add the initial direct costs incurred to obtain an operating lease to the carrying amount of the underlying asset and recognise these costs as an expense over the lease term, on the same basis as the lease income. 5.5 Financial instruments Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument. From 1 January 2018, the Group classified its financial assets in accordance with IFRS 9 "Financial Instruments". The classification of financial assets will depend both on how an entity manages its financial instruments (its business model) and on the existence and characteristics of the contractual cash flows of the financial assets. Based on the above, the asset is measured at amortised cost, at fair value through changes in other comprehensive income or at fair value through changes in profit or loss for the period, as follows: –If the objective of the business model is to hold a financial asset to collect contractual cash flows and, depending on the terms of the contract, cash flows that are solely payments of principal and interest on that principal are received on specified dates, the financial asset is measured at amortised cost. –If the objective of the business model is both to collect contractual cash flows and sell financial assets and, depending on the terms of the contract, cash flows that are solely payments of principal and interest on that principal are received on specified dates, the financial asset is measured at fair value through other comprehensive income (equity). Outside these scenarios, the remaining assets will be measured at fair value through changes in losses and gains. All equity instruments (e.g. shares) are, by default, measured in this category. This is because their contractual flows do not meet the characteristic of being only payments of principal and interest. Financial derivatives are also classified as financial assets at fair value through profit or loss unless they are designated as hedging instruments. For the purposes of measurement, financial assets should be classified into one of the following categories, with the accounting policies of each category being as follows: 1.Financial assets at amortised cost: these assets are subsequently recognised at their initial cost amortised in accordance with the effective interest method. This amortised cost will be reduced by any impairment loss. They are recognised in the consolidated income statement for the period when the financial asset is de-recognised or impaired, or due to exchange 22 differences. Interest calculated using the effective interest method is recognised in the income statement under the heading 'Financial income'. 2.Financial assets at fair value with profit or loss: financial assets at fair value with profit or loss are recognised initially and subsequently at fair value, excluding transaction costs, which are charged to the income statement. Gains or losses from changes in fair value are presented in the income statement under the heading 'Changes in the fair value of financial instruments' in the period in which they originated. Any dividends and interest also leads to financial results. 3.Debt instruments at fair value with changes in total profit or loss: These instruments are subsequently recognised at fair value, recognising changes in fair value in 'Other comprehensive income'. Interest income, impairment losses and exchange differences are recognised in the consolidated income statement. When sold or derecognised, the accumulated fair value adjustments recognised in "Other comprehensive income" are included in the income statement as 'other financial income/(expenses)'. 4.Equity instruments at fair value with changes in total profit or loss: They are subsequently measured at fair value. Dividends are only recorded in profits and loss, unless the dividends clearly represent a recovery in the cost of the investment. Other gains or losses are recognised as 'Other comprehensive income' and are never reclassified as profit or loss. 5.Financial assets at cost: Financial assets that should be classified in the above category, but their fair value cannot reliably be estimated. Impairment of financial assets The impairment model applies to financial assets measured at amortised cost that include the item "Customers and other receivables". The impairment model is based on a dual measurement approach, under which there will be an impairment provision based on expected losses over the next 12 months or based on expected losses over the entire life of the asset. The fact that determines the transition from the first approach to the second is that there is a significant decline in creditworthiness. The deterioration of the Group's receivables was not significant, taking into account that the risk of default was less than 1% of turnover and that the Group has deposits from its tenants to secure its loans. Financial liabilities The main financial liabilities held by the Group companies are held-to-maturity financial liabilities, which are measured at amortised cost. The financial liabilities held by the Group companies are classified as: 1.Bank loans and other loans: loans from banks and other lenders are recognised by the proceeds received, net of transaction costs. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the term of the borrowings using the effective interest method. Financial debt is eliminated from the consolidated statement of financial position when the obligation specified in the agreement is paid, cancelled or expired. The difference between the carrying amount of a financial liability that has been cancelled or transferred to another party and the consideration paid, including any transferred assets other than the cash or liabilities assumed, is recognised in profit or loss for the year as other financial income or expenses. 23 Exchanges of debt instruments between the Group and the counterparty or substantial changes in the liabilities initially recognised are accounted for as a cancellation of the original liability and the recognition of a new financial liability, provided that the instruments have substantially different terms. The Group considers that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least ten per cent different from the discounted present value of the remaining cash flows of the original financial liability. If the exchange is recognised as a cancellation of the original financial liability, the costs or fees are recognised in the consolidated income statement as part of the consolidated income statement. Otherwise, the modified flows are discounted at the original effective interest rate, recognising any difference with the prior carrying amount, in profit or loss. Likewise, the costs or fees adjust the carrying amount of the financial liability and are amortised by the amortised cost method for the remaining life of the modified liability. The Group recognises the difference between the carrying amount of a financial liability or the part of it cancelled or transferred to a third party and the consideration paid, including any assets transferred other than the cash or liabilities assumed in profit or loss. The Group will account for exchanges of debt instruments with a lender, provided that the instruments have substantially different conditions, such as a cancellation of the original financial liability and subsequent recognition of a new financial liability. Similarly, a substantial change in the terms of an existing financial liability or a part of it will be recognised as a cancellation of the original financial liability and a subsequent recognition of a new financial liability. The difference between the carrying amount of the cancelled financial liability and the consideration paid, which includes any transferred assets other than cash or any liabilities assumed, will be recognised in profit or loss for the year. If it is determined that the new terms or changes of a financial liability are not substantially different from the existing ones and it is therefore determined that the change is not substantial, the existing financial liability will not be derecognised. The Group will recalculate the gross carrying amount of the financial liability and recognise a change gain or loss in profit/(loss). The gross carrying amount of the financial liability will be recalculated as the present value of the renegotiated or modified contractual cash flows discounted at the original effective interest rate of the financial liability. 2.Trade and other payables: trade payables are initially recognised at fair value and are subsequently measured at amortised cost using the effective interest method. The Group derecognises financial liabilities when the obligations giving rise to them cease to exist. 5.6 Derivative financial instruments and hedge accounting The Group uses derivative financial instruments to hedge the risks to which its future activities, transactions and cash flows are exposed. These risks are mainly due to changes in interest rates. Among the various transactions, the Group uses certain financial instruments as economic hedges. Derivatives are initially recognised at fair value on the date on which the derivative contract is signed and are subsequently measured at fair value at each reporting date. Subsequent changes in fair value are recognised depending on whether the derivative has been designated as a hedging instrument and, if so, on the nature of the item being hedged. At the beginning of the hedging relationship, the Group documents the economic relationship between the hedging instruments and the hedged items, including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of the hedged items. The Group documents its risk management objective and strategy to undertake its hedge transactions. 24 The effective part of the changes in the fair value of the derivatives that are designated and classified as cash flow hedges is recognised in the cash flow hedge reserve under equity. The loss or gain relating to the ineffective part is immediately recognised in the consolidated income for the year under 'Changes in the fair value of financial instruments' in the consolidated income statement. Gains or losses relating to the effective part of the change in the intrinsic value of the option agreements are recognised in the cash flow reserve hedge under equity. Changes in the time value of option agreements that relate to the hedged item ('aligned time value') are recognised under other comprehensive income in the costs of the hedge reserve in equity. When forward contracts are used to hedge expected transactions, the Group generally designates only the change in the fair value of the forward contract related to the cash component as the hedging instrument. Gains or losses related to the effective part of the change in the cash component of forward contracts are recognised in the cash flow hedge reserve under equity. The change in the forward element of the contract related to the hedged item is recognised in other comprehensive income on the costs of the hedge reserve under equity. In some cases, the gains or losses corresponding to the effective part of the change in fair value of the full term contract are recognised in the cash flow hedge reserve under equity. –Cash flow hedges: In hedges of this nature, the portion of the gain or loss on the hedging instrument that has been determined to be an effective hedge is recognised temporarily in equity and is recognised in the income statement in the same period during which the hedged item affects profit or loss, unless the hedge relates to a forecast transaction that results in the recognition of a non-financial asset or a non-financial liability, in which case the amounts recognised in equity are included in the initial cost of the asset or liability when it is acquired or assumed. –Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gains or losses on the hedging instrument recognised in equity are retained in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and provided that the host contracts are not measured at fair value by recognising changes in fair value in the consolidated statement of comprehensive income. The fair value of the derivative financial instruments is calculated using the valuation techniques described in Note 5.7 below. 5.7 Valuation techniques and applicable assumptions to measure fair value The fair value of financial assets and liabilities is calculated as followed: –The fair value of financial assets and liabilities with standard terms and that are traded on active, liquid markets is calculated by reference to prices quoted in the market. –The fair value of financial assets and liabilities (except derivative instruments) is calculated in accordance with the generally accepted valuation models based on discounted cash flows using the prices of observable market transactions and the contributor prices of similar instruments. –The fair value of interest rate swaps is calculated by discounting future settlements between fixed and floating interest rates to their present value, in line with implicit market interest rates, obtained from long-term interest rate swap curves. Implicit volatility is used to calculate the fair values of caps and floors using option valuation models. 25 Likewise, in the valuation of derivative financial instruments, the risk inherent to the element or position hedged must be effectively eliminated during the entire expected term of the hedge and there must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effectiveness was intended to be achieved and measured. Moreover, pursuant to IFRS 13 and due to the inherent risk, the credit risk of the parties to the contract (both their own risk and that of the counterparty) must be included in the valuation of the derivatives. The Group applied the discounted cash flow method, considering a discount rate affected by the Merlin Group's own credit risk. Valuation methodology for the embedded Tree derivative Until the date of sale of TreeIn particular for the measurement of the implicit derivative of the income, the Group based its estimate on the future total income arising from the agreement adjusted by the counterparty's credit risk. The estimate of future rental income was based on the eurozone inflation swaps (harmonised CPI in the euro area excluding tobacco) at the time of the analysis, and it considered the credit risk of the corresponding counterparty. The measurement approach used was based on the discounted cash flow model. The following information was used in determining the value of the embedded income derivative (see Note 10): –Forward curve of the consumer price index of the Euro area without tobacco (HICP). –Volatility of the HICP to calculate the value of the land (0%) included in leases. –EUR discount factors for calculating the present value of future income (sum of the components of future income and value of land). –Credit risk charges (Credit Default Swap) for the calculation of the adjustment for the value of the counterparty's credit risk (CVA). HICP forward curve For the construction of the curve, the 30-year zero coupon swap was used. From year to year, the annual rates were integrated and interpolated, applying seasonality adjustments, to obtain the forward rate curve. HICP volatility 0% was taken as an initial premium for land. Subsequently, the volatility of each future settlement or forward year by year (floorlet) was calculated. Once the volatilities and forward rates were available, the amount of the land component was determined. EUR discount factors Since the market standard requires swap derivatives to be discounted at the Overnight indexed swap rate, both Euribor and Eonia rates were included in the yield curve data. The yield curve data used for the calculations were: –Deposit fees: 1D, 2D, 3D –Fixing of the Euribor: 1M, 3M and 6M –Euribor Futures: between 6M and 2Y –Euribor Swap Rates: from 2Y to 30Y –EONIA swap base fees: up to 30Y 26 –Credit Default Swap (CDS) rates –CDS market data were used and interpolated for the specific deadlines or periods of the rents. We used the 'Current Exposure Method' to calculate the CVA. After the sale of the Net Lease segment, the Group no longer had any additional income derivatives at 31 December 2022. 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: those measured using quoted prices (unadjusted) in active markets for identical assets or liabilities. –Level 2: those measured using 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: those measured using valuation techniques, including 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 31 December 2022: 2022 Thousands of euros Level 1 Level 2 Level 3 Total Derivative financial instruments (Note 14.3) - (11) (9,256) (9,267) Financial instruments - assets (Note 14.3) - 18,882 - 18,882 - 18,871 (9,256) 9,615 2021 Thousands of euros Level 1 Level 2 Level 3 Total Derivative financial instruments (Note 14.3) - (79,754) (15,134) (94,888) Embedded derivatives (Note 10) - 167,080 - 167,080 Financial assets at fair value through profit or loss (Note 10) - - 80,964 80,964 - 87,326 65,830 153,156 In addition, Note 7 includes information regarding the determination of the fair value of investment property. 5.8 Equity instruments An equity instrument is a contract that evidences a residual interest in the assets of the Parent after deducting all of its liabilities. Capital instruments issued by the Parent are recognised in equity at the proceeds received, net of issue costs. 27 The Parent Company's equity instruments acquired by the Group are recognised separately at cost and deducted from equity in the consolidated statement of financial position, regardless of why they were acquired. No gains or losses from transactions involving own equity instruments are recognised in the consolidated income statement. The subsequent amortisation of the equity instruments of the Parent gives rise to a capital reduction for the nominal amount of said shares and the positive or negative difference between the acquisition price and the nominal value of the shares is charged or credited to accounts of reserves. The transaction costs related to own equity instruments are recognised as a decrease in equity, net of any related tax effect. 5.9 Distributions to shareholders Dividends are paid in cash and recognised as a reduction in equity when the pay-outs are approved by shareholders at the Annual General Meeting. The Parent Company is subject to the special regime for REITs. As in Article 6 of Law 11/2009, of 26 October 2009, amended by REITs Act 2012 opting to pay tax under the special tax regime are required to distribute the profit generated during the year to shareholders as dividends. Once the corresponding commercial obligations have been fulfilled, said distribution must be agreed within six months from year end, and the dividends paid within 30 days from the date on which the pay-out is agreed. Moreover, as specified in Law 11/2009, of 26 October 2009, amended by Law 16/2012, of 27 December, the Parent must distribute the following as dividends: •100% of the profit from dividends or shares in profits distributed by the entities referred to in section 1, Article 2 of Law 11/2009. •At least 50% of the profits arising from the transfer of the properties, shares or ownership interests referred to in section 1, Article 2 of Law 11/2009, subsequent to expiry of the time limits referred to in section 2, Article 3 of Law 11/2009, which are used for pursuit of the entities' principal corporate purpose. The remainder of these profits must be reinvested in other property or investments used for the pursuit of said activity within three years after the transfer date. Otherwise these profits should be distributed in full together with any profit arising in the year in which the reinvestment period expires. If the items to be reinvested are transferred prior to the end of the holding period, that profit must be distributed in full together with, if applicable, the profit generated during the year in which the items were transferred. The obligation to distribute profit does not apply to the portion of the profit attributable to prior years in which the Company was not included under the special tax regime in this Act. •At least 80% of the remaining profits obtained. When dividend distributions are charged to reserves generated from profits in a year in which the special tax regime applied, the distribution must necessarily be approved as set out above. 5.10 Cash and cash equivalents The Group includes under this heading cash and short-term highly liquid investments maturing in less than three months that are readily convertible to cash and which are subject to an insignificant risk of changes in value. The interest income associated with these transactions is recognised as income when accrued while unmatured interest is presented in the consolidated statement of financial position as an addition to the balance of the above heading. 28 5.11 Provisions When preparing the consolidated financial statements the Parent's directors made a distinction between: •Provisions: credit balances covering present obligations arising from past events with respect to which it is probable that an outflow of resources embodying economic benefits that is uncertain as to its amount and/or timing will be required to settle the obligations; and •Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the Group's control. The consolidated financial statements include all the provisions with respect to which it is likely that the obligation will have to be settled. Contingent liabilities are not recognised in the consolidated financial statements but rather are disclosed in the notes to the consolidated financial statements, unless the possibility of an outflow in settlement is considered to be remote. Provisions are measured at the present value of the best possible estimate of the amount required to settle or transfer the obligation, taking into account the information available on the event and its consequences. Where discounting is used, adjustments made to provisions are recognised as finance cost on an accrual basis. The compensation receivable from a third party on settlement of the obligation is recognised as an asset, provided there is no doubt that the reimbursement will take place, unless there is a legal relationship whereby a portion of the risk has been externalised, as a result of which the Group is not liable, in which case, the compensation will be taken into account when estimating, if appropriate, the amount of the related provision. 5.12 Revenue recognition Revenue and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Rental income is measured at the fair value of the consideration received, net of discounts and taxes. Discounts (rent waivers and rebates) granted to lessees are recognised as a reduction in rental income when it is probable that conditions precedent will be fulfilled requiring them to be granted. Discounts are recognised by expensing the total rent waiver or rebate on a straight-line basis over the term of the lease in force. If a lease is cancelled earlier than expected, any outstanding rent waiver or rebate is recognised in the last period prior to the end of the agreement. Leasing of investment property to third parties The Group companies' principal activity comprises the acquisition and leasing of primarily Shopping centres, logistics units and offices. The Group's ordinary income is generated from the leasing of this investment property to third parties. Ordinary income from the leasing of investment property is recognised taking into account the stage of completion of the transaction at the reporting date, provided the result of the transaction can be reliably estimated. Income from the Group's leases is recognised by Group companies on a monthly basis pursuant to the conditions and amounts agreed with the lessees in the various agreements. This income is only recognised when it can be measured reliably and it is probable that the economic benefits from the lease will be received. Where the outcome of services rendered cannot be measured reliably, revenue is recognised to the extent that the expenses incurred are deemed recoverable. 29 Service charges re-billed to lessees are recognised net of other operating expenses. 5.13 Income tax 5.13.1 General regime Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). The current income tax expense is the amount payable by the Group as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and pre- payments, and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense. The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences, unless the temporary difference arises from the initial recognition of goodwill, goodwill for which amortisation is not deductible for tax purposes or the initial recognition of other assets and liabilities in a transaction that affects neither accounting profit (loss) nor taxable profit (tax loss). Deferred tax assets are recognised for temporary differences to the extent that it is considered probable that the consolidated companies will have sufficient taxable profits in the future against which the deferred tax asset can be utilised, and the deferred tax assets do not arise from the initial recognition of other assets and liabilities in a transaction that affects neither accounting profit (loss) nor taxable profit (tax loss). The other deferred tax assets (tax loss, temporary differences and tax credit carryforwards) are only recognised if it is considered probable that the consolidated companies will have sufficient future taxable profits against which they can be utilised. The deferred tax assets recognised are reassessed at the end of each reporting period and the appropriate adjustments are made to the extent that there are doubts as to their future recoverability. Also, unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that they will be recovered through future taxable profits. 5.13.2 REIT regime The REIT special tax regime, as amended by Law 16/2012 of 27 December, is based on a 0% corporate income tax rate, provided certain requirements are met. Particularly noteworthy amongst those conditions is that at least 80% of income must come from urban real estate used for leasing purposes and acquired in full ownership or through holdings in Spanish or foreign companies, regardless of whether or not they are listed on organised markets, that meet the same investment and profit distribution requirements. Likewise, the main sources of income for these entities must come from the real estate market, either through leasing the properties, their subsequent sale after a minimum lease period, or the income generated from holdings in entities with similar characteristics. Nevertheless, tax is accrued in proportion to dividend distributions. Dividends received by the shareholders are exempt, unless the recipient is a legal person subject to corporate income tax or a permanent establishment of a foreign entity, in which case a deduction in the tax liability is established, so that these earnings are taxed at the shareholder's rate. However, the remaining earnings must be not be taxed provided that they are not distributed to shareholders. As in Transitional Provision Nine of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, which regulate REITs, the entity will be subject to a special tax rate of 19% on the total dividends or profit shares distributed to shareholders with a shareholding in the entity of 5% or more, 30 when these dividends are exempt or taxed at a rate below 10% in the shareholders. The Group has therefore established the procedure guaranteeing confirmation by shareholders of their tax rate, proceeding where applicable, to withhold 19% of the dividend distributed to shareholders that do not meet the above tax requirements. With effect for financial years beginning on or after 1 January 2021, Law 11/2021, of 9 July, on measures to prevent and combat tax fraud amended Article 9 (4) of Spanish Law 11/2009, of 26 October, regulating REITs. Specifically, a special tax of 15% was introduced on the amount of profit obtained in the year which is not distributed, in the portion that arises from: a) income that has not been taxed at the general corporate income tax rate and, b) income that does not arise from the transfer of eligible assets, once the three-year maintenance period has elapsed, which has been included in the three-year reinvestment period in Article 6.1.b) of Law 16/2012, of 27 December. This special tax will be considered corporate income tax and will accrue on the day of the agreement to apply profit for the year by the general shareholders meeting or equivalent body. The self-assessment and payment of the tax must be performed within two months of the accrual. 5.14 Share-based payments The Parent Company recognises, on the one hand, the goods and services received as an asset or as an expense, depending on their nature, when they are received and, on the other, the related increase in equity, if the transaction is equity-settled, or the related liability if the transaction is settled with an amount based on the value of the equity instruments. In the case of equity-settled transactions, both the services rendered and the increase in equity are measured at the fair value of the equity instruments granted, by reference to the grant date. In the case of cash-settled share-based payments, the goods and services received and the related liability are recognised at the fair value of the latter, by reference to the date on which the requirements for recognition are met. 2017-2019 Incentive Plan Also, at the General Meeting held on 26 April 2017, the shareholders approved a remuneration plan for the management team and other important members of the Group's workforce, the measurement period of which is from 1 January 2017 to 31 December 2019 (the "2017-2019 Incentive Plan"). According to the plan, the members of the management team may be entitled to receive: (i) a certain monetary amount in accordance with the increase of the share price and (ii) Parent Company shares, if certain objectives are fulfilled, referenced against the EPRA NAV. In this regard, in 2022 the Group recorded an expense in the amount of EUR 1,210 thousand corresponding to the last tranche accrued by the 2017-2019 Incentive Plan, with a counterpart charge to reserves ending the plan and its registration. 2022 – 2024 Incentive Plan The General Shareholder Meeting held on 4 May 2022 approved a long-term incentive plan consisting of the delivery of a maximum number of MERLIN Properties, SOCIMI, S.A. ordinary shares equal to 3,491,767 shares (representing 0.74% of the share capital), aimed at the members of the management and management team of the MERLIN Group, including the executive directors of the Parent (LTIP 2022-2024). The LTIP will be implemented through a performance share single cycle plan with a target measurement period of 3 years; beginning on 1 January 2022 and ending on 31 December 2024 and will be payable through the delivery of shares of the Parent in 2025, once (i) compliance with the specific targets established for 2022-2024 has been verified and (ii) the beneficiary has remained in the MERLIN Group. 31 With respect to the targets or metrics to which the plan is linked (see Note 20), it includes market and non-market conditions. With respect to the market condition 'Total shareholder profitability,' the Group applied a valuation methodology for the underlying assets on the date of delivery of the incentive associated with the Monte Carlo simulation method. The Monte Carlo simulation is a statistical method applied to the financial modelling on the probability of different results where a random or independent variable comes into play. In this regard, the Monte Carlo simulation method applied by the Group was based on a Brownian motion model, which makes it possible to simulate the possible paths that the underlying asset can follow (price of Merlin's share and EPRA Nareit Development Europe index) from the repetition of random samples to obtain different numerical results. For the development of the simulation, the generation of the random variable was performed by applying a standard normal distribution N (0.1). To this end, the average or expected value corresponding to the spot price of the Merlin share was established at the date of communicating the incentive and a standard deviation to describe the change as regards the average, based on the volatility of the share. With respect to the non-market conditions of i) EPRA NTA, ii) Net carbon and environment emissions and iii) the Environment and Company, the Group estimated its compliance with them at each measurement date during the term of the plan with the best information available. 5.15 Employee obligations Under current labour legislation, the Group companies are required to pay termination benefits to employees terminated under certain conditions. When a restructuring plan is approved by the directors, made public and communicated to employees, the Group recognises the provisions required to meet any future payments resulting from their application. These provisions are calculated in accordance with the best estimates available of the foreseeable costs. In this sense, at 31 December 2022, the Group does not have commitments for this item, and there is no Downsizing Plan in force. 5.16 Current assets and liabilities The Group classifies its assets and liabilities as current and non-current in the consolidated statement of financial position. To this end, current assets and current liabilities are those that meet the following criteria: •Assets are classified as current when they are expected to be realised, or are intended for sale or consumption, during the course of the Group's normal operating cycle, when they are held primarily for the purpose of being traded, when they are expected to be realised within twelve months after the reporting date, or when they constitute cash or a cash equivalent, unless they are restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. •Liabilities are classified as current when they are expected to be settled during the course of the Group's normal operating cycle, when they are held primarily for the purpose of being traded, when they are expected to be settled within twelve months after the reporting date, or when the Group does not have an unconditional right to defer repayment of the liability for at least twelve months after the reporting date. •Derivative financial instruments not held for trading are classified as current or non-current according to the period of maturity or periodic settlement. 32 5.17 Segment information The Group groups its segments based on the nature of the assets in the various areas in which it implements its strategy. In this sense, each operating segment is a component of the Group that performs business activities from which it can earn revenue and incur expenses. The operating results of each segment are regularly reviewed by the Group's management to decide on the resources to be allocated to each segment, assess its performance and for which differentiated financial information is available. 5.18 Earnings per share Basic earnings per share are calculated by dividing net profit or loss attributable to the Parent shareholders by the weighted average number of ordinary shares outstanding during the year, excluding the average number of shares of the Parent held by the Group companies. For the calculation of the diluted profit per share, the Group calculates the amounts of the diluted earnings per share for the profit for the year attributable to the shareholders of the Parent and, where applicable, the profit for the year of the ongoing activities attributable to those holders of equity instruments. To calculate the diluted earnings per share, the Group takes the profit or loss for the year attributable to the holders of ordinary equity instruments and the weighted average number of shares in circulation for all the dilutive effects inherent to the potential ordinary shares. 5.19 Environment The Group performs activities whose primary purpose is to prevent, mitigate or repair environmental damage caused by its operations, see climate change management policies in Note 23. Expenses incurred in connection with these environmental activities are recognised as other operating expenses in the year in which they are incurred. However, because of their nature, the Group's business activities do not have a significant environmental impact. 5.20 Consolidated statements of cash flows The following terms are used in the consolidated statements of cash flows (prepared using the indirect method) with the meanings specified: 1.Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value. 2.Operating activities: the principal revenue-producing activities of the entities composing the consolidated Group and other activities that are not 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 liabilities that are not operating activities. 5.21 Discontinued Business A discontinued business is any component of the Group that has been sold or otherwise arranged, or that has been classified as held for sale and, among other conditions, represents a significant business line or area that can be considered separate from the rest. For these types of transactions, the Group included in the consolidated income statement and in a single line item entitled "Profit/(Loss) for the period from discontinued operations net of tax" both the 33 profit/(loss) after tax on discontinued activities and the profit/(loss) after tax recognised by fair value measurement less costs to sell or by the disposal of the items constituting the discontinued activity. In addition, when transactions are classified as discontinued, the Group presents in the above accounting item the amount of the previous year corresponding to the activities that were discontinued on the closing date of the corresponding consolidated financial statements. At the beginning of 2022, the Group identified the activity called Net Lease as a discontinued segment, given its commitment to divestment in the short term. On 31 December 2022, the above divestment process was completed by adjusting comparative financial information to the reporting requirements for discontinued activities (see Note 3). 6. Segment reporting a) Basis of segmentation Group management has segmented its activities into the business segments detailed below according to the type of assets acquired and managed: –Office buildings –Shopping centres –Logistics assets –Others: Assets not included in the above segments, which mainly correspond to 3 hotels, land held for non-strategic purposes and other smaller assets. Any revenue or expense that cannot be attributed to a specific line of business or relate to the entire Group are attributed to the Parent as a "Corporate unit/Other", as are the reconciling items arising from the reconciliation of 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 performed its business activities in Spain and Portugal in the year ended 31 December 2022. b) Basis and methodology for business segment reporting The segment information below is based on monthly reports prepared by Group management and is generated using the same computer application that prepares all the Group's accounting information. The accounting policies applied to prepare the segment information are the same as those used by the Group, as described in Note 5. Segment revenue relates to ordinary revenue directly attributable to the segment plus the relevant proportion of the Group's general income that can be allocated on a reasonable basis to that segment. Ordinary revenue of each segment does not include interest or dividend income, gains on the disposal of investment property, debt recoveries or cancellation. Segment expenses are calculated as the directly attributable expenses incurred in the operating activities, plus the corresponding proportion of the expenses that can be reasonably allocated to the segment. The segment profit or loss is presented before any adjustment for non-controlling interests. 34 Segment assets and liabilities are those directly related to each segment's operations, plus the assets and liabilities that can be directly attributed thereto using the above allocation system, and include the proportional part of the assets and liabilities of joint ventures. Segment reporting Segment information about these businesses at 31 December 2022 is presented below: Thousands of euros 2022 Office buildings Shopping centres Logistics Other Corporate Unit Group total Revenue from non-Group customers Rental income 230,438 114,481 70,882 12,353 - 428,154 Services rendered 7,862 1,471 - - 1,551 10,884 Net income 238,300 115,952 70,882 12,353 1,551 439,038 Other operating income 934 318 356 2 1,040 2,650 Staff costs - - - - (39,673) (39,673) Operating expenses (31,605) (17,282) (2,532) (3,509) (18,890) (73,818) Gains or losses on disposals of non-current assets 3,985 544 (13) 7,045 - 11,561 Depreciation and amortisation charge (548) - - (13) (1,324) (1,885) Allocation/Excess provisions - - - - (160) (160) Changes in fair value of investment property (149,149) (81,387) (16,374) (2,362) - (249,272) Profit/(Loss) from operations 61,917 18,145 52,319 13,516 (57,456) 88,441 Changes in fair value of financial instruments - Other - - 6,965 - 34,261 41,226 Finance income - - - - 3,942 3,942 Finance expenses (295) - (4,546) - (104,362) (109,203) Gains on disposal of financial instruments - - - - (283) (283) Share of results of companies accounted for using the equity method - - - - 24,033 24,033 Profit/(Loss) before tax 61,622 18,145 54,738 13,516 (99,865) 48,156 Income tax (3,316) 1,174 (253) - (4,405) (6,800) Profit/(Loss) for the year 58,306 19,319 54,485 13,516 (104,270) 41,356 35 Thousands of euros At 31 December 2022 Office buildings Shopping centres Logistics Other Corporate Unit Group total Investment property 6,509,874 2,134,503 1,672,451 397,372 - 10,714,200 Non-current financial assets- 25,990 29,384 14,668 394 140,612 211,048 Derivatives - - 6,084 - 12,798 18,882 Other financial assets 25,990 29,384 8,584 394 127,814 192,166 Deferred tax assets 876 79 3,580 - 74,111 78,646 Other non-current assets 4,200 18 - 1,454 502,697 508,369 Non-current assets 6,540,940 2,163,984 1,690,699 399,220 717,420 11,512,263 Trade receivables 13,838 15,592 7,297 3,487 9,626 49,840 Other current financial assets 111 181 (1) 3,748 (1,079) 2,960 Other current assets 38,932 31,750 20,419 1,800 393,519 486,420 Current assets 52,881 47,523 27,715 9,035 402,066 539,220 Total assets 6,593,821 2,211,507 1,718,414 408,255 1,119,486 12,051,483 Non-current bank borrowings and debenture issues 13,196 - 68,427 - 3,387,577 3,469,200 Other non-current liabilities 336,026 222,558 86,470 25,758 111,735 782,547 Non-current liabilities 349,222 222,558 154,897 25,758 3,499,312 4,251,747 Current liabilities 48,861 31,526 29,839 8,518 831,768 950,512 Total liabilities 398,083 254,084 184,736 34,276 4,331,080 5,202,259 Segment information about these businesses at 31 December 2021 is presented below: 36 Thousands of euros 2021 () Office buildings Shopping centres Logistics Other Corporate Unit Group total Revenue from non-Group customers Rental income 217,809 89,645 63,033 6,604 - 377,091 Services rendered 3,739 699 - - 1,301 5,739 Net income 221,548 90,344 63,033 6,604 1,301 382,830 Other operating income 1,962 670 973 43 629 4,277 Staff costs - - - - (40,779) (40,779) Operating expenses (28,038) (17,687) (4,480) (2,034) (16,355) (68,594) Gains or losses on disposals of non-current assets (846) (137) (1,024) 107 - (1,900) Depreciation and amortisation charge (609) - - (13) (1,236) (1,858) Excess provisions - - - - 1,169 1,169 Changes in fair value of investment property 30,947 (36,023) 206,989 (6,416) - 195,497 Negative goodwill on business combinations - - - - - - Profit/(Loss) from operations 224,964 37,167 265,491 (1,709) (55,271) 470,642 Changes in fair value of financial instruments - - 1,184 - 9,168 10,352 Finance income - - - - 5,421 5,421 Finance expenses (288) - (1,801) - (114,369) (116,458) Gains on disposal of financial instruments - - - - (1,347) (1,347) Share of results of companies accounted for using the equity method - - - - 34,560 34,560 Profit/(Loss) before tax 224,676 37,167 264,874 (1,709) (121,838) 403,170 Income tax (2,166) 405 - - (6,049) (7,810) Profit/(Loss) for the year 222,510 37,572 264,874 (1,709) (127,887) 395,360 () Reexpresed information 37 Thousands of euros At 31 December 2021 Office buildings Net Lease () Shopping centres Logistics Other Corporate Unit Group total Investment property 6,538,755 1,607,538 2,200,030 1,548,169 402,764 - 12,297,257 Non-current financial assets- 20,756 178,578 23,667 8,669 523 127,597 359,791 Derivatives - 167,080 - - - - 167,080 Other financial assets 20,756 11,498 23,667 8,669 523 127,597 192,711 Deferred tax assets 1,009 3,685 80 3,668 — 75,367 83,808 Other non-current assets 4,508 - 28 2,528 1,273 485,201 493,538 Non-current assets: 6,565,028 1,789,801 2,223,805 1,563,034 404,561 688,165 13,234,394 Trade receivables 9,415 897 13,707 6,046 2,093 7,468 39,626 Other current financial assets 182 520 231 121 9 81,855 82,919 Other current assets 51,292 26,543 185,606 30,809 47 621,601 915,898 Current assets 60,889 27,961 199,544 36,976 2,148 710,925 1,038,443 Total assets 6,625,917 1,817,762 2,423,349 1,600,010 406,710 1,399,090 14,272,837 Non-current bank borrowings and debenture issues 14,911 682,867 - 69,048 - 4,891,884 5,658,709 Other non-current liabilities 330,679 43,186 223,080 78,051 18,643 156,937 850,576 Non-current liabilities 345,590 726,053 223,080 147,099 18,643 5,048,821 6,509,285 Current liabilities 36,374 14,212 23,438 9,871 7,910 644,825 736,630 Total liabilities 381,964 740,265 246,518 156,970 26,553 5,693,646 7,245,915 () Discontinued and sold in 2022 C) Geographical segment reporting For the purposes of geographical segment reporting, segment revenue is grouped according to the geographical location of the assets. Segment assets are also grouped according to their geographical location. The following tables summarises ordinary income and non-current investment property for each of the assets held by the Group by geographical area: 2022 Thousands of euros Rental income % Investment property % Madrid 208,192 50% 5,954,945 56% Catalonia 64,914 13% 1,522,841 14% Andalusia 19,951 5% 298,314 3% Valencia 16,662 4% 294,782 3% Galicia 16,823 4% 302,041 3% Castille-La Mancha 23,757 6% 631,589 6% Basque Country 11,926 3% 273,138 3% Rest of Spain 8,755 2% 196,049 2% Portugal 57,174 13% 1,240,501 12% Total 428,154 100% 10,714,200 100% 38 2021 Thousands of euros Leasing income (a) % Investment property (b) % Madrid 213,591 46% 6,668,450 54% Catalonia 75,608 16% 1,760,543 14% Andalusia 23,928 5% 449,825 4% Valencia 19,723 4% 413,908 3% Galicia 17,525 4% 376,309 3% Castille-La Mancha 21,638 5% 632,594 5% Basque Country 17,685 4% 388,563 3% Rest of Spain 28,331 6% 669,044 5% Portugal 44,434 10% 1,105,101 9% Total 462,463 100% 12,464,337 100% (a) Includes lease income for discontinued activities in 2021 amounting to EUR 85,373 thousand. (b) It includes the amount of the embedded derivative described in Note 10 D) Main customers The table below lists the most important tenants as of 31 December 2022, and the primary characteristics of each of them: 2022 Position Name Type % of total % accumulated Maturity of Income 1 Endesa Offices 4.2% 4.2% 2024-2030 2 Inditex Shopping/Logistics centres 3.3% 7.5% 2023-2025 3 Madrid Offices 2.5% 10.0% 2023-2031 4 Técnicas Reunidas Offices 2.4% 12.4% 2025 5 PwC Offices 1.8% 14.2% 2028 6 Hotusa Hotels 1.5% 15.7% 2028 7 BPI Offices 1.5% 17.2% 2031 8 Indra Offices 1.5% 20.1% 2024 9 FNAC Shopping centres 1.4% 18.6% 2023-2025 10 XPO Logistics 1.3% 21.4% 2024-2025 39 2021 Position Name Type % of total % accumulated Maturity of Income 1 BBVA Net lease () 15.90% 15.90% 2039-2040 2 Endesa Offices 3.70% 19.6% 2022-2030 3 Inditex Shopping/Logistics centres 2.80% 22.40% 2022-2024 4 Técnicas Reunidas Offices 2.10% 24.50% 2025 5 Madrid Offices 2.10% 26.60% 2022-2031 6 PricewaterhouseCoopers, S.L. Offices 1.50% 28.10% 2028 7 Indra Offices 1.50% 29.60% 2024-2026 8 BPI Offices 1.40% 31.00% 2031 9 FNAC Shopping centres 1.40% 32.40% 2022-2025 10 Hotusa Hotels 1.30% 33.70% 2028 () Discontinued and sold in 2022 7. Investment property The breakdown of and changes in items included under the Investment Property heading in the consolidated statement of financial position in 2022 and 2021 were as follows: Thousands of euros 2022 2021 Beginning balance 12,297,257 12,139,347 Additions for the financial year 370,161 182,389 Disposals (1,703,946) (201,487) Changes in value of investment property (249,272) 177,008 Closing balance 10,714,200 12,297,257 Investment property is recognised at fair value. The expense recognised in the 2022 consolidated income statement from measuring investment property at fair value amounted to EUR 249,272 thousand (EUR 177,008 thousand from income in the 2021 financial year including the change in value of the Net Lease segment discontinued in 2022). Investment property mainly includes property assets in the office, shopping centre and logistics segments. Additions and assets acquired in the 2022 and 2021 financial years are as follows: 40 Thousands of euros 2022 2021 Purchases/Additions: Offices 136,861 20,738 Logistics 7,216 18,947 Improvements to assets 226,084 142,704 370,161 182,389 The additions made in 2022 relate to the purchase of an office building in Lisbon amounting to EUR 113 million, a plant in an office building in Barcelona amounting to EUR 5 million and several plants in an office building in Madrid amounting to EUR 19 million and the acquisition of land in the Basque Country for the construction of a Data Centre amounting to EUR 7 million. The other additions for 2022 related to the improvement and adaptation work performed on certain properties owned by the Group, highlighting, among others, certain logistics warehouses in Cabanillas del Campo and office buildings such as Castellana 85 and the Cerro de lo Gamos Business Park in Madrid, and the development of Data Centres. The losses in 2022 relate mainly to the sale of the leased premises to BBVA through the sale of all the shares that the Parent held by the subsidiary Tree Inversiones Inmobiliarias, SOCIMI, S.A. (see Note 3), the result of which is presented in the discontinued activities line item. Also in 2022, the Group sold two business parks and premises held for non-strategic purposes in Madrid, an office building in Zaragoza and premises in Catalonia. As a result of these divestments, the Group obtained a gain of EUR 11,561 thousand recognised under 'Gain on disposal of assets' in the accompanying consolidated income statement. The additions made in 2021 related to the purchase of an office building and the purchase of a flight right over a site used for office purposes in Madrid for EUR 21 million and the acquisition of two plots of land to be used for logistic purposes in Madrid and Valencia for EUR 19 million. The other additions for 2021 related to the improvement and adaptation work performed on certain properties owned by the Group, including the office buildings Castellana 85, Avenida de Burgos 208, Plaza Ruiz Picasso and Castellana 280 in Madrid, in Torre Glories, Pere IV in Barcelona and the Monumental building in Lisbon. At the Porto Pí and Saler shopping centres and in the logistics developments located in the Community of Madrid. The losses incurred in 2021 related mainly to the sale of 32 Caprabo supermarkets, an Office in Madrid and four logistics warehouses, with a net positive result of EUR 4,057 thousand recognised under "Profit for the year from discontinued transactions net of tax" and "Profit for disposal of assets" respectively in the accompanying consolidated income statement. At 31 December 2022, the Group had real estate assets amounting to EUR 265,443 thousand (EUR 2,039,558 thousand in 2021) to guarantee various loans and derivative financial instruments. At 31 December 2022, the balance of the loans amounted to EUR 84,987 thousand, while the financial instruments had an asset balance of EUR 6,084 thousand (at the end of 2021 the balance of the loans amounted to EUR 756,498 thousand and the financial instruments had a liability balance of EUR 73,265 thousand) (see Note 14). The Group holds no rights of use, seizure or similar situations as regards its investment property. The Group did not hold financial leases in 2022 or 2021. All properties included under "Investment property" were insured as of 31 December 2022. As of 31 December 2022, the Group has firm purchase commitments for investment property amounting to EUR 7,022 thousand, without considering the investments committed in constructions and improvements. 41 In 2022 and 2021 no finance costs were capitalised in the cost of constructing the properties. Fair value measurement and sensitivity All investment property leased or to be leased through operating leases are classified as investment property. According to 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 items at that date. This fair value is determined each year based on the appraisals undertaken by independent experts. The market value of the Group's investment property as of 31 December 2022 and 2021, calculated based on appraisals performed by Savills Consultores Inmobiliarios, S.A., CBRE Valuation Advisory, S.A. and Jones Lang LaSalle, S.A. independent appraisers not related to the Group, amounted to EUR 10,558, 975 thousand (EUR 12,402,279 in 2021). This measurement does not include the value of the use rights recognised by the application of IFRS 16 for EUR 37,152 thousand (EUR 34,805 thousand in 2021) or the amounts relating to advances paid by the Group to third parties for the purchase of assets or other non-valued assets amounting to EUR 118,072 thousand (EUR 27,253 thousand in 2021) mainly assets intended for Data Centres. Likewise, the valuation for 2021 included the value of the embedded derivative of the lease rent with BBVA for EUR 167,080 thousand, which was recorded under "Other non-current financial assets". The valuation was performed in accordance with the Appraisal and Valuation Standards issued by the Royal Institute of Chartered Surveyors (RICS) of the United Kingdom and the International Valuation Standards (IVS) issued by the International Valuation Standards Committee (IVSC). In relation to the fair value of the rights of use, the Group also obtained valuations from independent third parties. The method used to calculate the market value of the investment property involves drawing up ten- year projections of income and expenses for each asset, adjusted at the reporting date using a market discount rate. The residual amount at the end of year 10 is calculated by applying an exit yield or cap rate to the net income projections for year 11. The market values obtained are analysed by calculating and assessing the capitalisation of the returns implicit in these values. The projections are designed to reflect the best estimate of future income and expenses from the investment properties. Both the exit yield and discount rate are determined taking into account the national market and institutional market conditions. Fees paid by the Group to valuers for appraisal services rendered up to 31 December 2022 and 2021 were as follows: Thousands of euros 2022 2021 () Valuation services 459 646 Total 459 646 () includes valuation of Net Lease segment Breakdown of fair value of investment property A breakdown of assets measured at fair value by their level in the fair value hierarchy is as follows: 42 2022 Thousands of euros Total Level 1 Level 2 Level 3 Fair value measurement Investment property: Offices Land 2,238,869 - - 2,238,869 Buildings 4,271,005 - - 4,271,005 Shopping centres Land 433,159 - - 433,159 Buildings 1,701,344 - - 1,701,344 Logistics- Land 440,305 - - 440,305 Buildings 1,232,146 - - 1,232,146 Other- Land 175,439 - - 175,439 Buildings 221,933 - - 221,933 Total assets measured at fair value 10,714,200 - - 10,714,200 2021 Thousands of euros Total Level 1 Level 2 Level 3 Fair value measurement Investment property: Offices Land 2,262,569 - - 2,262,569 Buildings 4,276,185 - - 4,276,185 Net lease- Land 336,624 - - 336,624 Buildings 1,270,914 - - 1,270,914 Shopping centres Land 458,729 - - 458,729 Buildings 1,741,301 - - 1,741,301 Logistics- Land 352,703 - - 352,703 Buildings 1,195,467 - - 1,195,467 Other- Land 184,524 - - 184,524 Buildings 218,240 - - 218,240 Total assets measured at fair value 12,297,257 - - 12,297,257 No assets were reclassified from one level to another during 2022 or 2021. At 31 December 2022, the gross surface areas and occupancy rates of the assets were as follows: 43 2022 Square metres () Occupancy rate (%) Gross leasable area Comm. of Madrid Catalonia Comm. of Valencia Galicia Andalusia Basque Country Castille- La Mancha Rest of Spain Portugal Total Offices 814,938 205,312 - - 15,078 - - - 137,547 1,172,874 92.5% Shopping centres 75,685 64,096 64,352 100,577 37,956 25,922 - 32,758 60,049 461,394 95.0% Logistics 330,375 132,100 61,604 - 138,777 99,491 633,926 42,343 45,171 1,483,786 97.0% Other 38,043 20,540 - 5,898 - 46 - - - 64,527 97.3% Total surface area 1,259,040 422,048 125,956 106,475 191,811 125,459 633,926 75,101 242,766 3,182,582 95.1% % weight 39.6% 13.3% 4.0% 3.3% 6.0% 3.9% 19.9% 2.4% 7.6% 100.0% 2021 Square metres () Occupancy rate (%) Gross leasable area Comm. of Madrid Catalonia Comm. of Valencia Galicia Andalusia Basque Country Castille- La Mancha Rest of Spain Portugal Total Offices 852,268 211,179 — — 15,078 — — 4,488 121,036 1,204,049 90.1% Net lease 56,639 44,931 26,799 16,143 26,889 23,102 8,354 84,196 — 287,053 100.0% Shopping centres 75,689 64,096 64,341 100,577 37,956 25,922 — 32,795 60,098 461,474 94.2% Logistics 330,374 131,624 61,604 — 138,777 99,491 518,694 42,343 45,171 1,368,078 97.1% Other 38,354 20,540 — 5,898 — 46 — — — 64,838 97.3% Total surface area 1,353,324 472,370 152,744 122,618 218,700 148,561 527,048 163,822 226,305 3,385,492 94.5% % weight 40.0% 14.0% 4.4% 3.6% 6.5% 4.4% 15.6% 4.8% 6.7% 100.0% () Not including square metres of ongoing projects or land Hypotheses used in the valuation In relation to the determination of the fair value of investment property, the significant non-observable input data used in the measurement of fair value corresponds to the rental income, the future rates of return ('exit yield') and the rate used to discount the cash flows of the projections. The quantitative information on the significant non-observable input data used in measuring fair value is shown below. 2022 Exit yield Discount rate Offices 3.15% - 7.25% 5.15% - 10.25% Shopping centres 3.75% - 8.50% 6.25% - 11.50% Logistics 4.25% - 6.75% 5.50% - 15.00% Other 4.00% - 7.75% 4.00% - 15.50% 44 2021 Exit yield Discount rate Offices 3.00% - 7.25% 4.75% - 10.50% Net Lease () 7.00% () 8.75% () Shopping centres 3.50% - 8.00% 5.75% - 10.75% Logistics 4.00% - 6.25% 5.25% - 15.00% Other 4.00% - 7.50% 4.00% - 15.50% () Discontinued activity and disposed of in 2022 Market rents: the amounts per square metre used in the valuation have ranged between 107.33 and 2.25 euros depending on the type of asset and location. The growth rates of the rents used in the projections are mainly based on the CPI. It should be noted that the minimum range relates to a logistics asset and the maximum range is a retail asset located in a prime zone. Analysis of the sensitivity of the hypotheses The effect of one-quarter, half and one point change in the required rates of return (the "IRR", the rate used to discount the cash flows of the projections) on the consolidated assets and in the consolidated income statement with respect to investment properties, would be as follows: 31 December 2022 Thousands of euros 31.12.2022 Assets Consolidated profit/(loss) before tax 0.25% 0.50% 1% 0.25% 0.50% 1% Increase in IRR (209,672) (414,387) (809,469) (209,672) (414,387) (809,469) Decrease in IRR 214,765 434,763 891,041 214,765 434,763 891,041 31 December 2021 () Thousands of euros 31.12.2021 Assets Consolidated profit/(loss) before tax 0.25% 0.50% 1% 0.25% 0.50% 1% Increase in IRR (212,595) (420,133) (820,576) (212,595) (420,133) (820,576) Decrease in IRR 217,791 440,921 903,798 217,791 440,921 903,798 () Reexpresed information The effect of a 1%, 5% and 10% change in the rents considered has the following impact on investment property in consolidated assets and in the consolidated income statement: 45 31 December 2022 Thousands of euros Assets Consolidated profit/(loss) before tax 1% 5% 10% 1% 5% 10% Increase in rents 84,038 420,192 840,385 84,038 420,192 840,385 Decrease in rents (84,038) (420,192) (840,385) (84,038) (420,192) (840,385) 31 December 2021 Thousands of euros Assets Consolidated profit/(loss) before tax 1% 5% 10% 1% 5% 10% Increase in rents 82,531 412,657 825,314 82,531 412,657 825,314 Decrease in rents (82,531) (412,657) (825,314) (82,531) (412,657) (825,314) The effect of the quarter, half, and one point change in the considered exit yield, in the assumption based on return calculated as the result of dividing the net operating income of the last year of the period analysed by the estimated exit yield, on investment property in the consolidated asset and in the consolidated income statement, would be as follows: 31 December 2022 Thousands of euros Assets Consolidated profit/(loss) before tax 0.25% 0.50% 1% 0.25% 0.50% 1% Increase in exit yield (324,196) (619,262) (1,136,413) (324,196) (619,262) (1,136,413) Decrease in exit yield 357,865 754,929 1,695,592 357,865 754,929 1,695,592 31 December 2021 () Thousands of euros Assets Consolidated profit/(loss) before tax 0.25% 0.50% 1% 0.25% 0.50% 1% Increase in exit yield (336,046) (641,355) (1,175,217) (336,046) (641,355) (1,175,217) Decrease in exit yield 371,671 784,948 1,767,791 371,671 784,948 1,767,791 () Reexpresed information Details of the "Change in value of investment property" in the accompanying consolidated income statement are as follows: 46 Type of asset Thousands of euros 2022 2021 () Offices (149,149) 30,948 Shopping centres (81,387) (36,023) Logistics (16,374) 206,989 Other (2,362) (6,417) (249,272) 195,497 () Reexpresed information 8. Operating leases 8.1 Operating Leases - Tenant The Group, in its position as a tenant, only maintains short-term and low-value leases, which, following an analysis of the application of IFRS 16, recognises them as a straight-line expense over the lease term. In 2022, the Group recorded an expense of EUR 705 thousand (EUR 699 thousand in 2021) included under "Other operating expenses" in the accompanying consolidated income statement. 8.2 Operating leases – Landlord The occupancy rates of the leased buildings at 31 December 2022 were as follows: % occupancy 2022 2021 Offices 92.5 90.1 Shopping centres 95.0 94.2 Logistics 97.0 97.1 Other 97.3 97.3 At 31 December 2022, gross lease income and the fair value of each of the assets were as follows: 2022 Thousands of euros Rent Value Gross (a) Value Offices 242,716 6,509,874 Shopping centres 123,840 2,134,503 Logistics 73,563 1,672,451 Other 12,723 397,372 Total 452,842 10,714,200 (a)The gross income indicated in the table above refers to income from leases (Note 6) of the properties accrued since their incorporation into the Group, without taking into account credits or rent straight-lining. 47 2021 Thousands of euros Rent Value Gross (a) Fair (b) Offices 228,560 6,538,755 Net lease () 85,631 1,774,619 Shopping centres 114,894 2,200,030 Logistics 65,950 1,548,169 Other 10,285 402,764 Total 505,319 12,464,337 () Activity discontinued in 2022 (a)The gross income indicated in the table above refers to income from leases (Note 6) of the properties accrued in 2021 since their incorporation into the Group, without taking into account credits and rental income straight-lining. (b)Includes investment property and the Tree embedded derivative (Note 10). The leases entered into between the Group and its customers include a fixed rent and, where applicable, a variable rent linked to the lessee's performance. At 31 December 2022, the future minimum lease payments under non-cancellable operating leases (calculated at the nominal amount) are as follows: Thousands of euros 2022 2021 () Up to a year 384,244 391,461 1 to 5 years 759,723 745,627 2023 291,031 289,835 2024 212,671 211,327 2025 147,920 143,316 2026 108,101 101,149 Over 5 years 186,838 223,196 1,330,805 1,360,284 () Reexpresed information In 2022, the Group recorded EUR 6,707 thousand (EUR 4,477 thousand in 2021) due to lease income relating variable lease payments not benchmarked against a rate or index. 9. Investments accounted for using the equity method The changes in 2022 in investments in companies accounted for using the equity method are as follows: 48 Thousands of euros 2022 2021 Beginning balance 482,784 434,127 Additions made during the year 1,824 3,018 Payments made in the financial year (4,189) (4,003) Transfers - 18,650 Dividends (4,152) (3,568) Profit/(Loss) for the year 24,033 34,560 Closing balance 500,300 482,784 In relation to the shares held using the equity method, the additions for the year relate mainly to the subscription of the capital increase made by Crea Madrid Nuevo Norte, S.A. as a result of the capital increase performed in the year, which has resulted in an increase of EUR 1,511 thousand for the Group. For its part, the decreases relate mainly to the liquidation of the investee PK Hoteles 22, S.L.. (Note 3) and the return of contributions to G36 Developments, S.L. The remaining amount of the movements came from the results obtained from the investees in 2022. The main changes in 2021 were as follows: In 2021, the amount associated with the value of the purchase option that Silicius Real Estate SOCIMI, S.A. held on the Group's share was transferred to "Other non-current financial liabilities" (Derivatives). Its final settlement will not be in cash, but will entail, where appropriate, an adjustment to the value of the ownership interest in Silicius Real Estate SOCIMI, S.A. (see Note 14.3). The additions for the year related mainly to the capital contribution made by the Group as a result of the capital increase performed in 2021 by Crea Madrid Nuevo Norte, S.A., which resulted in an increase for the Group of EUR 2,922 thousand. On the other hand, the decreases corresponded in their entirety to the return of Silicius Real Estate SOCIMI's S.A. Share Premium. The remaining amount of the movements came from the results obtained from the investees in 2021 and to the acquisition of Edged Spain, S.L. (Note 3). A breakdown of investments in companies accounted for using the equity method and the profit or loss attributable to the Group at 31 December 2022 is as follows: 49 2022 Thousands of euros Associate Line of business Registered office Percentage of ownership Investment Profit/(loss) attributed to the Group Madrid Nuevo Norte, S.A. "Operación Chamartín" construction development and property operation Madrid 14.46% 172,794 (616) Silicius Real Estate SOCIMI, S.A. Sale and lease of property Madrid 17.80% 95,855 2,667 Centro Intermodal de Logística, S.A. Management of the port concession of the logistics activity area Barcelona 48.50% 194,982 18,556 Paseo Comercial Carlos III, S.A. Lease of shopping centre Madrid 50% 32,205 2,487 Provitae Centros Asistenciales, S.L. Healthcare services Madrid 50% 3,316 (198) Other investments 1,148 1,137 500,300 24,033 2021 Thousands of euros Associate Line of business Registered office Percentage of ownership Investment Profit/(loss) attributed to the Group Madrid Nuevo Norte, S.A. 'Operación Chamartín' construction development and property operation Madrid 14.46% 171,899 (410) Silicius Real Estate SOCIMI, S.A. Sale and lease of property Madrid 15.26% 93,182 7,991 Centro Intermodal de Logística, S.A. Management of the port concession of the logistics activity area Barcelona 48.50% 178,982 28,021 Paseo Comercial Carlos III, S.A. Lease of shopping centre Madrid 50% 29,718 (1,712) Provitae Centros Asistenciales, S.L. Healthcare services Madrid 50% 3,514 5 Other investments 5,490 664 482,784 34,560 All companies detailed in the table above are accounted for using the equity method. The key business indicators at 100% for the Group's associates (standardised using the regulatory framework applicable to the Group) are as follows: 50 2022 Thousands of euros Provitae Centros Asistenciales, S.L. Paseo Comercial Carlos III, S.A. Centro Intermodal de Logística, S.A. (CILSA) Madrid Nuevo Norte, S.A. Silicius Real Estate SOCIMI, S.A. Other Non-current assets 17,413 242,953 974,673 5,349 727,972 8,603 Current assets 2 5,861 31,070 175,060 11,569 3,987 Non-current liabilities (6,824) (3,795) (300,743) 984 300,388 (2,391) Current liabilities 2,268 3,275 19,695 7,356 48,302 1,974 Revenue - 8,359 79,272 - 40,044 579 Operating profit/(loss) (396) 4,974 32,990 (4,258) 13,259 (453) 2021 Thousands of euros Provitae Centros Asistenciales, S.L. Paseo Comercial Carlos III, S.A. Centro Intermodal de Logística, S.A. (CILSA) Madrid Nuevo Norte, S.A. Silicius Real Estate SOCIMI, S.A. Other Non-current assets 17,187 244,246 985,619 6,449 760,574 9,412 Current assets 8 5,312 10,868 168,903 15,830 10,843 Non-current liabilities (7,666) 6,984 (250,915) 499,153 257,725 (9,665) Current liabilities 2,212 2,588 20,793 8,976 123,382 2,346 Revenue - 6,702 66,586 - 28,754 1,905 Operating profit/(loss) 11 (3,424) 54,089 (2,833) 52,369 (3,325) At the end of the year, there were no indications of impairment on the recoverable value of the investments held, in addition to those already recorded. 51 10. Current and non-current financial assets The breakdown, by type, of the balance of this heading in the consolidated statement of financial position at 31 December 2022 is as follows: Classification of financial assets by category: Thousands of euros 2022 2021 Non-current: At fair value- Derivative embedded in BBVA lease - 167,080 Interest rate derivatives 18,882 - At cost- Equity instruments 9,191 6,796 At amortised cost- Loans to third parties 126,230 117,702 Loans to associates 3,268 2,773 Deposits and guarantees 53,477 65,440 211,048 359,791 Current: At fair value- Financial assets through profit or loss. - 80,964 At cost- Investments in associates 2,498 784 At amortised cost- Loans to third parties 236 236 Other financial assets 226 936 Trade and other receivables 49,840 39,625 52,800 122,545 The carrying amount of financial assets recognised at amortised cost does not differ from their fair value. Derivatives At year-end 2022, the measurement of interest rate derivatives is recognised under 'Derivatives' (see Note 14). At year-end 2021, "Derivatives" included the value of the embedded derivative corresponding to the inflation multiplier included in the lease with BBVA to revise rents annually. This derivative was part of the Net Lease segment that was divested in 2022 (see Note 3). Financial assets at fair value through profit or loss At the end of 2020, this heading included 15.29% in Silicius Real Estate, SOCIMI, S.A. for EUR 86,521 thousand acquired by the Parent through an asset contribution. In the first half of 2021, the Parent sold 353,966 shares for EUR 5,418 thousand, which did not have a significant impact on results. The amount of the share after the sale was reduced to EUR 80,964 thousand, which the Group reclassified to 'Current financial assets,' classified as financial assets with changes to the income statement, of the accompanying consolidated statement of financial position. On 27 July 2022, 52 the Group sold 14.28% of the shares of Silicius Real Estate SOCIMI, S.A. for EUR 80,964 thousand, the full amount of which was paid in cash. Loans to third parties "Other non-current financial assets" included the loan granted to Urbanísticos Udra, S.A.U., shareholder of Crea Madrid Nuevo Norte, S.A., amounting to EUR 86,397 thousand, which accrues market interest. At 31 December 2022, due to the annual capitalisation of interest, the outstanding amount was EUR 90,728 thousand in principal and EUR 313 thousand in interest. In relation to this loan, the Group has guarantees from the creditor associated with 10% of shares in Crea Madrid Nuevo Norte, S.A., and no credit risk has been identified for the debtor. Likewise, this heading also includes rental straight lining, marketing expenses and tenant set-up expenses amounting to 35,189 thousand euros (30,700 thousand euros in 2021). Deposits and guarantees "Deposits and guarantees" primarily includes the guarantees provided by lessees as security amounting to EUR 51,988 thousand (EUR 64,124 thousand at 31 December 2021), which the Group has deposited with the housing authority (Instituto de la Vivienda) in each region. At 31 December 2022, guarantees provided by lessees as security amounted to EUR 62,964 thousand (EUR 73,842 thousand at 31 December 2021) and were recognised under "Non-current liabilities – Other financial liabilities" on the liability side of the accompanying consolidated statement of financial position for 2022 (see Note 15). Classification of financial assets by maturity: The classification of financial assets by maturity at 31 December 2022 and 2021 is as follows: 2022 Thousands of euros Less than 1 year From 1 to 5 years Over 5 years Undetermined maturity Total Interest rate derivatives - 6,084 12,798 - 18,882 Equity instruments - - - 9,191 9,191 Loans to third parties and associates 236 20,863 108,635 - 129,734 Deposits and guarantees - - - 53,477 53,477 Financial assets at fair value through profit or loss 2,498 - - - 2,498 Other financial assets 226 - - - 226 Trade and other receivables 49,840 - - - 49,840 Total financial assets 52,800 26,947 121,433 62,668 263,848 53 2021 Thousands of euros Less than 1 year From 1 to 5 years Over 5 years Undetermined maturity Total Derivative embedded in BBVA lease() () - - 167,080 - 167,080 Equity instruments - - - 6,796 6,796 Loans to third parties and associates 236 16,840 103,636 - 120,712 Deposits and guarantees - - - 65,440 65,440 Financial assets at fair value through profit or loss 81,747 - - - 81,747 Other financial assets 936 - - - 936 Trade and other receivables 39,625 - - - 39,626 Total financial assets 122,545 16,840 270,716 72,236 482,337 () Activity discontinued in 2022 11. Trade and other receivables At 31 December 2022, the heading "Trade and other receivables" includes the following items: Thousands of euros 2022 2021 Trade and notes receivable 34,411 26,993 Sales debentures 6,718 1,124 Associates 549 525 Sundry accounts receivable 1,524 4,809 Remuneration payable 184 184 Other receivables from public authorities (Note 17) 17,849 19,315 Impairment of trade receivables (11,394) (13,324) 49,840 39,625 "Trade and notes receivable" in the accompanying consolidated statement of financial position at 31 December 2022 mainly included the balances receivable from leasing investment property. In general these receivables are interest free and the terms of collection range from immediate payment on billing to payment at 30 days, while the average collection period is approximately 5 days (5 days in 2021). At 31 December 2022, a breakdown by age of overdue receivables not considered impaired is as follows: Thousands of euros 2022 2021 Less than 30 days 1,947 1,805 31 to 60 days 1,987 1,136 61 to 90 days 1,469 230 Over 90 days 17 697 5,420 3,868 54 At 31 December 2022 and 2021, no collection rights had been transferred to financial institutions. In accordance with IFRS 9, the Group periodically analyses the risk of insolvency of its accounts receivable by updating the related provision for impairment losses. The Group's directors consider that the amount of trade and other receivables approximates their fair value. The changes in the impairment losses and bad debt in 2022 and 2021 were as follows: Thousands of Euros Balance at 31 December 2020 (12,033) Charges for the year (2,245) Reversals/amounts used 1,906 Other (952) Balance at 31 December 2021 (13,324) Charges for the year (1,408) Reversals/amounts used 3,279 Other 59 Balance at 31 December 2022 (11,394) Losses from bad debts amounted to EUR 2,051 thousand in 2022. The majority of impaired receivables are overdue by more than six months. Details of the concentration of customers (customers that account for a significant share of business) are included in the segment information in Note 6. 12. Cash and cash equivalents "Cash and cash equivalents" includes the Group's cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets does not differ from their fair value. At 31 December 2022 and 2021, the balance of "Cash and cash equivalents" is freely available, except for EUR 4,720 thousand and EUR 6,534 thousand, respectively, which mainly include in 2022 a deposit account associated with the purchase of an office building and in 2021 a reserve account to pay the debt service for one quarter of a syndicated mortgage loan, maintained by the Group. 13. Equity A breakdown of "Equity" and of the changes therein is presented in the consolidated statement of changes in equity. 13.1 Share capital As of 31 December 2022, the share capital of Merlin Properties SOCIMI, S.A., amounted to EUR 469,771 thousand, represented by 469,770,750 fully subscribed and paid shares of EUR 1 par value each, all of which are of the same class and confer the holders thereof the same rights. All the Parent's shares can be publicly traded and are listed on the Madrid, Barcelona, Bilbao and Valencia and Lisbon Stock Exchanges. The market price of the Parent's shares at 31 December 2022 55 and the average market price for the fourth quarter amounted to EUR 8.78 and EUR 8.65 per share, respectively. At 31 December 2022, according to information extracted from the CNMV, in relation to Royal Decree 1362/2007, of 19 October and Circular 2/2007, of 19 December, the shareholders with significant holdings in the share capital of Merlin Properties SOCIMI, S.A., both direct and indirect, in excess of 3% of the share capital, are the following according to public information: Shares % of share capital Direct Indirect Total Banco Santander, S.A. 89,311,859 26,072,123 115,383,982 24.562% Nortia Capital Investment Holding, S.L. 38,371,083 - 38,371,083 8.168% BlackRock, INC - 23,528,172 23,528,172 5.008% Information from Banco Santander and Manual Lao Hernández (Nortia Capital Investment Holding, S.L.) was obtained from the Register of Members book at year-end 2022. 13.2 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 unrestricted so long as its allocation does not lower equity to below the amount of share capital. On 4 May 2022, the General Meeting approved the distribution of an interim dividend charged to share premium in the amount of EUR 106,497 thousand. 13.3 Other reserves A breakdown of reserves at 31 December 2022 and 2021 is as follows: Thousands of euros 2022 2021 Legal reserve 74,094 65,133 Reserves of consolidated companies 2,935,533 2,467,203 Other reserves 14,003 33,940 Total other reserves 3,023,630 2,566,276 Legal reserve The legal reserve will be in accordance with Article 274 of the Consolidated Text of the Corporate Enterprises Act, which stipulates, in all cases, that 10% of net profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. This reserve cannot be distributed, and if it is used to offset losses, in the event no other reserves are available for this purpose, it must be restored with future profits. At 31 December 2022, the Group had not yet reached the legally required minimum in the Consolidated Text of the Corporate Enterprises Act. 56 The legal reserve of companies which have chosen to avail themselves of the special tax regime in Law 11/2009, , governing REITs, must not exceed 20% of share capital. The bylaws of these companies may not establish any other type of restricted reserves. Reserves in consolidated companies The changes in 2022 in the heading "Reserves in consolidated companies" are as follows: Thousands of euros Begining balance Incorporation of prior year´s results Distribution of reserves Other changes Ending balance Reserves in consolidated companies 2,467,203 512.217 (89,608) 45,720 2,935,532 Dividends On 4 May 2022, the General Meeting approved the distribution of a dividend charged to "share premium" in the amount of EUR 106,497 thousand, and the distribution of an additional dividend charged to 2021 profit for EUR 10,614 thousand, both dividends being paid on 27 May 2022. On 28 July 2022, the Board approved the distribution of an interim dividend charged to earnings for 2022 in the amount of EUR 351,169 thousand. On 10 November 2022, the Board approved the distribution of a dividend of EUR 93,646 thousand charged to the profit for 2022. 13.4 Treasury shares At 31 December 2022, the Parent held treasury shares amounting to EUR 17,166 thousand. The changes in 2022 were as follows: Number of Thousands of Shares euros Balance at 1 January 2021 4,836,503 54,149 Additions 374 3 Disposals (1,951,386) (21,847) Balance at 31 December 2021 2,885,491 32,305 Additions 6,625 122 Disposals (1,355,932) (15,261) Balance at 31 December 2022 1,536,184 17,166 The General Meeting held on 10 April 2019 revoked the authorisation granted by the General Meeting of April 2018 in the part not used and then authorised the acquisition of shares by the Company itself or by a Group company, under Article 146 and related provisions of the Corporate Enterprises Act, in accordance with the requirements and restrictions under the current law during the five-year period. The withdrawals of treasury shares amounting to EUR 15,261 thousand (average cost of EUR 11.20 per share) mainly correspond to the second and final delivery of shares within the so-called 2017-2019 Incentive Plan (see Note 15) for EUR 14,133 thousand and to the delivery of shares to employees within the flexible remuneration plan for EUR 864 thousand. 57 The Group had a liquidity agreement for the securities listed on the Lisbon Stock Exchange, with net sales of 9,740 shares in 2022 (EUR 142 thousand). At 31 December 2022, the Parent held treasury shares representing 0.327% of its share capital. 13.5 Capital management The Group's capital management objectives are to safeguard its capacity to continue operating as a going concern so that it can continue to provide returns to shareholders and to benefit interest groups, and to maintain an optimum financial structure to reduce the cost of capital. In line with the practices of other groups present in the sector, the Group controls its capital structure through the debt ratio, calculated as net debt divided by total capital. Net debt is determined as the sum of financial liabilities less cash and cash equivalents. Total capital is calculated as the sum of equity plus net debt. Thousands of euros 2022 2021 Total financial debt (b) 4,238,774 6,226,854 Less - Cash and cash equivalents and Other current financial assets (a) (446,615) (979,990) Net debt 3,792,159 5,246,538 Equity 6,849,224 7,026,922 Total capital 10,641,383 12,273,460 Debt-to-equity ratio 36% 43% 1.In 2021 the current financial asset, net of the value of the option corresponding to 15.26% of Silicius Real Estate SOCIMI shares, was included (see Note 10) for EUR 80,964 thousand. Also, financial assets contributed in 2021 for the discontinued activity are included (see Note 3) .In both 2022 and 2021, the amount of shares in the portfolio is included as other current financial assets. 2.Gross debt amounts without considering debt formalisation expenses. 2021 includes financial debt for the discontinued segment (see Note 3). 13.6 Earnings per share Basic Basic earnings per share are calculated by dividing the net profit attributable to common equity holders of the Parent by the weighted average number of ordinary shares outstanding during the period, excluding treasury shares. A breakdown of the calculation of basic earnings per share is as follows: 58 2022 2021 () Weighted average number of shares outstanding (thousands) 467,890 466,397 Continuing operations Profit for the period attributable to the Parent (thousands of euros) 41,356 395,360 Basic earnings per share (euros) 0.09 0.85 Discontinued Activities Profit for the period attributable to the Parent (thousands of euros) 221,731 116,857 Basic earnings per share (euros) 0.47 0.25 () Reexpresed information The average number of ordinary shares outstanding is calculated as follows: Number of Shares 2022 2021 Ordinary shares at beginning of period 469,770,750 469,770,750 Treasury shares (1,536,184) (2,885,491) Average adjustment of outstanding shares (344,319) (488,735) Weighted average number of ordinary shares outstanding at 31 December (shares) 467,890,247 466,396,524 Diluted In accordance with paragraph 41 of IAS 33, potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares could reduce the earnings per share of the continuing activities. At 31 December 2022, there was no potential dilutive effect arising from the variable remuneration that the Group had granted to its executives and key staff (see Note 20), basic profit being in line with diluted profit. 13.7 Valuation adjustments This heading of the consolidated statement of financial position includes changes in the value of financial derivatives designated as cash flow hedges. Changes in this heading in 2022 were as follows: Thousands of euros Balance at 31 December 2020 (99,537) Changes in the fair value of hedges in the year 32,117 Balance at 31 December 2021 (67,420) Changes in the fair value of hedges in the year 80,218 Balance at 31 December 2022 12,798 The change in the derivative mainly relates to the reclassification to discontinued activities of the Net Lease segment, which was settled in the sale made in the first half of the year, and recorded in the income statement, in profit or loss for the year from discontinued operations net of tax (Note 3) for EUR 67,420 thousand. 59 The balance at year-end 2022 relates to the valuation of the new interest rate hedges that the Group has subscribed to cover the new syndicated financing for April 2023 to April 2028 (see Note 14). . 60 14. Current and non-current financial liabilities At 31 December 2022, current and non-current liabilities were as follows: Thousands of euros 2022 2021 Non-current: Measured at amortised cost- Syndicated loan - 850,000 Syndicated loan arrangement expenses - (7,758) Total syndicated loan - 842,242 Senior syndicated mortgage loan (Tree) - 659,771 Syndicated mortgage loan arrangement costs (Tree) - (48,106) Total senior syndicated mortgage loan (Tree) - 611,665 Non-mortgage loan 111,000 29,000 Mortgage loans 83,256 84,987 Loan arrangement expenses (4,390) (5,220) Total other loans 189,866 108,767 Debentures and bonds 3,300,000 4,042,786 Debenture issue expenses (20,666) (25,216) Total debentures and bonds 3,279,334 4,017,570 Total amortised cost 3,469,200 5,580,244 Measured at fair value Derivative financial instruments - 78,465 Total at fair value - 78,465 Total non-current 3,469,200 5,658,709 Current: Measured at amortised cost Syndicated loan 195 644 Senior syndicated mortgage loan (Tree) - 10,573 Debentures and bonds 775,152 588,622 Mortgage loans 1,843 1,814 Revolving credit facility 410 410 Non-mortgage loan 347 123 Loan arrangement expenses (116) (467) Total amortised cost 777,831 601,719 Measured at fair value Derivative financial instruments 11 1,289 Total at fair value 11 1,289 Total current 777,842 603,008 There is no material difference between the carrying amount and the fair value of financial liabilities at amortised cost. On 20 April 2016, the Parent was given a credit rating of "BBB" with stable outlook by Standard & Poor's Rating Credit Market Services Europe Limited. On 2 May 2018, Standard & Poor's updated this rating to "BBB" with a positive outlook, changing it to stable outlook due to the COVID-19 pandemic on 27 March 2020. On 12 April 2022, as a result of the sale of TREE Inversiones Inmobiliarias SOCIMI, S.A.,& Standard & Poor's updated this outlook to positive. Additionally, on 17 October 2016, the Company was given a credit rating of "investment grade" "Baa2" by Moody's. On 27 May 2020, Moody's updated this rating to "Baa2" with a negative outlook due to the COVID-19 pandemic. On 2 May 2022, as a result of the sale of TREE Inversiones Inmobiliarias SOCIMI, S.A., Moody's updated this outlook to positive. 61 14.1 Loans A breakdown of loans at 31 December 2022 is as follows: 2022 Thousands of euros Bank borrowings Initial loan/ Limit Expenses incurred from formalising loans (Note 14.5) 31.12.2022 Long-term Short-term Short-term interest Syndicated loan 600,000 - - - 195 Non-mortgage loan 220,225 (271) 111,000 - 347 Revolving credit facilities 700,000 (2,486) - - 410 Mortgage loans - other assets 91,000 (1,633) 83,256 1,731 112 Total 1,611,225 (4,390) 194,256 1,731 1,064 2021 Thousands of euros Bank borrowings Initial loan/ Limit Expenses incurred from formalising loans (Note 14.5) 31.12.2021 Long-term Short-term Short-term interest Syndicated loan 850,000 (7,758) 850,000 - 644 Non-mortgage loan 160,225 (42) 29,000 - 123 Revolving credit facilities 700,000 (3,055) - - 410 Senior syndicated mortgage loan (Tree) 716,894 (48,106) 659,771 9,990 583 Mortgage loans - other assets 91,000 (2,123) 84,987 1,750 64 Total 2,518,119 (61,084) 1,623,758 11,740 1,824 Syndicated loans and revolving credit facility - Parent Company On 25 April 2019, the Group arranged a senior syndicated loan amounting to EUR 1,550million, including two tranches, a corporate loan of EUR 850 million and a corporate credit facility of EUR 700 million due in 2024. The initial maturity date for this revolving credit facility was 2024, with the possibility of two optional one-year extensions. The second one-year extension was approved on 30 June 2021, and the new maturity date is 9 May 2026. The EUR 850 million corporate loan accrued an interest rate of the one-month EURIBOR + 120 basis points, while the revolving credit facility yielded an interest rate of the one-month EURIBOR + 90 basis points, and both incorporated a cost adjustment mechanism based on four sustainability criteria. On 21 June 2022, the Group performed an early cancellation of the corporate loan for EUR 850 million. In 2022, as a result of the early cancellation of this financing, the application of amortized cost in relation to IFRS 9 represented a financial cost of EUR 4,213 thousand (EUR 1,790 thousand in 2021). 62 On 18 November 2022, the Parent arranged a new senior syndicated loan amounting to EUR 600 million with the possibility of being arranged before 24 April 2023 for the repayment of the bond maturing in 2023. This financing will have a maturity of 5 years from its disposal and will accrue a market rate of EURIBOR plus 130 basis points. For the period in which the financing is not drawn down, a commission will be applied for the unarranged balance of 26 basis points. At year-end 2022, the loan was not drawn down. These funds incorporate commitments to maintain certain coverage ratios existing in the previous financing, in Group bonds and in the financing from Banco Sabadell. These ratios are defined as the ratio between the value of the assets over the outstanding debt ("Loan to Value"), the ratio between the Group's revenue and the debt service ("ICR") and the ratio between assets and debt, both without mortgage guarantee ("Unissued Ratio"). In addition, they contemplate certain conditions linked to compliance with environmental and sustainability factors that may result in certain savings in their financial burden. The Parent Company's directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. Unsecured loans of the Parent Banco Sabadell loan On 18 November 2022, the Parent arranged a loan without mortgage guarantee with Banco Sabadell amounting to EUR 60 million, maturing in January 2028 and accruing a market rate of EURIBOR 120 basis points. This financing includes commitments to maintain certain coverage ratios described in the previous section. The Parent Company's directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. Loans from the European Investment Bank On 20 December 2018, the Parent formalised a loan without mortgage security with the European Investment Bank in an amount of EUR 51 million. On 4 November 2019, the Parent formalised the second tranche of the mortgage-free loan with the European Investment Bank amounting to EUR 64 million, amounting to EUR 115 million. This financing can be arranged through several loans with a maturity of 10 years on each drawdown. This credit facility must be allocated to the development of logistical assets in the Castille–La Mancha region. On 10 March 2020 and 26 October 2020, the Group drew down EUR 23.4 million and EUR 5.6 million corresponding to the first tranche of the financing. This loan accruals a fixed interest rate of 60 basis points. On 20 December 2022, the Group had drawn down EUR 22 million and 370 basis points. These three loans complete the provision for the first tranche of EUR 51 million. On 16 December 2021, the Parent formalised a loan without mortgage security with the European Investment Bank in an amount of EUR 45.2 million and with 10-year maturity. This financing will be used to make investments in energy efficiency. At year-end, this loan was not drawn down. This financing includes commitments to maintain certain coverage ratios. These ratios are defined as the ratio between the value of the assets over the outstanding debt ("Loan to Value"), the ratio between the Group's revenue and the debt service ("ICR") and the ratio between assets and debt, both without mortgage guarantee ("Unissued Ratio"). The Parent Company's directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. "Senior" syndicated mortgage loan (Tree): The senior syndicated mortgage loan of the subsidiary, Tree Investments Inmobiliarias SOCIMI, S.A., was signed on 29 July 2010 and novated for the first time on 30 December 2014. 63 The refinancing for 2014 and the first application of IFRS 9 'Financial Instruments' resulted in an increase in reserves and a decrease in debt amounting to EUR 30,592 thousand at 1 January 2018, and an increase in financial expenditure amounting to EUR 10,083 thousand in 2018. On 29 November 2018, the senior syndicated loan was novated so that the initially scheduled maturity in 2024 was postponed until 31 March 2031 with the possibility of extending the maturity annually for the next 3 years until 31 March 2034. The third of these extensions was approved in 2022. This financing accrues interest at a rate of 3-month EURIBOR + 120 basis point. On 15 June 2022, as a result of the sale of the shares of TREE Inversiones Inmobiliarias S.A. to BBVA, the Group repaid in advance the mortgage financing associated with the bank branches. Mortgage loans - other assets At 31 December 2022, the Group's subsidiaries had taken out the following mortgage loans: 2022 Thousands of euros Loan Long-term Short-term Financial institution Original Term Term Interest Collateral Caixabank 21,000 13,256 1,731 100 Mortgage ING 70,000 70,000 - 12 Mortgage Total 91,000 83,256 1,731 112 2021 Thousands of euros Loan Long-term Short-term Financial institution Original Term Term Interest Collateral Caixabank 21,000 14,987 1,750 63 Mortgage ING 70,000 70,000 - 1 Mortgage Total 91,000 84,987 1,750 64 On 26 March 2015, the Group subrogated a mortgage-backed loan taken out with Caixabank, S.A. with a mortgage guarantee on the Alcalá 38-40 office building. This loan has a principal of EUR 21 million, a term of 15 years, an interest rate of 3-month EURIBOR + 150 basis points, a 4-year grace period for the principal, and the principal is repayable in full using the French method over the following 11 years. On 26 April 2019, the Group entered into a novation agreement modifying the mortgage loan subscribed on 4 December 2015 with ING Bank N.V. by the subsidiary Merlin Logística S.L.U. The due date for this financial arrangement, originally set to be in 2020, was extended until 2026. This financial arrangement accrues an interest rate of EURIBOR at three months + 100 basis points; it includes a financial cost adjustment mechanism based on meeting four sustainability criteria. On 26 March 2021, the mortgage financing agreement was changed, extending the loan amount by EUR 2.1 million to a total of EUR 70 million. This loan requires that the company maintain and comply with certain coverage ratios, such as the loan-to-value ratio and the ratio of the company's income used to service the debt (interest coverage ratio, ICR). Additionally, it contemplates certain conditions linked to compliance with the following factors associated with the environment and sustainability: i) sustainable capex, ii) LEED and BREAM certifications, iii) AIS certifications and iv) green energy consumption, which may result in certain 64 savings in the financial burden. The Parent Company's directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. In accordance with IFRS 9, the Group evaluated the nature of the refinancing undertaken of the previous ING loan and concluded that it did not represented a material change (10% test). Therefore, the difference between the value of the old debt at amortised cost and the new debt discounted at the effective interest rate of the old debt was recognised as a lower financial expenses of EUR 2,291 thousand under "Financial expenses" on the 2019 consolidated income statement. This amount will revert to the consolidated income statement for subsequent years in accordance with the effective interest rate of the debt. In 2022, the application of the amortised cost in relation to these concepts involved a financial cost of EUR 362 thousand (EUR 363 thousand in 2021). Maturity of debt The breakdown by maturity of these loan principals is as follows: 2022 Thousands of euros Revolving Loans Loans line of Syndicated and other loans Secured credit Total 2023 - 1,731 - 1,731 2024 - 1,654 - 1,654 2025 - 1,743 - 1,743 2026 - 71,818 - 71,818 2027 - 1,890 - 1,890 Over 5 years 111,000 6,151 - 117,151 111,000 84,987 - 195,987 2021 Thousands of euros Loan H. Revolving Loans Senior Syndicated Loans line of Syndicated and other loans Tree Secured credit Total 2022 - 9,990 1,750 - 11,740 2023 - 9,841 1,777 - 11,618 2024 850,000 9,694 1,803 - 861,497 2025 - 17,426 1,829 - 19,255 2026 - 18475 71,855 - 90,330 Over 5 years 29,000 604,335 7,723 - 641,058 879,000 669,761 86,737 - 1,635,498 The Group had undrawn loans and credit facilities at 31 December 2022 with a number of financial institutions totalling EUR 1,409 million (EUR 831.2 million at 31 December 2021). None of the Group's debt was denominated in non-euro currencies at 31 December 2022 or 2021. 65 There are no significant differences between the fair values and carrying amounts of the Group's financial liabilities. The finance cost for interest on the loans totalled EUR 8,595 thousand in 2022 (EUR 13,257 thousand in 2021) and is recognised in the accompanying consolidated income statement for 2022. At 31 December 2022 and 2021, the debt arrangement expenses had been deducted from the balance of "Bank borrowings". During the 2022 financial year, the Group has allocated an expense of EUR 8,827 thousand (in 2021 EUR 4,433 thousand were allocated) under the heading "Financial expenses" of the attached consolidated income statement (see Note 18.d) associated with additional loans additional to those associated with the discontinued activity. This allocation in the accompanying consolidated income statement includes both the first application of IFRS 9 and the allocation of the debt to the income statement at amortised cost. 14.2 Debenture issues On 12 May 2017, the Parent subscribed a Euro Medium Term Notes (EMTN) issue programme of up to EUR 4,000 million, which will replace the original bond issue programme and its supplements subscribed on 6 April 2016 and 14 October 2016, respectively, for an overall maximum amount of EUR 2,700 million. On 18 May 2018, the Parent extended that bond-issue scheme (Euro Medium Term Notes - EMTN) up to an amount of EUR 5,000 million. On 17 June 2020, the General Meeting approved the extension of this bond issuance program up to an amount of EUR 6,000 million, the increase being performed on 21 March 2021. On 4 August 2022, the program was renewed for another year. On 30 June 2021, the Parent issued a 9-year bond of EUR 500 million at 99.196% of the par value and a coupon of 1.375%. These funds were used to prepay the bond maturing in May 2022 on 23 February 2022. On 1 June 2022, the Group obtained the conversion of all its bonds into green bonds in accordance with the Green Financing Framework published on 25 April 2022. The reclassification of bonds to green bonds does not entail any changes in any other characteristics of the bonds, irrespective of their terms, interest or maturities. The terms of the bonds issued by the Group abide by UK laws and are traded on the Luxembourg Stock Exchange. The bond issue scheme has the same guarantees and new ratio compliance obligations as the syndicated loan and the revolving credit facility. At year-end 2022, the Group complied with the covenants set forth in this contract and the directors consider that they will be met in 2023. The breakdown at 31 December 2022 of the bonds issued by Parent Company is as follows: 66 2022 Maturity Face value Coupon Listed price Return Market (Millions of Euros) April 2023 743 2.225% MS +98 p.b. 3.32% Luxembourg May 2025 600 1.750% MS +115 p.b. 4.44% Luxembourg November 2026 800 1.875% MS +168 p.b. 4.88% Luxembourg July 2027 500 2.375% MS +183 p.b. 5.01% Luxembourg September 2029 300 2.375% MS +210 p.b. 5.24% Luxembourg June 2030 500 1.375% MS +205 p.b. 5.18% Luxembourg December 2034 600 1.875% MS +232 p.b. 5.46% Luxembourg 4,043 1.958% 2021 Maturity Face value Coupon Listed price Return Market (Millions of Euros) May 2022 548 2.375% MS + 53 p.b. (0,01)% Ireland (a) April 2023 743 2.225% MS + 65 p.b. 0.169% Luxembourg May 2025 600 1.750% MS + 55 p.b. 0.405% Luxembourg November 2026 800 1.875% MS + 73 p.b. 0.708% Luxembourg July 2027 500 2.375% MS + 87 p.b. 0.897% Luxembourg September 2029 300 2.375% MS + 117 p.b. 1.319% Luxembourg June 2030 500 1.375% MS + 139 p.b. 1.603% Luxembourg December 2034 600 1.875% MS + 165 p.b. 2.058% Luxembourg 4,591 2.008% (1)Due to the business combination with Metrovacesa performed in 2016, the Group recognised a bond issue launched by Metrovacesa for EUR 700 million. The terms of the bonds were governed and interpreted according to UK laws and were traded on the Irish Stock Exchange. This issue also included a series of compliance obligations and guarantees, which is common in these types of transactions. The bond was paid in advance on 23 February 2022. These bond issues include commitments to maintain certain coverage ratios. These ratios are defined as the ratio between the value of the assets over the outstanding debt ("Loan to Value"), the ratio between the Group's revenue and the debt service ("ICR") and the ratio between assets and debt, both without mortgage guarantee ("Unissued Ratio"). The Parent Company's directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. The finance cost for interest on the debenture issues amounted to EUR 81,040 thousand (EUR 89,330 thousand in 2021) and is recognised in the accompanying consolidated income statement for 2022. The accrued interest payable at 31 December 2022 amounted to EUR 32,366 thousand (EUR 40,322 thousand in 2021). Debt arrangement expenses taken to the consolidated income statement in 2022 amounted to EUR 4,901 thousand (EUR 5,370 thousand in 2021). 14.3 Derivatives A breakdown of the financial instruments as of 31 December 2022 is as follows: 67 Thousands of euros 2022 2021 Non-current: Asset interest rate (18,882) - Liability interest rate - 78,465 Other (Note 9) 9,256 15,134 Total non-current (9,626) 93,599 Current: Interest rate derivatives 11 1,289 Total current 11 1,289 To determine the fair value of the interest rate derivatives, the Group discounts the cash flows based on the embedded derivatives determined by the Euribor interest rate curve in accordance with market conditions on the measurement date. These financial instruments were classified as level 2 according to the calculation hierarchy in IFRS 7, except for those related to the investment in Silicius (see Note 9) classified as level 3. A breakdown of the derivative financial instruments included in the consolidated statement of financial position at 31 December 2022 is as follows: 2022 Thousands of euros Assets Liabilities Financial Financial Non-current: Interest rate derivatives 18,882 - Current: Interest rate derivatives - 11 Total derivatives recognised 18,882 11 2021 . Thousands of euros Assets Liabilities Financial Financial Non-current: Interest rate derivatives - 78,465 Derivative embedded in contract BBVA lease (Note 10) 167,080 - Current: Interest rate derivatives - 1,289 Total derivatives recognised 167,080 79,754 On 26 April 2019, the subsidiary Merlin Logistics S.L.U., in the framework of the refinancing of the mortgage loan with ING Bank N.V., signed a new interest rate swap (IRS) to hedge the extension of the maturity of the financing from 2020 to 2026. The notional contract amounts to EUR 67.9 million at a cost of 0.31%.In addition to the early cancellation of the syndicated loan for 850 million euros, in June 2022, the Group cancelled the interest rate hedging instruments associated with the corporate syndicated loan. 68 In 2022 the Group subscribed new interest rate hedges to cover the new syndicated financing for April 2023 to April 2028. The notional contract amounts to EUR 500,000 thousand at a fixed cost of 2,574%. In addition, interest rate coverage was contracted to cover Sabadell's mortgage loan until its maturity in January 2028 for a notional amount of EUR 60,000 thousand and a fixed cost of 2.512%. The interest rate derivatives contracted by the Group and their fair values are as follows: 2022 Thousands of euros Outstanding notional amount at each date Interest rate Interest Value Years Contracted Value 2022 2023 2024 2025 years Syndicated Parent Company (starting 2023) 2,574% (11,394) - 500,000 500,000 500,000 500,000 Non-mortgage - Parent Company 2.512% (1,386) 60,000 60,000 60,000 60,000 60,000 Other subsidiaries 0.31% (6,091) 67,900 67,900 67,900 67,900 67,900 (18,871) 127,900 627,900 627,900 627,900 627,900 2021 Thousands of euros Outstanding notional amount at each date Interest rate Interest Value Years Contracted Value 2021 2022 2023 2024 years Syndicated Parent Company (starting 2021) 0.0154% (6,488) 850,000 850,000 850,000 - - Tree Inversiones (ended 2024) 0.959% (22,914) 688,405 677,196 665,987 - - Tree Inversiones (start 2024) 1.693% (49,255) - - - 660,029 642,065 Other subsidiaries 0.31% (1,096) 67,900 67,900 67,900 67,900 67,900 (79,754) 1,606,305 1,595,096 1,583,887 727,929 709,965 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. The derivatives that are highly effective prospectively and retrospectively, cumulatively, since the date of designation, are those associated with the Banco Sabadell new syndicated financing and bilateral loan, so their changes in value are recognised in equity. The Group has recognised in equity the fair value of the derivatives that meet the effectiveness requirements, without considering any tax effect due to adhering to the REIT regime. Under the heading 'Changes in fair value in financial instruments' of the consolidated income statement, the Group has registered as a result of derivative financial instruments that have not met the hedge requirements due to inefficiency and due to cancellation of income in the amount of EUR 35,348 thousand in 2022 (negative EUR 9,804 thousand in 2021). On adopting IFRS 13, the Group adjusted the measurement techniques for calculating the fair value of its derivatives. The Group includes a bilateral credit risk adjustment to reflect both the own credit risk and the counterpart party risk in the measurement of the fair value of the derivatives. The Group applied the discounted cash flow method, considering a discount rate affected by its own credit risk. To calculate the fair value of the financial derivatives, the Group used generally accepted measurement techniques in the market, which account for current and future expected exposure, adjusted by the probability of default and the potential loss given default affecting the contract. The 69 CVA (Credit Value Adjustment) or counterparty credit risk and DVA (Debt Value Adjustment) or own credit risk were therefore estimated. Current and expected exposure in the future is estimated using simulations of scenarios of fluctuations in market variables, such as interest rate curves, exchange rates and volatilities as per market conditions at the measurement date. Furthermore, for the credit risk adjustment, the Group's net exposure has been taken into account with regards to each of the counterparties, if the financial derivatives arranged with them are within a financial transaction framework agreement that provides for netting positions. For counterparties for whom credit information is available, the credit spreads have been obtained from the CDS (Credit Default Swaps) quoted in the market; whereas for those with no available information, references from peers have been used. The Group hired an independent expert to measure the fair value of the derivatives. The impact of interest rate derivatives on liabilities and profit or loss before tax of a 5% in the estimated credit risk rate at 31 December 2022 and 2021 would be as follows: 2022 Thousands of euros Scenario Liabilities Equity Consolidated profit before tax 5% rise in credit risk rate (13,030) 12,130 901 5% reduction in credit risk rate 13,446 (12,524) (921) 2021 Thousands of euros Scenario Liabilities Equity Consolidated profit before tax 5% rise in credit risk rate (40,881) 28,041 12,840 5% reduction in credit risk rate 42,611 (23,296) (19,315) 70 14.4 Reconciliation of the carrying amount of the liabilities arising from financing activities The breakdown of the financing activities and their impact on the Group's cash flows in 2022 was as follows: 2022 Thousands of euros 31/12/2021 Impact on cash No impact on cash Principal Debt Interest paid Discount option Principal Debt Accrued interest Interest accrued Discount option Other adjustme nts 31 December 2022 Long-term loans 1,623,758 (768,000) - (659,771) (1,731) - - - 194,256 Short-term loans 13,154 (1,750) (6,574) (13,482) 1,731 6,398 2,908 - 2,385 Short-term revolving credit facilities 410 - (2,198) - - 2,197 - 1 410 L/p bonds 4,042,786 - - - (742,786) - - - 3,300,000 C/p bonds 588,622 (548,300) (88,999) - 742,786 81,040 - 3 775,152 6,268,730 (1,318,050) (97,770) (673,253) - 89,635 2,908 4 4,272,203 2021 Thousands of euros 31/12/2021 Impact on cash No impact on cash Principal Debt Interest paid Discount option Principal Debt Accrued interest Interest accrued Discount option Other adjustme nts 31 December 2022 Long-term loans 1,633,770 2,100 - - (12,112) - - - 1,623,758 Short-term loans 11,580 (1,724) (11,057) (15,299) 12,112 11,052 6,495 (5) 13,154 Short-term revolving credit facilities 404 - (2,198) - - 2,205 - - 410 L/p bonds 4,091,086 500,000 - - (548,300) - - - 4,042,786 C/p bonds 36,291 - (85,299) - 548,300 89,330 - - 588,622 5,773,131 500,376 (98,554) (15,299) - 102,587 6,495 (5) 6,268,730 71 Thousands of euros 31 December 2022 31/12/2021 Long-term loans 194,256 1,623,758 Short-term loans 2,385 13,154 Short-term revolving credit facilities 410 410 Non-current bonds 3,300,000 4,042,786 Short-term bonds 775,152 588,622 4,272,203 6,268,730 Non-current derivatives - 78,465 Current derivatives 11 1,289 Loan arrangement expenses Syndicated loan - (7,758) Senior syndicated mortgage - (48,106) Debenture issues (20,782) (25,683) Other (4,390) (5,220) Total current and non-current liabilities 4,247,042 6,261,717 In addition, under the interest rate hedging agreements signed (see Note 14.3), the net balance of the settlements amounted to EUR 2,819 thousand in 2022 (EUR 5,306 thousand in 2021). 14.5 Debt arrangement expenses Changes in debt arrangement expenses during 2022 and 2021 are as follows: Thousands of euros 31/12/2021 Allocation to profit and loss account – Amortised cost Impact of IFRS 9 on income statement Capitalisation s 31 December 2022 Discount option of arrangement expenses Non-mortgage finance 10,855 (4,125) (4,213) - 240 2,757 Senior syndicated loan (Tree) 48,106 - - (48,106) - - Mortgage loans - other assets 2,123 (127) (362) - - 1,633 Debentures and bonds 25,683 (4,901) - - - 20,782 86,767 (9,153) (4,575) (48,106) 240 25,172 Thousands of euros 31/12/2020 Allocation to profit and loss account – Amortised cost Impact of IFRS 9 on income statement Capitalisations 31/12/2021 Discount option of arrangement expenses Non-mortgage finance 14,127 (2,151) (1,790) - 669 10,855 Senior syndicated loan (Tree) 52,276 - - (5,183) 1,014 48,106 Mortgage loans - other assets 2,615 (129) (363) - - 2,123 Debentures and bonds 25,284 (5,370) - - 5,769 25,683 94,302 (7,650) (2,153) (5,183) 7,452 86,767 72 . 15. Other current and non-current liabilities Details of this heading at 31 December 2022 are as follows: Thousands of euros 2022 2021 Non-current Current Non-current Current Other provisions 12,670 - 11,210 - Guarantees and deposits received 86,407 3,791 93,035 1,369 Deferred tax liabilities 613,479 - 681,013 - Other payables 58,485 5,229 46,134 6,495 Other (Note 9) 9,256 - 15,134 - Borrowings from Group companies and associates 2,250 - 4,050 - Other current liabilities - 11,566 - 7,668 Total 782,547 20,586 850,576 15,532 "Other provisions" includes provisions for the risk assessment associated with a series of litigation and third-party claims arising from the exercise of the Group's activity, which have been recognised in accordance with the best existing estimates, and the provision corresponding to the variable remuneration that will be paid in the long term for EUR 4,619 thousand (EUR 3,338 thousand in 2021). "Other provisions" also includes liabilities for tax debts for which there are uncertainties as to their amount or timing, whereby it is likely that the Group may have to dispose of resources to cancel these obligations as the result of a present obligation. "Guarantees and deposits received" primarily comprise the amounts deposited by lessees to secure leases, which will be reimbursed at the end of the lease term. The Parent Company and the majority of its subsidiaries adhere to the SOCIMI regime. Under this regime, gains from the sale of assets are taxed at 0%, provided that certain requirements are met (basically, the assets must have been held by the REIT for at least three years). Any gains from the sale of assets acquired prior to joining the REIT tax regime will be distributed on a straight-line basis (unless proven to be distributed otherwise) over the period during which the REIT owned them. Any gains generated prior to joining the REIT tax regime will be taxed at the general rate, while a rate of 0% will be applied for the other years. In this regard, the Parent's directors estimated the tax rate applicable to the tax gain on the assets acquired prior to their inclusion to the REIT regime (calculated in accordance with the fair value of the assets obtained from expert appraisals at the date of the business combination and as of 31 December 2022), recognising the related deferred tax liability. The Parent's directors do not envisage disposing of any of the investment property acquired after the Parent and its subsidiaries adhered to the REIT regime within three years, and have therefore not recognised the deferred tax liability corresponding to the changes in fair value since the assets were acquired as the applicable tax rate is 0%. 73 16. Trade and other payables Details of this heading at 31 December 2022 are as follows: Thousands of euros 2022 2021 Current: Providers 74,814 45,698 Payables to suppliers - Group companies and associates 1,800 63 Sundry accounts payable 9,341 7,240 Remuneration payable 16,190 21,621 Other payables to public authorities (Note 17) 27,044 22,771 Advances from customers 17,661 16,762 146,850 114,155 The carrying amount of the trade payables is similar to their fair value. Information on the average period of payment to suppliers. Final Provision Two of Law 31/2014, of 3 December The information required by additional provision three of Spanish Law 15/2010, of 5 July (amended by final provision two of Spanish Law 31/2014, of 3 December), prepared in accordance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 29 January 2016 on the disclosures to be included in the notes to financial statements in relation to the average period of payment to suppliers in commercial transactions, is detailed below. Days 2022 2021 Average period of payment to suppliers 25.2 31.6 Ratio of transactions settled 23.5 31.5 Ratio of transactions not yet settled 32.9 33.7 Thousands of euros 2022 2021 Total payments made 345,878 239,013 Total payments outstanding 71,590 4,129 In accordance with the ICAC Resolution, the average period of payment to suppliers was calculated by taking into account the commercial transactions relating to the supply of goods or services for which payment has accrued since the date of entry into force of Law 31/2014, of 3 December. For the exclusive purpose of providing the information envisaged in this Resolution, payable to suppliers are considered trade payables for debts with suppliers of goods and services, included under "Trade receivables and other payables" under current liabilities in the attached balance sheet. "Average period of payment to suppliers" is taken to be the period that elapses from the delivery of the goods or the provision of the services by the supplier to the effective payment of the transaction. 74 The maximum legal period applicable to the Group in accordance with Law 11/2013, of 26 July was 30 days following the publication of the above law to date (unless the terms established therein are met that would enable the above maximum period to be extended up to 60 days). The monetary volume and number of invoices paid within the established legal period (60 days) are detailed below. 2022 Monetary volume (thousands of euros) 345,129 Percentage of total payments made 99,7% Number of invoices 36,196 Percentage of total invoices 99,9% 17. Tax situation a) Tax receivables and tax payables The breakdown of the main tax receivables and payables at 31 December 2022 is as follows: 2022 Thousands of euros Tax assets Tax liabilities No No Current Current Current Current Public Treasury for withholdings and other items - 14,572 - 21,095 VAT - 3,277 - 5,650 Tax assets 78,646 - - - Corporate income tax - - - 5,234 Payable to the Social Security - - - 299 Deferred tax liabilities - - 613,479 - 78,646 17,849 613,479 32,279 75 2021 Thousands of euros Tax assets Tax liabilities No No Current Current Current Current Public Treasury for withholdings and other items - 10,705 - 16,450 VAT - 8,610 - 6,017 Tax assets 83,808 - - - Corporate income tax - - - 3,935 Payable to the Social Security - - - 304 Deferred tax liabilities - - 681,013 - 83,808 19,315 681,013 26,706 b) Reconciliation of the accounting profit/loss to the taxable profit/tax loss At 31 December 2022, the taxable profit was calculated as the accounting profit for the year plus the effect of changes in the fair value of investment property, and temporary differences due to the existing limitations. At the reporting date of these financial statements, the Group did not recognise any deferred tax assets in this regard, as it is generally subject to a tax rate of 0% as the Parent and the majority of the subsidiaries adhere to the REIT regime. The reconciliation of the accounting profit to consolidated income tax expense for the year at 31 December 2022 is as follows: Thousands of euros 2022 2021 Profit/(Loss) before tax 48,156 518,798 Permanent differences: -Consolidation adjustments to profit or loss 5,847 (38,525) -Tax adjustments Operating profit 786,007 (46,522) -Non-deductible finance costs - 22,300 -Profit and loss accounted for using the equity method (24,033) (34,560) -Other permanent differences 19,972 (92,419) Temporary differences: -Changes in the value of investment property 249,272 (177,008) -Adjustments to depreciation and amortisation (50,308) (79,589) Tax loss carryforwards (1,469) (4,126) Adjusted taxable profit 1,033,445 68,349 The Parent Company and a significant number of its subsidiaries adhere to the REIT regime. As indicated in Note 5.13, the taxation of this scheme is constructed at a rate of 0%, provided that certain requirements are met. In relation to the permanent differences/consolidation adjustments to profit or loss, the results of the companies integrated by the equity method are mainly included, as well as the tax capital gains obtained from the disposal of Tree Inversiones Inmobiliarias, SOCIMI, S.A. (see Note 3) and the incorporation of the amortisation expenses of the real estate investments not included under Income before taxes on the accompanying consolidated income statement. 76 Temporary differences arose from the change in value of investment property (IAS 40 - Fair value model). As the Parent's directors plan and state that investment property acquired by subsidiaries already subject to the REIT tax regime will not be sold within three years, the fair value adjustment in 2022 and 2021 is taxed at 0% and therefore the deferred tax liability is also zero. c) Reconciliation of accounting profit and tax expense Thousands of euros 2022 2021 Expense/(Income): Expense for increase in value of investment property (a) (1,684) (300) Expense for disposal of properties within the REIT regime (b) (1,102) (3,095) Expense for disposal of properties outside the REIT regime - (179) Expense for gain/(loss) at standard rate (5,836) (3,833) Other items 1,822 826 Total corporate income tax expense (6,800) (6,581) Current tax (5,836) (6,318) Deferred tax and other adjustments to taxation (964) (263) Total corporate income tax expense (6,800) (6,581) (1)This corresponds to the increase in the value of the assets of the non-REIT subsidiaries (resident in Portugal, which meet the requirements of article 2.1 [c] of the REITs Act to be considered as eligible assets for the purposes of the above tax regime). The amount is the result of applying the tax rate that the directors consider will be applicable to the capital gains. (2)Adjustment corresponding to the profit arising in the Parent's individual financial statements for the sale of an asset from the integration of Metrovacesa, the portion of which is taxed at the general tax regime despite being sold within a period exceeding 3 years of its acquisition. 77 d) Deferred tax assets recognised A breakdown of the tax loss carryforwards at 31 December 2022 is as follows: 2022 Thousands of euros Recognised Credit Tax base credit Tax loss carryforwards: 2009 134,928 33,732 2010 1,650 413 2011 86,402 21,600 2014 13,313 3,328 2015 2,326 581 2018 718 180 2019 462 116 2022 128 32 Total tax loss carryforwards 239,927 59,982 Other deferred taxes recognised 74,656 18,664 Total capitalised deferred tax assets 314,583 78,646 The "Other deferred taxes recognised" heading mainly includes the timing differences caused by the limitation of the depreciation of the assets generated by the acquisition of the Testa and Metrovacesa subgroup and the tax deductions pending application mainly due to reinvestment, and credits for losses from companies absorbed in previous years. The above deferred tax assets were recognised in the consolidated statement of financial position since the Group's directors consider that, based on the best estimates of the Group's future results, including certain tax planning measures, it is likely that these assets will be recovered. 78 A breakdown of the tax assets not recognised at 31 December 2022 is as follows: Thousands of euros Not recognised Tax base Tax loss carryforwards: 2009 52,955 2010 5,673 2011 1,214 2012 1,676 2013 440 2014 20,158 2015 264 2016 456 2017 2,199 2018 1,236 2019 4,046 2020 14,455 2021 - Total tax loss carryforwards 104,772 e)Deferred tax liabilities As indicated above, the deferred tax liabilities arise mainly from the business combinations performed in recent years and the non-REIT subsidiaries (resident in Portugal, which meet the requirements of article 2.1 (c) of the REIT Law to be considered as eligible assets for that regime). The changes at 31 December 2022 are as follows: Thousands of euros Total deferred tax liabilities at 31 December 2020 684,454 Increase in value of investment property 300 Reductions due to sales (4,064) Temporary differences 323 Total deferred tax liabilities at 31 December 2021 681,013 Increase (decrease) in value of investment property 1,684 Reductions due to sales (68,944) Temporary differences (274) Total deferred tax liabilities at 31 December 2022 613,479 The sales losses relate mainly to the sale of the leased premises to BBVA through the sale of all the shares held by the Parent from the subsidiary Tree Inversiones Inmobiliarias, SOCIMI, S.A. (see Note 3). 79 As in Note 17.b, the increase in value of investment property acquired by subsidiaries subject to the REIT tax regime generate temporary differences at a tax rate of 0%, whereby no deferred tax liability has been recognised. f) Years open to audit and tax inspections Under current law, taxes cannot be deemed to have been definitively settled until the tax returns filed have been reviewed by the tax authorities or until the four-year limiation period has expired. At year- end 2022, the Parent and its subsidiaries were open for income tax audit for the periods 2018 to 2021, VAT and income tax withholdings for 2019 to 2022, and Business Tax (IAE) and Property Tax (IBI) for 2020 to 2023. In accordance with Additional Provision Nine of Royal Decree Law 11/2020 of 31 March and Additional Provision One of Royal Decree Law 15/2020 of 21 April, the period between 14 March and 30 May 2020 will not count for the purposes of the limitation periods in Law 58/2003 of 17 December, on General Taxation, so that the usual deadlines are extended by 78 additional days. The Parent's directors consider that the tax returns for the above taxes have been filed correctly and, therefore, even in the event of discrepancies in the interpretation of current tax legislation in relation to the tax treatment afforded to certain transactions, such liabilities as might arise would not have a material effect on the accompanying financial statements. Also, Law 34/2015, of 21 September, partially amending Law 58/2003, of 17 December, on General Taxation establishes the right of the tax authorities to initiate a review and investigation procedure of the tax losses offset or carried forward or tax credits taken or carried forward, which will become statute barred after ten years from the day on which the regulatory period established for filing the tax return or self-assessment relating to the year or the tax period in which the right to offset the tax loss or to apply the tax credits arose. On 10 February 2022, the Tax Agency notified the Parent of the initiation of an audit and investigation actions regarding income tax in 2016 to 2019 and value added tax and withholdings for the period of 2018 to 2019. At the date of authorization for issue of these consolidated financial statements, the Parent was in the process of collecting the information required by the tax agency without any proceedings having taken place on the date that they questioned the reports submitted in the years being audited. g) Disclosure requirements arising from REIT status, Law 11/2009, amended by Law 16/2012 and 11/2021 The disclosure requirements arising from the Parent and certain subsidiaries being considered REITs are included in the related notes of the separate financial statements. 18. Revenue and expenses a) Net income At 31 December 2022, the Group's revenue breakdown is as follows: Thousands of euros 2022 2021 () Rental income 428,154 377,090 Income from services rendered 10,884 5,740 439,038 382,830 () Reexpresed information 80 b) Other operating expenses At 31 December 2022, a breakdown of "Other operating expenses" in the consolidated income statement is as follows: Thousands of euros 2022 2021 () Non-recoverable expenses of leased properties 49,096 46,331 Overheads- Professional services 11,821 10,291 Travel expenses 976 548 Insurance 794 633 Other 2,856 2,790 Costs associated with asset acquisitions and financing 2,112 1,622 Losses on, impairment of and change in provisions 180 2,312 Other current operating expenses 5,652 3,230 Other exceptional expenses 331 837 73,818 68,594 () Reexpresed information c) Staff costs and average headcount A breakdown of "Staff costs" at 31 December 2022 is as follows: Thousands of euros 2022 2021 Wages, salaries and similar expenses 32,056 25,790 Termination benefits - 152 Social security costs 3,085 2,745 Other employee benefit costs 518 594 Long-term incentive plan 4,014 11,498 39,673 40,779 The average number of employees at the various Group companies in 2022 and 2021 was 250 and 222 respectively. A breakdown of the headcount at 2022 and 2021 year-end, by category, is as follows: 2022 Women Men Total Senior management 1 27 28 Middle management 27 55 82 Other professionals 89 61 150 117 143 260 81 2021 Women Men Total Senior management 1 26 27 Middle management 26 51 77 Other professionals 83 52 135 110 129 239 The average number of employees at the Group in 2022 and 2021 with a disability equal to or greater than 33%, by category, was as follows: 2022 2021 Senior management - - Middle management 1 - Other professionals 6 5 7 5 d) Finance income and costs The breakdown of these items in the consolidated income statement is as follows: Thousands of euros 2022 2021 () Finance income: Interest on loans 2,098 4,273 Interest on deposits and current accounts 1,844 1,148 3,942 5,421 Finance costs: Interest on loans and other credits (103,382) (113,014) Other finance costs (5,821) (3,444) (109,203) (116,458) Net finance expense (105,261) (111,037) () Reexpresed information In 2022 finance costs include mainly the interest corresponding to the bank borrowings and obligations detailed in the Note 14 amounting to EUR 8,595 thousand and EUR 81,040 thousand, respectively (EUR 13,257 and EUR 89,330 thousand in 2021 respectively). The amounts above does not include amortisation of debt formalisation costs amounting to EUR 13,729 thousand (EUR 9,540 thousand in 2021), from application of the effective interest rate on financial debt (see Note 14.5), and the financial costs associated with interest rate derivatives amounting to EUR 18 thousand (EUR 625 thousand in 2021). e) Contribution to consolidated profit The contribution of each company included in the scope of consolidation to profit for 2022 was as follows: 82 Thousands of euros Company 2022 2021 Full consolidation: Merlin Properties SOCIMI, S.A. () 122,450 28,391 Tree Inversiones Inmobiliarias, SOCIMI, S.A. 6,279 103,758 Merlin Retail, S.L. 11,975 26,887 Merlin Oficinas, S.L. (5,279) 32,758 Merlin Logística, S.L. 26,363 203,220 Varitelia Distribuciones, S.L.U. 3,489 2,725 Metroparque, S.A. 1,366 7,949 La Vital Centro Comercial y de Ocio, S.L. 3,355 2,543 Global Carihuela Patrimonio Comercial, S.L.U. 2,258 (4,814) Parques Logísticos de la Zona Franca, S.A. (2,548) 24,471 Sevisur Logística, S.A. 10,931 17,266 The Exhibitions Company, S.A. (1,467) (787) Innovación Colaborativa, S.L.U. 1,715 (534) Promosete Invest. Inmobiliaria, S.A. 1,072 2,480 Praça do Marqués - Servicios auxiliares, S.A. 2,515 1,996 MPCVI - Compra e Venda Imobiliária, S.A. 1,340 1,393 MPEP - Properties Escritórios Portugal, S.A. 681 1,282 MP Monumental, S.A. 20,296 7,048 MP Torre A, S.A. (657) 2,418 Forum Almada – Gestao Centro Comercial, Lda 18,870 14,004 Torre dos Oceanus Investimentos Inmobiliarios,S.A. 1,377 2,023 Torre Arts Investimentos Inmobiliarios,S.A. 3,970 4,271 Torre Fernão Magalhães Investimentos Inmobiliarios,S.A. 1,418 1,868 VFX Logística, S.A. 7,210 (5,702) Other companies 75 744 Equity method: Paseo Comercial Carlos III, S.A. 2,487 (1,712) Centro Intermodal de Logística, S.L. 18,556 28,021 Provitae, S.L. (198) 5 Sicilius Real Estate S.L. 2,667 7,991 Madrid Crea Nuevo Norte, S.A. (616) (410) Other investments 1,137 665 Total 263,087 512,217 () Includes EUR 215,452 thousand associated with discontinued activity sold 83 19. Related party transactions Related transactions performed by the Parent or its Subsidiaries with directors, with a holding of 10% or more of the voting rights or represented on the Parent's Board, or with any other persons that must be considered related parties in accordance with International Accounting Standards, adopted in accordance with Regulation (EC) 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards, are considered related transactions. At 31 December 2022, a breakdown of any significant transactions, given their amount or importance, performed between the Parent or its Group companies, and related parties, is as follows: 2022 Nature of relationship Thousands of euros Related party Revenue Expense Assets Liabilities Banco Santander, S.A. (a) Financing 5,860 2,326 - - Banco Santander, S.A. (a) Cash - - 201,077 - Banco Santander, S.A. (b) Lease 752 23 - 392 Banco Santander, S.A. (b) Services - 75 - - Pº Comer. Carlos III, S.A. (c) Financing 29 - 2,590 - Provitae Centros Asistenciales, S.L. (d) Financing - - 1,131 - Silicius Real Estate SOCIMI, S.A. (e) Financing - - - 4,050 6,641 2,424 204,798 4,442 2021 Nature of relationship Thousands of euros Related party Revenue Expense Assets Liabilities Banco Santander, S.A. (a) Financing - 4,443 - 198,780 Banco Santander, S.A. (a) Cash - - 487,939 - Banco Santander, S.A. (a) Notional derivatives - - - 305,191 () Banco Santander, S.A. (b) Lease 636 - - 131 Banco Santander, S.A. (b) Services - 98 - - Pº Comer. Carlos III, S.A. (c) Financing 16 - 2,561 - Provitae Centros Asistenciales, S.L. (d) Financing - - 1,106 - Silicius Real Estate SOCIMI, S.A. (e) Financing - - 80,964 5,850 G36 Developments S.L. (f) Financing 4 - 224 - 656 4,541 572,794 509,952 () This amount does not represent the recognition of a liability as of 31.12.2021. Transactions executed with significant shareholders During 2022, only the shareholder Banco Santander, S.A. held the status of significant shareholder pursuant to the regulations in force. a)Financing transactions At 31 December 2022, the Group had no loans taken out with shareholders except for a corporate credit line of EUR 700 million, which was not drawn down at 31 December 2022, in which Banco Santander, S.A. share was EUR 54.2 million. (see Notes 14). At 31 December 2021, the Group had arranged loans and hedges with its shareholder Banco Santander, S.A. that corresponded to Banco Santander, S.A.'s share of the loans granted for Group 84 financing transactions was EUR 198,780 thousand in loans and EUR 305,191 thousand in notional derivatives. At 31 December 2022, the Group had bank balances deposited with Banco Santander, S.A. amounting to EUR 201,077 thousand (which included the accounts on behalf of the associates Paseo Comercial Carlos III, S.A. and Edged Spain, S.L.U. for EUR 2 thousand and EUR 19 thousand, respectively). In 2022, the finance costs incurred in transactions with Santander, S.A. amounted to EUR 2,326 thousand, which included EUR 55 thousand in guarantee fees and EUR 385 thousand in current account management costs. The Group has been granted guarantees by the shareholder Banco Santander, S.A. amounting to EUR 5,455 thousand (EUR 3,940 thousand granted to MERLIN Properties SOCIMI, S.A. and EUR 1,516 thousand granted to the associate Paseo Comercial Carlos III, S.A.). The revenue of EUR 5,860 thousand relates to the early cancellation of the derivatives associated with the financing of the corporate syndicated loan and the mortgage financing of Tree Inversiones Inmobiliarias, SOCIMI, S.A. b)Leases and services rendered In 2022 the Group had 5 leases with Banco Santander Group in various office properties and shopping centres. The duration of the lease contracts covers a period of up to 5 years, and in 2022 they generated income of EUR 752 thousand (EUR 636 thousand in 2021) including income from leasing, and parking spaces and transfers of cash machine space in shopping centres. The guarantees deposited to secure these agreements amounted to EUR 392 thousand (EUR 131 thousand in 2021). In addition, the Group has contracted General Meeting and shareholder registration organisational services amounting to EUR 64 thousand, in addition to listing agent services on the Euronext Lisbon stock exchange and dividend agent for EUR 11 thousand. Transactions with companies accounted for using the equity method c)Paseo Comercial Carlos III S.A. At 31 December 2022, the Parent, together with the other shareholder of the associate and as a condition of bank financing, had a loan of EUR 2,590 thousand in force, including EUR 51 thousand of accrued interest (EUR 29 thousand in 2021), granted on 27 July 2020 to the associate Paseo Comercial Carlos III, S.A. Which manages a shopping centre in Madrid. d)Provitae Centros Asistenciales, S.L. At 31 December 2022, the Parent had an existing loan amounting to EUR 1,131 thousand (EUR 962 thousand at 31 December 2021), which included EUR 144 thousand of accrued interest (EUR 144 thousand in 2021), granted on 10 January 2002 to the associate Provitae Centro Asistenciales, S.L. with a land holding in Villajoyosa. e)Silicius Real Estate SOCIMI, S.A. At 31 December 2021, the Parent had a "financial asset at fair value through profit and loss" amounting to EUR 80,964 thousand corresponding to the value of the shares associated with the liquidity mechanism maturing in February 2022, agreed in the non-monetary contribution made by the Parent on 27 February 2020. In the first half of 2021, the Parent sold 353,966 shares for EUR 5,418 thousand. On 27 July 2022, the Group exercised the option to sell 14.28% of the shares of Silicius Real Estate SOCIMI, S.A. for EUR 80,964 thousand, the full amount of which was paid in cash (see Note 10). 85 The Parent Company also had outstanding obligations to pay amounting to EUR 4,050 thousand, recorded as "other current and non-current financial liabilities". f)G36 Developments, S.L. At 31 December 2022, the Parent did not have any outstanding loans with this company. During the first quarter of 2022, the company has cancelled the outstanding part (EUR 212 thousand) of the loan for an amount EUR 625 thousand, granted on 1 October 2018 to the associated company G36 Developments, S.L., holder of an asset that will be dedicated to the management of flexible office spaces. In February 2022 G36 Developments, S.L. sold the asset it held. In 2022, G36 Developments, S.L. returned the contributions made in the 2018 capital increase; i.e., the share premium amounting to EUR 1,823 thousand and a capital reduction of EUR 202 thousand, which resulted in the value of the Group's share in this company reaching EUR 2 thousand. Dividends and other profits distributed to related parties (thousands of euros) Thousands of euros 2022 2021 Significant shareholders 136,701 51,209 Banco Santander, S.A. 136,701 51,209 Directors and managers 8,245 1,780 Directors 4,806 1,551 Executives 3,439 229 144,946 52,989 . 20. Information on Directors The Parent's directors and the parties related thereto did not have any conflicts of interest that had to be reported in accordance with article 229 of the revised text of the Spanish Capital Companies Act. Directors' compensation and other benefits At 31 December 2022 and 2021, salaries, per diem attendance fees and any other type of compensation paid to members of the Parent's managing bodies totalled EUR 8,151 thousand and EUR 6,523 thousand, as detailed below: Thousands of euros 2022 2021 Fixed and variable remuneration 7,907 6,259 Statutory compensation - - Termination benefits - - Per diems 234 250 Life and health insurance 10 14 8,151 6,523 In addition to the above amounts and in relation to the variable remuneration in favour of Executive Directors corresponding to the bonus for previous years, in 2022 an amount of EUR 3,250 thousand was paid on the deferred amounts of the variable targets for 2016 and 2019 in accordance with the conditions in the above plans. 86 At the end of 2022, unpaid accrued amounts associated with the variable remuneration for 2021 amounting to EUR 1,350 thousand were maintained, of which EUR 675 thousand were recognised under 'Non-current provisions' and EUR 675 thousand under 'Trade and other accounts payable' in the accompanying balance sheet. Unpaid accrued amounts are maintained, associated with the variable remuneration for 2022 for the amount of EUR 4,186 thousand, of which EUR 1,243thousand are recognised under "Non-current provisions" and EUR 2,943 thousands under "Trade and other accounts payable" in the accompanying balance sheet. Also, in accordance with the 2017-2019 Incentive Plan, described in this same Note, in 2022 the Executive Directors received 538,460 net shares corresponding to the second 50% of the amount of the incentive referenced to the EPRA NAV, with the 2017-2019 Incentive Plan settled. In April 2022 the Executive Directors received a total of EUR 750 thousand under the 2021 Special Incentive. As established in the Special Incentive for the sale of the BBVA portfolio, defined below, the Executive Directors have accrued an amount of EUR 1,700. In regards to the "golden parachute" clauses for executive directors and other senior executives of the Company or its Group in the event of dismissal or takeover, these clauses provide for compensation that represented a total commitment of EUR 8,971 thousand as of 31 December 2022. The breakdown, by board member, of the amounts disclosed above is as follows: Thousands of euros 2022 2021 Director: Remuneration of board members Javier García Carranza Benjumea Chairman - Proprietary director - - Ismael Clemente Orrego CEO 3,507 2,800 Miguel Ollero Barrera Executive director 2,679 1,900 María Luisa Jordá Castro Independent director 189 172 Ana García Fau Independent director 207 172 George Donald Johnston Independent director 172 134 Fernando Ortiz Vaamonde Independent director 142 136 Juan María Aguirre Gonzalo Independent director 182 176 Pilar Cavero Mestre Independent director 152 159 Francisca Ortega Hernández Agero Proprietary director 169 129 Emilio Novela Berlín Independent director 187 168 María Ana Forner Beltrán Proprietary director 177 161 Ignacio Gil-Casares Satrústegui Proprietary director 144 146 John Gómez Hall Independent director - 6 7,907 6,259 The Company has granted no advances, loans or guarantees to any of its directors. The Parent's directors are covered by the "Corporate Third-Party Liability Insurance Policies for Directors and Executives" taken out by the Parent to cover possible damages that may be claimed, and that are evidenced as a result of a management error committed by its directors or executives, and those of its subsidiaries, in discharging their duties. The premium amounted to an annual total of EUR 400 thousand (EUR 493 thousand in 2021). Remuneration and other benefits of senior executives 87 The remuneration of the Parent's senior executives, including the Head of Internal Audit, excluding those who are also Board members (whose remuneration is disclosed above) in 2022 and 2021, is summarised as follows: 2022 Thousands of euros Number of persons Fixed and variable remuneration Other remuneration Total 9 7,324 31 7,355 2021 Thousands of euros Number of people Fixed and variable remuneration Other remuneration Total 8 5,525 36 5,561 In addition to the above amounts and in relation to the variable remuneration for Senior Management corresponding to the prior years' bonuses, an amount of EUR 4,373 thousand was paid related to the variable objectives, and the deferred amounts of the variable objectives for 2016 and 2019 in accordance with the above plans. At the end of 2022, unpaid accrued amounts associated with the variable remuneration for 2021 were maintained for EUR 1,988 thousand, of which EUR 994 thousand were recognised under 'Non-current provisions' and EUR 994 thousand under 'Trade and other accounts payable' in the accompanying balance sheet. Unpaid accrued amounts are maintained, associated with the variable remuneration for 2022 for the amount of EUR 5,229 thousand, of which EUR 1,707 thousand are recognised under "Non-current provisions" and EUR 3,522 thousands under "Trade and other accounts payable" in the accompanying balance sheet. Also, in accordance with the 2017-2019 Incentive Plan, described in this same Note, in 2022 Senior Management received 444,950 net shares corresponding to the second 50% of the amount of the incentive referenced to the EPRA NAV, with the 2017-2019 Incentive Plan settled. In 2021, two Senior Management staff left the company. In 2021 they received fixed and variable remuneration of EUR 242 thousand, and other remuneration amounting to EUR 3 thousand. They were also paid EUR 3,870 thousand corresponding to the deferred amounts of the variable targets for 2015, 2016, 2018 and 2019. There are no unpaid accrued amounts. In addition, in relation to the remuneration plan associated with the 2017-2019 period, they received the payment of 591,766 net shares arising from the entire amount corresponding to the incentive plan and linked to the increase in the EPRA NAV in the period. In April 2022 Senior Management received a total of EUR 540 thousand for the 2021 Special Incentive. As established in the Special Incentive for the sale of the BBVA portfolio, defined below, the Senior Management have accrued an amount of EUR 1,709. 88 Special Incentive corresponding to TREE disposal In application of the current Remuneration Policy, approved at the 2022 General Shareholders' Meeting, the Board of Directors has decided to make use of the power to grant a special incentive (hereinafter "Special Incentive") to the Executive Directors in the event of the success of extraordinary corporate transactions that generate significant added value for the Company's shareholders and/or generate an economic benefit or a significant value creation in the Company's assets. In this regard, in fiscal year 2022, the sale of BBVA's branch portfolio through Tree Inversiones Inmobiliarias SOCIMI, S.A. (100% subsidiary of MERLIN) was carried out for 1,987 million euros (sale of TREE). This transaction resulted in a premium of 17.1% over the last valuation and reduced the Group's net debt by 1,636 million euros, while simultaneously distributing an extraordinary dividend of 351 million euros (0.75 euros per share). The Special Incentive has been extended to Senior Management and the rest of the beneficiaries of the 2022-24 Long-Term Incentive Plan for a total amount of 4,450 thousand euros. The incentive will be paid in the first quarter of 2023. 2021 Special Incentive On 27 April 2021, the Parent's Annual General Meeting of Shareholders approved the implementation of an exceptional variable remuneration scheme payable in cash for 2021 (the "Special Incentive"( for members of the Company's management and management team). The activation of the right to receive the "Special incentive" would take place if, after the period from 1 January 2021 to 31 December 2021, the level of fulfilment of the targets linked to the right to receive the "Special incentive" had been reached. In this regard, at 31 December 2021, the Group recognised the expense in the amount of EUR 2,737 thousand, corresponding to the vested portion of the 2021 Incentive Plan. This special incentive was paid to its beneficiaries in April 2022. 2017 – 2019 Incentive Plan Also, at the General Meeting held on 26 April 2017, the shareholders approved a remuneration plan for the management team and other important members of the Group's workforce, the measurement period of which was from 1 January 2017 to 31 December 2019 (the "2017-2019 Incentive Plan"). According to the plan, the members of the management team could be entitled to receive: (i) a certain monetary amount in accordance with the increase of the share price and (ii) Parent Company shares, if certain objectives are fulfilled. In this regard, as of 31 December 2022, the Company recognised the expense in the amount of EUR 1,210 thousand, corresponding to the vested portion of the 2017-2019 Incentive Plan, with a balancing entry in reserves. In 2022, a total of 1,262,398 net shares were paid corresponding to the second payment of the incentive referenced to the EPRA NAV. With this payment, the 2017-2019 Incentive Plan was fully settled and paid. 2022 – 2024 Incentive Plan The General Shareholder Meeting held on 4 May 2022 approved a long-term remuneration plan consisting of the delivery of a number of ordinary shares of the Company equal to 3,491,767 shares (representing 0.74% of the share capital), aimed at the management team and other relevant members of the Group's workforce (the 2022-2024 Incentive Plan). 89 The 2022-2024 Incentive Plan consists of a single cycle with a target measurement period of 3 years, beginning on 1 January 2022 and ending on 31 December 2024. If the targets are met, the shares will be delivered in 2025, once the corresponding accounts for 2024 have been prepared and audited. All shares delivered under the 2022-2024 Incentive Plan to executive directors will be subject to a 2-year vesting period. The maximum number of shares assigned to the Executive Directors is 1,088,082 shares. The specific number of shares of the Company that, within the maximum established, will be delivered to the Beneficiaries of the 2022-2024 Incentive Plan at the end of the Plan will be conditional on the fulfilment of the following objectives related to the creation of value for shareholders and sustainability: Metrics Definition Weighting Absolute TSR Relative TSR Absolute Total Shareholder Return (TSR) is the return on the share taking into account the cumulative change in the quoted value of the Company's share, including dividends and other similar concepts received by the shareholder in 2022-2024. The Relative TSR measures the evolution of the TSR of the Company's share in 2022-2024, in relation to the TSR experienced in the EPRA Nareit Developed Europe Index during the same period. 50% EPRA NTA 31/12/24 Dividends (2022-2024)/share EPRA NTA is calculated based on the Company's consolidated equity and by adjusting certain items following the recommendations of the EPRA. On the other hand, the dividends paid and other similar concepts received by the shareholder during the period of measurement of targets (financial years 2022, 2023 and 2024) are taken into account. 35% Net carbon issues Level of reduction of the Company's CO2 emissions at 31 December 2024, compared to 31 December 2021, calculated for the comparable asset portfolio over which the Company has operational control (scope of the Company's zero net path). 10% Environment and Company Progress on initiatives linked to improving the environment and society. In this sense, the economic and social impact of the Company's assets on the local communities located around said assets and the different interest groups will be assessed. 5% As of 31 December 2022, the Company recognised the expense in the amount of EUR 2,804 thousand, corresponding to the vested portion of the 2022-2024 Incentive Plan, with a balancing entry under reserves. 90 21. Auditors' remuneration The fees for financial audit services provided to the various companies composing the Merlin Group and subsidiaries by the principal auditor, Deloitte, S.L., and entities related to the principal auditor and other auditors is as follows: Thousands of euros 2022 2021 () Audit services 658 572 Other audit-related services: Other attest services 141 129 Total audit and related services 799 701 Services required by applicable law Tax advisory services - - Other services - 202 Total other services - 202 Total 799 903 () No services associated with discontinued activity The heading "Other audit-related services" includes the verification services performed by the auditor in the bond issue process, and certain agreed procedures related to the performance of covenants. "Other services" includes technical and urban advisory services, and other advisory services. For its part, the audit services include, in addition to the statutory annual audit, services from revisions of intermediate periods. 22. Environmental information Given the activity in which the Group engages, it has no environmental liabilities, expenses, assets, provisions or contingencies that could have a material impact on its equity, financial position and results of its operations. Therefore, no specific environmental disclosures have been included in these notes to the consolidated financial statements. 23. Risk exposure Financial risk factors The Group's activities expose it to a variety of financial risks: market risk, credit risk, liquidity risk and cash flow interest rate risk. The Group's overall risk management programme is based on the uncertainty of financial markets and aims to minimize the adverse effects of such risks on the financial profitability of the Group. Risk management is undertaken by the Group's Senior Management in accordance with the policies approved by the Board. Senior Management identifies, evaluates and mitigates financial risks in close collaboration with the Group's operating units. The Board issues the written global risk management policies and the policies for specific areas, including those for covering market risk, interest rate risk and liquidity risk and investing cash surpluses. 91 Market risk Given the current status of the real-estate sector and to mitigate the effects thereof, the Group has specific measures in place to minimize said impact on its financial position. These measures are applied pursuant to the results of sensitivity analyses performed by the Group on a regular basis. These analyses involve: •Assessing the economic environment in which the Group operates: Designing different economic scenarios and modifying the key variables potentially affecting the Group. Identifying interdependent variables and the extent of their relationship; and •Taking into account the time frame of the analyses: consideration is given to the periods over which analyses are performed and any possible deviations thereof. MERLIN Properties is exposed to market risk from possible vacancies or renegotiations of leases when the leases expire. This risk could have a direct negative impact on the valuation of the Company's assets. However, market risk is mitigated by the customer acquisition and selection policies and the mandatory lease compliance deadlines negotiated with them, and the guarantees that the Group has associated with the leases. Therefore, at 31 December 2022, the average occupancy rate of the asset portfolio was 95.1%, with a weighted average unexpired lease term of 3.2 years (weighted by GRI). Credit risk Credit risk is defined as the potential risk of loss in earnings to which the Group is exposed if a customer or counterparty breaches its contractual obligations. As a general rule, the Group places cash and cash equivalents with financial institutions with high credit ratings. The Group does not have significant concentrations of credit risk, having policies to limit the volume of risk posed to customers and exposure to credit recovery risk is managed as part of normal activities through, among other things, funds or guarantees deposited as collateral. The Group has formal procedures to identify any impairment of trade receivables. Delays in payment are detected through these procedures and individual analysis by business area and methods are established to estimate impairment loss. Details of the estimated maturities of the Group's financial assets in the consolidated statement of financial position at 31 December 2022 are as follows. 92 2022 Thousands of euros Less than 3 months More than 3 and less than o 6 months 6 months to 1 year Over 1 year () Total Loans to third parties - - 236 129,498 129,734 Equity instruments - - - 9,191 9,191 Investments in associates - - 2,498 - 2,498 Guarantees and deposits - - - 53,477 53,477 Trade and other receivables 22,428 19,936 7,476 49,840 Other current financial assets 226 - - - 226 Cash and cash equivalents 429,449 - - - 429,449 Total 452,103 19,936 10,210 192,166 674,415 () derivatives are not included 2021 Thousands of euros Less than 3 months More than 3 and less than o 6 months 6 months to 1 year Over 1 year () Total Loans to third parties - 236 120,475 120,711 Equity instruments - - - 6,796 6,796 Financial assets at fair value through profit or loss - 80,964 - - 80,964 Investments in associates - - 1,118 - 1,118 Guarantees and deposits - - - 65,440 65,440 Trade and other receivables 17,832 15,851 5,944 - 39,625 Other current financial assets 602 - - - 602 Cash and cash equivalents 866,721 - - - 866,721 Total 885,155 96,815 7,298 192,712 1,181,976 () derivatives are not included Cash and cash equivalents The Group has cash and cash equivalents of EUR 429,449 thousand, which represents its maximum exposure to the risk posed by these assets. Cash and cash equivalents are deposited with banks and financial institutions. Liquidity risk Liquidity risk is defined as the risk of the Group encountering difficulties meeting its obligations regarding financial liabilities settled in cash or with other financial assets. To manage liquidity risk and meet its various funding requirements, the Group uses an annual cash budget and a monthly cash projection, the latter being detailed and updated daily. The driving factor of the working capital deficiency is the maturity of short-term obligations. At 31 December 2022, the Group's working capital deficiency amounted to EUR 411,292 thousand The working capital deficiency has the following noteworthy mitigating factors, (i) the generation of recurrent cash from the businesses on which the Group bases its activity; and (ii) the financing lines 93 available for an amount of EUR 1,410 thousand and (iii) the capacity to renegotiate and obtain new financing facilities based on the Group's long-term business plans and the quality of its assets. At the date of preparation of the consolidated financial statements, taking into account the foregoing, the Group had covered all its funding requirements to fully meet its commitments to suppliers, providers of financing, employees and the authorities based on the cash flow forecast for 2023. Likewise, the type of sector in which the Company operates, the investments it makes, the financing it obtains to make such investments, the EBITDA they generate and the occupancy rates of the properties, enables the liquidity risk to be mitigated and excess cash to be produced. Any cash surpluses are used to make short-term investments in highly liquid deposits with no risk. The acquisition of share options or futures, or any other high-risk deposits as a method of investing cash surpluses, is not among the possibilities considered by the Group for investing cash surpluses. Details of the Group's exposure to liquidity risk at 31 December 2022 are provided in the table below. The tables present the results of the analysis of gross financial liabilities, excluding the cost of bond issuance, by remaining contractual maturity date: 2022 Thousands of euros Less than 1 month 1 to 3 months 3 months to 1 year Over 1 year Total Bank borrowings 421 - 1,309 194,257 195,987 Other non-current liabilities and guarantees - - - 86,407 86,407 Trade and other payables (excluding payables to public authorities) 26,538 66,052 27,216 - 119,805 Total 26,959 66,052 28,525 280,664 402, 199 2021 Thousands of euros Less than 1 month 1 to 3 months 3 months to 1 year Over 1 year Total Bank borrowings 435 2,512 8,793 1,623,758 1,635,498 Other non-current liabilities and guarantees - - - 93,035 93,035 Trade and other payables (excluding payables to public authorities) 23,405 43,976 24,003 - 91,384 Total 23,840 46,488 32,796 1,716,793 1,819,917 Cash flow interest rate risk and fair value risk The Group manages its interest rate risk by borrowing at fixed and floating rates of interest. The Group's policy is to ensure non-current net financing from third parties is at a fixed rate. To manage this, the Group enters into interest rate swaps which are designated as hedges of the respective loans. At 31 December 2022, the percentage of debt the interest rate of which is covered by the above financial instruments was 99.6%. The impact of interest rate fluctuations is explained in Note 14.3. Exchange rate risk The Company's policy is to borrow in the same currency as that of the cash flows of each business. Consequently, currently there is no foreign currency risk. However, noteworthy in this connection are the exchange rate fluctuations arising in translating the financial statements of foreign companies whose functional currency is not the euro. At 31 December 2022, the functional currency of all subsidiaries and associates of the MERLIN Group was the euro. 94 Tax risk As mentioned in Note 1, the Parent and part of its subsidiaries are subject to the special tax regime for Real Estate Investment Trusts (REITs). The transitional period of the Parent ended in 2017 and, therefore, compliance with all requirements established by the regime (see Notes 1 and 5.13) became mandatory. Some of the more formal obligations that the Parent must meet involve the inclusion of the term REIT in its company name, the inclusion of certain information in the notes to its separate financial statements, the share price on the stock market, etc., and other obligations that require estimates to be made and judgements to be applied by management that may become fairly complex, especially considering that the REIT regime is relatively recent and was developed by the Directorate- General of Taxes mainly in response to the queries posed by various companies. Group management, based on the opinion of its tax advisers, assessed compliance with the requirements of the regime, concluding that such requirements were met at 31 December 2022. Accordingly, and also for the purpose of taking into consideration the financial effect of the regime, it should be noted that, as in Article 6 of Law 11/2009, of 26 October 2009, amended by REITs Act (Ley 16/2012 de 27 de diciembre), and in the percentages in it, companies that have opted for the special tax regime are required to distribute the profit generated during the year to their shareholders in the form of dividends, once the related corporate obligations have been met. This distribution must be approved within six months from each year-end, and the dividends paid in the month following the date on which the pay-out is agreed (see Note 5.13). If the Parent does not comply with the requirements in the regime or if the shareholders at the General Meetings of these companies do not approve the dividend distribution proposed by the Board, calculated in accordance with the requirements of this Act, it would not be complying therewith and, accordingly, tax would have to be paid under the general regime, not the regime applicable to REITs. Climate change management Within the framework of the European Green Pact and the UN Sustainable Development Goals, the Group is performing various actions on sustainability. First, the Parent of the Group, in 2021, formed a Sustainability and Innovation Committee under the Board that has the main competencies to advise the Board, among other aspects, on environmental and sustainability issues; on the development of the Group's strategy on sustainability in its relationships with stakeholders and in its publication and public communication; and to supervise the communication and information to the market of any information that refers to sustainability issues and non-financial information and to keep the ESG risk map updated (Environmental Social and Governance). In this regard, the Group included decision factors in relation to non-financial KPIs in its investment and financing policies. In this line, the investment studies of real estate acquisitions and investments in repositioning of the Group's assets take into account, among other factors, elements such as obtaining energy efficiency certificates with the highest rating (see Note 7), air conditioning, lighting, solar energy, irrigation of green areas, accessibility, etc. When certifying assets, the Group selects the most appropriate framework and modality based on the asset's phase, the characteristics of the building, its occupancy rate at the time of certification or the tenants who occupy it. We are continuing the process of certifying the portfolio under the standards of the leaders in this market, BREEAM and LEED. In 2022 the Group certified or obtained the renewal of 33 assets. The Group considers the process of certifying its assets as an anticipated response to the demands that the market will place on property landlords in the medium term and which will enable it to maintain its current competitive position. 95 Additionally, the Group obtained a 79% rating in the 2022 edition of GRESB, a platform that makes it possible to harmonise and compare information related to sustainability criteria (environmental, social and corporate governance - ESG) in real estate investments. In addition, the Group has an Environmental Management System (EMS) certified according to ISO 14001, which is the umbrella under which it manages its portfolios and that incorporates new properties into its scope every year. From 2015, the Group performed plan for ISO 14001 (environmental management) and ISO 50001 (energy management) certifications to maintain and expand the number of real estate assets that have at least ISO 14001 certification, and subsequently ISO 50001 certification (based on the understanding that it is a natural step to obtain ISO 14001 certification before aspiring to ISO 50001). This plan includes office buildings, shopping centres and logistics warehouses. ISO 14001, in 2022, 88 buildings composing a surface area of 1,214,796 m2 were certified, 4 more buildings than in 2021. Since 2017, the Group has also performed a process of implementing an Energy Management System under the ISO 50001 standard, which began in 2017. Currently, 84 buildings are certified composing a surface area of 1,153,701 m2, 3 more than in 2021. The assets included in this system aim to reduce total energy consumption by 8% compared to 2021, based on the implementation of MAEs (energy saving measures). In 2022, the Group performed an analysis of the entire portfolio to determine the carbon footprint of each of its assets, and the measures necessary to reduce the above carbon footprint. The path taken by the Group in 2022 enables the Company to meet its emissions reduction target and its "path to net zero" by 2030, thus anticipating the European strategy of decarbonization of the economy and ensuring the present and future survival of the Company and its assets. The Group's path to net zero is a roadmap that includes improving the performance not only of the company itself and those assets over which it has operational control, but also of the main agents responsible for the Group's emissions throughout its value chain, including suppliers and tenants. The Group's financing policies are also aligned with the Group's sustainability objectives through the Green Financing Program published in April 2022 and the conversion of 100% of its bonds in circulation into green bonds. Currently, 98% of the Group's debt with credit and bond institutions is linked to the Green Financing Program or ESG criteria (see Note 14). The Green Financing Program, in line with best market practices, includes the following eligibility criteria: 1.Green assets with the best LEED/BREEAM certification levels or energy efficiency certificates and/or minimum carbon emission levels 2.Investments in Energy Efficiency 3.Investments in renewable energy 4.Investments in pollution control and prevention mechanisms 5.Investments in transport mechanisms with low carbon emissions Financing linked to ESG targets includes a cost adjustment mechanism linked, in the Group's opinion, to own credit risk, based on management indicators calculated based on four sustainability criteria that must be met at least three times annually and cumulatively over the 2019-2025 period. 96 At year-end 2022, the Company complied with the 4 indicators established and the directors consider that they will be met in 2023. The indicators for 2019-2022 were: 1.Aggregate investment of at least EUR 10.2 million in energy efficiency improvements across the portfolio 2.Obtaining a total of at least 31 LEED and BREEAM external energy certifications with a minimum rating of LEED Silver and BREEAM Good. 3.Obtaining a total of at least 38 AIS/DIGA certifications for disability access for all tenants and consumers 4.Aggregate electricity consumption of at least 150 GW from renewable energy sources In addition, the Group in its commitment to climate responsibility incorporated qualitative factors related to the Group's sustainability strategy into the measurement targets for short-term variable compensation for its staff and management team (see Note 20). The above initiatives, although they entail an increase in operation costs for the Group, are aimed at anticipating regulatory developments and increasing the loyalty of its customer base. In addition, in 2022 the Group joined SBTi1, aligning its targets to achieve carbon neutrality with the Science Based Targets. In addition, it also undertook to report in the Statement of Non-Financial Information (NFI) in accordance with the recommendations of TCFD2. Finally, the Group has also made progress in publishing its Path to Net Zero. The Group's Path to Net Zero is a road map that includes improving the performance not only of the Company itself and of those assets over which it has operational control, but of the main stakeholder responsible for the Group's issues throughout its entire value chain, including suppliers and tenants. This strategy has 5 axes of action: 1.Operational carbon reduction: 85% of operational carbon reduction from baseline (2018) to target (2028). 2.Reduction of embodied carbon: Embodied carbon footprint calculated in all new developments and repositions. 3.Offset of residual emissions: The inevitable footprint will be mostly offset by duly certified own initiatives. 4.Reduction in tenant emissions: Green clauses in all new contracts and reduction in the rental price associated with their own credit risk for net zero tenants. 5.Renewable energy: Acquisition of 100% renewable energy and on-site generation of energy through solar power panels (Sun Project). All of the above is part of the Group's net zero path or commitment to combating climate change. 24. Events after the reporting period No significant events have occurred between December 31, 2022 and the date of preparation of these Consolidated Financial Statements. 97 1 SBTi: Science Based Target Initiative 2 Taskforce on Climate related Financial Disclosure Appendix I - Group companies and associates 2022 Company Line of business/Location Ownership interest Thousands of euros Consolidation method Auditor Share capital Profit/(Loss) Other Total Dividends Carrying amount From operations Net Shareholders' Equity Equity Received Cost Impairment Merlin Retail, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 17,963 13,998 13,330 236,491 267,785 42,922 251,408 — Global Integration Deloitte Merlin Oficinas, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 29,674 22,934 22,377 718,601 770,651 16,130 771,345 — Global Integration Deloitte Merlin Logística, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 28,166 29,978 33,842 274,082 336,091 31,544 292,304 — Global Integration Deloitte Sevisur Logística Urban development, construction and operation of logistics and common services buildings. Ctra. de la Esclusa, 15. 41011, Seville. 100% 17,220 4,438 4,249 9,910 31,379 3,455 37,629 — Global Integration Deloitte Parques Logísticos de la Zona Franca, S.A. Real estate acquisition and development for leasing, Avda. 3 del Parc Logístic, nº 26, Barcelona 100% 15,701 (1,253) (1,172) 107,017 121,546 5,903 118,310 — Global Integration Deloitte The Exhibitions Company , S.A.U. Provision of all kinds of technical, commercial or economic services/ Paseo de la Castellana 257, Madrid 100% 180 (1,452) (1,430) 3,474 2,224 — 4,287 (2,063) Global Integration N/A Gescentesta, S.L.U. Provision of Services / Paseo de la Castellana 257, Madrid 100% 3 177 121 933 1,057 — 3 — Global Integration N/A Metroparque, S.A. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 56,194 8,477 8,808 33,086 98,087 8,186 231,557 — Global Integration Deloitte La Vital Centro Comercial y de Ocio, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 14,846 3,152 3,218 18,980 37,044 2,245 56,788 — Global Integration Deloitte Desarrollo Urbano de Patraix, S.A. Land management / Avda. Barón de Carcer, 50, Valencia 100% 2,790 (3) (83) 22,270 24,976 — 25,090 (114) Global Integration N/A Sadorma 2003, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 73 (2) 231 18,785 19,089 — 25,485 (6,396) Global Integration N/A Global Murex Iberia, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 14 — 21 (15,459) (15,424) — — — Global Integration N/A Varitelia Distribuciones, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 15,443 3,344 1,150 6,110 22,703 333 172,979 (150,277) Global Integration Deloitte Global Carihuela, Patrimonio Comercial S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 3,303 2,123 1,578 4,358 9,239 — 34,102 (24,863) Global Integration Deloitte 98 Innovación Colaborativa, S.L. Selection, contracting, fitting out, organization and management of coworking spaces / Paseo de la Castellana 257, Madrid 100% 15 (3,049) (3,092) 2,005 (1,072) — 15,868 (15,868) Global Integration N/A Milos Asset Development, Acquisition, ownership, administration, disposal and development of land located within the "Distrito Castellana Norte" project / Paseo de la 100% 3 — (114) 250 139 — 3 — Global Integration N/A Slack Tailwind Systems, S.L.U Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 3 (10) (10) — (7) — 3 (3) Global Integration Deloitte Slow Rise Spain, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 3 82 82 — 85 — 3 — Global Integration Deloitte MPCVI – Compra e Venda Imobiliária, S.A. Real estate acquisition and development for leasing / Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 1,050 1,095 208 5,969 7,227 277 6,418 — Global Integration Deloitte Portugal MPEP – Properties Escritórios Portugal, S.A. Real estate acquisition and development for leasing / Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 50 677 (241) 903 712 — 1,085 — Global Integration Deloitte Portugal MP Monumental, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 50 2,502 214 6,632 6,896 — 22,648 — Global Integration Deloitte Portugal MP Torre A, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 50 1,538 414 73 537 — 10,686 — Global Integration Deloitte Portugal VFX Logística, S.A. Real estate acquisition and development for leasing. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 5,050 6,406 5,614 11,060 21,723 — 25,153 (2,417) Global Integration Deloitte Portugal Promosete, Invest. Inmobil. SA. Real estate acquisition and development for leasing. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 200 1,554 837 7,385 8,422 1,323 10,384 — Global Integration Deloitte Portugal Praça Do Marquês serviços Auxiliares, SA Real estate acquisition and development for leasing. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 15,893 3,178 2,086 61,169 79,148 2,008 56,361 — Global Integration Deloitte Portugal Torre Dos Oceanus Investimentos Inmobiliarios,S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 50 1,933 827 3,319 4,196 593 15,912 — Global Integration Deloitte Portugal Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 5 16,556 10,013 16,908 26,926 — 32,573 — Global Integration Deloitte Portugal Forum Almada II, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 10,000 13,028 9,153 66,132 85,284 — 325,660 — Global Integration Deloitte Portugal Torre Arts Investimentos Imobiliarios, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 100 2,755 2,097 78,153 80,350 2,177 80,281 — Global Integration Deloitte Portugal 99 Torre Fernao Magalhaes Investimentos Imobiliarios, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 100 869 673 25,370 26,143 995 26,055 — Global Integration Deloitte Portugal Generous Profile , Unipessoal LDA. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 2,000 (27) (547) 54,799 56,252 — 56,808 (556) Global Integration Deloitte Portugal Paseo Comercial Carlos III, S.A. Real estate acquisition and development for leasing / Avda. San Martín Valdeiglesias, 20 28922 Madrid 50% 8,698 2,864 3,978 21,915 34,591 — 25,668 — Equity method Deloitte Provitae Centros Asistenciales, S.L. Real estate acquisition and development for leasing / C. Fuencarral, 123. Madrid 50% 6,314 944 944 (1,202) 6,056 — 5,061 (1,746) Equity method Deloitte G36 Development, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana, 93 Madrid 50% 3 21 21 8 32 1,040 2 — Equity method N/A Centro Intermodal de Logística S.A. (CILSA) Development, management and implementation of logistics activities in the port system / Avenida Ports d’Europa 100, Barcelona 49% 18,920 25,289 17,079 123,701 159,700 2,556 95,688 — Equity method EY Pazo de Congresos de Vigo, S.A. Execution project, construction and operation of the Vigo Conference Center / Avda. García Barbón, I. Vigo 44% n.d n.d n.d. n.d. n.d — 3,600 (3,600) Equity method n.d Parking del Palau, S.A. Real estate acquisition and development for leasing / Paseo de la Alameda, s/n. Valencia 33% 1,698 42 40 459 2,197 — 2,137 (1,052) Equity method BDO Araba Logística, S.A. Real estate acquisition and development for leasing / Avda. Álava s/n Rivabellosa (Álava) 25% 1,750 911 391 2,925 5,066 — 2,257 (2,257) Equity method Mazars Crea Madrid Nuevo Norte, S.A. Performing all types of real estate activities / Paseo de la Castellana 216, Madrid 14% 206,509 (6,081) (4,058) (36,574) 165,877 — 174,445 (1,651) Equity method KPMG Silicius Real Estate, SOCIMI, S.A. Performing all types of real estate activities / Calle de Velázquez, 123, Madrid 18% 30,955 13,299 15,017 341,871 387,843 307 87,018 — Equity method PWC Edged Spain, S.L.U Provision of Data Center services / Paseo de la Castellana 257, Madrid 50% 3 96 88 (211) (120) — 2 (2) Equity method Deloitte 100 Appendix I - Group companies and associates 2021 Company Line of business/Location Ownership interest Thousands of euros Consolidation method Auditor Share capital Profit/(Loss) Other Total Dividends Carrying amount From operations Net Shareholders' Equity Equity Received Cost Impairment Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 9.323 66.293 53.908 91.189 87.001 51.559 657.984 — Full consolidation Deloitte Merlin Retail, S.L.U. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 17.963 44.643 42.923 236.491 297.378 2.667 251.408 — Full consolidation Deloitte Merlin Oficinas, S.L.U. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 29.674 16.334 16.13 718.601 764.405 15.155 771.345 — Full consolidation Deloitte Merlin Logística, S.L.U. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 28.166 32.863 31.544 274.082 333.792 15.905 292.304 — Full consolidation Deloitte Sevisur Logística Urban development, construction and operation of buildings for logistics activities and common services. Ctra. de la Esclusa, 15. 41011, Seville 100% 17.22 3.834 3.839 9.526 30.584 3.174 37.629 — Full consolidation Deloitte Parques Logísticos de la Zona Franca, S.A. Acquisition and development of property assets for lease, Avda. 3 del Parc Logístic, nº 26, Barcelona 100% 15.701 4.957 5.23 107.017 127.948 4.939 118.31 — Full consolidation Deloitte Exhibitions Company , S.A.U. Provision of services of all kinds, technical, commercial or economic services/Paseo de la Castellana 257, Madrid 100% 180 (787) (741) 4.215 3.654 — 4.287 (633) Full consolidation N/A Gescentesta, S.L.U. Provision of services/Paseo de la Castellana 257, Madrid 100% 3 197 151 782 936 — 3 — Full consolidation N/A Metroparque, S.A. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 56.194 7.881 8.186 33.086 97.465 6.354 231.557 — Full consolidation Deloitte La Vital Centro Comercial y de Ocio, S.L. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 14.846 2.446 2.495 18.731 36.071 1.397 56.788 — Full consolidation Deloitte Desarrollo Urbano de Patraix, S.A. Land management/Avda. Barón de Carcer, 50, Valencia 100% 2.79 (2) (81) 22.351 25.06 — 25.09 (30) Full consolidation N/A Sadorma 2003, S.L. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 73 (3) 254 18.531 18.857 — 25.485 (6.628) Full consolidation N/A Global Murex Iberia, S.L. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 14 (1) 21 (15.48) (15.445) — — — Full consolidation N/A Varitelia Distribuciones, S.L.U. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 15.443 2.586 333 6.11 21.886 — 172.979 (151.094) Full consolidation Deloitte 101 Global Carihuela, Patrimonio Comercial, S.A. Acquisition and development of property assets for lease/Paseo de la Castellana 257, Madrid 100% 3.303 (4.214) (4.757) 9.115 7.661 — 34.102 (26.441) Full consolidation N/A MPCVI – Compra e Venda Imobiliária, S.A. Acquisition and promotion of real estate for lease/ Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 1.05 1.092 292 5.955 7.296 261 6.418 — Full consolidation Deloitte Portugal MPEP – Properties Escritórios Portugal, S.A. Acquisition and promotion of real estate for lease/ Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 50 700 (123) 26 (47) 69 85 — Full consolidation Deloitte Portugal MP Monumental, S.A. Acquisition and development of property assets for lease/Avda. Fontes Pereira de Melo, 51, Lisbon 100% 50 1.525 (1.63) 7.162 5.582 — 21.548 — Full consolidation Deloitte Portugal MP Torre A, S.A. Acquisition and development of property assets for lease/Avda. Fontes Pereira de Melo, 51, Lisbon 100% 50 1.534 (367) (60) (377) — 10.186 — Full consolidation Deloitte Portugal VFX Logística, S.A. Acquisition and development of property assets for lease Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 5.05 (5.997) (6.5) 13.76 12.31 — 21.353 (9.043) Full consolidation Deloitte Portugal Promosete, Invest. Inmobil, S.A. Acquisition and development of property assets for lease Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 200 2.173 1.323 7.372 8.895 444 10.386 — Full consolidation Deloitte Portugal Praça Do Marquês serviços Auxiliares, S.A. Acquisition and development of property assets for lease Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 15.893 2.846 2.128 61.049 79.07 2.094 56.359 — Full consolidation Deloitte Portugal Torre Dos Oceanus Investimentos Inmobiliarios,S.A. Acquisition and development of property assets for lease/Avda. Fontes Pereira de Melo, 51, Lisbon 100% 50 1.643 593 3.319 3.962 521 15.912 — Full consolidation Deloitte Portugal Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. Acquisition and development of property assets for lease/Avda. Fontes Pereira de Melo, 51, Lisbon 100% 5 (1.284) (7.137) 15.053 7.921 — 32.574 — Full consolidation Deloitte Portugal Forum Almada II, S.A. Acquisition and development of property assets for lease/Avda. Fontes Pereira de Melo, 51, Lisbon 100% 10 12.852 8.977 57.136 76.113 — 307.512 — Full consolidation Deloitte Portugal Torre Arts - Investimentos Imobiliarios, S.A. Acquisition and development of property assets for lease/Avda. Fontes Pereira de Melo, 51, Lisbon 100% 100 2.861 2.177 83.653 85.93 2.03 85.781 — Full consolidation Deloitte Portugal Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. Acquisition and development of property assets for lease/Avda. Fontes Pereira de Melo, 51, Lisbon 100% 100 1.302 995 26.87 27.965 557 27.555 — Full consolidation Deloitte Portugal Innovación Colaborativa, S.L. Selection, contracting, conditioning, organisation and management of collaborative shared work spaces/Paseo de la Castellana 257, Madrid 100% 15 (4.462) (5.434) 6.539 2.02 — 15.868 (13.848) Full consolidation N/A Milos Asset Development, Acquisition, holding, administration, disposal and development of land located within the "Distrito Castellana Norte" project/Paseo de la Castellana 257, Madrid 100% 3 (3) 374 (124) 253 — 2 — Full consolidation N/A 102 Paseo Comercial Carlos III, S.A. Acquisition and development of property assets for lease/Avda. San Martín Valdeiglesias, 20 - 28922 Madrid 50% 8.698 1.16 116 21.8 30.614 — 25.668 — Equity method Deloitte Provitae Centros Asistenciales, S.L. Acquisition and development of property assets for lease/C. Fuencarral, 123. Madrid 50% 6.314 (42) (42) (1.16) 5.112 — 5.061 (1.547) Equity method N/A G36 Development, S.L. Acquisition and development of property assets for lease/Paseo de la Castellana 93, Madrid 50% 4.053 (21) (21) — 4.032 — 2.027 — Equity method N/A Centro Intermodal de Logística, S.A. (CILSA) Development, management and performance of logistics activities in a port system/Avenida Ports d'Europa 100, Barcelona 49% 18.92 15.744 10.401 118.936 148.257 1.788 95.688 — Equity method EY Pazo de Congresos de Vigo, S.A. Project for the execution, construction and operation of the Vigo Convention Centre/Avda. García Barbón, I, Vigo 44% N/A N/A N/A N/A N/A — 3.6 (3.6) Equity method N/A PK. Hoteles 22, S.L. Acquisition and development of property assets for lease/C. Príncipe de Vergara, 15. Madrid 33 % 5.801 8.387 6.215 (5.298) 6.718 1.78 2.467 (283) Equity method CROWE, S.L.P. Parking del Palau, S.A. Acquisition and development of property assets for lease/Paseo de la Alameda, s/n. Valencia 33 % 1.698 (10) (12) 458 2.144 — 2.137 (920) Equity method BDO Araba Logística, S.A. Acquisition and development of real estate for lease/Avda. Álava s/n Rivabellosa (Álava) 25 % 1.75 911 391 2.925 5.066 — 2.257 (2.257) Equity method Mazars Distrito Castellana Norte, S.A. Carrying out all types of real estate activity/Paseo de la Castellana 216, Madrid 14 % 196.06 (6.274) (2.833) (27.35) 165.877 — 172.934 (1.036) Equity method KPMG Silicius Real Estate, S.L. Carrying out all types of real estate activity/Calle de Velázquez, 123, Madrid 15 % 36.112 58.541 52.369 306.816 395.297 — 87.018 — Equity method PwC Edged Spain, S.L.U Services provided by data processing centres/Paseo de la Castellana 257, Madrid 50 % 3 (191) (191) (1) (189) — 2 (2) Equity method N/A 103 Management Report Statement of Non-Financial Information 31 DECEMBER 2022 Table of contents Table of contents ....................................................................................................................... 2 Letter from the CEO ................................................................................................................... 6 1.Business model ............................................................................................................. 9 1.1MERLIN Properties. Leading commercial real estate company in the Iberian Peninsula. ................................................................................................................................... 9 1.2Mission, vision, and values ........................................................................................... 11 1.3MERLIN’s structure ....................................................................................................... 12 1.4Business activities ......................................................................................................... 12 1.5Main milestones and objectives ................................................................................... 19 2.Sustainable growth strategy ........................................................................................ 22 2.1The Market (sector) ...................................................................................................... 22 2.2Outlook ......................................................................................................................... 23 2.3Trends and opportunities ............................................................................................. 24 2.4MERLIN’s Strategic Plan ................................................................................................ 25 2.5MERLIN’s sustainability management .......................................................................... 26 2.6Materiality analysis ....................................................................................................... 29 3.Responsible management ............................................................................................ 32 3.1Governance structure ................................................................................................... 33 3.2Risk management .......................................................................................................... 40 3.3Ethics and compliance .................................................................................................. 50 4.Climate change management and operational efficiency .......................................... 55 4.1.Key environmental reporting criteria and concepts ..................................................... 56 4.2.Environmental management and climate change ........................................................ 58 4.3.Development and operation of sustainable assets ...................................................... 60 4.4.Environmental performance of MERLIN Properties’ portfolio ..................................... 62 4.5.Decarbonisation of MERLIN Properties’ portfolio ........................................................ 69 4.5.1.Scope 1 and scope 2 greenhouse gas (GHG) emissions ................................................ 70 4.5.2.Scope 3 greenhouse gas (GHG) emissions .................................................................... 75 4.6.Carbon footprint certification ....................................................................................... 76 4.7.Validation of MERLIN’s commitments by independent third parties ........................... 77 4.8.Sustainability ratings ..................................................................................................... 79 Statement of Non-Financial Information 2022 2 4.9.Protection of biodiversity ............................................................................................. 80 5.Talent creation ............................................................................................................. 82 5.1Staff loyalty ................................................................................................................... 83 5.1.1Composition of the workforce ...................................................................................... 85 5.1.2Average contracts ......................................................................................................... 87 5.1.3Number of dismissals by gender, age and professional classification .......................... 88 5.1.4Implementation of work disconnection policies .......................................................... 89 5.2Employee compensation .............................................................................................. 89 5.2.1Wage gap analysis ......................................................................................................... 89 5.2.2Remuneration of non-executive directors .................................................................... 91 5.3Organisation of work .................................................................................................... 91 5.3.1Organisation of work .................................................................................................... 91 5.3.2Total hours of absenteeism .......................................................................................... 91 5.3.3Work-life balance measures ......................................................................................... 92 5.4Safety, health and well-being of employees ................................................................. 93 5.5Labour relations ............................................................................................................ 95 5.5.1Organisation of social dialogue ..................................................................................... 95 5.5.2Employees subject to collective bargaining agreements ............................................. 95 5.5.3Balance of collective bargaining agreements ............................................................... 95 5.5.4Mechanisms to promote employee involvement in management .............................. 95 5.5.5Employees with disabilities ........................................................................................... 96 5.6Diversity and equal opportunities ................................................................................ 97 6.Management of stakeholders ...................................................................................... 100 6.1Stakeholder management model ................................................................................. 100 6.1.1Shareholder return ....................................................................................................... 102 6.1.2Treasury shares ............................................................................................................. 102 6.1.3Stock market performance ........................................................................................... 103 6.1.4Dividends policy ............................................................................................................ 103 6.2Supply chain .................................................................................................................. 104 6.3Maximising the well-being of users of the assets ......................................................... 105 6.4Development and relationship with the environment ................................................. 110 6.4.1Improving cities ............................................................................................................. 111 6.4.2Social initiatives ............................................................................................................. 113 6.4.3Measuring the distribution of contributions to the MERLIN community .................... 116 7.Capital management .................................................................................................... 119 7.1Tax information ............................................................................................................. 120 Management Report – Statement of Non-Financial Information 2022 3 7.1.1Tax strategy ................................................................................................................... 120 7.1.2Profits earned on a country-by-country basis and income tax paid ............................. 121 7.1.3Total tax contribution ................................................................................................... 122 7.2Green financing ............................................................................................................. 128 7.2.1Financial strategy .......................................................................................................... 128 7.2.2Liquidity and capital resources ..................................................................................... 128 7.2.3Green financing ............................................................................................................. 130 8.About this Report ......................................................................................................... 133 8.1Basis of preparation of this report ................................................................................ 133 8.2Information on MERLIN Properties’ sustainability performance ................................. 134 8.3Table of contents of Law 11/2018 ................................................................................ 137 a.GRI Content Index ......................................................................................................... 145 b.EPRA sBPR Content Index ............................................................................................. 159 Appendix I. Environmental performance reporting in accordance with the EPRA Sustainability Best Practices Recommendations (sBPR) .......................................................... 161 Appendix II. Methodology for calculating scope 3 GHG emissions ......................................... 180 Appendix III. Breakdown of the environmental performance reporting scope ..................... 186 Appendix IV. Climate risk reporting in accordance with TCFD methodology ........................ 194 Executive summary .................................................................................................................... 194 Governance ................................................................................................................................ 195 Strategy ...................................................................................................................................... 196 Risk management ....................................................................................................................... 197 Appendix V. Reconciliation of Alternative Performance Measures to the financial statements ................................................................................................................................. 203 Appendix VI. Post-closing events .............................................................................................. 214 Appendix VII. Independent review report ............................................................................... 215 Management Report – Statement of Non-Financial Information 2022 4 The minimum content of the Consolidated Management Report, as required by Law 1/2010, of July 2, 2010, on Capital Companies and by the Code of Commerce, is included in this Statement of Non-Financial Information. Annual Corporate Governance Report The Annual Corporate Governance Report is available in its entirety on the website of the National Securities Market Commission (www.cnmv.es) and on the Company's website (www.merlinproperties.com). The Annual Corporate Governance Report has also been filed as Other Relevant Information (OIR) with the CNMV. Annual Report on Director’s Compensation The Annual Report on Director’s Compensation is available in its entirety on the website of the CNMV (www.cnmv.es) and on the Company's website (www.merlinproperties.com). In addition, the Annual Report on Director’s Compensation has been reported as Other Relevant Information (OIR) to the CNMV. Management Report – Statement of Non-Financial Information 2022 5 Letter from the CEO Dear MERLIN Properties shareholders and stakeholders, This year has provided MERLIN Properties Socimi, S.A. (hereinafter, “MERLIN Properties”, “MERLIN” o the “Company”) with the opportunity to demonstrate its strength, returning to pre-covid levels in its key metrics. Throughout 2022, MERLIN’s key financial and operating metrics have evolved positively, achieving year-on-year growth in all of them. MERLIN Properties achieved gross rents in 2022 of €453m, as a result of both like-for-like rental growth (+7.3% vs. 2021) and occupancy growth of the portfolio (+60 bps vs. 2021), totalling 95.1% as of December 31st, 2022. The cash flow generation during the period has been solid, with FFO reaching €290m, implying a 6.4% increase on a like-for-like basis. Finally, the disposal of the BBVA branch portfolio, formalized in June, has allowed the Company to reduce the LTV to 32.7% as of December 31st. I am pleased to present to you the Management Report - Non-Financial Information Statements 2022 (hereinafter, "NFI"), in which we provide all the relevant information for our stakeholders on environmental, corporate governance and social issues for the year, as well as our main plans for the future. Environmental achievements MERLIN remains focused on achieving the highest levels of sustainability and efficiency in its portfolio. To this end, it integrates sustainability throughout the asset life cycle and supports this commitment by obtaining certifications in this area. In April 2022, MERLIN launched its "Pathway to Net Zero" strategy, a roadmap that includes improving the environmental performance not only of the Company and those assets over which it has operational control, but also of the main shareholders responsible for MERLIN's emissions throughout its value chain, including suppliers and tenants. This strategy has 5 main pillars of action: •Operational carbon reduction: 85% reduction in operational carbon from baseline (2018) to 2028. •Reduction of embedded carbon in all new developments and refurbishments. •Offsetting residual emissions: offsetting unavoidable footprint through duly certified own initiatives. •Scope 3 emissions reduction: engage tenants through green clauses in new leases and with pioneering initiatives such as rent reduction for tenants who certify that their operation is net zero. •Renewable energy: 100% renewable energy supply and photovoltaic solar generation through project “Sun”, which consists of installing photovoltaic panels on the rooftops of the assets. Also in 2022, MERLIN's decarbonization targets included in its "Pathway to Net Zero" have been validated as aligned with Science-Based Targets (SBTi). In terms of environmental performance data, 2022 has been a sound year. The energy consumption of the asset portfolio on a like-for-like basis was 100,075 MWh, representing a 2% reduction compared to 2021. We have also made significant progress on the portfolio's decarbonization Statement of Non-Financial Information 2022 6 targets, with the corporation's carbon footprint being 2,580 tons of Co2, a 23% decrease compared to 2021. We continue with our asset portfolio certification program: 94% of the portfolio is already certified under LEED or BREEAM standards. We have also verified our environmental management systems and energy management system, achieving ISOs 14,001 and 50,001 certifications for 37% of the portfolio. The aforementioned strong data have been endorsed in the sustainability ratings or scorings. In 2022, the Group improved its score with respect to 2021 in all the sustainability indexes to which it applied. Specifically, MERLIN has participated in six sustainability indexes, three of which consist of a questionnaire, GRESB (real estate), CDP (climate change) and S&P Global (general), and the other three are based on the Group's public information, Sustainalytics (ESG risks), Bloomberg (general) and Vigeo Eiris (general). Two milestones are worth highlighting: the inclusion of MERLIN Properties in one of the world's most prestigious sustainability ratings, the Dow Jones Sustainability Index, and the exponential improvement in the Sustainalytics rating, which places MERLIN in the top 1% of the world's best valued companies. On June 1st, 2022, the Company obtained the conversion of all its bonds into green bonds in accordance with the Green Financing Framework published on April 25th, 2022. The reclassification of the bonds to green bonds does not entail changes in any of the bonds KPI’s such as their covenants and conditions, interest or maturities. Corporate governance achievements MERLIN has a robust governance system, in line with its values of ethics, compliance and transparency, supported through independent third-party validation. The main milestones achieved in 2022 were as follows: •Improved governance through the creation of a Planning and Coordination Committee, with the aim of strengthening the Company's corporate governance. •Unification of the Appointments and Remuneration Committees into a single Appointments and Remuneration Committee. •Approval of a Director Remuneration Policy (2022-2025), together with a long-term incentive plan LTIP 2022-2024 including sustainability criteria. •Implementation of an Internal Control System over Non-Financial Information (ICNFI) and adaptation of the Internal Control Policy to this new control scheme over non- financial information. •Promotion of the improvement of the corporate governance system with the approval of new policies (respect for human rights, biodiversity, human capital management, etc.) and the review of other existing policies. In terms of risk management, in 2022, MERLIN conducted a "zero-based" exercise to identify and assess MERLIN's main corporate risks. In this regard, MERLIN's latest risk map, updated by the Audit and Control Committee and approved by the Board of Directors in January 2023, has identified a total of 27 key risks. Within MERLIN's Risk Management System, all risks have been assessed in terms of impact and probability and in terms of temporality, as well as in terms of speed, persistence, and adaptability. Management Report – Statement of Non-Financial Information 2022 7 Social issues achievements MERLIN creates value for society through the support of various initiatives and activities, having a final impact on the development of the surrounding communities where it operates in different dimensions. This contribution is approached from a dual perspective. On the one hand, at a corporate level and on the other hand at an asset level. In 2022, the Group donated a total of €223,575 in direct contributions and €192,374 through the multiplier effect thanks to the collaboration of 32 employees and board members. Together, these contributions have supported 73 foundations and directly benefited 6,646 people. On the other hand, MERLIN contributes to local development through its assets, supporting different initiatives and activities, which are organized in four areas: training, social action, promotion of culture and local development, and awareness-raising. MERLIN has measured its contribution to society through the LBG model after joining the internationally recognized London Benchmarking Group (LBG) in Spain. At the end of 2022, MERLIN's workforce consisted of 260 professionals. MERLIN manages its relationship with its employees under the strictest labour standards, complying with the principles set forth in the ILO Declaration on Fundamental Principles and Rights at Work. Currently, the Human Capital Policy, the Equality Plan and the Human Resources Processes Manual and the Employee Handbook establish the guiding principles of Human Capital management in the Company. It is to this team that we owe the milestones achieved by the Company in 2022. It has been a year of great effort and dedication to establish the Company's decarbonization roadmap, with ambitious yet realistic targets, the fine-tuning of the foundations of the corporate governance structure and progress in social matters, through the various initiatives that are implemented in our day-to-day operations at a corporate, asset and local level. We will continue to demand the same level of professionalism and effort from ourselves in the years to come. Kind regards, Ismael Clemente Orrego CHIEF EXECUTIVE OFFICER MERLIN PROPERTIES SOCIMI, S.A. Management Report – Statement of Non-Financial Information 2022 8 1.Business model 1.1 MERLIN Properties. Leading commercial real estate company in the Iberian Peninsula. MERLIN Properties is the leading REIT in Spain and Portugal, and among the 10 largest REITs in Europe MERLIN Properties SOCIMI, S.A. (hereinafter “MERLIN”, “MERLIN Properties” or “the Group”) is one of the leading real estate groups listed on the Spanish Stock Exchange (IBEX-35) and mainly engages in the acquisition and management of commercial real estate assets in the Iberian Peninsula. MERLIN is a public company incorporated as a REIT. It mainly engages in the acquisition, active management, operation and selective rotation of quality commercial real estate assets in the “Core” and “Core Plus” investment segment, mainly in Spain and, to a lesser extent, in Portugal. The Group focuses on offices, logistics, shopping centers and data center markets. MERLIN Properties counts with a team of professionals who manage the portfolio of assets that it owns with the aim of maximising the operational efficiency and profitability of each asset. MERLIN Properties’ objective regarding returns is based on sustainable shareholder remuneration consisting of annual dividend pay-outs and value creation1 by increasing the Group’s EPRA NTA. Performance in 2022. Main figures As part of its commitment to transparency and accountability to its stakeholders, MERLIN continues to report on its sustainability performance in three areas: economic, environmental, and social. Following the impact of geopolitical tensions in recent months, this year has been an opportunity for MERLIN to demonstrate its strength as a Group by returning to pre-covid levels. Throughout 2022, MERLIN’s key financial and operating metrics have confirmed their recovery path, with year-on-year growth in all of them. Examples of this include occupancy (+60 bps vs 2021), LfL rents (7.3% vs 2021) and cash flow generation (€290m FFO, +6.4% vs 2021). Management Report -Statement of Non-Financial Information 2022 9 Note: MERLIN Properties, as a member of the EPRA (European Public Real Estate Association), follows best practice standards in reporting that enables investors to more easily compare certain measures that are specific to the real estate sector. The measures are published twice a year and are detailed in the Annex V. In accordance with the recommendations issued by the European Securities and Markets Authority (ESMA), the alternative performance measures are described in the Annex V. 1MERLIN defines value creation as the increase in shareholder return as a result of increasing the EPRA NTA and the operating profit as a result of increasing the occupancy or rent of the assets in the portfolio. Economic performance €0.62 p.s (6.4% vs 2021) FFO €15.67 p.s. (-2.7% vs 2021) EPRA NTA 32.7% (-651 bps vs 2021) LOAN TO VALUE (LTV) Environmental performance Dow Jones Sustainability Index INDEX MEMBER FOR THE SECOND CONSECUTIVE YEAR 161 ASSETS (+6.6% vs 2021) LEED or BREEAM CERTIFIED2 0.002 tCO2eq (-23.4% vs 2021) MARKET-BASED INTENSITY OF SCOPE 1 AND SCOPE 2 GREENHOUSE GAS EMISSIONS IN LIKE-FOR-LIKE ASSETS UNDER MANAGEMENT 360,268 GJ (-2.3% vs 2021) ENERGY CONSUMPTION IN LIKE-FOR-LIKE ASSETS UNDER MANAGEMENT 609,417 m3 (+17.9% vs 2021) WATER CONSUMPTION IN LIKE-FOR-LIKE ASSETS UNDER MANAGEMENT6 6,992 t (+19.6% vs 2021) WASTE GENERATED IN LIKE-FOR- LIKE ASSETS Social performance 260 (+8.8% vs 2021) EMPLOYEES €865 m (+63.4% vs 2021) VALUE DISTRIBUTED TO STAKEHOLDERS3 €3.7 M (+408% vs 2021) ECONOMIC IMPACT4 Management Report – Statement of Non-Financial Information 2022 10 2 The certified assets of Barcelona-Zal Port are not included 3 This item includes the payment of salaries, payments to suppliers, investments in communities and operating expenses. Corresponds to indicator 201-1 included in the GRI Standards 4 In accordance with London Benchmarking Group methodology MERLIN Properties’ portfolio MERLIN has a diversified portfolio of more than 3.2 million sqm of gross leasable area in the office, logistics warehouse and shopping centre markets. GLOBAL PORTFOLIO €11,317m (-1.5% vs 2021) GROSS ASSET VALUE (GAV) 3,182,582 sqm 92.4% SPAIN 7.6% PORTUGAL 95.1% (+60 bps vs 2021) OCCUPANCY €453m (+7.9% vs 2021) GROSS RENTAL INCOME €290m (+6.4% vs 2021) FFO 3.2 years AVERAGE LEASE PERIOD 1.2 Mission, vision, and values MERLIN’s mission is to be the benchmark REIT in the Iberian Peninsula, thanks to our commitment to long-term value creation and the generation of sustainable and growing dividend for shareholders in an environment of transparency, ethics and responsibility in business and society. Management Report – Statement of Non-Financial Information 2022 11 1.3 MERLIN’s structure The strategy and operation are characterised by the following: 1.Focus on Core and Core Plus assets in Spain and Portugal 2.An investment grade capital structure 3.Distribution, via dividend or share premium, of 80% of AFFO generated in the period 4.Being one of the most cost-efficient REITs in Europe 5.Implementing best practices in Corporate Governance Its internal organisational structure can be summarised as follows: •A Board of Directors (Board) composed of 13 directors and advised by the Audit and Control Committee (ACC), the Appointments and Remuneration Committee (ARC) and the Sustainability and Innovation Committee (SCI). The Company also has a Planning and Coordination Committee (PCC). •MERLIN’s Board of Directors, of which members are individually re-elected every two years, is composed of a majority of independent directors and its activities are focused on defining, supervising and monitoring the policies, strategies and general guidelines to be followed by the Group. The Board is responsible for the long-term strategy and for monitoring its implementation. •General Management, composed of the Chief Executive Officer (CEO) and the Chief Operating Officer (COO), who reports directly to the Board and are also Board members. •An Investment Committee formed by the management team5. 1.4 Business activities MERLIN Properties owns a portfolio of real estate assets valued at more than €11.3 billion, comprising 107 office buildings, 55 logistics warehouses and 14 shopping centers. The portfolio has a gross leasable area (GLA) of more than 3.2 million square metres that generates more than € 453 million in gross rental income. Management Report – Statement of Non-Financial Information 2022 12 5 Management team is understood to be: https://www.merlinproperties.com/en/corporate-governance/management- team/ OFFICES €6,388m GAV 107 ASSETS 1.2 m sqm GLA €243m GRI6 6 LOGISTICS €1,400m GAV 55 ASSETS 1.5 m sqm GLA €74m GRI SHOPPING CENTERS €2,135m GAV 14 ASSETS 461 k sqm GLA €124m GRI LOOM 12 SPACES7 and 2,639 desks 26k sqm of GLA 83.1% OCCUPANCY ZAL PORT (48,5%)8 43 ASSETS 736 k sqm GLA €72m GRI 8 TRES AGUAS (50%)8 1 ASSET 68 k sqm GLA €8m GRI DATA CENTERS 4 ASSETS 70 MW (Phase I&II) Management Report – Statement of Non-Financial Information 2022 13 6 Gross Rental Income. Note 8.1. Operating leases - tenant 7 Out of the 12 spaces, 9 are owned by MERLIN, with a GLA of 21,731 sqm 8 100% of the asset Offices MERLIN once again consolidates its leadership position in the office market, reaching pre-covid levels in key financial and operating metrics, as reflected in the growth in rental income of the like-for-like portfolio (+6.0%), the release spread (5.8%) and the occupancy rate (92.5%), which beats the 91.5% forecast given to the market at the beginning of the year. €6,388m GAV 107 ASSETS 1.2 m sqm GLA €243 M GROSS RENTAL INCOME 92.5 % OCCUPANCY RATE +6.0 % GRI LFL 2022 Milestones Complete refurbishment of Plaza Ruíz Picasso •The complete refurbishment of Plaza Ruiz Picasso of 36,899 sqm, stands out given the inclusion in the construction process of measures for low CO2 emissions impacts, both in terms of embodied and operational carbon. Based on the analyses carried out, this pilot project will have a footprint of 375 kg of CO2/sqm of embodied carbon9. The project also includes the refurbishment of the public spaces adjacent to the asset. Work is progressing well and is scheduled for completion in the fourth quarter of 2023. The asset is practically fully pre-let. Refurbishment of the Churruca Business Park (Cunef Campus) •Refurbishment of the Churruca Business Park, which is 100% leased to Cunef. The incorporation to the new facilities has taken place since the 22-23 academic year. This is a 17,166 sqm GLA campus, well connected, with comfortable and accessible classrooms and spaces that combine the highest standards in technology and sustainability and will include photovoltaic panels that will provide the campus power for self-consumption. Complete refurbishment of the Cerro de los Gamos Business Park •Business Park consisting of 5 buildings with a GLA of 36,105 sqm. The works will be carried out in three phases, with Phase I including the refurbishment of buildings 1 and 4 to be completed in 3Q23. Both buildings have been 100% pre-let. The refurbishment will improve the technical, thermal and aesthetic performance of the enclosures in accordance with the standards required by the LEED energy certificate. Works also include a series of renovations that will completely change the structural aspect, as well as a, complete renovation of the air conditioning and air quality systems that will provide optimal standards of environmental comfort and for work performance. Management Report – Statement of Non-Financial Information 2022 14 9 Embodied carbon is the carbon included in the building materials, and the carbon generated by transporting these materials and during construction work. Strong growth of LOOM (flexible offices) •Opening of 3 new locations at Castellana 93, in Madrid and Plaza Cataluña and Ferretería in Barcelona. Furthermore, MERLIN has also expanded space in the Atica, Torre Chamartín and Torre Glòries assets, given the strong demand for flexible office space in the market. Renazca preliminary project boost •The RENAZCA Project aims to promote a complete refurbishment plan of the Azca complex, located in the heart of the city, creating a place for the enjoyment of all citizens and the subsequent revitalisation of the area, with the aim of making it a destination in the city of Madrid and an example of best practices in sustainability. Future objectives Expansion and adaptation of new spaces •MERLIN will continue expanding its LOOM network focused on hybrid work, expanding its presence in key Spanish cities. •Over the course of 2023, the LOOM Castellana 85 and Puerta de las Naciones spaces are expected to open, both have an aggregate capacity of 430 desks. •Finish works in Plaza Ruiz Picasso and Churruca business park. •Start of the refurbishment of the third building in the Cerro de los Gamos business park. •Continuation of the Renazca project. Logistics MERLIN is the undisputed leader in the logistics real estate market throughout the Iberian Peninsula, thanks to the size, quality of its portfolio and the Group’s rapid response to its customers’ new requirements. During 2022, a 7.9% release spread was obtained, with comparable rental income growth of 8.6% and almost reaching full occupancy (97.0%). €1,400m GAV 55 ASSETS 1.5m sqm GLA €74m GROSS RENTAL INCOME 97.0% OCCUPANCY RATE +8.6 % GRI LFL Management Report – Statement of Non-Financial Information 2022 15 2022 Milestones Significant progress of the Best II & III Plans •Delivery of Cabanillas Park II A: a turnkey logistics warehouse with a 47,155 sqm GLA for Logista in Cabanillas del Campo (Guadalajara), which marks the inauguration of Cabanillas Park II. •Delivery of Cabanillas Park I-J: 44,653 sqm GLA logistics warehouse for DSV. With the delivery of this warehouse, MERLIN successfully completes the development of the Cabanillas Park I logistics park. Future objectives Continuation of Best II and Best III Plans •Continuation of the development of the A2-Cabanillas Park II logistics park, with the warehouse B and commencement of works in the A2-San Fernando III warehouse. •Within the Best II and Best III Plans, the Company still counts with 507,000 sqm landbank: 116,000 sqm in Cabanillas Park II, 180,000 sqm in Lisboa Park, 99,000 sqm in A2-San Fernando III, 97,000 sqm in Valencia and 15,000 sqm in Sevilla ZAL. Shopping Centers MERLIN’s shopping centers continue to be a benchmark in the Spanish and Portuguese real estate sector, strategically located in urban centers and dominant in areas with high GDP per capita, which allows the Group to maintain the robustness demonstrated in previous years, recovering to pre- pandemic levels (2019). During 2022, a 5.2% release spread was obtained, with comparable rental income growth of 7.5% and occupancy increase (95.0%, +79 bps). €2,135m GAV 14 ASSETS 460 k sqm GLA 11.8% OCCUPANCY COST RATIO €124m GRI 95.0% OCCUPANCY RATE +7.5 % GRI LFL Management Report – Statement of Non-Financial Information 2022 16 2022 Milestones Refurbishment of assets •MERLIN is committed to the continuous refurbishment of its shopping centers. As part of the Flagship refurbishment plan, which has already been completed, 6 shopping centers have been completely refurbished to include the best standards in terms of sustainability, technology, accessibility and aesthetics. Completion of the Certification Program •In 2022, MERLIN completed the Shopping Centre Certification Programme, with 100% of shopping CENTERS certified, and obtaining BREAM certification levels above the national average. Award-winning shopping centers •In 2022, MERLIN received the following awards from the Spanish Association of Shopping Centers and Retails Parks (AECC) for the good practices carried out: •Award for the Best Medium/Small Shopping Centre to X-Madrid. •Award for the best sustainability campaign for its “zero waste” initiative in the Marineda City shopping centre in A Coruña. This certificate, awarded by AENOR, certifies that more than 90% of the waste generated at the shopping centre can be classified, thus preventing it from being sent to a landfill. •In the field of marketing and communication, MERLIN’s shopping centers have won several awards, most notably those received in the Saler shopping centre for the best large marketing and communication campaign “Escape Mall”, and the best small marketing campaign for “La Falla virtual”. •Top 3 nomination for Hapik as the best leisure centre at the Mapic Awards for X-Madrid. Consolidation and expansion of prominent operators •MERLIN continues to position itself as a benchmark owner for major operators. Noteworthy of mention is City Wave, located in X-Madrid, which has received the award for Best Independent Retailer, confirming the success of this shopping centre in its commitment to offer visitors a differential experience. Support for entrepreneurship and digitalisation Management Report – Statement of Non-Financial Information 2022 17 •In 2022, a project was carried out with Lanzadera, the business accelerator, to support entrepreneur sin the retail world. •Amongst the winners of the Retailtech Hub are La Mas Mona and Kraft Walkers, which have opened their own stores in two MERLIN shopping centers; and Gus and Wipass, two technology startups that create solutions to improve customer experience. Future objectives Refurbishment of Callao 5 •Throughout 2023, works will begin on the total refurbishment of the asset located at Callao 5, with the total remodelling of uses, facilities and formats. It is one of the most special, iconic and representative properties in Madrid, with an unbeatable location and great commercial value in the city. This new mixed-use real estate complex is scheduled to be completed in December 2025. Development of new initiatives to support entrepreneurship and digitalization. •MERLIN will continue to support entrepreneurship and the development of digitalization. Net leases The sale of the BBVA portfolio in 2022 is noteworthy of mention, which was valued at € 1,773 million (including the derivative) and generated € 83.6 million in gross annual rental income. It was sold to BBVA on 15 June at a premium of 17.1% over valuation. Thanks to the sale, the Company was able to reduce its debt level considerably and can focus on developing its two growth pillars: logistics and data centers. Data centers At the end of 2021, MERLIN launched a new business line, data centers (Mega Plan), an attractive asset class with 4 strategic locations in the Iberian Peninsula to develop state-of-the-art data centers. 2022 Milestones Phase I and Phase II: Launch of the Data Centre Programme •Obtain 3 licences for data centers in Madrid-Getafe, Barcelona-PLZF and Bilbao-Arasur, where the installed capacity of each module will be 20 MW, 16 MW and 22 MW, respectively. •Progress on the construction of the 3 locations, with the structure, roofing and closure completed in Bilbao and Madrid and the foundations completed in Barcelona. •Pre-let signed in Bilbao with the possibility of extension to Madrid and Barcelona. Management Report – Statement of Non-Financial Information 2022 18 Future objectives Continuation of the Mega Plan •Finishing of the works in Madrid-Getafe, Barcelona-PLZF and Bilbao-Arasur (first building) in the first quarter of 2023. •Installation of the first 9 MW, 3MW in each location. Energy efficiency systems •High energy efficiency of the facilities with a PUE (Power Usage Effectiveness) below the global average and a total energy consumption from renewable sources. •Innovation as regards the cooling system with zero water consumption. •Install photovoltaic panels on all assets. 1.5 Main milestones and objectives MERLIN Properties has demonstrated and strengthened its leadership position in the Iberian Peninsula, posting excellent results. In 2022 MERLIN posted excellent results in its key financial and operating metrics. As a result, MERLIN closed 2022 with total revenues of €460.7m (including gross rents of €452.8m), like-for-like rental income of 7.3% (vs. 2021), EBITDA10 of €334.7m and operating profit (FFO) OF €290.5m (€0.62 per share). At year-end, the gross value of the REIT’s assets therefore stood at € 11,317 million. MERLIN continues strengthening its position in the Spanish and Portuguese market with a diversified portfolio and is committed to the integration of differential solutions that provide added value to the users of its assets, with sustainability and innovation as two of its main pillars. Compliance with Value Creation Plans During 2022, MERLIN has made significant progress in the value creation plans for its different asset classes. Within the framework of the Landmark Plan (offices), only Plaza Ruiz Picasso has yet to be completed, with delivery scheduled for the end of 2023, while progress on the Best II and III Plans (logistics) continue on track. The Flagship plan (shopping centers) has been completed. Management Report – Statement of Non-Financial Information 2022 19 10 EBITDA excluding LTIP and non-overheads 2019 2020 2021 2022 2023 and subsequent years Landmark Plan (in progress) Torre Chamartín (Fase II) Torre Glòries (Fase II) Marqués de Pombal Diagonal 605 Castellana 85 Monumental Plaza Ruiz Picasso Plan Flagship Larios Arturo Soria X-Madrid Tres Aguas Saler Porto Pi Best II Plan (in progress) A4-Pinto II B A2-Cabanillas III A4-Seseña A2-Cabanillas Park I F A2-San Fernando II A2-Cabanillas Park I G, H A2-Azuqueca II A2-Cabanillas Park I J A2-Cabanillas Park II A A2-Cabanillas Park II B, C, D A2-Azuqueca III Best III Plan (in progress) Valencia- Ribarroja Sevilla ZAL WIP (2019/2021) Zaragoza-Plaza II Lisboa Park A Lisboa Park Madrid - San Fernando III Valencia - Bétera Mega Plan (in progress) Barcelona-PLZF Madrid-Getafe Bilbao-Arasur Lisbon-VFX Sale of the BBVA portfolio With the sale of the BBVA portfolio, MERLIN has completely divested from its Net leases division, which also included the Caprabo assets sold in Q4 2021. The BBVA portfolio was valued at €1,773 million (including the derivative) and generated €83.6 million in gross annual rental income. It was sold to BBVA on June 15th, 2022, for a total amount of €1,987 million, at a premium of 17.1% over valuation. On June 15th, as a result of the share sale of Tree Inversiones Inmobiliarias to BBVA, the Group repaid in advance the mortgage financing associated with the bank branches for a total amount of €670 million and €850 million of the syndicated loan, thus reducing the leverage ratio from 39.2% in 2021 to 32.7%, a reduction of 651 bps. Management Report – Statement of Non-Financial Information 2022 20 Re-qualification of green bonds MERLIN has converted all of its senior bond issuances (more than €4 billion) into green bonds, integrating the financial strategy into its sustainability strategy by launching a green financing program. To this end, MERLIN has allocated the principal amount of all outstanding bonds into eligible green assets in accordance with the Green Financing Framework. This new green financing program is a further step in MERLIN’s strategy to include sustainability as a core pillar, as outlined in the “Pathway to Net Zero” plan. Bond refinancing MERLIN has subscribed, in the Q422, a green corporate financing agreement with leading national and international banks, which it allows it to add €660 million to its available liquidity, ensuring the repayment of all debt maturities until 2026. Data centers In 2022, MERLIN moved forward with its entry into a booming market driven by product scarcity, the arrival of submarine cables and the exponential increase in data traffic. The assets located in Madrid- Getafe, Barcelona-PLZF and Bilbao-Arasur are currently under construction. Once Phases I and II are completed, these assets will have a total installed capacity of 70 MW. As regards with the efficiency of the data centers, a cooling system will be used in which water consumption is eliminated, with a closed system based on glycol as the coolant. Furthermore, the average PUE (Power Usage Effectiveness) of the facility is only 1.15, well below the global average for data centers (1.59) and the European average (1.46). All the energy consumed by the facilities will come from renewable sources through long-term purchase contracts with renewable energy producers and guarantees of origin with the suppliers. As part of Project SUN, the photovoltaic solar project launched by MERLIN in 2019, given the structure and location of the data centers, photovoltaic panels will be installed on the rooftops of the assets to optimise energy consumption. As a future objective, MERLIN expects to obtain the licence for the Lisbon-VFX asset in order to be able to start construction of this asset. Management Report – Statement of Non-Financial Information 2022 21 2. Sustainable growth strategy 2.1 The market (sector)11 The markets in which MERLIN operates are benefiting from the gradual economic recovery following the devastating effect of the pandemic in 2020. This economic environment has led to significant increases in trading volumes, which results in higher occupancy in the three asset classes in which we operate. Moreover, the investment volume overall for all asset classes in Spain has increased exponentially, reaching €15,400 million in 2022 compared to €11,700 million of direct investment in Spain in 2021. Situation of the rental market by geographical area: Madrid Madrid is both the largest metropolitan area and the main real estate market on the Iberian Peninsula. In general, the rental market has benefited from the economic recovery. The absorption of office space has reached around 543,000 sqm, up 30% versus 2021, prime rents have increased by +4% to reach 36.50 €/sqm/month, and availability has increased slightly to 9.75%. As regards with the logistics market, it has been a record year in terms of take-up with 1,328,500 sqm contracted, up 32% compared to the previous year. Lastly, shopping centers have practically recovered in terms of sales with footfall still below pre- covid levels. Barcelona In the office market, take-up has amounted to 328,000 sqm and prime rents have remained at 27.50 €/sqm/month. It should also be noted that more than 180,000 sqm were delivered during the period, causing the vacancy rate to rise to 10.1%. On the other hand, the logistics market is suffering from a lack of both available land and quality product for e-commerce operators. With regards to shopping centers, the performance in both sales and footfall is still slightly below the one in Madrid. Lisbon The performance of the office rental market has been very positive, with 272,000 sqm absorbed (+68%) and a vacancy rate that stands at 7%. Prime rents remained stable during the year, reaching 25 €/sqm/month. In relation to logistics, rents have increased and stand at €5/sqm/month, on the Alverca/Azambuja axis. In addition, take-up in the period has been 250,000 sqm. Lastly, shopping centers have recovered relatively well with sales and footfall at pre-covid levels. Management Report – Statement of Non-Financial Information 2022 22 11 The sources consulted, among others, include the following: “The Office Property Telescope - Spain 2022” - EY; “The reality of the office market - Summary of 2022 and trends for 2023” - Savills; “Marketbeat Madrid - Industrial Q4 2022” - Cushman Wakefield; “The reality of the office market - Summary of 2022 and trends for 2023” - Savills; “CBRE Retail Index Dec 2022” and “Portuguese Real Estate Market” - Cushman Wakefield Situation of the rental market by business segment: Offices The Spanish office market recorded an increase in activity in 2022 compared to 2021 although Madrid performed better than Barcelona (30% vs +0.2%). In addition, the vacancy rate rose in both markets to 9.75% in Madrid and 10.1% in Barcelona, although the vacancy rate in the more central submarkets remains low at 5% and 4%, respectively. Prime rents have risen slightly in both markets, although there have been slight declines in more peripheral locations. Similar performance has been observed in Portugal. Logistics The upward trend in the logistics sector continues to be favoured by consumer habits acquired during the pandemic that are part of the new reality and that are expected to continue to consolidate in the coming quarters. Record year for logistics take-up in Madrid and, to a lesser extent, in Barcelona. The volume reached by turnkey projects and pre-lets is of particular note given the lack of available logistics platforms that meet current demand requirements. This shortage of quality product has had an impact on the rents of logistics assets. Shopping centers The gradual recovery in the activity of shopping centers after the pandemic has been reflected in the high levels of sales and footfall in 2022. Although it is true that footfall is still below pre-covid levels due to the fact that there have been few box office releases in cinemas. Data centers Booming market driven by product scarcity, the arrival of submarine cables and the exponential increase in data traffic. In addition, the strategic geographical position (port of entry for submarine cables connecting to other continents, installed capacity and renewable energy development) of the Iberian Peninsula makes it an attractive location for the development of data centers. 2.2 Outlook In the absence of externalities, the three main asset classes (offices, logistics and shopping centers) are expected to maintain occupancy levels, while rents will continue to benefit from rising inflation as leases are indexed to CPI. The Group expects 2023 to be a year of transition following the sale of the BBVA portfolio. In this regard, the Group has provided the market with an estimate of its operating profit for 2023 of €0.58 per share. A complementary dividend, additional to the dividend on account of €0.20 per share distributed in December 2022, will be proposed to the Board of Directors in the following meetings, subject to approval by the AGM and to be paid in May 2023. Management Report – Statement of Non-Financial Information 2022 23 2.3 Trends and opportunities The Group’s operating performance improved during the year, beating the FFO forecast given to the market at the beginning of the year. MERLIN Properties has closed the year with a gross rental income of €452.8 million, an EBITDA of €334.7 million and an FFO of € 290.5 million or € 0.62 per share. The net asset value amounted to € 7,363 million (€ 15.67 per share), which represents a decrease of 2.7% compared to the previous year, while total shareholder return reached 4.7% boosted by the €1.20 per share dividend paid during the period. The portfolio’s resilience can be seen in its strong fundamentals, with growth in LfL gross rental income (+7.3%) and an occupancy rate of 95.1% (+60 bps compared to 2021). Offices Significant increase in LfL gross rental income (+6.0%), thanks to the increase in occupancy (+245 bps), rising inflation and positive release spreads in renewals. Occupancy stood at 92.5%, beating the guidance provided to the market (91.5%) and with a release spread of 5.8%. The main contracts signed in 2022 include 13,890 sqm in Adequa with EDP, 4,221 sqm in Poble Nou 22@ with Generalitat de Catalunya, and 3,838 sqm in Maria de Portugal T2 with Honeywell. In terms of renewals, worth underlining American Express (8,318 sqm in Partenon 12-14), Servizurich (4,201 sqm in Poble Nou 22@) and Liferay (1,805 sqm in Castellana 280). With regard to the Landmark Plan, only Plaza Ruiz Picasso 11 building has yet to be completed, which will become the smartest building in Madrid provided with the highest ESG standards and is virtually fully pre-let. Worth highlighting IBM’s 12,129 sqm lease. Logistics Solid release spread of 7.9% and LfL rental income growth of 8.6%. The occupancy rate stood at 97.0%. The main contracts signed during the year include Logista with 47,211 sqm in Cabanillas Park II A, DSV with 25,221 sqm in A2-Cabanillas Park I H, Leroy Merlin with 16,100 sqm in A4- Getafe (CLA) and Media Markt with 11,099 sqm in A4 Pinto-I. Shopping centers Footfall (+19.5%) and sales (+27.7%) continue to improve compared to last year and are almost at 2019 levels. LfL gross rental income have increased by 7.5%, occupancy continues to rise and stands at 95.0% (+79 bps vs 2021) and the release spread stands at 5.2%. The main contracts signed and renewed during the year include Zara (extension) with 3,229 sqm in Saler, Zara (extension) with 1,600 sqm in Artea, Outlet Sport with 1,056 sqm in X-Madrid. Investment and divestment activity Investment activity in the year most notably included the acquisition of two prime office buildings for €131.5 million. These assets are Liberdade 195, a 16,510 sqm building on Management Report – Statement of Non-Financial Information 2022 24 Lisbon’s most exclusive avenue, and a 3,665 sqm building adjacent to our Plaza Ruiz Picasso 11 development in Azca, Madrid. As regards with divestments, the sale of the BBVA portfolio in 2022 is noteworthy of mention, which was sold for €1,987 million and generated € 83.6 million in gross annual rental income. It was sold to BBVA on June 15th at a premium of 17.1% over valuation. In addition, the Group sold various assets in 2022 for a total of €112.6 million at a premium of 8.7% over GAV, including four office buildings (33,783 sqm). 2.4 MERLIN’s Strategic Plan MERLIN’s strategy aims to generate sustainable shareholder returns through the acquisition, focused management and selective rotation of real estate assets mainly in Spain and, to a lesser extent, Portugal. In this regard, MERLIN, with the objective of remunerating shareholders with a dividend policy of 80% of the AFFO generated in the year, has set a target mix of the different business segments, investing only in Core and Core Plus assets in Spain and Portugal, while maintaining cost efficiency and best corporate governance practices. In keeping with industry best practices, the Group is therefore active in four key areas: •Internal portfolio management: MERLIN is committed to internalising the management of its properties by a first-class team with extensive experience in the real estate sector. In doing so, the Company is able to maximise the operational efficiency and profitability of each asset in all stages of the life cycle. •Profitability through asset refurbishment: MERLIN strives to realise the full potential of each asset through refurbishment, maximising the value of the portfolio and generating higher returns for shareholders. •Entering in a new asset class: data centers •Sustainability, a key aspect of the assets: MERLIN continues to aspire to the highest levels of sustainability and efficiency in its portfolio. It does so by integrating sustainability into the entire life cycle of the asset and supporting this commitment by obtaining sustainability certifications. Management Report – Statement of Non-Financial Information 2022 25 2.5 MERLIN’s sustainability management MERLIN responsibly manages its activity, ensuring the achievement of sustainable objectives over time and the creation of shared value for its stakeholders. This is done while ensuring strict compliance with the law and with the international benchmarks to which the Group adheres. In this context, MERLIN’s commitment can be none other than the achievement of sustainable profitability that guarantees the success of its business project and takes into account the expectations of its stakeholders. In addition, this growth must be achieved without undermining the organisation’s environmental performance, minimising any impacts on the environment and committing to the integration of sustainability in the development and refurbishment of assets. MERLIN’s sustainability roadmap Sustainability policy MERLIN Properties considers sustainability to be a lever for the creation of value in the environment in which the Group operates, mainly through its assets. The principles governing MERLIN’s sustainability roadmap are as follows: This Sustainability Policy was approved by the Board of Directors of MERLIN Properties, entering into force on the date of its approval and remains fully valid until such is amended. The Board of Directors, through its delegated Committees and, in particular, through its Sustainability and Innovation Committee, monitors the correct implementation and fulfilment of all guiding principles and commitments set out. Management Report – Statement of Non-Financial Information 2022 26 Guiding principles •Responsible governance and ethical behaviour: MERLIN is committed to the highest standards, guarantees and transparency in the Group’s management and decision- making, and to the success of the business when carrying out its activities, safeguarding ethics and integrity in its operations. •Transparency with stakeholders: MERLIN considers it a priority to provide complete, accurate and truthful information on the Group’s performance and activities, and to maintain sufficient relationship channels with its stakeholders, actively communicating with them and responding to their main demands and expectations. •Independent external validation of commitments: MERLIN seeks to endorse its commitments by obtaining external validation, which guarantees the effective integration of sustainability in its internal management and assets, and this gives credibility to the practical implementation of the commitments made in the Group’s decision-making and activities. Pathway to Net Zero Following the 2.0°C pact made at COP2112, MERLIN announced its commitment to become a net zero carbon company by 2030, in line with the with science-based targets (SBTi), reporting risks under the TCFD recommendations13 and committed to the SDGs set by the UN. Strategy: 1.Reduce operational carbon. Milestones: In 2022, MERLIN has launched its Road to Net Zero strategy, a roadmap that includes improving the performance not only of the Group itself and those assets over which it has operational control, but of the main agents responsible for MERLIN's emissions along its entire value chain, including suppliers and tenant. Objectives: 85% reduction in operational carbon from baseline (2018) to 2028. 2.Reduce embodied carbon in all new developments and refurbishments. Milestones: In 2022, MERLIN developed a procedure for measuring the embodied carbon footprint for developments and refurbishments. Specifically, in the case of CAPEX awards for amounts over €3 million, the proposal must take into account the calculation of the embodied carbon footprint of the project awarded. This procedure means that an additional sustainability criterion is added when selecting suppliers. Management Report – Statement of Non-Financial Information 2022 27 12 Climate Change Conference in Paris 13 Task Force on Climate-related Financial Disclosures Additionally, in 2022, the assessment of the embodied carbon of the refurbishment of Plaza Ruiz Picasso 11 was also carried out, which stands out given the inclusion in the construction process of low CO2 emissions measures, both in terms of embodied and operational carbon. Based on the analyses carried out, this pilot project will have a footprint of 375 kg CO2/sqm in the embodied carbon phase, fulfilling one of the premises established in its Pathway to Net Zero. Objectives: To increase the sample in the calculation of embodied carbon in our portfolio to be able to set limits for each asset class. 3. Offset residual emissions: offsetting the unavoidable footprint through duly certified own initiatives focused on environmentally based solutions with a positive impact on local and/or underdeveloped communities. Milestones: The Company has estimated the forest mass needed to be able to offset its footprint in 2028 (around 150 hectares). In the process of searching for a land plot that meets the necessary requirements to be able to carry out the project. 4.Reduce scope 3 emissions: engage tenants through green clauses in new leases and pioneering initiatives such as rent reduction for tenants if they certify that their operations are net zero. Milestones: The Company has made significant progress in establishing a dialogue with our main tenants, which represent around 30% of the total surface area of the portfolio, to engage them in our net zero journey and to share data. On January 1st 2023, the new green clause came into force for all contracts, whereby all tenants who wish to benefit from a rent reduction will be required to share their consumption data through a technological platform. This green clause, which will be linked to the tenant’s credit risk, will incorporate a series of milestones which, if met, tenants will be able to benefit from a reduction in rent of up to 50 basis points. 5.Renewable energy: 100% renewable energy supply and photovoltaic power generation through the Project SUN, which consists of installing photovoltaic panels on the rooftops of the assets. Milestones: Significant efforts have been made this year in executing the project, having carried out 19 projects representing an additional 10.9 MW in the year, which implies a total installed capacity of 11.9 MW. The new installations include 10 office assets, 4 logistics assets and 5 shopping centers. Following the completion of Phase I of the Project SUN, the peak installed capacity is expected to be 39.8 MW. Likewise, 100% of MERLIN’s assets under operational control consume renewable electricity with a guarantee of origin certificate. Converting debt into green debt MERLIN counts with a 100% Green Financing Program under which all of its outstanding bonds are reclassified as green bonds, and has assumed a commitment to issue green bonds or other ESG bonds in the future. A Green Financing Framework has therefore been developed based on best practices with strict eligibility criteria including the following: •High levels of asset certification: LEED Gold or higher and BREEAM Excellent or higher. •Low carbon intensity emissions for buildings under operational control. Management Report – Statement of Non-Financial Information 2022 28 •Investments to promote renewable energies and/or improve energy efficiency. The Framework has received positive feedback from Sustainalytics, which considers it to be in line with the four main components of the ICMA Green Bond Principles 2021 and LMA Green Lending Principles 202114. 2.6 Materiality analysis MERLIN updated its materiality analysis on sustainability matters at the end of 2021, carried out on a biannual basis, in which various key issues in sustainability were assessed, either because of their influence on the valuations and perceptions of the stakeholders or because of their direct impact on the medium and long-term success of the Group’s strategy. For MERLIN, determining materiality (“double materiality”) is a key aspect in establishing the ESG roadmap. Materiality refers to everything that has a direct or indirect impact on creating, preserving or eroding economic, environmental and social value within MERLIN. The analysis of material aspects for MERLIN was carried out in accordance with the EFRAG15 guidelines on double materiality: •Stakeholder relevance (impact materiality): Material aspects when the company is related to actual or potential significant impacts on stakeholders or the environment over the short, medium or long term. This includes impacts directly caused by MERLIN or those that may occur throughout its value chain. •Internal relevance (financial materiality): This differs from the materiality used in financial reporting and its objective is to identify those material aspects that could have financial effects for the company, i.e. that may generate risks or opportunities that influence future cash flows and, therefore, the value of the company in the short, medium or long term. The methodology used to identify and assess the main impacts of MERLIN Properties is summarised in the following activities: •Real estate companies. Comparative analysis of the relevance of the material aspects for the main players in the sector in which MERLIN Properties operates included in their Sustainability Reports (or others). •Internal interviews and corporate documentation. The main ESG aspects for MERLIN Properties were reviewed and discussed during interviews with the different areas involved. Internal documentation and the previous materiality analysis were also reviewed. •International sustainability standards. Analysis of the main relevant aspects defined by international standards on sustainability. For this materiality analysis, GRIs (including the Real Estate sector supplement) and the Sustainable Development Goals were taken into consideration. •Press analysis of news concerning MERLIN Properties in 2022. •Expectations of stakeholders in ESG matters. The input of prescribers (DJSI, GRESB, EPRA, SASB) and demands of other stakeholders were taken into account mainly through the launch of a survey, which was answered by 46 representatives of 5 stakeholders: main shareholder, analysts (2), banks (5), main tenants (14) and main suppliers (24). Management Report – Statement of Non-Financial Information 2022 29 14 ICMA: International Capital Market Association; LMA: Loan Market Association 15 EFRAG: European Financial Reporting Advisory Group As a result of these actions, the following double materiality matrix was prepared: Coverage of material aspect Category Material aspect Inside the organisation Outside the organisation Environmental performance Climate change management x x Environmental performance of the assets x x Sustainable certifications x x Biodiversity x x Sustainable mobility x x Management Report – Statement of Non-Financial Information 2022 30 Social performance Talent attraction and retention x Diversity and equal opportunities x Development of local communities x x Health and safety of employees and contractors x x Quality spaces and services for users x x Sustainability in the supply chain x x Good governance Responsible governance x Ethics and compliance x x Transparency with stakeholders x x Economic performance Economic performance and dividend sustainability x x Innovation in assets and digitisation x x Management Report – Statement of Non-Financial Information 2022 31 3. Responsible management MERLIN has a robust governance system in line with its commitment to ethics, compliance and transparency, which is backed by independent third-party validation. 2022 MILESTONES FUTURE OBJECTIVES •Improved governance through the creation of a Planning and Coordination Committee, with the aim of strengthening the Company’s corporate governance by increasing the efficiency of the Board’s functioning. •Unification of the Appointments Committee and the Remuneration Committee into a single Appointments and Remuneration Committee. •Promoting training on sustainability matters and reporting requirements for the Board of Directors. •Approval of a Directors Remuneration Policy (2022-2025), that includes sustainability criteria both in the short and long term. •Implementation of a System of Internal Control over Non-Financial Reporting (ICNFR) and adaptation of the Internal Control Policy to this new scheme of control over non-financial information. •Promoting the improvement of the corporate governance system with the approval of new policies (respect for human rights, biodiversity, human capital management, etc.) and the review of other existing policies. •Continue with the ongoing improvement of the Governance System in line with international best practices as a comprehensive system that generates security and value, enabling the improvement of the Group’s strategic and operational management. •Develop and implement the improvement opportunities identified in the assessment of the Board and its Committees conducted by an external consultant in 2023. •Continue to monitor sustainability reporting, expanding improvements to existing reports and their incorporation into the rest of the Group’s regulated information. •Maintain UNE 19601 Criminal Compliance and ISO 37001 Anti- Corruption and Bribery certifications, with a global scope for all the Group’s subsidiaries. •Continuously improve the Risk Management System with a particular focus on climate-related risks and exposure of assets to extraordinary events. •Closely monitor the Action Plans established for risk mitigation in 2022 to verify their progress, implementation and mitigation of identified risks. Management Report – Statement of Non-Financial Information 2022 32 KEY INDICATORS FOR THE YEAR 2022 CHANGES 2021-2022 Independent directors16 7/13 — Women on the Board of Directors 5/13 — Non-executive directors with industry experience 6/11 — Directors present on 4 or more Boards of other listed companies 0/7 — Scope of ethics and compliance training (employees trained) 91% -4 percentage points MERLIN has developed a Governance System that sets out the principles that should the Company, all Group companies, and their professionals. 3.1 Governance structure Management Report – Statement of Non-Financial Information 2022 33 16 Pursuant to section 529 duodecies of the Spanish Corporate Enterprises Act (Ley de Sociedades de Capital), an independent director is considered to be a director who, appointed based on their personal and professional qualifications, may perform their duties without being conditioned by their relationships with the Company or its Group, its significant shareholders or management. The Board Regulations, the Regulations of its Committees, the General Meeting Regulations, and the main policies of MERLIN’s Governance System, along with a summary of the remaining policies, are published on the corporate website https://www.merlinproperties.com/en/corporate-governance/ corporate-governance-normative/. MERLIN uses the CNMV’s “Good Governance Code for Listed Companies” as a reference, along with the good governance recommendations generally recognised and accepted by the markets. In 2022, the Board of Directors, in addition to the amendments to the Articles of Association, the Board Regulations and the Regulations of its Committees, which were approved by the shareholders at the General Meeting held on 4th May 2022, has approved the following updates to the Governance System: Internal Control Policy The Board of Directors approved the changes to the current policy at the proposal of the Audit and Control Committee, with the main changes being: •The ICNFR Model on non-financial information is defined. •The Board’s responsibility for preparing the statement of non- financial information is established. •The responsibilities of the ARC and the SIC as regards non-financial reporting and coordination with the ACC are set out. Risk Management and Control Policy The Board of Directors approved the changes to the current policy at the proposal of the Audit and Control Committee, with the main changes being: •It establishes that the ARC and SIC are involved in identifying and monitoring non-financial risks. •Coordination between the ARC, SIC and ACC for identifying and monitoring risks is established. Procurement Policy The Board of Directors approved the changes to the current policy at the proposal of the Audit and Control Committee, with the main changes being: •Environmental, social and governance risks are included. •Suppliers must be assessed on ESG matters as part of procurement processes. Financing and Financial Risk Policy The Board of Directors approved the changes to the current policy at the proposal of the Audit and Control Committee, with the main changes being: •It establishes the objective of having corporate debt linked to ESG criteria. •Best market practices (ICMA and EU Taxonomy) are benchmarked. •A commitment is made to publish an annual allocation report and an impact report. Management Report – Statement of Non-Financial Information 2022 34 Human Capital Management Policy The Board of Directors approved the initial version of this policy at the proposal of the Appointments and Remuneration Committee, the main content of which is as follows: •The basic principles for selection, hiring, remuneration, training and assessment are established. •Aspects such as health and safety, digital disconnection, equal opportunities are included. Senior Management Selection Policy The Board of Directors approved the initial version of this policy at the proposal of the Appointments and Remuneration Committee, the main content of which is as follows: •Senior management is defined in section 1.2. of the Board Regulations. •The selection process is defined as proposed by executive directors / ARC report / Board approval. •Succession plans and grounds for termination. Management Team Remuneration Policy The Board of Directors approved the initial version of this policy at the proposal of the Appointments and Remuneration Committee, the main content of which is as follows: •Alignment with the Directors Remuneration Policy. •Remuneration (fixed, STIP and LTIP): assessment by the ARC and approval by the Board. •The ARC may rely on support from other committees or external parties for objectives and assessment. •Malus, clawback and non-competition clauses and notice periods. Policy on Respect for Human Rights The Board of Directors approved the initial version of this policy at the proposal of the Sustainability and Innovation Committee, the main content of which is as follows: •It reflects the Group’s commitment to respect human rights (SDGs). •It establishes commitments to employees, suppliers, customers and the communities in which it operates. •It establishes mechanisms for reporting and deliberation in the Group’s various governance policies. Biodiversity Policy The Board of Directors approved the initial version of this policy at the proposal of the Sustainability and Innovation Committee, the main content of which is as follows: •It establishes a framework for integrating the protection and promotion of biodiversity into the Group’s strategy. •It integrates biodiversity into the Company’s internal strategic planning and decision-making processes, and into the analysis, management and reporting of long-term risks. Management Report – Statement of Non-Financial Information 2022 35 Sustainability Policy The Board of Directors approved the initial version of this policy at the proposal of the Sustainability and Innovation Committee, the main content of which is as follows: •It sets out the principles governing MERLIN’s sustainability roadmap: ◦Active climate change management. ◦Maximising the well-being of users of the assets. ◦Generating positive impacts in cities. •It sets out the guiding principles that underpin the policy: ◦Responsible governance and ethical behaviour. ◦Transparency with stakeholders. ◦Independent validation of commitments. Its internal organisational structure can be summarised as follows: •A Board of Directors composed of 13 directors. MERLIN’s Board of Directors is composed of a majority of independent directors and its activities are focused on defining, supervising and monitoring the policies, strategies and general guidelines to be followed by the Group. The Board is responsible for long-term strategy and for monitoring its implementation. •A Planning and Coordination Committee composed of 4 directors, including the Chairman and the Chief Executive Officer, assigned the functions of preparation, coordination, proposal and preliminary review of the agenda and proposed resolutions to be submitted to the Board, without executive functions and without supervisory or control functions. •A Lead Director, who will chair the Board in the absence of the Chairman, coordinates the external directors and is informed and aware of the concerns of investors and shareholders. The lead directors also plays an important role in managing the Whistle-blower Channel. •An Audit and Control Committee (ACC) composed of 6 directors, an Appointments and Remuneration Committee (ARC) with 6 directors, and a Sustainability and Innovation Committee (SIC) with 4 directors; all of these committees are made up of a majority of independent directors, are informative and advisory bodies, without executive functions, with advisory, reporting and proposal-making powers within their scope of action. •A Chief Executive Officer (CEO) who reports directly to the Board and is a Board member, responsible for carrying out the Company’s strategy and operations. •A Chief Executive Officer (COO) who reports directly to the Board and is a Board member, responsible for managing and carrying out the Company’s operations. •An Investment Committee formed by the management team. Management Report – Statement of Non-Financial Information 2022 36 Composition and operation of the Board of Directors The Board, in exercising its functions of submitting proposals to the General Meeting and co-option to fill vacancies, will ensure that, in the composition of the Board, external or non-executive directors represent a majority over executive directors and that these are the minimum necessary. Likewise, the Board ensures that member selection procedures favour diversity of gender, experience, and knowledge and are not affected by any implicit bias that may entail any kind of discrimination, and in particular, that they facilitate the selection of women directors. In accordance with section 15.5 of the Board Regulations, the Board of Directors and the Appointments and Remuneration Committee, within the scope of their respective powers, will ensure that persons of renowned solvency, competence and experience are elected as candidates, and will exercise the utmost care when inviting persons to fill the position of independent director provided for in section 5 of the Board Regulations. Management Report – Statement of Non-Financial Information 2022 37 Management Report – Statement of Non-Financial Information 2022 38 Skills matrix of the Board of Directors: Selection, evaluation and remuneration of Board members •The criteria for selecting Board members are established in the Director Selection Policy (approved by the Board of Directors, at the initiative of the Appointments and Remuneration Committee), ensuring that proposals for the appointment of directors, which are made individually, are based on objective criteria and focused on the candidate’s professional qualities, favouring diversity of gender, experience, age and knowledge. Selection criteria do not take into account aspects such as race, ethnicity, religion or nationality. •The Commission will choose candidates to fill these positions who are honourable, suitable, reputable, competent, experienced, qualified and committed to the task and must also guarantee the appropriate balance of the Board of Directors as a whole. •In accordance with the recommendations of the Good Governance Code for Listed Companies, the Company contracts an external consultant every three years, and in Management Report – Statement of Non-Financial Information 2022 39 accordance with that indicated in the recommendations for good corporate governance of listed companies, to evaluate the functioning and composition of the Board of Directors and its committees. In 2017 and 2020 the Company received advice from an independent external consultant (Egon Zehnder and KPMG, respectively). Subsequently, in 2018, 2019, 2021 and 2022 it was not considered necessary to engage an external consultant to re-assess the functioning of the Board and its committees, whereby the Company carried out a self-assessment process by means of a personal and individual questionnaire sent to all the directors, in which they were asked for their opinion in relation to the composition, competencies and functioning of the Board of Directors and its committees, and in relation to the Company’s Chair and the Chief Executive Officer. In 2022, the Council employed a technological tool that allowed all individual evaluations to be anonymous. •The remuneration of the Group’s Board members and management team is based on the principles of transparency, consistency, competitiveness, profitability and sustainability and the ability to attract the best professionals, as stated in its Directors Remuneration Policy. •The remuneration of the various Board members is determined in accordance with these principles and taking into account factors such as the economic environment, the Company’s earnings, the Group’s strategy, legal requirements, good corporate governance recommendations and best market practices, including metrics linked to sustainability. •Each year, the Appointments and Remuneration Committee establishes the quantitative, qualitative, financial and non-financial objectives that will determine the remuneration for the year. Non-financial targets include the reduction of CO2 emissions per square meter and MERLIN’s position on the GRESB, CDP and S&P CSA ratings. 3.2 Risk management MERLIN has a Risk Management System based on the principles, key elements and methodology established in the COSO Framework (“Committee of Sponsoring Organisations of the Treadway Commission”), which aims to minimise the volatility of results (profitability) and, therefore, maximise the Group’s economic value, incorporating risk and uncertainty into the decision-making process to provide reasonable assurance of achieving the strategic objectives established, providing shareholders, other stakeholders and the market in general with an adequate level of guarantees to ensure that the value generated is protected. Based on a comprehensive view of risk management, MERLIN has adopted a methodological approach based on the Enterprise Risk Management Framework - Integrating with Strategy and Performance (COSO ERM 2017), which emphasises the importance of enterprise risk management in strategic planning and incorporates it throughout the organisation, since risk influences strategy and performance in all areas, departments and functions. Management Report – Statement of Non-Financial Information 2022 40 The Risk Management and Control Policy (https://www.merlinproperties.com/en/corporate- governance/corporate-governance-normative/ ) was initially approved by the Board of Directors in February 2016, and updated in April 2022 at the proposal of the Audit and Control Committee. As stated in the policy, MERLIN identifies and controls the risks arising from its activities and manages the risks faced by the Group and its subsidiaries. This policy establishes the general guiding principles, rooted in the perception that risk management is an ongoing process based on the identification and assessment of the Group’s potential risks according to its strategic and business objectives, the determination of action plans and controls for critical risks, the supervision of the effectiveness of the controls designed and the evolution of residual risk to be reported to the Group’s governing bodies. MERLIN’s risk management is a process driven by the Board of Directors and senior management, and each and every member of the organisation is responsible for it within their own purview. Risk management, which is supervised by the Audit and Control Committee, allows Management to effectively manage uncertainty and its associated risks, thereby improving the ability to generate value. With the support of the Internal Audit Department, the Committee uses risk management methodologies to monitor the identification and assessment of the risks affecting each area’s objectives. Through the implementation of the plan, the Committee assesses and concludes on the adequacy and effectiveness of the controls implemented by the Group, issuing recommendations as needed. MERLIN’s risk management model Management Report – Statement of Non-Financial Information 2022 41 In 2022, MERLIN carried out a ‘zero basis’ exercise to identify and assess MERLIN’s main corporate risks: •Compare the main competitors in the sector and review corporate risks and sustainability documentation. •Hold working meetings with MERLIN’s key staff to identify risks or update/adjust/calibrate existing ones to bring them into line with the reality of the business, MERLIN’s plan and the current environment and market situation. •Group and classify the 106 risks identified based on the reporting categories (business, resources, ESG) of the Risk Management System, identifying a new category related to strategy. •Review MERLIN’s 2022 materiality matrix and analyse the consistency of the 106 risks identified with the matrix and the key aspects in relation to GRI reporting and the SDGs. •Assess the risks identified (COO/Audit/MRL) based on the impact and probability criteria established and the other attributes identified: ◦Impact: strategic, financial, stakeholder and reputational ◦Probability: timing and occurrence ◦Attributes: speed, persistence and adaptability. •Update the Risk Map and digitalise it. In 2022, MERLIN’s Risk Map was regularly updated to reflect every six months the perception of the Company’s main executives and governing bodies of the risks faced by MERLIN. MERLIN’s latest Risk Map, updated by the Audit and Control Committee and approved by the Board of Directors in January 2023, includes a total of 27 key risks, as shown below: Management Report – Statement of Non-Financial Information 2022 42 MERLIN’s Risk Management System assesses all risks in terms of impact and probability, obtaining a residual risk indicator for the current year, identifies those KPIs and KRIs (forward-looking indicators) to be reported, and assigns those responsible for reporting, and those responsible for implementing or developing the mitigating measures identified for each of the risks. In addition, all risks were assessed in terms of time frame (short term —12 months—, medium term —12 to 36 months—, and long term —more than 36 months—), and in terms of speed, persistence and adaptability. •Short-term risks most notably include those related to increases in construction costs, raw materials and energy supplies and their impact on the envisaged Capex works and on the operating margin of the tenants. •On the other hand, longer-term risks most notably include those related to changes in consumer behaviour (remote working, e-commerce, etc.), failure to attract and retain talent, risks related to climate change (lack of third-party traction for footprint reduction, inefficiency in energy efficiency investments, natural disasters), and those risks related to regulatory non-compliance (GDPR, occupational risk prevention, etc.). Management Report – Statement of Non-Financial Information 2022 43 The various key risks identified are therefore classified into several key pillars to achieve the Group’s objectives, such as: •Strategic and governance risks: these affect the strategic objectives, leadership, and benchmarking (being the benchmark REIT) and the values of transparency, ethics and responsibility, and they affect the design and implementation of the Group’s strategy: definition of the business model, adaptation to a change in the real estate cycle, delay in strategic divestments, inadequate development of the governance system, succession plans for key personnel, etc., •Business risks: these affect the strategic objectives of long-term value creation and the generation of a sustainable and growing dividend, and are achieved mainly through the Group’s various assets, grouped into the different business segments (offices, shopping centers, logistics and data centers): loss of value of properties, delays and Capex cost overruns, costs passed on to tenants, reduced tenant margin, etc. •Resource risks: these affect the strategic objectives of generating a sustainable and growing dividend and the values of transparency, ethics, and responsibility, and are achieved mainly through the Group’s various internal and external resources (human, technological and financial): macroeconomic conditions in Spain and Portugal, failure to attract and retain talent, reliance on personnel and remuneration, cybersecurity breaches, technological innovation, etc. •Social and Sustainability risks: these affect the Group’s long-term sustainability and its interaction with stakeholders, and are achieved mainly through the various actions carried out and policies implemented by the Group to ensure the sustainability of its assets (physical impact due to increased costs as a result of extraordinary events, transition costs due to changes in customer expectations and preferences, sustainability of the supply chain, etc.); for its various stakeholders (customers, suppliers, society, investors, shareholders, and regulatory bodies): protecting the health of the users of the assets. Management Report – Statement of Non-Financial Information 2022 44 Emerging risks MERLIN has also identified two emerging risks. Emerging risks are considered to be those that are relatively new, growing in importance, outside of the company and that will have an impact on the business in 3-5 years, although the consequences of the risk may start to be seen now. •Risk of a change in the economic cycle: the rising inflation experienced in 2022 and the interest rate hikes by central banks are accelerating the risk of an economic recession. In this scenario, which is likely to begin in 2023 — but its duration is currently difficult to predict —, it is logical that real estate asset valuations will be negatively impacted by rising yields. The Group has therefore anticipated possible downgrades in valuations by managing its debt and signing a green corporate financing agreement with leading national and international banks, which allows it to add € 660 million to its available liquidity, and thus ensuring the repayment of all debt maturities until 2026. The financing agreement was closed at an average cost of MS + 126 bps and extends the average maturity of its debt from 5.2 to 6.1 years, structuring its liabilities so as to be able to meet the requirements of the new cycle. •Risk of increased impact from climate change: One of the major breakthroughs of COP26 was the recognition that we are falling short of the target set under the Paris Agreement of not exceeding a +2°C rise in temperature (compared to pre-industrial levels). It would be preferable to keep to an average of +1.5°C so that weather conditions would not become unpredictable and extreme. By the time COP27 was held in 2022, a 1.1º temperature rise had been reached in 2022. In other words, there is only room for four tenths of a percentage point before the end of the century to meet the most demanding target. The problem is that, according to the latest Emissions Gap Report issued by the UN Environment Agency, if we only meet the minimum requirements, we are looking at a 2.6° temperature rise. COP27 therefore assumes, to a certain extent, that we will no longer be able to avoid the worst of certain extreme weather conditions that will result from exceeding 1.5°C. But rather the objective now is to try to stay within the 2ºC threshold. Aware of the importance of climate risk and its effect on its assets and their users, in 2022 the MERLIN Group began a detailed analysis of physical and transition risks in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) methodology. This analysis identified the various physical risks to which each of the assets in the portfolio would be exposed based on simulations of different IPCC17 scenarios and identified the various transition risks that are expected to have a greater financial impact and an impact on the Group’s operations. See the TCFD analysis in Appendix IV. Management Report – Statement of Non-Financial Information 2022 45 17 Intergovernmental Panel on Climate Change Identification of other risks and action plans MERLIN set up its response plans through policies, procedures and controls that are adjusted based on the different risks that affect or may affect the Company. The Group has therefore defined and identified a series of different types of controls, designated the person responsible for each control, and assesses on a regular basis the risk and its residual component after carrying out and documenting the control. In addition, specific improvement plans have been established for operational, strategic, compliance and reporting risks that are considered to be significant. The Audit and Control Committee is committed to the risk management and control process, approving policies, procedures, and control structures it considers necessary. The Company’s General Management, the Finance Department and the Company’s other business divisions analyse at their regular meetings the situation and evolution of the main risks affecting the Group, taking corrective measures when considered necessary. The following is a summary of the main mitigation measures implemented to manage the other risks considered to be significant: Identified risks Action plans Business risk management •Business model definition •Occupancy rate of the assets / Sale of assets under development or being refurbished / Contract renewals •Fluctuating rent levels (real estate cycle; competition from new developments) •Exclusively strategic Board meetings in which the business model and risks are reviewed and the various strategic alternatives are analysed based on the economic situation and the real estate cycle. •Monitoring external factors of the real economy with an impact on the value of the assets, i.e. factors that affect demand (rent renegotiations, unexpected tenant departures, potential future supply, etc.), and factors that affect the return and valuation of assets (interest rates, real estate market yields). Management Report – Statement of Non-Financial Information 2022 46 Identified risks Action plans •Concentration of rents and solvency in top 10 tenants •Effect of inflation (CPI) on tenants •Delays and cost overruns in CAPEX investments (higher material costs, delayed deadlines, licences, etc.) •Decrease in operating margin of tenants and operators (increase in internal costs and raw materials) •Ability to achieve the desired asset mix (location, turnover and asset obsolescence) •Changes in user behaviour (less use of offices; remote working and hybrid models) •Excessive holdings of non-core assets; delay in divestments to raise funds •Independent asset valuation every six months, rotation plan for appraisers, review of appraisals by the external auditor, and internal verification of the appraisal: monitoring of the discount rates applied in the appraisal and of the investment alternatives. •Ongoing monitoring of business indicators (occupancy, rent, vacancies, like-for-like, release spread, etc.) of the contracts for each tenant / operator, the concentration of gross rents for the largest tenants, the credit risk of the main tenants and the design of contingency plans for the potential departure of each major tenant. •Implementation of an internal marketing team that provides service to all business segments in the processes of attracting, marketing and renewing asset contracts. •Five-year Investment Plan that will allow the quality of a certain number of properties to be refurbished, which will contribute to an increase in gross rents and maximise the profitability of the current portfolio. •Non-core divestment programme approved by the Board of Directors and monitored monthly. Climate change management and operational efficiency •(Objectives) Failure to comply with GHG emission reduction commitments or errors in their measurement (scope 1 - 2). •(Objectives) Lack of traction/commitment by third parties in reducing the Group’s carbon footprint for its assets (scope 3). •(Preference) Change in customer expectations and requirements regarding sustainability, innovation and the environment •Sustainable certification of assets: monitoring the objective of having almost all of its assets LEED and BREEAM certified, and maintaining accessibility certifications at centers. •Independent external validation of GHG emissions (scope 1 and scope 2), as certified by AENOR. •Energy efficiency: monitoring numerous initiatives linked to efficiency (MAEs), including the Photovoltaic Project. •Sustainability index reporting: monitoring and review of the information reported to the various sustainability indexes (GRESB, CDP, and DowJones Sustainability Index), analysing the scores obtained and establishing action plans for continuous improvement. Management Report – Statement of Non-Financial Information 2022 47 Identified risks Action plans •(Costs) Increase in repair and maintenance costs (due to storms, snowfall, floods, heat waves) •Inadequate management of inputs (electricity, gas and water) and waste from an asset •(Investments) Inefficiency in energy efficiency investments / obsolescence of assets and replacement by assets with lower emissions •Increasing cost of raw materials/supplies due to sustainability requirements •Suppliers with low quality and ESG (supplier scoring) standards •Lack of environmental due diligence in the acquisition of assets. •Study, design and upcoming implementation of a green clause in leases, where lessees who share energy information and reduce their carbon footprint will benefit from rent discounts. •Meters installation in all assets (and in lessee spaces), which allows us to obtain information on energy consumption in real time. •Sustainability Committee, which meets every two weeks, with members from various departments, to continuously monitor all actions related to the Group’s sustainability. •Identification of sustainable Capex initiatives to improve the energy efficiency of the assets, making them a priority and subject to special monitoring. •Changes to the Procurement Procedure, requiring an ESG questionnaire from suppliers with contracts for more than € 150 thousand and the calculation of their embodied carbon footprint for those with contracts for more than € 3 million. Talent creation •Failure to attract new talent (loss of attractiveness) •Failure to retain existing talent (motivation, ambition, remuneration, career plan) •Inadequate staff structure, composition and sizing (business vs support) •Lack or non-existence of adequate training plans •Approval of a new Long-term Remuneration Policy that introduces certain changes to adapt it to the new developments in the Ley de Sociedades de Capital and bring it into line with the interests of stakeholders, in particular those of its shareholders. •Short-term Remuneration Incentive Plan: with a weighting of non-financial targets at a maximum of 30% •Variable remuneration in line with the achievement of targets linked to the Company’s short- and long-term strategic plans and the interests of shareholders, without being guaranteed, but sufficiently flexible to not pay, or partially pay, this component if the targets set are not achieved. Management Report – Statement of Non-Financial Information 2022 48 Identified risks Action plans •Failure to comply with occupational risk prevention regulations with employees •Lack of communication and traceability of the strategy in long-term objectives •Inadequate (or non-existent) management of succession plans for key personnel (senior management and other staff) •Failure to comply with inclusion, diversity and equality plans •Succession plans for key personnel reviewed by the Appointments and Remuneration Committee. •Employee evaluation based on objective criteria to ensure appropriate remuneration of each employee’s professional value, experience, dedication and responsibility. •Registered Equality Plan and Sexual Harassment Action Protocol disseminated throughout the company. •Outsourced occupational risk prevention plan, with particular emphasis on early detection of COVID-19 infections. Management of stakeholders •Inadequate management of the impact of CSR activity (Corporate/centers) •Inadequate management of the (physical and social) impact of our assets on local communities •Failure to comply with local taxation (property taxes, tax on economic activities, duties, no- parking zones, environmental taxes) and its impact on local communities •Failure to comply with occupational risk prevention regulations with third parties •Protecting the health (well-being) of the users of the assets •Measurement the ongoing social impact using the London Benchmark Group (LBG) methodology, which allows us to quantify the impact of all actions with social implications. •Implementation of general controls (Strategy and Tax Policy), tax department regulations and a protocol for reviewing compliance with Spanish Law 16/2012. •Appointment of a Safety and Health Coordinator for all projects and a Business Coordinator for all works when required, and monthly monitoring of the accident rate. •Implementation of services (MERLIN HUB, urban gardens, etc.), and investments in HVAC to improve mobility and experience and to protect the health of our users. •Inadequate management of data protection and privacy of the users of the assets Management Report – Statement of Non-Financial Information 2022 49 Identified risks Action plans Capital management •Increase in the Company’s financing costs (rating, rate hikes, etc.) •Volume of short-term debt •Compliance with financial covenants •Management of strategic investments/ divestments •Access to sustainable financing (non- compliance with required KPIs) •Macroeconomic conditions in Spain and Portugal •Strict financial policy, by continuously monitoring the debt markets (mortgage, corporate banking, bonds), monitoring the leverage ratio, maturities and average cost of debt, maintaining lines of credit open and reports from the external auditor on compliance with covenants. •Investment procedures and control structures: documentation on the operation of the financial models, implementation of modification and integrity controls in all models. •Reconversion of all corporate debt to green financing (corporate bonds and debt), subject to compliance with certain Sustainable ESG KPIs. •Monitoring of the political and regulatory environment: regular reporting of new sector regulations, analysis of drafts of new regulations anticipating impacts and ongoing contact with specialised advisors. 3.3 Ethics and compliance MERLIN is firmly committed to ethics, transparency and the creation of value for its stakeholders in carrying out its activities. MERLIN’s Code of Conduct, which was updated in 2021, is the document that reflects MERLIN’s commitment to the principles of business ethics and transparency in all areas of activity, establishing a set of principles and guidelines for conduct aimed at ensuring the ethical and responsible behaviour of all Group professionals in the performance of their activities. Management Report – Statement of Non-Financial Information 2022 50 All professionals receive annual training on the Code of Conduct and regular internal communications. All new hires must also sign the Code of Conduct. In addition, MERLIN’s contracts with suppliers and lessees include clauses referencing both MERLIN’s compliance policies and its Code of Conduct. As stated in the Code, MERLIN has a Whistleblower Channel (canal.etico@merlinprop.com), which is a confidential channel for reporting any violations of the law and the Code of Conduct, and any potential financial, accounting or other irregularities. This channel is available to all professionals, is available to the public and can be accessed by any third party who wishes to do so on the corporate website. In 2022, zero complaints were received (4 complaints in 2021). Those filed in the previous year were investigated following the established procedure, duly processed and reported to the Board of Directors, and the conclusion reached was that there was no need to take action against any MERLIN professional18. Ethical and honest behaviour is inextricably linked to strict compliance with the regulations in force. Since its inception as a Group, MERLIN has had the bodies, policies and procedures in place to guarantee this integrity at all levels. The Group has an integrated, efficient internal control model, aligned with best practices, which ensures compliance with the requirements associated with the regulations given the highest priority, and currently has the following tools for this purpose: •Crime Prevention Model (CPM), which covers all activities and companies with operations that are controlled by MERLIN. •Anti-money laundering mechanisms: MERLIN has mechanisms in place to comply with the requirements established in anti-money laundering regulations, including a Prevention Manual (updated in 2021), annual external audits, an Internal Control Body (ICB), a Customer Acceptance Policy and a Technical Unit for the prevention of money laundering. All these mechanisms have been adapted to cover the Company’s activities in Portugal. •System of Internal Control over Financial Reporting (ICFR): MERLIN has an effective and reliable financial control model, based on identifying key risks and selecting relevant processes for financial reporting, the methodology and procedures of which are documented in the ICFR Manual. •System of Internal Control over Non-Financial Reporting (ICNFR): MERLIN has an effective and reliable model for controlling non-financial information, based on identifying key risks and selecting relevant processes for financial reporting, the methodology and procedures of which are documented in the different ICNFR indicator manuals. •Personal data protection mechanisms: The Group has mechanisms in place to ensure that personal data is processed correctly, including a DPO (Data Protection Officer) and the Personal Data Protection Policy. Management Report – Statement of Non-Financial Information 2022 51 18 The nature of the complaints received in 2021 was as follows: two concerning employees’ interactions with Group suppliers; one concerning the incorrect use of corporate mail; and one concerning the conduct of certain Group suppliers; none of them concern corruption and/or bribery. •Also worthy of note in 2022 is the continuation of the global training for the entire workforce as part of Regulatory Compliance Training aimed at all of the Group’s professionals, with a high level of participation (over 91%) by staff, executives and Board members. This year, compliance training was included as part of the onboarding process for new employees and global training focused on issues related to the Code of Conduct, sustainability, and the new 2022 policies (in particular the Policy on Respect for Human Rights and the Personal Data Protection Policy). Anti-fraud and anti-corruption measures In accordance with its Articles of Association, MERLIN aims to ensure that its conduct and that of the people related to it comply with and adhere to current law, its corporate governance system and with generally accepted principles of ethical and social responsibility. MERLIN has a Criminal Compliance Management System that is based on MERLIN’s firm commitment to the values and principles framed within the rejection of and zero tolerance for any unlawful act. These principles are set out in the Code of Conduct approved by the Board of Directors in 2015 and updated in 2021, and are projected onto the organisation’s employees, executives and governing bodies, with a strong message of rejection of and zero tolerance for any unlawful conduct or behaviour that violates the Group’s policies, values and principles. The Criminal Compliance Policy helps to reinforce the Company’s commitment to good corporate governance in accordance with its values and principles, and on the other hand, to diligently exercise due control within the organisation over the Group’s managing bodies, executives and employees to minimise as much as possible the potential risk of bad practices or non-compliance with regulations in the performance of its activities. Furthermore, the Anti-Corruption, Fraud and Bribery Policy (updated in 2021) is based on the principle of zero tolerance for unlawful or criminal acts and, therefore, does not allow any of its employees, regardless of their hierarchical or functional level, to become involved or participate in any transaction or business within its business activity that involves a criminal or fraudulent act or goes against the principles set out in its Code of Ethics; and the Public Authority Relations Policy, which aims to establish the basic principles governing the Group, and the rules of conduct for MERLIN Group employees in their interactions with public authorities to establish preventive actions and proactive steps in the fight against corruption and bribery in all areas of its business activity. As regards MERLIN’s Compliance System: –The certification of MERLIN’s Compliance Management System was renewed in 2022 under the UNE 19601 standard for all Group companies, including those in Portugal. This standard (UNE 19601) is the national standard for best practices in management systems for preventing and detecting crime and is the benchmark standard for criminal compliance systems. –Likewise, the certification of MERLIN’s Anti-Corruption and Bribery System was renewed in 2022 under ISO 37,001, the international standard in best practices against corruption and bribery. Management Report – Statement of Non-Financial Information 2022 52 Both certifications accredit that MERLIN’s Crime Prevention and Detection Model meets the standard’s requirements and is also effective in its commitment to ongoing improvement to incorporate the highest standards of compliance. Among other aspects, MERLIN’s Crime Prevention and Detection Model includes a map of risks or criminal offences to which the Group is exposed due to its activity and identifies, documents and executes more than 90 controls linked to such offences, demonstrating that the organisation has put in place the mechanisms and controls within its reach in the area of criminal compliance. Respect for human rights In 2022, the Board of Directors approved the Policy on Respect for Human Rights, in the interest of expressly placing on record the commitment of the Company and the Group to human rights recognised in Spanish and international law, and establishing the principles to be applied by the Group for human rights due diligence, in accordance with the Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises, the principles underlying the United Nations Global Compact, the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, the conventions of the International Labour Organisation, the Sustainable Development Goals (SDGs) adopted by the United Nations, the Company’s Code of Conduct, and any documents and texts that may replace or supplement the above. MERLIN and its Group are committed to guiding their actions based on the following principles: •Reject discriminatory practices or practices that undermine the dignity of individuals on the basis of their age, gender, marital status, nationality, religion, disability, race or ethnicity, or any other personal circumstance. •Reject child labour and forced or compulsory labour. •Respect freedom of association and collective bargaining •Protect the health of workers and provide decent employment. •Respect the rights of local communities and other stakeholders. •Respect the environment and protect natural resources. •Integrity, zero tolerance for corruption. •Implement monitoring and control procedures to identify, with due diligence, potential situations of risk of human rights violations, and establish mechanisms to prevent and mitigate these risks. To achieve these objectives and commitments, MERLIN assumes and promotes the following basic guiding principles that should govern its actions and those of the Group in all areas: a)Promote a culture of respect for human rights and actions aimed at raising the awareness of the Group’s professionals, suppliers, contractors and third parties with which professional relationships are maintained; b)Identify the potential impacts that the operations and activities carried out by the Group, either directly or through a third party, may have on human rights; Management Report – Statement of Non-Financial Information 2022 53 c)Assess the effectiveness of the due diligence system through monitoring indicators, with a special focus on those activities where there may be a higher risk of human rights violations. This assessment will be supported by the Group’s internal control systems; d)Complaint and grievance mechanisms, with sufficient guarantees and adequate resolution procedures, to address potential cases of human rights violations. MERLIN has set up an ethics mailbox at the address canal.etico@merlinprop.com, which can be used to report any indication of irregularities in the actions or conduct of employees, executives or collaborators of the Group companies that could imply a breach of the Code of Conduct or that could be considered an act of discrimination, corruption, extortion, bribery or any other type of offence. e)React by diligently adopting the appropriate measures if a violation of human rights is detected in the Group’s operations or in those of its customers or suppliers, and inform the competent authorities so that they can take the appropriate actions when this violation may constitute an administrative, criminal or any other type of offence. In particular, and with regard to its Supply Chain, MERLIN will encourage suppliers with which the Group companies interact to also show strict respect for the human rights as recognised in international law and the national laws of each of the countries in which they operate. MERLIN considers its suppliers to be a key partner for compliance with this Policy and, therefore, they assume a shared responsibility with the Group. The Company will therefore promote respect for human rights throughout its supply chain and, in particular, will insist that the commitments contained in this Policy be extended to its suppliers and their employees, always respecting their management autonomy and following the practices and procedures contained in the Group’s procurement regulations. In accordance with its Procurement Policy, MERLIN carries out ESG assessments of key suppliers of the Group companies, which include an analysis of fundamental rights and procedures to help those suppliers with which it has contractual relationships to undertake, within the scope of their competencies, to protect human rights. MERLIN will ensure that its business partners are aware of and respect the principles and commitments made in this policy. In 2022, MERLIN requested information from 110 suppliers representing 72% of CAPEX as of 31st December 2022, requesting information and details on environmental, social and regulatory compliance matters, including aspects regarding human rights compliance (policies, demands, etc.) for each third party assessed. Lastly, no complaints of human rights violations were recorded in 2022. Management Report – Statement of Non-Financial Information 2022 54 4. Climate change management and operational efficiency The Group’s environmental sustainability is a key aspect to ensure compliance with its objectives at all levels and to enhance its value creation, with active management of climate change and efficiency in the use of resources as key pillars. 2022 MILESTONES FUTURE OBJECTIVES •Launch of the pathway to net zero carbon emissions. •Definition of decarbonisation targets and approval of these targets by the SBT. •Quantification of climate change risks and their integration into the Group’s risk management in accordance with TCFD. •Implementation of the green clause for leases. •Creation of the Biodiversity Policy. •Adherence to the SDGs. •Creation of the Group’s own carbon sinks to offset residual emissions. •Gradual replacement of production equipment that uses fossil fuels. •Expansion of asset management systems to optimise energy consumption as much as possible. •Setting footprint limits in the construction phases (embodied carbon). KEY INDICATORS FOR THE YEAR Like for Like Data Absolute Data 2022 Data 2021-2022 Evolution 2022 Data 2021-2022 Evolution Energy consumption (GJ) 360,268 -2% 436,344 0% Energy consumption (MwH) 100,074 -2% 121,206 0% Greenhouse gas emissions (tCO2eq) Market-based 2,580 -23% 2,729 -21% Greenhouse gas emissions (tCO2eq) Location-based 14,167 11% 17,210 9% Water withdrawal (m3) 609,417 18% 680,084 27% Waste (ton) 6,992 20% 7,512 21% % of self-produced energy n/a n/a 1% n/a % of portfolio (in terms of GAV) certified with LEED, BREEAM n/a n/a 93.6% 2.5% % of the portfolio certified on ISO 14001 y 50001 67% 4.8% 37% 0.7% Management Report – Statement of Non-Financial Information 2022 55 4.1 Key environmental reporting criteria and concepts a)Methodology MERLIN includes information on environmental performance of its asset portfolio in accordance with the methodology established by EPRA Sustainability Best Practice Recommendations (3rd edition, 2017) and based on the GRI (Global Reporting Initiative) Indexes. b)Reporting scope Asset categories MERLIN reports environmental performance information for the office, logistics and shopping centre portfolios19. Type of surface area control For more accurate performance management of its assets in terms of energy consumption efficiency, water withdrawal and carbon footprint, MERLIN separates the data for these indicators by type of property: •Assets over which the Group exercises operational control. These are generally "multi- tenant" assets where the Group continuously assesses their environmental impact. •Assets over which the Group does not exercise operational control. For these "single-tenant" assets, although MERLIN is the holder of some of the utility contracts, the consumption management tasks fall to the lessee of the asset. •MERLIN’s corporate headquarters and LOOM spaces leased by the Group. In particular, MERLIN reports the information for the environmental indicator of waste management in terms of those assets where it is responsible for waste management, since in some cases this management is carried out by the owners’ associations. Reported data The Group has established the following reporting criteria taking into account the criteria set out above and the condition of the asset: Management Report – Statement of Non-Financial Information 2022 56 19 The Company’s policy excludes from the perimeter all assets that are under development or refurbishment. Data center assets are currently excluded from the environmental indicators as they are in the construction phase. Energy Water Waste Certificate s Land20 x x x x WIP21 x x x ü Assets in operation full year22 ü ü ü ü Assets in operation part of the year2323 ü ü ü ü /x Environmental performance data are reported both in absolute terms and in relative terms, known as intensity, i.e. absolute consumption or emissions divided by the surface area for which the consumption or emissions are reported. With these considerations in mind, the environmental indicators are calculated taking into account the percentage of GLA (Gross Leasable Area): •To measure the intensity of assets that are in operation for part of the year, the asset’s GLA is weighted by the time it has been in operation. This is a change from the data reported by MERLIN in previous years, which included the full GLA. •Furthermore, in the case of assets that form part of an owners’ association, the share of equity is applied to the energy and water consumption data. In these cases, the surface area taken into account in the calculations represents MERLIN’s share of equity in the asset. •Lastly, the total GLA of the assets is considered in the calculation of energy and water intensity, except in those cases where MERLIN only has control over the management of consumption in the common areas, in which case only the surface area of these common areas is considered. Energy % GLA Water % GLA Waste % GLA Certifications % GLA Offices 73% 76% 62% 95% Logistics 43% 24% 2% 82% Shopping Centres 100% 100% 88% 100% Management Report – Statement of Non-Financial Information 2022 57 20 Plots of land acquired by the Group on which construction has not yet begun 21 WIP: Assets under construction or refurbishment/renovation 22 Assets in operation for the full fiscal year 23 Assets that are in operation for part of the fiscal year, if the asset is in operation at the end of the fiscal year, the information on certifications is reported Absolute scope and like-for-like scope Based on the EPRA sBPR Guidelines, MERLIN reports on a series of environmental indicators or KPIs (integrated in the EPRA Sustainability Performance Measures). These KPIs cover information on energy consumption, GHG or Greenhouse Gases emissions, water withdrawal and waste generation24. There are two different types of KPIs: total or absolute KPIs and like-for-like KPIs. Absolute KPIs are calculated in terms of the total asset portfolio, while like-for-like KPIs are calculated considering only assets that have been in continuous operation for the last three years. Environmental performance data is reported including the degree of coverage of each KPI. Coverage is defined as the proportion of assets for which there is information available to calculate the respective KPI with regard to total assets, calculated both in terms of the number of assets and surface area of the assets. In 2022, MERLIN updated the criteria for calculating its GHG emissions, based on operational control and its share of equity in the assets as established in the GHG Protocol25, using the market-based method, based on which the data on emission factors arising from electricity consumption must be obtained from the suppliers from which the electricity has been purchased. The Group previously calculated the emission factor based on the electricity mix for Spain and Portugal (location-based method). Regarding the type of emissions, they are reported in Scope 1, 2 and 3, as described below: 1)Scope 1, which includes direct GHG emissions: •Associated with fuel consumption in fixed installations of assets with operational control. •Associated with fugitive emissions of refrigerant greenhouse gases. 2)Scope 2, which includes indirect GHG emissions: •Associated with electricity consumption in installations. •Associated with thermal energy consumption in installations. 3)Scope 3, which are direct emissions from fuel consumption at fixed installations of assets not under operational control and indirect emissions as a result of the company’s activities at sources that are neither owned nor controlled by the company (see Appendix II of this report). In view of the above, the data for the last two years have therefore been recalculated, for easier year-on-year comparability. 4.2 Environmental management and climate change systems As it is responsible for the management of its portfolios, MERLIN has implemented an Integrated Management System (IMS) that includes the Environmental Management System and the Energy Management System. The IMS is certified under the reference standards UNE-EN ISO 14001:2015 for the Environmental Management System and UNE-EN ISO 50001:2018 for the Energy Management System. Management Report – Statement of Non-Financial Information 2022 58 24 The full definition of these KPIs can be found in more detail in Appendix I. “EPRA sBPR Table of Contents” of this NFIS. 25 GHG Protocol (Green House Gas Protocol) establishes global standardized frameworks for measuring and managing greenhouse gas (GHG) emissions from public and private sector operations, value chains and mitigation actions. The Environmental Management System implemented allows the environmental performance of its activity to be controlled, thus ensuring that it has a system in place to identify and comply with all applicable legal requirements of an environmental nature, and to identify and manage the associated environmental risks, demonstrating its commitment to the ongoing improvement of its environmental performance. The Energy Management System allows the Company to improve energy efficiency, reduce consumption, improve operations and activities, and reduce emissions, demonstrating its commitment to the ongoing improvement of its energy performance and efficiency. Thus, in 2015 the Company began an ambitious plan for ISO 14001 (environmental management) and ISO 50001 (energy management) certifications to maintain and expand the number of real estate assets that have at least ISO 14001 certification, and subsequently ISO 50001 certification (based on the understanding that it is a natural step to obtain ISO 14001 certification before aspiring to ISO 50001). This plan includes office buildings, shopping centres and logistics warehouses. In 2022, 89 buildings comprising a surface area of 1,211,745 sqm were certified under ISO 14001, 6 more buildings than in 2021. The Group also continued the process of implementing an Energy Management System under the ISO 50001 standard, which began in 2017. Currently, 84 buildings are certified comprising a surface area of 1,151,751, 5 more than in 2021. The target for the assets included in the Energy Management System certified under ISO 50001 is to reduce energy consumption by 8% compared to the figure recorded in 2021 (96.71 kWh/sqm occupied), based on the implementation of ESMs (energy saving measures). The Group adheres to the precautionary principle through the Environmental Management System, which identifies the most significant environmental impacts of its activities and establishes the mechanisms necessary to identify, assess and control these impacts. The Group allocates 8.11 FTEs (3.12% workforce) to environmental risk prevention, considering the dedication of the governing bodies, senior management, and prevention and management teams. With regard to cover for potential environmental risks, the Group has third-party liability insurance that expressly covers any third-party liability arising from contamination or pollution of the atmosphere, soil or water, provided that these harmful actions occurred as a result of an accidental, sudden, unforeseeable, unexpected and unintentional cause. This insurance also covers the costs of removal, cleaning or disposal of contaminating substances for which MERLIN is legally liable due to contamination of third-party sites or facilities. In 2022, following an analysis, the Group did not consider it necessary to make provisions for potential environmental risks. Management Report – Statement of Non-Financial Information 2022 59 4.3 Development and operation of sustainable assets Integrating sustainability into each of the different phases of the asset’s life cycle has always been a priority for MERLIN and it has remained constant through the different phases life-cycles: Acquisition of new land or buildings In the due diligence process for investments in land and buildings, MERLIN considers environmental and social sustainability aspects such as the property’s construction characteristics, the asset’s energy efficiency, alignment with the Group’s strategy regarding sustainable mobility, or the status of legal compliance and sanctions. Furthermore, as a starting point, the Group’s strategy is to prioritise the location of assets in urban environments as this in and of itself ensures that no ecologically critical or endangered areas will be affected. MERLIN is therefore committed to ensuring that: •100% of office and shopping centre assets are located within 10 minutes/1km of public transport. •0% of assets are located in protected or ecologically critical areas. •100% of acquisitions take environmental and social criteria into account. MERLIN has made progress fulfilling these commitments. For example, 100% of the Company’s offices and shopping centres are accessible by public transport and all assets are located in urban areas that do not impact protected or ecologically critical areas. MERLIN also continues to work on integrating environmental and social criteria in its acquisitions in line with LEED and BREEAM certifications. Developments and refurbishments Sustainability is a factor that enters into the design phase of MERLIN’s new developments and refurbishments, which raises the value generated by the project from the initial stages. The Company also sets sustainability requirements for contractors, guides the projects for the certification of its assets based on sustainable construction schemes, and reduces and mitigates the negative impacts associated with the construction. In this phase, the Group replaces or installs resource-efficient equipment, systems and devices. MERLIN has developed a new policy that establishes the obligation to calculate the embodied carbon footprint for projects over € 3 million and give an ESG performance rating to suppliers with projects to be carried out for over € 150 thousand. MERLIN also seeks synergies between its assets to minimise and reuse the waste generated during refurbishment. Examples of this include the building materials, false ceilings and light fixtures that were reused in other assets following the refurbishment of Arturo Soria 343 or the recycling of technical floor plates from Cerro de los Gamos. In 2022, materials from the Plaza Ruiz Picasso building were used for the construction of the Cerro de los Gamos Business Park, Atica 1, Churruca and Campo de las Naciones business park. The Group’s roadmap calls for more circularity among contractors in the development and refurbishment processes and, therefore, the Group plans to include these criteria in the evaluation of the bids submitted in tender processes. With regard to biodiversity in developments and refurbishments, MERLIN studies the ecological value of the environment and proposes measures to preserve it, with priority given to native plant species in landscaped areas around our assets, avoiding exotic species. Likewise, although implicit in Management Report – Statement of Non-Financial Information 2022 60 its expansion strategy, the Group avoids deforestation in its developments and refurbishments by acquiring land in urban settings or with previous uses. MERLIN is therefore committed to ensuring that: •100% of developed/refurbished assets have sustainable construction certification. •100% of critical suppliers will be evaluated on ESG aspects in 2023. MERLIN has made progress in living up to these commitments by obtaining LEED or BREEAM certification for all developments and refurbishments. Management of properties in operation When operating its assets, MERLIN is committed to monitoring and actively managing consumption, taking steps to optimise consumption, working with tenants and operators, reducing negative impacts on the asset’s sustainability, evaluating suppliers based on sustainability criteria and certifying assets using recognised systems to measure sustainability performance. Given that it is during the operating phase when MERLIN has the greatest capacity to act, the Group focuses its efforts on maximising the integration of sustainability during this phase. The following sustainability initiatives are currently being implemented in the portfolio in operation: •Monitor the environmental performance of each asset throughout the chain of command and establish specific action plans on a quarterly basis. •Approve an investment plan for the installation of equipment (lighting, temperature, etc.) that improves asset performance. •Include green clauses to encourage energy efficiency in the tenant’s operations. •In line with its sustainability roadmap, MERLIN continues to install photovoltaic panels on assets in its strategic portfolios (offices, shopping centres and logistics assets) as part of the Project SUN, through which it aims to position itself as an essential player in the energy transition as the largest developer of self-generated energy in its sector. Significant efforts have been made this year in implementing the project, having carried out 19 projects representing 10.9 MW additional MW in the year and implying a total capacity installed of 11.9 MW. The new facilities include 10 office assets, 5 logistics assets and 4 shopping centres. Following the completion of Phase I of the Sun Project, the peak installed capacity is expected to be 39.8 MW. •Likewise, 100% of MERLIN’s assets under operational control consume renewable electricity with a guarantee of origin certificate. •In an effort to improve the circularity of its assets, MERLIN implements different initiatives to optimise the use of materials, reduce waste generation and manage the generated waste more efficiently. All assets (offices and shopping centres) therefore have waste sorting systems. MERLIN’s main objective in the operation of its assets is having 100% of assets with photovoltaic panels installed 26. Management Report – Statement of Non-Financial Information 2022 61 26 This commitment applies to those assets where installation is feasible based on the technical and/or structural characteristics of the assets. 4.4 Environmental performance of MERLIN Properties’ portfolio In line with market best practices in sustainability and to ensure that the results obtained are comparable to those reported by other companies in the sector, MERLIN reports on the environmental performance of its portfolio in accordance with the EPRA Sustainability Best Practice Recommendations (3rd edition, 2017)27. For more information on the environmental performance of MERLIN’s portfolio, and the methodology used, please refer to “Appendix I. Environmental performance reporting in accordance with the EPRA Sustainability Best Practices Recommendations (sBPR)”. Key environmental performance indicators of MERLIN’s portfolio28 2020 2021 2022 Absolute LfL Absolute LfL Absolute LfL Energy 365,134 GJ 0.210 GJ / sqm 101,426 Mwh 0.058 Mwh / sqm 336,735 GJ 0.261 GJ / sqm 93,537 Mwh 0.072 Mwh / sqm 436,963 GJ 0.223 GJ / sqm 121,378 Mwh 0.062 Mwh / m2 368,763 GJ 0.283 GJ / sqm 102,434 Mwh 0.079 Mwh / sqm 436,344 GJ 0.219 GJ / sqm 121,206 Mwh 0.061 Mwh / sqm 360,268 GJ 0.277 GJ / sqm 100,074 Mwh 0.077 MWh / sqm Water 480,580 m3 0.350 m3 / sqm 467,187 m3 0.361 m3 / sqm 535,055 m3 0.377 m3 / sqm 516,756 m3 0.392 m3 / sqm 680,084 m3 0.477 m3 / sqm 609,417 m3 0.463 m3 / sqm Waste 4,951 tons 4,949 tons 6,195 tons 5,847 tons 7,512 tons 6,992 tons With respect to the energy consumption of the Like for Like29 assets, there has been a 2.3% decrease compared to 2021, mainly due to the implementation of energy saving measures and the control of the facilities, since it was expected that there would be an increase in this consumption compared to 2021 due to the disappearance in 2022 of the health restrictions due to the COVID-19 pandemic and the increase in occupancy in offices, logistics activity and the influx in shopping centres. In relation to energy intensity, in the Like for Like portfolio it was 2.8% lower compared to 2021, and in the absolute portfolio, 1.4% lower compared to 2021. In relation to performance data, in Like for Like terms, the volume of water withdrawal in 2022 in the assets in which MERLIN exercises operational control was 609,417 m3 divided between consumption in office assets (42%), logistics warehouses (7%) and shopping centres (51%). Compared to 2021, there has been an increase of 17.9% mainly due to the increase in inflow in the 27 The third and most recent edition of the EPRA (European Public Real Estate Association) sBPR Guidelines from 2017 take the GRI (Global Reporting Initiative) Standards as a starting point. These standards are the most important sustainability reporting standard in the world. However, they are intended for a wide range of companies and as such they are generic and broad in nature. As a result, in some cases they do not address the specific characteristics of the real estate sector. Accordingly, the EPRA sBPR Guidelines provide very specific reporting criteria that sum up the requirements in the GRI Standards. Following the recommendations of the EPRA sBPR Guidelines, Appendix I includes a series of tables that provide a full breakdown of the portfolio’s environmental performance data. 28 The environmental indicators reported in the infographic only include information on assets over which MERLIN exercises operational control. 29 The assets included are those that have been in continuous operation for the last three years. office and shopping centre portfolio (+19.5%) as a result of the improvement in the COVID-19 pandemic situation and the high temperatures recorded in the summer period. Energy consumption MERLIN collects information on energy consumption of its assets under operational control, assets not under operational control, MERLIN’s headquarters in Madrid and the LOOM spaces in Huertas and Salamanca. The breakdown of energy consumption below includes consumption of electricity, fuel (natural gas and diesel) and district heating & cooling. •Energy consumption at assets over which MERLIN exercises operational control ENERGY CONSUMPTION OF MERLIN’S ASSETS UNDER OPERATIONAL CONTROL30 In relation to the assets over which MERLIN has the capacity to control and evaluate their energy consumption levels, the Company has information in absolute terms for 56% of the portfolio in terms of surface area. Management Report – Statement of Non-Financial Information 2022 63 30 The total surface area of the assets has been considered in the calculation of energy intensity, except in those cases where MERLIN only has control over the management of consumption in the common areas, in which case only the surface area of these common areas is considered. Management Report – Statement of Non-Financial Information 2022 64 Management Report – Statement of Non-Financial Information 2022 65 MERLIN has maintained its commitment to renewable energy through the production and self- consumption of photovoltaic energy at its assets and by increasing the number of assets that are supplied with renewable energy with a guarantee of origin. Green electricity consumption represents 99.2% of total electricity consumed by assets under operational control in 202231. Additionally, MERLIN acquires renewable energy certificates (RECs) within the framework of its LEED and BREEAM certificates. Thanks to this green energy purchase mechanism, the Group acquired a total of 12,627 GJ in 2022, worth approximately $ 19,727. Water withdrawal With regards to water withdrawal of the assets under management, MERLIN has the information of 54% of the portfolio, in terms of surface area. WATER WITHDRAWAL FROM MERLIN’S ASSETS UNDER OPERATIONAL CONTROL32 Management Report – Statement of Non-Financial Information 2022 66 31 The remaining electricity consumption (2,936 GJ, 0.8% of total electricity consumption) corresponds to the electricity that comes from conventional electricity suppliers. 32 The total surface area of the assets has been considered in the calculation of energy intensity, except in those cases where MERLIN only has control over the management of consumption in the common areas, in which case only the surface area of these common areas is considered. Waste management Within the framework of the ISO 14,001 Environmental Management System, MERLIN takes a systematic approach to waste management, separating waste at source according to its characteristics (including separation of hazardous and non-hazardous waste). Given the type of activity carried out by the Group, the hazardous waste generated by the assets is negligible in terms of weight compared to non-hazardous waste. MERLIN has information on the final destination of 60% of the waste generated by the assets under operational control in its portfolio. In addition, practically all managed waste undergoes some sort of recovery process. The quantities of waste that undergo different types of treatment on a portfolio- by-portfolio basis are given below. Management Report – Statement of Non-Financial Information 2022 67 The like for like increase is mainly due to the recovery to pre-covid levels of the footfall in the shopping centres (+19.5%). In the coming years, the Group will remain focused on continuously improving the identification and management of waste, maximising the amount of waste that can be recovered and/or recycled and minimising the volume of waste not classified or sent to the landfill. The Marineda shopping centre, which continues to hold the “Zero Waste” certification awarded by AENOR is notable in this regard. Due to its activity, MERLIN no longer considers food waste to be a material aspect. However, the Group promotes initiatives such as Too Good to Go at its shopping centres, which helps to reduce food waste at its assets. Management Report – Statement of Non-Financial Information 2022 68 4.5 Decarbonisation of MERLIN Properties’ portfolio MERLIN’s progress over the last few years has enabled the Company to define its emissions reduction strategy or “Pathway to Net Zero” for 2030, thus getting a head start on the European strategy for decarbonisation of the economy and ensuring the present and future survival of the Company and its assets. MERLIN’s Pathway to Net Zero is a roadmap that outlines the way to improve not only the performance of the Company and its assets under operational control, but also the behaviour of the key agents responsible for MERLIN’s emissions along its value chain, including suppliers and tenants. In 2022, MERLIN updated the criteria used for the calculation of emissions, using the market-based method33 as established in the GHG Protocol guidelines. 2020 Absolute 2021 Absolute 2022 Absolute Market-based Scopes 1 y 2 3,069 3,469 2,729 Scope 1 2,541 2,676 2,670 Scope 2 Market-based 528 793 59 Intensity tCO2eq/sqm 0.002 0.002 0.002 Scope 3 n/d n/d n/d Management Report – Statement of Non-Financial Information 2022 69 33 Market-based method calculates emissions based on the electricity that organizations have chosen to purchase. The difference is that the market-based method takes into account the use of renewable energy outside the consumption location as a generator of 0 carbon emissions, while the location-based method assigns the average local grid emission factor to renewable use outside the consumption location. MERLIN continues to report its emissions under the location-based method34. 2020 Absolute 2021 Absolute 2022 Absolute Location-based Scopes 1 y 2 12,773 15,824 17,210 Scope 1 2,541 2,676 2,670 Scope 2 Location-based 10,232 13,148 14,540 Intensity tCO2eq/m2 0.009 0.010 0.011 Scope 3 n/d 111,627 133,674 4.5.1. Scope 1 and scope 2 greenhouse gas (GHG) emissions The information provided below describes the calculation of the greenhouse gas (GHG) emissions associated with electricity and fuel consumption (natural gas and diesel), district heating & cooling and the refrigerant gas recharges for the cooling systems recorded at assets under operational control, assets not under operational control, MERLIN’s headquarters in Madrid and the LOOM spaces in Huertas and Salamanca. For more information on the environmental performance of MERLIN’s portfolio, and the methodology used, please refer to “Appendix I. Environmental performance reporting in accordance with the EPRA Sustainability Best Practices Recommendations (sBPR)”. GHG emissions at assets over which MERLIN exercises operational control (market-based) First, taking a market-based calculation approach and considering the like-for-like portfolio, the sum of scope 1 and scope 2 GHG emissions was 2,580 tCO2eq, 23.4% less than in 2021. Looking at the portfolio in absolute terms, the sum of scope 1 and scope 2 market-based GHG emissions was 2,729 tCO2eq, 21.3% more than in 2021. Broken down by scope, 2,670 tCO2eq correspond to scope 1 emissions35 and the remaining 59 tCO2eq to scope 2 emissions36. Management Report – Statement of Non-Financial Information 2022 70 34 The location-based method does not take into account instruments or contracts, and assigns the average emission factor of the local network to all external use, regardless of its origin. In both methods, Scope 1 emissions have been calculated considering the factors recommended by the Spanish Ministry of Ecological Transition and Demographic Challenge (MITERD). Likewise, Scope 2 location-based emissions corresponding to electricity consumption have been calculated considering the emission factor of the electricity mix for the countries of Spain and Portugal. The electricity mix emission factor is a ratio that represents the intensity of CO2 emissions with respect to the generation of electricity consumed. It is therefore an indicator of the relevance of low-carbon energy sources in the country's electricity production as a whole. The scope 2 location-based emissions corresponding to District Heating consumption have been obtained from the emission factor provided by Districlima, and the emissions corresponding to District Cooling consumption have been obtained considering the specific electricity consumption necessary for the chilled water service and the emission factor of the Spanish electricity mix. 35 Includes fuel consumption and refrigerant gas recharges. 36 Includes electricity consumption and district heating & cooling. KPIs - SCOPE 1 AND SCOPE 2 GREENHOUSE GAS (GHG) EMISSIONS AT MERLIN’S ASSETS UNDER OPERATIONAL CONTROL37 Management Report – Statement of Non-Financial Information 2022 71 37 The scope 1 and scope 2 GHG emissions reported below are for assets over which MERLIN exercises operational control. The total surface area of the assets has been considered in the calculation of energy intensity, except in those cases where MERLIN only has control over the management of consumption in the common areas, in which case only the surface area of these common areas is considered. Management Report – Statement of Non-Financial Information 2022 72 GHG emissions at assets over which MERLIN exercises operational control (location-based) Taking a location-based calculation approach and considering the like-for-like portfolio, the sum of scope 1 and scope 2 GHG emissions was 14,167 tCO2eq, 8.6% more than in 2021. Looking at the portfolio in absolute terms, the sum of scope 1 and scope 2 location-based GHG emissions was 17,210 tCO2eq, 8.8% more than in 2021. Broken down by scope, 2,670 tCO2eq correspond to scope 1 emissions38 and the remaining 14,540 tCO2eq to scope 2 emissions39. KPIs - SCOPE 140 AND SCOPE 2 GREENHOUSE GAS (GHG) EMISSIONS AT MERLIN’S ASSETS UNDER OPERATIONAL CONTROL41 Management Report – Statement of Non-Financial Information 2022 73 38 Includes fuel consumption and refrigerant gas recharges. 39 Includes electricity consumption and district heating & cooling. 40 Given that, in both methods, Scope 1 emissions have been calculated considering the factors recommended by the Spanish Ministry of Ecological Transition and Demographic Challenge (MITERD), this section does not include Scope 1 data, already reported under the market-based approach. 41 The scope 1 and scope 2 GHG emissions reported below are for assets over which MERLIN exercises operational control. The total surface area of the assets has been considered in the calculation of energy intensity, except in those cases where MERLIN only has control over the management of consumption in the common areas, in which case only the surface area of these common areas is considered. Management Report – Statement of Non-Financial Information 2022 74 4.5.2 Scope 3 greenhouse gas (GHG) emissions In line with its “Pathway to Net Zero” strategy, in 2022 the Company extended the calculation of its indirect scope 3 GHG emissions, those resulting from the Company’s activities at sources that are neither owned nor controlled by the Company. MERLIN therefore calculated its GHG emissions in the most relevant categories defined in the GHG Protocol based on the Group’s lines of business, as shown below. As a result of the updated criteria for calculating scope 1 and scope 2 emissions, MERLIN has established the following considerations for including indirect GHG emissions in its value chain for the calculation of scope 3 emissions: •Emissions associated with assets where MERLIN is a landlord: emissions from fuel consumption at fixed installations in offices used to air condition lessees’ private areas or at shopping centres where it is used to air condition leased premises. The use of this fuel, the control of its use, and the bills issued are paid by the lessees. •Emissions associated with assets in which the complete measurement of the energy consumed in the building is available in the invoice in the name of a Group company, where it is considered that 88% of such consumption corresponds to the tenants' own consumption for the development of their activity. •Emissions from the utilities of single-tenant assets held in MERLIN’s name. Management Report – Statement of Non-Financial Information 2022 75 Emissions (tCO2eq) Type of emission GHG protocol category 2021 2022 Emissions related to the supply chain 1. Goods and services purchased 6,207 7,372 2. Capital goods 43,315 41,228 4. Upstream transport and distribution 937 1,005 Upstream emissions from fuels 3. Fuel and energy-related activities 2,253 2,734 Emissions associated with employee commuting 7. Employee commuting 6,673 8,741 Emissions associated with assets where MERLIN is a landlord 8. Upstream leases 92 118 Emissions associated with assets where MERLIN is a tenant 13. Downstream leases 52,150 72,475 TOTAL 111,627 133,674 Additional information on the method for calculating scope 3 GHG emissions can be found in “Appendix II. Methodology for calculating scope 3 GHG emissions”. 4.6 Carbon footprint certification In accordance with the requirements established in UNE EN ISO 14064-3:2012 standard on greenhouse gases, MERLIN has the calculation of its scope 1 and scope 2 carbon footprint verified by an independent third party. Using the GHG Protocol framework, the Group reports all GHG emissions and removals attributable to the operations over which it exercises control and, where applicable, its equity share in the respective facilities. Management Report – Statement of Non-Financial Information 2022 76 Based on the gross carbon footprint, MERLIN removes its emissions through carbon offset projects, by planting vegetable gardens and vertical gardens in some of its assets and through reforestation projects. Lastly, MERLIN offsets its emissions by obtaining offsets or removal credits from carbon emission reduction projects through voluntary certificate programmes, obtaining offset purchase certificates. 4.7 Validation of MERLIN’s commitments by independent third parties As stated in the Sustainability Policy, one of the most important steps MERLIN takes to support the robustness and practical implementation of the assumed commitments is to have them validated by independent third parties. This is particularly relevant in the operation of the assets, as they are the ones that require a great deal of effort on the Group’s part and also where it has more options for having its results independently validated. This is why MERLIN has its portfolio certified under LEED, BREAM, ISO, AEO, AIS and WELL. LEED/BREEAM certifications MERLIN takes on the responsibility of leading the development and operation of sustainable assets with the highest standards of quality and excellence. One component of that leadership is seeking to certify practically all of its main portfolios (offices, logistics assets and shopping centres) under the market’s benchmark sustainable construction standards: LEED and BREEAM. In new construction and refurbishment projects, MERLIN prioritises LEED certification in the Building Design and Construction category. For assets in operation, MERLIN aims to obtain the highest possible rating within the BREEAM in Use and LEED Building Operations & Maintenance standards, which requires a commitment from both MERLIN and the tenants. As part of the certification plan introduced by the Group in 2016, at the 2022 year-end, 93.6% of MERLIN’s strategic portfolio in terms of GAV was certified under one of the two international benchmark standards for sustainable construction: LEED and BREEAM. MERLIN is thus positioned as a REIT of reference in this area, having nearly achieved the goal of certifying 99% of offices, 100% of shopping centres and 97% of logistics assets in terms of GAV. MERLIN obtained or renewed a total of 34 LEED or BREEAM certifications in 2022. With the addition of these certifications, the current status of the portfolio in terms of sustainable construction certifications is as follows: Management Report – Statement of Non-Financial Information 2022 77 ISO certifications MERLIN’s commitment to minimising the environmental impacts stemming from the existence and operation of its assets is backed by its Environmental Management System certified under ISO 14001. At the end of 2022, a total of 89 assets (including 78 office assets, 8 shopping centres and 3 logistics assets), representing a surface area of 1,211,745 sqm, or 36.7% of the strategic portfolio’s total surface area, were covered under the System. MERLIN continues to make progress in the integration of new assets under its Environmental Management System, with the aim of certifying all multi-tenant office assets and as many shopping centres as possible in the coming years. In addition, the Group seeks to reinforce its commitment to improving the energy efficiency of its assets and introducing measures to optimise consumption by obtaining ISO 50001 certification of its assets. Over the last year, 7 new buildings were certified under this standard, bringing the total to 84 assets (including 75 office assets, 8 shopping centres and 1 logistics asset) covering a surface area of 1,151,751 sqm, which represents 34.8% of the total surface area of the portfolios indicated. Below is a breakdown by surface area in relation to those assets eligible to be certified under ISO 14001 and ISO 50001. Energy rating of MERLIN’s assets Pursuant to Royal Decree 235/2013, MERLIN continues to make progress in obtaining energy ratings for all of the assets in its portfolio. At the end of 2022, 97% of MERLIN’s strategic portfolio (offices, shopping centres and logistics assets) had an energy rating. MERLIN also uses these certifications to gauge the energy performance of air conditioning, lighting and domestic hot water systems, which allows the Group to prioritise and optimise the implementation of energy efficiency measures. Management Report – Statement of Non-Financial Information 2022 78 Energy rating of MERLIN’s assets (% of surface area) Other certifications In 2022, MERLIN continued the process of certifying its assets under recognised industry standards. 33 new office assets obtained AEO certification, which certifies the technical quality of office buildings by assessing technical parameters such as architectural features, facilities, equipment and property maintenance. Furthermore, as reflected in the Sustainability Policy, one of the Group’s priorities is the well-being of the users of its assets. MERLIN therefore seeks to further support its commitment by obtaining external certifications that allow the Company to advance and improve its performance in this area. The Company has been certifying its assets under the AIS certification system for years, which certifies the degree of accessibility of the assets. Under this system, MERLIN has continued to expand its AIS-certified portfolio, which reached a total of 69 assets in 2022. At the same time, the Group continues to analyse the feasibility of obtaining WELL certification for its assets, aimed at taking measures focused on the health and well-being of the asset’s occupants, and has begun the preliminary work on four of its assets to obtain the highest WELL rating. In 2022, the Castellana 85, Madrid, asset was awarded a WELL Platinum rating. In addition, the Group has obtained WiredScore certification for 14 of its assets in 2022. This certification measures aspects such as flexibility, infrastructure quality and data transmission speed. In 2022, MERLIN invested a total of € 1.2 million to obtain, maintain and extend these certifications, as part of the Group’s commitment to effectively incorporate sustainability into the management of its assets. 4.8 Sustainability ratings MERLIN regularly participates in various sustainability benchmark indices, which reflect the Group’s efforts and the effectiveness of the steps taken in both internal management and asset management. The Group’s score increased in 2022 compared to 2021 on all of the relevant sustainability indices. Specifically, MERLIN participates in six sustainability indexes; three of them — GRESB (real estate), Management Report – Statement of Non-Financial Information 2022 79 CDP (climate change) and S&P Global (general) — consist of a questionnaire, while the other three — Sustainalytics (ESG risks), Bloomberg (general) and Vigeo Eiris (general) — are based on the Group’s public reporting. MERLIN has reinforced its position on GRESB, an international benchmark that measures the environmental, social and governance performance of companies in the real estate sector, having participated for the fourth year in a row. The Group achieved a score of 79 points out of 100, which places it above the global average and ahead of its peers (companies ranked as comparable to MERLIN). For the third year in a row, MERLIN also participated in the CDP questionnaire, which assesses the degree of a company’s commitment to climate change. MERLIN improved its rating to an “A-”, which means that the Group is transparent and manages climate change issues adequately. This rating is higher than the global, European and peer group average assigned by CDP (financial services). In line with the commitment made last year, MERLIN once again actively participated in the S&P CSA questionnaire, obtaining a score 70%, a substantial improvement on the 58% obtained in 2021. This improvement allows the Company to once again be included in the Dow Jones Sustainability European Index for the second year in a row. With regard to sustainability reporting, MERLIN received the Gold Award from EPRA for the fifth year in a row. This award recognises the degree to which its Sustainability Report (formerly CSR) is aligned with EPRA Sustainability Best Practices Recommendations. Since 2020, MERLIN has adapted its Sustainability Report (formerly CSR) to Bloomberg’s ESG Disclosure Score, reporting additional information that is more in line with the indicators defined by Bloomberg for this index. MERLIN has considerably improved its ESG risk rating in Sustainalytics, positioning itself as a leader both globally and in the real estate and REIT sector, obtaining a total rating of 7.2 points and thus being included among the top 1% of the best rated companies worldwide. 4.9 Protection of biodiversity As part of its objective in the field of sustainability, MERLIN’s Board of Directors approved the Biodiversity Policy in 2022 with the aim of establishing a reference framework to integrate the protection and promotion of biodiversity into the Group’s strategy, and to define the guiding principles for developing a sustainable and positive business model with nature, so that its activities protect and promote the development and growth of natural heritage, including, in particular, the protection of animals. The degradation of ecosystems and the unprecedented decline of biological diversity, unanimously identified by the scientific community as a direct consequence of the impact of human activities, entail serious environmental, economic and social risks, urging action to reverse biodiversity loss. Management Report – Statement of Non-Financial Information 2022 80 The Group is committed to assuming a leadership position in the conservation and promotion of biodiversity in its sector of activity and to integrating the United Nations 2050 vision "Living in harmony with nature" into its management, where biodiversity is valued, conserved, restored and used sustainably, maintaining ecosystem services, supporting a healthy planet and delivering benefits essential for all people. Guiding principles •Integrate biodiversity into the Group’s internal strategic planning and decision-making processes, and into the analysis, management and reporting of long-term risks. •Identify, quantify and evaluate, on an ongoing basis and throughout the life cycle of the assets, the impacts and dependencies of the activities on natural capital, including the diversity and protection of wild animals, and protected and vulnerable species, respecting them in all lines of action. •Protect species and habitats, both those under threat and those of high biodiversity value, through the adoption of preventive, minimising and enhancing measures. •Manage and offset in quantity and quality the negative impacts produced on the environment, giving priority to nature-based solutions, facilitating the connectivity of populations and encouraging the development of specially protected areas or private conservation. •Promote knowledge of and training in biodiversity for the Group’s employees and suppliers. As a result of MERLIN’s commitment to the environment, the Group contributes through its daily activities to improving the environment around us. MERLIN analyses and minimises its potential negative impacts on biodiversity throughout the life cycle of its assets, especially in developments and refurbishments, proposing measures to preserve the environment and prioritising native plant species in the landscaped areas of the various assets, while avoiding exotic species. Likewise, although implicit in its expansion strategy, the Group avoids deforestation in its developments and refurbishments by acquiring land in urban settings or with previous uses. Furthermore, MERLIN Properties is not materially dependent on ecosystem and/or abiotic services, either in its own operations or in its supply chain, or in the development/rehabilitation of buildings or the management of existing buildings. Point 6.2 provides an explanation of the relationship with its suppliers and the type of employment generated in the communities, and point 4.3 gives a description of the development and operation of sustainable assets. The actions carried out by the Group in this area are as follows: –In Spain, MERLIN collaborates with the REFORESTA Association, contributing to the conservation and recovery of forests, to reverse deforestation and mitigate the effects of climate change. In 2022, the Group continued its financial support for reforestation initiatives by making donations. –MERLIN manages several urban gardens, where the Group has begun to promote actions to preserve biodiversity. –With regard to biodiversity in developments and refurbishments, MERLIN studies the ecological value of the environment and proposes measures for its conservation. Priority is given to native plant species in the landscaped areas around their assets and exotic species are avoided. Management Report – Statement of Non-Financial Information 2022 81 5. Talent creation42 2022 MILESTONES FUTURE OBJECTIVES •Registration of the Equality Plan. Communication of the Equality Plan to employees. •Development of a specific Human Capital Policy and a Protocol Against Sexual Harassment. •Improvements with regard to selection through the implementation of a new digital tool and the formalisation of the internal vacancies process. •Expansion of work-life balance measures. •Encouragement of employee relationships through sport with the participation of employees in inter-company sports leagues. •37% increase in training hours compared to the previous year. •Reduction of the wage gap compared to 2021 •Create an Employee Portal on the corporate website linked to the new digital selection tool. •Promote women’s empowerment in business through training and inclusion in associations for this purpose. •Improve the flexible remuneration portal so that employees can access new benefits or discounts. •Encourage employees to volunteer. •Resume employee visits to the Company’s assets to enhance ownership. •Decrease staff turnover in those jobs with a higher turnover rate. •Introduce new functionalities to the payroll software that allow for more automated analysis of employee data. Management Report – Statement of Non-Financial Information 2022 82 42 See MERLIN’s Human Capital Management risks and action plans in Section 3.2. Risk Management KEY INDICATORS FOR THE YEAR 2022 CHANGES 2021-2022 Number of employees 260 (239 - 260) % of women employees 0.45 (45% - 45%) % of employees with a permanent contract 0.98 (98% - 98%) 5.1 Staff loyalty In its relationship with employees MERLIN adheres to the strictest labour standards, complying with the principles set out in the ILO Declaration on Fundamental Principles and Rights at Work. The Human Capital Policy, the Equality Plan and the Human Resources Processes Handbook and Employee Handbook currently set out the guiding principles for human capital management at the Company. The risks inherent in the Company’s social and personnel issues are discussed with in chapter 3.2. of the report. A strong and unique workforce At the end of 2022, MERLIN’s workforce consisted of 260 professionals divided into three categories, as follows: •Directors: 28 employees (27 men and 1 woman). Team composed by the Chief Executive Officer, Chief Operating and Corporate Officer and by the senior management team and area managers, who ensure that each area of the Company functions as efficiently as possible. •Middle management: 82 professionals (55 men and 27 women). A team of professionals closely linked to business and projects of great responsibility. •Other professionals: 150 employees (61 men and 89 women). Professionals in general support services with a high level of knowledge and experience to carry out their activities. All of them form a team of highly qualified professionals committed to the Company and its corporate philosophy and values. Management Report – Statement of Non-Financial Information 2022 83 Current profile of MERLIN Properties’ employees43 •I represent 45% of the workforce. •I represent 42% of new hires in 2022. •I am between 30 and 50 years old (50% of women). •I have a permanent contract (100% of women). •I received 27 hours of training in 202244. •I work in Spain (94% of women). •I represent 27% of income-generating positions. •I represent 26% of STEM positions. •I represent 55% of the workforce. •I represent 58% of new hires in 2022. •I am between 30 and 50 years old (59% of men). •I have a permanent contract (97% of men). •I received 26 hours of training in 2022. •I work in Spain (94% of men). •I represent 73% of income-generating positions. •I represent 74% of STEM positions. MERLIN’s distinctive aspects in relation to its employees MERLIN’s team, which is so critical to the Group’s success, is composed of a group of highly qualified professionals with extensive experience in the sector. MERLIN goes to great lengths to keep its employees motivated and committed and has a high talent retention rate. 22 average years of experience of the management team Excellence MERLIN’s staff is made up of a team of top professionals with extensive knowledge of the real estate sector and vast experience, especially the management team. Management Report – Statement of Non-Financial Information 2022 84 43 Data as of 31 December 2022, except for average training hours per employee. 44 The average number of training hours based on the average headcount in 2022. The average number of training hours in 2022 in total terms (including men and women) was 6,654 hours. 44 €M GAV/employee Productivity MERLIN has a very competitive GAV per employee ratio, in line with its philosophy of productivity and efficiency. 8% Voluntary turnover rate Talent retention MERLIN strives to offer professionals long-term development opportunities, ensuring their well-being as members of the Company and making all employees feel comfortable and identified with the Group’s philosophy and objectives. 44% of employees have chosen to receive Group shares as salary in kind Commitment MERLIN’s professionals are highly committed to the Company. Worth noting here is the percentage of employees who have chosen to receive part of their remuneration in Group shares. 95% of employees have received training Independence MERLIN has a proactive and responsible team of professionals who are equipped with the necessary skills and independence to guarantee good decision-making. 5.1.1 Composition of the workforce45 MERLIN’s staff are the Group’s main asset. At 2022 year end, the MERLIN Group’s workforce was composed of a total of 260 employees, divided into 3 categories in keeping with MERLIN’s strategy of maintaining a horizontal structure. 2021 2022 Men Women Total Men Women Total Directors 26 1 27 27 1 28 Middle management 51 26 77 55 27 82 Other professionals 52 83 135 61 89 150 Total 129 110 239 143 117 260 Management Report – Statement of Non-Financial Information 2022 85 45 Data as of 31 December 2022. 2021 2022 Country Category Age range Men Women Men Women Spain Directors <30 years old - - - - 30-50 years old 12 1 13 1 >50 years old 13 - 13 - Total 25 1 26 1 Middle management <30 years old 4 3 7 2 30-50 years old 24 12 22 14 >50 years old 19 10 20 10 Total 47 25 49 26 Other professionals <30 years old 8 19 11 14 30-50 years old 27 45 18 17 >50 years old 16 16 30 52 Total 51 80 59 83 TOTAL 123 106 134 110 Portugal Directors <30 years old - - - - 30-50 years old 1 - 1 - >50 years old - - - - Total 1 - 1 - Middle management <30 years old - 1 - 1 30-50 years old 3 - 5 - >50 years old 1 - 1 - Total 4 1 6 1 Other professionals <30 years old - 1 - 2 30-50 years old 1 2 1 2 >50 years old - - 1 2 Total 1 3 2 6 TOTAL 6 4 9 7 TOTAL SPAIN AND PORTUGAL 129 110 143 117 MERLIN has a team of professionals with permanent contracts and an average age of 43. From the moment they join the Company, MERLIN offers its employees stable contracts to ensure their loyalty and improve its ability to attract talent to the organisation. At 2022 year end, 98% of the Group’s employees had a permanent contract. Management Report – Statement of Non-Financial Information 2022 86 Type of contract Time 2021 2022 Permanent Full-time 224 247 Part-time 10 9 Total permanent 234 256 Temporary Full-time 5 4 Part-time - - Total temporary 5 4 Overall total 239 260 5.1.2 Average contracts Annual average number of permanent, temporary and part-time contracts by gender, age and professional classification is as follows: 2021 2022 Contract Category Age range Men Women Men Women Full-time permanent Directors <30 years old - - - - 30-50 years old 12 1 14 1 >50 years old 14 - 13 - Total 26 1 27 1 Middle management <30 years old 3 4 6 3 30-50 years old 26 11 28 14 >50 years old 18 10 21 10 Total 47 25 55 27 Other professionals <30 years old 5 12 6 15 30-50 years old 26 42 28 48 >50 years old 15 14 18 17 Total 46 69 52 80 TOTAL 119 95 134 108 Part-time permanent Other professionals <30 years old - - - - 30-50 years old 1 4 1 4 >50 years old 1 2 1 1 Total 1 5 2 5 Other professionals <30 years old - - - - 30-50 years old - - 1 - >50 years old - - - - Total - - 1 - TOTAL 1 - 1 - TOTAL 121 100 137 113 Management Report – Statement of Non-Financial Information 2022 87 5.1.3 Number of dismissals by gender, age and professional classification There were 4 dismissals in 2021 and none in 2022. Dismissals 2021 2022 Category Age range Men Women Men Women Other professionals <30 - 1 - - 30-50 1 2 - - TOTAL 1 3 - - The number of voluntary departures has remained more or less stable. Voluntary departures 2021 2022 Category Age range Men Women Men Women Directors >50 years old 1 - - - Middle management <30 1 - - - 30-50 2 1 1 1 Other professionals <30 2 2 5 7 30-50 3 7 2 6 TOTAL 9 10 8 14 Changes in turnover. The voluntary turnover rate has increased and the total turnover rate has decreased. The total turnover rate was calculated taking into consideration all employees who leave the organisation either voluntarily, due to dismissal, retirement or death in service. If an employee has had different employment relationships and has left more than once, this is not counted as one but as the total number of departures. Total number of departures/ Number of employees at the end of year = Turnover rate. 2021 2022 Voluntary turnover rate 8% 8% Total turnover rate for departures 12% 11% Breakdown by type of departures: 2021 2022 Type of departure Men Women Men Women Voluntary employee departure 10 10 8 14 Employee dismissal 1 3 - - End of temporary contract 3 - 6 1 Employee retirement 1 - - - Total 15 13 14 15 Management Report – Statement of Non-Financial Information 2022 88 5.1.4 Implementation of work disconnection policies MERLIN instructs all employees not to send emails outside working hours as far as possible. MERLIN’s Employee Handbook that all professionals receive when they join the Company and that can be accessed through the Employee Portal at any time during their employment relationship, has a chapter dedicated to digital disconnection in 2022. In this chapter MERLIN emphasises the importance of having rest periods for the physical and mental well-being of all employees and co- workers, and creates a set of guidelines and criteria to help employees ensure good email habits. 5.2 Employee compensation Diffential remuneration scheme Remuneration is a key tool for attracting and retaining the best talent. The Company’s remuneration scheme is differential; prioritizing performance over any other variable when establishing remuneration and, therefore, employee growth is monitored on an ongoing basis. 100% of the employees benefit from a variable remuneration (bonus), regardless of their professional category. This enables the company to reward the performance and attract and retain the best professionals across all levels. 23% of the employees benefit as well from a long-term incentive plan further reinforcing, key talent retention to guarantee the company´s success. Employee benefits In addition to MERLIN’s remuneration system, the Group offers all its employees employment benefits and alternative remuneration formulas. In 2022, all MERLIN Group employees enjoyed the same conditions and social benefits in kind, which include health insurance (covering the employee, its spouse and children), life and accident insurance, and all employees in Spain have access to a flexible remuneration plan that includes restaurant vouchers, transport vouchers, childcare vouchers, training plans and the option of purchasing shares of the Parent company. 5.2.1 Wage gap analysis The total compensation earned per employee by the average number of employees has been taken into account to calculate the average remuneration and the wage gap. The 2022 remuneration includes an extraordinary bonus, granted by the Board of Directors, on a general basis to all employees not included in the group benefiting from the long-term incentive, consisting of a special remuneration of a maximum of 2 monthly payments. Total compensation earned includes all compensation accrued in a financial year, which would include: •Fixed salary. (Includes all remuneration received by the employee during the year including salary increases, components of collective bargaining agreement, bonuses, sickness or accident benefits, temporary disability compensation and all remuneration agreed as fixed salary in general with employees). •Variable remuneration (including annual bonuses and extraordinary bonuses). Management Report – Statement of Non-Financial Information 2022 89 •Remuneration in kind (health insurance, life insurance, shares and flexible remuneration) •Compensation and severance payments. •Average remuneration and changes in salaries broken down by gender, age and professional classification or equal value Average remuneration by gender (€k) 2021 2022 Men 195 190 Women 59 60 Average remuneration by age (€k) 2021 2022 Under 30 years old 62 55 30 to 50 years old 102 108 Over 50 years old 212 201 Average remuneration by category (€k) € 2021 € 2022 Directors 614 647 Middle management 110 106 Other professionals 41 43 Overall total 133 131 •Gender wage gap46 Gender wage gap 2021 2022 Directors N/A N/A Middle management 15% 7% Other professionals 13% 13% The gap in 2021 and 2022 was 69% and 68%, respectively, considering for their calculation average salary remunerations composed of base salary and variable salary and including Executive Directors. The salary gap for the Directors category is not reported as there is only one woman in this category. The underlying cause of the salary gap in certain categories is due to the lower presence of women in the workforce, a common situation in the real estate sector, which is accentuated in management and technical positions. To try to mitigate this reality, MERLIN is working in the areas presented and registered in the Equality Plan. Management Report – Statement of Non-Financial Information 2022 90 46 Definition Wage gap=Average pay for men-Average pay for women / Average pay for men x 100 5.2.2 Remuneration of non-executive directors Average remuneration of non-executive directors, including attendance fees and any other compensation broken down by gender (no variable remuneration or termination benefits). Average remuneration of non-executive directors by gender (€) 2021 2022 Men 152 166 Women 167 179 5.3 Organisation of work 5.3.1 Organisation of work MERLIN uses the collective bargaining agreement to determine the length of the annual working time, which is 1,765 hours for full-time employees. The Company’s working hours are from 9am to 2pm and from 4pm to 7pm from Monday to Friday. Employees have 23 working days of holiday leave and the Company adds extra days onto public holidays to comply with the total number of hours established in the collective agreement. At MERLIN, all employees who meet the conditions set out in the Workers’ Statute (Estatuto de los Trabajadores) are eligible for reduced working hours. There are currently 7 employees with reduced working hours, 2 of whom are men. 5.3.2 Total hours of absenteeism A total of 41 employees took sick leave at MERLIN in 2022, one employee more than in 2021. The number of occupational accidents has decreased mainly because the sick leave taken due to COVID was classified as an occupational accident and the number of infections from one year to the next has decreased considerably. The sick leave taken due to illness has remained more or less the same. There was an increase in parental leave taken for the birth of a child, which increased from 8 cases in 2021 to 13 in 2022. Management Report – Statement of Non-Financial Information 2022 91 2021 Working days Number of cases Type of absenteeism Men Women Total days Men Women Total cases Occupational accident 68 47 115 4 6 10 Non-occupational accident 44 - 44 1 - 1 Common illness 273 208 481 10 11 21 Parental leave 372 122 494 5 3 8 Overall total 757 377 1,134 20 20 40 2022 Working days Number of cases Type of absenteeism Men Women Total days Men Women Total cases Occupational accident 8 6 14 1 1 2 Non-occupational accident - 42 42 - 2 2 Common illness 420 239 659 13 11 24 Parental leave 687 429 1,116 8 5 13 Overall total 1,115 716 1,831 22 19 41 Absenteeism rates: Absenteeism rate Men Women Total 2021 2.5% 1.5% 2.1% 2022 3.3% 2.6% 3.0% The absenteeism rate is expressed as the ratio of days on which employees are absent on medical or parental leave to scheduled working days. 5.3.3 Work-life balance measures The measures taken by the Group that are designed to facilitate work-life balance and promote the sharing of responsibility by both parents most notably include the following: •Holidays: In addition to the holidays established in the collective bargaining agreement, MERLIN gives extra days off that coincide with public holidays during the school calendar, thus helping with work-life balance. In addition, MERLIN provides flexibility so that employees can take their holiday leave without having to take it at a specific time of year. •Flexible working hours: MERLIN gives its employees flexibility regarding when they arrive at work and when they leave to help with work-life balance. Remote working is not established as standard practice but MERLIN has the necessary resources to enable its employees to work remotely if necessary. Management Report – Statement of Non-Financial Information 2022 92 •Reduced working hours: In the Welcome Handbook, MERLIN encourages both parents, regardless of gender, to apply for reduced working hours to care for a child under 12 years of age. •Compensation: MERLIN compensates 100% of the salary of all employees who apply for parental, sick or accident leave, irrespective of gender. All MERLIN employees have access to childcare vouchers through the Flexible Remuneration Plan. •Events: Once a year MERLIN organises an activity for employees’ children. This activity takes place on a working day that is also a public holiday for schools to help employees with work- life balance. •Organisation of work: MERLIN ensures that work meetings are always held during the working hours of all employees who are required to attend the meeting. If training is provided when an employee is on sick leave or parental leave, this training will be repeated so that the employee is not at a disadvantage as a result of having been absent. 5.4 Safety, health and well-being of employees MERLIN seeks to ensure the well-being of its employees by creating healthy work environments that maximise their well-being through design, the heating, ventilation and air conditioning equipment used, light output, and ergonomics, among others, meeting employees’ needs in terms of their thermal, visual and acoustic comfort, and indoor air quality. MERLIN has an external Occupational Risk Prevention Service that inspects the offices where employees work on an annual basis to assess the risks and the adequacy of the facilities in terms of safety and occupational risk prevention. All offices have been assessed this year and all recommendations of the Occupational Risk Prevention Service have been implemented to improve the health and safety of employees at work. MERLIN offers its employees an annual medical check- up, the possibility of getting the flu vaccine and the possibility of getting a Covid-19 antigen test as part of its social benefits. Included within the welcome package, all employees receive mandatory training regarding occupational risk prevention, providing information regarding the most relevant risk related to their position and mitigation measures. In addition, emergency drills are conducted every year and the headquarters are evacuated. Employees who are part of the Emergency Brigade are in charge of helping other employees to comply with the Occupational Risk Prevention Plan and to evacuate the building in a timely manner. The drill at the Paseo de la Castellana 257 offices was carried out in November 2022, without incident. As part of their remuneration in kind, MERLIN provides its employees with high-cover health insurance that is 80% reimbursed. This health insurance is both for employees and their direct family (spouse and children). All employees, without differentiation between professional categories, have the same health insurance with the same coverage. MERLIN organises a training session once a year to raise awareness of company health insurance so that employees and their families can get the most out of their health insurance. This session also analyses the coverage and new features that the insurance company presents each year. Management Report – Statement of Non-Financial Information 2022 93 In addition, MERLIN implements other health and wellness measures for all employees with regard to nutrition and physical well-being, such as providing fruit in the workspaces, or the possibility of access to physiotherapy services at the corporate offices. The Company communicates with employees regularly on healthy lifestyles, promoting physical activity, a balanced diet and digital disconnection, among other things. The accident rates were as follows: 2021 2022 Rate Men Women Total Men Women Total Number of occupational accidents with sick leave 4 6 10 1 1 2 Lost time injury frequency rate (LTIFR)47 3% 6% 5% 1% 1% 1% Severity rate48 32% 27% 29% 2% 3% 3% Lost workdays (TLW)49 6 4 5 9 7 8 Occupational diseases (TOD)50 - - - - - - Absenteeism (TA)51 3% 2% 2% 3% 3% 3% Number of deaths due to occupational accidents or diseases - - - - - - Number of occupational diseases - - - - - - Management Report – Statement of Non-Financial Information 2022 94 47 Frequency rate: Frequency of accidents in relation to the total time worked by employees during the reported period. 48 Severity rate: Number of days not worked due to accidents occurring during working hours, per thousand hours worked. 49 TLW: Total lost workdays - impact of occupational diseases and accidents, reflected in the days off of affected workers. 50 TOD: Total occupational diseases - frequency in relation to the total time worked by all employees during the reported period. 51 TA: Total absenteeism - a measure of actual days lost by an absent employee, expressed as a percentage of total scheduled working days for employees during the same period. 5.5 Labour relations 5.5.1 Organisation of social dialogue MERLIN has several public documents such as the Code of Conduct, the Whistleblower Channel, the Equality Plan and the Protocol against Sexual Harassment. All these codes and procedures ensure that social dialogue is guaranteed, channelled and of the highest quality standards. In addition, MERLIN is an organisation with a small number of employees, so social dialogue is direct, simple and effective. Executive directors and senior management are available to all employees without having to go through a chain of command. Their mobile phones and email addresses are made available to all employees and conflict resolution is streamlined. MERLIN carries out an employee satisfaction survey every two years. In 2021, matters relating to social dialogue were among the most highly rated. In terms of communication channels, the Human Capital Area sends communications to the entire organisation through emails, and programs such as Microsoft Forms are also used to launch surveys on different social actions and to be able to carry out these actions depending on how well they are received by the organisation’s employees. Employees have access to various corporate information and documentation through the Employee Portal. 5.5.2 Employees subject to collective bargaining agreements All employees in Spain are subject to a collective bargaining agreement, and their salary set out in this collective agreement is higher than that of their peers. None of the employees in Portugal are subject to collective bargaining agreements. The same legal conditions apply to employees in Portugal as to those in Spain, provided that they are more advantageous than those under Portuguese law. 5.5.3 Balance of collective bargaining agreements MERLIN compensates 100% of the remuneration of employees on medical or parental leave so that the employee does not receive less pay for being on sick or parental leave. If an employee is on sick leave, they will therefore receive the same salary as if they were working. The same will apply in cases of parental leave. 5.5.4 Mechanisms to promote employee involvement in management MERLIN conducts a Biannual Satisfaction Survey for all employees and also a Semi-Annual Satisfaction Survey for certain departments of the organisation where turnover is higher. The most highly rated questions were on the working environment, employee camaraderie and training. They scored 8.4 out of 10. Management Report – Statement of Non-Financial Information 2022 95 To improve employee satisfaction, in 2022 the Company officially announced that employees would have more flexibility regarding when they arrived at work and when they left. In addition, a chapter on work-life balance was published in the Employee Handbook to make all employees aware of these measures regarding flexible working hours. In addition to the Satisfaction Survey, the Company has various ways of communicating with employees. The Employee Portal is a website and an app to which all employees have access. This is a communication channel used for administrative purposes. Through the Employee Portal employees can check their pay slips, download employment documents, access the work calendar, access employee discounts and post announcements for other colleagues to see. They also have access to the employee telephone directory, which includes the department to which each employee belongs and a photo of each employee, making it much more personal and easier to reach everyone, especially for employees who have only been with the company for a short time. MERLIN opts for in-person work at the office, which is the Company’s main form of work organisation, as it promotes communication, collaboration and a sense of belonging. MERLIN is able to detect the different interests of employees through emails, with Microsoft Forms surveys, to undertake actions of social interest such as the Sports Leagues or the No School Day. MERLIN encourages dialogue and employee participation in the Company’s decision-making process. For example, through the Donations and Sponsorship Protocol, the Company allocates part of the funds earmarked for donations to those foundations that employees are directly involved with, thus taking into consideration the employees’ favourite foundations to collaborate with them. 5.5.5 Employees with disabilities MERLIN is also committed to including and integrating people with disabilities into its workforce. As mentioned throughout the document, MERLIN guarantees ease of accessibility to its assets and backs this commitment up by obtaining AIS certification. In this context, the Company currently has a total of 7 disabled employees on its staff, all of whom have permanent contracts — 5 of them part-time and 2 full-time —, representing 2.7% of MERLIN’s workforce. These staff members are fully integrated and perform necessary and valued functions at the Company. The Company exceeds the requirements under the current law in this area (Spanish General Disability Act [Ley General de la Discapacidad], former Spanish Social Integration of Disabled Persons Act [Ley de Integración Social de los Minusválidos]) through direct hiring. Professional category 2021 2022 Heads of business, departments or senior technicians - 1 General services 5 6 Total 5 7 Management Report – Statement of Non-Financial Information 2022 96 5.6 Diversity and equal opportunities MERLIN promotes equal opportunities, especially in access to employment, training, promotion and working conditions. As stated in its Code of Conduct and its Protocol against Sexual Harassment, MERLIN rejects any and all discrimination in the workplace on the basis of race, colour, nationality, social origin, age, gender, marital status, sexual orientation, ideology, political opinions, religion or any other personal, physical or social condition of an individual. The Group provides professionals with a whistle-blowing channel to report any discriminatory conduct or harassment in the workplace. No such complaints were received in 2022. In terms of gender equality, in 2021 MERLIN worked on its Equality Plan in compliance with Royal Decree Law 6/2019. The Equality Plan was finally approved after a process of analysing the Group’s situation in terms of equality and the negotiation and drafting of the Plan by the Negotiating Committee, and came into force on 18 January 2022, with its validity extended for a period of four years, until January 17th 2026. The Equality Plan was registered by the Directorate General for Employment on August 18th 2022. The Equality Plan applies to all MERLIN Properties employees and lays down the guiding principles of the Group’s conduct in this area, along with a series of objectives and metrics, some of which include addressing the under-representation of women throughout the organisational structure, promoting women’s participation in training activities to enhance leadership and compensation by MERLIN for sick leave and parental leave. MERLIN is also committed to promoting equal parental leave for both parents. The Group also supports all types of diversity beyond gender among the workforce. MERLIN employees professionals of different nationalities but is equally commitment to local employment. In 2022, 90% of the workforce was Spanish, 6% Portuguese and 4% from other European or South American countries. MERLIN has 7 employees with different abilities (2.7%), which exceeds the legal requirement of 2%. These employees have indefinite contracts and perform functions which are necessary and valuable to the Group. Professionals joining the Group MERLIN seeks out the best individuals to add differential value through their work, which contributes to the Group’s success, providing them with stable, high-quality employment. In 2022, MERLIN hired a total of 52 new professionals to the staff, which represents a recruitment rate of 20%. In addition, 9 employees moved into new positions within the Group, demonstrating its commitment to internal mobility and talent retention. Management Report – Statement of Non-Financial Information 2022 97 Profile of MERLIN’s recruitment Profile in 2022 Category Age range Men Women Total Directos >50 years old 1 - 1 Middle management <30 years old 2 - 2 30-50 years old 2 1 3 Other professionals <30 years old 17 9 26 30-50 years old 7 10 17 >50 years old 1 2 3 Total 30 22 52 Talent retention mechanisms MERLIN believes that employee commitment is essential and therefore seeks to ensure that employees identify with the corporate philosophy, values and objectives. The Group works to motivate and reward employees through three main lines of action: 1)Performance-based remuneration: MERLIN employees receive fixed annual remuneration along with annual variable remuneration tried to the fulfilment of the Group’s objectives and to each employee’s individual performance. In addition, all Group employees receive life and accident insurance for themselves and health insurance for the employee’s entire family unit. The workforce also benefits from flexible compensation options (MERLIN Flex) for training, childcare vouchers, transport vouchers, restaurant vouchers and shares of the Group. In addition, employees have access to discounts in different categories such as accommodation, theatre and pharmacy. 2)Continuing professional development: MERLIN offers all professionals the opportunity to get involved in different projects and to assume new responsibilities throughout their professional careers. Training is a fundamental part of career development and, therefore the Group ensures that training is available to all employees. A total of 6,654 hours of training were provided in 2022, an increase of 37% compared to the previous year. This represents a total investment of € 87,239 in training in 2022. Age range Men Women Total <30 years old 250 562 812 30-50 years old 2,267 933 3,200 >50 years old 1,030 1,613 2,642 Total 3,546 3,108 6,654 Hours of training by professional category: Professional category Hours of training Directors 136 Middle management 3,754 Other professionals 2,764 Overall total 6,654 Management Report – Statement of Non-Financial Information 2022 98 The hours of training increased by 37% compared to 2021. In addition, 95% of employees received some kind of training. Employees received an average of 27 hours of training per employee. Likewise, MERLIN offers its employees on-the-job training to enhance their development process. This training consists of three tools: •Personalised training: MERLIN gives its employees the opportunity to select the courses that best suit their specific needs. If necessary, MERLIN provides guidance, through the experience of its staff members, so that employees can choose those courses that best suit their needs. •Knowledge sharing: MERLIN considers it a priority to strengthen and share the knowledge accumulated both in terms of the tools developed and the management procedures honed. The Group therefore provides annual in-house training courses given by MERLIN staff to their colleagues. •Language Training Plan: Merlin extended the scope of its Language Training Plan, offering language courses through online and/or face-to-face classes to all Group employees. As in the past, the training activities focused mainly on the following categories: •Personalised training tailored to the needs of each employee accounts for 74% of total training. •Language training accounts for 19% of total training. •Knowledge sharing, which is training provided by MERLIN’s own professionals, accounts for 7% of total training. Personalised training includes various types of courses, the most representative of which are: 3 Master’s programme in Business Management and Administration, 2 Management Development Programmes, 1 Master’s programme in Urban Planning and 1 Master’s programme in Technical Management. 3)Direct relationship with employees: The horizontal nature of the Group’s organisational chart fosters direct relationships between employees and, in particular, between those with varying levels of responsibility. In 2022, MERLIN reinforced communication channels and initiatives such as the Employee Portal, and made improvements to the platform to facilitate communication between employees and management, with emails sent on a regular basis, face-to-face meetings between employees and visits to the Group’s various assets. Management Report – Statement of Non-Financial Information 2022 99 6. Management of stakeholders 6.1 Stakeholder management model Transparency with stakeholders MERLIN considers it a priority to provide complete, accurate and truthful information on the Group’s performance and activities, and to maintain sufficient relationship channels with its stakeholders, actively communicating with them and responding to their main demands and expectations. The Company’s relationship with stakeholders is regulated in the Stakeholder Relations Policy. One of the key principles of the policy is the transparency of the information shared with stakeholders, which must be complete, correct and truthful. In keeping with this principle and with the recommendations of the CNMV’s Good Governance Code published in June 2020, aside from this policy MERLIN also has a general financial, non-financial and corporate reporting policy that serves as a framework for preparing and monitoring the financial, non-financial and corporate information shared with stakeholders. This policy is also intended to guide the Group in prioritising and integrating the various stakeholders in the decision-making process by encouraging their participation. As a result of this prioritisation exercise, MERLIN has identified investors, employees, tenants, end users and the communities surrounding our assets as our main stakeholders. Other stakeholders have also been identified, such as regulatory bodies, government agencies, analysts, suppliers and the media, with which the Group has an occasional or regular relationship. To ensure a consistent and smooth relationship with stakeholders, MERLIN provides them with various communication channels, some general, some specific but always based on the relevance of each stakeholder, and they are managed by the Investor Relations and Marketing Departments. The various communication channels most notably include the different corporate reports and presentations published periodically by the Group with information on its activities and performance, and the General Shareholders Meeting, which in 2022 was held in person with the option of attending online. During the year MERLIN continued to have a presence at 24 of the sector’s most important events and conferences, held meetings with more than 400 investors, gave 6 asset tours to those investors who requested them and organised a Capital Markets Day in Barcelona where more than 35 investors attended in person. The table below shows the main stakeholder relations channels, and the concerns and expectations they convey to MERLIN through these channels: Management Report – Statement of Non-Financial Information 2022 100 Main stakeholders of MERLIN Properties Communication channels Main stakeholders Relevant aspects in the Company Face-to-face meetings Conferences, workshops, events and roadshows Corporate website Periodic reports and corporate presentations Satisfaction surveys Telephone and email contact Communication agency Investors •Long-term dividend. •Share value. • • • • • Analysts •Relevant information. •Company’s operations. •Share price performance. • • • • • Employees •Labour uncertainty and stability. •Working conditions. •Working hours. • • • • • • Tenants •Personalised service. •Portfolio flexibility. • • • • Suppliers •Maintenance, development and remodelling of the Company’s assets. • • Local communities •Economic and social impacts of assets on local communities. • • • Regulatory bodies •Significant events of the Company. •Compliance with current law and periodic reporting obligations. • • Public Administration •Compliance with current law governing the Company’s properties (permits, licences, etc.). • • Media •Transactions and significant events • • • • • • Management Report – Statement of Non-Financial Information 2022 101 6.1.1 Shareholder return In 2022 MERLIN had relatively stable performance within the REIT sector, with the share price falling by 8.3% in the period, although compared to the sector the stock market performance has been exceptionally good (EPRA Index -38.8% and European comparables52 -28.6%). The Company achieved a cash flow per share (FFO per share) of € 0.62 per share and an EPRA NTA of € 15.67. A total of € 562 million (€ 1.20 per share) was paid out to shareholders during the year, which includes an interim dividend of profit for the year of € 0.95 per share. Total shareholder return measured as the change in EPRA NTA per share and the dividends per share paid out during the year was 4.7%, as shown in the table below. Alignment with shareholders is reflected in the percentage of staff who are shareholders of the Company (44%) and the 1.4% of shares held by the management team53. The management team owns 8 times their base salary in MERLIN shares, demonstrating a strong commitment and total alignment with shareholders. Per share (€) Millions of €os EPRA NTA 31/12/2021 16.11 7,567 NTA growth in 2022 -0.44 -205 EPRA NTA 31/12/2022 15.67 7,363 Dividend per share (DPS) 1.2 564 NTA growth + DPS (shareholder return) 16.87 7,927 Shareholder rate of return 4.70% 4.70% 6.1.2 Treasury shares As of 31st December 2022, the Parent company has treasury shares amounting to €17,166 thousand. The changes in 2022 were as follows: Number of Thousands of shares € Balance as of 1 January 2021 4,836,503 54,149 Additions 374 3 Disposals (1,951,386) (21,847) Balance as of 31 December 2021 2,885,491 32,305 Additions 6,625 122 Disposals (1,355,932) (15,261) Balance as of 31 December 2022 1,536,184 17,166 Management Report – Statement of Non-Financial Information 2022 102 52 European comparables include Inmobiliaria Colonial, Gecina, Unibail-Rodamco, Segro and British Land 53 Including related persons The shareholders at the Annual General Meeting held on 10 April 2019 revoked the unused portion of the authorisation granted by the shareholders at the General Meeting of April 2018 and authorised the acquisition of treasury shares by the Parent company itself or by Group companies pursuant to section 146 et seq. of the Ley de Sociedades de Capital, complying with the requirements and restrictions established in current law during the five-year period. The disposals of treasury shares, amounting to € 15,261 thousand (average cost of € 11.20 per share), relate mainly to the second and last delivery of shares under the 2017-2019 Incentive Plan (see Note 15) in the amount of € 14,133 thousand and to the delivery of shares to employees as part of the flexible remuneration plan in the amount of € 864 thousand. The Group has a liquidity agreement for securities listed on the Lisbon Stock Exchange (Euronext Lisbon), having made net sales of 9,740 shares in 2022, with a value of € 142 thousand. As of 31 December 2022, the Parent company held treasury shares representing 0.327% of its share capital. 6.1.3 Stock market performance On 31 December 2022, MERLIN shares closed at a price of € 8.78, representing an 8.25% drop in their price compared to the closing price on 31 December 2021 (€ 9.57). 6.1.4 Dividends policy The Company’s dividend policy takes into account sustainable levels of distribution and reflects the Company’s expectation of obtaining recurring profits. The Group does not intend to create reserves that cannot be distributed to shareholders, except those required by law. Under the REIT regime, after complying with any relevant requirement of the Ley de Sociedades de Capital, the Parent company will be required to adopt agreements to distribute the profit obtained in the year to shareholders in the form of dividends and this distribution must be approved within six months of the end of each year, as follows: (i) at least 50% of the profit from the transfer of properties and shares or equity interests in qualified subsidiaries, provided that the remaining profit is reinvested in other real estate assets within no more than three years of the date of the transfer, otherwise, 100% of the profit must be distributed as dividends after such period has elapsed; (ii) 100% of the profit obtained from receiving the dividends paid by qualified subsidiaries; (iii) at least 80% of the remaining profit obtained. If the resolution to distribute dividends is not passed within the legally established period, the Parent company will lose its REIT status for the financial year to which the dividends refer. The Company’s dividend policy establishes a minimum distribution of 80% of the AFFO (“Adjusted FFO”), understood as the cash flow from operations less interest paid and less ordinary maintenance expenses for the assets. On 27 May 2022, the final dividend for 2022 was paid in the amount of € 117,112 thousands (€ 0.25 per share). In addition, an interim dividend of profit for the year of € 351,169 thousands (€ 0.75 per Management Report – Statement of Non-Financial Information 2022 103 share) was paid on 18 August 2022. Lastly, on 2 December 2022, an interim dividend of € 93,646 thousands (€ 0.20 per share) was paid out of the profit for 2022. 6.2 Supply chain Sourcing local products and services By sourcing products and services locally, MERLIN has a positive impact on the communities where its assets are located. In 2022, payments to suppliers of products and services totalled € 112.6 million, with an average period of payment to suppliers of 28.7 days54, in line with that established by Ley de medidas de lucha contra la morosidad en las operaciones comerciales (Law 15/2010 of July 5). When hiring suppliers, MERLIN prioritises local suppliers that meet the Group’s social and environmental standards. For developments and the refurbishments of its assets in particular, in keeping with the sustainable construction standards in which the Group is certified, MERLIN purchases local raw materials and works with local contractors, which is an added benefit for the local economy. In addition, MERLIN’s contracts with suppliers and lessees include clauses referencing both MERLIN’s compliance policies and its Code of Conduct. Annual expenditure on purchases and contracts associated with MERLIN’s assets (€M) In accordance with the Procurement Procedure, the sustainability factors are an additional component to those currently in place to assess each of the CAPEX and OPEX tenders based on environmental, social and governance criteria. In 2022, MERLIN has modified the Procurement Procedure to require in all tenders over 150 thousand euros the response, by suppliers, to an ESG questionnaire with environmental, social and governance issues. Management Report – Statement of Non-Financial Information 2022 104 54All the information required on the average payment period required by Final Provision Two of Law 31/2014, can be found in Note 13 to the Consolidated Financial Statements. Thus, during the year, MERLIN requested information from 110 suppliers representing 72% of the investment in asset improvement and rehabilitation (CAPEX) at December 31, 2022, requesting information and details in the environmental, social and regulatory compliance areas, including issues related to human rights compliance (policies, lawsuits, etc.) for each third party evaluated. Internal Audit audited 78% of the questionnaires received (55% of the Capex as of December 31, 2022; amounting to €126 million). As a result of the audit, the relationship between the volume of works and services contracted to suppliers and compliance with ESG requirements has become evident, with the higher the amount contracted and, therefore, the larger the supplier, the better the scoring. Likewise, it has been decided to continue with this exercise on an annual basis in order to evaluate MERLIN's supply chain by monitoring its suppliers to guarantee a minimum admissible standard in future tenders. Finally, and from the analysis of the results obtained, especially for those with very low scores, they should be analyzed by the Technical Department with a view to the continuity of services. On the other hand, this analysis should facilitate dialogue between MERLIN and its suppliers as a means of facilitating best practices, especially with those suppliers who are in a more advanced situation. 6.3 Maximising the well-being of users of the assets The Group views these spaces as an opportunity to offer high quality, value-added service to provide the tenants and users of the assets with the best possible experience. MERLIN has therefore set up the following framework for collaborating with tenants and user that consists of four basic pillars: Management Report – Statement of Non-Financial Information 2022 105 2022 MILESTONES FUTURE OBJECTIVES •Obtaining WELL Gold certification for the Castellana 85 office building. •Progress on Smart and Wired score. •Increase in the number of assets with clean air purification technology. •Cumulative installation of 1,494 electric vehicle charging points. •Expansion of MERLIN Hub (6,125 users) to the Pozuelo and Las Rozas business parks. •Installation of intelligent building systems installed in the Castellana 85 building in Madrid. •Satisfaction surveys and making them automated in LOOM spaces. •CAU project for incident management in offices. •Construction of the A1 bus lane. •Installation of facial recognition in access to office buildings. •Installation of intelligent building systems installed in the Plaza Ruiz Picasso building in Madrid. KEY INDICATORS FOR THE YEAR 55,56 DATA 2022 CHANGES 2021-2022 Level of satisfaction54 2.92 n/a55 Asset occupancy 95.1% +60 bps Assets with accessibility certifications 69 +8 assets Management Report – Statement of Non-Financial Information 2022 106 55 Surveys conducted at multi-tenant offices, single-tenant offices and shopping centres. The overall score is calculated in terms of the Average Quality Index (AQI) taken from the surveys. 56 More tenants have received the satisfaction survey, so the evolution is not comparable. MERLIN’s distinguishing features in its relationship with tenants MERLIN works to build relationships of trust with tenants and strives for the highest level of satisfaction by fostering active communication based on dialogue and teamwork. 2.92 over 4 overall score on satisfaction surveys Working together MERLIN is committed to the active involvement of asset users in optimising their performance and making the most of the assets’ services and functionalities to keep them completely satisfied 100% of assets have tenant relationship channels Constant communication MERLIN encourages active communications with tenants through the various channels available to them so as to identify possible concerns and needs, solve problems and hear their suggestions for maximising their experience 69 assets with AIS certification including 7 with the highest rating Commitment to accessibility MERLIN guarantees ease of accessibility to its assets and backs this commitment up by obtaining AIS certification Well-being of tenants and users of the assets Maximising the well-being of its tenants and users of the assets is one of the basic pillars of MERLIN’s management. Among other things, well-being includes indoor air quality, lighting, connectivity, and complementary services available to users. MERLIN is committed to ventilation as a key element of indoor air quality. This is achieved by installing filters, renovating equipment, and using thermal insulation in buildings to prevent harmful substances from the outside getting in. In terms of lighting quality, the Group prioritises natural light and the installation of LED lighting to avoid glare and provide adequate illumination of the space. Along these lines, MERLIN has air filtration and purification systems installed in its office assets, with the aim of improving users’ health and the sustainability of the assets. These solutions use filtration and ventilation to reduce suspended particles, biological agents (viruses, bacteria, and fungi), volatile organic compounds (VOCs) and chemical pollutants, thus reducing the incidence of cyclical diseases and improving the users’ working experience in offices. In environmental matters, the environmental solutions installed generate energy savings in the buildings’ air conditioning systems, since the filters used have lower air resistance than traditional filters and have longer useful lives, which also cuts down on waste. As part of its commitment to improving the digital infrastructure of its buildings, MERLIN has continued to certify office assets with the Wired Score seal. This is an online connectivity standard that guarantees the fastest upload and download speeds at all offices, including common areas and outdoor spaces, and provides the assets with the necessary infrastructure to adapt to future technological advances. Management Report – Statement of Non-Financial Information 2022 107 MERLIN also provides the users of its asset with a series of complementary services to enhance the user experience, such as the MERLIN Hub, for which approximately € 731 million57 were earmarked in 2022. Sustainable mobility The mobility of the users of its assets is a key aspect for MERLIN. Accordingly, the Group prioritises assets that are strategically located with good public transport options, especially for the office portfolio, which enhances users’ quality of life. MERLIN also developed other initiatives at its office assets, such as providing shuttle services, promoting carsharing and carpooling services, and the use of electric bicycles to travel from public transport stations to the offices. MERLIN also promotes the installation of electric vehicle charging points at the assets in its strategic portfolios (offices, logistics and shopping centres), with 1,494 currently installed. Through these initiatives, MERLIN promotes and encourages users of the MERLIN Hub community to opt for alternative and sustainable forms of transport through specific mobility plans, thus contributing to the decarbonisation of the cities where it operates. Assets accessibility In terms of accessibility, MERLIN considers it a priority to maximize the millions of people who can access shopping centres each year, regardless of their abilities, so that they can enjoy their experience in them. Along these lines, the Group continues to increase the number of certified assets based on the Accessibility Indicator System (AIS), which assesses the usability, comfort and safety conditions of the building. All of the assets in the shopping centre portfolio are AIS certified. These shopping centres are constantly improving their accessibility performance, which in turn implies higher ratings obtained within the framework of this certification. In 2022 the Marineda, Larios and Saler shopping centres obtained the highest possible score awarded by AIS (five stars). MERLIN continues to add to the number of certified office assets, with a total of 56 certified assets at year-end (8 more than in 2021). R&D&I activities In relation to R&D&I activities and other innovative initiatives, MERLIN is committed to offering its tenants and users the highest quality comprehensive service, beyond the asset management itself, integrating the most innovative solutions in its assets to maximize the user experience. In line with this philosophy, during the last year MERLIN has continued to focus on improving the quality of life of users in its assets. Thus, it has continued to implement Mayordomo Smart Points, consisting of a system of smart lockers that allow users to conveniently receive packages and the provision of various services that help to achieve a work-life balance. By the end of 2022, 33 MERLIN assets had such points, an increase of 18% compared to 2021. In addition, MERLIN remains committed to LOOM flexible workspaces as a solution to the hybrid work model. During the year, MERLIN has continued to promote numerous technological projects to place MERLIN at the forefront of solutions for its customers and internal management. These include Management Report – Statement of Non-Financial Information 2022 108 57 This amount includes the shuttle service and the expenses charged and not charged. the office building sensorization program, the energy consumption reading project, the photovoltaic self-consumption project and the development of different user experience apps Sustainability, maximising efficiency MERLIN is highly committed to the sustainability of its portfolios and maximises their efficiency in the use of resources by benchmarking against international industry standards. The Group integrates sustainability into its decision-making process, focusing on the well-being of its tenants and improving its assets, with a carbon footprint that is as low as possible. MERLIN offices also seek excellence in energy efficiency through LEED and BREEAM certification. Omnichannel in shopping centres For shopping centres, MERLIN continues to be committed to omnichannel shopping and is therefore expanding the Click&Collect points for online order pick-up. At the end of the year, this portfolio had a total of 28 such points. Community MERLIN offers numerous opportunities to its users with the intent of promoting networking and enriching each employee’s workday. There are many opportunities during the workday to connect with other users, whether or not they are from your own company. A programme of events and experiences has also been designed, such as solidarity stalls, sports activities, talks with experts on current affairs. Some of the initiatives carried out in 2022 include the Spanish Cancer Association (AECC) solidarity stall, a talk on Women’s Day with numerous speakers and blood donations organised by the Red Cross at the various asset locations. In addition, MERLIN contributes to different types of social initiatives by illuminating the façade of Torre Glòries in different colours, such as the collaboration with Pride Barcelona or with the Duchenne Syndrome Foundation. Constantly listening to users MERLIN believes it is essential to provide tenants and users with sufficient communication channels to maintain active dialogue and generate a relationship of trust. This allows MERLIN to understand their needs and expectations and to detect opportunities and possible areas for improvement in asset management. Among these channels, satisfaction surveys stand out. In 2022, surveys were sent to all tenants of multi-tenant and single-tenant offices and shopping centres, with a total participation of 22.9%. The tenants rated specific aspects that influence their well-being such as the condition of common areas, the management of information and MERLIN’s attention to possible incidents, administrative management, treatment of staff and overall satisfaction with the service. The average overall satisfaction rate according to the survey was 2.92 out of 4, which translates to 86.3% of satisfied tenants.58 Regarding the portfolio of logistics assets, since 2020 MERLIN has had a Facility Management service integrated in all logistics assets that provides monitoring and advice to tenants on maintenance, technical and legal matters. This initiative creates a framework for collaboration with tenants, which makes it possible to do things like adapt response times to the seriousness of the incident reported Management Report – Statement of Non-Financial Information 2022 109 58 A satisfied tenant is one with an Average Quality Index (AQI) higher than 2.5 out of 4. by the tenant. To streamline two-way communications, tenants can share information in real time on a collaborative IT platform. For the shopping centre portfolio, since 2021 MERLIN has enhanced communications with tenants at all levels to build closer relationships. Along these lines, the Company has launched the LIFE! portal at its centres. Besides serving as an online communication channel, it centralises management and optimises the use of resources in a more efficient, interactive and paper free manner. The LIFE! portal allows tenants to have direct, smooth two-way communications with MERLIN’s shopping centre management team. The tool also has a repository of documentation with relevant information on each asset and two different marketing sections: the first one with promotions that are then published in the app and on the shopping centre’s website; and the second one with promotions for the employees of the operators of MERLIN’s shopping centres. In relation to the offices, the CAU project has been developed, which makes it possible to manage incidents or complaints from users of office assets and monitor the information for better follow-up. MERLIN maintains a direct relationship with clients so that any type of incident is resolved and managed through the Group’s managers located at the assets. An incident management system is currently in the process of being installed in the office assets where the resolution and handling of incidents can be pooled. In addition, the Group has complaint forms at its shopping centres and a portal on its intranet where tenants and users can report any type of incident. In 2022, 11 complaints were received (2 more than in 2021) and 11 were satisfactorily resolved. 6.4 Development and relationship with the environment Generating positive impacts on the environment 2022 MILESTONES FUTURE OBJECTIVES •Creation of an interactive museum and a panoramic observatory of the city of Barcelona at Torre Glòries. •Construction of an entrance and exit to the A-1 and M11 from the Chamartín Tower •Continuation of the Merlin ART project, with the installation in the assets of works by young Spanish artists such as Gravitación by Fernando Suarez. •Promote the Renazca preliminary project •Construct the A1 bus lane. •Execute and complete the remodelling of the area surrounding the office building located in Plaza Ruiz Picasso 11. •Renovate the Clara Campoamor gardens, in Barcelona Management Report – Statement of Non-Financial Information 2022 110 KEY INDICATORS FOR THE YEAR DATA 2022 CHANGES 2021-2022 Economic value distributed (€M) 864.6 63.4 Purchases from suppliers (€M) 112.6 13.8 Average period of payment to suppliers (days) 28.7 -9.2 Social or environmental complaints from communities (N.º) 0 = Social contribution of the Group (LBG/ONLBG Method) €M 3.7 408.7 6.4.1 Improving cities MERLIN is firmly committed to and responsible for the physical and social environment in which it operates, and seeks to have the best possible impact through different initiatives to improve the cities in which its assets are located. Along these lines, all of the Group’s assets contribute to the development of the communities in which they are located, for example, through sourcing local products and services. In addition, 31%59 of the portfolio assets have specific development programmes, impact assessments and local community participation, with the shopping centre portfolio having the most of these types of programmes (96%), as it has the strongest links to local communities. Meanwhile, 44% of offices and 6% of logistics assets have specific programmes. MERLIN’s distinguishing features in its relationship with local communities MERLIN maintains stable and lasting relationships with the local communities around its assets based on the creation of positive impacts and two-way communications using different channels. This enables the Group to identify their needs and expectations, which we try to satisfy through different programmes and initiatives, offsetting any potential negative impacts arising from their activities. MERLIN continues to work with local agents to enhance the value of public spaces around our assets, reinforcing the social and economic value contributed by these assets. Management Report – Statement of Non-Financial Information 2022 111 59 By GLA; including offices, shopping centres and logistics assets, excluding assets under development (WIP). €3.7 M in MERLIN’s contribution to communities Impact management and value creation MERLIN works to maximise the positive impacts of its activities and to minimise and, where applicable, offset the negative ones. €2.6 M earmarked in 2022 for the redevelopment of public spaces Quality spaces MERLIN uses its own resources to renovate the public spaces around its assets, maximising the value of the contribution to the communities surrounding its assets. More than 140,000 downloads of user relationship apps in shopping centres Dialogue and transparency MERLIN establishes and maintains ongoing and smooth relations with the communities linked to its assets, continuously adding new channels to strengthen these relationships. Over 27% more followers on LinkedIn compared to 2021 X-Madrid, Spain’s shopping centre with the most followers on Instagram Impact on social media MERLIN meets the milestones and objectives set in terms of followers and engagement rate by following a content strategy that prioritises quality over quantity. Job creation MERLIN’s assets contribute to local employment both directly, through the hiring of personnel, and indirectly through the companies that provide ancillary services such as maintenance, facility management, security and cleaning. In addition, the economic environment surrounding the asset also benefits from the creation of hospitality and retail services to meet the needs of the users of the assets. Management Report – Statement of Non-Financial Information 2022 112 Initiatives for improving cities Improvement of public spaces The rehabilitation of public spaces surrounding its assets is a key part of MERLIN’s strategy of delivering value to local communities, including other assets in the area. MERLIN is currently working on the refurbishment of the spaces adjacent to the Plaza Ruíz Picasso asset. In 2022 MERLIN completed the creation of a public square in the Saler shopping centre in Valencia. The work consisted of creating a new public square in front of the main façade of the shopping centre, which overlooks the City of Arts and Sciences of Valencia, in keeping with the design of this environment, and offering citizens landscaped areas with benches and ornamental fountains for recreation and socialising. In addition, services such as new rest areas with wireless mobile phone charging points, contactless technology in restrooms to reduce water consumption and electric car chargers have been implemented. Furthermore, all light fixtures have been equipped with LED technology. Enhancement of the local area Through its refurbishment projects such as MERLIN Hub and Renazca, the Group acts as a driver for the revaluation of the areas surrounding its assets. In 2022 MERLIN inaugurated the on and off ramp from the M-11 to the A-1 for Isla de Chamartín. The project was carried out through a collaboration agreement between the Madrid Municipal Council and MERLIN with the aim of improving access to Isla de Chamartín. This area had a single road (Dulce Chacón) that served as access to the residential and office buildings in the area, so an alternative was needed to resolve this limited access. It was a public-private partnership with which MERLIN and the Madrid Municipal Council reached a milestone in promoting sustainable mobility, with MERLIN financing and executing the work in the amount of € 2.5 million. 6.4.2 Social initiatives MERLIN creates value for society by supporting various initiatives and activities that ultimately have a positive impact on the development of the surrounding communities. These initiatives are approached from two different levels: on the one hand, at the corporate level and on the other hand, at the asset level. Management Report – Statement of Non-Financial Information 2022 113 –Contribution at the corporate level At the corporate level, most of MERLIN’s contributions to the community are part of its CSR Plan, under which MERLIN commits up to 0.1% of its gross annual revenue to social programmes or projects. This financial contribution is divided into two parts: the first part is the Group’s direct cash contribution, and the second part is MERLIN’s matching contribution, in which it doubles the cash donations or volunteer hours of employees, executives and directors. It should be noted that MERLIN does not make any political contributions. In 2022, the Group donated a total of € 223,575 in direct contributions, with a multiplier effect60 of € 192,374 through the collaboration of 32 employees and directors. Together, these contributions have supported 73 foundations and directly benefited 6,646 people. In addition to the CSR Plan, in 2022, for the sixth year in a row, a total of 16 MERLIN employees taught classes in the university degree programme titled “Intensification in Real Estate Planning and Management” at the School of Quantity Surveyors of the Polytechnic University of Madrid. And once again this year, the training included a talk by Ismael Clemente, the Group’s CEO. In all, MERLIN professionals dedicated 85 hours to this activity. In addition, three of the Group’s employees taught master level classes at the School of Architecture for a total of 27 hours. As in past years, MERLIN donated the cash allowance to fund two academic scholarships awarded to the top two students in this degree programme for a total of € 3,000. –Contribution through assets MERLIN also contributes to local development through its assets, supporting different initiatives and activities in four key areas: training; social action; promotion of culture and local development; and awareness-raising. Breakdown of local development programmes by type Management Report – Statement of Non-Financial Information 2022 114 60 In accordance with the LBG/ONLBG framework, the multiplier effect is considered to be the additional resources that the company manages to raise for an activity or project from third parties or entities. Initiatives promoting social cohesion and inclusion Training activities Numerous training activities open to the community and activities aimed at LOOM users were held at the Company’s LOOM assets in 2022. These activities focus in particular on the personal and professional growth of its participants, such as yoga activities, seminars on topics of interest such as “Align your project with the SDGs”, “The most effective marketing strategies to attract clients”, “The power of a conversation”, etc. This year at Marineda, there were seven talks on the subject of women at risk of social inclusion joining the workforce, in which a total of 175 women participated. The agreement with the Naru Foundation is also worth mentioning, which gives awareness-raising talks and provides training for the families of cancer patients at the Marineda centre. Social action MERLIN continues to collaborate with the Juan XXIII Roncalli Foundation to manage and maintain the urban vegetable gardens at MERLIN Hub, promoting the social and workplace inclusion of workers with intellectual disabilities. In 2022, these gardens yielded 1.95 tonnes of produce. Various MERLIN shopping centres have solidarity stands in their common areas, which are occupied at various times throughout the year by non- profit organisations such as the Red Cross, UNICEF, Doctors without Borders, etc. In addition, the Company offered 2,968 sqm of its logistics centres to the Banc Dels Aliments Foundation during the months of November, December and January for the food bank collection during the Christmas season. Promoting culture and local development In 2022, MERLIN has commissioned the Art for Africa exhibition at its Arturo Soria shopping centre. This is an art exhibition and sale of African crafts for the benefit of the Juan José Márquez association with the aim of raising awareness of the problems in Africa and raising funds to be used to improve, enhance and promote schooling and child health through health education programmes in various municipalities in the Ivory Coast. Visitors to the shopping centre were able to enjoy free of charge the works of more than 15 artists that included 40 paintings and ceramic pieces. In addition, the FLECHA project allows users of shopping centres such as Artea or Marineda to visit an art exhibition with the works of top level and emerging artists at affordable prices, thus breaking the traditional barrier of art in galleries. In 2022, the Group continued to showcase the work of young Spanish artists through the MERLIN Art Programme, which acquires and exhibits their work in its main assets, while providing tenants with a better experience. Its latest addition has been Gravitación by Fernando Suarez, in Torre Chamartín. Other pieces of art work include “Caballo” by Management Report – Statement of Non-Financial Information 2022 115 Alberto Corazón located in the San Cugat I asset and “Tranpantojo” by J.Vaquero Turcios in Alfonso XI. Awareness raising activities In 2022 MERLIN Hub sponsored various social awareness-raising events such as talks by representatives of the Spanish Cancer Association (AECC) for all users of the Ática business park, and the numerous blood donation points set up throughout the year at its assets. In addition, MERLIN’s shopping centres carry out numerous awareness- raising initiatives throughout the year, such as the Back to School Campaign with the delivery of school materials for children and young people at risk of exclusion. 6.4.3 Measuring the distribution of contributions to the MERLIN community Contribution to the community After joining the internationally recognised London Benchmarking Group (LBG) in Spain, MERLIN measures its contribution to society using the LBG model. This is the most prestigious standard for measuring the investments made by companies in the form of social and environmental initiatives. LBG recognises voluntary contributions to social or environmental protection programmes and donations to non-profit organisations, not restricted to groups that are related to the Group. All initiatives are located in Spain and are broken down as shown on the following table. By type of initiative 2021 2022 Social well-being €412,366 €310,250 Education €237,298 €225,930 Health €43,292 €527,408 Art and culture €12,540 €2,269 Humanitarian aid €4,173 €2,219 Socioeconomic development €2,860 €2,530 Environment €2,461 €2,592,340 Other61 €5,040 €0 TOTAL €720,030 €3,662,946 Management Report – Statement of Non-Financial Information 2022 116 61 Includes collaborative actions with associations in the shopping centre portfolio. By motivation By type of contribution In terms of sponsorship, the Group continues to support the initiatives of the associations with which it collaborates, such as sponsoring the paddle tennis tournament for the Ronald McDonald House Foundation at the Larios shopping centre. MERLIN also maintains relationships with associations of which it is a member, such as: The Spanish Association of Offices, Spanish Association of Shopping Centres, European Public Real Estate Association, Urban Land Institute, Spanish Confederation of Business Organisations, Association of Real Estate Companies with Rental Properties (ASIPA), GRI, Portuguese Association of Real Estate Developers and Investors, Madrid Futuro Association and the Barcelona Global Association (see details in Table GRI 2-28). Management Report – Statement of Non-Financial Information 2022 117 Contribution to the Sustainable Development Goals (SDGs) Since its incorporation, MERLIN has integrated sustainability into its activities and decisions. For MERLIN, the practical implementation of this commitment takes the form of striving to achieve the Sustainable Development Goals of the 2030 Agenda adopted by the United Nations General Assembly in 2015. The SDGs that benefit most from MERLIN’s contributions, as identified in 2022 by the Company, are discussed below. SDG 3 - Good health and well-being: MERLIN maximises the user experience by creating quality spaces that prioritise aspects such as air quality, lighting, and accessibility. SDG 4 - Quality education: MERLIN promotes training initiatives by using its assets to improve social cohesion and inclusion and by offering its employees ongoing professional development. SDG 5 - Gender equality: equal opportunities for men and women and non- discrimination are key aspects for MERLIN in the performance of its activities. SDG 7 - Affordable and clean energy: Through its assets, MERLIN contributes to the transition to low-carbon energy by making a commitment to renewable energy and energy efficiency. G 8 - Decent work and economic growth: through the refurbishment and operation of its assets, MERLIN generates quality employment by maximising the user experience and ensuring the best health and safety conditions. SDG 9 - Industry, innovation and infrastructure: MERLIN’s assets integrate the latest trends in innovation and digitalisation at both the building and user level. SDG 11 - Sustainable cities and communities: Through its assets, MERLIN has a positive impact on cities from both an environmental and social perspective. SDG 12 - Responsible consumption and production: MERLIN is committed to maximising the environmental performance of its assets in line with the market’s benchmark sustainable construction certifications. SDG 13 - Climate action: MERLIN is aware of its role the decarbonisation of the economy, and in 2021 MERLIN developed an emission reduction strategy (“Pathway to Net Zero”) that involves its entire value chain. SDG 15 - Life on land: MERLIN analyses and minimises the potential negative impacts on biodiversity throughout the life cycle of its assets, especially in new developments and refurbishments SDG 17 - Partnerships for the goals: MERLIN builds and consolidates relationships with the public and private stakeholders with which it interacts, especially with the communities where it operates. Management Report – Statement of Non-Financial Information 2022 118 7. Capital management 2022 MILESTONES FUTURE OBJECTIVES •Divestment of TREE Inversiones Inmobiliarias SOCIMI, S.A. with the corresponding cancellation of the mortgage debt associated with the assets in the amount of € 665 million and cancellation of the corporate syndicated loan in the amount of € 850 million. •Improved credit rating with positive outlook. •Creation of the framework for issuing green/ sustainable debt and converting corporate debt. •Recovery of Capital Markets Day. •Refinancing of the bond maturing in April 2023 for € 743 million. •In accordance with the commitments of the Green Financing Programme, the Allocation and Impact Reports, which focus on sustainability metrics, will be issued. KEY INDICATORS FOR THE YEAR 2022 CHANGES 2022-2021 Share price (€) 8.78 (8.25)% Distributions to shareholders (€M) 561.9 +267.4% Number of analysts covering the Group 24 0 Average daily trading volume (€M) €20.3M +28.5% Management Report – Statement of Non-Financial Information 2022 119 7.1 Tax information 7.1.1 Tax strategy MERLIN contributes to supporting public finances through the payment and collection of taxes payable to them. MERLIN’s Board of Directors approved the Group’s tax strategy, the aim of which is to determine the fundamental principles and pillars on which MERLIN’s fulfilment of its tax obligations is based. Compliance with its tax obligations is governed by the following principles in its conduct regarding tax matters: •Fulfilment of tax obligations and payment of legally required taxes. In particular, MERLIN will govern its conduct in accordance with that set out in the REIT regime that applies to it, based on the case law and commentary established in relation to the regime. •Adoption of actions in tax matters based on a reasonable interpretation of the law. •Tax treatment and decision making with tax implications based on the business rationale and reality of transactions and on the distribution of resources, risks and adding value. •Not using structures that are contrived or that make no economic or business sense so as to reduce the tax burden of the Group or its shareholders. •Not operating in territories classified as tax havens for the main purpose of reducing the tax burden of the Group or its shareholders. •Maintaining a relationship with the tax authorities based on transparency, good faith, cooperation, reciprocity and professionalism without prejudice to legitimate disputes that may arise with the tax authorities in the defence of its interests or those of its shareholders. •Promoting, together with business associations, improvements in regulations and the administrative procedures to boost companies’ competitiveness and employment. Together with the above principles, MERLIN’s Board of Directors will have the necessary internal and external resources to comply with this tax strategy and the policies approved in implementing it. This tax strategy will applied and monitored by the Tax Department, under the supervision of the Group’s Corporate General Manager. With regard to notification mechanisms, any concerns regarding unethical or illegal conduct and the organisation’s integrity in relation to taxation are channelled through the whistleblower channel and the continuous availability of the Head of the Tax Department. In addition, content regarding tax matters is verified through external audits and tax ICFRs. Compliance with the tax strategy will be monitored and overseen by the Internal Audit Department, which, in accordance with the general procedures established for its function, is configured as an independent function of the Company. The Audit and Control Committee will therefore monitor the effectiveness of the internal control and risk management system in accordance with the generally established mechanisms. Management Report – Statement of Non-Financial Information 2022 120 7.1.2 Profits earned on a country-by-country basis and income tax paid MERLIN is committed to complying with its tax obligations as an additional way of contributing to the development of the communities in which it operates in both Spain and Portugal. The Company’s earnings as at 31th December 2022 were as follows: •Income obtained Income from leases to third parties (€M) 2021 2022 Spain 338.4 381.1 Portugal 44.4 57.9 TOTAL 382.8 439.0 Income from intra-group transactions with other tax jurisdictions (€M) 2021 2022 Spain 119.4 23.4 Portugal 23.5 - TOTAL 142.9 23.4 •Profit before tax Profit before tax obtained (€M) 2021 2022 Spain 364.2 (17.5) Portugal 39.0 65.7 TOTAL 403.2 48.2 •Tangible assets Management Report – Statement of Non-Financial Information 2022 121 Tangible assets other than cash and cash equivalents (€M) 2021 2022 Spain 12,024.8 9,884.9 Portugal 1,185.4 1,302.7 TOTAL 13.210,2 11,187.7 •Taxes Taxes paid (€M) 2021 2022 Spain 165.9 207.7 Portugal 15.1 15.7 TOTAL 180.9 223.4 Corporation tax accrued (€M) 2021 2022 Spain 1.9 0.9 Portugal 5.9 7.7 TOTAL 7.8 6.8 2021 reexpresed for discontinued operations. 7.1.3 Total tax contribution The Total Tax Contribution (TTC) measures the contribution made by a company or group of companies to the various authorities. As a general rule, both taxes paid and collected are charged to each fiscal year following a cash basis approach. •Taxes paid are those taxes that have incurred an effective cost for companies, e.g. income tax, social security contributions paid by the company, or certain environmental taxes. •Taxes collected are those that have been paid as a result of the company’s economic activity, without entailing a cost for the companies other than that of their management, such as employee tax withholdings. Management Report – Statement of Non-Financial Information 2022 122 Accordingly, the MERLIN Group’s total tax contribution, between Spain and Portugal in 2022, amounted to € 220.7 million. Based on the nature of the tax and the country of residence of the companies, the following is a breakdown of the total tax contribution collected and paid by the Group in 2022 following a cash basis approach: Spain: The total contribution in Spain amounted to € 205 million, taking into account direct and indirect taxation. This amount is differentiated into tax paid and tax collected/withheld. The former are those Management Report – Statement of Non-Financial Information 2022 123 that entail a cost for the Group, while the latter are those that, without entailing a cost for the Group, consist of a collection on behalf of third parties. The following summary details both concepts: Amounts in million euros. Taxes paid 2021 2022 Property tax 38.2 36.8 Tax on economic activities 5.5 5.0 Tax on buildings, installations and works 1.4 3.1 Company social security contributions 2.8 3.0 Duties 2.3 2.2 Urban property capital gains tax 2.9 1.4 Transfer tax and stamp duty 2.4 1.4 Corporate Tax 1.9 (1.5) Others 0.1 0.1 SUBTOTAL 57.5 51.4 Taxes collected/withheld 2021 2022 VAT/Canary Islands general indirect tax 69.6 56.6 Suppliers personal income tax/non-resident income tax 2.3 1.5 Employees personal income tax/non-resident income tax 24.2 24.0 Dividend personal income tax/non-resident income tax 11.4 70.8 Employee social security contributions 0.8 0.6 SUBTOTAL 108.3 153.5 Portugal: The total contribution in Portugal amounted to € 15.7 million. Amounts in million euros. Taxes paid 2021 2022 Property tax 1.1 1 Company social security contributions 0.1 0.2 Transfer tax and stamp duty 0 0.9 Corporation tax 2.5 3 SUBTOTAL 3.7 5.1 Management Report – Statement of Non-Financial Information 2022 124 Taxes collected/withheld 2021 2022 VAT/Canary Islands general indirect tax 6.8 7.7 Suppliers personal income tax/non-resident income tax 4.5 2.5 Employees personal income tax/non-resident income tax 0 0.3 Employee social security contributions 0 0.1 SUBTOTAL 11.3 10.6 Impact of MERLIN’s total tax contribution in 2022 The purpose of this calculation is to measure the business asset represented by the MERLIN Group’s tax contribution so that it is effectively incorporated into the reputational value given the value it generates and contributes to society. Therefore, the impact of the various taxes that entail an outflow of cash for the Group is detailed below: Amounts in million euros. Income tax 2021 2022 Corporation tax 4.4 1.4 Suppliers personal income tax/non-resident income tax 6.7 4.1 Tax on economic activities 5.5 5,0 Urban property capital gains tax 3.0 1.4 SUBTOTAL 19.6 11.9 Taxes on shareholders 2021 2022 Dividend personal income tax/non-resident income tax 11.4 70.8 SUBTOTAL 11.4 70.8 Property taxes 2021 2022 Property tax 39.3 37.8 SUBTOTAL 39.3 37.8 Management Report – Statement of Non-Financial Information 2022 125 Employment-related taxes 2021 2022 Employees personal income tax/non-resident income tax 24.2 24.2 Company social security contributions 2.9 3.2 Employee social security contributions 0.8 0.7 SUBTOTAL 27.9 28.1 Taxes on products and services 2021 2022 VAT/Canary Islands general indirect tax 76.4 64.3 Transfer tax and stamp duty 2.2 2.3 Tax on buildings, installations and works 1.4 3.1 SUBTOTAL 80.0 69.7 Environmental taxes 2021 2022 Duties 2.3 2.2 Others 0.1 0.1 SUBTOTAL 2.4 2.3 TOTAL 180.6 220.7 As mentioned above, in 2022 the MERLIN Group’s total tax contribution amounted to € 220.7 million between Spain and Portugal, of which 26.2% corresponded to taxes paid and 73.8% to taxes collected/withheld. •The taxes paid by the MERLIN Group in 2022 amounted to € 51.4 million, most notably including property tax that amounted to € 37.8 million, representing 67.2% of its taxes. •The taxes collected by the MERLIN Group in 2022 amounted to € 164 million, most notably including taxes withheld on dividends paid that amounted to € 70.8 million, representing Management Report – Statement of Non-Financial Information 2022 126 42.9%, and taxes on products and services, mainly VAT, amounting to € 64.3 million, representing 39.4%. According to the TTC method, the distributed value of a company comprises the sum of the following components: net interest, wages and salaries (net of taxes withheld from employees), taxes (paid and collected) and shareholder value (i.e., dividends, reserves, etc.), among others. Thus, the ratio of distributed tax value reveals what percentage of the total value generated by MERLIN is allocated to the taxes paid to or collected/withheld for the public authorities. In essence, the distributed tax value reflects the way in which MERLIN contributes the value it generates to society. Finally, at year-end 2022, the Group has received grants from various public bodies for an immaterial amount. Financial data (€M and reference to Notes to Consolidated Financial Statements 2022) 2021 2022 Revenue (Note 18.a) 468.2 439.0 Wages and salaries (Note 18.c) (25.8) (32.0) Net interest (Note 18.d) (130.9) (105.3) Changes in value of investment property (Note 7) 177.0 (249.3) Change in value of financial instruments (Note 14) 73.1 41.2 Profit before tax 518.8 48.2 Profit after tax 512.2 41.4 Profit before tax paid 573.6 97.9 Profit before tax (without market revaluation) 268.7 256.2 Profit before taxes paid (without market revaluation) 323.5 305.9 Profit after taxes paid (without market revaluation) 262.1 249.4 Total taxes paid 61.4 56.5 Total taxes collected/withheld 119.6 164.2 Total tax contribution 180.9 220.7 Tax contribution indicators 1. Total tax contribution ratio 19% 18% 2. TTC with regard to revenue 39% 50% 3. Taxes paid as a percentage of revenue 13% 13% 4. Taxes collected/withheld as a percentage of revenue 26% 37% 5. Distributed tax value in the Company 63% 66% Management Report – Statement of Non-Financial Information 2022 127 In 2022, 18% of the value generated by MERLIN was paid to the tax authorities through taxes paid and collected/withheld. Thus, for every € 100 of value generated by the Group in 2022, € 18 were allocated to paying taxes. For every € 100 of the Company’s revenue, € 50 were allocated to the payment of taxes, of which € 13 are taxes paid and € 37 are taxes collected/withheld. In 2022, for the purposes of the total tax contribution, taxes paid represented 18.5% of total profit before tax (without revaluation of the investment property). 7.2 Green financing 7.2.1 Financial strategy The Group’s strategy is to actively manage both the Group’s assets and the liabilities. In relation to liabilities, the goal is to extend the average maturity of the debt and to try to maintain borrowing costs and eliminate the risk arising from interest rate fluctuations. Currently, 99.6% of the Company’s debt accrues interest at a fixed rate or is subject to interest rate hedges. 7.2.2 Liquidity and capital resources Debt MERLIN carried out several transactions involving its financial liabilities in 2022. The transactions carried out were: •On 23rd February 2022, the Group repaid its first bond maturing on 23rd May amounting to € 548 million with the funds obtained from a € 500 million bond issue on 21st June 2021. •On 1st June 2022, the Group converted all its bonds into green bonds under the Green Financing Framework published on 25th April 2022. The reclassification of the bonds to green bonds does not entail changes to any other features of the bonds, such as their terms and conditions, interest or maturity. •On 16th March 2022, the third one-year extension of the maturity of the mortgage associated with the bank branches was approved, with the new final maturity date being 31st March 2034. Subsequently, on 15th June, the Group made an early repayment for this mortgage of € 665 million when the shares of TREE Inversiones Inmobiliarias SOCIMI, S.A. were sold to BBVA. •In addition, on 21st June 2022, the Group made an early repayment for the corporate loan of € 850 million with part of the proceeds from the sale of TREE Inversiones Inmobiliarias SOCIMI, S.A. •On 18th November 2022, the Group entered into two 5-year corporate green financing facilities for an aggregate amount of € 660 million. The financing consists of a syndicated loan of € 600 million with 5 banks (undrawn at year end) and a bilateral loan for € 60 million. Management Report – Statement of Non-Financial Information 2022 128 •On 20th December 2022, the Group drew down € 22 million corresponding to the first tranche of non-mortgage financing from the European Investment Bank for the logistics developments in Castilla La Mancha maturing on 20th December 2032. •At year end, the Group had € 109.2 million not yet drawn down corresponding to tranche 2 of the logistics financing and the green loan signed with the European Investment Bank. •The new financing will be used to repay the € 743 million bond maturing on 25th April 2023. At the end of 2022, the Group’s financial debt amounted to € 4,239 million, made up of corporate financing without mortgage collateral (loans and bonds) and mortgages. As a result of these transactions, the debt’s average maturity at year end stood at 4.9 years and there are no significant debt maturities at short-term, the first relevant maturity being the € 743 million bond maturing in 2023, the amount of which would be covered by the new financing obtained and which would extend the average life of the debt issuance to 6 years. The debt repayment schedule is as follows: Available liquidity MERLIN's cash position at December 31, 2022 amounted to €447 million, including €17 million of treasury shares. This liquidity is increased by €1,409 million through the revolving credit line, undrawn at year-end 2022, and undrawn financing from the European Investment Bank and the syndicated loan. Additionally, the Group has the ability to access the capital markets through the euro medium-term note (EMTN) programme, which has a limit of € 6,000 million. At 2022 year end, € 1,957 million was available through this programme. Off-balance-sheet obligations and transactions The Group’s investment strategy currently focuses on two pillars, the refurbishment of core assets in the office and shopping centre segments, developing new logistics warehouses and the new data centre line of business. In this regard, as of December 31, 2022, the Group has firm purchase commitments for investment property amounting to €7 million, excluding committed investments in construction and improvements. Management Report – Statement of Non-Financial Information 2022 129 7.2.3 Green financing On 25th April 2022, the Group published its Green Financing Framework. This programme bring its financing strategy into line with its sustainability objectives. The Group therefore requested the conversion of its outstanding senior bonds into green bonds and is committed to linking its future financing to this programme. The Green Financing Framework is in line with the Green Bond Principles 2021 (GBP) and the Green Lending Principles 2021 (GLP) published respectively by the International Capital Markets Association (ICMA) and the Loan Market Association (LMA), and its four components are as follows: •Use of proceeds Allocate the use of the proceeds to a number of eligible project categories in accordance with the eligibility criteria set out in the Green Financing Framework. •Process for project evaluation and selection In line with the approach of integrating Corporate Social Responsibility (CSR), the MERLIN Working Group will oversee the allocation of the amounts and their CSR performance based on selecting projects under the criteria described above, the monitoring of the financing instruments issued under the Green Financing Framework and the management of future updates to the framework. The Working Group will consist of representatives from the Finance, Treasury, CSR and Investor Relations departments, and from other technical departments when necessary, and will meet at least on a monthly basis or as needed. The responsibilities of the Working Group will include: –Monitor the eligibility criteria in accordance with the eligible project categories during the lifetime of the transactions. –Manage any identified potential ESG risks associated with the eligible project categories: ◦Under the control of the Board of Directors and the Audit and Control Committee, MERLIN oversees the effectiveness, adequacy and integrity of the Group’s internal control and risk management systems. ESG risk management is part of the first line of defence in MERLIN’s risk management plan. ◦MERLIN has also established a certified Environmental Management System based on ISO 14001 and ISO 50001 standards. ◦Furthermore, as part of the Group’s vision and values, MERLIN is committed to long- term value creation in a context of transparency, ethics and responsibility in business and society. –In particular, when any eligible sustainable building leaves MERLIN’s portfolio or when the ESG Committee decides to remove an eligible sustainable building from the portfolio of eligible sustainable buildings, the ESG Committee will make every effort to replace these assets as soon as possible, once a suitable eligible sustainable building has been identified for replacement. •Management of proceeds MERLIN will allocate the equivalent amount of all the Group’s outstanding green financing to the eligible project categories set out above. Management Report – Statement of Non-Financial Information 2022 130 The Working Group will allocate any future financing by verifying on an annual basis the adequacy of the pre-selected eligible project categories with the total amount of funds obtained through green financing. In addition, the Working Group will establish a process in its Internal Reporting System to follow up on the use of the proceeds from the outstanding green financing. •Reporting MERLIN, in its commitment to transparency and sustainable engagement, will publish on an annual basis a report on the allocation of the proceeds and an impact report on the main indicators set out in the Green Financing Framework: –An audited report of the allocation of the proceeds detailing the different green financing or financial instruments and the amount allocated to each eligible project category divided up by each eligibility criteria. –A report that will include a quantitative and qualitative measurement of the main CSR indicators for the eligible project categories selected for allocation of the proceeds. Eligible project category Example of impact indicators Sustainable buildings –Breakdown of external certification by asset type (shopping centres, offices and logistics centers) –Average energy intensity of buildings included in the portfolio of eligible sustainable buildings (in kWh/sqm/year) by asset type (shopping centres, offices and logistics centers) –Average greenhouse gas emissions intensity of buildings included in the portfolio of sustainable eligible buildings (in tCO2eq/sqm) by asset type (shopping centres, offices and logistics centers) –CO2 emissions avoided by buildings included in the portfolio of sustainable eligible buildings (in tCO2eq/year) by asset type (shopping centers, offices and logistics centers) Renewable energy –Installed capacity (MW) –Expected renewable energy generation (MWh/year) –CO2 emissions avoided (in tCO2e/year) Energy efficiency –Expected energy savings (MWh/year) Clean transport –Number of electric chargers –CO2 emissions avoided (in tCO2e/year) Pollution prevention and control –Estimated CO2 emissions offset (in tCO2e/year) At year-end 2022, the eligible project category selected by the Group for allocation of the proceeds was Sustainable Buildings. The main indicators of the Sustainable Buildings portfolio by type of asset for the 2022 fiscal year are as follows: Management Report – Statement of Non-Financial Information 2022 131 Indicator62 Offices Shopping Centers Logistics Energy intensity (in kWh/sqm/year) 75.71 63.32 48.83 GHG Intensity (in tCO2eq/sqm) Market- based 0.002 0.003 0.000 Avoided CO2 emissions (in tCO2e/year) 6,646 3,811 75 In addition to the above, the Group has a corporate revolving credit facility in the amount of € 700 million, signed in April 2019, and a mortgage loan in the amount of € 70 million, signed in May 2019, which are labelled as sustainable financing and are linked to the fulfilment of at least three of the following KPIs: •Make sustainable investments in the portfolio •Obtain LEED/BREEAM asset certifications •Obtain AIS accessibility certifications •Ensure a certain amount of energy consumption is from renewable energy sources The Group has met the target set for 2022 in all four categories. Management Report – Statement of Non-Financial Information 2022 132 62 Information regarding assets under operational control within the Sustainable Buildings portfolio. In those business parks comprised of sustainable and non-sustainable buildings, for the purposes of the Green Financing Program, and a single supply point, total consumption has been considered. 8. About this Report 8.1 Basis of preparation of this report Reporting scope This report includes information on MERLIN Properties’ economic, social and environmental performance in 2022. Where relevant, information from previous years has also been included to show the evolution of the Group’s performance. Standards employed The statement of non-financial information was prepared in accordance with current company law and following the criteria of selected Sustainability Reporting Standards issued by the Global Reporting Initiative (GRI Standards), and other criteria described in accordance with each topic in the Table of Contents of the Statement of Non-Financial Information. Principles applied The GRI Standards Sustainability Report guidelines lay down a number of principles that have been taken into account when preparing the report, which are as follows: •Stakeholder inclusiveness. The 2022 Statement of Non-Financial Information has been prepared with stakeholder expectations and concerns regarding the Group’s operations and performance in mind. These expectations have been considered through the MERLIN Properties staff who are in contact with their stakeholders and relevant matters published in the media and included in questionnaires and sustainability ratings targeting investors, such as DJSI/CSA, EPRA or GRESB have also been analysed. •Sustainability context at MERLIN Properties. The way in which the Group’s activities and services interact with the social, economic and environmental context in which it operates has been evaluated. •Materiality. A materiality analysis has been conducted to define the most relevant sustainability aspects for MERLIN Properties. The process followed in this analysis is explained in the following pages. •Completeness. After identifying material aspects, the content of the Statement of Non- Financial Information has been designed to include sufficient information on these aspects to allow stakeholders to assess and understand MERLIN Properties’ economic, environmental and social performance in recent years. GRI principles for information processing and quality This Statement of Non-Financial Information has been drawn up following the GRI principles established to ensure the quality of the information: •Balance. This principle indicates that reports should reflect both positive and negative aspects of the Group’s performance. By applying this principle, a broad and unbiased picture of MERLIN Properties’ overall performance has been provided. Management Report – Statement of Non-Financial Information 2022 133 •Comparability. The Group has compiled and reported information so that stakeholders can analyse how its performance has evolved in recent years, thus facilitating comparison with the performance of other organisations. •Accuracy. The information contained in this Statement of Non-Financial Information is intended to include sufficient details to meet the expectations expressed by the Group’s stakeholders. •Timeliness. MERLIN Properties’ aims to update the content of this Statement of Non- Financial Information on an annual basis to provide stakeholders with regular access to information on the Group’s performance. •Clarity. MERLIN Properties seeks to report on its performance in a manner that is accessible and clear to all its stakeholders. •Reliability. MERLIN Properties has described in detail the process for preparing this Statement of Non-Financial Information, which guarantees that the content can be subject to external examination to establish the quality and degree of materiality of the information. Contact details If you require any clarification regarding the information contained in this Statement of Non- Financial Information or any aspect of the Group’s sustainability performance, please contact MERLIN Properties at the following address: info@merlinproperties.com Management Report – Statement of Non-Financial Information 2022 134 8.2 Information on MERLIN Properties’ sustainability performance Contents Response Aspect: Environment Scope of disclosure The scope of the assets on which information is provided regarding their energy consumption, GHG emissions, water consumption and waste is detailed in Appendix I of this report. GHG emissions per production unit The GHG emissions ratio in terms of surface area, for all operational assets for which MERLIN exercises operational control, is 0.026 tCO2e/ sqm, including scope 1, scope 2 and scope 3 emissions. Energy consumption per production unit The energy consumption ratio in terms of surface area, for all operational assets for which MERLIN exercises operational control, is 0.277 GJ/sqm. Number and amount of significant environmental fines No fines of an environmental nature were recognised during 2022. Policies regarding energy consumption, water consumption, GHG emissions and waste In accordance with its Sustainability Policy, MERLIN is committed to reducing the consumption of resources and improving the circularity of its assets throughout their life cycle through operational efficiency and minimising the carbon footprint of the entire value chain. Aspect: Society Complaints and quality assurance policy. For the purposes of understanding the expectations and needs of its stakeholders, and offering maximum transparency, MERLIN has implemented numerous communication channels, such as satisfaction questionnaires aimed at its tenants. Within the framework of these questionnaires, any potential complaints and claims that tenants may have are gathered, allowing their concerns and needs to be addressed. Customer data protection policy MERLIN has a Personal Data Protection Policy, which guarantees that personal data is processed respecting the principles established in the General Data Protection Regulation (GDPR) (lawfulness, fairness, transparency, purpose limitation, data minimisation, accuracy and limited storage periods). Donations to foundations and other types of donations The total amount donated to foundations by the Group was € 416 thousand. Percentage of female executives and middle managers The percentage of women in senior management is 11% (1 out of 9) and in middle management 33% (27 out of 82). Anti-bribery policy In 2021 MERLIN updated its Anti-Corruption, Bribery and Fraud Policy, which lays out the Group’s basic guiding principles for preventive actions and proactive steps in the fight against corruption, bribery and fraud in all areas of its business activities. Furthermore, the Group is certified under ISO 37,001 Anti Corruption and Bribery Lost time injury frequency rate (LTIFR) associated with employees The ratio of days lost in 2022 among MERLIN employees is 9 for men and 7 for women. Total recordable incident rate (TRIR) associated with employees The total recordable incident rate (TRIR) in 2022 among MERLIN employees is 1%. Number of suppliers The number of suppliers with orders in 2022 was 184. Number of suppliers audited and audits carried out Suppliers with orders are analysed in terms of compliance and finance, which includes being up to date with the tax and social security authorities, and the financial solvency of the supplier. In addition, if the tender is for more than € 1 million, the supplier’s execution capacity and the Group’s degree of exposure are analysed. In 2022, there were a total of 573 orders (OpEx and CapEx) and 184 suppliers. The audit described above is carried out for each order. Percentage of suppliers audited 100% of MERLIN’s suppliers are audited. Management Report – Statement of Non-Financial Information 2022 135 Percentage of assets with public transport connection63 The percentage of assets with a public transport connection nearby is 97%. Aspect: Governance Years with the auditor MERLIN’s consolidated financial statements have been audited by the same financial auditor for the last 9 years (since the audit corresponding to 2014). Number of directors and independent directors on the Audit and Control Committee The Audit and Control Committee is composed of 6 directors, 4 of whom are independent. Number of executive and non-executive directors The Board of Directors is composed of 2 executive directors and 11 non- executive directors (7 independent and 4 proprietary directors). Number of directors and independent directors on the Remuneration and Appointments Committee The Remuneration and Appointment Committee is composed of 6 directors, 5 of whom are independent. Number of directors and independent directors on the Sustainability and Innovation Committee The Sustainability and Innovation Committee is composed of 4 directors, 3 of whom are independent. Number of female executives The management team is composed of one woman and 8 men (for a total of 9). Number of female directors The Board of Directors is composed of 5 women and 8 men (for a total of 13 members). Number of Board meetings and percentage of attendance MERLIN’s Board of Directors met 13 times with 97.63% attendance. Number of Audit and Control Committee meetings and percentage of attendance The Audit and Control Committee met 14 times with 95.71% attendance. Number of Remuneration and Appointments Committee meetings and percentage of attendance The Remuneration Committee met 11 times (11 as ARC and 2 as AC and RC separately) with 100% attendance. Number of Sustainability and Innovation Committee meetings and percentage of attendance The Sustainability Committee met 9 times with 100% attendance. Share ownership MERLIN has guidelines for its executives regarding the minimum requirements for holding the Group’s shares on an ongoing basis. Content considered non-material for the Group Emission of particles, SO2 and NOx The main fuel consumed by MERLIN is natural gas, a gas that barely emits SO2 and particles in its combustion. The possible emissions of this type of pollutant are due to the consumption of diesel, a fuel that is hardly used by MERLIN. In addition, NOx emissions are also considered as barely representative, given that the water heaters that use these types of fuels are of a residential type. Percentage of raw material from sustainable sources The amount of materials acquired by MERLIN is low, given that the refurbishment processes of the assets are carried out by subcontracted companies. Policy against child labor Due to the location of MERLIN’s assets (Spain and Portugal) and the type of activities carried out by the Group, it is considered that there are no risks concerning child labour. In 2022, MERLIN's Board of Directors has approved a Respect for Human Rights Policy that expressly rejects the exploitation of children. This policy will be translated into the supply chain. Supply chain management at a societal level In 2022, MERLIN has modified the Procurement Procedure to require in all tenders over 150 thousand euros the response, by suppliers, to an ESG questionnaire with environmental, social and governance issues. In 2022, these questionnaires were obtained for 72% of the CAPEX at 12/31/22 and Internal Audit audited 78% of the questionnaires received (55% of the Capex at 12/31/22; €126 M). Management Report – Statement of Non-Financial Information 2022 136 63 Percentage obtained in terms of surface area, taking into account those assets that are located at least 500 metres from a public transport or station. Includes only those assets from the offices and shopping centres portfolios in operation. 8.3 Table of contents of Law 11/2018 Information required by Spanish Law 11/2018 Page or section of the report providing the response to the requirement of Law 11/2018 Reporting criteria: GRI General information A brief description of the business model including its business environment, organisation and structure 1.1. Business model Pag. 9-11 2.1The Market (sector) Pag. 22-23 GRI 2-1 GRI 2-6 GRI 2-22 Markets in which it operates 1.4 Business activities Pag. 12-19 Objectives and strategies of the organisation 1.5 Main milestones and objectives Pag. 19-21 Main factors and trends that may affect its future progress 2.2 Outlook Pag. 23 Reporting framework used 8.1. About this report Pag. 132-133 GRI 1 – Requirement 8 Principle of materiality 2.6 Materiality analysis Pag. 29-31 GRI 3-1 GRI 3-2 Environmental issues Management approach: description and results of the policies related to these matters and the main risks related to these matters linked to the Group’s activities 4. Climate change management Pag. 55-81 GRI 3-3 General detailed information Detailed information on the current and foreseeable effects of the Company’s activities on the environment and, if applicable, on health and safety 4. Climate change management Pag. 55-81 GRI 3-3 Environmental assessment and certification procedures 4.6 Carbon footprint certification 4.7 Validation of MERLIN’s commitments by independent third parties Pag. 76-79 GRI 3-3 Resources allocated to the prevention of environmental risks 4.2 Environmental and Climate Change Systems Pag. 58-59 GRI 3-3 Management Report – Statement of Non-Financial Information 2022 137 Information required by Spanish Law 11/2018 Page or section of the report providing the response to the requirement of Law 11/2018 Reporting criteria: GRI Application of the precautionary principle 4.2 Environmental and Climate Change Systems Pag. 58-59 GRI 2-23 GRI 3-3 Amount of provisions and guarantees for environmental risks 4.2 Environmental and Climate Change Systems Pag. 58-59 GRI 3-3 Pollution Measures to prevent, reduce or redress carbon emissions that seriously affect the environment, taking into account any type of activity-specific atmospheric pollutants including noise and light pollution. 4.5 Decarbonisation of MERLIN Properties’ portfolio Pag. 69-76 GRI 3-3 Circular economy and waste prevention and management Measures for the prevention, recycling, reuse and other forms of recovering and eliminating waste. 4.4 Environmental performance of MERLIN Properties’ portfolio Pag. 62-68 GRI 3-3 GRI 306-1 (2020) GRI 306-2 (2020) GRI 306-3 (2020) GRI 306-4 (2020) GRI 306-5 (2020) Actions taken to combat food waste 4.4 Environmental performance of MERLIN Properties’ portfolio Pag. 68 GRI 3-3 Sustainable use of resources Water consumption and supply in accordance with local limitations 4.4 Environmental performance of MERLIN Properties’ portfolio Pag. 66 GRI 303-3 (2018) as regards the origin of water consumed GRI 303-5 (2018) Consumption of raw materials and measures taken to use them more efficiently - Non-material Direct and indirect energy consumption 4.4 Environmental performance of MERLIN Properties’ portfolio Pag. 63-66 GRI 302-1 Measures taken to improve energy efficiency 4.3 Development and operation of sustainable assets Pag. 60-61 GRI 3-3 Management Report – Statement of Non-Financial Information 2022 138 Information required by Spanish Law 11/2018 Page or section of the report providing the response to the requirement of Law 11/2018 Reporting criteria: GRI Use of renewable energies 2.5 MERLIN’s sustainability management Pag. 26-29 GRI 302-1 Climate change Greenhouse gas emissions generated as a result of the Company’s activities, including use of the goods produced and services provided 4.5. Decarbonisation of MERLIN Properties portfolio Pag.69-76 GRI 3-3 GRI 305-1 GRI 305-2 Measures adopted to adapt to the consequences of climate change Appendix IV. Report climate risks according to TCFD methodology Pag. 194-202 GRI 3-3 Medium- and long-term targets voluntarily established to reduce greenhouse gas emissions and the means implemented for this purpose 2.5 MERLIN’s sustainability management Pag. 26-29 GRI 3-3 GRI 305-5 Protection of biodiversity Measures taken to preserve or restore biodiversity 4.9 Protection of biodiversity Pag. 80-81 GRI 3-3 Impacts caused by activities or operations in protected areas 4.9 Protection of biodiversity Pag. 80-81 GRI 3-3 Social and personnel matters Management approach: description and results of the policies related to these matters and the main risks related to these matters linked to the Group’s activities 5. Talent creation Pag. 82-99 GRI 3-3 Employment Total number of employees and breakdown by country, gender, age and professional classification 5.1.1 Composition of the workforce Pag. 85-87 GRI 2-7 GRI 405-1 Total number of employees and breakdown by type of employment contract and annual average number of permanent, temporary and part-time contracts by gender, age and professional classification 5.1.1 Composition of the workforce Pag. 85-87 5.1.2 Average contracts Pag. 87 GRI 2-7 GRI 405-1 Management Report – Statement of Non-Financial Information 2022 139 Information required by Spanish Law 11/2018 Page or section of the report providing the response to the requirement of Law 11/2018 Reporting criteria: GRI Number of dismissals by gender, age and professional classification 5.1.3 Number of dismissals Pag. 88 GRI 3-3 GRI 401-1 Average remuneration and changes in salaries broken down by gender, age and professional classification or equal value 5.2 Employee compensation Pag. 89-91 GRI 3-3 GRI 2-21 Wage gap, remuneration for the Company’s equal or average job positions 5.2.1 Wage gap analysis Pag.89-90 GRI 3-3 GRI 405-2 Average remuneration for directors and executives, including variable remuneration, attendance fees, termination benefits, long-term savings/pension plans and any other compensation, broken down by gender 5.2.2 Remuneration of non-executive directors Pag. 91 5.2.1 Wage gap analysis Pag. 89-90 GRI 3-3 GRI 2-19 GRI 2-21 Implementation of work disconnection policies 5.1.4 Implementation of work disconnection policies Pag. 89 GRI 3-3 Number of employees with disabilities 5.5.5 Employees with disabilities Pag. 96 GRI 3-3 GRI 405-1 Organisation of work Organisation of working hours 5.3.1 Organisation of work Pag. 91 GRI 3-3 Number of hours of absenteeism 5.3.2 Total hours of absenteeism Pag. 91-92 GRI 3-3 GRI 403-9 (2018) Measures designed to facilitate work-life balance and promote the sharing of responsibility by both parents 5.3.3 Measures designed to facilitate work-life balance and promote the sharing of responsibility by both parents Pag. 92-93 GRI 3-3 Health and safety Management Report – Statement of Non-Financial Information 2022 140 Information required by Spanish Law 11/2018 Page or section of the report providing the response to the requirement of Law 11/2018 Reporting criteria: GRI Occupational health and safety conditions 5.4 Safety, health and well-being of employees Pag. 93-94 GRI 403-1 (2018) GRI 403-2 (2018) GRI 403-3 (2018) GRI 403-4 (2018) GRI 403-5 (2018) GRI 403-6 (2018) GRI 403-8 (2018) Occupational accidents, in particular their frequency and seriousness, and work-related illness, broken down by gender 5.4 Safety, health and well-being of employees Pag. 93-94 GRI 403-9 (2018) GRI 403-10 (2018) as regards occupational accidents, in particular their frequency and seriousness, and work-related illness Labour relations Organisation of social dialogue, including procedures for informing, consulting and negotiating with staff 5.5.1 Organisation of social dialogue Pag. 95 GRI 3-3 Percentage of employees covered by collective bargaining agreements by country 5.5.2 Employees subject to collective bargaining agreements Pag. 95 GRI 2-30 Balance of collective bargaining agreements, particularly as regards occupational health and safety 5.5.3 Balance of collective bargaining agreements, particularly as regards occupational health and safety Pag. 95 GRI 3-3 GRI 403-4 (2018) Mechanisms and procedures that the Company has in place to promote the involvement of employees in the Company’s management, in terms of information, consultation and participation 5.5.4 Mechanisms and procedures that the Company has in place to promote the involvement of employees in the Group company’s management, in terms of information, consultation and participation Pag. 95-96 GRI 3-3 Training Management Report – Statement of Non-Financial Information 2022 141 Information required by Spanish Law 11/2018 Page or section of the report providing the response to the requirement of Law 11/2018 Reporting criteria: GRI Policies implemented in the area of training 5.6 Diversity and equal opportunities Pag. 97-99 GRI 3-3 Total number of training hours by professional category 5.6 Diversity and equal opportunities Pag. 97-99 GRI 404-1 Universal accessibility Universal accessibility for people with disabilities 6.3 Maximising the well- being of users of the assets Pag. 105-110 GRI 3-3 Equality Measures taken to foster equal treatment and opportunities for men and women 5.6 Diversity and equal opportunities Pag. 97-99 GRI 3-3 Equality plans, measures taken to promote employment, protocols against sexual harassment and gender-based harassment 5.6 Diversity and equal opportunities Pag. 97-99 GRI 3-3 Non-discrimination and diversity management policies 5.6 Diversity and equal opportunities Pag. 97-99 GRI 3-3 Respect for human rights Management approach: description and results of the policies related to these matters and the main risks related to these matters linked to the Group’s activities 3.3 Ethics and compliance Pag. 50-54 GRI 3-3 Application of due diligence procedures regarding human rights and preventing the risk of human rights violations and, if applicable, measures to mitigate, manage and repair possible abuses 3.3 Ethics and compliance Pag. 53-54 GRI 2-23 GRI 2-26 GRI 412-2 Complaints of human rights violations 3.3 Ethics and compliance Pag. 54 GRI 406-1 Management Report – Statement of Non-Financial Information 2022 142 Measures implemented to promote and comply with the provisions contained in the ILO’s fundamental conventions regarding freedom of association, the right to collective bargaining, the elimination of workplace discrimination and of all forms of forced or compulsory labour and the abolition of child labour 3.3 Ethics and compliance Pag. 53-54 GRI 3-3 GRI 406-1 GRI 407-1 GRI 408-1 GRI 409-1 Fight against corruption and bribery Management approach: description and results of the policies related to these matters and the main risks related to these matters linked to the Group’s activities 3. Responsible management Pag. 32-54 GRI 3-3 Measures taken to prevent corruption and bribery 3.3 Ethics and compliance Pag. 52-53 GRI 2-23 GRI 2-26 GRI 205-2 Anti-money laundering measures 3.3 Ethics and compliance Pag. 52 GRI 205-2 Contributions to foundations and non-profit entities 6.4.2 and 6.4.3 Pag. 113-117 GRI 413-1 Society matters Management approach: description and results of the policies related to these matters and the main risks related to these matters linked to the Group’s activities 6. Management of stakeholders Pag. 100-118 GRI 3-3 Commitment to sustainable development Impact of the Company’s activities on employment and local development 6.4.1 Generating positive impacts on the environment 6.4.2 Social initiatives Pag. 111-116 GRI 203-1 Impact of the Company’s activities on local communities and on the land 6.4.1 Improving cities Pag. 111-113 GRI 3-3 GRI 413-1 Engagement with local community representatives, and communication channels in place 6.4.1 Improving cities Pag. 111-113 GRI 2-29 GRI 413-1 Association or sponsorship activities 6.4.3 Measuring the distribution of contributions to the MERLIN community Pag. 116-118 GRI 2-28 Subcontracting and suppliers Management Report – Statement of Non-Financial Information 2022 143 Inclusion of social, gender equality and environmental matters in the procurement policy 3.1 Governance Structure Pag. 34 GRI 3-3 Consideration of social and environmental responsibility in relationships with suppliers and subcontractors 6.2 Supply chain Pag. 104-105 GRI 2-6 GRI 308-2 GRI 414-1 Monitoring and audit systems and results 6.2 Supply chain Pag. 104-105 GRI 3-3 Consumers Measures for the health and safety of consumers 6.3 Maximising the well- being of users of the assets Pag. 105-110 GRI 3-3 GRI 416-1 Consumer claims, complaints and grievance systems 6.3 Maximising the well- being of users of the assets Pag. 105-110 GRI 3-3 Tax information Profits earned on a country-by-country basis 7.1.2 Profits earned on a country-by-country basis and income tax paid Pag. 121-122 GRI 207-4 (2019) Income tax paid 7.1.2 Profits earned on a country-by-country basis and income tax paid Pag. 121-122 GRI 207-4 (2019) Government grants received 7.1.3 Grants Pag. 126 GRI 207-4 (2019) Management Report – Statement of Non-Financial Information 2022 144 a.GRI Content Index Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 2-1 1.1 Page 9-11 2-1.d Spain and Portugal MERLIN Properties is included in the main benchmark indices: -IBEX 35. -Euro STOXX 600. -FTSE EPRA/ NAREIT Global Real Estate Index. -GPR Global Index. -GPR-250 Index. -MSCI Small Caps. - Dow Jones Sustainability Index Europe. Organisational details 2-2 8.1 Pag. 132-133 Appendix III – Pag. 185-192 The organisation’s financial statements include MERLIN Properties and all its subsidiaries. Further information can be found in the financial statements included in the directors’ report. The directors’ report is available at www.merlinproperties.com Entities included in the organisation’s sustainability report 2-3 8.1 Pag. 132-133 2-3.a 2022-2021. MERLIN Properties prepares the report on an annual basis Reporting period, frequency and contact point 2-4 During 2022, MERLIN has updated the criteria for calculating its GHG emissions, based on the operational control and share of assets established in the GHG Protocol, taking as a criterion the market-based method, according to which the emission factor data derived from electricity consumption must be obtained from the marketers from whom the electricity has been purchased. Previously, the Group calculated the emission factor from the electricity mix for the countries of Spain and Portugal (location-based method). In view of the above, the data for the two previous years have been recalculated to facilitate year-to-year comparability. Pag. 58 Restatement of information Management Report – Statement of Non-Financial Information 2022 145 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 2-5 The indicators included in the Independent Review Report have been externally verified by Deloitte S.L. in the report is included in Annex VII. Pag.214 External assurance 2-6 1.4 Pag. 12-19 6.2 Pag. 104-105 2-6.b The Group’s supply chain mainly comprises project contractors and other service providers in the operation of the buildings Activities, value chain and other business relationships 2-7 5.1.1 and 5.1.2 Pag. 85-87 Employees 2-9 Gov-Board 3.1 Pag. 33-40 Governance structure and composition 2-10 Gov-Selec Pág. 39 The processes for appointing and selecting members of the highest governing body and its committees are described in the Annual Corporate Governance Report (ACGR) and are established in the Group’s Director Selection Policy Appointing and selecting members of the highest governance body 2-11 3.1 Pag. 39 Chair of the highest governance body 2-12 3.1 Pag. 33-40 3.2 Pag. 40-50 Role of the highest governance body in monitoring impact management 2-14 Board of Directors. MERLIN's Board of Directors, composed of a majority of independent directors, focuses its activity on defining, supervising and monitoring the policies, strategies and general guidelines to be followed by the Group. Role of the highest governance body in sustainability reporting Management Report – Statement of Non-Financial Information 2022 146 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 2-15 Gov-Col Section 28 of the Board Regulations sets out the mechanisms established to prevent and manage potential conflicts of interest Conflicts of interest 2-16 This information is available in the Annual Corporate Governance Report Communicating critical concerns 2-17 Pag. 39 Collective knowledge of the highest governance body 2-18 Pag. 40 Assessment of the highest governance body’s performance 2-20 5.2. Pag. 89-91 2-20. a. ii Through the General Meeting Process for determining remuneration 2-21 5.2. Pag. 89-91 Total annual compensation ratio 2-22 2.5 Pag. 26-29 Statement on the sustainable development strategy 2-23 3.1 Pag. 33-40 Policy commitments 2-26 Board members may seek external advice. These mechanisms are explained in the Group's IAGC 2022. Mechanisms for seeking advice and raising concerns Management Report – Statement of Non-Financial Information 2022 147 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 2-28 –Spanish Association of Offices (€1,210) –Spanish Association of Shopping Centres (€5,238) –European Public Real Estate Association (EPRA) (€10,000) Confederación Española de Organizaciones Empresariales (CEOE) (12,000 €) – Association of Real Estate Companies with Rental Assets (ASIPA) (15,000 €) –GRI Club (€4,700 ) –Associação Portuguesa de Promotores e Investidores Imobiliários (€1,257) –Madrid Futuro Association (€12,500) Barcelona Global Association (€10,000) •Shout Spanish Entrepreneurs Association (€4,000) •Spanish Global Compact Network (€3,917) •Spanish Association for Investor Relations (AERI) (€3,600) •Companies for Sustainable Mobility (€3,500) •Association for the Progress of Management (€1,854) •Institute of Internal Auditors (€1,800) •Association for the Promotion of the Port of Seville (€1,200) •Barcelona Catalunya Centre Logístic (€950) •Associação Portuguesa de Logística (€650) •SAP Users Association Spain (€750) Total 2022 – 94,125€ List of membership of associations Management Report – Statement of Non-Financial Information 2022 148 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 2-29 6.1 Pag.100-104 Approach to stakeholder engagement 2-30 5.5.2 y 5.5.3 Pag. 95 94% of the Group’s employees are covered by collective bargaining agreements Collective bargaining agreements 3-1 2.6 Pag. 29-31 Process for determining material issues 3-2 2.6 Pag. 29-31 List of material aspects Management Report – Statement of Non-Financial Information 2022 149 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 3 2.6 Pag. 29-31 Management approach 3-1 2.6 Pag. 29-31 Material issue determination process 3-2 2.6 Pag. 29-31 List of material issues 3-3 4, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.8, 2.5, 5, 5.1.3, 5.2, 5.2.1, 5.2.2, 5.1.4, 5.5.5, 5.3.1, 5.3.2, 5.3.3, 5.5.1, 5.5.3, 5.5.4, 5.6, 6.3, 3.3, 3, 6, 6.4.2, 6.2, 6.3 Management of material issues 201-1 6.4.3 Pag. 116-118 MERLIN has measured its contribution to society through the LBG model after joining the London Benchmarking Group (LBG) in Spain. Direct economic value generated and distributed 201-3 MERLIN Properties does not have a pension plan, so this does not apply to the Group Defined benefit plan obligations and other retirement plans 201-4 Pag. 126 MERLIN Properties has not received significant financial support from government bodies Financial assistance received from government Indirect economic impacts 3 6.4. Pag. 110-118 Management approach Management Report – Statement of Non-Financial Information 2022 150 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 203-1 Construction of an entrance and exit to the A-1 and M11 from Torre Chamartín at a cost of €2.5M. Infrastructure investments and services supported 203-2 6.4.2 Pag. 113-116 Significant indirect economic impacts Taxation 207-1 7.1 Pag. 120-127 Approach to tax 207-2 7.1.1 Pag. 120 Tax governance, control and risk management 20-3 7.1.3 CTT Pag. 122-127 Stakeholder engagement and management of concerns related to tax 207-4 7.1.2. Pag. 121-122 Country-by-country reporting ENVIRONMENTAL PERFORMANCE Energy 3 3.3. Pag. 55-81 Management approach 302-1 Elec-Abs Elec-LfL DH&C-Abs DH&C-LfL Fuels-Abs Fuels-LfL 4.4. Pag. 62-68 Energy consumption within the organisation 302-2 Elec-Abs Elec-LfL DH&C-Abs DH&C-LfL Fuels-Abs Fuels-LfL 4.4. Pag. 62-68 Energy consumption outside of the organisation Management Report – Statement of Non-Financial Information 2022 151 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 302-3 4.4. Pag. 63-66 Energy intensity G4-CRE1 Energy-Int 4.4. Pag. 63-66 Energy intensity of buildings Water 3 4.4. Pag. 66 Management approach 303-1 4.4. Pag. 66 Interactions with water as a shared resource 303-2 4.4. Pag. 66 & 168-172. Water from the assets is discharged to the municipal sanitation system, and is treated as domestic water discharge Management of water discharge-related impacts 303-3 Water-Abs Water-LfL 4.4. Pag. 66 & 168-172 Water is mainly withdrawn through the municipal water supply. In addition, there is a tank that collects rainwater at the Marineda shopping centre Water withdrawal G4-CRE2 Water-Int 4.4. Pag. 66 Water consumption intensity of buildings Emissions 3 4.5 Pag. 69-76 Management approach 305-1 GHG-Dir-Abs GHG-Dir-LfL 4.5 Pag. 70-74 Direct GHG emissions (scope 1) 305-2 GHG-Indir-Abs GHG-Indir-LfL 4.5 Pag. 70-74 Indirect GHG emissions (scope 2) 305-3 GHG-Indir-Abs GHG-Indir-LfL 4.5 Pag. 75-76 Indirect GHG emissions (scope 3) 305-4 GHG-Int 4.5 Pag. 76 GHG emissions intensity G4-CRE3 GHG-Int 4.5 Pag. 76 GHG emissions intensity of buildings Management Report – Statement of Non-Financial Information 2022 152 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description Effluents and waste 3 4. Pag 55-81 Management approach 306-3 Waste-Abs Waste-LfL Pag. 67-68 Waste by type and disposal method Environmental compliance 3 4. Pag 55-81 Management approach 307-164 MERLIN Properties has not received any fines or sanctions. Non-compliance with environmental laws and regulations SOCIAL PERFORMANCE - LABOUR PRACTICES AND DECENT WORK Employment 3 Management approach 401-1 Emp-Turnover Rotation 5.1.3 Pag. 88 Employees hires Pag. 97-98 5.6 Pag. 97-99 New employee hires and employee turnover 401-2 5.2 Pag. 89-91. 100% of employees have access to social benefits Benefits provided to full-time employees that are not provided to temporary or part- time employees 401-3 Pag. 92 In 2022, 8 men and 5 women Parental leave Occupational health and safety 3 5.4 Pag. 93-94 Management approach 403-1 5.4 Pag. 93-94 Occupational health and safety management system 403-2 Pag. 93 MERLIN has an external Occupational Risk Prevention service that annually inspects the offices from which employees work to assess risks. Hazard identification, risk assessment and incident investigation Management Report – Statement of Non-Financial Information 2022 153 64 Fines or firm sanctions (in contentious terms) considered significant (over €50,000) arising from sanctions and non- compliance (excluding administrative and fiscal) for which there is no possibility of appeal and that are directly attributable to conduct or acts carried out by companies or employees of the Corporation before 31 December 2021. Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 403-3 Pag. 93 MERLIN has an external Occupational Risk Prevention service that annually inspects the offices from which employees work to assess the risks and the adequacy of the facilities in terms of safety and occupational risk prevention. Occupational health services 403-4 Health and safety committees have not yet been formed Worker participation, consultation, and communication on occupational health and safety 403-5 Pag. 93 As part of the Welcome Pack, all employees are trained (on a mandatory basis) in Occupational Risk Prevention, through which information is provided on the risks of their jobs and the main mitigating measures. Worker training on occupational health and safety 403-6 5.4. Employee safety, health and welfare Pag. 93-94 Promotion of worker health 403-7 5.4. Employee safety, health and welfare Pag. 93-94 Prevention and mitigation of occupational health and safety impacts directly linked by business relationships 403-9 H&S-Emp Additionally, MERLIN also ensures the health and safety of contractors who work on its refurbishment or construction projects. Work-related injuries Management Report – Statement of Non-Financial Information 2022 154 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description During 2020, the Group implemented a reporting system that collects information on occupational accidents recorded at the assets, including the type of accident, the number of days of sick leave caused, and the corrective measures to be taken. G4-CRE6 Not applicable. Percentage of the organisation operating in verified compliance with an internationally recognised health and safety management system Training and education 3 5. Talent creation Management approach 404-1 Emp-Training 5.6 Diversity and equal opportunity Pag. 97-99 Average hours of training per year per employee 404-2 5.6 Diversity and equal opportunity Pag. 97-99 Programmes to improve employee skills and transition assistance programmes 404-3 Emp-Dev 100% of employees receive performance assessments once a year Percentage of employees receiving regular performance and career development reviews Diversity and equal opportunities Management Report – Statement of Non-Financial Information 2022 155 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 3 5.6 Diversity and equal opportunity Management approach 405-1 Diversity-Emp 5.6 Diversity and equal opportunity Pag. 97-99 Diversity of governing bodies and employees SOCIAL PERFORMANCE - SOCIETY Local communities 3 6.4. Development and relationship with the environment Management approach 413-1 Comty-Eng 6.4.2. Social initiatives Pag. 113-116 In all assets, dialogue and participation mechanisms have been developed, as described in the management approach Operations with local community engagement, impact assessments, and development programmes 413-2 Not applicable Operations with significant actual and potential negative impacts on local communities G4-CRE7 No one has had to be displaced or resettled Number of people voluntarily and involuntarily displaced and/or resettled by the Group’s activities, broken down by project Anti-corruption 3 3.Responsible management Management approach 205-1 3.3 Ethics and compliance Pag. 50-54 Risks in general, including corruption, are assessed through the Group’s Risk Management System. Operations assessed for risks related to corruption Management Report – Statement of Non-Financial Information 2022 156 Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description 205-2 3.3 Ethics and compliance Pag. 50-54 Communication and training about anti- corruption policies and procedures 205-3 Pag 51. No cases of corruption have been detected Confirmed incidents of corruption and actions taken Anti-competitive behaviour 3 3. Responsible Management Management approach 206-1 MERLIN Properties has not received any lawsuits for anti- competitive behaviour Legal actions for anti- competitive behaviour, anti-trust, and monopoly practices Socioeconomic compliance 3 3. Responsible Management Management approach 419-165 MERLIN Properties has not received any fines or sanctions. Non-compliance with laws and regulations in the social and economic area SOCIAL PERFORMANCE - RESPONSIBILITY OVER PRODUCTS Customer health and safety 3 5.4. Employee safety, health and wellbeing Pag. 93-94 Management approach 416-1 MERLIN assesses the potential health and safety impacts of all its assets on their occupants (tenants and users). Assessment of the health and safety impacts of product and service categories 416-2 H&S-Comp No incident of non- compliance with health and safety regulations has been detected Incidents of non- compliance concerning the health and safety impacts of product and service Management Report – Statement of Non-Financial Information 2022 157 65 Fines or firm sanctions (in contentious terms) considered significant (over EUR 50,000) arising from sanctions and non-compliance (excluding administrative and fiscal) for which there is no possibility of appeal and that are directly attributable to conduct or acts carried out by companies or employees of the Corporation before 31 December 2022. Information on management approach and indicators EPRA Sustainability Performance Measures Page or direct answer Omissions Description Product and service labelling 3 - Management approach 417-2 Not applicable Incidents of non- compliance concerning product and service information and labelling G4-CRE8 Cert-Tot 4.7. Validation of MERLIN's commitments by independent third parties Pag. 77-79 Type and number of sustainability certification, rating and labelling schemes for new developments, management, occupation and refurbishment Customer privacy 3 3.3 Ethics and compliance Management approach 418-1 MERLIN Properties has not received any claims for breach of customer privacy or leak of customer data Substantiated complaints concerning breaches of customer privacy and losses of customer data Management Report – Statement of Non-Financial Information 2022 158 b. EPRA sBPR Content Index EPRA Code GRI Standard Description Page and/or direct answer ENVIRONMENTAL PERFORMANCE INDICATORS Elec-Abs 302-1 Total electricity consumption 164 Elec-LfL 302-1 Like-for-like total electricity consumption 164 DH&C-Abs 302-1 Total district heating & cooling consumption 164 DH&C-LfL 302-1 Like-for-like district heating & cooling consumption 164 Fuels-Abs 302-1 Total fuel consumption 164 Fuels-LfL 302-1 Like-for-like fuel consumption 164 Energy-Int CRE1 Energy intensity of buildings 164 GHG-Dir-Abs 305-1 Direct greenhouse gas (GHG) emissions 167 GHG-Indir-Abs 305-2 Indirect greenhouse gas (GHG) emissions 167 GHG-Int CRE3 Greenhouse gas (GHG) emissions intensity from energy consumption of buildings 167 Water-Abs 303-1 Total water consumption 170 Water-LfL 303-1 Like-for-like water consumption 170 Water-Int CRE2 Water consumption intensity of buildings 170 Waste-Abs 306-3 Total weight of waste by disposal method 174 Waste-LfL 306-3 Like-for-like weight of waste by disposal method 174 Cert-Tot CRE8 Type and number of sustainably certified assets 178 SOCIAL PERFORMANCE INDICATORS Diversity-Emp 405-1 Employee gender diversity 85 Diversity-Pay 405-2 Ratio of basic salary and remuneration of women to men 90 Emp-Training 404-1 Average hours of training per year per employee 98 EPRA Code GRI Standard Description Page and/or direct answer Emp-Dev 404-3 Percentage of employees receiving regular performance and career development reviews MERLIN Properties’ employees receive continuous feedback from their managers and have direct and constructive communication that helps them progress in their professional development. In addition, 100% of employees are evaluated each year by area managers and senior management. The results of this evaluation determine the distribution of variable remuneration. Emp-Turnover 401-1 New employee hires and employee turnover 98 In 2022, there were a total of 22 departures. The voluntary turnover rate in 2022 was 8%. H&S-Emp 403-2 Employee health and safety 93-94 Management Report – Statement of Non-Financial Information 2022 159 H&S-Asset 416-1 Assessment of the health and safety of the assets 93-94 MERLIN assesses the potential health and safety impacts of all its assets on their occupants (tenants and visitors). H&S-Comp 416-2 Compliance with health and safety regulations concerning the assets No incident of non-compliance with health and safety regulations has been detected Comty-Eng 413-1 Community engagement, impact assessments and development programmes 114-117 In all assets, dialogue and participation mechanisms have been developed, as described in the management approach GOVERNANCE PERFORMANCE INDICATORS Gov-Board 2-9 Governance structure and composition 32-40 More information on this indicator can be found in the Annual Corporate Governance Report (ACGR). Gov-Selec 2-10 Appointing and selecting members of the highest governance body The processes for appointing and selecting members of the highest governing body and its committees are described in the Annual Corporate Governance Report (ACGR) and are established in the Director Selection Policy Gov-CoI 2-15 Management of conflicts of interest Section 28 of the Board Regulations sets out the mechanisms established to prevent and manage potential conflicts of interest Management Report – Statement of Non-Financial Information 2022 160 Appendix I. Environmental performance reporting in accordance with the EPRA Sustainability Best Practices Recommendations (SBPR) MERLIN’s environmental performance report on its assets was prepared in accordance with the EPRA Sustainability Best Practice Recommendations (3rd edition, 2017). In line with these recommendations, the following tables include the environmental KPIs of MERLIN’s assets, as established by the EPRA in these Guidelines66. The tables reflect the environmental performance of the assets in terms of energy consumption, greenhouse gas (GHG) emissions, water withdrawal and waste generation, and the percentage of assets with environmental certification. Key concepts In accordance with the recommendations of the EPRA sBPR Guidelines, only assets in operation in 2022 are included in the reporting scope for the calculation of MERLIN’s environmental performance information. In particular, and in view of their strategic importance to the Group’s overall assets, environmental performance information is included for the offices, logistics and shopping centre assets, in that order, based on the surface area in each portfolio, and the calculation excludes any asset in which it holds a non-controlling interest67. In addition, information on the environmental performance of its own offices, and properties leased by the Group for the LOOM space, is reported separately. Based on the EPRA sBPR Guidelines, MERLIN also reports on a series of environmental indicators or KPIs (integrated in the EPRA Sustainability Performance Measures). These KPIs cover information on energy consumption, GHG emissions, water withdrawal and waste generation68. There are two different types of KPIs: total or absolute KPIs and like-for-like KPIs. Absolute KPIs are calculated in terms of the total asset portfolio, while like-for-like KPIs are calculated considering only assets that have been in continuous operation for the last three years. In addition, some of the KPIs are calculated in terms of energy consumption intensity, GHG emissions and water consumption. These KPIs are calculated as a ratio or quotient between the absolute value or like-for-like value of GHG consumption or emissions and the surface area over which GHG consumption or emissions are reported. Information on the coverage of each KPI is also included throughout the environmental report. Coverage is defined as the proportion of assets for which there is information available to calculate each KPI, expressed in this Statement of Non-Financial Information in terms of both the number of assets and surface area of the assets. For more accurate performance management of its assets in terms of energy consumption efficiency, water withdrawal and carbon footprint, MERLIN separates the data for these KPIs by type of property involved: Management Report – Statement of Non-Financial Information 2022 161 66 EPRA Sustainability Performance Measures. 67 The scope excludes the Barcelona ZAL Port assets, as they constitute a non-controlling interest. 68 The full definition of these KPIs can be found in more detail in chapter 9.4 of report titled “EPRA sBPR Table of Contents”. •Assets over which the Group exercises operational control. These are generally multi-tenant assets where the Group continuously assesses their environmental impact to take the relevant steps to monitor and reduce environmental impacts. •Assets over which the Group does not exercise operational control. For these single-tenant assets, MERLIN’s name is on the power and water utility contracts, so it is able to collect the data to record the environmental performance of these assets. However, consumption tracking is handled by the lessee. •MERLIN’S corporate headquarters and LOOM spaces leased by the Group (only information on energy consumption and GHG emissions is available for these properties). Regarding the KPIs related to the amount of waste generated, MERLIN collects waste from the assets included in its ISO 14001 Corporate Environmental Management System (except in those cases where this is handled by the owners’ associations), and from other assets that are not included in the Environmental Management System. MERLIN therefore reports on these KPIs for all of the assets where it is responsible for waste management. In general terms, the KPIs are calculated using the information on the utility invoices issued by power, water and waste collection service providers, and the reports on the refrigerant gas recharges. No estimates have been used for any of the data. Furthermore, in the case of assets that form part of an owner’s association, the coefficient of ownership is applied to the energy and water consumption data. In these cases, the surface area considered in the calculations represents the proportional part of the coefficient of MERLIN’s ownership or expense in the asset. Energy consumption Energy consumption at assets over which MERLIN exercises operational control MERLIN has like-for-like energy consumption information for 75 office assets, 13 shopping centres and 24 logistics warehouses, and absolute data for 88 office assets, 14 shopping centres and 30 logistics warehouses69. The coverage area of the information on energy consumption is broken down below. Like-for-Like portfolio Absolute portfolio Reported surf. Reported surf. % area covered (surface)24 Offices 791,580 sqm 854,879 sqm 69% Logistics warehouses 334,419 sqm 484,085 sqm 30% Shopping centres 456,502 sqm 516,551 sqm 98% Total 1,582,501 sqm 1,855,515 sqm 56% Management Report – Statement of Non-Financial Information 2022 162 69 Appendix II contains a list of the assets included in the reporting of this type of environmental performance information. Broken down by country, the surface area covered in Spain is 1,732,502 sqm in absolute terms and 1,519,537 sqm in like-for-like terms; while in Portugal the breakdown is 123,013 sqm and 62,964 sqm, respectively. It is worth mentioning that the source of the energy consumption data depends on the type of asset and the type of energy source. The following distinctions are made when it comes to calculating electricity usage: •Assets where MERLIN controls the total electricity used throughout the building, including common areas and tenant (or private) areas. In these cases, coverage is calculated based on the surface area of the corresponding asset. •Assets where MERLIN controls the electricity used for lighting the common areas and running the air conditioning systems of the entire asset. In these cases, it is also calculated based on the surface area of the corresponding asset. •Assets where MERLIN only controls the electricity consumed in the common areas. In these cases, coverage is calculated based only on the surface area of the corresponding asset common areas. For fuel and district heating & cooling, energy consumption information is available for the asset as a whole. For both the like-for-like portfolio and absolute portfolio, the largest proportion of energy consumption comes from the grid, with a much smaller proportion from the use of fuel (diesel or natural gas) for some of the offices and shopping centres within the reported coverage. To a lesser extent, it also includes the consumption of district heating & cooling at three office assets in Barcelona: Torre Glòries, Pere IV and the Poble Nou 22@ business park, connected to the Districlima network. Energy consumption at like-for-like assets in 2022 was 100,074,509 kWh, of which 66% refers to offices, 33% to shopping centres and the rest (1%) to logistics assets. Broken down by type of energy source, 81,984,073 kWh came from electricity (82%), 14,160,632 kWh from natural gas (14%), 2,039,435 kWh from diesel fuel and gasoil (2%) and 1,926,369 kWh from district heating & cooling (2%). As regards consumption by country, 95,509,630 kWh corresponds to Spain (95%) and 4,610,640 kWh to Portugal (5%). In the like-for-like office portfolio, energy consumption was 66,214,236 kWh, which is very similar to consumption in 2021. This consumption is split between 78% electricity, 16% natural gas, 3% diesel B/C and 3% District Heating & Cooling. With regard to like-for-like logistics assets, energy consumption was 1,029,432 kWh (all electricity consumption) compared to 970,164 kWh in 2021. Energy consumption in the shopping centers was 32,830,912 kWh, 7.5% less than in 2021, broken down into 89% electricity consumption and 11% natural gas. There was a decrease of 2.3% in energy consumption at like-for-like assets70 compared to 2021, mainly due to the implementation of energy saving measures and the control of the facilities, since it was expected that there would be an increase in this consumption compared to 2021 due to the disappearance in 2022 of the health restrictions due to the COVID-19 pandemic and the increase in occupancy in offices, logistics activity and the footprint in shopping centers. Management Report – Statement of Non-Financial Information 2022 163 70 Assets that have been operating continuously for the last three years are included. Energy consumption in absolute terms in 2022 was similar to 2021. Energy consumption in absolute terms in 2022 was 121,206,691 kWh between offices (60%), logistics warehouses (10%) and shopping centers (30%). Broken down by type of energy source, 102,522,493 kWh corresponded to electricity (85%), 14,188,047 kWh to natural gas (12%), 2,039,435 kWh to Diesel C/B (1%) and 2,456,715 kWh to District Heating & Cooling (2%). Broken down by country, energy consumption in Spain accounted for 112,422,239 kWh (93%) and in Portugal 8,784,452 kWh (7%). In the office portfolio, energy consumption in absolute terms in 2022 was 72,314,383 kWh which represents an increase of 2.7% compared to 2021. This energy consumption is split between 79% electricity, 15% natural gas, 3% Diesel C/B and 3% District Heating & Cooling. In relation to logistics assets, energy consumption was 11,887,674 kWh (entirely electricity consumption) compared to 11,310,262 kWh in 2021. In the shopping centers portfolio, energy consumption was 37,004,763 kWh, 6.7% less than in 2021, differentiated into electricity consumption (90%) and natural gas consumption (10%). Energy intensity in the like-for-like portfolio was 77 kWh/sqm, down 2.8% on 2021, and in the absolute portfolio it was 60.8 kWh/sqm, down 1.4% on 2021. With regard to the generation of renewable energy at assets under operational control, a total of 884,684 kWh were produced in 2022 for self-consumption, distributed among the Aquamarina office assets (170,563 kWh), the Sanchinarro Business Park (190,415 kWh), the Vía Norte Business Park (46,000 kWh), Castellana 280 (56,147 kWh), María de Portugal T2 (122,064 kWh), the Las Tablas Business Park (44,995 kWh), the Puerta de las Naciones Business Park (2,746 kWh), WTC6 (35,697 kWh), WTC8 (20,727 kWh), Sant Cugat I (35,754 kWh) and Sant Cugat II (15,140 kWh) and the Marineda shopping centre (139,236 kWh) and El Saler shopping centre (5,201 kWh). A total of 914,210 kWh produced at the Coslada Complex logistics warehouse (487,510 kWh), the Marineda shopping centre (240,713 kWh) and the Vía Norte Business Park (30,516 kWh) were also sent to the grid. These assets are included in the Sun Project, where the number of photovoltaic generation facilities is expected to increase in the coming years. MERLIN continued to increase the proportion of renewable electricity purchased from green energy suppliers for assets under its operational control. Electricity consumption from these types of suppliers totalled 99.2% in 2022, which represents an increase of 2.1% compared to the previous year. As for other energy sources used by the assets, the energy consumed for district heating & cooling is partly renewable (2,270,674 kWh) and partly non-renewable (208,779 kWh). Energy consumption from fuels comes from entirely non-renewable sources. Management Report – Statement of Non-Financial Information 2022 164 Energy consumption for MERLIN Properties’ portfolios (under operational control) EPRA Code Indicador y unidades Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for-like Absolute Like-for-like Absolute Like-for-like 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Elect- Abs, Elect-LfL Electricity (kWh)[1] Electricity consumption Common areas 26,967,445 26,322,415 21,587,139 21,378,446 1% 15,273,859 14,546,870 14,359,028 13,942,695 3% 10,823,474 11,031,795 6,649,662 6,892,933 -4% 870,112 743,750 578.449 542.817 7% Tenant space 75,113,846 73,202,813 60,360,934 59,810,142 1% 41,562,597 38,681,930 37,376,252 35,428,413 5% 22,533,699 23,954,382 22,533,699 23,954,382 -6% 11,017,549 10,566,500 450.983 427.347 6% Electricity from renewable sources (%) 99% 97% 100% 96% 99% 95% 100% 94% 100% 100% 100% 100% 100% 100% 100% 100% Total electricity consumption 102,522,493 99,773,707 81,948,073 81,188,588 1% 57,277,659 53,477,280 51,735,280 49,371,109 5% 33,357,173 34,986,177 29,183,361 30,847,315 -5% 11,887,661 11,310,251 1,029,431 970.164 6% DH&C- Abs, DH&C- LfL District heating & cooling (kWh) Electricity consumption Common areas 854,881 678,182 416,553 560,212 -26% 854,881 678,182 1,509,816 1,087,592 39% - - - - - - - - Tenant space 1,601,834 1,087,592 1,509,816 1,087,592 39% 1,601,834 1,087,592 252,547 205,721 23% - - - - - - - - District heating & cooling from renewable sources (%) 92% 89% 92% 88% 92% 89% 92% 88% - - - - - - - - Total district heating & cooling consumption 2,456,715 1,765,774 1,926,369 1,647,804 17% 2,456,715 1,765,774 1,926,369 1,647,804 17% - - - - - - - - Fuels- Abs, Fuels- LfL Fuel (kWh)1 Fuel Common areas 2,561,948 3,341,148 2,561,948 3,341,148 -23% - - - - 2,561,948 3,341,148 2,561,948 3,341,148 -23% - - - - Tenant space 13,665,534 16,268,574 13,638,118 16,256,744 -16% 12,579,932 14,954,764 12,552,516 14,942,934 -16% 1,085,602 1,313,811 1,085,602 1,313,811 -17% - - - - Fuel from renewable sources (%) 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% - - - - Total fuel consumption 16.227.482 19,839,285 16,200,067 19,597,893 -17% 12,579,932 15,184,326 12,552,516 14,942,934 -16% 3,647,551 4,654,959 3,647,551 4,654,959 -22% - - - - Energy- Int Energy intensity (kWh/sqm) 60.8 61.8 77.0 78.7 83.2 79.7 87.6 86.8 71.6 77.2 71.9 78.4 19.6 20.0 11.7 11,0 Coverage (based on number of assets) 131 123 113 113 87 85 76 76 14 14 13 13 30 24 24 24 % of data estimated 0 0% 0% 0% 0% 0% 0% 0% Management Report – Statement of Non-Financial Information 2022 165 Energy consumption at assets over which MERLIN does not exercise operational control With regard to the assets not under MERLIN’s operational control (single-tenant), the Group has information on energy consumption in like-for-like terms for 1 logistics warehouse, and in absolute terms for 1 office asset and 4 logistics warehouses71 (all located in Spain). The table below shows the coverage area of the information on energy consumption. Like-for-Like portfolio Absolute portfolio Reported surf. Reported surf. % area covered (surface) Offices - sqm 10,495 sqm 1% Logistics warehouses 35,285 sqm 155,540 sqm 10% Shopping centres - sqm - sqm 0% Total 35,285 sqm 166,035 sqm 5% In absolute terms, energy consumption for assets not under the Company’s operational control was 3,375,832 kWh in 2022, split between offices (25%) and logistics warehouses (75%). Electricity accounted for all of the energy consumed, distributed in the same proportion. There was a 18% decrease compared to 2021, due to the fact that consumption information was available for less assets of this kind. In the like-for-like portfolio (made up of one logistics asset), energy consumption was 1,758,837 kWh, all of which was electricity. This consumption is 22% higher than in 2021. Energy intensity in the absolute portfolio was 16.3 kWh/sqm and 49.8 kWh/sqm in the like-for-like portfolio. Management Report – Statement of Non-Financial Information 2022 166 71 Appendix I contains a list of the assets included in the reporting of this type of environmental performance information. Energy consumption for MERLIN Properties’ portfolios (not under operational control) EPRA Code Indicator and units Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for-like Absoluto Absolute Like-for-like Absolute 2022 2021 2022 2021 Evol. 2022 2021 2022 2021 Evol. 2022 2021 2022 2021 Evol. 2022 2021 2022 2021 Evol. Elect- Abs, Elect- LfL Electricity (kWh) Total electricity consumption 3,375,832 2,867,167 1,758,837 1,438,105 22% 833,001 - - - - - - - 3,375,832 2,867,167 1,758,837 1.438.105 22% Electricity from renewable sources (%) 99% 97% 100% 96% 4% 100% 0% 0% 0% 0% 0% 0% 0% 100% 100% 100% 100% 0% DH&C- Abs, DH&C- LfL District heating & cooling (kWh) Total district heating & cooling consumption - - - - - - - - - - - - - - - - Fuel from renewable sources (%) 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Fuels- Abs, Fuels- LfL Fuel (kWh) Total fuel consumption - - - - - - - - - - - - - - - - District heating & cooling from renewable sources (%) 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Energy- Int Energy intensity (kWh/sqm) 16.3 12.5 49.8 40.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16.3 12.5 49.8 40.8 Coverage (based on number of assets) 5 8 1 1 1 - - - - - - - 4 8 1 1 % of data estimated 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Management Report – Statement of Non-Financial Information 2022 167 Electricity consumption at MERLIN’s corporate headquarters and LOOM spaces MERLIN has corporate headquarters in Madrid, Barcelona and Lisbon. Given that the Madrid headquarters are the most representative with a surface area of 2,412 sqm, the energy consumption figures for these offices are reported below. Electricity consumption was 198,185 kWh, which indicates a consumption intensity of 82.17 kWh/sqm, an increase of 5% compared to 2021, with no fuel consumption at this building. In addition, the Company has three buildings, of which it is the lessee, that exclusively host FlexSpace areas as part of the LOOM brand (Fábrica de Tapices, Huertas and Salamanca). Of these three buildings, the Group controls electricity consumption at Huertas and Salamanca, with a total area of 3,031 sqm, 1,100 sqm and 1,931 sqm, respectively. In 2022, electricity consumption was 529,511 kWh (178,008 kWh at Huertas and 351,503 kWh at Salamanca), which represents an increase of 11% compared to 2021 (476,474 kWh). The consumption intensity is 174.7 kWh/sqm. There is no fuel consumption at these locations. Energy consumption at properties leased by LOOM EPRA Code Indicator Buildings leased by LOOM 2022 2021 Evol. Elect-Abs, Elect-LfL Electricity (kWh) Total electricity consumption 529,511 476,474 11% Electricity from renewable sources (%) 100% 100% - Fuels-Abs, Fuels-LfL Fuel (kWh) Total fuel consumption N/A N/A - Fuel from renewable sources (%) N/A N/A - Energy-Int Energy intensity (kWh/m2) 174.7 157.2 11% % of estimated data - 0% - Management Report – Statement of Non-Financial Information 2022 168 Energy consumption at MERLIN Properties’ corporate headquarters72 EPRA Code Indicator Buildings leased by LOOM 2022 2021 Evol. Elect-Abs, Elect-LfL Electricity (kWh) Total electricity consumption 198,185 188,638 5% Electricity from renewable sources (%) 100% 100% - Fuels-Abs, Fuels-LfL Fuel (kWh) Total fuel consumption N/A N/A - Fuel from renewable sources (%) N/A N/A - Energy-Int ENERGY INTENSITY (kWh/m2) 82.2 78.2 - % of estimated data - 0% - Water withdrawal Water withdrawal at assets over which MERLIN exercises operational control Regarding water withdrawal at assets under operational control (multi-tenant), MERLIN has like-for- like information on water withdrawal at 72 office assets, 10 logistics warehouses and 11 shopping centres. In absolute terms, there is information for 82 offices, 11 logistics warehouses and 13 shopping centres73. The table below shows the coverage area of the information on water withdrawal. Like-for-Like portfolio Absolute portfolio Reported surf. Reported surf. % area covered (surface) Offices 786,390 sqm 855,402 sqm 69% Logistics warehouses 334,419 sqm 363,150 sqm 24% Shopping centres 456,502 sqm 516,551 sqm 98% Total 1,577,311 sqm 1,735,103 sqm 52% Management Report – Statement of Non-Financial Information 2022 169 72 The energy consumption figures for the corporate headquarters do not include fuel consumption, so the consumption figures on the table refer exclusively to the electricity grid. 73 Appendix II contains a list of the assets included in the reporting of this type of environmental performance information. Broken down by country, the surface area covered in Spain for water withdrawal is 1,612,090 sqm in the absolute portfolio and 1,514,347 sqm in the like-for-like portfolio. In Portugal, this area is 123,013 sqm and 62,964 sqm, respectively. For office and shopping centre assets, the source information available to MERLIN refers, as a general rule, to the water withdrawal for the entire asset. However, the data for logistics assets sometimes refers to common areas only and other times to the entire asset. With regard to like-for-like performance data, the total volume of water withdrawal in 2022 at the assets under MERLIN’s operational control was 609,418 m3, broken down as follows: office assets (42%), logistics warehouses (7%) and shopping centres (51%). Compared to 2021, there was a 17.9% increase mainly due to the rise in foot traffic at offices and shopping centres as a result of the loosening of COVID-19 pandemic restrictions, and due to the high temperatures during the summer, which led to an increase in watering frequencies and watering times for all landscaped areas of the assets. In the like-for-like office portfolio, water withdrawal was 252,547 m3 in 2022, up 22.8% in 2021. At logistics warehouses, water withdrawal was 44,321 m3, up 17.7% in 2021. Lastly, the volume at shopping centres was 312,549 m3, up 14.3% in 2021. In absolute terms, the volume of water captured in 2022 was 680,084 m3 , distributed among the consumption of the office portfolio (41%), logistics warehouses (7%) and shopping centers (52%). The volume of water captured in absolute terms increased by 27.1% compared to 2021. Broken down by country, the volume of water captured in Spain was 621,908 m3 (91% of the total) and in Portugal, 58,176 m3 (9% of the total). In the office portfolio, water withdrawal in 2022 in absolute terms was 280,208 m3, 25.7% more than in 2021, in logistics assets 45,075 m3, 16.1% more than in 2021, and in shopping centers 354,802 m3, 29.8% more than in 2021. Practically all water withdrawal comes from the municipal network, representing a total volume of 674,399 m3 in absolute terms (99.2% of the total water withdrawn). At the Marineda shopping centre in La Coruna, some of the water comes from a rainwater tank. Based on the 2022 rainfall in this area and the tank’s catchment area74, it is estimated that the volume of water collected and used at this asset is around 5,446 m3. Lastly, water withdrawal intensity in the like-for-like portfolio was 0.46 m3/sqm, up 18.0% in 2021, and in the absolute portfolio it was 0.48 m3/sqm, up 26.4% on 2021 Management Report – Statement of Non-Financial Information 2022 170 74 The estimate considers the annual recorded rainfall in La Coruna in 2021, according to data provided by Meteogalicia, and a catchment area of about 16,000 sqm. A 10% loss rate was assumed. Water withdrawal for MERLIN Properties’ portfolios (under operational control) EPRA Code Indicator and units Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for-like Absoluto Like for Like Absolute Like-for-like 2022 2021 2022 2021 Evol. 2022 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2021 2022 2022 2021 Water- Abs, Water- LfL Water consumption in common areas (m3) 216,201 171,571 192,509 169,430 14% 30,126 24,825 27,762 22,799 22% 178,106 138,549 156,853 138,549 13% 7,969 8,197 7,894 8,081 -2% Water consumption in tenant spaces (m3) 463,883 363,484 416,908 347,326 20% 250,082 198,042 224,786 182,922 23% 176,696 134,814 155,696 134,814 15% 37,105 30,628 36,427 29,590 23% Water consumption in the entire building (m3) 680,084 535,055 609,417 516,756 18% 280,208 222,867 252,547 205,721 23% 354,802 273,364 312,549 273,364 14% 45,075 38,825 44,321 37,672 18% Total water consumption (m3) 680,084 535,055 609,417 516,756 18% 280,208 222,867 252,547 205,721 23% 354,802 273,364 312,549 273,364 14% 45,075 38,825 44,321 37,672 18% Water- Int Water consumption intensity (m3/ sqm) 0.477 0.377 0.463 0.392 0.350 0.275 0.345 0.279 0.965 0.776 0.878 0.776 0.175 0.151 0.194 0,165 Coverage (based on number of assets) 123 121 113 113 84 83 76 76 14 13 13 13 25 25 24 24 % of data estimated 0% 0% 0% 0% 0% 0% 0% 0% Management Report – Statement of Non-Financial Information 2022 171 Water withdrawal at assets over which MERLIN does not exercise operational control With regard to the assets not under MERLIN’S operational control (single-tenant), the Group has information on water withdrawal in like-for-like and absolute terms for 3 office assets75 (all located in Spain). The table below shows the coverage area of the information on water withdrawal. Like-for-Like portfolio Absolute portfolio Reported surf. Reported surf. % area covered (surface)30 Offices 37,570 sqm 37,570 sqm 3% Logistics warehouses 26,613 sqm 26,612 sqm 2% Shopping centres - sqm - sqm 0% Total 64,182 sqm 64,182 sqm 2% In absolute terms, for assets not under MERLIN’S operational control, water withdrawal from the municipal network amounted to 19,631 m3 in 2022 (water withdrawal intensity of 0.31 m3/sqm), with office assets accounting for all consumption. Consumption in 2022 was 1% lower than in 2021. In the like-for-like portfolio, consumption in 2022 was 19,631 m3 (water withdrawal intensity of 0.31 m3/sqm), which represents a decrease of 6% compared to 2021. Management Report – Statement of Non-Financial Information 2022 172 75 Appendix II contains a list of the assets included in the reporting of this type of environmental performance information. Water withdrawal for MERLIN Properties’ portfolios (not under operational control) EPRA Code Indicator and units Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for-like Absolute Like-for-like Absolute Like-for-like 2022 2021 2022 2021 Chang es 2022 2021 2022 2021 Chang es 2022 2021 2022 2021 Chang es 2022 2021 2022 2021 Chang es Water -Abs, Water -LfL Total water consumpti on (m3) 19,631 19,912 19,631 18,469 6% 17,091 17,148 17,091 15,706 9% 0 0 0 0 0 2,764 0 0 -8% Water -Int Water consumpti on intensity (m3/sqm) 0.306 0.289 0.306 0.288 0.455 0.405 0.455 0.418 0.000 0.000 0.000 0.000 0.000 0.104 0.000 0.000 Coverage (based on number of assets) 3 5 3 3 3 4 3 3 0 1 0 0 % of data estimated 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% MERLIN has no water data for its corporate headquarters or for the leased LOOM buildings. Management Report – Statement of Non-Financial Information 2022 173 Waste management In relation to waste management, the Group has like-for-like information on 58 office assets, 8 shopping centres and 1 logistics warehouse, and it has information in absolute terms on 82 office assets, 11 shopping centres and 1 logistics warehouse76 (all located in Spain). The table below shows the coverage area of the information on waste management. Like-for-Like portfolio Absolute portfolio Reported surf. Reported surf. % area covered (surface)31 Offices 689,860 sqm 733,058 sqm 59% Logistics warehouses 36,234 sqm 36,234 sqm 2% Shopping centres 456,502 sqm 456,502 sqm 87% Total 1,182,596 sqm 1,225,794 sqm 37% In 2022, assets in the like-for-like portfolio accounted for a total of 6,993 tonnes of waste, 99.9% of which was non-hazardous waste, and the rest was hazardous. The assets in the absolute portfolio accounted for 7,512 tonnes of waste, 99.9% of which was non-hazardous waste and the remainder hazardous. In like-for-like terms, there was an overall increase in waste managed in 2022 compared to 2021 (19.6%). This increase is mainly due to the waste managed at shopping centres (which accounts for 91% of the total waste managed). This is a result of an increase in business and foot traffic at these types of assets, in view of the lifting of COVID-19 restrictions this year. In absolute terms, there was an increase of 21.2% in the amount of waste managed in 2022 compared to 2021. This increase is slightly higher than that recorded in the like-for-like portfolio. Management Report – Statement of Non-Financial Information 2022 174 76 Appendix I contains a list of the assets included in the reporting of this type of environmental performance information. Waste generation at assets managed by MERLIN EPRA Code Indicator Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for-like Absoluto Like for Like Absolute Like-for-like 2022 2021 2022 2021 Evol. 2022 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2021 2022 2022 2021 Waste- Abs, Total generation of non- hazardous waste (t) 7,506.3 6,189.4 6,987.8 5,841.3 20% 180.9 179.9 180.6 179.3 1% 6,871.7 5,203.0 6,353.6 4,855.5 31% 453.7 806.5 453.7 806.5 -44% Waste-LfL Total generation of hazardous waste (t) 5.9 6.5 4.8 6.1 -21% 2.7 4.2 2.1 3.8 -45% 3.2 2.3 2.7 2.3 17% 0.0 0.0 0.0 0.0 Waste to be eliminated (t) 356.8 210.9 0.6 0.5 17% 0.6 0.7 0.4 0.4 0% 356.2 210.2 0.2 0.2 0% 0.0 0.0 0.0 0.0 Waste to be recovered through energy (t) 42.7 4.2 4.6 3.6 27% 4.3 3.8 3.7 3.3 14% 38.5 0.3 0.8 0.3 161% 0.0 0.0 0.0 0.0 Waste to be recovered (t) 2.6 4.1 2.0 4.0 -49% 1.4 2.6 1.3 2.4 -48% 1.2 1.5 0.7 1.5 -55% 0.0 0.0 0.0 0.0 Waste to be recycled (t) 7,110.0 5,976.6 6,985.4 5,839.3 20% 177.4 176.9 177.2 176.8 0% 6,479.0 4,993.2 6,354.5 4,856.0 31% 453.7 806.5 453.7 806.5 -44% Coverage (based on number of assets) 88/180 90 / 180 75 / 75 75 / 75 74 /110 77 / 112 66 / 66 66 / 66 14 / 14 12 / 15 11 / 11 11 / 11 1 / 56 1 / 53 1 / 1 1 / 1 % of data estimated 0% 0% 0% 0% - 0% 0% - 0% 0% There is no information available on waste generation at corporate headquarters or the LOOM buildings. Management Report – Statement of Non-Financial Information 2022 175 Scope 1 and scope 2 greenhouse gas (GHG) emissions GHG emissions at assets over which MERLIN exercises operational control First, taking a location-based calculation approach77 and considering the like-for-like portfolio, the sum of scope 1 and scope 2 GHG emissions was 14,167 tCO2eq, 8.6% more than in 2021. Specifically, direct emissions (scope 1), which include emissions from the consumption of diesel and natural gas in the assets and refrigerant gas recharges, amounted to 2,545 tCO2eq. Indirect emissions (scope 2) associated with the generation of electricity consumed at the assets and the consumption of district heating & cooling totalled 11,622 tCO2eq. In terms of like-for-like, broken down by portfolio, Scope 1 and 2 emissions from office assets were 1,350 tCO2eq and 6,780 tCO2eq, respectively, those from logistics warehouses 94 tCO2eq in Scope 2 and those from shopping centers 1,195 tCO2eq and 4,748 tCO2eq. In relation to the portfolio in absolute terms, the sum of Scope 1 and 2 location based GHG emissions were 17,210 tCO2eq, up 8.8% compared to 2021. By scope, 2,670 tCO2eq correspond to Scope 178 emissions and the remaining 14,540 tCO2eq to Scope 279 emissions. Broken down by type of asset, Scope 1 and 2 emissions from office assets, in absolute terms, were 1,475 tCO2eq and 7,420 tCO2eq respectively, those from logistics warehouses 1,625 tCO2eq in Scope 2 and those from shopping centers 1,195 tCO2eq and 5,495 tCO2eq. Compared to 2021, there is a slight decrease in Scope 1 emissions and an increase in Scope 2 emissions, mainly derived from the increase in the number of assets reported and the increase in the Spanish emission factor published by REE. Furthermore, broken down by country, in absolute terms, Scope 1 and 2 GHG emissions in Spain were 16,005 tCO2eq (2,670 tCO2eq of Scope 1 and 13,336 tCO2eq of Scope 2), while in Portugal they were 1,204 tCO2eq, all of them Scope 2. In terms of GHG emissions intensity, the value in terms of the Like for Like portfolio was 0.011 tCO2eq/m2 (9% higher than in 2021) and in absolute terms, 0.011 tCO2eq (9% higher than in 2021). Direct emissions from fuel consumption in assets under MERLIN’s operational control (scope 1) were obtained following the recommendations of the Ministry of Ecological Transition and Demographic Challenge (MITERD). A location-based calculation method was used to determine the indirect emissions associated with electricity consumption at assets under MERLIN’S operational control (scope 2). For this calculation, MERLIN consulted the emission factors in the countries where its assets are located: Spain and Portugal80. Management Report – Statement of Non-Financial Information 2022 176 77 Scope 1 emissions were calculated considering the factors recommended by the Spanish Ministry for Ecological Transition and Demographic Challenge (MITERD). Scope 2 location-based emissions from electricity consumption were calculated considering the emission factor of the electricity mix for Spain and Portugal. The emission factor of the electricity mix is a rate that represents the CO2 emission intensity associated with generating the electricity that is consumed. Therefore, it is a significant indicator of the ratio of low carbon energy sources to the country’s total electricity production. Scope 2 location-based emissions from district heating were obtained from the emission factor provided by Districlima, and emissions from district cooling were obtained considering the emission factor of the Spanish electricity mix and a grid loss percentage of 10%. 78 Includes fuel consumption and refrigerant gas recharges. 79 Includes electricity and District Heating & Cooling consumption. 80 The 2022 factor for Spain was obtained from the information published by Red Eléctrica de España (REE), while for the factor for Portugal was taken from the data published by the Energy Observatory sponsored by the Portuguese Ministry of Environment and Climate Action. Greenhouse gas emissions for MERLIN Properties’ portfolios (under operational control) EPRA Code Indicator and units Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for-like Absolute Like-for-like Absolute Like-for-like 2022 2021 2022 2021 Changes 2022 2021 2022 2021 Changes 2022 2021 2022 2021 Changes 2022 2021 2022 2021 Changes - Direct scope 1 emissions, refrigerant gases (tCO2eq) 2,151 2,000 2,026 1,906 6% 1,475 1,564 1,350 1,470 -8% 676 436 676 436 55% 0 0 0 0 - Direct scope 1 emissions, fuels (tCO2eq) 519 677 519 677 -23% 0 0 0 0 519 677 519 677 -23% 0 0 0 0 GHG-Dir- Abs, GHG- Dir-LfL Direct scope 1 emissions (tCO2eq) 2,670 2,676 2,545 2,582 -1% 1,475 1,564 1,350 1,470 -8% 1,195 1,113 1,195 1,113 7% 0 0 0 0 GHG- IndirAbs, GHG-Indir- LfL Indirect scope 2 emissions (tCO2eq) 14,540 13,148 11,622 10,468 11% 7,420 6,242 6,780 5,958 14% 5,495 5,455 4,748 4,432 7% 1,625 1,452 94 78 21% - Total emissions - Scopes 1+2 (tCO2eq) 17,210 15,824 14,167 13,051 9% 8,894 7,805 8,130 7,428 9% 6,690 6,567 5,943 5,545 7% 1,625 1,452 94 78 21% GHG-Int EMISSIONS INTENSITY (tCO2eq/sqm) 0.011 0.010 0.011 0.010 0.011 0.009 0.011 0.010 0.013 0.013 0.013 0.012 0.007 0.008 0.001 0.001 Coverage (based on number of assets) 136 131 112 112 92 89 75 75 14 14 13 13 30 28 24 24 % of data estimated 0% 0% 0% 0% 0% 0% 0% 0% - Management Report – Statement of Non-Financial Information 2022 177 Certificates The table below details the number and types of asset certifications In each portfolio. They Include energy certifications under Royal Decree 235/2013; LEED/BREEAM sustainable construction certificates; and ISO 14001 and ISO 50001 Management Systems certifications. The percentage of certified assets is calculated by surface area, considering only the operating assets in the office, shopping centre and logistics portfolios, and WIP assets: Plaza Pablo Ruiz Picasso, Ática 1 and Cerro Gamos business park. Not included in the calculation are the Barcelona ZAL Port assets, the net lease portfolio assets, other non-strategic assets or the rest of the WIP assets. Management Report – Statement of Non-Financial Information 2022 178 Certificates EPRA Code Indicator and units Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for- like Absolute Like-for-like Absolute Like-for-like Cert-Tot Energy certificates (% surface area) 97% 97% 99% 100% 91% 90% 97% 100% Coverage (based on number of assets) 187 of 190 111 of 112 118 of 118 75 of 75 15 of 15 12 of 13 57 of 57 24 of 24 Sustainable building certificates (% surface area) 88% 99% 94% 97% 97% 100% 79% 100% Coverage (based on number of assets) 161 of 190 109 of 112 97 of 118 72 of 75 118 of 118 13 of 13 50 of 57 24 of 24 Management systems (% surface area) 37% 67% 66% 90% 59% 68% 5% 11% Coverage (based on number of assets) 89 of 190 76 of 112 78 of 118 67 of 75 8 of 15 8 of 13 2 of 57 1 of 24 Management Report – Statement of Non-Financial Information 2022 179 Appendix II. Methodology for calculating scope 3 GHG emissions In line with its “Pathway to Net Zero” strategy, in 2022 the Company reinforced the calculation of its indirect scope 3 GHG emissions, those resulting from the Company’s activities at sources that are neither owned nor controlled by the Company. MERLIN therefore calculated its GHG emissions in the most relevant categories defined in the GHG Protocol based on the Group’s lines of business. Type of emission GHG protocol category Emissions (tCO2eq) Emissions related to the supply chain 1. Goods and services purchased 7,372 2. Capital goods 41,228 4. Upstream transport and distribution 1,005 Upstream emissions from fuels 3. Fuel and energy-related activities 2,734 Emissions associated with employee commuting 7. Employee commuting 8,741 Emissions associated with assets where MERLIN is a lessee 8. Upstream leases 119 Emissions associated with assets where MERLIN is a lessor 13. Downstream leases 72,475 TOTAL 133,674 Category 13 - Downstream leased assets Based on the emission intensity data per square meter (kgCO2e/sqm) included in the energy certifications for most of MERLIN’S strategic assets (as discussed in section 4.7. of this Statement of Non-Financial Information in the subsection titled “Energy rating of MERLIN’S assets”), MERLIN has estimated GHG emissions from energy consumption at assets over which the Company does not exercise operational control. These are scope 3, category 13 emissions (referred to as “Downstream leased assets” in the GHG Protocol). The calculation focuses on the asset portfolios designated as strategic, as they are most representative of the Group’s assets (offices, logistics assets and shopping centres). Given the characteristics of this type of emissions, the GHG emissions of this category are calculated using a location-based approach (i.e., considering the electricity mix of the country where the asset is located). Depending on the type of asset, GHG emissions from energy sources managed and/or controlled by tenants (scope 3, category 13 GHG emissions) may account for the total (see point 1 below) or only a Management Report – Statement of Non-Financial Information 2022 180 portion of the asset’s GHG emissions (see point 2). There are also some cases where MERLIN manages and/or controls all of the asset’s energy consumption and, therefore, the scope 3, category 13 GHG emissions associated with that asset are zero (see point 3)81. 1.In the case of single-tenant assets, the tenant has control over all of the fuel (if fuel is used for air conditioning) and electricity consumption. Thus, based on the energy certification reports, the GHG emissions of the asset as a whole were estimated and assigned to scope 3, category 13. 2.For most multi-tenant assets, the tenant has partial control over the electricity consumed at the asset. Based on the energy certification reports, the GHG emissions from electricity consumption (under the tenant’s control) were calculated and the GHG emissions were assigned to scope 3, category 1382. 3.For the remaining multi-tenant assets where the tenant does not control any of the asset’s energy sources, no estimates are made of the asset’s GHG emissions. In all cases, a GHG emissions intensity factor per square meter (kgCO2e/sqm), “updated” to 2022, is obtained at the asset-to-asset level. This correction of the factor is critical to the calculations, as both Spain and Portugal have experienced a sharp increase in energy generation from renewable sources in recent years. The intensity factor is based on the GHG emissions intensity that appears on the energy certification, considering both the year in which the certification report is issued, and the type of energy sources used by the asset (electricity and fuel or only electricity)83. For assets that do not have an energy rating, an average emissions intensity factor was calculated and considered for each strategic portfolio (offices, logistics assets and shopping centres). In the particular case of single-tenant assets for which MERLIN has compiled energy consumption data for 2022 based on invoices, which are in turn re-invoiced to the tenant (see sub-section on “Energy consumption at assets over which MERLIN does not exercise operational control” of Appendix I84), GHG emissions were calculated by multiplying the consumption data on the invoices by the same emission factors used to calculate the scope 1 and scope 2 emissions (using a location- based approach). In these specific cases, it was not necessary to create estimates from data on energy ratings. GHG emissions for this category are estimated at 72,475 tons CO2e. The breakdown between strategic portfolios is 28,531 ton CO2e corresponding to offices, 34,771 ton CO2e corresponding to logistics assets and 9,173 ton CO2e to shopping centers. The table below specifies the GHG emissions corresponding to single-tenant assets and private energy consumption in multi-tenant assets: Management Report – Statement of Non-Financial Information 2022 181 81 According to the GHG Protocol guidelines for electricity consumption, the buyer of the electricity (i.e. the party billed by the electricity seller) is the one that controls the energy. 82 GHG emissions associated with energy sources under MERLIN’s control refer to the scope 1 and scope 2 GHG emissions reported in the section of Appendix I titled “Scope 1 and scope 2 greenhouse gas (GHG) emissions”. 83 Since energy certification reports are valid for 10 years, there are cases where the data on GHG emissions intensity (kgCO2e/sqm) for an asset refer to equipment and systems that have already been replaced with more efficient ones (especially on refurbishment projects). Consequently, on a global level the estimates are considered to provide an “upside” value of the scope 3 GHG emissions of the portfolios. 84 See also Appendix III “Breakdown of the environmental performance reporting scope”. These assets are the ones marked “Yes” in the “Energy Report” column (“Yes” with an asterisk). Portfolio Total scope 3, category 13 GHG emissions Scope 3 by asset type Single-tenant Multi-tenant (private energy consumption) Offices 28,531 ton CO2e 10,960 ton CO2e 17,571 ton CO2e Logistics warehouses 34,771 ton CO2e 25,155 ton CO2e 9,616 ton CO2e Shopping centres 9,173 ton CO2e 0 ton CO2e 9,173 ton CO2e Total 72,475 ton CO2e 36,115 ton CO2e 36,360 ton CO2e Other scope 3 categories Emissions related to the supply chain Using the billing data of suppliers, in 2022 MERLIN estimated the scope 3 emissions associated with its supply chain (categories 1, 2 and 4 of the GHG Protocol) based on its purchase data for 2022. The Group has therefore followed an Environmentally-Extended Input-Output Model (based on the WIOD 2016 database), which takes into account national emission factors by activity sectors. Under this approach, GHG emissions in 2022 were 49,605 tCO2eq. Upstream emissions from fuels Category 3 of the GHG Protocol computes GHG emissions from fuels consumed by MERLIN that are produced upstream (prior to combustion) as well as GHG emissions associated with electricity losses due to transportation and distribution and upstream GHG emissions from fuels used in electricity generation85. Considering the above concepts, GHG emissions for this category amount to 2,734 tCO2eq in terms of absolute portfolio. Emissions associated with employee commuting In relation to emissions from employee commuting (category 7 of the GHG Protocol), MERLIN calculated the emissions associated with the Group’s employees commuting to and from work and those associated with MERLIN Hub users commuting to and from these assets. To learn more about how MERLIN employees commute, the Group launched a survey to find out about their commuting habits to and from work. Total GHG emissions in 2022 were therefore estimated to be 243 tCO2eq, which is 0.98 tCO2eq per employee. In addition to the calculations discussed in this section, GHG emissions produced by office workers at the MERLIN Hub Madrid Norte (New Business Area A-1 in Madrid) were also estimated. To do so, the Company used information from the Transport to Work Plans (TWP) prepared for this set of assets by the Office of Sustainability and Mobility (OSM). The effects of the shuttle service arranged by Management Report – Statement of Non-Financial Information 2022 182 85 Data on electricity losses in the transmission grid with respect to demand in Spain were obtained from the Red Eléctrica de España (REE) Sustainability Report 2022. MERLIN (through the OSM) on the mobility of these users were also taken into account. The shuttle connects key points in the city of Madrid with the group of offices that make up MERLIN Hub Madrid Norte. Taking into consideration that there are an estimated 18,000 employees working at offices in this area of Madrid, GHG emissions in 2022 stood at 8,498 tCO2eq (0.47 tCO2eq per employee). The difference between the GHG emissions intensity ratio per employee in the case of MERLIN staff compared to MERLIN Hub Madrid Norte employees is mainly due to a higher rate of remote working among MERLIN Hub Madrid Norte employees compared to MERLIN employees. These GHG emissions are associated with the commuting of MERLIN office users and, like the GHG emissions produced by commuting MERLIN employees (reported in this section), they are assigned to scope 3, category 7 in accordance with GHG Protocol guidelines. However, both types of emissions are reported separately, since the calculation of GHG emissions associated with the commuting of the users of these assets is optional within this category. Emissions associated with assets where MERLIN is a lessee MERLIN also calculates scope 3, category 8 emissions as defined by the GHG Protocol by accounting for emissions from assets where it is a lessee. This category includes GHG emissions associated with electricity consumption at the Group’s corporate headquarters in Madrid and GHG emissions from the LOOM Huertas and LOOM Salamanca locations. Overall GHG emissions in this category were 138.1 tCO2eq (0.025 tCO2eq /m2) in 2022, broken down between the corporate headquarters (51.8 tCO2eq, 0.022 tCO2eq /m2) and LOOM spaces (86.3 tCO2eq, 0.285 tCO2eq /m2). Scope 3 emissions report in accordance with EPRA sBPR Management Report – Statement of Non-Financial Information 2022 183 Greenhouse gas emissions for MERLIN’s portfolios (not under operational control) EPRA Code Indicator and units Total MERLIN Offices Shopping centres Logistics assets Absolute Like-for-like Absolute Like-for-like Absoluto Like for Like Absolute Like-for-like 2022 2021 2022 2021 Evol. 2022 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2021 2022 2022 2021 - Scope 3 emissions, refrigerant gases (tCO2eq) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - Scope 3 emissions, fuels (tCO2eq) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - Indirect scope 3 emissions, electricity (tCO2eq) 317 344 221 166 33% 0 0 0 0 0 0 0 0 317 344 221 166 33% GHG- IndirAbs, GHG-Indir- LfL Total scope 3 emissions (tCO2eq) 317 344 221 166 33% 0 0 0 0 0 0 0 0 317 344 221 166 33% GHG-Int EMISSIONS INTENSITY - Scope 3 (tCO2eq/ sqm) 0.002 0.002 0.004 0.003 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.002 0.002 0.004 0.003 Coverage (based on number of assets) 5 7 2 2 5 7 2 2 % of data estimated 0% 0% 0% 0% 0% 0% 0% 0% Management Report – Statement of Non-Financial Information 2022 184 Greenhouse gas emissions for properties leased by LOOM EPRA Code Indicator and units Offices 2022 2021 Evol. GHG-Dir-Abs, GHG-Dir-LfL Direct emissions – Scope 1 (t CO2eq) N/A N/A - GHG-Indir Abs, GHG-Indir- LfL Indirect emissions - Scope 2 (t CO2eq) 86.3 68.5 26% - Total emissions – Scope 1+2 (t CO2eq) 86.3 68.5 26% GHG-Int EMISSIONS INTENSITY (t CO2 eq/m2) 0.028 0.023 - % of estimated data - 0% - Greenhouse gas emissions for MERLIN Properties’ corporate headquarters EPRA Code Indicator and units Offices 2022 2021 Evol. GHG-Dir-Abs, GHG-Dir- LfL Direct emissions – Scope 1 (t CO2eq) (1) 19.5 17.7 10% GHG-Indir Abs, GHG- Indir-LfL Indirect emissions - Scope 2 (t CO2eq) 32.3 27.1 19% - Total emissions – Scope 1+2 (t CO2eq) 51.8 44.8 16% GHG-Int EMISSIONS INTENSITY (t CO2 eq/m2) 0.021 0.019 - % of estimated data - 0% - Management Report – Statement of Non-Financial Information 2022 185 Appendix III. Breakdown of the environmental performance reporting scope Asset name Portfolio Building number Surface (m2) Energy reported (GJ) Water reported (m2) Waste reported (ton) Sustainable construction certificate ISO 14001 ISO 50001 Energy rating Torre Castellana 259 Offices 1 21,390 Yes Yes Yes LEED GOLD Yes Yes Yes Castellana 280 Offices 1 16,853 Yes Yes Yes LEED GOLD Yes Yes Yes Castellana 278 Offices 1 14,468 Yes LEED GOLD Yes Castellana 93 Offices 1 11,621 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes Alcala 40 Offices 1 9,315 Yes Principe de Vergara 187 Offices 1 11,302 LEED GOLD Yes Alfonso XI Offices 1 9,945 Yes Yes Yes LEED GOLD Yes Yes Yes Pedro de Valdivia 10 Offices 1 6,721 Yes Yes Yes LEED GOLD Yes Yes Yes PE Churruca Offices 3 12,832 Yes Yes Yes LEED GOLD(1)/ SILVER(2) Yes Yes Yes PE Complejo Princesa Offices 3 33,573 Yes Yes Yes BREEAM GOOD Yes Yes Yes Juan Esplandiu 11-13 Offices 1 28,008 Yes Yes Yes BREEAM GOOD Yes Yes Yes Eucalipto 33 Offices 1 7,301 Yes Yes Yes LEED GOLD Yes Yes Yes Eucalipto 25 Offices 1 7,368 Yes Yes Yes LEED GOLD Yes Yes Yes Santiago de Compostela 94 Offices 1 13,130 Yes Yes Yes LEED GOLD Yes Yes Yes Josefa Valcarcel 48 Offices 1 19,893 LEED GOLD Yes PE Alvento Offices 2 32,928 Yes Yes Yes LEED SILVER Yes Yes Yes Cristalia Offices 1 11,713 Yes Yes Yes LEED GOLD Yes Yes Yes PE Puerta de las Naciones Offices 4 39,150 Yes Yes Yes LEED PLATINUM(1)/ GOLD (3) Yes (2) Yes (2) Yes Ribera del Loira 60 Offices 1 54,960 LEED GOLD Yes Partenon 12-14 Offices 1 19,609 Yes Yes Yes LEED GOLD Yes Yes Yes Management Report – Statement of Non-Financial Information 2022 186 Partenon 16-18 Offices 1 18,345 Yes Yes Yes LEED GOLD Yes Yes Yes Arturo Soria 128 Offices 1 3,226 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes Torre Chamartin Offices 1 18,295 Yes Yes Yes LEED PLATINUM Yes Yes Yes Arturo Soria 343 Offices 1 6,621 Yes Yes LEED GOLD Yes Yes Yes Elipse Offices 1 7,515 Yes Yes Yes Yes Yes Yes Fuente de la Mora Offices 1 4,482 Yes Yes Yes LEED GOLD Yes Yes Yes Aquamarina Offices 1 10,685 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes PE Via Norte Offices 6 37,224 Yes Yes Yes LEED GOLD (5) Yes (5) Yes (5) Yes PE Sanchinarro Offices 2 17,191 Yes Yes Yes LEED GOLD Yes Yes Yes PE Las Tablas Offices 3 27,184 Yes Yes Yes LEED GOLD Yes Yes Yes Avenida de Burgos 210 Offices 1 6,176 LEED GOLD Yes Avenida de Burgos 208 Offices 1 1,200 LEED GOLD Yes Encinar Offices 1 3,623 Yes Yes Yes LEED GOLD Yes Yes Avenida de Bruselas 24 Offices 1 9,163 Yes Yes Yes LEED GOLD Yes Yes Yes Avenida de Bruselas 26 Offices 1 8,895 Yes Yes Yes Yes Yes Avenida de Bruselas 33 Offices 1 33,718 LEED GOLD Yes Avenida de Europa 1A Offices 1 12,606 Yes Yes LEED PLATINUM Yes Yes Avenida de Europa 1B Offices 1 10,495 Si Yes Yes LEED PLATINUM Yes Yes Yes Maria de Portugal T2 Offices 3 17,140 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes PE Adequa Offices 5 69,379 Yes Yes Yes BREEAM VERY GOOD (2) /LEED PLATINUM (3) Yes Yes Yes PE Ática Offices 3 16,325 Yes Yes Yes LEED GOLD (1) / BRREAM GOOD (1) Yes Yes Yes Atica 5 Offices 1 9,526 Yes Yes Yes LEED GOLD Yes Yes Yes Atica 6 Offices 1 3,434 Yes Yes Yes PE Atica XIX Offices 3 15,411 Yes Yes Yes LEED GOLD Yes Yes Yes Management Report – Statement of Non-Financial Information 2022 187 PE Cerro Gamos Offices 3 25,431 Yes Yes Yes LEED GOLD (2) / LEED SILVER(1) Yes PE Alvia Offices 3 23,567 Yes Yes Yes LEED GOLD (1) / BREEAM GOOD (1) Yes (2) Yes (2) Yes Diagonal 605 Offices 1 14,908 Yes Yes Yes LEED GOLD Yes Yes Yes Diagonal 514 Offices 1 10,163 Yes Yes Yes LEED GOLD Yes Yes Yes Diagonal 458 Offices 1 4,174 Yes Yes Yes BREEAM GOOD Yes Yes Trianon Offices 1 18,400 Yes Yes PE Vegacinco Offices 2 10,896 Yes Yes Zaragoza - Aznar Molina Offices 1 4,488 Balmes 236-238 Offices 1 6,187 Yes Vilanova 12-14 Offices 1 16,494 LEED SILVER Yes E-Forum Offices 1 5,190 Yes Yes Torre Glories Offices 1 37,614 Yes Yes Yes LEED GOLD / BREEAM EXCELENTE Yes Yes Yes Diagonal 199 Offices 1 5,934 Yes Yes Yes LEED SILVER Yes Yes Yes PE Poble Nou 22@ Offices 4 31,348 Yes Yes Yes LEED GOLD Yes Yes Yes WTC6 Offices 1 14,461 Yes Yes LEED GOLD Yes Yes Yes WTC8 Offices 1 14,597 Yes Yes LEED GOLD Yes Yes Yes PLZFB Offices 1 10,615 Yes Yes Yes BREEAM GOOD Yes Yes Yes Sant Cugat I Offices 1 15,377 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes Sant Cugat II Offices 1 10,008 Yes Yes Yes LEED SILVER Yes Yes Yes Marques de Pombal 3 Offices 1 12,461 Yes Yes LEED GOLD Yes Torre Lisboa Offices 1 13,715 LEED GOLD Yes Central Office Offices 1 10,310 Yes Yes LEED GOLD Yes Torre Zen Offices 1 10,207 Yes Yes LEED GOLD Yes Art Offices 1 22,150 Yes Yes LEED GOLD Yes Management Report – Statement of Non-Financial Information 2022 188 TFM Offices 1 7,837 Yes Yes Yes Lisboa Expo Offices 1 6,740 LEED GOLD Yes Nestle Offices 1 12,260 LEED GOLD Yes Lerida - Mangraners Offices 1 3,228 Yes Sevilla - Borbolla Offices 1 13,037 LEED SILVER Yes Granada - Escudo del Carmen Offices 1 2,041 Yes Castellana 85 Offices 1 16,474 Yes Yes Yes LEED PLATINUM Yes Yes Yes Pere IV Offices 1 2,018 Yes Yes Yes Plaza de Cataluña 9 Offices 1 3,159 Yes Yes Yes Monumental Offices 1 25,358 LEED GOLD Yes Liberdade, 195 Offices 1 16,510 Yes Covered area (surface) Offices 1,173,509 854,879 892,971 733,058 1,114,489 781,497 761,094 1,159,202 Covered area (number of assets) Offices 109 84 87 74 93 75 72 109 % Covered area (surface) Ofiicnas 73% 76% 62% 95% 67% 65% 99% % Covered area (number of assets) Offices 77% 80% 68% 85% 69% 66% 100% Plaza Ruiz Picasso Offices WIP 1 31,577 LEED SILVER Yes Yes Yes PE Churruca Offices WIP 1 4,651 LEED GOLD Yes Yes Yes PE Ática Offices WIP 1 7,080 Yes Yes Yes PLZFA Offices WIP 1 11,411 Yes PE Cerro Gamos Offices WIP 2 10,674 LEED GOLD (3)/ LEED SILVER (1) Yes Serante Offices WIP 3 8,602 Yes Covered area (surface) Offices WIP 73,995 0 0 0 64,354 43,307 43,307 73,995 Covered area (number of assets) Offices WIP 9 0 0 0 4 3 3 9 Covered area (surface) Total Offices 1,247,503 854,879 892,971 733,058 1,178,843 824,804 804,401 1,233,197 Management Report – Statement of Non-Financial Information 2022 189 Covered area (number of assets) Total Offices 118 84 87 74 97 78 75 118 % Covered area (surface) Total Offices 69% 72% 59% 94% 66% 64% 99% % Covered area (number of assets) Total Offices 71% 74% 63% 82% 66% 64% 100% Marineda Shopping Centers 1 100,577 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes Arturo Soria Shopping Centers 1 6,069 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes Centro Oeste Shopping Centers 1 10,867 Yes Yes Yes BREEAM GOOD Yes Tres Aguas Shopping Centers 1 66,994 Yes Yes Yes BREEAM VERY GOOD Yes X-Madrid Shopping Centers 1 47,117 Yes Yes Yes BREEAM EXCELENTE Yes Yes Larios Shopping Centers 1 37,956 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes Porto Pi Shopping Centers 1 32,570 Yes Yes Yes BREEAM GOOD Yes Yes Yes Artea Shopping Centers 1 25,922 Yes Yes Yes BREEAM EXCELENTE Yes Yes Yes Arenas Shopping Centers 1 31,905 Yes Yes Yes BREEAM GOOD Yes Yes Yes Vilamarina Shopping Centers 1 32,191 Yes Yes Yes BREEAM VERY GOOD Yes El Saler Shopping Centers 1 29,001 Yes Yes Yes BREEAM VERY GOOD Yes Yes Yes La Vital Shopping Centers 1 20,878 Yes Yes Yes BREEAM VERY GOOD Yes Bonaire Shopping Centers 1 14,455 Yes Yes Yes Yes Almada Shopping Centers 1 60,049 Yes Yes BREEAM VERY GOOD Yes Covered area (surface) Shopping Centers 516,551 516,551 516,551 456,502 502,096 311,117 311,117 469,434 Covered area (number of assets) Shopping Centers 14 14 14 13 13 8 8 13 % Covered area (surface) Shopping Centers 100% 100% 88% 97% 60% 60% 91% Management Report – Statement of Non-Financial Information 2022 190 % Covered area (number of assets) Shopping Centers 100% 100% 93% 93% 57% 57% 93% Callao 5 Shopping Centers WIP 1 9,642 BREEAM CORRECTO Yes Covered area (surface) Shopping Centers WIP 9,642 0 0 0 9,642 0 0 9,642 Covered area (number of assets) Shopping Centers WIP 1 0 0 0 1 0 0 1 Covered area (surface) Total Shopping Centers 526,193 516,551 516,551 456,502 511,738 311,117 311,117 479,076 Covered area (number of assets) Total Shopping Centers 15 14 14 13 14 8 8 14 % Covered area (surface) Total Shopping Centers 98% 98% 87% 97% 59% 59% 91% % Covered area (number of assets) Total Shopping Centers 93% 93% 87% 93% 53% 53% 93% A2-Coslada Logistics 1 28,491 BREEAM CORRECTO Yes A2-Coslada Complex Logistics 1 36,234 Yes Yes Yes BREEAM GOOD Yes Yes Yes A4-Getafe (Cla) Logistics 1 16,100 BREEAM GOOD Yes A2-Meco I Logistics 1 35,285 Yes BREEAM CORRECTO Yes A4-Pinto I Logistics 1 11,099 BREEAM GOOD Yes A4-Pinto II Logistics 1 58,990 Yes A4-Getafe (Gavilanes) Logistics 2 39,591 Yes LEED GOLD Yes Yes A2-Meco II Logistics 1 59,814 LEED PLATINUM Yes A2-San Fernando I Logistics 1 11,179 LEED GOLD Yes A2-San Fernando II Logistics 1 33,592 Yes Yes A4-Seseña Logistics 1 28,731 Yes Yes LEED GOLD Yes A2-Alovera Logistics 1 40,287 BREEAM GOOD Yes Management Report – Statement of Non-Financial Information 2022 191 A2-Azuqueca II Logistics 1 97,459 LEED PLATINUM Yes A2-Cabanillas I Logistics 1 70,134 BREEAM GOOD Yes A2-Cabanillas II Logistics 1 15,078 Yes A2-Cabanillas III Logistics 1 21,879 LEED GOLD Yes A2-Cabanillas Park I A Logistics 1 38,054 LEED GOLD Yes A2-Cabanillas Park I B Logistics 1 17,917 LEED GOLD Yes A2-Cabanillas Park I C Logistics 1 48,468 LEED GOLD Yes A2-Cabanillas Park I D Logistics 1 47,892 LEED GOLD Yes A2-Cabanillas Park I E Logistics 1 49,793 LEED SILVER Yes A2-Cabanillas Park I F Logistics 1 20,723 LEED SILVER Yes A2-Cabanillas Park I G Logistics 1 22,506 Yes LEED GOLD Yes A2-Cabanillas Park I H Logistics 1 25,247 Yes LEED GOLD Yes ZAL Port Logistics 0 0 Barcelona-PLZF Logistics 9 132,796 Yes Yes BREEAM GOOD Yes Zaragoza-Pedrola Logistics 1 21,579 BREEAM GOOD Yes Zaragoza-Plaza I Logistics 1 20,764 Yes BREEAM GOOD Yes Valencia-Almussafes Logistics 1 26,613 Yes Yes BREEAM GOOD Yes Valencia-Ribarroja Logistics 1 34,992 BREEAM VERY GOOD Yes Vitoria-Jundiz I Logistics 1 72,717 Yes BREEAM VERY GOOD Yes Vitoria-Jundiz II Logistics 1 26,774 Yes* Yes Sevilla Zal Logistics 13 138,777 Yes Yes LEED GOLD (1)/ LEED SILVER (2)/ BREEAM GOOD (2)/ BREEAM CORRECTO (8) Yes Lisboa Park A Logistics 1 45,198 Yes A2-Cabanillas Park II A Logistics 1 47,211 Yes A2-Cabanillas Park I J Logistics 1 44,722 Yes Covered area (surface) Logistics 1,486,683 639,626 363,150 36,234 1,215,118 75,825 36,234 1,486,683 Management Report – Statement of Non-Financial Information 2022 192 Covered area (number of assets) Logistics 56 34 25 1 50 3 1 56 % Covered area (surface) Logistics 43% 24% 2% 82% 5% 2% 100% % Covered area (number of assets) Logistics 61% 45% 2% 89% 5% 2% 100% A2-Cabanillas Park II B Logistics WIP 1 44,989 Covered area (surface) Logistics WIP 44,989 0 0 0 0 0 0 0 Covered area (number of assets) Logistics WIP 1 0 0 0 0 0 0 0 Covered area (surface) Total Logistics 1,531,672 639,626 363,150 36,234 1,215,118 75,825 36,234 1,486,683 Covered area (number of assets) Total Logistics 57 34 25 1 50 3 1 56 % Covered area (surface) Total Logistics 42% 24% 2% 79% 5% 2% 97% % Covered area (number of assets) Total Logistics 60% 44% 2% 88% 5% 2% 98% Covered area (surface) Total 3,305,368 2,011,055 1,772,673 1,225,794 2,905,699 1,211,745 1,151,751 3,198,956 Covered area (number of assets) Total 190 132 126 88 163 89 84 188 % Covered area (surface) Total 61% 54% 37% 88% 37% 35% 97% % Covered area (number of assets) Total 69% 66% 46% 86% 47% 44% 99% * MERLIN does not exercise operational control over these assets and, therefore, consumption data are included in the environmental performance information of the asset portfolio not under operational control. Like-for-like assets are highlighted in bold. The Trianón, Vegacinco business park and Zaragoza-Aznar Molina assets were excluded from the portfolio in 2022 and, therefore, only consumption data for the time during which they were in operation are reported. NOTE: Land reserves are not included in the table above. Management Report – Statement of Non-Financial Information 2022 193 Appendix IV. Climate risk reporting in accordance with TCFD methodology Since its inception, MERLIN has integrated sustainability into both its activities and decision- making process, understanding its relevance not only in stakeholder relations, but also in the performance of financial metrics. As a leader in its sector, MERLIN is aware of the substantial changes taking place due to climate change and its impact on the economy and, specifically, on its business activities. MERLIN has continued to make progress in this direction and in 2022 prepared its first report following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), thus disclosing information on climate change risks and opportunities in a transparent and comparable manner for its stakeholders. The Company is therefore ahead of and well positioned regarding regulation on climate-related risks such as Spanish Law 7/2021, of 20 May, on climate change and energy transition (Ley 7/2021 de cambio climático y transición energética), Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investments and amending Regulation (EU) 2019/2088 (and delegated acts implementing the above that supplement the regulation associated with the European green taxonomy) or the Corporate Sustainability Reporting Directive (CSRD). The TCFD recommendations, which were launched in 2017, are structured around four pillars: (i) Governance, (ii) Strategy, (ii) Risk Management, and (iv) Metrics and Targets, and eleven recommendations that support effective disclosure in each pillar. In October 2021, the TCFD issued an update on the implementation of the TCFD recommendations. This document also includes recommendations at the sector level, in particular for real estate asset management companies such as MERLIN. This report details the four pillars and eleven recommendations, and the sector-specific issues. The data included in this report refer to the financial year from 1 January to 31 December 2022, and include the entire MERLIN Group. Scenario analysis To identify climate-related risks and opportunities, MERLIN first prepared a preliminary list of risks and opportunities based on the risks identified by the TCFD and in the Commission Delegated Regulation 2021/2139 (climate delegated act), information on competitors and an analysis of scientific and regulatory literature. The result of this work was adapted to MERLIN’s reality and circumstances through interviews with the Company’s main managers. The preliminary list of physical risks was analysed for the scenario in which emissions remain stable, SSP2-4.5 “Middle of the road”, and the scenario where emissions are very high SSP5-8.5 “Fossil- fuelled development”. Risks were assessed for the short (2021-2040), medium (2041-2060) and long term (2081-2100) for all of the Company’s assets. Management Report – Statement of Non-Financial Information 2022 194 Transition risks were analysed considering the Net Zero Emissions by 2050 Scenario (NZE Scenario of the International Energy Agency). This scenario is considered to be consistent with the European target of achieving net zero emissions by the same date. For the preliminary risks and opportunities, different criteria were analysed to identify the inherent and residual risk of each asset. Finally, a cut-off has been established for the residual risk level resulting from the analysis carried out to differentiate between risks that are considered material and those that are not. Governance Supervisory functions of the Board MERLIN’s highest governing body is the Board of Directors, which is made up of 13 directors, most of whom are independent directors. The Board focuses on defining, supervising and monitoring the policies, strategies and guidelines to be followed by the Group. The Board is also responsible for long-term strategy and for monitoring its implementation. The Board relies on its delegated committees for practical implementation. The Audit and Control Committee, with the support of the Sustainability and Innovation Committee, has been responsible for identifying and assessing MERLIN’s financial and non-financial risk management and control systems since 2021, including those related to climate change. In addition, the main function of the Sustainability and Innovation Committee is to promote responsible and sustainable business practices, integrating environmental, social and governance aspects, and to promote innovation and the digitalisation of the Company. In 2022, the Board of Directors met 13 times and dealt with specific climate change issues at 6 of these meetings86. In addition, in 2022 the Sustainability and Innovation Committee reviewed the ESG risks identified and assessed, and particularly focused on climate-related risks, supporting the Audit and Control Committee in preparing MERLIN’s Corporate Risk Map, which has been updated and approved by the Board of Directors on two occasions, each time including ESG risks such as those related to climate change. Supervisory functions of the management team MERLIN’s Chief Executive Officer (CEO) and Chief Operating Officer (COO), who are also Board members, are ultimately responsible for executing the strategy approved by the Board of Directors, including the implementation of the sustainability strategy. In turn, this strategy includes those aspects linked to climate-related risks and opportunities. Management Report – Statement of Non-Financial Information 2022 195 86 More information on MERLIN’s organisational structure and corporate governance can be found at Annual Corporate Governance Report 2022: https://www.merlinproperties.com/en/corporate-governance/ annual-reports/ MERLIN’s Statement of Non-Financial Information 2022: https://www.merlinproperties.com/en/investors/ financial-information/ At the operational level, a Sustainability Committee has been in place since 2021 to monitor the progress of the Company’s various sustainability plans and initiatives, and to follow up on sustainability objectives and indicators. The Committee comprises several members of the management team who lead the asset management, technical, treasury and finance, investor relations and internal audit areas of the Company. The asset management area and the technical department take into consideration the vision of the assets and how they pertain to climate-related risks and opportunities. The investor relations area is actively involved in the two-way communication of investors’ concerns regarding this issue. The treasury and finance area takes into consideration financial markets and green financing compliance indicators (100% reclassified by 2022). Lastly, the internal audit department, in supporting the Audit and Control Committee, is responsible for drawing up and updating the Company’s Risk Map, which includes climate-related risks. In 2022, as a result of the climate risk identification and assessment analysis, 7 material or priority climate-related risks were identified. In addition, the Investment Committee takes into consideration climate-related risks and opportunities when preparing the Company’s investment plans. The management team, the CEO, the COO and the Sustainability and Innovation Committee report on a regular basis to the Board of Directors on the progress made regarding sustainability. Figure1: MERLIN’s organisational structure. Source: Own preparation Strategy Climate-related impacts and resilience Based on historical data on MERLIN’s operations and business development, it seems that physical risks, mainly extreme precipitation, including snowfall, and high winds, are the most recurrent. In Management Report – Statement of Non-Financial Information 2022 196 addition, these climate-related risks have occasionally affected some of the Company’s assets, causing damage to structural elements and resulting in unforeseen expenses for repairs such as maintenance work due to leaks and waterproofing. As a preventive measure, technical specifications have been tightened in recent years in tenders for the construction of asset structures. To date, no transition risks have been identified that have had a significant impact on the Company, with the exception of the potential mandatory installation of electric vehicle charging points (pending legislative approval). MERLIN has gone beyond the potential minimum regulatory requirements, looking ahead at potential regulations and changes in consumer preferences, and accelerating the development of a low carbon economy. These types of events, in addition to MERLIN’s commitment, have encouraged the Company to develop and implement adaptation and mitigation measures to respond to such risks. MERLIN has therefore incorporated climate-related aspects into its overall risk management system, which is described in detail in the next section of the report on risk management. In addition, the decarbonisation of buildings is one of the challenges facing the real estate sector. MERLIN has therefore taken climate-related aspects into consideration in its strategy from the very beginning. In 2022, the Company continued to make progress in this regard by approving its Pathway to Net Zero, which is described below. General process for identifying climate-related risks In line with its climate change commitment, in 2022 MERLIN continued to further improve the identification and assessment of climate-related risks and opportunities, and has therefore taken the following steps: 1.Prepare a list of physical and transition risks indicated by the TCFD reference framework and the Commission Delegated Regulation 2021/2139 (“climate delegated act”). 2.Analyse MERLIN’s main competitors in terms of information reported in their TCFD and CDP (Carbon Disclosure Project) reports. 3.Review and analyse scientific articles related to the building sector and specific applicable regulations. 4.Review MERLIN’s ability to adapt to the main physical and transition risks identified given the current context. 5.Interview MERLIN’s stakeholders to conduct a more comprehensive analysis of climate change-related risks and opportunities, and the adaptation and mitigation measures in place. 6.Obtain the preliminary list identifying both physical and transition risks, and opportunities. This list of risks is expected to be updated on a regular basis. Risk management General risk management Management Report – Statement of Non-Financial Information 2022 197 MERLIN has a Risk Management System based on the principles, key elements and methodology established in the COSO Framework87, which aims to minimise the volatility of results (profitability) and, therefore, maximise the Group’s economic value, incorporating risk and uncertainty into the decision-making process to provide reasonable assurance of achieving the strategic objectives established, providing shareholders, other stakeholders and the market in general with an adequate level of guarantees to ensure that the value generated is protected. Based on a comprehensive view of risk management, MERLIN has adopted a methodological approach based on the Enterprise Risk Management Framework - Integrating with Strategy and Performance (COSO ERM 2017), which emphasises the importance of enterprise risk management in strategic planning and incorporates it throughout the Company, since risk influences strategy and performance in all areas, departments and functions. The general guiding principles regarding risk management are set out in MERLIN’s Risk Management and Control Policy88, which was initially approved by the Board of Directors in February 2016 and updated in April 2022. MERLIN’s non-financial risks are managed by the Board of Directors, through the Audit and Control Committee and with the coordination and cooperation of the Sustainability and Innovation Committee and the Appointments and Remuneration Committee, and by senior management with the support of the Internal Audit department. In 2022, MERLIN’s Risk Map was regularly updated to reflect every six months the perception of the Company’s main executives and governing bodies of the risks faced by MERLIN. MERLIN’s Risk Map is broken down into different key areas for achieving the Group’s objectives: strategy, governance, business, resources, social and sustainability. This last group includes the risks related to climate change based on the review and recommendations of the on Sustainability and Innovation Committee. MERLIN’s Risk Management System assesses all risks in terms of impact and probability, obtaining a residual risk indicator for the current year, identifies those key performance indicators (KPIs) and key risk indicators (KRIs) to be reported, and assigns those responsible for reporting, and those responsible for implementing or developing the mitigating measures identified for each of the risks. In addition, all risks are assessed in terms of time frame (short, medium and long term), and in terms of speed, persistence and adaptability89. Climate risk management Management Report – Statement of Non-Financial Information 2022 198 87 Committee of Sponsoring Organizations of the Treadway Commission. 88 More information can be found at https://www.merlinproperties.com/en/corporate-governance/corporate-governance- normative/ 89 More information on MERLIN’s organisational structure and corporate governance can be found at: •Annual Corporate Governance Report 2022: https://www.merlinproperties.com/en/corporate-governance/ annual-reports/ •MERLIN’s Statement of Non-Financial Information 2022: https://www.merlinproperties.com/en/investors/ financial-information/ First, it should be noted that the management of climate-related risks and opportunities is integrated into MERLIN’s overall risk management process described in the previous section. The Internal Audit department is responsible for coordinating the identification and assessment of climate-related risks and opportunities, along with the Company’s other risks, although in this case it may rely on support from the Sustainability Committee, as mentioned in the “Governance” section. In 2022, MERLIN worked with PwC advisors to further identify and assess these risks and opportunities. To identify climate-related risks, MERLIN analyses climate scenarios for the short (2021-2040), medium (2041-2060) and long term (2081-2100) for its assets. Physical risks are classified as acute and chronic events, while transition risks include regulatory, legal, technological, market and reputational risks. The same methodology is followed regarding climate-related opportunities, which are classified in terms of resource efficiency, energy source, products and services, and markets. After identifying climate change risks and opportunities, they are assessed in terms of likelihood and impact on a qualitative scale of 1 to 5. Any mitigation and adaptation measures implemented in the assets to reduce the impact of the risk should it materialise are also taken into account. The Company reviews the Risk Map every six months to analyse whether any climate-related risks that may affect MERLIN need to be included or modified. The Company is also aware of the role tenants play in achieving its climate strategy and managing related risks. Therefore, as mentioned in the previous section, MERLIN’s Pathway to Net Zero focuses on reducing tenant emissions, which can have a considerable impact in relation to transition risks. Assets subject to physical risks MERLIN has chosen two climate change scenarios to model the potential future impacts of climate change on its business and the resilience of its strategy. These scenarios have been taken from the Intergovernmental Panel on Climate Change (IPCC) and include five possible climate futures with different emission concentrations and socioeconomic changes in areas such as population, urban density, education, land use and wealth. Each scenario is labelled to identify both the level of emissions and the Shared Socioeconomic Pathway (SSP)90 used in these calculations. MERLIN’s climate-related risk analysis has taken into account a scenario in which emissions remain stable, SSP2-4.5 “Middle of the road”, and the scenario where emissions are very high SSP5-8.5 “Fossil-fuelled development”. In both cases, risks have been assessed in the short (2021-2040), medium (2041-2060) and long term (2081-2100), in line with the IPCC recommendations, focusing on the consequences in Spain and Portugal as this is where the Company’s assets are located. For each physical risk initially identified, the following criteria have been analysed at the asset level to calculate the inherent risk level: Management Report – Statement of Non-Financial Information 2022 199 90 Shared Socioeconomic Pathways. (i)Hazard/Climate impact, taking into account the driving variable. (ii)Exposure of the asset, analysed through external sources that assess the location of the asset and the impact of the driving variable. (iii)Vulnerability of the asset. (iv)The measures that MERLIN takes to adapt its assets have also been considered, which allows the residual risk for each asset to be obtained. Identification of transition risks Similarly, in relation to transition scenarios, the medium- and long-term forecasts of the International Energy Agency (IEA) use a scenario approach to examine future energy trends. Of the three scenarios proposed by the IEA, the normative scenario of Net Zero Emissions by 2025 (NZE Scenario) has been used in the transition risk analysis applied to MERLIN; this scenario has an emissions trajectory consistent with keeping the global temperature rise below 1.5ºC, would enable universal access to modern energy services and would result in significant improvements in air quality. As in the case of physical risks, the following criteria have been analysed for the transition risks initially identified to obtain the inherent risk level at the asset level: (i) economic impact that a measure taken may have on MERLIN’s activity, and (ii) probability of occurrence of the identified transition risk. The mitigation measures implemented by MERLIN have also been analysed to determine the Company’s capacity to react to the transition risks identified, which gives a level of residual risk per asset. Identification of climate-related opportunities The opportunities related to climate change vary depending on MERLIN’s strategic planning or risk management. Following a preliminary identification of climate-related opportunities, they have been assessed in accordance with the following criteria: •Potential impact of measures currently in place that generate savings or that may be beneficial for future change. •Likelihood of application of the measure in question or opportunity for access to be implemented at the Company. Identification of assets with material risks and opportunities and their financial impact Depending on the methodology used to assess both the physical and transition risks, and the material opportunities of MERLIN’s assets, a threshold has been considered regarding the level of residual risk resulting from the analysis carried out to determine materiality. The main climate-related risks and opportunities identified for MERLIN are set out below. Type Risk characterisation Potential impact for MERLIN Physical climate- related risk (acute) Extreme precipitation Breakage and damage to structural elements of the asset and possible personal injury. Devaluation of the asset in the medium to long term, increase in the price of the insurance policy for future years and financial losses. Physical climate- related risk (acute) River flooding Management Report – Statement of Non-Financial Information 2022 200 Type Risk characterisation Potential impact for MERLIN Transition climate- related risk (regulatory/legal) Applying a carbon price to direct or indirect greenhouse gas emissions Financial impact in the medium or long term by applying a carbon price for direct greenhouse gas emissions from its assets, and indirect upstream and downstream emissions from its value chain. Transition climate- related risk (regulatory/legal) Mobility-related urban planning policies that can change travel patterns Increased investment in retrofitting existing assets to new requirements for low emission zones in urban areas and other mitigation or adaptation measures with an impact on buildings and transport. Transition climate- related risk (market) Potential devaluation of assets as a result of the rate decarbonisation being insufficient Potential devaluation of assets (stranded assets) in the case of slower decarbonisation than the trend required by the European Union. Transitional climate- related risk (technological) Increase in operating expenses due to higher energy prices Increased operating expenses as a result of volatile energy prices, which may disrupt project development and lead to supply shortages for suppliers. Opportunity (mitigation-linked services) Use of more efficient modes of transport Potential leadership in the sector and increase in asset value as a result of the installation of charging points for electric vehicles. Opportunity (mitigation-linked services) Switching to more efficient buildings and use of low-emission energy sources Potential leadership in the sector with energy efficient assets and reduced carbon footprint by using energy from renewable sources (e.g. solar photovoltaic). Opportunity (mitigation-linked services) Use of incentives in supporting policies Potential leadership in the sector and promotion of consumer awareness (green clause in leases). Opportunity (energy saving) Use of new technologies Decrease in costs as a result of reduced energy consumption from fossil fuels. Opportunity (adaptation-linked services) Commitment and transparency External verification of all sustainability commitments assumed to generate confidence among the various stakeholders. Table1: Main climate-related risks and opportunities identified for MERLIN. Source: Own preparation MERLIN has also begun to assess the risks and opportunities related to climate change from a financial perspective in line with the EFRAG climate change standard published on 15 November 2022, which is effective for reporting financial years beginning on or after 01/01/2024. Management Report – Statement of Non-Financial Information 2022 201 The conclusions drawn from the process of analysing physical and transitional risks and climate- related opportunities are taken into account in the Company’s strategic and financial planning, e.g. in determining MERLIN’s investment and divestment plan. The Company also continues to implement various measures in line with its decarbonisation strategy on the Pathway to Net Zero. Management Report – Statement of Non-Financial Information 2022 202 Appendix V. Reconciliation of Alternative Performance Measures to the financial statements In accordance with the recommendations issued by the European Securities and Markets Authority (ESMA), the alternative performance measures (“APM”) are described as follows GLOSSARY Average debt maturity (years) - This APM represents the average debt duration of the Company until maturity It is a relevant metric as it provides the investor with the relevant information about the repayment commitments of the financial liabilities It is calculated as the addition of the pending years to maturity of each loan multiplied by its outstanding loan amount and divided by the total outstanding amount of all loans Given the nature of the metric, it is not possible to reconcile it with the Group financial statements but the main information is available in the consolidated financial statements. Average passing rent - It represents the rent per square meter per month at which an asset or category of assets are rented at a moment in time The average passing rent is a relevant performance metric as it shows the implied rents of all the prevailing lease contracts of the company at a moment in time per square meter and per month enabling the comparison with market rents Given the nature of the metric, it is not possible to reconcile it with the financial statements. Release spread - Difference between the new rent signed and the old prevailing rent on renewals (same space, same tenant) or relets (same space, different tenant) during last twelve months The release spread provides the investor with a view on the prospective rental behaviour when negotiating with the tenants It is calculated on a lease by lease basis and therefore it is not possible to reconcile it with the financial statements. Rents Like-for-like - Amount of the gross rents comparable between two periods. It is calculated on an asset by asset basis excluding from both periods the rents derived from acquisitions or disposals executed in such periods as well as other adjustments like early termination penalties from lease contracts We consider the rental like-for-like growth a relevant metric to understand the evolution of rents of an asset or an asset category It is calculated on an asset by asset basis and therefore it is not possible to reconcile it with the financial statements. Gross annualized rents - Passing rent as of the balance sheet date multiplied by 12 We consider the gross annualized rents a relevant performance metric as it represents the total amount of rents of the prevailing lease contracts at a given time enabling the calculation of the return of each asset (Gross yield) Given the nature of the metric, it is not possible to reconcile it with the financial statements. GAV - The GAV is the Gross Asset Value as of the latest available valuation report plus the advanced payments of turn-key projects and developments at cost The GAV is a standard valuation metric for comparison purpose, recognized on a global basis in the real estate sector, and performed by an independent external appraisal The reconciliation with the financial statements appears in Section 5 of this report (Notes to the consolidated balance sheet). Gross yield - It represents the return of an asset or category of assets. It is calculated by dividing the annualized gross rent between the latest available GAV. Wault - Weighted average unexpired lease term, calculated as the number of years of unexpired lease term, as from the date balance sheet, until the lease contract first break weighted by the gross rent of each individual contract We consider the Wault a relevant metric as it provides the investor with the average term of secured leases and gives a sense of risk or opportunity to renegotiate the Management Report – Statement of Non-Financial Information 2022 203 prevailing lease contracts Given the nature of the metric, it is not possible to reconcile it with the Group financial statements. Revenues - Is the addition of the total gross rent income, and the other operating income excluding extraordinaries The reconciliation with IFRS appears in the table thereafter. Accounting EBITDA – The accounting EBITDA is calculated as the net operating income before net revaluations, amortizations, provisions, interest and taxes. The accounting EBITDA is a performance metric widely used by investors to value companies, as well as the rating agencies and creditors to evaluate the level of indebtedness The reconciliation with IFRS metrics appears in the table hereafter. EBITDA - The EBITDA is calculated as the Accounting EBITDA deducting the “non-overheads” costs and the LTIP Provision The EBITDA is a very useful metric as it excludes the impact of atypical costs incurred in the period. The atypical costs or “non-overheads” costs are the ones related to the acquisition and disposal of assets and indemnities among others (as described in the IPO prospectus) The reconciliation with IFRS metrics appears in the table hereafter. Accounting FFO and FFO - Accounting FFO or Accounting Funds From Operations is calculated as EBITDA less debt interest expenses and recurring taxes (excluding taxes from disposals or other extraordinary events) FFO is calculated deducting the non-overheads costs of the company from the Accounting FFO It is a relevant performance and liquidity metric recognized on a global basis in the real estate sector. Loan-to-value ratio (LTV) - The loan-to-value ratio is calculated as the net debt divided by the fair value of the assets of the company (GAV + transaction costs) The LTV is a performance metric widely used by investors to assess the level of risk, as well as the rating agencies and creditors to evaluate the level of indebtedness. The reconciliation with IFRS metrics appears in the table hereafter. MERLIN Properties, as a member of EPRA (European Public Real Estate Association), follows EPRA’s best practices reporting standards which enables the investor to better compare certain performance metrics that are specific to the real estate sector. This metrics are released on a semi- annual basis and detailed in the management report. EPRA costs - It is calculated as total operating costs of the company divided by the gross rents net of incentives This performance metric shows the operating efficiency on a recurring basis The reconciliation with the Financial Statements appears in the Appendix of this report. EPRA Earnings - Earnings from core operational activities as per EPRA’s recommendations The reconciliation with the Financial Statements appears in the Appendix of this report EPRA NRV, EPRA NTA and EPRA NDV EPRA Net Reinstatement Value: Assumes that entities never sell assets and aims to represent the value required to rebuild the entity EPRA Net Tangible Assets: Assumes that entities buy and sell assets, thereby crystallizing certain levels of unavoidable deferred tax EPRA Net Disposal Value: Represents the shareholders’ value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. EPRA Yields - Net Initial Yield: Annualized rental income based on the passing rents at the balance sheet date, less non recoverable property operating expenses, divided by the market value of the property (GAV) increased with acquisition costs 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) These are two relevant performance metrics widely used to compare the return of the real estate assets in the portfolio, based on the prevailing lease Management Report – Statement of Non-Financial Information 2022 204 contracts at a given date regardless of the financial structure of the company as per EPRA’s recommendations The calculation is provided in the Appendix of this report Given the nature of the metric, it is not possible to reconcile it with the Group financial statements. EPRA Vacancy Rate - Estimated Market Rental Value (ERV) of vacant space divided by ERV of the whole portfolio Given the nature of the metric, it is not possible to reconcile it with the Group financial statements. Leverage ratio - The leverage ratio is calculated as the net debt divided by the net debt plus the equity The leverage ratio is a performance metric widely used by investors to assess the level of risk, as well as MERLIN Properties | 55 the rating agencies and creditors to evaluate the level of indebtedness The reconciliation with IFRS metrics appears in the table hereafter. Financial debt – The financial debt is calculated as the sum of any amount owed by the Group in the short and long-term as a result of loans, credits, bonds, debentures, and in general any instrument of a similar nature The financial debt is a performance metric widely used by investors to assess the level of risk, as well as the rating agencies and creditors to evaluate the level of indebtedness The reconciliation with IFRS metrics appears in the table hereafter. Percentage of debt at a fixed rate or with interest rate hedges - The percentage of debt at a fixed rate or with interest rate hedges is calculated as the sum of fixed-rate financial debt and variable- rate financial debt with associated interest rate change hedging transactions in relation to the Group’s financial debt The percentage of debt at a fixed rate or with interest rate hedges is a performance metric widely used by investors to assess the level of risk, as well as the rating agencies and creditors to evaluate the company exposure to interest rate movements Given the nature of the metric, it is not possible to reconcile it with the Group financial statements but the main information is available in the consolidated financial statements. Average cost of debt - The average cost of debt is calculated as the ratio between the passing interest cost including derivatives corresponding to interest bearing debt and the Group’s financial debt The average cost of debt is a performance metric widely used by investors to assess the cost of borrowed funds, as well as the rating agencies and creditors to evaluate the capacity to fulfil interest obligations. Given the nature of the metric, it is not possible to reconcile it with the Group financial statements but the main information is available in the consolidated financial statements. Liquidity position - The liquidity position is calculated as the sum of the Group’s cash plus the amount corresponding to receivables from corporate transactions, the treasury stock position at market value, and the undrowned credit facilities available The liquidity position is a performance metric widely used by investors to assess the level of financial flexibility, as well as the rating agencies and creditors to evaluate the capacity to meet debt maturities The reconciliation with IFRS metrics appears in the table hereafter. Net debt - The net debt is calculated as the financial debt less cash and cash equivalents (e.g. disposal receivables or treasury stock) The net debt is a performance metric widely used by investors to assess the level of risk, as well as the rating agencies and creditors to evaluate the level of indebtedness The reconciliation with IFRS metrics appears in the table hereafter. Investment in energy efficiency improvements - The investment in energy efficiency improvements is defined as investments aimed at measuring, controlling, or directly or indirectly reducing, energy consumption or carbon footprint in all assets over which we have operational control This performance metric, although not widely used by investors, rating agencies or creditors, is provided to assess the level of investments in ESG (environmental, social and corporate governance) measures Management Report – Statement of Non-Financial Information 2022 205 Given the nature of the metric, it is not possible to reconcile it with the Group financial statements, but the main information is available in the consolidated financial statements. Total tax contribution - Total Tax Contribution (TTC) measures the contribution made by a company or group of companies to the different governments. In general, both taxes borne, and taxes collected are imputed to each fiscal year, on a cash basis. •Taxes borne are those taxes that have entailed an effective cost for the companies, such as taxes on profits, social security contributions payable by the company, and certain environmental taxes • Taxes collected are those that have been paid as a consequence of the company’s economic activity, without entailing a cost for the companies other than managing them, such as withholding taxes levied on employees This performance metric, although not widely used by investors, rating agencies or creditors, is provided to assess the amount of taxes collected or paid by the company given the nature of the metric, it is not possible to reconcile it with the Group financial statements. Reconciliation of the APM to the financial statements (1)Profit for the period excluding revaluation adjustment, impact of derivatives and including income from dividends received. (2)Current income tax excluding impact from sales of non-current assets Management Report – Statement of Non-Financial Information 2022 206 1)Including Silicius at amortized cost (€86.6 million) net of the impact of the derivative 2)Including DCN loan 3)Amount effectively disbursed by MERLIN. Excludes both undisbursed amounts and pre-sold commercial inventories. Total trade inventories amounted to €37.7 million as of FY22 4)MtM of non-current assets Management Report – Statement of Non-Financial Information 2022 207 FY22 Management Report – Statement of Non-Financial Information 2022 208 FY21 - The EPRA NAV metrics for fiscal 2021 are presented below. This information corresponds to that included in the consolidated financial statements for fiscal year 2021. This information has not been reexpresed in accordance with the recording of the reexpresed discontinued operations in the consolidated financial statements for 2022. Management Report – Statement of Non-Financial Information 2022 209 FY22 FY21 - The EPRA NAV metrics for fiscal 2021 are presented below. This information corresponds to that included in the consolidated financial statements for fiscal year 2021. This information has not been reexpresed in accordance with the recording of the reexpresed discontinued operations in the consolidated financial statements for 2022. Management Report – Statement of Non-Financial Information 2022 210 FY22 Management Report – Statement of Non-Financial Information 2022 211 FY21 - The EPRA NAV metrics for fiscal 2021 are presented below. This information corresponds to that included in the consolidated financial statements for fiscal year 2021. This information has not been reexpresed in accordance with the recording of the reexpresed discontinued operations in the consolidated financial statements for 2022. Management Report – Statement of Non-Financial Information 2022 212 FY22 Management Report – Statement of Non-Financial Information 2022 213 FY21 - The EPRA NAV metrics for fiscal 2021 are presented below. This information corresponds to that included in the consolidated financial statements for fiscal year 2021. This information has not been reexpresed in accordance with the recording of the reexpresed discontinued operations in the consolidated financial statements for 2022. Appendix VI. Post-closing events As of the date of this report, there are no significant post-closing events. Management Report – Statement of Non-Financial Information 2022 214 Appendix VII. Independent review report Management Report – Statement of Non-Financial Information 2022 215 Management Report – Statement of Non-Financial Information 2022 216 Management Report – Statement of Non-Financial Information 2022 217 Management Report – Statement of Non-Financial Information 2022 218 MERLIN PROPERTIES, SOCIMI, S.A. Preparation of the Consolidated Financial Statements and Consolidated Directors’ Report relating to the fiscal year ended December 31, 2022. In accordance with articles 365 and 366 of the Companies Registry Regulations, in relation to subarticle one of article 253 of the Capital Companies Law in force, the Board of Directors of MERLIN Properties, SOCIMI, S.A. (the “Company”) has prepared (formulado) (in English) the consolidated financial statements and the consolidated directors’ report (which has attached, as a separate section, the Annual Corporate Governance Report, the Annual Director Remuneration Report and the Statement of Non-Financial Information), relating to the year ended December 31, 2022, in single electronic format according with the Commission Delegated Regulation (EU) 2018/815 of 17 December 2018 and included in the electronic file/s with the following hash code/s Number: __________ (The “Consolidated Financial Statements File”). In addition, through the execution and signature of this signature page, and pursuant to subarticle two of said article 253, the members forming the Company’s Board of Directors declare that they have signed, in their own handwriting, the entire contents of the Consolidated Financial Statements File. ______ Mr. Javier Garcia-Carranza Benjumea (Chairman) ______ Mr. Ismael Clemente Orrego (Deputy Chairman) _____ Ms. Francisca Ortega Hernández-Agero (Member) ______ Ms. Ana Forner Beltran (Member) _____ Ms. María Luisa Jorda Castro (Member) _____ Ms. Pilar Cavero Mestre (Member) ______ Mr. Juan María Aguirre Gonzalo (Member) _____ Mr. Miguel Ollero Barrera (Member) _____ Mr. Fernando Javier Ortiz Vaamonde (Member) ______ Ms. Ana María García Fau (Member) _____ Mr. Emilio Novela Berlin (Member) _____ Mr. George Donald Johnston (Member) ______ Mr. Ignacio Gil-Casares Satrústegui (Member) Madrid, 27 February 2023 Management Report – Statement of Non-Financial Information 2022 219 MERLIN Properties, SOCIMI, S.A. DECLARATION OF RESPONSIBILITY FOR THE 2022 FINANCIAL STATEMENTS The members of the Board of Directors of Merlin Properties, SOCIMI, S.A. declare that, to the best of their knowledge, the individual financial statements of Merlin Properties, SOCIMI, S.A. and the consolidated financial statements with its subsidiaries, for the year ended December 31, 2022, prepared (formuladas) (in English) by the Board of Directors at the meeting held on February 27, 2023, in accordance with the applicable accounting principles and in single electronic format, offer a true and fair view of the net worth, financial situation and results of Merlin Properties, SOCIMI, S.A. and of the subsidiaries included in the consolidated group, taken as a whole, and that the directors’ reports accompanying the individual and consolidated financial statements (along with their attachments and supplementary documentation including the Statement of Non-Financial Information as part of the Consolidated Directors' Report) include a true analysis of the business performance, results and position of Merlin Properties, SOCIMI, S.A. and of the subsidiaries included in the consolidated group, taken as a whole, and a description of the main risks and uncertainties they face. _____ Mr. Javier Garcia-Carranza Benjumea (Chairman) _____ Mr. Ismael Clemente Orrego (Deputy Chairman) ______ Ms. Francisca Ortega Hernández-Agero (Member) _____ Ms. Ana Forner Beltran (Member) _____ Ms. María Luisa Jorda Castro (Member) ______ Ms. Pilar Cavero Mestre (Member) _____ Mr. Juan María Aguirre Gonzalo (Member) _____ Mr. Miguel Ollero Barrera (Member) ______ Mr. Fernando Javier Ortiz Vaamonde (Member) _____ Ms. Ana María García Fau (Member) _____ Mr. Emilio Novela Berlin (Member) ______ Mr. George Donald Johnston (Member) ________ Mr. Ignacio Gil-Casares Satrústegui (Member) In Madrid, on February 27, 2023 Management Report – Statement of Non-Financial Information 2022 220