Merlin Properties Socimi S.A.

CCAA Merlin Properties 2022 (EN) Merlin Properties, SOCIMI, S.A. Financial Statements for the year ended 31 December 2022 and Directors’ Report MERLIN PROPERTIES SOCIMI, S.A. BALANCE SHEET AT 31 DECEMBER 2022 (Expressed in thousands of euros) Notes to the Notes to the ASSETS financial statements 31-12-2022 31-12-2021 EQUITY AND LIABILITIES financial statements 31-12-2022 31-12-2021 NON-CURRENT ASSETS 7,819,630 8,437,075 EQUITY Note 10 4,030,143 3,673,353 Intangible assets 71,083 94,013 SHAREHOLDERS' EQUITY 4,017,345 3,673,353 Goodwill Note 5 69,481 92,641 Subscribed capital 469,771 469,771 Other intangible assets 1,602 1,372 Share premium 3,541,379 3,647,876 Property, plant and equipment 2,183 2,250 Reserves (443,080) (432,104) Investment property Note 6 4,393,368 4,454,947 Tresury shares (17,166) (32,305) Land 2,138,286 2,202,752 Other equity holders contributions 540 540 Buildings 2,136,745 2,179,566 Profit/(Loss) for the period 910,716 89,608 Property, plant and equipment under construction and advances 118,337 72,629 (Interim Dividend) Note 3 (444,815) (70,033) Non-current investments in Group companies and associates - 3,120,068 3,671,311 VALUATION ADJUSTMENTS- Note 10.4 12,798 — Equity instruments Note 9 2,564,543 3,164,795 Hedging transactions 12,798 — Loans to companies Notes 7 y 16.1 555,525 506,516 Non-current financial investments - Note 7 158,848 139,187 Equity instruments 9,191 6,796 NON-CURRENT LIABILITIES 3,853,965 5,368,939 Derivatives 12,798 — Non-current provisions - Note 12 11,558 10,184 Loans to third parties 105,705 100,791 Long-term employee benefit obligations 4,619 3,338 Other financial assets 31,154 31,600 Other provisions 6,939 6,846 Deferred tax assets Note 14.2 74,080 75,367 Non-current payables - 3,442,284 4,954,831 Debt instruments and other marketable securities Note 11 3,279,334 4,017,570 CURRENT ASSETS 1,033,190 1,406,601 Bank borrowings Note 11 108,243 872,358 Inventories - 3,715 476 Derivatives Note 11 — 6,169 Advances to suppliers 3,715 476 Other financial liabilities Note 12 54,707 58,734 Trade and other trade receivables Note 7 27,744 13,011 Non-current payables to Group companies and associates Notes 7 y 16.2 11,021 12,821 Trade receivables for sales and services 9,533 4,156 Deferred tax liabilities Note 14.3 389,102 391,103 Trade receivables from Group companies and associates Note 7 y 16.2 8,388 2,272 Sundry accounts receivable 1,268 587 Employee receivables 184 184 CURRENT LIABILITIES 968,712 801,384 Other accounts receivable from public authorities Note 14 8,371 5,812 Current payables - 781,283 592,923 Current investments in Group companies and associates - Note 7 653,400 817,306 Debt instruments and other marketable securities Note 11 775,036 588,155 Financial assets at fair value with changes in profit or loss — 80,964 Bank borrowings Note 11 969 1,497 Loans to companies Note 16.2 651,580 735,892 Other financial liabilities Note 12 5,278 3,271 Other financial assets Note 16.2 1,820 450 Current payables to Group companies and associates Note 16.2 69,805 108,630 Current financial investments - Note 7 294 311 Trade and other payables - Note 13 117,599 99,831 Equity instruments 18 18 Payables to suppliers 44,410 25,087 Loans to companies 236 236 Payables to suppliers - Group companies and associates Notes 13 y 16.2 33,980 33,809 Debt securities 2 2 Sundry accounts payable Note 13 1,037 1,199 Other financial assets 38 55 Staff costs (remuneration payable) Note 13 15,025 20,767 Current prepayments and accrued income 4,956 4,772 Other accounts payable to public authorities Note 14 22,700 18,969 Cash and cash equivalents - Note 8 343,081 570,725 Clients invoices Note 13 447 — Cash 343,081 570,725 Current accrued expenses and deferred income 25 — TOTAL ASSETS 8,852,820 9,843,676 TOTAL LIABILITIES AND EQUITY 8,852,820 9,843,676 The accompanying Notes 1 to 23 and Appendix I and II are an integral part of the balance sheet at 31 December 2022. MERLIN PROPERTIES SOCIMI, S.A. INCOME STATEMENT FOR 2022 (Thousands of euros) Notes to the Year Year financial statements 2022 2021 CONTINUING OPERATIONS: Revenue Note 18.1 428,075 344,001 Other operating income 1,308 2,057 Staff costs - Note 18.2 (35,796) (37,945) Salaries, wages and similar expenses (32,910) (35,115) Employee benefit costs (2,886) (2,830) Other operating expenses Note 18.3 (46,968) (41,724) Depreciation and amortisation Notes 5 y 6 (64,556) (64,162) Change in provisions (74) 1,510 Impairment and gains or losses on disposal of non-current assets - Note 6 684,147 1,222 Impairment and other losses 684,147 1,222 PROFIT/(LOSS) FROM OPERATIONS 966,136 204,959 Finance income - Note 18.4 3,795 4,602 From investments in equity instruments — 1,145 From marketable securities and other financial instruments 2,058 3,094 Other finance income Note 8 1,737 363 Finance costs - Note 18.4 (99,391) (112,424) On debts to Group companies and associates (1,067) (1,433) On payables to third parties (97,702) (110,153) Other finance costs (622) (838) Changes in fair value of financial instruments Note 18.4 36,934 14,792 Impairment and gains or losses on disposal of financial instruments - Notes 7.3, 9 y 18.4 2,812 (21,511) Impairment and other losses 3,424 (16,323) Gains or losses on disposals and other (612) (5,188) FINANCIAL PROFIT/(LOSS) (55,850) (114,541) PROFIT/(LOSS) BEFORE TAX 910,286 90,418 Income tax Note 14.2 430 (810) PROFIT/(LOSS) FOR THE YEAR 910,716 89,608 The accompanying Notes 1 to 23 and Appendix I and II are an integral part of the income statement for 2022. MERLIN PROPERTIES SOCIMI, S.A. STATEMENT OF CHANGES IN EQUITY FOR 2022 A) STATEMENTS OF RECOGNISED INCOME AND EXPENSES (Thousands of euros) Notes to the financial statements Year Year 2022 2021 PROFIT/(LOSS) PER INCOME STATEMENT (I) 910,716 89,608 Income and expense recognised directly in equity - Por valoración de instrumentos financieros Financial assets at fair value with changes in equity Notes 7 y 11 12,780 — TOTAL INCOME AND EXPENSE RECOGNISED DIRECTLY IN EQUITY (II) 12,780 — Transfers to profit or loss - From Financial assets at fair value with changes in profit or loss — 4,988 - From cash flow hedges 18 625 TOTAL TRANSFERS TO PROFIT OR LOSS (III) 18 5,613 TOTAL RECOGNISED INCOME AND EXPENSE (I+II+III) 923,514 95,221 The accompanying explanatory Notes 1 to 23 are an integral part of the statement of changes in equity for the period ending in 2022 MERLIN PROPERTIES SOCIMI, S.A. STATEMENT OF CHANGES IN EQUITY FOR 2022 B) STATEMENT OF CHANGES IN TOTAL EQUITY (Thousand of euros) Other Share Share Shareholder Valuation Shareholder Profit/(loss) Interim Capital premium Reserves Contribution adjustments Contribution for the year Dividend TOTAL BALANCE AT THE END OF 2020 469,771 3,813,409 (406,842) (54,149) (5,613) 540 (25,467) — 3,791,649 Total recognised income and expense – – – 5,613 – 89,608 – 95,221 Transactions with shareholders: – – – – – – – – -Distribution of 2021 profit – (25,467) – – – – 25,467 (70,033) (70,033) - Distribution of dividends – (140,066) – – – – – – (140,066) Disposal of treasury shares – – – 5 – – – – 5 Acquisition/Disposal of treasury shares – – 8,758 – – – – – 8,758 Recognition of share-based payments (Note 17) – – (33,835) 20,896 – – – – (12,939) Delivery of 2017 stock plan shares and flexible remuneration – – (185) 943 – – – – 758 BALANCE AT END OF 2021 469,771 3,647,876 (432,104) (32,305) – 540 89,608 (70,033) 3,673,353 Total recognised income and expense – – – 12,798 – 910,716 – 923,514 Transactions with shareholders: – – – – – – – – -Distribution of 2021 profit – 8,961 – – – (89,608) 70,033 (10,614) - Distribution of dividends – (106,497) – – – – – (444,815) (551,312) Acquisition of treasury shares – – (52) 142 – – – – 90 Recognition of share-based payments (Note 17) – – 4,014 – – – – – 4,014 Delivery of 2017 stock plan share (23,864) 14,133 – – – – (9,731) Delivery of flexible remuneration shares – – (35) 864 – – – – 829 BALANCE AT END OF 2022 469,771 3,541,379 (443,080) (17,166) 12,798 540 910,716 (444,815) 4,030,143 The accompanying explanatory Notes 1 to 23 and Appendix I and II are an integral part of the consolidated statement of changes in equity for the period ended as of 31 December 2022 MERLIN PROPERTIES SOCIMI, S.A. STATEMENT OF CASH FLOWS FOR 2022 (Thousands of euros) Notes to the Year Year financial statements 2022 2021 CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES (I) 152,311 121,787 Profit/(Loss) for the year before tax 910,286 90,418 Adjustments for: (760,758) 60,603 - Depreciation and amortisation charge Note 5 64,556 64,162 - Impairment losses Note 6 29,936 25,388 - Changes in provisions 3,831 22,347 - Gains/Losses on derecognition and disposal of non-current assets Note 6 (717,507) (10,469) - Gains/Losses on derecognition and disposal of financial instruments 612 5,023 - Changes in fair value of financial instruments (36,934) (14,792) - Finance income (3,795) (4,602) - Finance costs Note 18 99,391 112,424 - Dividend income Note 18 (176,161) (110,693) - Other income and expenses (24,687) (28,185) Changes in working capital (23,300) (39,497) - Inventories (3,239) (433) - Trade and other accounts receivable (14,733) (5,221) - Other current assets 16 5 - Accounts payable 7,394 (11,861) - Other assets and liabilities (12,738) (21,987) Other cash flows from/(used in) operating activities 26,083 10,263 - Interest payments (99,438) (102,659) - Dividends received 122,253 111,838 - Interest received 1,738 3,373 - Collections /(payments) on debts to Group companies 171 (542) - Income tax recovered (paid) Note 14 1,655 (1,747) - Other receivables/(payments) from operating activities (296) – CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES (II) 1,395,537 68,690 Payments due to investments (790,176) (82,595) - Group companies and associates (683,452) (1,642) - Intangible assets (1,055) (1,222) - Property, plant and equipment (324) (479) - Investment property Note 6 (103,069) (71,357) - Other financial assets – – - Financial investments (2,276) (7,896) Proceeds from disposals 2,185,713 151,286 - Group companies and associates 1,996,425 – - Financial investments – 96,160 - Investment property 108,324 55,126 - Other financial assets 80,964 – CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES (III) (1,775,492) 268,530 Proceeds and payments relating to equity instruments- (562,068) (210,104) - Treasury share purchases Note 10 (142) (5) - Dividends paid (455,429) (140,066) - Premium refunds and reserves (106,497) (70,033) Proceeds and payments relating to financial liabilities (1,213,425) 478,634 - Bank borrowings 81,760 (669) - Issuance of debentures and bonds – 494,230 - Repayment of borrowings from Group companies and associates (850,000) – - Issuance / (repayment and amortization) of debt with Group companies and associates 78,786 (14,927) -Cancellation of interest rate derivatives 24,329 - Repayment and redemption of debentures and bonds (548,300) – EFFECT OF FOREIGN EXCHANGE RATE CHANGES (IV) NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III+IV) (227,644) 459,007 Cash and cash equivalents at beginning of year 570,725 111,718 Cash and cash equivalents at end of year 343,081 570,725 The accompanying Notes 1 to 23 and Apendix I and II are an integral part of the statement of cash flows for 2022. Merlin Properties SOCIMI, S.A. Notes to the Financial Statements for the year ended 31 December 2022 1. Nature and activities of the Company Merlin Properties SOCIMI, S.A. (“the Company”) was incorporated in Spain on 25 March 2014 under the name Merlin Properties, S.A., Sociedad Unipersonal, in accordance with the Spanish Corporate Enterprises Act [Ley de Sociedades de Capital] On 22 May 2014, the Company requested to be included in the tax regime for listed companies investing in the property market (REITs), effective from 1 January 2014. On 27 February 2017, the Company changed its registered office from Paseo de la Castellana 42 to Paseo de la Castellana 257, Madrid, Spain. The Company’s corporate purpose is: –The acquisition and development of urban property for subsequent leasing, including the refurbishment of buildings as per Spanish Law 37/1992, of 28 December, on Value Added Tax [Ley 37/1992, de 28 de diciembre, del Impuesto sobre el Valor Añadido]; –The holding of shares in other REITs or in other non-resident entities in Spain with the same corporate purpose and that operate under a similar regime as that established for REITs with respect to the mandatory profit distribution policy enforced by law or by the articles of association; –The holding of shares in other resident or non-resident entities in Spain whose corporate purpose is to acquire urban property for subsequent leasing, and which operate under the same regime as that established for REITs with respect to the mandatory profit distribution policy enforced by law or by the articles of association, and which fulfil the investment requirements stipulated for these companies; and –The holding of shares or shares in collective property investment institutions regulated by Law 35/2003, of 4 November, on collective investment undertakings, or any law that may replace this in the future. In addition to the economic activity deriving from the principal corporate purpose, the Company may also carry on any other complementary activities; these being any that generate income representing less than 20%, taken as a whole, of the Company's income in each tax period, or any that can be classified as complementary as per prevailing legislation. The activities included in the Company’s corporate purpose may be indirectly carried on, either wholly or in part, through the ownership of shares in companies with a similar or identical corporate purpose. The direct and, where applicable, indirect performance of any activities which are reserved under special legislation are excluded. If the law prescribes the need for a professional qualification, administrative authorisation, entry in a public register, or any other requirement for the purpose of exercising any of the activities within the corporate purpose, no such activity can be exercised until all the applicable professional or administrative requirements have been met. The Company engages mainly in the acquisition and management (through leasing to third parties) of offices, industrial buildings, logistic centres, local premises and shopping centres, and it may also invest to a lesser extent in other assets for lease. The 2016 financial year saw the merger by absorption of Testa Inmuebles en Renta SOCIMI, S.A. as well as the business combination carried out with the property business of Metrovacesa, S.A. The information required by section 107 of Spanish Law 43/1995, of 27 December, on Corporation Tax [Ley 43/1995 de 27 de diciembre del Impuesto sobre sociedades] relating to mergers is broken down in the 2016 financial statements. All the Company's shares can be publicly traded and are listed on the Madrid, Barcelona, Bilbao and Valencia stock exchanges. The market price of the Company’s shares at 31 December 2022 and the average market price for the fourth quarter amounted to EUR 8.78 and EUR 8.65 per share, respectively. Starting 15 January 2020, the Company's shares were listed on Euronext Lisbon under a dual listing. The Company is the head of a group of subsidiaries and is obliged under current legislation to prepare consolidated financial statements separately. These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRSs), in conformity with Regulation (EC) no. 1606/2002 of the European Parliament and of the Council, of 19 July 2002, and with all the related implementing provisions and interpretations. The separate and consolidated financial statements for 2022 were formally prepared by the directors at the Board meeting held on 27 February 2023. The consolidated financial statements for 2022 of the Merlin Group prepared in conformity with the IFRSs adopted by the European Union present total assets of EUR 12,051,483 thousand and equity attributable to the Parent’s shareholders of EUR 6,849,224 thousand. Consolidated sales and consolidated profit attributable to the Parent amount to EUR 439,038 thousand and EUR 263,087 thousand, respectively (EUR 382,830 and 512,217 thousand in 2021) In view of the business activities currently carried out by the Company, it does not have any environmental liability, expenses, assets, provisions or contingencies that could be significant with regards to its equity, financial position and results. Therefore, no specific disclosures relating to environmental issues are included in these notes to the financial statements. 1.1 SOCIMI Tax Regime Merlin Properties, SOCIMI, S.A., as the Parent of its Group, is governed by Spanish Law 11/2009, of 26 October, amended by Spanish Law 16/2012, of 27 December, regulating listed companies investing in the property market (REITs) [Ley 11/2009, de 26 de octubre, modificada por la Ley 16/2012, de 27 de diciembre, por la que se regulan las Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario]. Section 3 of that Law sets out the investment requirements for these types of companies, namely: 1.At least 80% of a REIT's assets must be invested in urban property for leasing purposes and/or in land to be developed for leasing purposes provided such development starts within three years of acquisition, along with investments in the capital or equity of other entities referred to in section 2.1 of that Law. The value of the assets will be determined based on the average of the individual balance sheets for each quarter of the year, and so the Company may opt to calculate such value by taking into account the market value of the assets included in such balance sheets instead of their carrying amount, in which case that value would apply to all balance sheets for the year. For these purposes, the money and collection rights arising from the disposal of these properties or shareholdings, if applicable, during the same year or previous years will not be calculated, provided that, in this last case, the reinvestment period referred to in section 6 of this Law has not elapsed. 18 2.Similarly, at least 80% of the income for the tax period for each year, excluding that arising from the disposal of shareholdings and properties used in the compliance of its main corporate purpose, once the holding period referred to below has elapsed, should come from the lease of properties and from dividends or shares in profit from these investments. This percentage is calculated based on consolidated profit if the company is a parent of a group, as defined in section 42 of the Spanish Commercial Code [Código de Comercio], irrespective of the place of residence and the obligation to prepare consolidated financial statements. That group will be exclusively composed of the REIT and all the other entities referred to in section 2.1 of that Law. 3.The REIT's property assets must be leased for at least three years. The time that the properties have been offered for lease, up to a maximum of one year, will be included for the purposes of this calculation. This period will be calculated: a)In the case of properties that are included in the REIT's assets before it avails itself of the regime, from the date of commencement of the first tax period in which the special tax regime set forth in the Law is applied, provided that the property is leased or offered for lease at that date. Otherwise, the provisions of the following letter will apply. b)In the case of properties developed or acquired subsequently by the Company, from the date on which they were leased or offered for lease for the first time. c)Shares or equity investments in entities referred to in section 2.1 of that Law must be kept in the REIT's asset base at least during three years after their acquisition or, if applicable, from the beginning of the first tax period during which the special tax regime established in that Law applies. As established in transitional provision one of Law 11/2009, of 26 December, amended by Law 16/2012, of 27 December, regulating listed companies investing in the property market (REITs), these companies may opt to apply the special tax regime pursuant to section 13 of that Law, even when the requirements stipulated in it are not met, under the condition that such requirements are met within two years of the date application of the REIT tax regime is sought. REITs are taxed at a rate of 0% for income tax. However, where dividends distributed to an shareholder owning at least 5% of the REIT's share capital are exempt from taxation or taxed below 10%, such REIT will be subject to a special charge of 19% of the dividends distributed to those shareholders, in respect of corporation tax. If deemed applicable, this special charge will be paid by the REITwithin two months after the dividend distribution date. The transitional period in which the Company had to meet all requirements of this tax regime ended in 2017. The Company's directors, supported by the opinion of their tax advisers, assessed its compliance with the Regime's requirements in 2022, and concluded that all requirements are met. Consequently, the Company's financial statements for 2022, prepared by its directors, awaiting approval by the General Shareholders' Meeting, have been prepared under the REIT Scheme. However, the Company’s directors consider that the aforementioned financial statements will be approved without any significant changes. With effect for the years beginning on or after 1 January 2021, Spanish Law 11/2021, of 9 July, on measures to prevent and combat tax fraud [Ley 11/2021, de 9 de julio, de medidas de prevención y lucha contra el fraude fiscal] amended section 9.4 of Spanish Law 11/2009, of 26 October, regulating listed companies investing in the property market (REITs). Specifically, a special tax of 15% was introduced on the amount of profit obtained in the year that is not distributed, in the part that comes from: a) income that has not been taxed at the general tax rate of income tax and, b) income that does not stem from the transfer of eligible assets, once the three- year maintenance period has elapsed, which has been included in the three-year reinvestment period stipulated in section 6.1.b) of Law 16/2012, of 27 December. This special tax will be considered a tax liability 19 under corporation tax and will accrue on the day of the resolution applying the profit for the year by the shareholders at the General Meeting or equivalent body. The tax must be self-assessed and deposited within two months of the accrual. 1.2 Corporate transactions 2022 On 1 February 2022, the Company sent BBVA a communication that included, among other points, a proposed sale of 100% of the shares of Tree Inversiones Inmobiliarias Socimi, S.A. in accordance with right of first refusal held by BBVA. On 1 April 2022, the Company received a communication from BBVA on its acceptance of the proposed sale of Tree, which was subject, among others, to the approval of the Spanish National Markets and Competition Commission (CNMC). On 1 June 2022, the CNMC authorised the transaction and the sale was concluded on 15 June 2022. Based on the above, the sale price of Tree Inversiones Inmobiliarias Socimi, S.A. amounted to EUR 1,987,400 thousand, which, after early settlement of the debt associated with Tree and the transaction costs, amounting to EUR 9,399 thousand, generated a capital gain of EUR 700,291 thousand. The following items are included in "Impairment and gains or losses o disposals fixed assets" in the attached Income Statement. Prior to the sale, on 21 March 2022, Tree Inversiones Inmobiliarias Socimi, S.A. resolved to distribute a dividend of EUR 53,908 thousand to the Company charged to profit for 2021. On 27 July 2022, 100% of the shares of Slack Tailwind Systems, S.L.U and Slow Rise Spain, S.L.U. were acquired for EUR 3 thousand each. Subsequently, on 29 July and 15 September 2022, these companies purchased part of the Serantes building, respectively. On 3 August 2022, the Company acquired 100% of the shares Generous Profile Unipessoal Lda. for EUR 9 thousand. Subsequently, on 12 August 2022, Generous Profile Unipessoal Lda acquired the Liberdade 195 building. In 2022, the General Meeting of PK Hoteles 22, S.L. unanimously resolved to liquidate the company, which was 32.50% owned by the Company. This transaction generated a loss of EUR 274 thousand in the 2022 income statement. 2021 On 27 January 2021, the Company acquired 100% of the shares of Edged Spain, S.L.U. for EUR 3 thousand and subsequently sold 50% to Edged Global Services Iberia, S.L.U. on 30 March 2021. Edged Spain, S.L.U. is engaged in providing data processing centre services. 2. Basis of presentation of the financial statements 2.1 Regulatory financial reporting framework applicable to the Company These financial statements were prepared by the directors in accordance with the regulatory financial reporting framework applicable to the Company, which consists of: –The Commercial Code and all other Spanish commercial law; 20 –The Spanish National Chart of Accounts [Plan General de Contabilidad] approved by Royal Decree 1514/2007, with the amendments introduced by Royal Decree 1159/2010, as well as by Royal Decree 602/2016 and Royal Decree 1/2021, and its industry adaptations. –The mandatory rules approved by the Spanish Accounting and Audit Institute to implement the National Chart of Accounts and its supplementary rules. –Law 11/2009, of 26 October, as amended by Law 16/2012, of 27 December, regulating listed companies investing in the property market (REITs). –All other applicable Spanish accounting legislation. The figures included in the financial statements are expressed in thousands of euros. 2.2 Fair presentation The accompanying financial statements for 2022, which were obtained from the Company’s accounting records, are presented in accordance with Royal Decree 1514/2007 approving the Spanish National Chart of Accounts, as well as the amendments made thereto by Royal Decrees 1159/2010, 602/2016 and 1/2021 and, accordingly, present fairly the Company’s equity, financial position, results of operations and cash flows for 2022. These financial statements, which were formally prepared by the Board of Directors, will be submitted for approval by the shareholders at the Ordinary General Shareholders Meeting, and it is considered that they will be approved without any changes. 2.3 Comparative information For comparison purposes the directors present, in addition to the figures for 2022 for each item in the balance sheet, income statement, statement of changes in equity, statement of cash flows and notes to the financial statements, the figures for 2021. 2.4 Accounting principles applied The directors formally prepared these financial statements taking into account all the obligatory accounting principles and standards with a significant effect on them. All obligatory accounting principles were applied. No non-obligatory accounting principles were applied. 2.5 Key issues in relation to the measurement and estimation of uncertainty In preparing the Company’s financial statements, the directors made estimates based on past experience and other factors that are considered to be reasonable in view of the current circumstances and that constitute the basis for establishing the carrying amount of the assets and liabilities whose value is not easily determinable through other sources. These estimates relate basically to the following: –The market value of the Company’s property assets (see Note 4.3). The Company obtained valuations from independent experts at 31 December 2022. –The assessment of possible impairment losses on certain assets (see Notes 4.1, 4.2, 4.3 and 4.5). –The fair value of certain financial instruments (see Note 4.5). –The assessment of provisions and contingencies (see Note 4.9) –The recovery of deferred tax assets and the tax rate applicable to temporary differences (see Note 4.11). 21 –Compliance with the requirements governing REITs(see Notes 1 and 15). –Management of financial risk and, in particular, of liquidity risk and climate change risk (see Note 21). Although these estimates were made on the basis of the best information available at 2022 year-end, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years. Changes in accounting estimates would be applied prospectively. 2.6 Grouping of items Certain items in the balance sheet, income statement, statement of changes in equity and statement of cash flows are grouped together to facilitate their understanding; however, whenever the amounts involved are material, the information is broken down in the related notes to the financial statements. 2.7 Correction of errors In preparing the accompanying financial statements, no significant errors were detected that would have given rise to restating the amounts included in the financial statements for 2021. 2.8 Changes in estimates and accounting policies The effect of any change in accounting estimates is recognised under the same income statement line item as that in which the expense or income based on the previous estimate had been recognised prospectively. Changes in accounting policies and correction of errors: if material, the cumulative effect at the beginning of the year is adjusted under “Reserves” and the effect for the current year is recognised in the income statement. In these cases, the financial data for the comparative year presented together with those for the current year are restated. 2.9 Quantitative and qualitative information on the impacts of COVID-19 and the war in Ukraine The evolution of the COVID-19 health crisis in 2022 allowed the Company to end the commercial measures it implemented in 2020 and 2021. In this regard, no specific commercial measures were carried out in 2022 due to the impact of COVID-19 on asset tenants, although the Company closely monitored the various risks that were accentuated by the health and economic crisis. In this regard, the fair value of investment property methodology was carried out normally, without any independent appraisers including any uncertainty in the outcome of their valuation. The Group's liquidity risk is not significant, nor is the credit risk of its customers. On 24 February 2022, a war between Russia and Ukraine began with uncertain geopolitical consequences at the global level in the short, medium and long term. Although the Company does not have any activity in the countries where the war is taking place, nor have its operations been significantly impacted, the Company constantly monitors its evolution and its effect on the macroeconomic variables to which the sector in which the Company operates is usually sensitive. Valuation of investment property and participation in Group companies and associates The Company regularly uses third parties from outside the Company as experts to determine the fair value of its property assets, whether directly managed and through the Group companies and associates in which it participates, on which the recoverable value of the assets is mainly recognised. 22 The measurement methodology has not changed with regard to the previous year. Liquidity risk In the opinion of the Company's directors, the current economic situation of high inflation and interest rate rises by central banks may have a significant impact on the overall financial position of the companies, which could be divided into the liquidity risk of the companies or groups and the liquidity risk of customers (credit risk). In this context, at 31 December 2022, the Company had a cash position of EUR 360 million at the year-end (including Treasury stock), reaching a liquidity position, including the corporate line of credit and undrawn facilities, amounting to EUR 1,752 million. The Company's directors and management are constantly monitoring the evolution of the current situation and the effects it may have on the credit market, and they believe that the Company's situation at 31 December 2022 ensures that the Company is solvent to fulfil the current obligations on the balance sheet at 31 December 2022, and there is no material uncertainty about the continuity of the Company's operations. Credit risk The directors continued to assess the credit risk of their tenants as a result of the COVID-19 crisis, having discontinued in 2022 the rent reduction policies implemented in 2020 and 2021 since no relevant risk was identified in this regard. On the application of the simplified approach of impairment and credit risk, and also taking into consideration other differential factors of its portfolio of tenants and the characteristics of their leases, and the amounts collected thus far, the Company has concluded that the increased credit risk of its customers has not been significantly affected, with a risk of default below 1% of turnover. In relation to its other financial assets exposed to credit risk, which mainly correspond to loans to associates and third parties, the Company’s directors have determined that there has not been a significant increase in the risk, considering the measures agreed in some cases with tenants and the long-term expectations based on the historical experience with those entities, which make it possible to estimate that the credit risk will remain stable. War in Ukraine The war between Russia and Ukraine has caused, among many other aspects, significant fluctuations in the cost of raw materials and energy, putting global economic growth in significant difficulties. The evolution of the war is uncertain at this time and given the complexity of the markets, as a result of their globalisation, the Company's operations are exposed, albeit indirectly, to the evolution and extent of the conflict in the coming months, as well as to the capacity of all impacted economic players to react and adapt. Although the Company's operations have not been directly affected by the war or by the international sanctions imposed, indirect effects, such as price rises, the impact on construction costs, financing and the increase in the cost of energy, are currently affecting all economic operators in the sector, and the directors are, therefore, closely monitoring the situation. 23 3. Allocation of profit/(loss) The distribution of profit/(loss) for the year proposed by the Company’s directors for approval by its shareholders at the General Meeting is as follows: Thousands of euros Profit/(Loss) for the year 910,716 Distribution: Legal reserve 19,860 Interim dividend to be offset 444,815 To dividends 113,350 To voluntary reserves 332,691 Other dividends distributed On 4 May 2022, the General Shareholders Meeting approved the distribution of a dividend charged to the “share premium” reserve in the amount of EUR 106,497 thousand, and the distribution of a dividend charged to profit for 2021 for EUR 10,614 thousand. On 28 July 2022, the Company’s Board of Directors approved the distribution of an interim dividend charged to profit for 2022 in the amount of EUR 351,169 thousand. On 10 November 2022, the Company’s Board approved the distribution of a dividend of EUR 93,646 thousand charged to profit for 2022. In the last five years, the Company has distributed the following dividends and Share Premium reimbursements: 2022 2021 2020 2019 2018 Distributions to shareholders 561,926 210,099 68,518 232,347 215,364 3.1 Restrictions relating to the distribution of dividends The Company is subject to the special regime for REITs. As established in section 6 of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, the REITs opting to pay tax under the special tax regime are required to distribute the profit generated during the year to shareholders as dividends. Once the corresponding commercial obligations have been fulfilled, that distribution must be agreed within six months from year end, and the dividends paid within 30 days from the date on which the pay-out is agreed. Moreover, as specified in Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, the Company must distribute the following as dividends: –100% of the profit from dividends or shares in profits distributed by the entities referred to in section 2.1 of Law 11/2009. –At least 50% of the profits arising from the transfer of the properties, shares or ownership interests referred to in section 2.1 of Law 11/2009, of 26 October, subsequent to expiry of the time limits referred to in section 3.2 of Law 11/2009, which are used for pursuit of the entities' principal corporate purpose. The remainder of these profits must be reinvested in other property or investments used for the pursuit of that activity within three years after the transfer date. Otherwise these profits should be distributed in full 24 together with any profit arising in the year in which the reinvestment period expires. If the items to be reinvested are transferred prior to the end of the holding period, that profit must be distributed in full together with, if applicable, the profit generated during the year in which the items were transferred. The obligation to distribute profit does not apply to the portion of the profit attributable to prior years in which the Company was not included under the special tax regime established in this Law. –At least 80% of the remaining profits obtained. When dividend distributions are charged to reserves generated from profits in a year in which the special tax regime applied, the distribution must necessarily be approved as set out above. 4. Accounting policies and measurement bases The principal accounting policies and measurement bases applied by the Company in preparing its financial statements for 2022 were as follows: 4.1 Intangible assets As a general rule, intangible assets are recognised initially at acquisition or production cost. They are subsequently measured at cost less any accumulated amortisation and any accumulated impairment losses. These assets are amortised over their useful life. When the useful life of these assets cannot be estimated reliably, they will be amortised over a period of ten years. The gains or losses arising from the derecognition of an intangible asset are calculated as the difference between the net profit obtained on the sale and the carrying amount of the asset, and are recognised in the consolidated income statement when the asset is derecognised. Goodwill Goodwill is recognised as an asset when it arises in an acquisition for valuable consideration in the context of a business combination. Goodwill is allocated to the cash-generating units to which the economic benefits of the business combination are expected to flow. After initial recognition, goodwill is measured at acquisition cost less any accumulated depreciation and any recognised accumulated impairment losses. In accordance with applicable legislation, the useful life of the goodwill is 10 years and it is amortised on a straight-line basis. These cash-generating units are analysed at least once a year for indications of impairment and, if those indications exist, they are tested for impairment in accordance with the methodology indicated below and the corresponding impairment loss is recognised. Impairment losses recognised in goodwill may not be reversed in subsequent fiscal years. Specifically, the Company recognises under “Goodwill” the goodwill that arose on the merger by absorption in 2016 of Testa Inmuebles en Renta SOCIMI, S.A. Computer software The computer software acquired or developed by the Company is recognised at acquisition or production cost and, where applicable, amortised on a straight-line basis over four years. Computer software maintenance costs are recognised with a charge to the income statement for the year in which they are incurred. Impairment of intangible assets, property, plant and equipment and investment property Whenever there are indications of impairment of assets with a finite useful life (i.e. all the Company’s intangible assets, property, plant and equipment, and investment property), the Company tests the tangible 25 and intangible assets for impairment to determine whether the recoverable amount of the assets has been reduced to below their carrying amount. The recoverable amount is the higher of fair value less costs to sell and value in use. In particular, the recoverable amount for virtually all the investment property is determined based on the evaluation of an independent expert (see Note 6). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. This impairment loss reversal is recognised as income, except in the case of goodwill, as mentioned in this Note. 4.2 Property, plant and equipment Property, plant and equipment are initially recognised at acquisition or production cost, at which the amount of the additional or supplementary investments made are included, and are subsequently reduced by the related accumulated depreciation and by any impairment losses recognised, as indicated in Note 4.1 above. The revaluation surpluses or net increases in value resulting from revaluations and the assignments of gains as a result of business combinations are depreciated over the tax periods in the remaining useful lives of the revalued assets. Property, plant and equipment upkeep and maintenance expenses are recognised in the income statement for the year in which they are incurred. However, the costs of improvements leading to increased capacity or efficiency or to a lengthening of the useful lives of the assets are capitalised. For non-current assets that necessarily take a period of more than twelve months to get ready for their intended use, the capitalised costs include those borrowing costs as might have been incurred before the assets are ready for their intended use and that have been charged by the supplier or relate to loans or other specific-purpose or general-purpose borrowings directly attributable to the acquisition or production of the assets. Work carried out by the Company on its own property, plant and equipment is recorded at accumulated cost, resulting from external costs plus in-house costs (determined based on in-house materials consumption) and manufacturing costs applying the same criteria as those used for inventory valuation. Depreciation of property, plant and equipment is calculated on a straight-line basis, based on the years of estimated useful life of the assets. The annual depreciation rates are applied to the respective values at the revalued cost, where applicable, and the years of estimated useful life are as follows: Years of useful life estimated Buildings for lease 50 – 75 Other fixtures 10-18 Furniture 10 Computer hardware 4 Other items of property, plant and equipment 4-5 Property, plant and equipment under construction is not depreciated until it enters into operation, at which time it is transferred to the corresponding property, plant and equipment account in view of its nature. 26 4.3 Investment property “Investment Property” in the balance sheet reflects the values of the land, buildings and other structures held either to earn rentals or for capital appreciation. Depreciation of these items is carried out systematically and rationally based on the useful life of the assets and their residual value, in accordance with the normal decline in value caused by their use and by wear and tear, without prejudice to the technical or commercial obsolescence that may also affect the assets. The straight-line method is used to calculate the depreciation of investment property based on its estimated useful life (see Note 4.2). Investment property is measured as described in Note 4.2 on property, plant and equipment. The Company estimates the impairment losses on its investment property based on the fair value obtained in the appraisal performed by the independent expert. The method used to determine the fair value of the assets is detailed in Note 6. 4.4 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases. Finance leases: In finance leases in which the Company acts as the tenant, the cost of the leased assets is presented in the balance sheet, based on the nature of the leased asset, and, simultaneously, a liability is recognised for the same amount. This amount is the lower of the fair value of the leased asset and the present value, at the inception of the lease, of the agreed minimum lease payments, including the price of the purchase option when it is reasonably certain that it will be exercised. The minimum lease payments do not include contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor. The total finance charges arising under the lease are allocated to the income statement for the year in which they are incurred using the effective interest method. Contingent rent is recognised as an expense for the period in which it is incurred. There are no finance leases in which the Company acts as landlord. Operating leases: In operating leases, the ownership of the leased asset and substantially all the risks and rewards relating to the leased assets remain with the landlord. If the Company acts as the lessor, income and costs arising under operating leases are allocated to the income statement for the year in which they are incurred. In relation to the rent reductions that the Company granted to certain tenants during the COVID-19 pandemic, they did not entail any contractual changes and, therefore, the accounting policy for the reductions was to recognise lower income, not accruing any effect in the balance sheet. Also, the acquisition cost of the leased asset is presented in the balance sheet based on the nature of the asset, increased by the costs directly attributable to the lease, which are recognised as an expense over the lease term, applying the same method as that used to recognise lease income. 27 If the Company acts as the tenant, costs arising under operating leases are allocated to the income statement for the year in which they are incurred. A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided. A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments that are amortised over the lease term in accordance with the pattern of benefits provided. 4.5 Financial assets Classification The financial assets held by the Company are classified into the following categories: a) Financial assets at amortised cost: includes financial assets, including those admitted to trading on an organised market, in which the Company holds the investment to collect contractual cash flows, and the contractual terms of the asset give rise on specified dates to cash flows that are solely collections of principal and interest on the principal amount outstanding. In general, this category includes: i) Trade receivables: arising from the sale of goods or provision of services in the ordinary course of business for which collection is deferred, and ii) Non-trade receivables: arising from transactions involving loans or credit facilities granted by the Company with fixed or determinable payments. b) Financial assets at fair value through changes in equity: financial assets whose contractual terms give rise, on specified dates, to cash flows that are only principal payments and interest on the amount of the principal outstanding, and are not held for trading and are not classified in the previous category, are included in this category. Investments in equity instruments irrevocably designated by the Company at the time of their initial recognition will also be included in this category, provided that they are not held for trading and should not be measured at cost. c) Financial assets at cost: the following investments are included in this category: a.equity instruments in Group companies, jointly controlled entities and associates; b.equity instruments whose fair value cannot be reliably determined, and the derivatives whose underlying is these investments; c.contributions made in joint accounts agreements and similar agreements; d.participating loans with contingent interest; e.financial assets that should be classified in the following category but whose fair value cannot be reliably estimated. Group companies are considered to be those related to the Company as a result of a relationship of control and associates are companies over which the Company exercises significant influence. Jointly controlled entities also include companies over which, by virtue of an agreement, the Company exercises joint control with one or more other venturers. d) Financial assets at fair value through profit or loss: includes financial assets held for trading and financial assets that have not been classified in any of the above categories. This category also includes financial assets that are optionally classified as such by the Company upon initial recognition that would otherwise have been 28 included in another category, due to the fact that this classification eliminates or significantly reduces any measurement inconsistency or accounting mismatch that would otherwise arise. Initial recognition Financial assets are initially recognised, in general, at the fair value of the consideration given, plus any directly attributable transaction costs. However, transaction costs directly attributable to assets recognised at fair value through profit or loss are recognised in the income statement for the year. In the case of equity investments in Group companies affording control over the subsidiary, since 1 January 2010 the fees paid to legal advisers and other professionals relating to the acquisition of the investment have been recognised directly in profit or loss. Subsequent measurement Financial assets at amortised cost are recognised in accordance with this measurement basis, with accrued interest taken to the income statement using the effective interest method. Financial assets included in the fair value with changes in equity category will be recognised at fair value, without deducting the transaction costs that could be incurred in their disposal. Changes in fair value will be recognised directly in equity until the financial asset is derecognised or impaired, at which point the amount so recognised will be charged to the statement of comprehensive income statement. Financial assets at fair value through profit or loss are measured at fair value and the gains and losses arising from changes in fair value are recognised in the income statement for the year. Investments in Group companies and associates and interests in jointly controlled entities are measured at cost net, where appropriate, of any accumulated impairment losses. These losses are calculated as the difference between the carrying amount of the investments and their recoverable amount. Recoverable amount is the higher of fair value less costs to sell and the present value of the future cash flows from the investment. Unless there is better evidence of the recoverable amount, it is based on the value of the equity of the investee, adjusted by the amount of the unrealised gains existing at the date of measurement (including any goodwill). The valuation was carried out in accordance with the Appraisal and Valuation Standards issued by the Royal Institute of Chartered Surveyors (RICS) of the United Kingdom and the International Valuation Standards (IVS) issued by the International Valuation Standards Committee (IVSC). In the case of Company companies with an equity deficit, the Company follows the policy of recognising provisions for this equity deficit. Impairment At least at each reporting date the Company tests financial assets not measured at fair value through profit or loss for impairment. Objective evidence of impairment is considered to exist when the recoverable amount of the financial asset is lower than its carrying amount. When this occurs, the impairment loss is recognised in the income statement. Objective evidence of impairment is considered to exist when the recoverable amount of the financial asset is lower than its carrying amount. In any case, equity instruments measured at fair value with changes in equity will be presumed to be impaired if their price has declined for one and a half years or by 40% and not recovered. The impairment is recognised in the income statement. The Company derecognises a financial asset when it expires or when the rights to the cash flows from the financial asset have been transferred and substantially all the risks and rewards of ownership of the financial asset have been transferred. 29 However, the Company does not derecognise financial assets, and recognises a financial liability for an amount equal to the consideration received, in transfers of financial assets in which substantially all the risks and rewards of ownership are retained. 4.6 Financial liabilities The financial liabilities assumed or incurred by the Company are classified in the following categories: a) Financial liabilities at amortised cost: these include accounts payable by the Company that have arisen from the purchase of goods or services in the normal course of the Company’s business or those that, not having commercial substance and not considered derivative instruments, arise from transactions involving loans or credit facilities received by the Company. These liabilities are initially recognised at the fair value of the consideration received, adjusted by the directly attributable transaction costs. These liabilities are subsequently measured at amortised cost. b) Financial liabilities at fair value through profit or loss. Liability derivative financial instruments are measured at fair value using the same methods as those described above for financial assets at fair value through profit and loss. Assets and liabilities are presented separately on the balance sheet and their net amount is only presented if the Company has a legally enforceable right to offset the amounts recognised and also intends either to settle the amounts on a net basis or to realise the asset and settle the liability simultaneously. The Company derecognises financial liabilities when the obligations giving rise to them cease to exist. 4.7 Equity instruments An equity instrument is a contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Capital instruments issued by the Company are recognised in equity at the proceeds received, net of issue costs. The equity instruments acquired by the Company are recognised separately at acquisition cost and deducted from equity in the balance sheet, regardless of why they were acquired. No gains or losses from transactions involving own equity instruments are recognised in the consolidated income statement. If the Company’s own equity instruments are subsequently retired, capital is reduced by the nominal amount of these treasury shares and the positive or negative difference between the acquisition price and nominal amount of the shares is debited from or credited to reserves. The transaction costs related to own equity instruments are recognised as a decrease in equity, net of any related tax effect. 4.8 Termination benefits Under the current law, the Company is required to pay termination benefits to employees terminated under certain conditions. Therefore, termination benefits that can be reasonably quantified are recognised as an expense in the year in which the decision to terminate the employment relationship is taken. In this sense, at 31 December 2022, the Company does not have commitments for this item, and there is no Downsizing Plan in force. 4.9 Provisions and contingencies When preparing the financial statements the directors made a distinction between: 30 a.Provisions: credit balances covering present obligations arising from past events with respect to which it is probable that an outflow of resources embodying economic benefits that is uncertain as to its amount and/or timing will be required to settle the obligations; and b.Contingent liabilities: possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not wholly within the Company’s control. The financial statements include all the provisions as regards which it is considered that it is more likely than not that the obligation will have to be settled. Unless they are considered unlikely, contingent liabilities are not recognised in the financial statements, but rather are disclosed. Provisions are measured at the present value of the best possible estimate of the amount required to settle or transfer the obligation, taking into account the information available on the event and its consequences. Where discounting is used, adjustments made to provisions are recognised as finance cost on an accrual basis. The compensation receivable from a third party on settlement of the obligation is recognised as an asset, provided there is no doubt that the reimbursement will take place, unless there is a legal relationship under which a portion of the risk has been externalised, as a result of which the Company is not liable, in which case, the compensation will be taken into account when estimating, if appropriate, the amount of the related provision. 4.10 Share-based payments On the one hand, the Company recognises the goods and services received as an asset, if qualifying, or an expense, when obtained, with an increase to equity, if the transaction is settled in equity instruments, or with the corresponding liability, if it is settled with an amount that is referenced to the value of equity instruments. In the case of equity-settled transactions, both the services rendered and the increase in equity are measured at the fair value of the equity instruments granted, by reference to the grant date. In the case of cash-settled share-based payments, the goods and services received and the related liability are recognised at the fair value of the latter, by reference to the date on which the requirements for recognition are met. 2017-19 incentives plan Also, at the General Shareholders Meeting held on 26 April 2017, the shareholders approved a remuneration plan for the management team and other important members of the Group’s workforce, the measurement period of which was from 1 January 2017 to 31 December 2019 (the “2017-19 Incentive Plan”). Based on the plan, the members of the management team could be entitled to receive: (i) a certain monetary amount in accordance with the increase of the share price and (ii) shares of the Parent, if certain objectives linked to the EPRA NAV are met. In this regard, in 2022, the Company recorded an expense of EUR 1,210 thousand corresponding to the last tranche accrued under the 2017-2019 Incentive Plan, with a charge to reserves, ending it and its registration. 2022-24 Incentive Plan The General Meeting on 4 May 2022 approved a long-term incentive plan consisting of the delivery of a maximum number of ordinary shares of MERLIN Properties SOCIMI, S.A. equal to 3,491,767 shares (representing 0.74% of the share capital), aimed at the members of the MERLIN Group's executive and management team, including the Company's executive directors (“2022-24 LTIP”). The LTIP will be implemented through a single-cycle performance share plan with a target measurement period of 3 years, beginning on 1 January 2022 and ending on 31 December 2024, and it will be payable by the 31 delivery of Company shares in 2025, once (i) compliance with the specific targets established for 2022-2024 has been verified and (ii) the beneficiary has remained in the MERLIN Group. In relation to the targets or metrics to which the plan is linked (see Note 17), it includes market and non-market conditions. In relation to the “Total Shareholder Profitability” market condition, the Group applied a valuation methodology for the underlying assets at the delivery date of the incentive associated with the Monte Carlo simulation method. The Monte Carlo simulation is a statistical method applied to the financial modelling of the probability of different results where a random or independent variable is involved. In this regard, the Monte Carlo simulation method applied by the Group was based on a Brownian geometric model, which makes it possible to simulate the possible paths that the underlying asset can follow (price of Merlin's share and of the EPRA Nareit Development Europe index) based on the repetition of random samples to obtain different numerical results. For the development of the simulation, the generation of the random variable was carried out by applying standard normal distribution N (0.1). The average or expected value corresponding to the spot price of the Merlin share at the reporting date of the incentive and a standard deviation to describe the change with regard to the average, based on the volatility of the share, were established. In relation to non-market conditions: (i) EPRA NTA, (ii) net carbon emissions and environment and (iii) environment and society, the Group gives its estimate of compliance with them at each measurement date over the duration of the plan with the best information available. 4.11 Income tax 4.11.1 General regime Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income). Current tax expense is the tax payable by the Company on its taxable income for a given year. Tax credits and other tax benefits, excluding tax withholdings and pre-payments, and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense. The deferred tax expense or income relates to the recognition and derecognition of deferred tax assets and liabilities. These include temporary differences measured at the amount expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences, unless the temporary difference arises from the initial recognition of goodwill, goodwill for which amortisation is not deductible for tax purposes or the initial recognition of other assets and liabilities in a transaction that affects neither accounting profit (loss) nor taxable profit (tax loss). Deferred tax assets are recognised for temporary differences to the extent that it is considered probable that the consolidated companies will have sufficient taxable profits in the future against which the deferred tax asset can be utilised, and the deferred tax assets do not arise from the initial recognition of other assets and liabilities in a transaction that affects neither accounting profit (loss) nor taxable profit (tax loss). The other deferred tax assets (tax loss, temporary differences and tax credit carryforwards) are only recognised if it is considered probable that the Company will have sufficient future taxable profits against which they can be utilised. 32 The deferred tax assets recognised are reassessed at the end of each reporting period and the appropriate adjustments are made to the extent that there are doubts as to their future recoverability. Also, unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that they will be recovered through future taxable profits. 4.11.2 REIT regime The REIT special tax regime, as amended by Law 16/2012 of 27 December, is based on a 0% corporation tax rate, provided certain requirements are met. Particularly noteworthy among those conditions is that at least 80% of income must come from urban property used for leasing purposes and acquired in full ownership or through holdings in Spanish or foreign companies, regardless of whether or not they are listed on organised markets, that meet the same investment and profit distribution requirements. Likewise, the main sources of income for these entities must come from the property market, either through leasing the properties, their subsequent sale after a minimum lease period, or the income generated from holdings in entities with similar characteristics. Nevertheless, tax is accrued in proportion to dividend distributions. Dividends received by the shareholders are exempt, unless the recipient is a legal person subject to corporation tax or a permanent establishment of a foreign entity, in which case a deduction in the tax liability is established, so that these earnings are taxed at the shareholder’s rate. However, the remaining earnings will not be taxed so long as they are not distributed to shareholders. As established in Transitional Provision Nine of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, regulating listed companies investing in the property market (REITs), the entity will be subject to a special tax rate of 19% on the total dividends or profit shares distributed to shareholders with a shareholding in the entity of 5% or more, when these dividends are exempt or taxed at a rate below 10% in the shareholders. The Company has therefore established the procedure guaranteeing confirmation by shareholders of their tax rate, proceeding where applicable, to withhold 19% of the dividend distributed to shareholders that do not meet the aforementioned tax requirements. With effect for years beginning on or after 1 January 2021, Law 11/2021, of 9 July, on measures to prevent and combat tax fraud amended section 9.4 of Spanish Law 11/2009, of 26 October, regulating listed companies investing in the property market (REITs). Specifically, a special tax of 15% was introduced on the amount of profit obtained in the year that is not distributed, in the part that comes from: a) income that has not been taxed at the general tax rate of income tax and, b) income that does not stem from the transfer of eligible assets, once the three-year maintenance period has elapsed, which has been included in the three-year reinvestment period stipulated in section 6.1.b) of Law 16/2012, of 27 December. This special tax will be considered a tax liability under corporation tax and will accrue on the day of the resolution applying the profit for the year by the shareholders at the General Meeting or equivalent body. The tax must be self-assessed and deposited within two months of the accrual. 4.12 Revenue and expenses Revenue and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises. Revenue is measured at the fair value of the consideration received, net of discounts and taxes. Interest and dividends received from financial assets The Company’s income that relates to dividends received from investees, in accordance with Ruling no. 2 of the Official ICAC Gazette no. 79/2009, on the classification for accounting purposes in separate financial statements of income and expenses of holding companies, is recognised as revenue, as the Company’s ordinary business activities include the management and administration of investments in other companies. 33 Interest and dividends from financial assets accrued after the date of acquisition are recognised as income in the income statement. Interest is recognised using the effective interest method and dividends are recognised when the right to receive them is declared. Upon initial measurement of financial assets, accrued explicit interest receivable at the measurement date is recognised separately, based on maturity. Dividends declared by the pertinent body at the acquisition date are also accounted for separately. Explicit interest is the interest obtained by applying the financial instrument’s contractual interest rate. If distributed dividends are clearly derived from profits generated before the acquisition date because amounts have been distributed which are higher than the profits generated by the investee since acquisition, the difference is accounted for as a reduction in the carrying amount of the investment and not recognised as income. Revenue from sales and services Revenue from sales is recognised when the significant risks and rewards of ownership of the goods sold have been transferred to the buyer, and the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. Rental income is recognised on an accrual basis and incentives and the initial costs of the lease agreements are allocated to income on a straight-line basis. Revenue arising from variable rental income, which is calculated based on the sales of the tenants at the leased premises, is accrued on a regular basis by virtue of the most recent known sales data, given that the income can be reliably measured at this time, and is invoiced once the final sales data for the year is available. Interest income from financial assets is recognised using the effective interest method and dividend income is recognised when the shareholder’s right to receive payment is established. In any case, interest and dividends from financial assets accrued after the date of acquisition are recognised as income in the income statement. 4.13 Classification of assets and liabilities as current and non-current Assets and liabilities are classified in the balance sheet as current and non-current. For this purpose, assets and liabilities are classified as current when they are associated with the Company’s normal operating cycle and when they will foreseeably be sold, used, realised or settled within a maximum of one year; non-current assets and liabilities are different from the foregoing and will foreseeably mature, be sold or realised within a period of more than one year 4.14 Transactions with related parties The Company carries out all its transactions with related parties at market values and in accordance with the agreements. The Company’s directors consider that there are no material risks in this connection that might give rise to significant liabilities in the future. 4.15 Environmental assets and liabilities Environmental assets are considered to be assets used on a lasting basis in the Company’s operations whose main purpose is to minimise environmental impact and protect and improve the environment, including the reduction or elimination of future pollution. Because of their nature, the Company’s business activities do not have a significant environmental impact. 34 4.16 Business combinations Business combinations are accounted for using the acquisition method, to which end the acquisition date and cost of the business combination are determined, measuring the identifiable assets acquired and liabilities assumed at their acquisition-date fair value. Goodwill or the negative goodwill on the combination is the difference between the fair values of the assets acquired and liabilities assumed that are recognised and the cost of the business combination all at the aforementioned acquisition date. The cost of the business combination is the sum of: –The acquisition-date fair values of the assets transferred, liabilities incurred or assumed and equity instruments issued. –The fair value of any contingent consideration that depends on future events or on the fulfilment of certain pre-defined conditions. The cost of the business combination does not include expenses relating to the issuance of equity instruments offered or financial liabilities delivered in exchange for the items acquired. Also, the cost of a business combination does not include the fees paid to legal advisers and other professionals involved in the combination, or any costs incurred internally in this connection. These amounts are taken directly to profit or loss. In the exceptional case in which negative goodwill arises on the combination, it is recognised as income in the income statement. If at the end of the year in which a combination occurs it has not been possible to complete the valuation work needed to apply the acquisition method outlined above, the combination is accounted for provisionally. These provisional amounts can be adjusted during the period necessary to obtain the required information, which in no case may exceed one year. The effects of any adjustments made during this period are accounted for retroactively, and the comparative information is modified if necessary. Subsequent changes in the fair value of the contingent consideration are recognised in profit or loss, unless the consideration was classified as equity, in which case subsequent changes in its fair value are not recognised. 4.17 Foreign currency transactions The Company’s functional currency is the euro. Therefore, transactions in currencies other than the euro are considered to be foreign currency transactions and are recognised by applying the exchange rates prevailing at the date of the transaction. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to euros at the rates then prevailing. Any resulting gains or losses are recognised directly in the income statement in the period in which they arise. 4.18 Statement of cash flows The following terms are used in the statement of cash flows, which was prepared using the indirect method, with the meanings specified: –Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value. –Operating activities: the principal revenue-producing activities of the Company and other activities that are not investing or financing activities. 35 –Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. –Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities. 5. Goodwill The goodwill recognised at 31 December for 2022 arose from the merger by absorption with Testa Inmuebles en Renta, SOCIMI, S.A. in 2016. The changes in this heading in 2022 and 2021 were as follows: 2022 Thousands of euros Balance at 31/12/21 Additions Depreciation and amortisation Balance at 31/12/22 Cost 92,641 - (23,160) 69,481 92,641 - (23,160) 69,481 2021 Thousands of euros Balance at 31-12-20 Additions Depreciation and amortisation Balance at 31/12/21 Cost 115,801 - (23,160) 92,641 115,801 - (23,160) 92,641 The Company amortises goodwill over a period of 10 years and, therefore, recognised the related depreciation for the year under “Depreciation of property, plant and equipment” in the accompanying income statement for 2022 at EUR 23,160 thousand (EUR 23,160 thousand at 31 December 2021). The Company's directors, in accordance with their expectations of the evolution of the property market, as well as the market values of the acquired assets, have not identified any signs of impairment in their recoverable value. In this regard, at 31 December 2022 the existing gains in the property assets from Testa Inmuebles en Renta SOCIMI, S.A. amounted to EUR 869,185 thousand (EUR 925,374 thousand in 2021), as detailed as follows: Thousands of euros 2022 2021 Carrying amount of the investment property from Testa Inmuebles en Renta SOCIMI, S.A. 2,307,447 2,325,487 Fair value of the investment property from Testa Inmuebles en Renta SOCIMI, S.A. 3,176,632 3,250,861 Unrealised gains 869,185 925,374 The fair value indicated above was obtained from the valuations performed by independent experts, applying the methodology described in Note 6 below. 36 6. Investment property The breakdown of and changes in this heading in 2022 and 2021 are as follows: 2022 Thousands of euros Initial balance 31/12/2021 Entries, Additions and Allocations Removals, Disposals and Reversals Closing balance at 31/12/2022 Cost: Land 2,385,796 3,154 (47,354) 2,341,596 Buildings 2,393,121 52,879 (47,414) 2,398,586 Property, plant and equipment in the course of construction and advances 72,967 47,036 - 120,003 4,851,884 103,069 (94,768) 4,860,185 Accumulated depreciation: Buildings (202,162) (40,181) 3,660 (238,683) (202,162) (40,181) 3,660 (238,683) Impairment: Land (183,044) (21,052) 786 (203,310) Buildings (11,393) (12,517) 752 (23,158) Property, plant and equipment in the course of construction and advances (338) (1,328) - (1,666) (194,775) (34,898) 1,538 (228,134) Investment property 4,454,947 27,990 (89,570) 4,393,368 37 2021 Thousands of euros Initial balance 31/12/2020 Entries, Additions and Allocations Removals, Disposals and Reversals Transfers Closing balance at 31/12/2021 Cost: Land 2,328,947 3,896 (14,030) 66,983 2,385,796 Buildings 2,352,538 57,368 (30,619) 13,834 2,393,121 Property, plant and equipment in the course of construction and advances 150,189 10,093 - (87,315) 72,967 4,831,674 71,357 (44,649) (6,498) 4,851,884 Accumulated depreciation: Buildings (171,993) (39,837) 3,170 6,498 (202,162) (171,993) (39,837) 3,170 6,498 (202,162) Impairment: Land (175,203) (8,931) 1,090 - (183,044) Buildings (10,190) (1,862) 659 - (11,393) Property, plant and equipment in the course of construction and advances (136) (202) - - (338) (185,529) (10,995) 1,749 - (194,775) Investment property 4,474,152 20,525 (39,730) - 4,454,947 The “Land and buildings” heading includes operational property assets. In addition, undeveloped land amounting to EUR 80,816 thousand (EUR 89,948 thousand in 2021) is also included. The “Property, plant and equipment in the course of construction and advances” heading corresponds to developing assets and assets that are being overhauled. Buildings for lease 2022 Improvements to buildings in use and in progress The additions for 2022 corresponded to the improvement and adaptation works carried out on certain properties owned by the Company, in particular, among others, the Plaza Ruiz Picasso building, corresponding to the office segment, the development of a data centre in Madrid, as well as the Porto Pi shopping centre in Palma de Mallorca. Disposals In 2022 the Company sold two business parks and non-strategic premises in Madrid, as well as an office building in Zaragoza. Result of these divestments: the Company obtained a profit of EUR 17,216 thousand recognised under “Gains or losses on disposals” in the accompanying income statement. 38 2021 Additions The main acquisition of assets carried out in 2021 related to the purchase of an air right over an office site in Madrid, known as Ática XIX D, for EUR 1,903 thousand. Improvements to buildings in use and in progress The main additions to “Land and Buildings” corresponded to the improvement and adaptation works that have been carried out on certain properties owned by the Company, notably including the Saler Shopping Centre in Valencia and the Porto Pi Shopping Centre in Palma de Mallorca, as well as the Castellana 85, Torre Gloriés and Plaza Ruiz Picasso buildings, corresponding to the office segment. Disposals The disposals in 2021 corresponded to the sale of the Ulises 16-18 building, the San Francisco de Sales commercial premises and a logistics warehouse in Guadalajara-Azuqueca, having obtained a profit of EUR 10,469 thousand, recognised under “Impairment and gains or losses on disposals of property, plant and equipment” in the accompanying income statement. Transfers The main changes to be highlighted were the transfer to operation of the office building at Castellana, 85, as well as the completion of the works carried out at the Porto Pi and Saler shopping centres and in the Arturo Soria, 343 office building. Also, in 2021, the net cost associated with the Plaza Ruiz Picasso and Ática 1 office buildings was transferred to buildings under construction out to execute a comprehensive refurbishment of these buildings. The Company takes out the insurance policies it considers necessary to cover the risks that might affect its investment property. At 31 December 2022, the Company’s directors considered that the property, plant and equipment were fully insured against these risks. At 31 December 2022, the Company had no firm purchase commitments for investment property, without considering the investments committed in buildings and improvements. In 2022, no significant finance costs were capitalised in the construction costs or as a result or improvements to or refurbishments of the properties. At 31 December 2022, the Company did not have any investment property that was fully depreciated. At 31 December 2022, the Company does not hold any property assets as collateral for loans and derivative financial instruments. The Company holds no rights of use, seizure or similar situations with regard to its investment property. At 31 December 2022 and 2021, the gross surface areas and occupancy rates of the assets by line of business were as follows: 39 2022 GLA Occupancy rate (%) Offices 812,632 92% Shopping centres 168,875 93% Logistics 166,710 100% Others 58,629 97% Total surface area 1,206,846 93% * Not including projects under way or land 2021 GLA Occupancy rate (%) Offices 849,689 91% Shopping centres 168,901 93% Logistics 166,710 99% Others 58,941 97% Total surface area 1,244,241 92% * Not including projects under way or land All of the Company’s investment property is used for its own business activities and is located in Spain. Impairment losses The fair value of the property assets was determined by independent experts in accordance with the Appraisal and Valuation Standards issued by the Royal Institution of Chartered Surveyors (RICS) of the United Kingdom and the International Valuation Standards (IVS) issued by the International Valuation Standards Committee (IVSC). The method used to calculate the market value of the property assets involves drawing up ten-year projections of income and expenses for each asset, adjusted at the reporting date using a market discount rate. The residual amount at the end of year 10 is calculated by applying an exit yield or cap rate to the net income projections for year 11. The market values obtained are analysed by calculating and assessing the capitalisation of the returns implicit in these values. The projections are designed to reflect the best estimate of future income and expenses from the investment properties. Both the exit yield and discount rate are determined taking into account the national market and institutional market conditions. The recoverable amount of the Company’s investment property at 31 December 2022, calculated based on the appraisals carried out by Jones Lang LaSalle, S.A., Savills Consultores Inmobiliarios, S.A. and CB Richard Ellis, which are not related to the Company, amount to EUR 5,927,303 thousand at 31 December 2022 (EUR 6,140,769 thousand at 31 December 2021). Based on this appraisal, the Company’s directors have identified several individual assets whose recoverable amount is less than their carrying amount and, therefore, an impairment loss of EUR 34,898 thousand (EUR 10,995 thousand at 31 December 2021) was recognised under “Impairment and gains or losses on disposals of property, plant and equipment” in the income statement for 2022. At 31 December 2022, the valuations performed by CBRE Valuation Advisory, S.A., Jones Lang LaSalle, S.A. and Savills Consultores Inmobiliarios, S.A. did not indicate any type of uncertainty regarding the market value of the Company's investment property. Income and related expenses 40 In 2022 the rental income from the investment property owned by the Company amounted to EUR 224,118 thousand (EUR 203,334 thousand at 31 December 2021) and the operating expenses of all kinds relating thereto totalled EUR 78,925 thousand (EUR 70,284 thousand at 31 December 2021). At the end of 2022 there were no restrictions on making new investment property investments, on the collection of rental income from them or in connection with the proceeds to be obtained from a potential disposal of them. a.Operating leases as lessee At the end of 2022 and 2021 the Company had contracted with lessors for the following minimum lease payments, based on the leases currently in force, without taking into account the charging of common expenses, future increases in the CPI or future contractual lease payment revisions: Thousands of euros Nominal value 2022 2021 Operating leases Minimum lease payments Within one year 832 832 1 to 5 years 69 901 901 1,733 The main expense relating to operating leases corresponds to the lease agreement that the Company entered into to rent out its offices. On 27 February 2017, the Company changed its registered office from Paseo de la Castellana 42 to Paseo de la Castellana 257, Madrid. This lease was novated in 2021 and extended until January 2024. The total lease expense accrued in 2022 amounted to EUR 730 thousand (EUR 757 thousand in 2021). The income for subleases in 2022 and 2021 from Magic Real Estate, S.L.U. and Testa Home, S.L. totalled EUR 19 thousand and EUR 18 thousand, respectively, and is recognised under “Other operating income” in the income statement for 2022. b.Operating leases as lessor At the end of 2022 the Company had contracted with tenants for the following minimum lease payments, based on the leases currently in force, without taking into account the charging of common expenses, future increases in the CPI or future contractual lease payment revisions (in thousands of euros). Thousands of euros 2022 2021 Minimum lease payments: Within one year 209,099 208,265 1 to 5 years 436,950 421,664 Over 5 years 120,032 73,567 766,081 703,496 41 The detail of the operating lease and sublease payments recognised as an expense and as income, respectively, in 2022 is as follows: Thousands of euros 2022 2021 Minimum lease payments 224,118 203,334 Transfer of common expenses 49,106 43,553 273,224 246,887 The expenses passed on to the tenants recognised in the income statement for 2022 decreased the balance of “Other operating expenses” (Note 18.3). 7. Financial assets The detail of “Current and non-current financial investments” at 31 December 2022 and 2021 is as follows: Thousands of euros 31/12/2022 31/12/2021 Non-current financial investments: Equity instruments 9,191 6,796 Derivatives 12,798 - Guarantees given and prepayments 31,154 31,600 Loans to Group companies 555,525 506,516 Loans to third parties 105,705 100,791 714,373 645,703 Current financial investments: Equity instruments 18 18 Financial assets at fair value through profit or loss - 80,964 Loans to Group companies 653,400 736,342 Loans to third parties 236 236 Trade and other receivables 27,744 13,011 Debt securities and other financial assets 40 57 681,438 830,628 1,395,811 1,476,331 7.1 Guarantees given and prepayments “Guarantees given and prepayments” includes mainly the guarantees arranged for lease agreements as collateral that the Company has deposited in the Housing Institute of each region, the balance of which at 31 December 2022 amounted to EUR 30,440 thousand (EUR 31,003 thousand at 31 December 2021), as well as the deposits amounting to EUR 307 thousand at that date (EUR 307 thousand at 31 December 2021). 7.2 Other financial assets at fair value through profit or loss At the end of 2020, this heading included 15.29% in Silicius Real Estate, SOCIMI, S.A. for EUR 86,521 thousand, acquired by the Company through an asset contribution. In the first half of 2021, the Company sold 353,966 shares for EUR 5,418 thousand, which did not have a significant impact on results. The amount of the share after the sale fell to EUR 80,964 thousand, which the Company reclassified to “Current financial assets”, classified as Financial assets at fair value through profit and loss in the accompanying balance sheet. On 27 July 42 2022, the Company sold 14.28% of the shares of Silicius Real Estate SOCIMI, S.A. for EUR 80,964 thousand, collecting the full sum in cash. 7.3 Balances with Group companies (current and non-current) The Company has the following long-term and short-term balances with its subsidiaries at 31 December 2022 and 2021: 43 31/12/2022 Thousands of euros Long-term loans Short-term loans Current accounts - receivables Trade receivables Non- current payables Current payables Payable to suppliers Group companies: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. - - - - - - - Merlin Retail, S.L.U. - 45,904 - 317 - - - Merlin Oficinas, S.L.U. - 13,941 - 217 - - - Merlin Logística, S.L.U. - 235,029 120 3,138 - - - Sevisur Logistica, S.A. - 18,317 - 41 - - - Parc Logistic de la Zona Franca, S.A. - - - 2,463 (8,771) (5,522) - Slack Tailwind Systems, S.L.U. - 1,050 - - - - - Slow Rise Spain, S.L.U. - 7,850 - 2 - - - Innovación Colaborativa, S.L.U. - 2,946 - 802 - - (174) Exhibitions Company, S.A.U. - - - - - (1,868) - Gescentesta, S.L.U. - - - - - (1,013) - Metroparque, S.A.U. - - - 143 - (31,178) - La Vital Centro Comercial y de Ocio, S.L.U. - - - 71 - (6,550) - Desarrollo Urbano de Patraix, S.A.U. - 7,027 - - - - (32,006) Sadorma 2003, S.L.U. - - - - - (21,191) - Global Murex Iberia, S.L.U. 2,576 - - - - (2,483) - Varitelia Distribuciones, S.L.U - 188,108 - 122 - - - Global Carihuela Patrimonio Comercial, S.L.U - 50,401 - 95 - - - MPCVI – Compra e Venda Imobiliária, S.A. 15,690 - - 16 - - - MPEP – Properties Escritórios Portugal, S.A. 21,561 - - 7 - - - MP Monumental, S.A. 79,411 - - 42 - - - MP Torre A, S.A. 31,361 - - 14 - - - VFX Logística, S.A. 28,171 - - 23 - - - Promosete, Invest Inmobiliaria 22,376 - - 17 - - - Praça do Marqués – Serviços Auxiliares, S.A. - - - 20 - - - Torre Dos Oceanus Investimentos Inmobiliarios,S.A. 17,512 - - 13 - - - Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 276,708 70,987 - 146 - - - Forum Almada II, S.A. - - - 86 - - - Torre Arts – Investimentos Imobiliarios, S.A. - - - 27 - - - Torre Fernao Magalhaes – Investimentos Imobiliarios, S.A. - - - 11 - - - Milos Asset Development, S.A. - 8,889 - - - - - Generous Profile Unipessoal, LDA 56,891 - - 25 - - - Associates: Provitae Centros Asistenciales, S.L. - 1,131 - - - - - Pazo de Congresos de Vigo, S.A. - - - 340 - - - Paseo Comercial Carlos III, S.A. 2,590 - - 10 - - - Centro Intermodal de Logística, S.A. - - - 1 - - - Edged Spain, S.L. - - 1,700 116 - - - Silicius Real Estate SOCIMI, S.A. - - - 59 (2,250) - (1,800) Other shares: Renazca, S.A. 678 - - 4 - - - 555,525 651,580 1,820 8,388 (11,021) (69,805) (33,980) 44 31/12/2021 Thousands of euros Long-term loans Short-term loans Current accounts - receivables Trade receivables Non- current payables Current payables Current accounts - payables Payable to suppliers Group companies: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. - - - - - (31,142) - - Merlin Retail, S.L.U. - 148,614 - 142 - - - - Merlin Oficinas, S.L.U. - 12,510 - 186 - - (2) - Merlin Logística, S.L.U. - 178,579 - 202 - - - - Sevisur Logistica, S.A. - 21,273 - 40 - - - - Parc Logistic de la Zona Franca, S.A. - - - 66 (8,771) (18,578) - - Innovación Colaborativa, S.L.U. - 2,588 - 430 - - - (2) Exhibitions Company, S.A.U. - - - - - (3,346) - - Gescentesta, S.L.U. - 37 - - - (1) - - Metroparque, S.A.U. - - - 54 - (28,629) - - La Vital Centro Comercial y de Ocio, S.L.U. - - - 21 - (4,495) - - Desarrollo Urbano de Patraix, S.A.U. - 6,937 - - - - - (32,007) Sadorma 2003, S.L.U. - 51 - - - (19,932) - - Global Murex Iberia, S.L.U. 2,555 - - - - (2,483) - - Varitelia Distribuciones, S.L.U - 195,156 - 60 - - - - Global Carihuela Patrimonio Comercial, S.L.U - 50,968 - 20 - - - - MPCVI - Compra e Venda Imobiliária, S.A. 15,099 - - 8 - - - - MPEP - Properties Escritórios Portugal, S.A. 21,889 - - 14 - - - - MP Monumental, S.A. 79,292 - - 83 - - (22) - MP Torre A, S.A. 38,251 - - 14 - - - - VFX Logística, S.A. 27,381 - - 30 - - - - Promosete, Invest Inmobiliaria 22,064 - - 34 - - - - Praça do Marqués - Serviços Auxiliares, S.A. — - - 19 - - - - Torre Dos Oceanus Investimentos Inmobiliarios,S.A. 20,504 - - 23 - - - - Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 276,708 103,178 - 133 - - - - Forum Almada II, S.A. - - - 86 - - - - Torre Arts - Investimentos Imobiliarios, S.A. - - - 48 - - - - Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. - - - 34 - - - - Milos Asset Development, S.A. - 14,883 - - - - - - Associates: - Provitae Centros Asistenciales, S.L. - 1,106 - - - - - - Pazo de Congresos de Vigo, S.A. - - - 340 - - - - Paseo Comercial Carlos III, S.A. 2,561 - - - - - - - PK Hoteles 22, S.L. - - - 2 - - - - G36, Development, S.A. 212 12 - - - - - - Edged Spain, S.L. - - 100 49 - - - - Silicius Real Estate SOCIMI, S.A. - - - 54 (4,050) - - (1,800) Other shares: - - Renazca, S.A. - - 350 80 - - - - 506,516 735,892 450 2,272 (12,821) (108,606) (24) (33,809) 45 Long-term loans to Group companies and associates The main long-term loans granted by the Company to Group companies and associates recognised under “Loans to Group companies” were as follows: –In 2018, as a result of the purchase of Forum Almada-Gestao de Centro Comercial, Sociedade Uniperssoal, Lda, the Company subrogated to three primary loans that the subsidiary had with the previous shareholder for a total amount of EUR 276,708 thousand with initial maturity set for 31 January 2022. Those loans accrue interest at a mean annual rate of 2.71%. At 31 December 2022, the accrued and unpaid interest amounted to EUR 4,738 thousand (EUR 36,930 thousand in 2021) and is recognised under the heading “Long-term loans” on the accompanying balance sheet. These loans were extended for 7 years, at a new rate of 4.75%. –In 2019, as a result of the purchase of the asset owned by MPEP- Properties Escritórios Portugal, S.A., the Company granted a loan amounting to EUR 13,330 thousand, accruing fixed interest of 5% and maturing on 2 September 2029. In June 2022, interest was capitalised, increasing the Company's share in that subsidiary by EUR 917 thousand as higher supplementary provisions. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 14,508 thousand. –In 2016, as a result of the purchase of MPCVI-Compra e venda Imobiliária, S.A., the Company subrogated to a primary loan that the subsidiary had with the previous owner for an amount of EUR 11,800 thousand with maturity set for 1 June 2025. That loan accrues interest at a fixed annual rate of 5.98%. In 2022, interest was capitalised in the amount of EUR 3,654 thousand, leaving a balance of principal plus accrued interest of EUR 15,690 thousand outstanding at the end of 2022. –In 2018, as a result of the purchase of Torre Dos Oceanus Investimentos Imobiliários, S.A., the Company subrogated to the primary loan that the subsidiary had with the previous owner for an amount of EUR 17,294 thousand with maturity set for 17 April 2022. That loan accrues interest at a fixed annual rate of 5%. In 2022, interest was paid in the amount of EUR 3,857 thousand. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 17,512 (EUR 20,504 thousand at 31 December 2021). This loan is scheduled to mature on April 17, 2030. –In 2017, as a result of the purchase of Promosete Investimentos Inmobiliarios, S.A., the Company subrogated to two primary loans that the subsidiary had with the previous owner for an amount of EUR 17,833 thousand with maturity set for 31 January 2022. That loan accrues interest at a fixed rate of 1.93%. In 2022 interest was capitalised in the amount of EUR 968 thousand. The outstanding principal balance at the end of 2022 and 2021 was EUR 22,267 thousand and EUR 21,300 thousand, respectively, and the accrued and unpaid interest was EUR 109 thousand at 31 December 2022 (EUR 764 thousand in 2021). This loan was extended with maturity set for 31 December 2029. –In 2016, as a result of the purchase of MP Monumental, S.A., the Company subrogated to two primary loans that the subsidiary had with the previous shareholder for an amount of EUR 38,040 thousand. Those loans accrue interest at a mean annual rate of 3%. In 2022, interest was paid in the amount of EUR 2 million. The outstanding principal balance at the 2022 year-end was EUR 38,000 thousand, and the accrued and unpaid interest was EUR 9,355 thousand. This loan matures on 31 January 2030, accruing interest at a rate of 4.75%. –In 2016, as a result of the purchase of MP Torre, S.A., the Company subrogated to a primary loan that the subsidiary had with the previous shareholder for an amount of EUR 31,122 thousand. That loan accrues interest at a mean annual rate of 3%. In 2022, interest was capitalised in the amount of EUR 500 thousand, through the increase of the Company's share in the subsidiary, as higher supplementary provisions, as well as the payment of interest in the amount of EUR 7,383 thousand. The outstanding 46 principal balance at the 2022 year-end was EUR 31,122 thousand, and the accrued and unpaid interest was EUR 239 thousand. This loan matures on 31 January 2030, accruing interest at a rate of 4.75%. –The Company holds a participation loan with Global Murex Iberia, S.L.U. amounting to EUR 18,000 thousand. This loan matured in 2019, at which time an addendum was signed extending the maturity of the agreement until 1 September 2024. At 31 December 2022, the outstanding balance of the loan is impaired in an amount of EUR 15,424 thousand (EUR 15,445 thousand in 2021). –In 2020, the Company signed a CAPEX line of credit with VFX Logistics, S.A., MP Monumental, S.A. and MPEP Properties Escritórios Portugal for maximum amounts of EUR 26,360, 30,250 and 7,000 thousand respectively. The maturity of these agreements is 31 December 2025, with an interest rate of 3%. The outstanding balance at 31 December 2022, including principal and interest, is EUR 28,171, EUR 32,056 and EUR 7,053 thousand respectively. –On 3 August 2022, the Company acquired 100% of the shares of Generous Profile Unipessoal Lda. Subsequently, on 12 August 2022, Generous Profile Unipessoal Lda acquired the Liberdade 195 building, through a loan granted by the Company for EUR 56,500 thousand, accruing interest at a rate of 3%, with an outstanding balance of EUR 391 thousand at 31 December 2022. –In 2018, the Company acquired from its investee Merlin Parques Logísticos, S.A.U. (merged with Parc Logistic de la Zona Franca, S.A.U) its share in VFX Logística, S.A., executing a loan for the deferred amount (EUR 8,771 thousand). Short-term loans and debts to Group companies and associates –As a result of the purchase of Forum Almada-Gestao de Centro Comercial, Sociedade Uniperssoal, Lda, the Company subrogated to a primary loan that the subsidiary had with the previous shareholder for a total current amount of EUR 98,410 thousand. That loan does not accrue interest. The main outstanding balance at the end of 2022 amounted to EUR 66,249 thousand. –Loan agreement between Group companies with Merlin Logistics, S.L.U. with a term of one year, maturing on 31 December 2023, with subsequent renewals permitted for similar periods, at an interest rate of 1.15% per year. The outstanding balance of principal at the 2022 year-end amounts to EUR 235,029 thousand. –Loan with Global Carihuela Patrimonio Comercial, S.L.U., whose balance comes from the financing from the business combination with Metrovacesa executed in 2016 through current accounts with Group companies. That loan has a term of one year and matures on 31 December 2023, with subsequent renewals permitted for similar periods, accruing an annual interest rate of 1.15%. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 50,401 thousand. –Inter-Group loan agreement with Varitelia Distribuciones, S.L.U. with a term of one year, maturing on 31 December 2023, with subsequent renewals permitted for similar periods, at an interest rate of 1.15% per year. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 188,108 thousand. –Inter-Group loan agreement with Sevisur Logistics, S.A. with a term of one year, maturing on 31 December 2023, with subsequent renewals permitted for similar periods, at an interest rate of 1.15% per year. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 18,317 thousand. –Loan agreement with Metroparque, S.A. whose balance comes from the financing from the business combination with Metrovacesa executed in 2016 through current accounts with Group companies. That loan has a term of one year and matures on 31 December 2023, with subsequent renewals 47 permitted for similar periods, accruing an annual interest rate of 1.15%. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 31,178 thousand. –Loan agreement with Sadorma, S.A. whose balance comes from the financing from the business combination with Metrovacesa executed in 2016 through current accounts with Group companies. That loan has a term of one year and matures on 31 December 2023, with subsequent renewals permitted for similar periods, accruing an annual interest rate of 1.15%. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 21,191 thousand. –Loan agreement with Parc Logisctic, Zona Franca, S.A. This agreement has a term of one year, maturing on 31 December 2023, with subsequent renewals permitted for similar periods, at an interest rate of 1.15% per year. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end amounts to EUR 5,522 thousand. –In 2022 the Company recognised an impairment loss on the short-term loan with Innovación Collaborativa, S.L.U. for EUR 1,072 thousand. The outstanding balance of principal plus accrued and unpaid interest at the 2022 year-end was EUR 4,019 thousand. At 31 December 2022, the Company had no recorded impairment losses on the loans granted to Group companies and associates except that held with the investee Global Murex Iberia, S.L., Innovación de, S.L.U. and Slack Tailwind Systems, S.L.U. 7.4 Third-party loans (current and non-current) The loan granted to Desarrollos Urbanísticos Udra, S.A.U. amounting to EUR 86,397 thousand is recorded under the heading “Third-Party Loans” under non-current assets, with a market interest rate. In 2020, the first capitalisation of interest took place, amounting to EUR 1,423 thousand. In 2021 and 2022, further capitalisations took place for EUR 1,442 thousand and EUR 1,466 thousand, respectively, with the resulting principal balance of the loan at 31 December 2022 of EUR 90,728 thousand (EUR 89,262 thousand at the end of 2021). The outstanding interest amounted to EUR 313 thousand and EUR 307 thousand at 31 December 2022 and 2021, respectively. In relation to the aforementioned loan, the Company has guarantees from the creditor associated with 10% of the shares it holds in Crea Madrid Nuevo Norte, S.A. In addition, under this heading, rent linearisation and tenant installation costs amounting to EUR 14,607 thousand are recorded. 7.5 Trade and other receivables At 31 December 2022, the heading “Trade and other receivables” includes the following items: Thousands of euros 31/12/2022 31/12/2021 Current assets: Trade and notes receivable 9,533 4,156 Group companies and associates 8,388 2,272 Sundry accounts receivable 1,268 587 Employee receivables 184 184 Other receivables from public authorities (Note 14) 8,371 5,812 27,744 13,011 48 “Trade and notes receivable” in the balance sheet at 31 December 2022 mainly included the balances receivable from leasing investment property. In general these receivables are interest free and the terms of collection range from immediate payment on billing to payment at 30 days, while the average collection period is approximately 5 days (5 days in 2021). The Company periodically analyses the risk of insolvency of its accounts receivable by updating the related provision for impairment losses. The Company’s directors consider that the amount of trade and other receivables approximates their fair value. Movement in the provision for impairment and bad debt in 2022 was as follows: Thousands of euros 2022 2021 Initial balance (7,996) (7,854) Charges for the year (581) (818) Reversals/amounts used 697 652 Other 59 24 Closing balance (7,821) (7,996) In 2022, losses on bad debts amounted to EUR 373 thousand (EUR 273 thousand in 2021). The majority of impaired receivables are overdue by more than six months. 8. Cash and cash equivalents “Cash and cash equivalents” includes the Company’s cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. The balance of this heading of the accompanying balance sheet comprises mainly the current accounts in euros held by the Company at various financial institutions, which accrue interest at market rates, amounting to EUR 343,081 thousand (EUR 570,725 thousand in 2021). At 31 December 2022, there were no balances pledged to secure the Company's obligations. The interest earned in this regard in 2022 amounted to EUR 1,737 thousand and is recognised under “Finance Income” in the accompanying income statement (EUR 363 thousand in 2021). 9. Non-current investments in Group companies and associates The breakdown of and changes in the balance of “Equity instruments” at 2022 and 2021 year-end is as follows: 49 2022 In thousands of euros Balance at 31/12/21 Additions Disposals Impairment Balance at 31/12/22 Group companies: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. 657,984 619,726 (1,277,710) - - Merlin Retail, S.L.U. 251,408 - - - 251,408 Merlin Oficinas, S.L.U. 771,345 - - - 771,345 Merlin Logística, S.L.U. 292,304 - - - 292,304 Sevisur Logistica, S.A. 37,629 - - - 37,629 Parc Logistic de la Zona Franca, S.A. 118,310 - - - 118,310 Slack Tailwind Systems, S.L.U. - 3 - (3) - Slow Rise Spain, S.L.U. 3 - - 3 Innovación Colaborativa, S.L.U. 2,020 - - (2,020) - Exhibitions Company, S.A.U. 3,654 - - (1,430) 2,224 Gescentesta, S.L.U. 3 - - - 3 Metroparque, S.A.U. 231,557 - - - 231,557 La Vital Centro Comercial y de Ocio, S.L.U. 56,788 - - - 56,788 Desarrollo Urbano de Patraix, S.A.U. 25,060 - - (83) 24,977 Sadorma 2003, S.L.U. 18,857 - - 232 19,089 Varitelia Distribuciones, S.L.U 21,885 - - 817 22,702 Global Carihuela Patrimonio Comercial, S.L.U 7,661 - - 1,579 9,240 MPCVI - Compra e Venda Imobiliária, S.A. 6,418 - - - 6,418 MPEP - Properties Escritórios Portugal, S.A. 85 1,000 - - 1,085 MP Monumental, S.A. 21,548 1,100 - - 22,648 MP Torre A, S.A. 10,186 500 - - 10,686 VFX Logística, S.A. 12,310 3,800 - 6,626 22,736 Promosete, Invest Inmobiliaria 10,386 - - - 10,386 Praça do Marqués - Serviços Auxiliares, S.A. 56,359 - - - 56,359 Torre Dos Oceanus Investimentos Inmobiliarios,S.A. 15,912 - - - 15,912 Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 32,574 - - - 32,574 Torre Arts - Investimentos Imobiliarios, S.A. 85,781 - (5,500) - 80,281 Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. 27,555 - (1,500) - 26,055 Milos Asset Development, S.A. 2 - - - 2 Generous Profile Unipessoal, LDA 56,808 - (556) 56,252 Associates: Provitae Centros Asistenciales, S.L. 3,514 - - (198) 3,316 Paseo Comercial Carlos III, S.A. 25,668 - - - 25,668 Centro Intermodal de Logística, S.A. 95,688 - - - 95,688 Parking del Palau, S.A.II., S.L.U. 1,217 - - (133) 1,084 PK Hoteles 22, S.L. 2,184 - (2,468) 284 - Crea Madrid Nuevo Norte, S.A. 171,898 1,511 - (616) 172,793 G36, Development, S.A. 2,027 - (2,024) - 3 Edged Spain, S.L. — - - - - Silicius Real Estate SOCIMI, S.A. 87,018 - - - 87,018 Total net value of the investment 3,164,795 684,451 (1,289,202) 4,499 2,564,543 50 2021 In thousands of euros Balance at 31/12/20 Additions Disposals Impairment Other Balance at 31/12/21 Group companies: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. 657,984 - - - - 657,984 Merlin Retail, S.L.U. 251,408 - - - - 251,408 Merlin Oficinas, S.L.U. 771,345 - - - - 771,345 Merlin Logística, S.L.U. 292,304 - - - - 292,304 Sevisur Logistica, S.A. 37,629 - - - - 37,629 Parc Logistic de la Zona Franca, S.A. 118,310 - - - - 118,310 Innovación Colaborativa, S.L.U. - 12,000 - (4,534) (5,446) 2,020 Exhibitions Company, S.A.U. 4,287 - - (633) - 3,654 Gescentesta, S.L.U. 3 - - - - 3 Metroparque, S.A.U. 231,557 - - - - 231,557 La Vital Centro Comercial y de Ocio, S.L.U. 56,788 - - - - 56,788 Desarrollo Urbano de Patraix, S.A.U. 25,090 - - (30) - 25,060 Sadorma 2003, S.L.U. 18,603 - - 254 - 18,857 Varitelia Distribuciones, S.L.U 21,552 - - 333 - 21,885 Global Carihuela Patrimonio Comercial, S.L.U 13,125 - - (5,464) - 7,661 MPCVI - Compra e Venda Imobiliária, S.A. 6,418 - - - - 6,418 MPEP - Properties Escritórios Portugal, S.A. 85 - - - - 85 MP Monumental, S.A. 20,348 1,200 - - - 21,548 MP Torre A, S.A. 10,186 - - - - 10,186 VFX Logística, S.A. 18,363 440 - (6,493) - 12,310 Promosete, Invest Inmobiliaria 10,386 - - - - 10,386 Praça do Marqués - Serviços Auxiliares, S.A. 56,359 - - - - 56,359 Torre Dos Oceanus Investimentos Inmobiliarios,S.A. 15,912 - - - - 15,912 Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 33,774 - - - (1,200) 32,574 Torre Arts - Investimentos Imobiliarios, S.A. 85,781 - - - - 85,781 Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. 27,555 - - - - 27,555 Milos Asset Development, S.A. - - - 2 - 2 Associates: Provitae Centros Asistenciales, S.L. 3,509 - - 5 - 3,514 Paseo Comercial Carlos III, S.A. 25,668 - - - - 25,668 Centro Intermodal de Logística, S.A. 95,688 - - - - 95,688 Parking del Palau, S.A.II., S.L.U. 1,357 - - (140) - 1,217 PK Hoteles 22, S.L. 2,467 - - (283) - 2,184 Crea Madrid Nuevo Norte, S.A. 169,386 2,922 - (410) - 171,898 G36, Development, S.A. 2,027 - - - - 2,027 Edged Spain, S.L. - 2 - (2) - - Silicius Real Estate SOCIMI, S.A. 70,543 - (4,003) 1,828 18,650 87,018 Total net value of the investment 3,155,797 16,564 (4,003) (15,567) 12,004 3,164,795 In compliance with section 155 of the Corporate Enterprises Act, the Company reported the holdings that exceed 10% of share capital in the companies described in the table above. 51 The most significant transactions executed in 2022 are as follows: -On 1 February 2022, the Company sent BBVA a communication that included, among other points, a proposed sale of 100% of the shares of Tree Inversiones Inmobiliarias Socimi, S.A. in accordance with right of first refusal held by BBVA. On 1 April 2022, the Company received a communication from BBVA on its acceptance of the proposed sale of Tree, which was subject, among others, to the approval of the Spanish National Markets and Competition Commission (CNMC). On 1 June 2022, the CNMC authorised the transaction and the sale was concluded on 15 June 2022. Prior to the sale, a contribution of funds was made in order to cancel the financing held by the investee company. (see note 1.2). -On 27 July 2022, 100% of the shares of Slack Tailwind Systems, S.L.U and Slow Rise Spain, S.L.U. were acquired for EUR 3 thousand each. At 31 December 2022, the share in Slack Tailwind Systems, S.L.U was fully provisioned. -On 3 August 2022, the Company acquired 100% of the shares Generous Profile Unipessoal Lda. for EUR 9 thousand. Subsequently, a capital increase of EUR 56,800 thousand took place. (See note 1.2) -In 2022 the General Meeting of PK Hoteles 22, S.L. unanimously resolved to liquidate the company, 32.50% of which was owned by the Company. -In the first quarter of 2022, the Company's share in the Portuguese subsidiary MP Monumental, S.A. increased be means of a contribution of EUR 1,100 thousand, as supplementary contributions. -In 2022, the Company increased the share in the Portuguese subsidiary MPEP- Properties Esctitórios Portugal, S.A. by capitalising interest on the loan granted to it in the amount of EUR 1,000 thousand, as supplementary contributions. -In 2022, the Company increased the share in the Portuguese subsidiary MP Torre A, S.A. by capitalising interest on the loan granted to it in the amount of EUR 500 thousand, as supplementary contributions. -In 2022, the Company's share in the Portuguese subsidiary MP Logística, S.A. increased be means of a contribution of EUR 3,800 thousand, as supplementary contributions. In 2022, the Company recognised a reversal of the impairment in the share in the amount of EUR 6,626 thousand. -In 2022, the Company made a capital contribution to Crea Madrid Nuevo Norte, S.A. as a result of the capital increase carried out in the year, in the amount of EUR 1,511 thousand. -In 2022, the Company recorded a reduction in its share in G36 Developments, S.L. in the amount of EUR 2,024 thousand, as a result of capital reduction and return of share premium. -In October 2022, the Company's share in Torre Arts - Investimentos Imobiliarios, S.A. was reduced by the reimbursement of supplementary provisions in the amount of EUR 5,500 thousand. -In October 2022, the Company's share in Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. was reduced by a reimbursement of supplementary provisions in the amount of EUR 1,500 thousand. The most significant transactions executed in 2021 are as follows: -Capital increase of Innovación Collaborativa, S.L.U. in the amount of EUR 12,000 thousand, through the partial offsetting of the loan. 52 -On 27 January 2021, the Company acquired 100% of the shares of Edged Spain, S.L.U. and subsequently sold 50% to Edged Global Services Iberia, S.L.U. on 30 March 2021. Edged Spain, S.L.U. is engaged in providing data processing centre services. At 31 December 2021, this share was fully provisioned. -In 2021, the Company increased the share in the Portuguese subsidiary MP Monumental, S.A. by capitalising the loan granted to it in the amount of EUR 1.2 million, as supplementary contributions -In 2021, the Company increased the share in the Portuguese subsidiary VFX Logística, S.A. by capitalising the loan granted to it in the amount of EUR 440 thousand, as supplementary contributions -Changes in the purchase value of the shares of the Portuguese company Forum Almada Gestão Centro Comercial Sociedade Unipessoal, Lda., due to tax contingencies included in the purchase agreement, which result in a negative adjustment in the price for EUR 1,200 thousand. -In relation to the shares in associates, the main change corresponded to the sale of 353,966 shares of Silicius Real Estate SOCIMI, S.A. for EUR 5,418 thousand, and the result was recognised in the income statement. In addition, amounts were received as premium reimbursements amounting to EUR 4,003 thousand. In relation to the aforementioned share, the Company had liabilities associated with ensuring the profitability of the assets contributed to cover the capital increase with non-monetary contributions amounting to EUR 5,850 thousand, recognised under “Other financial liabilities”. -During 2021, the Company increased its capital in the Spanish company Crea Madrid Nuevo Norte, S.A. by EUR 2,922 thousand. As of December 31, 2022, the Company holds a stake in Silicius Real Estate SOCIMI, S,A, equivalent to 17.80% of the share capital. As part of the terms and conditions agreed with Silicius Real Estate SOCIMI, S,A at the time of entry into the Company's capital, certain conditions were included in relation to the shares received: On the fifth anniversary of the asset contribution: •Silicius Real Estate SOCIMI, S.A. has the option to proceed with the purchase of the shares at a price per share equivalent to the net asset value (NAV) per share available at the aforementioned date increased by 30%. •If Silicius Real Estate SOCIMI, S.A. does not exercise the purchase option, Merlin will have the right to request the redemption of the interest through the return in kind of certain pre-selected assets. •If the Board of Silicius Real Estate SOCIMI, S.A. is not satisfied with the selection of assets made by Merlin, it will be obliged to purchase or redeem in cash from Merlin the Liquid B shares at the issue price (including par value and premium) at which they were admitted. The aforementioned option is valued by Merlin on a periodic basis and is presented as a liability derivative, in case it could result in a negative adjustment to the recoverable value of the aforementioned shareholding (See Note 12). The directors annually assess the existence of signs of impairment on the holdings above and concluded that there are no further impairments at 31 December 2022. To determine whether or not the shares in Group companies and associates have become impaired, the proportional part of equity of the investees, adjusted by any unrealised gains and goodwill at the valuation date, was considered to be the best evidence of the recoverable amount, which were mainly identified based on third-party valuations of those assets. In 2022, impairment was identified for a total of EUR 5,039 thousand, mainly related to the shares held in Innovación Collaborativa, S.L.U and Exhibitions Company, S.A.U. Similarly, 53 recorded impairments amounting to EUR 9,538 thousand were reversed, mainly related to the shares held in VFX Logística, S.A. and Global Carihuela Patrimonio Comercial, S.L.U. The most significant information in relation to investments in Group companies and associates at 2022 and 2021 year-end is detailed in Appendix I. 10. Equity and shareholder’s equity 10.1 Share capital and share premium The detail of and changes in equity are presented in the statement of changes in equity. Share capital At 31 December 2022, the share capital of Merlin Properties SOCIMI, S.A., amounted to EUR 469,771 thousand, represented by 469,770,750 fully subscribed and paid shares of EUR 1 par value each, all of which are of the same class and confer the holders the same rights. All the Company's shares can be publicly traded and are listed on the Madrid, Barcelona, Bilbao and Valencia and Lisbon Stock Exchanges. The market price of the Parent’s shares at 31 December 2022 and the average market price for the fourth quarter amounted to EUR 8.78 and EUR 8.65 per share, respectively. At 31 December 2022, based on information extracted from the CNMV, in relation to the provisions of Royal Decree 1362/2007, of 19 October and Circular 2/2007, of 19 December, the shareholders with significant holdings in the share capital of Merlin Properties SOCIMI, S.A., both direct and indirect, in excess of 3% of the share capital, are the following based on public information: Shares % of share capital Direct Indirect Total Banco Santander, S.A. 89,311,859 26,072,123 115,383,982 24.562% Nortia Capital Investment Holding, S.L. 38,371,083 - 38,371,083 8.168% BlackRock, INC - 23,528,172 23,528,172 5.008% The information on Banco Santander and Manual Lao Hernández (Nortia Capital Investment Holding, S.L.) was obtained from the Company's Register of Members at the end of 2022. Share premium The Consolidated Text of the Corporate Enterprises Act expressly permits the use of the share premium to increase capital and establishes no specific restrictions as to its use. This reserve is unrestricted so long as its allocation does not lower equity to below the amount of share capital. On 4 May 2022, the General Meeting approved the distribution of an interim dividend charged to the “share premium” reserve in the amount of EUR 106,497 thousand. 10.2. Reserves Legal reserve 54 The legal reserve will be established in accordance with section 274 of the Consolidated Text of the Corporate Enterprises Act, which stipulates, in all cases, that 10% of net profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. This reserve cannot be distributed, and if it is used to offset losses, in the event no other reserves are available for this purpose, it must be restored with future profits. At 31 December 2022, the Company had not yet reached the legally required minimum established in the revised text of the Corporate Enterprises Act. The legal reserve of companies which have chosen to avail themselves of the special tax regime established in Law 11/2009, of 26 October, regulating listed companies investing in the property market (REITs), must not exceed 20% of share capital. The articles of association of these companies may not establish any other type of restricted reserves. Merger reserves The mergers carried out in 2017 generated positive merger reserves of EUR 1,629 thousand. As a result of the merger by absorption of Testa Inmuebles en Renta SOCIMI, S.A. with the Company in 2016, this transaction generated negative merger reserves in the amount of EUR 308,131 thousand. 10.3 Treasury shares At 31 December 2022, the Company held treasury shares amounting to EUR 17,166 thousand. The changes in 2022 were as follows: Number of Shares Thousands of euros Balance at 1 January 2021 4,836,503 54,149 Additions 374 3 Disposals (1,951,386) (21,847) Balance at 31 December 2021 2,885,491 32,305 Additions 6,625 122 Disposals (1,355,932) (15,261) Balance at 31 December 2022 1,536,184 17,166 The shareholders at the Annual General Meeting held on 10 April 2019 revoked the unused portion of the authorisation granted by the shareholders at the General Meeting of April 2018 and authorised the acquisition of treasury shares by the Company itself or by Group companies pursuant to section 146 et seq. of the Corporate Enterprises Act, complying with the requirements and restrictions established in current law during the five-year period. The disposals of treasury shares, amounting to EUR 15,261 thousand (average cost of EUR 11.20 per share), relate mainly to the second and last delivery of shares under the 2017-19 Incentive Plan (see Note 17) in the amount of EUR 14,133 thousand and to the delivery of shares to employees as part of the flexible remuneration plan in the amount of EUR 864 thousand. The Company has a liquidity agreement for securities listed on the Lisbon Stock Exchange, having made net sales of 9,740 shares (EUR 142 thousand) in 2022. At 31 December 2022, the Company held treasury shares representing 0.327% of its share capital. 55 10.4 Valuation adjustments This heading of the statement of financial position includes changes in the value of financial derivatives designated as cash flow hedges, as well as that corresponding to financial assets through profit and loss. Movement in this heading in 2022 was as follows : Thousands of euros Balance at 31 December 2020 (5,613) Changes in the fair value of hedges in 2021 625 Changes in the fair value of “Financial assets through profit and loss” 4,988 Balance at 31 December 2021 - Changes in the fair value of hedges in 2022 12,798 Changes in the fair value of “Financial assets through profit and loss” - Balance at 31 December 2022 12,798 The change in the fair value of the hedging instruments corresponds to the value recorded at the time of the rupture of the efficiency that will be accrued over the life of the derivative and that has been recognised as the largest financial expense in the attached income statement. The balance at year-end 2022 relates to the assessment of the new interest rate hedges that the Group has taken out to cover the new syndicated financing and the bilateral loan with Banco Sabadell, for April 2023 to April 2028 (see Note 11). 11. Current and non-current financial liabilities The detail of current and non-current liabilities at 31 December 2022 and 2021 is as follows (in thousands of euros): 56 Thousands of euros 2022 2021 Non-current: Measured at amortised cost Syndicated loan - 850,000 Syndicated loan arrangement expenses - (3,545) Total syndicated loan - 846,455 Revolving credit facility - - Non-mortgage loan 111,000 29,000 Arrangement costs of the revolving loan facility and unsecured loan (2,757) (3,097) Total other loans 108,243 25,903 Debentures and bonds 3,300,000 4,042,786 Debenture issue expenses (20,666) (25,216) Total debentures and bonds 3,279,334 4,017,570 Total amortised cost 3,387,577 4,889,928 Measured at fair value () Interest rate derivative financial instruments - 6,169 Total at fair value - 6,169 Total non-current 3,387,577 4,896,097 Current: Measured at amortised cost Syndicated loan 195 644 Debentures and bonds 775,152 588,622 Non-mortgage loan 346 123 Revolving credit facility 410 410 Loan arrangement expenses (116) (467) Total amortised cost 775,987 589,332 Measured at fair value () Interest rate derivative financial instruments 18 320 Total at fair value 18 320 Total current 776,005 589,652 There is no material difference between the carrying amount and the fair value of financial liabilities at amortised cost. On 20 April 2016, the Company was given a credit rating of “BBB” with stable outlook by Standard & Poor’s Rating Credit Market Services Europe Limited. On 02 May 2018, Standard & Poor's updated this rating to “BBB” with a positive outlook, changing it to stable outlook due to the COVID-19 pandemic on 27 March 2020. On 12 April 2022, following the sale of TREE Inversiones Inmobiliarias SOCIMI, S.A., Standard & Poor's updated this outlook to positive. Additionally, on 17 October 2016, the Company was given a credit rating of investment grade “Baa2” by Moody's. On 27 May 2020, Moody's updated this rating to “Baa2” with a negative outlook due to the COVID-19 pandemic. On 02 May 2022, following the sale of TREE Inversiones Inmobiliarias SOCIMI, S.A., Moody's updated this outlook to positive. 11.1 Loans The detail of loans at 31 December 2022 and 2021 is as follows (in thousands of euros): 57 31/12/2022 Initial loan / Limit Debt arrangement expenses Long term Short term Short-term interest Syndicated loan 600,000 - - - 195 Revolving credit facilities 700,000 (2,486) - - 410 Non-mortgage loan 220,225 (271) 111,000 - 346 Total 1,520,225 (2,757) 111,000 - 951 31/12/2021 Initial loan / Limit Debt arrangement expenses Long term Short term Short-term interest Syndicated loan 850,000 (3,545) 850,000 - 644 Revolving credit facilities 700,000 (3,055) - - 410 Non-mortgage loan 160,225 (42) 29,000 - 123 Total 1,710,225 (6,642) 879,000 - 1,177 Syndicated loans and revolving credit facilities On 25 April 2019, the Company arranged a senior syndicated loan amounting to EUR 1,550 million, including two tranches, a corporate loan of EUR 850 million and a corporate credit facility of EUR 700 million due in 2024. The initial maturity date for this revolving credit facility was 2024, with the possibility of two optional one-year extensions. The second one-year extension was approved on 30 June 2021, and the new maturity date is 9 May 2026. The corporate loan of EUR 850 million accrued an interest rate of the one-month EURIBOR + 120 basis points, while the revolving credit facility accrued an interest rate of the one-month EURIBOR + 90 basis points, and it incorporates a cost adjustment mechanism based on four sustainability criteria. On 21 June 2022, the Company early cancelled the corporate loan of EUR 850 million. On 18 November 2022, the Company arranged a new senior syndicated loan for EUR 600 million with the possibility of being drawn down before 24 April 2023 for the redemption of the bond maturing in 2023. This facility will have a maturity of 5 years from its drawdown date and will accrue a market rate of interest if EURIBOR plus 130 basis points. Until the facility is drawn down, a fee of 26 basis points will be applied for the undrawn balance. At the 2022 year-end, the loan was not drawn down. These facilities maintain the commitments to maintain certain coverage ratios, existing in the previous facility, in the Group bonds and in the Banco Sabadell facility described below. These ratios are defined as the ratio between the value of the assets and the outstanding debt (“Loan to Value”), the ratio between the Group's revenue and the debt service (“ICR”) and the ratio between assets and debt, both without mortgage guarantee (“Unencumbered Ratio”). They also include certain conditions linked to compliance with factors associated with the environment and sustainability that may entail certain savings in their financial burden. The Company’s directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. Unsecured loans: 58 Banco Sabadell loan On 18 November 2022, the Company arranged a loan without mortgage security with Banco Sabadell for EUR 60 million, maturing in January 2028 and accruing a market rate of interest of EURIBOR + 120 basis points. This facility includes commitments to maintain certain coverage ratios described in the previous point. The Company’s directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. European Investment Bank loans On 20 December 2018, the Company formalised a loan without mortgage security with the European Investment Bank in an amount of EUR 51 million. On 4 November 2019, the Company formalised the second tranche of the loan without mortgage security with the European Investment Bank amounting to EUR 64 million, making EUR 115 million in total over the two tranches. This facility can be drawn down through several loans with a maturity of 10 years for each drawdown. This facility must be allocated to the development of logistics assets in the Castilla–La Mancha region. On 10 March 2020 and 26 October 2020, the Company drew down EUR 23.4 million and EUR 5.6 million corresponding to the first tranche of the facility. This facility accrues fixed interest at a rate of 60 basis points. On 20 December 2022, the Company had EUR 22 million and 370 basis points. These three loans complete the drawdown of the first tranche of EUR 51 million. On 16 December 2021, the Company arranged a loan without mortgage security with the European Investment Bank in an amount of EUR 45,225 thousand and with 10-year maturity. This facility will be used to make investments in energy efficiency. At the year-end, this loan was not drawn down. These facilities maintain the commitments to maintain certain coverage ratios, existing in the previous facility, in the Company's bonds and in the syndicated loan. These ratios are defined as the ratio between the value of the assets and the outstanding debt (“Loan to Value”), the ratio between the revenue of the Merlin Group, of which it is the Parent, and the debt service (“ICR”) and the ratio between assets and debt, both without mortgage guarantee (“Unencumbered Ratio”). The Company’s directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. Maturity of debt The details on the maturity of the amounts provided in these loans is as follows (in thousands of euros): Syndicated loan Revolving credit facility Total 2023 - - - 2024 - - - 2025 - - - Over 3 years 111,000 - 111,000 111,000 - 111,000 None of the Company’s debt was denominated in non-euro currencies at 31 December 2022. The Company had undrawn credits and loans at 31 December 2022 with a number of financial institutions totalling EUR 1,409 million (EUR 831 million at 31 December 2021). There are no significant differences between the fair values and carrying amounts of the Company’s financial liabilities. 59 The finance cost for interest on the loans and the revolving lines of credit totalled EUR 7,618 thousand in 2022 (EUR 12,677 thousand in 2021) and is recognised in the accompanying income statement for 2022. At 31 December 2022, the loan arrangement costs were recognised as a reduction in “Bank borrowings”. In 2022, the Company recognised EUR 4,125 thousand (EUR 2,151 thousand in 2021) associated with the debt under “Finance costs” in the accompanying income statement for 2022, having capitalised EUR 240 thousand in 2022. 11.2 Debenture issues On 12 May 2017, the Company subscribed a Euro Medium Term Notes (EMTN) issue programme of up to EUR 4,000 million, which will replace the original bond issue programme and its supplement subscribed on 06 April 2016 and 14 October 2016, respectively, for an overall maximum amount of EUR 2,700 million. On 18 May 2018, the Company extended that bond-issue scheme (Euro Medium Term Notes – EMTN) up to an amount of EUR 5,000 million. On 17 June 2020, the General Shareholders' Meeting approved the extension of this bond issuance program up to an amount of EUR 6,000 million, and the extension took place on 21 March 2021. On 4 August 2022, the scheme was renewed for another year. On 30 June 2021, the Company issued a bond of EUR 500 million at 9 years at 99.196% of the nominal value and a coupon of 1.375%. These funds were used to pay the bond maturing in May 2022 early on 23 February 2022. On 1 June 2022, the Company converted all its bonds into green bonds under the Green Financing Framework published on 25 April 2022. The reclassification of the bonds to green bonds does not entail changes to any other features of the bonds, such as their terms and conditions, interest or maturity. The terms of the bonds issued by the Company abide by UK laws and are traded on the Luxembourg Stock Exchange. The bond issue scheme has the same guarantees and ratio compliance obligations as the new syndicated loan and the revolving credit facility. At year-end 2022, the Company is compliant with the covenants in this agreement and the directors believe they will be met in 2023. The detail at 31 December 2022 of the bonds issued by Company is as follows: Maturity Nominal value (Millions of euros) Coupon Listed price Return Market April 2023 743 2.225% MS + 98 b.p. 3.32% Luxembourg May 2025 600 1.750% MS + +115 b.p. 4.44% Luxembourg November 2026 800 1.875% MS + +168 b.p. 4.88% Luxembourg July 2027 500 2.375% MS + +183 b.p. 5.01% Luxembourg September 2029 300 2.375% MS + +210 b.p. 5.24% Luxembourg June 2030 500 1.375% MS + +205 b.p. 5.18% Luxembourg December 2034 600 1.875% MS + +232 b.p. 5.46% Luxembourg 4,043 1.958% 2021 60 Maturity Nominal value (Millions of euros) Coupon Listed price Return Market May 2022 548 2.375% MS + 53 b.p. -0.01% Ireland (a) April 2023 743 2.225% MS + 65 b.p. 0.169% Luxembourg May 2025 600 1.750% MS + 55 b.p. 0.405% Luxembourg November 2026 800 1.875% MS + 73 b.p. 0.708% Luxembourg July 2027 500 2.375% MS + 87 b.p. 0.897% Luxembourg September 2029 300 2.375% MS + 117 b.p. 1.319% Luxembourg June 2030 500 1.375% MS + 139 b.p. 1.603% Luxembourg December 2034 600 1.875 MS + 165 b.p. 2.058% Luxembourg 4,591 2.008% (a) Due to the business combination with Metrovacesa carried out in 2016, the Company recognised a bond issue launched by Metrovacesa for EUR 700 million. The terms and conditions of the bonds were governed and interpreted in accordance with UK laws and were listed on the Irish Stock Exchange. This issue also included a series of compliance obligations and guarantees, which is common in these types of transactions. The bond was paid early on 23 February 2022. These bond issues include commitments to maintain certain coverage ratios. These ratios are defined as the ratio between the value of the assets and the outstanding debt (“Loan to Value”), the ratio between the Group's revenue and the debt service (“ICR”) and the ratio between assets and debt, both without mortgage guarantee (“Unencumbered Ratio”). The Company’s directors have confirmed that these ratios were met at 31 December 2022 and do not expect that they will not be fulfilled in the coming years. The finance cost for interest on the debenture issues amounted to EUR 81,040 thousand (EUR 89,330 thousand in 2021) and is recognised in the accompanying income statement for 2022. The accrued interest payable at 31 December 2022 amounted to EUR 32,366 thousand (EUR 40,322 thousand in 2021). Debt arrangement expenses taken to the income statement in 2022 amounted to EUR 4,901 thousand (EUR 5,370 thousand in 2021). 11.3 Interest rate derivatives In 2022 the Company took out new interest rate hedges to cover the new syndicated facility for April 2023 to April 2028. The notional amount contracted was EUR 500 million at a cost of 2.574%. In addition, an interest rate hedge was contracted to cover Sabadell's mortgage loan until its maturity in January 2028 for a notional amount of EUR 60 million and a fixed cost of 2.512%. The detail of the financial instruments as of 31 December 2022 is as follows (in thousands of euros): 2022 Thousands of euros Outstanding notional amount at each date Interest rate Interest contracted Fair Value Subsequent years 2022 2023 2024 2025 Syndicated (start 2023) 2,574% (11,394) - 500,000 500,000 500,000 500,000 Unsecured 2.512% (1,386) 60,000 60,000 60,000 60,000 60,000 (12,780) 60,000 560,000 560,000 560,000 560,000 61 2021 Thousands of euros Outstanding notional amount at each date Interest rate Interest contracted Fair Value Subsequent years 2021 2022 2023 2024 Syndicated (start 2021) 0.0154% (6,488) 850,000 850,000 850,000 - - (6,488) 850,000 850,000 850,000 - - Thousands of euros Non-current Interest rate derivatives (12,798) Total non-current (12,798) Current Interest rate derivatives 18 Total current 18 At 31 December 2022, the impact for interest rate derivatives on liabilities and profit before tax of a 5% fluctuation in the estimated credit risk rate would be as follows: Thousands of euros Scenario Liabilities Equity Consolidated profit/(loss) before tax 5% rise in credit risk rate (12,130) 12,130 - 5% reduction in credit risk rate 12,524 (12,524) - At 31 December 2021, the effect of the Company's interest rate derivatives, in the event of changes of 5% in the credit risk rate, was not significant. 62 12. Other current and non-current liabilities The detail of non-current and current liabilities at 31 December 2022 and 2021 is as follows: Thousands of euros 31/12/2022 31/12/2021 Non-current: Provisions 11,558 10,184 Other non-current liabilities 3,420 11,972 Guarantees and deposits received 51,287 46,762 66,265 68,918 Current: Other payables 121 132 Other current liabilities 5,157 3,139 5,278 3,271 71,543 72,189 “Non-current provisions” includes provisions for the risk assessment associated with a series of legal proceedings and third-party claims arising from the Company's activity, which have been recognised in accordance with the best existing estimates, as well as the provision corresponding to the variable remuneration that will be paid in the long term amounting to EUR 4,619 thousand (EUR 3,338 thousand in 2021). “Guarantees and deposits received” primarily comprise the amounts deposited by lessees to secure leases, which will be reimbursed at the end of the lease term. The amount included under “Other non-current liabilities” relates to the estimated value of the resulting put option on the share in Silicius for EUR 420 thousand (EUR 8,971 thousand at 31 December 2021) (see Note 9). 13. Trade and other payables The detail of trade and other payables is as follows: Thousands of euros 31/12/2022 31/12/2021 Trade and other payables: Accounts Payables 44,410 25,087 Payable to suppliers, Group companies and associates 33,980 33,809 Sundry accounts payable 1,037 1,199 Remuneration payable 15,025 20,767 Other accounts payable to public authorities (see Note 14) 22,700 18,969 Advances from customers 447 117,599 99,831 The directors consider that the carrying amount of trade payables approximates their fair value. 63 Information on the average period of payment to suppliers. Final Provision Two of Law 31/2014, of 3 December The information required by additional provision three of Spanish Law 18/2022, of 28 September, on creating and growing companies [Ley 18/2022, de 28 de septiembre, de creación y crecimiento de empresas] and Spanish Law 15/2010, of 5 July (amended by final provision two of Spanish Law 31/2014, of 3 December), prepared in accordance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 29 January 2016 on the disclosures to be included in the notes to financial statements in relation to the average period of payment to suppliers in commercial transactions, is detailed below. Days 2022 2021 Average period of payment to suppliers 23.1 34 Ratio of transactions settled 20.8 33.9 Ratio of transactions not yet settled 33.1 37.7 Thousands of euros 2022 2021 Total payments made 194,123 109,838 Total payments outstanding 44,574 2,216 In accordance with the ICAC Resolution, the average period of payment to suppliers was calculated by taking into account the commercial transactions relating to the supply of goods or services for which payment has accrued in each year. For the sole purpose of the disclosures provided for in the Resolution, suppliers are considered to be the trade creditors for the supply of goods or services included in “Payable to suppliers” and “Sundry accounts payable” under current liabilities in the balance sheet and regardless of any financing due to the early collection of the supplier. “Average period of payment to suppliers” is taken to be the period that elapses from the delivery of the goods or the provision of the services by the supplier to the effective payment of the transaction. The monetary volume and number of invoices paid within the established legal period are detailed below. 2022 Monetary volume (thousands of euros) 193,802 Percentage of total payments made 99.8% Number of invoices 19,752 Percentage of total invoices 99.9% The maximum legal payment period applicable to the Company in 2022 in accordance with Law 3/2004 of 29 December, establishing the measures to fight against default in commercial transactions is 60 days. 64 14. Tax situation The breakdown of the tax receivables and payables at 31 December 2022 and 2021 is as follows: Thousands of euros 31/12/2022 31/12/2021 Tax receivables: Non-current- Deferred tax assets 74,080 75,367 Current- VAT refundable 1,814 1,345 Deferred input VAT - 3,379 Other tax receivables 6,557 1,088 82,451 81,179 Tax payables: Non-current- Deferred tax liabilities 389,102 391,103 Current- VAT payable 4,025 4,730 Personal income tax withholdings payable 18,330 13,873 Payable to the Social Security 221 240 Deferred output VAT 124 126 411,802 410,072 14.1 Reconciliation of accounting profit, taxable profit and tax expense At 31 December 2022, the taxable profit was calculated as the accounting profit for the year. The reconciliation of the accounting profit, the taxable profit from corporation tax, the corporation tax payable or refundable, and the corporation tax expenses at 31 December 2022 and 2021 is as follows: 65 Thousands of euros 2022 2021 Accounting profit before tax 910,286 90,418 Temporary differences 45,493 23,326 Permanent differences 10,189 19,666 Taxable profit prior to offsetting tax losses 965,968 133,410 Offset of tax losses (1,469) (4,126) Tax base 964,499 129,284 Tax base under the REIT regime 960,093 116,905 Tax base at the general tax rate 4,407 12,379 Tax charge under the REIT regime (0%) - - Tax charge under the standard regime (25%) 1,102 3,095 Adjustments to the tax charge - - Tax credit for reinvestment (275) (774) Tax credit for temporary measures (157) (157) Prepayments (2,029) (3,252) Corporation tax payable / (receivable) (1,360) (1,088) Tax base under the REIT regime 960,093 116,905 Tax base at the general tax rate 4,407 12,379 Tax charge under the REIT regime (0%) - - Tax charge under the standard regime (25%) 1,102 3,095 Activated deductions (433) (931) Special charge (385) Total current income tax expense 284 2,164 Tax bases 367 1,032 Deductions offset 1,219 1,717 Offset of prior years’ corporation tax - - Other corporation tax adjustments - (39) Deferred tax asset adjustments - - Deferred tax liability adjustments (2,301) (4,064) Total deferred tax expense (714) (1,354) Total corporation tax expense (430) 810 The current tax expense recognised in 2022 relates mainly to the tax impact due to the sale of investment property whose portion of the margin has been taxed under the general regime. The permanent differences in 2022 mainly correspond to the amortisation of goodwill arising from the merger by absorption of Testa Inmobilia en Renta, SOCIMI, S.A., as well as various expenses and provisions not tax deductible in 2022. The temporary differences in 2022 correspond mainly to adjustments for differences between accounting and tax depreciation of the assets of Testa and Metrovacesa. The detail of the corporation tax (expense)/income at year-end 2022 and 2021 is as follows: Thousands of euros 2022 2021 Current tax: Continuing operations 284 2,164 Deferred tax: Continuing operations (714) (1,354) Total tax (income)/expense (430) 810 66 14.2 Deferred tax assets recognised The changes in 2022 and 2021 in the deferred tax assets recognised are as follows: Thousands of euros Total deferred tax assets at 31 December 2021 75,367 Offset of tax losses (196) Offset of deductions (1,091) Total deferred tax assets at 31 December 2022 74,080 Thousands of euros Total deferred tax assets at 31 December 2020 78,116 Offset of tax losses (1,032) Offset of deductions (1,717) Total deferred tax assets at 31 December 2021 75,367 The detail of the tax loss carryforwards at 31 December 2022 is as follows: Thousands of euros Recognised Tax credit Tax base Tax loss carryforwards: 2009 134,928 33,732 2010 1,650 413 2011 86,402 21,600 2019 1,201 - 2020 8,306 - Total tax loss carryforwards 232,487 55,745 Other deferred taxes recognised 73,340 18,335 Total capitalised deferred tax assets 305,827 74,080 The “Other deferred taxes recognised” heading mainly includes the timing differences caused by the limitation of the depreciation of the assets generated by the acquisition of the Testa subgroup and Metrovacesa and the tax deductions pending application mainly due to reinvestment. The deferred tax assets indicated above were recognised in the accompanying balance sheet because the Company’s directors considered that, based on their best estimate of the Company’s future earnings, including certain tax planning measures, it is probable that these assets will be recovered. As a result of the merger of Testa Inmuebles en Renta SOCIMI, S.A. and the property business of Metrovacesa, S.A., tax gains were generated arising from the difference between the values at which the assets were included in the financial statements and their tax bases. In accordance with the REIT regime, the Company will pay tax on these gains when the property asset is sold. The directors estimate that the deferred tax assets detailed in the table above will be recovered when the property assets are sold, thus offsetting the aforementioned gains. The Company had unused tax deductions and credits at 31 December 2022 amounting to EUR 16,857 thousand (EUR 17,004 thousand in 2021), mainly due to the tax credits for reinvestment. 67 At the 2022 year-end, the Company does not have unrecognised tax loss carryforwards. 14.3 Deferred tax liabilities The deferred tax liabilities mainly arose from the merger and the business combination executed in 2016 with Testa Inmuebles en Renta, SOCIMI, S.A. and the property business of Metrovacesa, S.A. and were caused by the differences existing between the book values and the tax values of the assets received in those transactions. The changes in “Deferred tax liabilities” at 31 December 2022 and 2021 were as follows: Thousands of euros Total deferred tax liabilities at 31 December 2021 391,103 Sale of property assets (2,001) Total deferred tax liabilities at 31 December 2022 389,102 Thousands of euros Total deferred tax liabilities at 31 December 2020 395,167 Sale of property assets (4,064) Total deferred tax liabilities at 31 December 2021 391,103 As a result of the merger of Testa Inmuebles en Renta SOCIMI, S.A. and the property business of Metrovacesa, S.A., tax gains were generated arising from the difference between the values at which the assets were included in the financial statements and their tax bases. In accordance with the REIT regime, the Company will pay tax on these gains when the property asset is sold. 14.4 Years open for review and tax audits Under current legislation, taxes cannot be deemed to have been definitively settled until the tax returns filed have been reviewed by the tax authorities or until the four-year statute of limitations has expired. At year-end 2022, the Company had open for review the 2018 to 2021 financial years for corporation tax, the 2019 to 2022 financial years for VAT and personal income tax and non-resident income tax withholdings, and the 2020 to 2023 financial years for the economic activities tax and property tax. In accordance with the provisions of Additional Provision Nine of Royal Decree Law 11/2020 of 31 March and Additional Provision One of Royal Decree Law 15/2020 of 21 April, the period between 14 March and 30 May 2020 will not count for the purposes of the limitation periods established in Law 58/2003 of 17 December, on General Taxation, so that the usual deadlines are extended by 78 additional days. The Company’s managing body considers that the tax returns for the aforementioned taxes have been filed correctly and, therefore, even in the event of discrepancies in the interpretation of current tax legislation in relation to the tax treatment afforded to certain transactions, the possible liabilities as might arise would not have a material effect on the accompanying financial statements. Also, Law 34/2015, of 21 September, partially amending Law 58/2003, of 17 December, on General Taxation establishes the right of the tax authorities to initiate a review and investigation procedure of the tax losses offset or carried forward or tax credits taken or carried forward, which will become statute barred after ten years from the day on which the regulatory period established for filing the tax return or self-assessment relating to the year or the tax period in which the right to offset the tax loss or to apply the tax credits arose. 68 On 10 February 2022, the tax authority notified the Company that verification and investigation proceedings were being opened in relation to corporation tax for 2016 to 2019, and value added tax and withholdings for 2018 to 2019. At the date of authorisation for issue of these financial statements, the Company was in the process of collecting the information requested by the tax authority although no proceedings had taken place to date questioning the returns filed in the years under verification. 15. Disclosure requirements arising from REIT status, Law 11/2009, amended by Law 16/2012 and Law 11/2021 a.Reserves arising from the years prior to applying the tax regime established in Law 11/2009, as amended by Law 16/2012, of 27 December. There are no reserves from years prior to the Company’s adherence to the REIT regime, taking into consideration the Company was incorporated in 2014, the year in which it requested to apply the aforementioned tax regime. b.Reserves arising from the years in which the tax regime established in this Act was applied, distinguishing between the portion that comes from income subject to a 0%, 15% and 19% tax rate and that which is taxed at the general tax rate, where applicable. The following changes in reserves occurred in 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015 and 2014: Thousands of euros Subject to a 0% tax rate Subject to a 19% tax rate Subject to a 15% tax rate Subject to the general tax rate Not Subject 2022 8,961 - - - - 2021 (25,467) - - - - 2020 17,940 - - - - 2019 20,857 - - - - 2018 11,453 - - - (38) 2017 11,897 - - - 1,628 2016 2,986 - - - (532,767) 2015 (54,543) - - - - 2014 (30,475) - - - - c.Dividends distributed charged to profit for each year in which the tax regime established in this Act was applied, distinguishing between the portion that comes from income subject to a 0%, 15% or 19% tax rate and that which is taxed at the general tax rate, where applicable. 69 Thousands of euros Subject to a 0% tax rate Subject to a 19% tax rate Subject to a 15% tax rate Subject to the general tax rate 2022 444,815 - - - 2021 70,033 - - - 2020 68,519 - - - 2019 185,857 - - 1,275 2018 16,235 - - 86,911 2017 102,687 - - 38,081 2016 3,789 - - 57,808 2015 25,035 - - - 2014 - - - - d.In the case of dividends distributed charged to reserves, indicate the year relating to the reserves applied and whether they were taxed at a rate of 0%, 15%, 19% or at the general tax rate. No dividends were distributed charged to reserves in 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015 and 2014. e.Date of the resolution to distribute dividends referred to in letters c) and d) above. On 10 November 2022, the Company’s Board approved the distribution of a dividend of EUR 93,646 thousand charged to profit for 2022. On 28 July 2022, the Company’s Board of Directors approved the distribution of an interim dividend charged to profit for 2022 in the amount of EUR 351,169 thousand. On 4 May 2022, the General Shareholders Meeting approved the distribution of a dividend charged to the “share premium” reserve in the amount of EUR 106,497 thousand, and the distribution of a dividend charged to profit for 2021 for EUR 10,614 thousand. On 11 November 2021, the General Shareholders Meeting approved the distribution of a dividend of EUR 70,033 thousand charged to the profit for 2021. On 17 June 2020, the Company’s General Shareholders Meeting approved the distribution of an interim dividend charged to profit for 2019 in the amount of EUR 68,518 thousand. That dividend was paid on 8 July 2020. On 10 October 2019, the Company’s Board of Directors resolved to distribute of an interim dividend charged to profit for 2019 in the amount of EUR 92,939 thousand. This interim dividend was paid to shareholders on 28 October 2019. On 10 April 2019, the Company’s General Shareholders Meeting approved the distribution of an interim dividend charged to profit for 2018 in the amount of EUR 94,193 thousand. That dividend was paid on 7 May 2019. On 9 October 2018, the Company’s Board of Directors resolved to distribute of an interim dividend charged to profit for 2018 in the amount of EUR 93,522 thousand. This interim dividend was paid to shareholders on 25 October 2018. 70 On 7 May 2018, the Company’s General Shareholders Meeting approved the distribution of an interim dividend charged to profit for 2017 in the amount of EUR 9,624 thousand. That dividend was paid on 25 May 2018. On 9 October 2017, the Company’s Board of Directors resolved to distribute a dividend in the amount of EUR 93,457 thousand as an interim dividend charged to profit for 2017. This interim dividend was paid to shareholders on 25 October 2017. The General Shareholders’ Meeting held on 26 April 2017 approved the distribution of a dividend out of 2016 profit of EUR 47,311 thousand, which was paid to shareholders on 18 May 2017. On 19 October 2016, the Company’s Board of Directors resolved to distribute EUR 59,759 thousand as an interim dividend with a charge to profit for 2016. This interim dividend was paid to shareholders on 25 October 2016. The General Shareholders’ Meeting held on 6 April 2016 approved the distribution of a dividend out of 2015 profit of EUR 1,838 thousand, which was paid to shareholders on 27 April 2016. On 14 October 2015, the Company’s Board of Directors resolved to distribute EUR 25,035 thousand as an interim dividend with a charge to profit for 2015. This interim dividend was paid to shareholders on 28 October 2015. f.Acquisition date of the properties intended for lease and the shares in the share capital of companies referred to in section 2.1 of this Act. Detail in Appendix II g.Identify the assets included in the calculation of the 80% referred to in section 3.1 of this Law. 100% of the Company’s investment property is made up of urban properties intended for lease, as well as land intended for property development and subsequent lease. Accordingly, the majority of the shares in companies complies with the requirements of section 2.1 of Law 11/2009. These assets are identified in Appendix II, which is an integral part of these financial statements. The Company’s consolidated balance sheet of the Merlin Group for REIT purposes complies with the minimum investment requirement of 80%. h.Reserves arising from the years in which the special tax regime established in this Act was applied, that were drawn down in the tax period, that were not used for distribution or to offset losses, identifying the year relating to these reserves. No reserves were provisioned in 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015 and 2014. 71 16. Balances and transactions with related parties 16.1 Transactions with Group companies and associates The detail of the transactions with Group companies and associates in 2022 and 2021 is as follows: Thousands of euros 2022 2021 Services rendered: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. 762 1,577 Merlin Retail, S.L.U. 479 592 Merlin Oficinas, S.L.U. 803 694 Merlin Logística, S.L.U. 888 795 Sevisur Logística, S.L.U. 164 155 Parc Logistic de la Zona Franca, S.A. 236 248 Metroparque, S.A.U. 221 215 La Vital Centro Comercial y de Ocio, S.L.U. 86 85 Varitelia Distribuciones, S.L.U. 229 218 Global Carihuela Patrimonio Comercial, S.L.U. 92 78 MPCVI - Compra e Venda Imobiliária, S.A. 32 31 MPEP - Properties Escritórios Portugal, S.A. 28 28 MP Monumental, S.A. 142 78 MP Torre A, S.A. 57 56 VFX Logística, S.A. 44 20 Promosete, Invest Inmobiliaria 69 66 Praça do Marqués - Serviços Auxiliares, S.A. 78 78 Torre Dos Oceanus Investimentos Inmobiliarios, S.A. 51 47 Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 545 504 Forum Almada II, S.A. 346 346 Torre Arts - Investimentos Imobiliarios, S.A. 97 95 Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. 54 64 PK Hoteles 22, S.L. 12 26 Renazca, S.A. 35 66 Edged Spain, S.L. 66 50 Paseo Comercial Carlos III, S.A. 58 42 Slow Rise Spain 2 - Generous Profile 25 - 5,701 6,252 Dividends: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. 53,908 51,559 Merlin Retail, S.L.U. 42,922 2,667 Merlin Oficinas, S.L.U. 16,130 15,155 Merlin Logística, S.L.U. 31,543 15,905 Sevisur Logística, S.A. 3,455 3,174 Metroparque, S.A.U. 8,186 6,354 La Vital Centro Comercial y de Ocio, S.L.U. 2,245 1,397 Varitelia Distribuciones, S.L.U. 333 - Parc Logistic de la Zona Franca, S.A. 5,903 4,939 72 Thousands of euros 2022 2021 Torre Arts - Investimentos Imobiliarios, S.A. 2,177 2,030 Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. 995 557 MPCVI - Compra e Venda Imobiliária, S.A. 277 261 Centro Intermodal de Logística, S.A. 2,556 1,788 Silicius Real Estate SOCIMI, S.A. 307 - G36, Development, S.A. 1,040 MPEP - Properties Escritórios Portugal, S.A. 69 Promosete, Invest Inmobiliaria 1,323 444 Praça do Marqués - Serviços Auxiliares, S.A. 2,008 2,094 Torre Dos Oceanus Investimentos Inmobiliarios,S.A. 593 521 PK Hoteles 22, S.L. 260 1,780 176,161 110,694 Loan income: Merlin Retail, S.L.U. 581 1,711 Merlin Oficinas, S.L.U. 107 22 Merlin Logística, S.L.U. 2,275 1,890 Sevisur Logística, S.A. 190 226 Innovación Colaborativa, S.L.U. 42 71 Desarrollo Urbano de Patraix, S.A.U. 80 79 Varitelia Distribuciones, S.L.U. 2,190 2,253 Global Carihuela Patrimonio Comercial, S.L.U. 581 575 MPCVI - Compra e Venda Imobiliária, S.A. 828 715 MPEP - Properties Escritórios Portugal, S.A. 909 826 MP Monumental, S.A. 2,119 2,930 MP Torre A, S.A. 993 1,780 VFX Logística, S.A. 791 778 Promosete, Invest Inmobiliaria, S.A. 421 411 Torre Dos Oceanus Investimentos Inmobiliarios, S.A. 865 865 Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 7,542 7,542 Milos Asset Development, S.A. 132 234 G36 Development, S.A. 1 4 Generous Profile 391 - Paseo Comercial Carlos III, S.A. 29 16 21,067 22,929 Revenue from rental activity: Innovación Colaborativa, S.L.U. 2,692 2,308 Parking del Palau, S.A.II., S.L.U. 24 17 2,716 2,324 Revenue from rebilling of expenses: Innovación Colaborativa, S.L.U. 839 691 839 691 Other operating income: Merlin Retail, S.L.U. 4 Centro Intermodal de Logística, S.A. 5 5 73 Thousands of euros 2022 2021 Innovación Colaborativa, S.L.U. 20 2 Renazca, S.A. 2 Silicius Real Estate SOCIMI, S.A. 8 25 21 Other operating expenses: Exhibitions Company, S.A.U. (3) Varitelia Distribuciones, S.L.U. (80) (80) Innovación Colaborativa, S.L.U. (224) (18) Parking del Palau, S.A.II., S.L.U. (13) (12) (320) (110) Taxes other than income tax Varitelia Distribuciones, S.L.U (5) - (5) - Finance costs: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. (158) (419) Merlin Retail, S.L.U. - - Merlin Oficinas, S.L.U. - (106) Parc Logistic de la Zona Franca, S.A. (187) (223) Exhibitions Company, S.A.U. (29) (46) Gescentesta, S.L.U. (3) (1) Metroparque, S.A.U. (355) (333) La Vital Centro Comercial y de Ocio, S.L.U. (68) (49) Sadorma 2003, S.L.U. (239) (227) Global Murex Iberia, S.L.U. (28) (28) (1,067) (1,433) At 31 December 2022 and 2021, the Company had entered into services agreements with some companies of its Group, by virtue of which it earned income for the provision of services amounting to EUR 5,701 thousand and EUR 6,252 thousand, respectively. These services were recognised under “Revenue” in the accompanying income statement. 16.2 Balances with Group companies and associates The amount of the balances in the balance sheet at 31 December 2022 detailed in Note 7 is as follows: Thousands of euros 31/12/2022 31/12/2021 Long-term loans to Group companies and associates 555,525 506,516 Current loans to Group companies and associates 651,580 735,892 Other current financial assets 1,820 450 Non-current payables to Group companies and associates (11,021) (12,821) Current payables to Group companies and associates (69,805) (108,630) Receivable from Group companies and associates 8,388 2,272 Payable to suppliers, Group companies and associates (33,980) (33,809) 74 16.3 Balances and transactions with related parties The detail of the balances and transactions with related parties is as follows: Thousands of euros 2022 2021 Assets Liabilities Assets Liabilities Balances: Banco Santander, S.A. (a) 147,274 - 288,710 65,806 Banco Santander, S.A. (a) - - - 65,806 () Banco Santander, S.A. (a) - 389 - 127 Pº Comer. Carlos III 2,590 - 2,561 - Provitae Centros Asistenciales, S.L. 1,131 - 1,106 - Silicius Real Estate SOCIMI, S.A. - 4,050 80,964 5,850 G36 Developments S.L. - - 224 - Total 150,995 4,439 373,565 137,589 () This amount does not represent the recognition of a liability 2022 2021 Income Expenses Income Expenses Transactions: Banco Santander, S.A. 2,921 849 552 1,366 Pº Comer. Carlos III 29 - 16 - Provitae Centros Asistenciales, S.L. - - - - G36 Developments S.L. - - 4 - Total 2,950 849 572 1,366 During 2022, only the shareholder Banco Santander, S.A. held the status of significant shareholder pursuant to the regulations in force. (a) Balances with Banco Santander Group At 31 December 2022, the Company had bank balances deposited at Banco Santander, S.A. in the amount of EUR 147,274 thousand. At 31 December 2022, the Company had no loans contracted with shareholders except for a corporate line of credit in the amount of EUR 700 million, which was undrawn at 31 December 2022, in which Banco Santander, S.A. participated with EUR 54.2 million. In 2022, the finance costs incurred in transactions with Santander, S.A. amounted to EUR 849 thousand, which included EUR 25 thousand in guarantee fees and EUR 210 thousand in current account management costs. The Company also has guarantee lines granted by the shareholder Banco Santander, S.A. in the amount of EUR 3,940 thousand. (b) Transactions with Banco Santander Group In 2022, the derivatives associated with financing the corporate syndicated loan were cancelled early, generating income of EUR 1,870 thousand. Moreover, the Company received financial income of EUR 383 thousand as remuneration for current accounts. 75 In 2022, the Company had 4 leases with Banco Santander Group in different buildings. The duration of the leases covers a period of up to 5 years, and in 2022 they generated of EUR 668 thousand, including income from leasing, as well as parking spaces and transfers of ATM space in shopping centres. The securities deposited by the tenants amounted to EUR 389 thousand. In addition, the Company has contracted General Shareholders Meeting and shareholder registration organisation services amounting to EUR 64 thousand, in addition to listing agent services on the Euronext Lisboa stock exchange and dividend agent services for EUR 11 thousand. (c) Paseo Comercial Carlos III, S.A. At 31 December 2022, the Company, together with the other shareholder of the associate and as a condition of the bank facility, had a loan of EUR 2,590 thousand in force, which included EUR 51 thousand of accrued interest (EUR 29 thousand in 2021), granted on 27 July 2020 to the associate Paseo Comercial Carlos III, S.A. that manages a shopping centre in Madrid. (d) Provitae Centros Asistenciales, S.L. At 31 December 2022, the Company had a loan in force in the amount of EUR 1,131 thousand (EUR 962 thousand at 31 December 2021), which included EUR 144 thousand of interest accrued (EUR 144 thousand and 2021), granted on 10 January 2002 to the associate Provitae Centro Asistenciales, S.L., which holds land in Villajoyosa. (e) Silicius Real Estate SOCIMI, S.A. At 31 December 2021, the Company had a “financial asset at fair value through profit and loss” of EUR 80,964 thousand corresponding to the value of the shares associated with the liquidity mechanism maturing in February 2022, agreed in the non-monetary contribution made by the Company on 27 February 2020. On 27 July 2022, the Company exercised the put option on 14.28% of the shares of Silicius Real Estate SOCIMI, S.A. for EUR 80,964 thousand, collecting the full sum in cash (see note 9). The Company also had outstanding payment obligations of EUR 4,050 thousand, recognised as “Other current and non-current financial liabilities”. (f) G36 Developments, S.L. At 31 December 2022, the Company had no loan with this company in force. In the first quarter of 2022, the Company cancelled the outstanding part (EUR 212 thousand) of the loan of EUR 625 thousand granted on 1 October 2018 to the associate G36 Developments, S.L., which holds an asset that will be used for the management of flexible office spaces. In February 2022, G36 Developments, S.L. sold the asset it held. In 2022, G36 Developments, S.L. returned the contributions made in the 2018 capital increase, i.e., the share premium amounting to EUR 1,823 thousand and a capital reduction of EUR 202 thousand, and so the value of the share in the Company is EUR 2 thousand. 76 Dividends and other profits distributed to related parties (thousands of euros) 2022 2021 Significant shareholders 136,701 51,209 Banco Santander, S.A. 136,701 51,209 Directors and executives 8,245 1,780 Directors 4,806 1,551 Executives 3,439 229 Total 144,946 52,989 17. Information relating to the Company’s Board of Directors and senior executives The Company's directors and the parties related to them did not have any conflicts of interest that had to be reported in accordance with section 229 of the revised text of the Corporate Enterprises Act. Directors' compensation and other benefits At 31 December 2022 and 2021, salaries, per diem attendance fees and any other type of compensation paid to members of the Parent’s Management Bodies totalled EUR 8,151 thousand and EUR 6,523 thousand, as detailed below: Thousands of euros 2022 2021 Fixed and variable remuneration 7,907 6,259 Statutory compensation - - Compensation - - Per diems 234 250 Life and health insurance 10 14 8,151 6,523 In addition to the above amounts and in relation to the variable remuneration for executive directors corresponding to the prior years' bonuses, EUR 3,250 thousand was paid in 2022 related to the deferred amounts of the variable objectives for 2016 and 2019 in accordance with the terms set out in the aforementioned plans. At the end of 2022, outstanding accrued amounts associated with the variable remuneration for 2021, amounting to EUR 1,350 thousand, were maintained, of which EUR 675 thousand were recognised under “Non- current provisions” and EUR 675 thousand under “Trade and other accounts payable” in the accompanying balance sheet. Accordingly, outstanding accrued amounts associated with the variable remuneration for 2022, amounting to EUR 4,186 thousand, were maintained, of which EUR 1,243 thousand were recognised under “Non-current provisions” and EUR 2,943 thousand under “Trade and other accounts payable” in the accompanying balance sheet. Also, in accordance with the 2017-19 Incentive Plan, described in this Note, in 2022, the executive directors received 538,460 net shares corresponding to the second half of the incentive linked to the EPRA NAV, and the 2017-19 Incentive Plan was settled. 77 In April 2022, the executive directors received a total of EUR 750 thousand for the 2021 Extraordinary Incentive. In accordance with the Extraordinary Incentive due to the sale of the BBVA portfolio, defined below, the executive directors accrued EUR 1,700 thousand. With regard to the ‘golden parachute’ clauses for executive directors of the Parent in the event of dismissal or takeover, these clauses provide for compensation that represented a total commitment of EUR 8,971 thousand as of 31 December 2022. The breakdown, by board member, of the amounts disclosed above is as follows: Thousands of euros 2022 2021 Director: Remuneration of board members Javier García Carranza Benjumea Chairman - Nominee director - - Ismael Clemente Orrego CEO 3,507 2,800 Miguel Ollero Barrera Executive director 2,679 1,900 María Luisa Jordá Castro Independent director 189 172 Ana García Fau Independent director 207 172 George Donald Johnston Independent director 172 134 Fernando Ortiz Vaamonde Independent director 142 136 Juan María Aguirre Gonzalo Independent director 182 176 Pilar Cavero Mestre Independent director 152 159 Francisca Ortega Hernández Agero Nominee director 169 129 Emilio Novela Berlín Independent director 187 168 María Ana Forner Beltrán Nominee director 177 161 Ignacio Gil Casares Satrústegui Nominee director 144 146 John Gómez Hall Independent director - 6 7,907 6,259 The Company has granted no advances, loans or guarantees to any of its directors. The Company's directors are covered by the “Corporate Third-Party Liability Insurance Policies for Directors and Executives” taken out by the Company to cover possible damages that may be claimed, and that are evidenced as a result of a management error committed by its directors or executives, as well as those of its subsidiaries, in discharging their duties. The premium amounted to an annual total of EUR 400 thousand (EUR 493 thousand in 2021). Remuneration and other benefits for senior management The remuneration of the Company's senior management, including the Head of Internal Audit, excluding those who are simultaneously members of the Board of Directors (whose remuneration is disclosed above) in 2022 and 2021, is summarised as follows: 78 2022 Thousands of euros Number of employees Fixed and variable remuneration Other remuneration Total 9 7,324 31 7,355 2021 Thousands of euros Number of employees Fixed and variable remuneration Other remuneration Total 8 5,525 36 5,561 In addition to the above amounts and in relation to the variable remuneration for senior management corresponding to the prior years' bonuses, EUR 4,373 thousand was paid related to the deferred amounts of the variable objectives for 2016 and 2019 in accordance with the terms set out in the aforementioned plans. At the end of 2022, outstanding accrued amounts associated with the variable remuneration for 2021, amounting to EUR 1,988 thousand, were maintained, of which EUR 994 thousand were recognised under “Non- current provisions” and EUR 994 thousand under “Trade and other accounts payable” in the accompanying balance sheet. Accordingly, outstanding accrued amounts associated with the variable remuneration for 2022, amounting to EUR 5,229 thousand, were maintained, of which EUR 1,707 thousand were recognised under “Non-current provisions” and EUR 3,522 thousand under “Trade and other accounts payable” in the accompanying balance sheet. Also, in accordance with the 2017-19 Incentive Plan, described in this Note, in 2022, senior management received 444,950 net shares corresponding to the second half of the incentive linked to the EPRA NAV, and the 2017-19 Incentive Plan was settled. In 2021, two senior management members left the company. In 2021, they received fixed and variable remuneration of EUR 242 thousand, as well as other remuneration amounting to EUR 3 thousand. They were also paid EUR 3,870 thousand corresponding to the deferred amounts of the variable targets for 2015, 2016, 2018 and 2019. There are no outstanding accrued amounts. In addition, in relation to the remuneration plan for 2017-2019, they received 591,766 net shares arising from the entire amount corresponding to compliance with the incentive linked to the increase in the EPRA NAV in the period. In April 2022, senior management received a total of EUR 540 thousand for the 2021 Extraordinary Incentive. In accordance with the Special Incentive due to the sale of the BBVA portfolio, defined below, senior management accrued EUR 1,709 thousand. Special Incentive corresponding to the sale of TREE In application of the Remuneration Policy in force, approved at the 2022 General Shareholders' Meeting, the Board of Directors has decided to make use of the power to grant a special incentive (hereinafter "Special 79 Incentive") to the Executive Directors upon the success of extraordinary corporate transactions that generate significant added value for the Company's shareholders and/or generate an economic benefit or a significant increase in the Company's net worth. In this regard, in fiscal year 2022, the sale of BBVA's branch portfolio through Tree Inversiones Inmobiliarias SOCIMI, S.A. (100% subsidiary of MERLIN) was carried out for 1,987 million euros (sale of TREE). This transaction resulted in a premium of 17.1% over the last valuation and reduced the Group's net debt by 1,636 million euros, while simultaneously distributing an extraordinary dividend of 351 million euros (0.75 euros per share). The Special Incentive has been extended to Senior Management and the rest of the beneficiaries of the 2022-24 Long-Term Incentive Plan for a total amount of 4,450 thousand euros. The incentive will be paid in the first quarter of 2023. 2021 extraordinary incentive On 27 April 2021, the Parent's Annual General Meeting approved the implementation of an exceptional variable remuneration scheme payable in cash for 2021 (the “Extraordinary Incentive") for members of the Company's executive and management team. The right to receive the “Extraordinary incentive” would be accrued if, at the end of the period from 1 January 2021 to 31 December 2021, the level of compliance with the targets to which the receipt of the “Extraordinary incentive” was linked had been reached. In this regard, at 31 December 2021, the Company recognised an expense in the amount of EUR 2,643 thousand, corresponding to the accrued portion of the 2021 Extraordinary Incentive. That Extraordinary Incentive was paid to its beneficiaries in April 2022. 2017-19 incentive plan Also, at the General Shareholders Meeting held on 26 April 2017, the shareholders approved a new remuneration plan for the management team and other important members of the Group’s workforce, the measurement period of which is from 1 January 2017 to 31 December 2019 (the “2017-19 Incentive Plan”). Based on the plan, the members of the management team could be entitled to receive: (i) a certain monetary amount in accordance with the increase of the share price and (ii) shares of the Parent, if certain objectives are met. In this regard, as of 31 December 2022, the Company recognised the expense in the amount of EUR 1,210 thousand, corresponding to the accrued portion of the 2017-2019 Incentive Plan, with a balancing entry in reserves. In 2022, a total of 1,262,398 net shares were paid corresponding to the second payment of the incentive linked to the EPRA NAV. With this payment, the 2017-19 Incentive Plan was fully settled and paid. 2022-24 Incentive Plan 80 The General Meeting held on 4 May 2022 approved a long-term remuneration plan consisting in the delivery of 3,491,767 shares ordinary shares of the Company (representing 0.74% of the share capital), aimed at the management team and other important members of the Group's workforce (the 2022-24 Incentive Plan). The 2022-24 Incentive Plan consists in a single cycle with a target measurement period of 3 years, beginning on 1 January 2022 and ending on 31 December 2024. If the targets are met, the shares will be delivered in 2025, once the corresponding financial statements for 2024 have been prepared and audited. All shares delivered under the 2022-24 Incentive Plan to executive directors will be subject to a retention period of 2 years. The maximum number of shares assigned to the executive directors is 1,088,082 shares. The specific number of shares of the Company that, within the maximum established, will be delivered to the Beneficiaries of the 2022-24 Incentive Plan at the end of the Plan will be conditional on the compliance with the following objectives related to the creation of value for shareholders and sustainability: Metrics Definition Weighting Absolute TSR Relative TSR Absolute Total Shareholder Return (TSR) is the return on the share taking into account the cumulative change in the Company’s listed share price, including dividends and other similar items received by shareholders in 2022-2024. The Relative TSR measures the evolution of the TSR of the Company's share in 2022-2024, in relation to the TSR experienced in the FTSE EPRA Nareit Developed Europe Index during the same period. 50% EPRA NTA 31/12/24 + Dividends (2022-2024) / share The EPRA NTA is calculated based on the Company's consolidated equity and by adjusting certain items following the recommendations of the EPRA. Moreover, the dividends paid and other similar items received by the shareholder during the targets measurement period (2022, 2023 and 2024) are taken into account. 35% Net carbon emissions Level of reduction of the Company's CO2 emissions at 31 December 2024, compared with 31 December 2021, calculated for the comparable asset portfolio over which the Company has operational control (perimeter of the Company's pathway to net zero). 10% Environment and society Progress on initiatives linked to improving the environment and society. The economic and social impact of the Company's assets on local communities in which these assets are based and the various stakeholders will be assessed. 5% At 31 December 2022, the Company recognised an expense in the amount of EUR 2,804 thousand, corresponding to the accrued portion of the 2022-24 Incentive Plan, with a balancing entry in reserves. Transactions outside the normal course of business or not on an arm’s length basis performed by the managing body Apart from the transactions with related parties described in Note 17, the Company’s managing body did not carry out any transactions with the Company or Group companies outside the normal course of business or were not on an arm’s length basis in 2022. Stakes held by directors and their affiliates in other companies The Company's directors and the parties related to them did not have any conflicts of interest that had to be reported in accordance with section 229 of the revised text of the Corporate Enterprises Act. 81 18. Revenue and expenses 18.1 Ordinary revenue The distribution of revenue is as follows: Thousands of euros 2022 2021 Lease income 224,118 203,334 Revenue from services provided 6,729 7,045 Dividend income 176,161 110,693 Interest income 21,067 22,929 Total revenue 428,075 344,001 The breakdown, by type of activity and geographical market, of rental income for 2022 is as follows: Thousands of euros 2022 % Segment Offices 162,063 72% Shopping centres 41,955 19% Logistics 8,120 4% Other 11,980 5% 224,118 100% Thousands of euros 2022 % Autonomous regions: Madrid 150,132 67% Catalonia 38,768 17% Andalusia 12,160 6% Valencia 9,636 4% Castilla-La Mancha 4,762 2% Rest of Spain 8,660 4% 224,118 100% 82 18.2 Staff costs The detail of the remuneration expenses for employees at 31 December 2022 and 2021 is as follows: Thousands of euros 2022 2021 Wages, salaries and similar expenses 28,895 23,561 Compensation - 152 Other employee benefit costs and taxes 2,886 2,831 Long-term and extraordinary incentive plan 4,014 11,401 35,795 37,945 18.3 Other operating expenses The detail of this heading of the accompanying 2022 and 2021 income statements is as follows: Thousands of euros 2022 2021 Non-recoverable expenses of leased properties 29,819 26,732 Outside services - Professional services 11,395 9,691 Insurance 764 613 Costs associated with asset acquisitions and sales, financial investments and financing 2,098 1,430 Utilities and other outside services 2,587 2,623 Taxes other than income tax 48 47 Losses on, impairment of and change in allowances for trade receivables 257 587 Total other operating expenses 46,968 41,724 18.4 Finance income and finance costs The detail of the balances of these headings in the income statement is as follows: 83 Thousands of euros 2022 2021 Interest on deposits and current accounts 3,795 3,457 From investments in equity instruments of Group companies and associates - 1,145 Finance income 3,795 4,602 Interest on loans and other credits (99,391) (112,424) Finance expenses (99,391) (112,424) Changes in fair value of financial instruments 36,934 14,792 Impairment and other losses 3,424 (16,323) Gains/(losses) on disposals (612) (5,188) Gains/(losses) on disposals of financial instruments 2,812 (21,511) Net finance expense (55,850) (114,541) “Interest on loans and other credits” includes the repayment of the debt arrangement expenses in the amount of EUR 9,026 thousand for 2022 (EUR 7,521 thousand for 2021), applying the effective interest method to the financial debt. 19. Information on employees The average number of employees in the Company, by professional category, in 2022 and 2021 was as follows: Average number of employees 2022 2021 Professional category: Management 27 26 Middle management 64 59 Other professionals 86 80 177 165 The distribution, by gender, of the Company’s workforce at the end of 2022 and 2021 was as follows: 2022 2021 Women Men Women Men Management 1 26 1 25 Middle management 20 44 19 42 Other professionals 49 41 47 40 70 111 67 107 84 The average number of employees at the Group in 2022 and 2021 with a disability equal to or greater than 33%, by category, was as follows: Average number of employees 2022 2021 Professional category: Management - - Middle management - - Other professionals 6 5 6 5 85 20. Fees paid to auditors In 2022 the fees for financial audit and other services provided by the auditor of the Company’s financial statements, Deloitte, S.L., or by companies related to these auditors as a result of control, common ownership or common management, were as follows: Thousands of euros 2022 2021 Audit services 406 353 Non-audit services: 138 328 Services required under applicable regulations - - Other verification services 138 126 Tax advisory services - - Other services - 202 544 681 “Other audit-related services” includes the verification services performed by the auditor in the bond issue process, as well as certain agreed procedures related to the performance of covenants. “Other services” includes technical and urban development advisory services, as well as other advisory services. For its part, the audit services include, in addition to the statutory annual audit, services from revisions of intermediate periods. 21. Information on financial risk management Financial risk factors The Company’s activities are exposed to various financial risks: market risk, credit risk, liquidity risk and cash flow interest rate risk. The Company’s global risk management programme focuses on the uncertainty of the financial markets and aims to minimise the potential adverse effects on the Company’s financial returns. Risk management is undertaken by the Company’s senior management in accordance with the policies approved by the Board of Directors. Senior management identifies, assesses and hedges financial risks in close cooperation with the Company’s operating units. The Board of Directors issues the written global risk management policies and the policies for specific areas, including those for covering market risk, interest rate risk and liquidity risk and investing cash surpluses. Market risk Given the current status of the real-estate sector and in order to mitigate its effects, the Group has specific measures in place to minimise that impact on its financial position. These measures are applied pursuant to the results of sensitivity analyses carried out by the Company on a regular basis. These analyses involve: –The economic environment in which it operates: Designing different economic scenarios and modifying the key variables potentially affecting the Group. Identifying interdependent variables and the extent of their relationship; and 86 –The time scale in which the assessment is being carried out: The time frame of the analysis and its possible deviations will be taken into account. The Company is exposed to market risk from possible vacancies or renegotiations of leases when the leases expire. This risk could have a direct negative impact on the valuation of the Company's assets. However, market risk is mitigated by the customer acquisition and selection policies and the mandatory lease terms negotiated with customers. Therefore, at 31 December 2022, the average occupancy rate of the Group’s asset portfolio was 95.1%, with a weighted average unexpired lease term of 3.2 years (weighted by GRI). Credit risk Credit risk is defined as the risk of financial loss to which the Company is exposed if a customer or counterparty does not comply with its contractual obligations. In general, the Company holds its cash and cash equivalents at banks with high credit ratings. The Group does not have any material credit risk concentration and has policies in place to limit the volume of risks posed by customers. Exposure to the risk of being unable to recover receivables is mitigated in the normal course of business through funds or guarantees deposited as collateral. The Company has formal procedures to identify any impairment of trade receivables. Delays in payment are detected through these procedures and individual analysis by business area and methods are established to estimate impairment loss. Cash and cash equivalents The Company has cash and cash equivalents of EUR 343,081 thousand, which represents its maximum exposure to the risk posed by these assets. Cash and cash equivalents are deposited with banks and financial institutions. Liquidity risk Liquidity risk is defined as the risk of the Company encountering difficulties meeting its obligations regarding financial liabilities settled in cash or with other financial assets. At 31 December 2022, the Company’s working capital amounted to EUR 64,478 thousand. The Company conducts prudent management of liquidity risk by maintaining sufficient cash to meet its payment obligations when they fall due, both in normal and stressed conditions, without incurring unacceptable losses or risking the Company’s reputation. In addition, liquidity risk has the following mitigating factors, which should be highlighted: (i) the generation of recurrent cash from the businesses in which the Company conducts its activity; and (ii) the credit facilities available in the amount of EUR 1,409 and (iii) the capacity to renegotiate and obtain new financing facilities based on the Company's long-term business plans and the quality of its assets. At the date the financial statements were authorised for issue, taking into account the foregoing, the Company had covered all its funding requirements to fully meet its commitments to suppliers, funders, employees and the authorities based on the cash flow forecast for 2023. Likewise, the type of sector in which the Company operates, the investments it makes, the financing it obtains to make such investments, the EBITDA they generate and the occupancy rates of the properties, enables the liquidity risk to be mitigated and excess cash to be produced. 87 Any cash surpluses are used to make short-term investments in highly liquid deposits with no risk. The acquisition of share options or futures, or any other high-risk deposits as a method of investing cash surpluses, is not among the possibilities considered by the Company for investing cash surpluses. Interest rate risk in cash flows The Company manages its interest rate risk by borrowing at fixed and floating rates of interest. The Company’s policy is to ensure non-current net financing from third parties is at a fixed rate. Exchange rate risk The Company's policy is to borrow in the same currency as that of the cash flows of each business. Consequently, currently there is no foreign currency risk. The Company is not exposed to exchange rate fluctuations as all its operations are in its functional currency. Tax risk As mentioned in Note 1, the Parent and part of its subsidiaries are subject to the special tax regime for listed companies investing in the property market (REITs). The transitional period of the Parent ended in 2017 and, therefore, compliance with all requirements established by the regime (see Notes 1 and 4.11) became mandatory. Some of the more formal obligations that the Parent must meet involve the inclusion of the term SOCIMI (REIT) in its company name, the inclusion of certain information in the notes to its separate financial statements, the share price on the stock market, etc., and other obligations that require estimates to be made and judgements to be applied by management that may become fairly complex, especially considering that the REIT regime is relatively recent and was developed by the Directorate-General of Taxes mainly in response to the queries posed by various companies. Group management, based on the opinion of its tax advisers, assessed compliance with the requirements of the regime, concluding that such requirements were met at 31 December 2022. Accordingly, and also for the purpose of taking into consideration the financial effect of the regime, it should be noted that, as established in section 6 of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, on REITs, and in the percentages established in it, companies that have opted for the special tax regime are required to distribute the profit generated during the year to their shareholders in the form of dividends, once the related corporate obligations have been met. This distribution must be approved within six months from each year-end, and the dividends paid in the month following the date on which the pay-out is agreed (see Note 4.11). If the Parent does not comply with the requirements established in the regime or if the shareholders at the General Meetings of these companies do not approve the dividend distribution proposed by the Board of Directors, calculated in accordance with the requirements of this Act, it would not be complying therewith and, accordingly, tax would have to be paid under the general regime, not the regime applicable to REITs. Risk in climate change management Within the framework of the European Green Pact and the UN's Sustainable Development Goals, the Group is carrying out various sustainability actions. First, in 2021, the Company formed a Sustainability and Innovation Committee reporting to the Board whose main functions are advising the Board, among other aspects, on environmental and sustainability issues; developing the Company's sustainability strategy in its relationships with stakeholders and publishing and communicating it to the public; and supervising the reporting and communication to the market of any information that refers to sustainability issues and non-financial information; and keeping the ESG (Environmental, Social and Governance) risk map updated. 88 The Company included criteria in relation to non-financial KPIs in its investment and financing policies. Along these lines, the investment studies of property acquisitions and investments in the repositioning of the Company's assets consider, among other factors, elements such as obtaining energy efficiency certificates with the highest rating (see Note 6), air conditioning, lighting, solar power, irrigation of green areas, accessibility, etc. When certifying assets, the Company selects the most appropriate framework and modality based on the asset’s phase, as well as the characteristics of the building, its occupancy rate at the time of certification or the tenants who occupy it. We are continuing the process of certifying the portfolio under the standards of the leaders in this market, BREEAM and LEED. In 2022 the Group achieved the certification or renewal in 33 assets. The Group considers the certification process of its assets as an anticipated response to the demands that the market will require from property lessors in the medium term and that will allow it to maintain its current competitive position. Additionally, the Group obtained a rating of 79% in the 2022 edition of GRESB, a platform that makes it possible to harmonise and compare information related to sustainability criteria (environmental, social and corporate governance - ESG) in property investments. The Group has an Environmental Management System (EMS) certified in accordance with ISO 14001, which is the umbrella under which it manages its portfolios and that incorporates new properties into its scope every year. Since 2015, the Group has carried out a plan for ISO 14001 (environmental management) and ISO 50001 (energy management) certifications to maintain and expand the number of property assets that have at least ISO 14001 certification, and subsequently ISO 50001 certification (based on the understanding that it is a natural step to obtain ISO 14001 certification before aspiring to ISO 50001). This plan includes office buildings, shopping centres and logistics warehouses. With regard to ISO 14001, in 2022, 88 buildings comprising a surface area of 1,214,796 sqm were certified, 4 more buildings than in 2021. Since the Fiscal Year 2017, the Group has been carrying out a process of implementing an Energy Management System under the ISO 50001 standard initiated in 2017, being currently certified 84 buildings, which have a surface area of 1,153,701 sqm, 3 buildings more with respect to 2021. In the assets included in said System, there is a target of reducing total energy consumption by 8% in 2026, measured in kilowatt hours of the square meters occupied, with respect to 2021, based on the implementation of MAEs (energy saving measures). In 2022, the Group carried out an analysis of the entire portfolio to determine the carbon footprint of each of its assets, as well as the measures necessary to reduce that carbon footprint. The Group’s progress in 2022 has enabled the Company to comply with its emissions reduction objective and “Pathway to Net Zero” for 2030, thus getting a head start on the European strategy for decarbonisation of the economy and ensuring the present and future survival of the Company and its assets. The Group’s Pathway to Net Zero is a roadmap that outlines the way to improve not only the performance of the Company and its assets under operational control, but also the behaviour of the key agents responsible for the Group’s emissions along its value chain, including suppliers and tenants. The Company's financing policies are also aligned with the Group's sustainability objectives through the Green Financing Programme published in April 2022 and the conversion of 100% of its bonds in circulation into green bonds. Currently, 98% of the Company's debt with credit institutions and bondholders is linked to the Green Financing Programme or ESG criteria (see Note 11). The Green Financing Programme, in line with best market practices, includes the following eligibility criteria: 89 1.Green assets with the best LEED/BREEAM rating levels or energy efficiency certificates and/or minimum carbon emission levels 2.Investments in energy efficiency 3.Investments in renewable energy 4.Investments in pollution control and prevention mechanisms 5.Investments in transport mechanisms with low carbon emissions Financing linked to ESG targets includes a cost adjustment mechanism linked, in the Company's opinion, to own credit risk, based on management indicators calculated based on four sustainability criteria of which at least 3 must be met annually and cumulatively over the 2019-2025 period. At year-end 2022, the four indicators were met and the directors believe they will be met in 2023. The indicators for 2019-2022 were: 1.Cumulative investment of at least EUR 10.2 million in energy efficiency improvements across the portfolio 2.Cumulative obtainment of at least 31 LEED and BREEAM external energy certifications with a minimum rating of LEED Silver and BREEAM Good. 3.Cumulative obtainment of at least 38 AIS/DIGA certifications for disability access for all tenants and consumers 4.Cumulative electricity consumption of at least 150 GW from renewable energy sources In addition, in its commitment to climate responsibility, the Group has incorporated qualitative factors related to the Group's sustainability strategy into the measurement targets for short-term variable compensation for its staff and management team. These initiatives, while increasing the group's operating costs, are aimed at anticipating regulatory developments and building customer loyalty. In addition, in 2022 the Company joined SBTi1, aligning its targets to achieve carbon neutrality with the Science-Based Targets. It also agreed to report in accordance with the recommendations of the TCFD.2. Finally, the Group has also made progress in publishing its Pathway to Net Zero. MERLIN’s Pathway to Net Zero is a roadmap that outlines the way to improve not only the performance of the Company and its assets under operational control, but also the behaviour of the key agents responsible for MERLIN’s emissions along its value chain, including suppliers and tenants. This strategy has 5 main lines of action: 1.Operational carbon reduction: 85% of operational carbon reduction from the baseline (2018) to the target (2028) 2.Reduction of embodied carbon: Embodied carbon footprint calculated in all new developments and repositioning actions 3.Offset of residual emissions: The unavoidable footprint will be mostly offset by duly certified own initiatives 4.Reduction in tenant emissions: Green clauses in all new leases and reduction in rental price, linked to their own credit risk, for net zero tenants 5.Renewable energy: Acquisition of 100% renewable energy and on-site generation of energy through solar panels (Sun Project) All the above is part of the Company's pathway to net zero or commitment to combating climate change. 90 1 SBTi: Science Based Target Initiative 2 Task Force on Climate-Related Financial Disclosures 22. Securities issued to third parties and other contingent liabilities At 31 December 2022 and 2021, the Company had granted bank guarantees amounting to EUR 24,275 thousand and EUR 24,724 thousand, respectively. 23. Events after the reporting period No significant events took place between 31 December 2022 and the date on which these financial statements were authorised for issue. 91 APPENDIX I - Group companies and associates 2022 Company Line of business/Location Ownership interest Thousands of euros Consolidation method Auditor Share capital Profit/(Loss) Other Total Dividends Carrying amount From operations Net Shareholders' Equity Equity Received Cost Impairment Merlin Retail, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 17.963 13.998 13.33 236.491 267.785 42.922 251.408 — Global Integration Deloitte Merlin Oficinas, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 29.674 22.934 22.377 718.601 770.651 16.13 771.345 — Global Integration Deloitte Merlin Logística, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 28.166 29.978 33.842 274.082 336.091 31.544 292.304 — Global Integration Deloitte Sevisur Logística Urban development, construction and operation of logistics and common services buildings. Ctra. de la Esclusa, 15. 41011, Seville. 100% 17.22 4.438 4.249 9.91 31.379 3.455 37.629 — Global Integration Deloitte Parques Logísticos de la Zona Franca, S.A. Real estate acquisition and development for leasing, Avda. 3 del Parc Logístic, nº 26, Barcelona 100% 15.701 (1.253) (1.172) 107.017 121.546 5.903 118.31 — Global Integration Deloitte The Exhibitions Company , S.A.U. Provision of all kinds of technical, commercial or economic services/ Paseo de la Castellana 257, Madrid 100% 180 (1.452) (1.43) 3.474 2.224 — 4.287 (2.063) Global Integration N/A Gescentesta, S.L.U. Provision of Services / Paseo de la Castellana 257, Madrid 100% 3 177 121 933 1.057 — 3 — Global Integration N/A Metroparque, S.A. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 56.194 8.477 8.808 33.086 98.087 8.186 231.557 — Global Integration Deloitte La Vital Centro Comercial y de Ocio, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 14.846 3.152 3.218 18.98 37.044 2.245 56.788 — Global Integration Deloitte Desarrollo Urbano de Patraix, S.A. Land management / Avda. Barón de Carcer, 50, Valencia 100% 2.79 (3) (83) 22.27 24.976 — 25.09 (114) Global Integration N/A Sadorma 2003, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 73 (2) 231 18.785 19.089 — 25.485 (6.396) Global Integration N/A Global Murex Iberia, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 14 — 21 (15.459) (15.424) — — — Global Integration N/A Varitelia Distribuciones, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 15.443 3.344 1.15 6.11 22.703 333 172.979 (150.277) Global Integration Deloitte Global Carihuela, Patrimonio Comercial S.L. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 3.303 2.123 1.578 4.358 9.239 — 34.102 (24.863) Global Integration Deloitte Innovación Colaborativa, S.L. Selection, contracting, fitting out, organization and management of coworking spaces / Paseo de la Castellana 257, Madrid 100% 15 (3.049) (3.092) 2.005 (1.072) — 15.868 (15.868) Global Integration N/A Milos Asset Development, Acquisition, ownership, administration, disposal and development of land located within the "Distrito Castellana Norte" project / Paseo de la Castellana 257, Madrid 100% 3 — (114) 250 139 — 3 — Global Integration N/A Slack Tailwind Systems, S.L.U Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 3 (10) (10) — (7) — 3 (3) Global Integration Deloitte Slow Rise Spain, S.L.U. Real estate acquisition and development for leasing / Paseo de la Castellana 257, Madrid 100% 3 82 82 — 85 — 3 — Global Integration Deloitte MPCVI – Compra e Venda Imobiliária, S.A. Real estate acquisition and development for leasing / Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 1.05 1.095 208 5.969 7.227 277 6.418 — Global Integration Deloitte Portugal MPEP – Properties Escritórios Portugal, S.A. Real estate acquisition and development for leasing / Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 50 677 (241) 903 712 — 1.085 — Global Integration Deloitte Portugal MP Monumental, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 50 2.502 214 6.632 6.896 — 22.648 — Global Integration Deloitte Portugal MP Torre A, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 50 1.538 414 73 537 — 10.686 — Global Integration Deloitte Portugal VFX Logística, S.A. Real estate acquisition and development for leasing. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 5.05 6.406 5.614 11.06 21.723 — 25.153 (2.417) Global Integration Deloitte Portugal Promosete, Invest. Inmobil. SA. Real estate acquisition and development for leasing. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 200 1.554 837 7.385 8.422 1.323 10.384 — Global Integration Deloitte Portugal Praça Do Marquês serviços Auxiliares, SA Real estate acquisition and development for leasing. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 15.893 3.178 2.086 61.169 79.148 2.008 56.361 — Global Integration Deloitte Portugal Torre Dos Oceanus Investimentos Inmobiliarios,S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 50 1.933 827 3.319 4.196 593 15.912 — Global Integration Deloitte Portugal Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. () Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 5 16.556 10.013 16.908 26.926 — 32.573 — Global Integration Deloitte Portugal Forum Almada II, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 10 13.028 9.153 66.132 85.284 — 325.66 — Global Integration Deloitte Portugal Torre Arts Investimentos Imobiliarios, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 100 2.755 2.097 78.153 80.35 2.177 80.281 — Global Integration Deloitte Portugal Torre Fernao Magalhaes Investimentos Imobiliarios, S.A. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 100 869 673 25.37 26.143 995 26.055 — Global Integration Deloitte Portugal Generous Profile , Unipessoal LDA. Real estate acquisition and development for leasing /Avda. Dom João, 45, Lisbon 100% 2 (27) (547) 54.799 56.252 — 56.808 (556) Global Integration Deloitte Portugal Paseo Comercial Carlos III, S.A. Real estate acquisition and development for leasing / Avda. San Martín Valdeiglesias, 20 28922 Madrid 50% 8.698 2.864 3.978 21.915 34.591 — 25.668 — Equity method Deloitte Provitae Centros Asistenciales, S.L. Real estate acquisition and development for leasing / C. Fuencarral, 123. Madrid 50% 6.314 944 944 (1.202) 6.056 — 5.061 (1.746) Equity method Deloitte G36 Development, S.L. Real estate acquisition and development for leasing / Paseo de la Castellana, 93 Madrid 50% 3 21 21 8 32 1.04 2 — Equity method N/A Centro Intermodal de Logística S.A. (CILSA) Development, management and implementation of logistics activities in the port system / Avenida Ports d’Europa 100, Barcelona 49% 18.92 25.289 17.079 123.701 159.7 2.556 95.688 — Equity method EY Pazo de Congresos de Vigo, S.A. Execution project, construction and operation of the Vigo Conference Center / Avda. García Barbón, I. Vigo 44% n.d n.d n.d. n.d. n.d — 3.6 (3.6) Equity method n.d Parking del Palau, S.A. Real estate acquisition and development for leasing / Paseo de la Alameda, s/n. Valencia 33% 1.698 42 40 459 2.197 — 2.137 (1.052) Equity method BDO Araba Logística, S.A. Real estate acquisition and development for leasing / Avda. Álava s/n Rivabellosa (Álava) 25% 1.75 911 391 2.925 5.066 — 2.257 (2.257) Equity method Mazars Crea Madrid Nuevo Norte, S.A. Performing all types of real estate activities / Paseo de la Castellana 216, Madrid 14% 206.509 (6.081) (4.058) (36.574) 165.877 — 174.445 (1.651) Equity method KPMG Silicius Real Estate, SOCIMI, S.A. Performing all types of real estate activities / Calle de Velázquez, 123, Madrid 18% 30.955 13.299 15.017 341.871 387.843 307 87.018 — Equity method PWC Edged Spain, S.L.U Provision of Data Center services / Paseo de la Castellana 257, Madrid 50% 3 96 88 (211) (120) — 2 (2) Equity method Deloitte () Indirect APPENDIX I - Group companies and associates 2021 Thousands of euros Company Line of business / Location Ownership interest Share capital Profit/(loss) Remaining shareholders’ equity Total Dividends received Carrying amount Consolidation method Auditor From operations Net Equity Cost Impairment Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 9,323 66,293 53,908 91,189 87,001 51,559 657,984 — Full consolidation Deloitte Merlin Retail, S.L.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 17,963 44,643 42,923 236,491 297,378 2,667 251,408 — Full consolidation Deloitte Merlin Oficinas, S.L.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 29,674 16,334 16,130 718,601 764,405 15,155 771,345 — Full consolidation Deloitte Merlin Logística, S.L.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 28,166 32,863 31,544 274,082 333,792 15,905 292,304 — Full consolidation Deloitte Sevisur Logística Urban development, construction and operation of buildings for logistics activities and common services. Ctra. de la Esclusa, 15. 41011, Seville. 100% 17,220 3,834 3,839 9,526 30,584 3,174 37,629 — Full consolidation Deloitte Parques Logísticos de la Zona Franca, S.A. Acquisition and development of property assets for lease, Avda. 3 del Parc Logístic, nº 26, Barcelona 100% 15,701 4,957 5,230 107,017 127,948 4,939 118,310 — Full consolidation Deloitte Exhibitions Company, S.A.U. Provision of services of all kinds: technical, commercial or economic services/Paseo de la Castellana 257, Madrid 100% 180 (787) (741) 4,215 3,654 — 4,287 (633) Full consolidation N/A Gescentesta, S.L.U. Provision of services / Paseo de la Castellana 257, Madrid 100% 3 197 151 782 936 — 3 — Full consolidation N/A Metroparque, S.A. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 56,194 7,881 8,186 33,086 97,465 6,354 231,557 — Full consolidation Deloitte La Vital Centro Comercial y de Ocio, S.L. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 14,846 2,446 2,495 18,731 36,071 1,397 56,788 — Full consolidation Deloitte Thousands of euros Company Line of business / Location Ownership interest Share capital Profit/(loss) Remaining shareholders’ equity Total Dividends received Carrying amount Consolidation method Auditor From operations Net Equity Cost Impairment Desarrollo Urbano de Patraix, S.A. Land management / Avda. Barón de Carcer, 50, Valencia 100% 2,790 (2) (81) 22,351 25,060 — 25,090 (30) Full consolidation N/A Sadorma 2003, S.L. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 73 (3) 254 18,531 18,857 — 25,485 (6,628) Full consolidation N/A Global Murex Iberia, S.L. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 14 (1) 21 (15,480) (15,445) — — — Full consolidation N/A Varitelia Distribuciones, S.L.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 15,443 2,586 333 6,110 21,886 — 172,979 (151,094) Full consolidation Deloitte Global Carihuela, Patrimonio Comercial, S.L. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 3,303 (4,214) (4,757) 9,115 7,661 — 34,102 (26,441) Full consolidation Deloitte MPCVI – Compra e Venda Imobiliária, S.A. Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 1,050 1,092 292 5,955 7,296 261 6,418 — Full consolidation Deloitte Portugal MPEP – Properties Escritórios Portugal, S.A. Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 50 700 (123) 26 (47) 69 85 — Full consolidation Deloitte Portugal MP Monumental, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon 100% 50 1,525 (1,630) 7,162 5,582 — 21,548 — Full consolidation Deloitte Portugal MP Torre A, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon 100% 50 1,534 (367) (60) (377) — 10,186 — Full consolidation Deloitte Portugal VFX Logística, S.A. Acquisition and development of property assets for lease. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 5,050 (5,997) (6,500) 13,760 12,310 — 21,353 (9,043) Full consolidation Deloitte Portugal Promosete, Invest. Inmobil. SA. Acquisition and development of property assets for lease. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 200 2,173 1,323 7,372 8,895 444 10,386 — Full consolidation Deloitte Portugal Praça Do Marquês serviços Auxiliares, SA Acquisition and development of property assets for lease. Av. Fontes Pereira de Melo, Nº 51, Lisbon 100% 15,893 2,846 2,128 61,049 79,070 2,094 56,359 — Full consolidation Deloitte Portugal Thousands of euros Company Line of business / Location Ownership interest Share capital Profit/(loss) Remaining shareholders’ equity Total Dividends received Carrying amount Consolidation method Auditor From operations Net Equity Cost Impairment Torre Dos Oceanus Investimentos Inmobiliarios,S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon 100% 50 1,643 593 3,319 3,962 521 15,912 — Full consolidation Deloitte Portugal Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon 100% 5 (1,284) (7,137) 15,053 7,921 — 32,574 — Full consolidation Deloitte Portugal Forum Almada II, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon 100% 10,000 12,852 8,977 57,136 76,113 — 307,512 — Full consolidation Deloitte Portugal Torre Arts - Investimentos Imobiliarios, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon 100% 100 2,861 2,177 83,653 85,930 2,030 85,781 — Full consolidation Deloitte Portugal Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisbon 100% 100 1,302 995 26,870 27,965 557 27,555 — Full consolidation Deloitte Portugal Innovación Colaborativa, S.L. Selection, contracting, fitting out, organisation and management of coworking-type collaborative work spaces/Paseo de la Castellana 257, Madrid 100% 15 (4,462) (4,534) 6,539 2,020 — 15,868 (13,848) Full consolidation N/A Milos Asset Development, S.A. Acquisition, holding, administration, disposal and development of land located within the “Distrito Castellana Norte”project/Paseo de la Castellana 257, Madrid 100% 3 (3) 374 (124) 253 — 2 — Full consolidation N/A Paseo Comercial Carlos III, S.A. Acquisition and development of property assets for lease / Avda. San Martín Valdeiglesias, 20 - 28922 Madrid 50% 8,698 1,160 116 21,800 30,614 — 25,668 — Equity method Deloitte Provitae Centros Asistenciales, S.L. Acquisition and development of property assets for lease / C. Fuencarral, 123. Madrid 50% 6,314 (42) (42) (1,160) 5,112 — 5,061 (1,547) Equity method N/A G36 Development, S.L. Acquisition and development of property assets for lease / Paseo de la Castellana 93, Madrid 50% 4,053 (21) (21) — 4,032 — 2,027 — Equity method N/A Centro Intermodal de Logística, S.A. (CILSA) Development, management and performance of logistics activities in a port system / Avenida Ports d’Europa 100, Barcelona 49% 18,920 15,744 10,401 118,936 148,257 1,788 95,688 — Equity method EY Pazo de Congresos de Vigo, S.A. Project for the execution, construction and operation of the Vigo Convention Centre / Avda. García Barbón, I, Vigo 44% N/A N/A N/A N/A N/A — 3,600 (3,600) Equity method N/A Thousands of euros Company Line of business / Location Ownership interest Share capital Profit/(loss) Remaining shareholders’ equity Total Dividends received Carrying amount Consolidation method Auditor From operations Net Equity Cost Impairment PK Hoteles 22, S.L. Acquisition and development of property assets for lease / C. Príncipe de Vergara, 15. Madrid 33 % 5,801 8,387 6,215 (5,298) 6,718 1,780 2,467 (283) Equity method CROWE, S.L.P. Parking del Palau, S.A. Acquisition and development of property assets for lease / Paseo de la Alameda, s/n. Valencia 33 % 1,698 (10) (12) 458 2,144 — 2,137 (920) Equity method BDO Araba Logística, S.A. Acquisition and development of property for lease/ Avda. Álava s/n Rivabellosa (Álava) 25 % 1,750 911 391 2,925 5,066 — 2,257 (2,257) Equity method Mazars Crea Madrid Nuevo Norte, S.A. Carrying out all types of property activity/Paseo de la Castellana 216, Madrid 14 % 196,060 (6,274) (2,833) (27,350) 165,877 — 172,934 (1,036) Equity method KPMG Silicius Real Estate SOCIMI, S.A. Carrying out all types of property activity/Calle de Velázquez, 123, Madrid 15 % 36,112 58,541 52,369 306,816 395,297 — 87,018 — Equity method PwC Edged Spain, S.L.U Services provided by data processing centres/Paseo de la Castellana 257, Madrid 50 % 3 (191) (191) (1) (189) — 2 (2) Equity method N/A APPENDIX II - List of the properties intended for lease and the holding in the share capital of companies referred to in section 2.1 of Law 11/2009, amended by Law 16/2012 ACQ. DATE REIT DATE ASSET NAME ADDRESS TOWN ASSET TYPE USE 1 1 Jan 15 1 Jan 15 Av. de Bruselas, 24 AV Bruselas 24 Alcobendas Invest. Prop. Offices 2 1 Jan 15 1 Jan 15 Av. de Bruselas, 26 AV Bruselas 26 Alcobendas Invest. Prop. Offices 3 1 Jan 15 1 Jan 15 Av. de Bruselas, 33 AV Bruselas 33 Alcobendas Invest. Prop. Offices 4 14 Sep 16 14 Sep 16 Encinar CL Manuel Pombo Angulo 20 Alcobendas Invest. Prop. Offices 5 14 Sep 16 14 Sep 16 Av. Europa, 1 - Edificio A-B AV Europa 1 Alcobendas Invest. Prop. Offices 6 14 Sep 16 14 Sep 16 Factory Bonaire CA A3 Km 345 Aldaya Invest. Prop. Shopping centre 7 1 Jan 15 1 Jan 15 Alovera I-II-III buildings CL Rio Henares 1 Alovera Invest. Prop. Logistics 8 1 Jan 15 1 Jan 15 Azuqueca II and III buildings CL Milan 8 y 12 Azuqueca de Henares Invest. Prop. Logistics 9 1 Jan 15 1 Jan 15 Vilanova, 12-14 AV Vilanova 12 Barcelona Invest. Prop. Offices 10 14 Sep 16 14 Sep 16 Diagonal 199 AV Diagonal 199 Barcelona Invest. Prop. Offices/Hotel 11 14 Sep 16 14 Sep 16 Diagonal 458 AV Diagonal 458 Barcelona Invest. Prop. Offices 12 1 Jan 15 1 Jan 15 Diagonal, 514 AV Diagonal 514 Barcelona Invest. Prop. Offices 13 1 Jan 15 1 Jan 15 Diagonal, 605 AV Diagonal 605 Barcelona Invest. Prop. Offices 14 14 Sep 16 14 Sep 16 Balmes CL Balmes 236-238 Barcelona Invest. Prop. Offices 15 14 Sep 16 14 Sep 16 P.E. Poble Nou 22@ Ed. A-C-D CL Bac de roda 52 Barcelona Invest. Prop. Offices 16 14 Sep 16 14 Sep 16 P.E. Poble Nou 22@ Ed. B CL Fluviá 65 Barcelona Invest. Prop. Offices 17 14 Sep 16 14 Sep 16 Bizcargi 1 1D CL Bizcargi 1 1D Bilbao Invest. Prop. Other 18 1 Jan 15 1 Jan 15 Cabanillas I buildings CL Castilla la Mancha P. I. Cabanillas Cabanillas del Campo Invest. Prop. Logistics 19 1 Jan 15 1 Jan 15 Coslada I buildings AV de la Cañada 64 Coslada Invest. Prop. Logistics 20 1 Jan 15 1 Jan 15 Coslada III buildings CL Torres Quevedo 1 Coslada Invest. Prop. Logistics 21 14 Sep 16 14 Sep 16 A4-Getafe (Data Centre) CA Polig. Industrial Los Ángles P-33 Getafe Invest. Prop. Other 22 1 Jan 15 1 Jan 15 Escudo del Carmen CL Escudo del Carmen 31 Granada Invest. Prop. Offices 23 14 Sep 16 14 Sep 16 P.E. Alvia Ed. 1-2-3 CL Jose Echegaray 8 Las Rozas Invest. Prop. Offices 24 14 Sep 16 14 Sep 16 P.I. Európolis CL Londres S/N Las Rozas Invest. Prop. Other 25 1 Jan 15 1 Jan 15 Mangraners CL Els Mangraners N-240 Km.88 Lerida Invest. Prop. Offices 26 14 Sep 16 14 Sep 16 Torre De Madrid PL De España 18 Madrid Invest. Prop. High Street retail 27 14 Sep 16 14 Sep 16 Torre de Madrid (Housing) PL de España 18 Madrid Invest. Prop. Other 28 1 Jan 15 1 Jan 15 Plaza de los Cubos CL Princesa 3 Madrid Invest. Prop. High Street retail 29 1 Jan 15 1 Jan 15 Princesa, 3 CL Princesa 3 Madrid Invest. Prop. Offices 30 1 Jan 15 1 Jan 15 Princesa, 5 CL Princesa 5 Madrid Invest. Prop. Offices 31 1 Jan 15 1 Jan 15 Princesa car park CL Princesa 5 Madrid Invest. Prop. Car park 32 1 Jan 15 1 Jan 15 Ventura Rodríguez, 7 CL Ventura Rodriguez 7 Madrid Invest. Prop. Offices ACQ. DATE REIT DATE ASSET NAME ADDRESS TOWN ASSET TYPE USE 33 14 Sep 16 14 Sep 16 Callao PL Callao 5 Madrid Invest. Prop. High Street retail 34 1 Jan 15 1 Jan 15 Partenón, 12-14 AV Partenon 12 Madrid Invest. Prop. Offices 35 1 Jan 15 1 Jan 15 Partenón, 16-18 AV Partenon 16 Madrid Invest. Prop. Offices 36 1 Jan 15 1 Jan 15 Eucalipto, 25 CL Eucalipto 25 Madrid Invest. Prop. Offices 37 1 Jan 15 1 Jan 15 Eucalipto, 33 CL Eucalipto 33 Madrid Invest. Prop. Offices 38 1 Jan 15 1 Jan 15 Josefa Valcárcel, 48 CL Josefa Valcarcel 48 Madrid Invest. Prop. Offices 39 1 Jan 15 1 Jan 15 Pedro de Valdivia, 10 CL Pedro de Valdivia 10 Madrid Invest. Prop. Offices 40 1 Jan 15 1 Jan 15 Juan Esplandiú, 11-13 CL Juan Esplandiu 11-13 Madrid Invest. Prop. Offices 41 1 Jan 15 1 Jan 15 Príncipe de Vergara, 187 CL Principe de Vergara 187 Madrid Invest. Prop. Offices 42 1 Jan 15 1 Jan 15 Ribera del Loira, 60 CL Ribera del Loira 60 Madrid Invest. Prop. Offices 43 14 Sep 16 14 Sep 16 P.E. Puerta de las Naciones Ed. 1 a 4 CL Ribera del Loira 38-50 Madrid Invest. Prop. Offices 44 1 Jan 15 1 Jan 15 Castellana, 83-85 PS de la Castellana 83 Madrid Invest. Prop. Offices 45 14 Sep 16 14 Sep 16 Cadagua PS de la Castellana 93 Madrid Invest. Prop. Offices 46 1 Jan 15 1 Jan 15 Local Castellana 191 PS de la Castellana 191 Madrid Invest. Prop. Other 47 14 Sep 16 14 Sep 16 Castellana 278 PS de la Castellana 278 Madrid Invest. Prop. Offices 48 1 Jan 15 1 Jan 15 Torre Castellana 259 PS de la Castellana 259 Madrid Invest. Prop. Offices/Hotel 49 14 Sep 16 14 Sep 16 Plaza Ruiz Picasso PL Carlos Trías Bertrán 7 Madrid Invest. Prop. Offices 50 14 Sep 16 14 Sep 16 Santiago de Compostela, 94 CL Santiago de Compostela 94 Madrid Invest. Prop. Offices 51 14 Sep 16 14 Sep 16 Jose María Churruca Ed. I-II CL Almansa 101-105 Madrid Invest. Prop. Offices 52 14 Sep 16 14 Sep 16 Jose María Churruca Ed. III-IV CL Beatriz de Bobadilla 14-18 Madrid Invest. Prop. Offices 53 14 Sep 16 14 Sep 16 Fuente De La Mora CM Fuente de la Mora 9 Madrid Invest. Prop. Offices 54 14 Sep 16 14 Sep 16 P.E. Vía Norte Ed. 1 a 6 CL Quintanavides 11 a 21 Madrid Invest. Prop. Offices 55 14 Sep 16 14 Sep 16 P.E. Alvento A-B-C-D VI de los Poblados 1 Madrid Invest. Prop. Offices 56 14 Sep 16 14 Sep 16 Cristalia VI de los Poblados 3 Madrid Invest. Prop. Offices 57 14 Sep 16 14 Sep 16 P.E. Sanchinarro Ed. I-II CL María de Portugal 9-11 Madrid Invest. Prop. Offices 58 14 Sep 16 14 Sep 16 P.E. Las Tablas Ed. 1-2-3 CL Federico Mompou 5 Madrid Invest. Prop. Offices 59 14 Sep 16 14 Sep 16 Elipse AV Manoteras 18 Madrid Invest. Prop. Offices 60 14 Sep 16 14 Sep 16 Arturo Soria, 343 CL Arturo soria 343 Madrid Invest. Prop. Offices 61 14 Sep 16 14 Sep 16 G. Ampudia 12 CL General Ampudia 12 Madrid Invest. Prop. Other 62 1 Jan 15 1 Jan 15 Centro Oeste CL El Carralero. Las Moreras Majadahonda Invest. Prop. Shopping centre 63 1 Jan 15 1 Jan 15 C.C. Larios AV de la Aurora 21 Málaga Invest. Prop. Shopping centre 64 1 Jan 15 1 Jan 15 C.C. Porto Pi AV de Gabriel Roca 54 Palma de Mallorca Invest. Prop. Shopping centre 65 1 Jan 15 1 Jan 15 Pedrola building CL General Motors 1. P.I. El Pradillo Pedrola Invest. Prop. Logistics ACQ. DATE REIT DATE ASSET NAME ADDRESS TOWN ASSET TYPE USE 66 1 Jan 15 1 Jan 15 Ática II, A-B-C AV de Europa 19 Pozuelo de Alarcón Invest. Prop. Offices 67 1 Jan 15 1 Jan 15 Ática 1 AV de Europa 26 Pozuelo de Alarcón Invest. Prop. Offices 68 1 Jan 15 1 Jan 15 Ática 2 CL Inglaterra 2 Pozuelo de Alarcón Invest. Prop. Offices 69 1 Jan 15 1 Jan 15 Ática 3 y 4 VI Dos Castillas 33 Edf. 3 y 4 Pozuelo de Alarcón Invest. Prop. Offices 70 14 Sep 16 14 Sep 16 Ática Ed. 6 VI Dos Castillas 33 Edf.6 Pozuelo de Alarcón Invest. Prop. Offices 71 14 Sep 16 14 Sep 16 Cerro Gamos I-II-III-V-VI CL Cerro de los Gamos 1 Pozuelo de Alarcón Invest. Prop. Offices 72 1 Jan 15 1 Jan 15 Sant Cugat I CL Alcalde Barnils 64 San Cugat del Valles Invest. Prop. Offices 73 1 Jan 15 1 Jan 15 Sant Cugat II AV Via Augusta 71 San Cugat del Valles Invest. Prop. Offices 74 14 Sep 16 14 Sep 16 Jovellanos 91 CL Jovellanos 91 Sant Adriá del Besos Invest. Prop. Other 75 1 Jan 15 1 Jan 15 Borbolla AV Borbolla 5 Seville Invest. Prop. Offices 76 14 Sep 16 14 Sep 16 El Saler shopping centre CA Autovía De El Saler 16 Valencia Invest. Prop. Shopping centre 77 1 Jan 15 1 Jan 15 Palau car park PS de la Alameda 34 Valencia Invest. Prop. Other 78 14 Sep 16 14 Sep 16 C.C. Vilamarina AV Segle XXI 6 Viladecans Invest. Prop. Shopping centre 79 14 Sep 16 14 Sep 16 Rambla Salvador Sama CL Rambla Salvador Samà 45/49 Vilanova I La Geltrù Invest. Prop. Other 80 12 Jan 17 12 Jan 17 Torre Glories Av. Diagonal, 211 Barcelona Invest. Prop. Offices 81 21 Jan 20 21 Jan 20 Plaza Cataluña, 9 Plaza Cataluña, 9 Barcelona Invest. Prop. Offices 82 30 Dec 21 30 Dec 21 PE Atica XIX D Pozuelo De Alarcón, 19 Pozuelo de Alarcón Invest. Prop. Offices 83 30 Jul 14 01-Jan-14 Merlin Retail, S.L. PS Castellana 257 Madrid Ownership interest 84 04 Aug 14 01-Jan-14 Merlin Oficinas, S.L. PS Castellana 257 Madrid Ownership interest 85 30 Jul 14 01 Jan 14 Merlin Logística, S.L. PS Castellana 257 Madrid Ownership interest 86 14 Sep 16 01 Jan 17 La Vital Centro Comercial y de Ocio, S.L. PS Castellana 257 Madrid Ownership interest 87 14 Sep 16 01 Jan 17 Varitelia Distribuciones, S.L. PS Castellana 257 Madrid Ownership interest 88 14 Sep 16 01 Jan 17 Metroparque, S.A. PS Castellana 257 Madrid Ownership interest 89 14 Sep 16 01 Jan 18 Global Carihuela Patrimonio Comercial, S.L. PS Castellana 257 Madrid Ownership interest 90 28 Jul 17 01 Jan 17 Sevisur, S.A. PS Castellana 257 Madrid Ownership interest 91 17 Oct. 16 01 Jan 19 PLZF Avda. 3 del Parc Logístic, nº 26 Madrid Ownership interest 92 17 Oct 16 27 Dec 19 VFX Logística, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 93 18 Mar 15 05 Oct 18 MPEP - Properties Escritórios Portugal, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 94 18 Mar 15 05 Oct 18 MP Compra e Venda Inmobiliária, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 95 31 Mar 16 05 Oct 18 MP Monumental, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 96 31 Mar 16 05 Oct 18 MP Torre A S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 97 07 Apr 17 07 Apr 17 Promosete Investimentos Inmobiliarios, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 98 28 Sep 17 05 Oct 18 Praça do Marques - serviços auxiliares, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest ACQ. DATE REIT DATE ASSET NAME ADDRESS TOWN ASSET TYPE USE 99 30 Apr 18 05 Oct 18 Torre Dos Oceanus Investimentos Inmobiliarios, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 100 17 Jan 19 13 Mar 19 Torre Arts Investimentos Inmobiliarios, S.A. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 101 17 Jan 19 13 Mar 19 Torre Fernão Magalhães Investimentos inmobiliàrios, S.A.. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 102 03 Aug 22 03 Aug 22 Generous Profile Unipessoal Lda. Av. D. João II, 45, 5ºC Lisbon (Portugal) Ownership interest 103 27 Jul 22 27 Jul 22 Slack Tailwind Systems, S.L.U PS Castellana 257 Madrid Ownership interest 104 27 Jul 22 27 Jul 22 Slow Rise Systems, S.L.U. PS Castellana 257 Madrid Ownership interest 105 43888 01 Jan 19 Silicius Real Estate SOCIMI, S.A. Velázquez, 123 Madrid Ownership interest MERLIN PROPERTIES, SOCIMI, S.A. Individual Directors’ Report for the year ended 31 December 2022 1. Company description Economic Situation The markets in which MERLIN operates are benefiting from the gradual economic recovery following the devastating effect of the pandemic in 2020. This economic environment has led to significant increases in trading volumes, which results in higher occupancy in the three asset classes in which we operate. Moreover, the investment volume overall for all asset classes in Spain has increased exponentially, reaching €15,400 million in 2022 compared to €11,700 million of direct investment in Spain in 2021. 1.1. Situation of the rental market by geographical area Madrid Madrid is both the largest metropolitan area and the main real estate market on the Iberian Peninsula. In general, the rental market has benefited from the economic recovery. The absorption of office space has reached around 543,000 sqm, up 30% versus 2021, prime rents have increased by +4% to reach €36.50/sqm/ month, and availability has increased slightly to 9.75%. As regards with the logistics market, it has been a record year in terms of take-up with 1,328,500 sqm contracted, up 32% compared to the previous year. Lastly, shopping centers have practically recovered in terms of sales with footfall still below pre-covid levels. Barcelona In the office market, take-up has amounted to 328,000 sqm and prime rents have remained at €27.50/sqm/ month. It should also be noted that more than 180,000 sqm were delivered during the period, causing the vacancy rate to rise to 10.1%. On the other hand, the logistics market is suffering from a lack of both available land and quality product for e-commerce operators. With regards to shopping centers, the performance in both sales and foot traffic is still slightly below that of Madrid. Lisbon The performance of the office rental market has been very positive, with 272,000 sqm absorbed (+68%) and a vacancy rate that stands at 7%. Prime rents remained stable during the year, reaching €25/sqm/month. In relation to logistics, rents have increased and stand at €5/sqm/month, on the Alverca/Azambuja axis. In addition, take-up in the period has been 250,000 sqm. Lastly, shopping centers have recovered relatively well with sales and footfall at pre-covid levels. 1.2. Situation of the rental market by business segment Offices The Spanish office market recorded an increase in activity in 2022 compared to 2021 although Madrid performed better than Barcelona (30% vs +0.2%). In addition, the vacancy rate rose in both markets to 9.75% in Madrid and 10.1% in Barcelona, although the vacancy rate in the more central submarkets remains low at 5% and 4%, respectively. Prime rents have risen slightly in both markets, although there have been slight declines in more peripheral locations. Similar performance has been observed in Portugal. 1 Logistics The upward trend in the logistics sector continues to be favoured by consumer habits acquired during the pandemic that are part of the new reality and that are expected to continue to consolidate in the coming quarters. Record year for logistics take-up in Madrid and, to a lesser extent, in Barcelona. The volume reached by turnkey projects and pre-leases is of particular note given the lack of available logistics platforms that meet current demand requirements. This shortage of quality product has had an impact on the rents of logistics assets. Shopping centers The gradual recovery in the activity of shopping centers after the pandemic has been reflected in the high levels of sales and footfall in 2022. Although it is true that footfall is still below pre-covid levels due to the fact that there have been few box office releases in cinemas. Data centers Booming market driven by product scarcity, the arrival of submarine cables and the exponential increase in data traffic. In addition, the strategic geographical position (port of entry for submarine cables connecting to other continents, installed capacity and renewable energy development) of the Iberian Peninsula makes it an attractive location for the development of data centers. 1.3. Organisational and operational structure The MERLIN Group’s main objective is to generate sustainable shareholder return through the acquisition, focused management and selective rotation of property assets in segments with a moderate risk profile (“Core” and “Core Plus”). Its strategy and operations are characterised by the following: 1. Focusing on Core and Core Plus assets in Spain and Portugal 2.An investment grade capital structure 3.Distribution, through dividends or return of premium, of 80% of the AFFO generated in the year. 4.Being one of the most efficient REITs in Europe 5.Implementing best practices in corporate governance Its internal organisational structure can be summarised as follows: –A Board of Directors composed of 13 directors and advised by the Audit and Control Committee (ACC), the Appointments and Remuneration Committee (ARC) and the Sustainability and Innovation Committee (SIC). MERLIN’s Board of Directors is composed of a majority of independent directors and its activities are focused on defining, supervising and monitoring the policies, strategies and general guidelines to be followed by the Group. The Board is responsible for long-term strategy and for monitoring its implementation. –A Chief Executive Officer reports directly to the Board and sits on it. 2 –An Investment Committee is formed by the management team. 2. Business evolution and results 2.1. Business performance and results in 2022 The Company’s business performed excellently during the year, with growth in comparable rents and release spread in all asset categories. Merlin Properties closed the year with lease income of EUR 224.1 million, 10.2% more than in 2021 and an operating profit of EUR 966.1 million. 2.2. Outlook for the Company in 2022 In the absence of externalities, the three main asset classes (offices, logistics and shopping centers) are expected to maintain occupancy levels, while rents will continue to benefit from rising inflation as leases are indexed to the CPI. 3. Capital and Liquidity Resources 3.1. Debt The Group’s strategy is to actively manage both the Group’s assets and the liabilities. In relation to liabilities, the goal is to extend the average maturity of the debt and to try to maintain borrowing costs and eliminate the risk arising from interest rate fluctuations. Currently, 100% of the Company’s debt accrues interest at a fixed rate or is subject to interest rate hedges. MERLIN carried out several transactions involving its financial liabilities in 2022. The transactions carried out were: a.On 23 February 2022, the Group repaid its first bond maturing on 23 May amounting to € 548 million with the funds obtained from a € 500 million bond issue on 21 June 2021. b.On 1 June 2022, the Group converted all its bonds into green bonds under the Green Financing Framework published on 25 April 2022. The reclassification of the bonds to green bonds does not entail changes to any other features of the bonds, such as their terms and conditions, interest or maturity. c.On 18 November 2022, the Group entered into two 5-year corporate green financing facilities for an aggregate amount of € 660 million. The financing consists of a syndicated loan of € 600 million with 5 banks (undrawn at year end) and a bilateral loan for € 60 million. d.On 20 December 2022, the Group drew down € 22 million corresponding to the first tranche of non- mortgage financing from the European Investment Bank for the logistics developments in Castilla La Mancha maturing on 20 December 2032. e.At year end, the Group had € 109.2 million not yet drawn down corresponding to tranche 2 of the logistics financing and the green loan signed with the European Investment Bank. 3 f.The new financing will be used to repay the € 743 million bond maturing on 25 April 2023. At the end of 2022, the Group’s financial debt amounted to € 4,154 million, made up of corporate financing without mortgage collateral (loans and bonds) and mortgages. MERLIN's cash position at December 31, 2022 amounted to €343 million, including €17 million of treasury shares.This liquidity is increased by €1,409 million through the revolving credit line, undrawn at year-end 2022, and undrawn financing from the European Investment Bank and the syndicated loan. Additionally, the Group has the ability to access the capital markets through the Euro medium-term note (EMTN) programme, which has a limit of € 6,000 million. At 2022 year end, € 1,957 million was available through this programme. 4. Environmental matters MERLIN manages its activity responsibly, ensuring the achievement of sustainable objectives over time and the creation of shared value for its stakeholders. All this while guaranteeing strict compliance with legislation, as well as with the international reference standards to which the Group adheres. In this context, MERLIN's commitment can only be to achieve sustainable profitability that guarantees the success of its business project and takes into account the expectations of its stakeholders. In addition, this growth must be achieved without detriment to the organization's environmental performance, minimizing the impact on the environment and focusing on the integration of sustainability in the development and repositioning of assets Green financing and ESG On 25 April 2022, the Group published its Green Financing Framework. This programme bring its financing strategy into line with its sustainability objectives. The Group therefore requested the conversion of its outstanding senior bonds into green bonds and is committed to linking its future financing to this programme. The Green Financing Framework is in line with the Green Bond Principles 2021 (GBP) and the Green Lending Principles 2021 (GLP) published respectively by the International Capital Markets Association (ICMA) and the Loan Market Association (LMA), and its four components are as follows: •Use of proceeds Allocate the use of the proceeds to a number of eligible project categories in accordance with the eligibility criteria set out in the Green Financing Framework. •Process for project evaluation and selection In line with the approach of integrating Corporate Social Responsibility (CSR), the MERLIN Working Group will oversee the allocation of the amounts and their CSR performance based on selecting projects under the criteria described above, the monitoring of the financing instruments issued under the Green Financing Framework and the management of future updates to the framework. The Working Group will consist of representatives from the Finance, Treasury, CSR and Investor Relations departments, and from other technical departments when necessary, and will meet at least on a monthly basis or as needed. 4 The responsibilities of the Working Group will include: –Monitor the eligibility criteria in accordance with the eligible project categories during the lifetime of the transactions. –Manage any identified potential ESG risks associated with the eligible project categories: –Under the control of the Board of Directors and the Audit and Control Committee, MERLIN oversees the effectiveness, adequacy and integrity of the Group’s internal control and risk management systems. ESG risk management is part of the first line of defense in MERLIN’s risk management plan. –MERLIN has also established a certified Environmental Management System based on ISO 14001 and ISO 50001 standards. –Furthermore, as part of the Group’s vision and values, MERLIN is committed to long-term value creation in a context of transparency, ethics and responsibility in business and society. –In particular, when any eligible sustainable building leaves MERLIN’s portfolio or when the ESG Committee decides to remove an eligible sustainable building from the portfolio of eligible sustainable buildings, the ESG Committee will make every effort to replace these assets as soon as possible, once a suitable eligible sustainable building has been identified for replacement. •Management of proceeds MERLIN will allocate the equivalent amount of all the Group’s outstanding green financing to the eligible project categories set out above. The Working Group will allocate any future financing by verifying on an annual basis the adequacy of the pre- selected eligible project categories with the total amount of funds obtained through green financing. In addition, the Working Group will establish a process in its Internal Reporting System to follow up on the use of the proceeds from the outstanding green financing. •Reporting MERLIN, in its commitment to transparency and sustainable engagement, will publish on an annual basis a report on the allocation of the proceeds and an impact report on the main indicators set out in the Green Financing Framework: –An audited report of the allocation of the proceeds detailing the different green financing or financial instruments and the amount allocated to each eligible project category divided up by each eligibility criteria. –A report that will include a quantitative and qualitative measurement of the main CSR indicators for the eligible project categories selected for allocation of the proceeds. 5 Eligible project category Example of impact indicators Sustainable buildings - Breakdown of external certification by asset type (shopping centres, offices and logistics centres) - Average energy intensity of buildings included in the portfolio of eligible sustainable buildings (in kWh/sqm/year) by asset type (shopping centres, offices and logistics centres) - Average greenhouse gas emissions intensity of buildings included in the portfolio of sustainable eligible buildings (in tCO2eq/sqm) by asset type (shopping centres, offices and logistics centres) - CO2 emissions avoided by buildings included in the portfolio of sustainable eligible buildings (in tCO2eq/year) by asset type (shopping centres, offices and logistics centres) Renewable energy - Installed capacity (MW) - Expected renewable energy generation (MWh/year) - CO2 emissions avoided (in tCO2e/year) Energy efficiency - Expected energy savings (MWh/year) Clean transport - Number of electric chargers - CO2 emissions avoided (in tCO2e/year) Pollution prevention and control - Estimated CO2 emissions offset (in tCO2e/year) Indicator3 Offices Shopping Centers Logistics Energy intensity (in kWh/sqm/year) 75.71 63.32 48.83 GHG Intensity (in tCO2eq/sqm) Market-base 0.002 0.003 0 Avoided CO2 emissions (in tCO2e/year) 6,646 3,811 75 3 In addition to the above, the Group has a corporate revolving credit facility in the amount of € 700 million, signed in April 2019, and a mortgage loan in the amount of € 70 million, signed in May 2019, which are labelled as sustainable financing and are linked to the fulfillment of at least three of the following KPIs: •Make sustainable investments in the portfolio •Obtain LEED/BREEAM asset certifications •Obtain AIS accessibility certifications •Ensure a certain amount of energy consumption is from renewable energy sources The Group has met the target set for 2022 in all four categories. These operations underscore the Company's ongoing efforts to integrate the principles of Corporate Social Responsibility, incorporating sustainability criteria not only in the investments of its asset portfolio, but also in the management of the liabilities side of its balance sheet. 6 3 Information regarding assets under operational control within the Sustainable Buildings portfolio. In those business parks comprised of sustainable and non-sustainable buildings, for the purposes of the Green Financing Program, and a single supply point, total consumption has been considered. 5. Staff management a.Composition of the workforce MERLIN’s staff are the Group’s main asset. At 2022 year end, the MERLIN Group’s workforce was composed of a total of 260 employees, divided into 3 categories in keeping with MERLIN’s strategy of maintaining a horizontal structure. Total number of employees at 2021 year end. Country, Sex, Professional Category and Age Professional category Women Men Overall total Executive directors 1 26 27 Middle management 20 44 64 Other staff 49 41 90 Total employees 70 111 181 Spain Women Men Overall Total 30-50 años 1 13 14 >50 años 0 13 13 Executive Directors 1 26 27 <30 años 2 7 9 30-50 años 10 21 31 >50 años 8 16 24 Middle management 20 44 64 <30 años 5 1 6 30-50 años 32 24 56 >50 años 12 16 28 Other staff 49 41 90 MRL 70 111 181 Total number of employees at 2022 year-end by type of employment contract The Company has a team of professionals with permanent contracts and an average age of 43. Throughout 2021, to promote the employability of young people, it implemented a first job plan for those who, having just finished their compulsory education, wanted to continue training and combine their studies with employment on some weekends. From the moment they join the Company, it offers its employees stable contracts to ensure their loyalty and improve its ability to attract talent to the organisation. At the end of 2022, 99% of the Company's employees had an indefinite contract. Contract term Time Total Open-ended Full-time 172 Part-time 8 Total open-ended 180 Temporary Full-time 1 Total temporary 1 Overall total 181 7 6. Dividends policy The Company’s dividend policy takes into account sustainable levels of distribution and reflects the Company’s expectation of obtaining recurring profits. The Company does not intend to create reserves that cannot be distributed to Shareholders, except as required by law. Under the REIT regime, after complying with any relevant requirement of the Corporate Enterprises Act, the Company will be required to pass resolutions to distribute the profit obtained in the year to shareholders in the form of dividends and this distribution must be approved within six months of the end of each year, as follows: (i) at least 50% of the profit from the transfer of properties and shares in qualified subsidiaries, provided that the remaining profit is reinvested in other property assets within no more than three years of the date of the transfer, otherwise, 100% of the profit must be distributed as dividends after such period has elapsed; (ii) 100% of the profit obtained from receiving the dividends paid by qualified subsidiaries; (iii) at least 80% of the remaining profit obtained. If the resolution to distribute dividends is not passed within the legally established period, the Company will lose its REIT status for the financial year to which the dividends refer. As established in the Company’s IPO Prospectus, Merlin Properties, SOCIMI, S.A. has set itself the target of distributing an annual dividend of between 4% and 6% of the IPO value. The Company’s dividend policy establishes a minimum distribution of 80% of the AFFO (“Adjusted FFO”), understood as the cash flow from operations less interest paid and less ordinary maintenance expenses for the assets. On May 4, 2022, the General Shareholders' Meeting approved the distribution of a dividend with a charge to additional paid-in capital in the amount of EUR 106,497 thousand, as well as the distribution of a dividend with a charge to the profit for 2021 in the amount of EUR 10,614 thousand , both dividends having been paid on May 27, 2022. On July 28, 2022, the Company's Board of Directors approved the distribution of an interim dividend out of 2022 profit amounting to EUR 351,169 thousand. On November 10, 2022, the Company's Board of Directors approved the distribution of an interim dividend of EUR 93,646 thousand out of the profit for 2022 7. Main risks and uncertainties The Company has a Risk Management System based on the principles, key elements and methodology established in the COSO Framework (“Committee of Sponsoring Organisations of the Treadway Commission”), which aims to minimise the volatility of results (profitability) and, therefore, maximise the Group’s economic value, incorporating risk and uncertainty into the decision-making process to provide reasonable assurance of achieving the strategic objectives established, providing shareholders, other stakeholders and the market in general with an adequate level of guarantees to ensure that the value generated is protected. Based on a comprehensive view of risk management, the Company has adopted a methodological approach based on the Enterprise Risk Management Framework - Integrating with Strategy and Performance (COSO ERM 2017), which emphasises the importance of enterprise risk management in strategic planning and incorporates it throughout the organisation, since risk influences strategy and performance in all areas, departments and functions. 8 The Risk Management and Control Policy (https://www.merlinproperties.com/en/corporate-governance/ corporate-governance-normative/) was initially approved by the Board of Directors in February 2016, then in its second version in April 2018 and finally, in its current wording, in March 2021. This policy establishes the general guiding principles, rooted in the perception that risk management is an ongoing process based on the identification and assessment of the Company’s potential risks based on its strategic and business objectives, the determination of action plans and controls for critical risks, the supervision of the effectiveness of the controls designed and the evolution of residual risk to be reported to the Company’s governing bodies. Risk management is a process driven by the Board of Directors and senior management, and each and every member of the organisation is responsible for it within their own purview. Risk management, which is supervised by the Audit and Control Committee, allows Management to effectively manage uncertainty and its associated risks, thus improving the ability to generate value. A central element of the Risk Management System is the Risk Map, which was drawn up for the first time in 2015, and is updated every six months by the Audit and Control Committee and approved by the Board of Directors. It reflects and assesses the risks that could potentially impact its ability to meet the Company’s strategic objectives. 7.1. Description of the Company’s risks The Company is exposed to a variety of risks inherent to the various segments of the property business in which it operates and in the leasing and/or development activities it carries on in each of these segments, as well as in the geographical areas in which it is established and in the evolution of external factors, both political and economic. To implement risk management and control, the Board of Directors is assisted by the Audit and Control Committee, which supervises and reports on the adequacy and effectiveness of the risk management and control system. The Audit and Control Committee is responsible for supervising the Company's risk management and control system (including internal controls) and verifying its suitability and integrity. The Audit and Control Committee carries out this supervisory function through the Internal Audit Department, which verifies the suitability and integrity of the Risk Management System implemented by management on an annual basis. Based on the analysis of the Company's strategic vision, values and strategy, the various components are periodically analysed in accordance with the grouping of the different strategic objectives included in these elements (being the benchmark REIT, creation of long-term value, generation of sustainable and growing dividends, values of transparency, ethics and responsibility). In 2022, the Company’s Risk Map was regularly updated to reflect every six months the perception of the Company’s main executives and governing bodies of the risks faced. The Company’s Risk Map has the key risks, as shown below: Financial Risk Factors The Company’s activities are exposed to various financial risks: market risk, credit risk, liquidity risk and cash flow interest rate risk. The Company's global risk management programme focuses on the uncertainty of the financial markets and aims to minimise the potential adverse effects on the Company's financial returns. 9 Risk management is undertaken by the Company's Senior Management in accordance with the policies approved by the Board of Directors. Senior Management identifies, assesses and hedges financial risks in close cooperation with the Company’s operating units. The Board of Directors issues the written global risk management policies and the policies for specific areas, including those for covering market risk, interest rate risk and liquidity risk and investing cash surpluses. Market risk Given the current situation of the property sector and in order to mitigate its effects, the Company has specific measures in place to minimise that impact on its financial position. These measures are applied pursuant to the results of sensitivity analyses carried out by the Company on a regular basis. These analyses involve: – The economic environment in which the Group operates: Designing different economic scenarios and modifying the key variables potentially affecting the Group (interest rates, share price, investment property occupancy rates, etc.). Identifying interdependent variables and the extent of their relationship. – The time scale in which the assessment is being carried out: The time frame of the analysis and its possible deviations will be taken into account. MERLIN Properties is exposed to market risk from possible vacancies or renegotiations of leases when the leases expire. This risk could have a direct negative impact on the valuation of the Company's assets. However, market risk is mitigated by the customer acquisition and selection policies and the mandatory lease terms negotiated with customers. Therefore, at 31 December 2022, the average occupancy rate of the asset portfolio was 95.1%, with a weighted average unexpired lease term of 3.2 years (weighted by GRI). Credit risk Credit risk is defined as the risk of financial loss to which the Company is exposed if a customer or counterparty does not comply with its contractual obligations. In general, the Company holds its cash and cash equivalents at banks with high credit ratings. The Company has policies in place to limit the volume of risks posed by customers. Exposure to the risk of being unable to recover receivables is mitigated in the normal course of business through funds or guarantees deposited as collateral. The Company has formal procedures to identify any impairment of trade receivables. Delays in payment are detected through these procedures and individual analysis by business area and methods are established to estimate impairment loss. Liquidity risk Liquidity risk is defined as the risk of the Company encountering difficulties meeting its obligations regarding financial liabilities settled in cash or with other financial assets. The Company conducts prudent management of liquidity risk by maintaining sufficient cash to meet its payment obligations when they fall due, both in normal and stressed conditions, without incurring unacceptable losses or risking the Company’s reputation. 10 As of the date of preparation of the financial statements, the Company has covered all its cash requirements to fully meet its commitments with suppliers, financiers, employees and government agencies, in accordance with the cash flow forecast for the year 2023, taking into account the aforementioned. Likewise, given the type of sector in which the Company operates, the investments it makes, the financing it obtains to make such investments, the EBITDA they generate and the occupancy rates of the properties, the liquidity risk is mitigated and excess cash may occur. In the event of such excesses, temporary financial investments will be made in maximum liquidity and risk-free deposits. The Company does not consider the acquisition of stock options or futures, or any other high-risk deposit as a method of investing cash surpluses. Interest rate risk in cash flows The Company manages its interest rate risk by borrowing at fixed and floating rates of interest. The Company’s policy is to ensure non-current net financing from third parties is at a fixed rate. To achieve this objective, the Company enters into interest rate swaps that are designated as hedging transactions for the related loans. At December 31, 2022, the percentage of debt whose interest rate is hedged by the aforementioned financial instruments is 99.6%. The effect of changes in interest rates is detailed in Note 14.3. Exchange rate risk The Company’s policy is to ensure non-current net financing from third parties is at a fixed rate. Consequently, currently there is no foreign currency risk. The Company is not exposed to exchange rate fluctuations as all its operations are in its functional currency. Within this type of risk, it is worth noting the exchange rate fluctuation in the translation of the financial statements of foreign companies whose functional currency is other than the euro. As of December 31, 2022, all MERLIN Group subsidiaries and associates have the euro as their functional currency. Tax risk The Company is subject to the special tax regime for Real Estate Investment Trusts (REITs). The transitional period of the Parent ended in 2017 and, therefore, compliance with all requirements established by the regime (see Notes 1 and 5.13) became mandatory. Some of the more formal obligations that the Parent must meet involve the inclusion of the term REIT in its company name, the inclusion of certain information in the notes to its separate financial statements, the share price on the stock market, etc., and other obligations that require estimates to be made and judgements to be applied by management that may become fairly complex, especially considering that the REIT regime is relatively recent and was developed by the Directorate-General of Taxes mainly in response to the queries posed by various companies. The Group’s Management, based on the opinion of its tax advisors, assessed compliance with the requirements of the regime, concluding that all those requirements were met at 31 December 2022. Accordingly, and also for the purpose of taking into consideration the financial effect of the regime, it should be noted that, as established in article 6 of Law 11/2009, of 26 October, amended by Law 16/2012 of 27 December, governing REITs, and in the percentages established in this Law, companies that have opted for the special tax regime are required to distribute the profit generated during the year to their shareholders in the form of dividends, once the related corporate obligations have been met. This distribution must be approved within six months from each year-end, and the dividends paid in the month following the date on which the pay-out is agreed (see Note 5.13). 11 If the Company does not comply with the requirements established in the regime or if the shareholders at the General Meetings of these companies do not approve the dividend distribution proposed by the Board of Directors, calculated in accordance with the requirements of this Law, it would not be complying therewith and, accordingly, tax would have to be paid under the general regime, not the regime applicable to REITs. Climate change management Within the framework of the European Green Pact and the UN's Sustainable Development Goals, the Merlin Group is carrying out various sustainability actions. First, in 2021, the Company and the Group to which it belongs created a Sustainability and Innovation Committee reporting to the Board whose main functions are advising the Board, among other aspects, on environmental and sustainability issues; advising the Board on formulating the Group’s strategy on sustainability in its relationships with stakeholders and publishing and communicating it to the public; and supervising the reporting and communication to the market of any information that refers to sustainability issues and non-financial information; and keeping the ESG (Environmental, Social and Governance) risk map updated. The Company included criteria in relation to non-financial KPIs in its investment and financing policies. Along these lines, the investment studies of property acquisitions and investments in the repositioning of the Group's assets consider, among other factors, elements such as obtaining energy efficiency certificates with the highest rating (see Note X), air conditioning, lighting, solar power, irrigation of green areas, etc. When certifying assets, the Merlin Group selects the most appropriate framework and modality based on the asset’s phase, as well as the characteristics of the building, its occupancy rate at the time of certification or the tenants who occupy it. We are continuing the process of certifying the portfolio under the standards of the leaders in this market, BREEAM and LEED.. In 2022 the Group achieved the certification or renewal in 33 assets. Additionally, the Group obtained a rating of 79% in the 2022 edition of GRESB, a platform that makes it possible to harmonise and compare information related to sustainability criteria (environmental, social and corporate governance - ESG) in property investments. The Group has an Environmental Management System (EMS) certified in accordance with ISO 14001, which is the umbrella under which it manages its portfolios and that incorporates new properties into its scope every year. In 2015 the Group began a plan for ISO 14001 (environmental management) and ISO 50001 (energy management) certifications to maintain and expand the number of property assets that have at least ISO 14001 certification, and subsequently ISO 50001 certification (based on the understanding that it is a natural step to obtain ISO 14001 certification before aspiring to ISO 50001)This plan includes office buildings, shopping centres and logistics warehouses. In 2022, 89 buildings composing a surface area of 1,211,745 sqm were certified under ISO 14001, 6 more building than in 2021. Since 2017, the Company has been carrying out a process of implementation of an Energy Management System under the ISO 50001 standard initiated in 2017, being currently certified 84 buildings, which have a surface area of 1,151,751 sqm, 5 buildings more with respect to 2021. In the assets included in said System, there is a target of reducing total energy consumption by 8% in 2026, measured in kilowatt hours of the square meters occupied, with respect to 2021, based on the implementation of MAEs (energy saving measures). 12 During the 2022 fiscal year, the Company conducted an analysis of the entire portfolio to determine the carbon footprint of each of its assets, as well as the measures necessary to reduce the aforementioned carbon footprint. The path taken by the Company in 2022 enables the Company to meet its emissions reduction target and its "path to net zero" by 2030, thus anticipating the European strategy of decarbonization of the economy and ensuring the present and future survival of the Company and its assets. The Company's path to net zero is a roadmap that includes improving the performance not only of the Company itself and those assets over which it has operational control, but also of the main agents responsible for the Company's emissions throughout its value chain, including suppliers and tenants. In addition, the Company's financing policies are aligned with the Company's sustainability objectives through the Green Financing Program published in April 2022 and the conversion of 100% of its outstanding bonds into green bonds. Currently 98% of the Company's debt with credit institutions and bondholders is linked to the Green Financing Program or ESG criteria (see Note 14). The Green Financing Program, aligned with best market practices, includes the following eligibility criteria: 1. Green Assets with the best LEED/BREEAM rating levels or energy efficiency certificates and/or minimum carbon emission levels. 2. Energy Efficiency Investments 3. Renewable Energy Investments 4. Investments in pollution prevention and control mechanisms. 5. Investments in low-carbon transportation mechanisms. The financing linked to ESG objectives includes a cost adjustment mechanism linked, in the Company's opinion, to its own credit risk, based on management indicators calculated according to four sustainability criteria of which at least three must be met annually and cumulatively during the period 2019-2025. At the end of 2022, all four indicators were met and the directors estimate that they will also be met in 2023. The indicators for the fiscal year 2019-2022 were: 1. cumulative investment of at least €10.2 million in energy efficiency improvements across the portfolio. 2. Cumulative achievement of at least 31 LEED and BREEAM external energy certifications with a minimum rating of Silver LEED and Good BREEAM, respectively. 3. Cumulative achievement of at least 38 AIS/DIGA certifications for disabled access for all tenants and consumers. 4. Cumulative electricity consumption of at least 150 GW from renewable energy sources. Additionally, the Company in its commitment to climate responsibility has incorporated qualitative factors related to the Company's sustainability strategy into the short-term variable compensation measurement targets for its staff and management team (see Note 20). 13 In addition, during 2022, the Company has adhered to SBTi4, aligning its objectives to achieve carbon neutrality with the Science-Based Targets. It has also committed to reporting in the Statement of Non-Financial Information (SNFI) in accordance with TCFD5 recommendations. Finally, the Company has also made progress in publishing its Path to Net Zero. The Company's Road to Net Zero is a roadmap that includes improving the performance not only of the Company itself and those assets over which it has operational control, but also of the main agents responsible for the Company's emissions throughout its value chain, including suppliers and tenants. This strategy has 5 main lines of action: 1. Reduction of operational carbon: 85% reduction of operational carbon from baseline (2018) to target (2028). 2. Embedded carbon reduction: Embedded carbon footprint calculated in all new developments and repositioning. 3. Offsetting residual emissions: The unavoidable footprint will be mostly offset with own initiatives duly certified. 4. Tenant emissions reduction: Green clauses in all new leases and rent price reduction linked to own credit risk for net zero tenants. 5. Renewable energy: Procurement of 100% renewable energy and on-site generation of energy through photovoltaic panels (Project Sun). All of the above is part of the Company's net zero path or commitment to the fight against climate change. 8. Acquisition and disposal of treasury shares At 31 December 2022, the Company held treasury shares amounting to EUR 17,166 thousand. The changes in 2022 were as follows: Number of Shares Thousands of euros Balance at 1 January 2021 4,836,503 54,149 Additions 374 3 Disposals (1,951,386) (21,847) Balance at 31 December 2021 2,885,491 32,305 Additions 6,625 122 Disposals (1,355,932) (15,261) Balance at 31 December 2022 1,536,184 17,166 The shareholders at the Annual General Meeting held on 10 April 2019 revoked the unused portion of the authorisation granted by the shareholders at the General Meeting of April 2018 and authorised the acquisition of treasury shares by the Parent itself or by Group companies pursuant to section 146 et seq. of the Corporate Enterprises Act, complying with the requirements and restrictions established in current law during the five- year period. 14 4 SBTi: Science Based Target Initiative 5 Taskforce on Climate related Financial Disclosure The disposals of treasury shares, amounting to EUR 15,261 thousand (average cost of EUR 11.20 per share), relate mainly to the second and last delivery of shares under the 2017-19 Incentive Plan (see Note 15) in the amount of EUR 14,133 thousand and to the delivery of shares to employees as part of the flexible remuneration plan in the amount of EUR 864 thousand. The Company has a liquidity agreement for securities listed on the Lisbon Stock Exchange, having made net sales of 9,740 shares (EUR 142 thousand) in 2022. At 31 December 2022, the Company held treasury shares representing 0.327% of its share capital. 9. Other relevant information 9.1. Stock market information On 31 December 2022, MERLIN shares closed at a price of EUR 8.78, representing a 8.25% fall in their price compared with the closing price on 31 December 2021 (EUR 9.57). 9.2. Average period of payment to suppliers The information required by additional provision three of Law 18/2022, of 28 September, on creating and growing companies and Spanish Law 15/2010, of 5 July (amended by final provision two of Law 31/2014, of 3 December), prepared in accordance with the Spanish Accounting and Audit Institute (ICAC) Resolution of 29 January 2016 on the disclosures to be included in the notes to financial statements in relation to the average period of payment to suppliers in commercial transactions, is detailed below. Days 2022 2021 Average period of payment to suppliers 23.1 34 Ratio of transactions settled 20.8 33.9 Ratio of transactions not yet settled 33.1 37.7 Thousands of euros 2022 2021 Total payments made 194,123 109,838 Total payments outstanding 44,574 2,216 In accordance with the ICAC Resolution, the average period of payment to suppliers was calculated by taking into account the commercial transactions relating to the supply of goods or services for which payment has accrued in each year. For the sole purpose of the disclosures provided for in the Resolution, suppliers are considered to be the trade creditors for the supply of goods or services included in “Payable to suppliers” and “Sundry accounts 15 payable” under current liabilities in the balance sheet and regardless of any financing due to the early collection of the supplier. “Average period of payment to suppliers” is taken to be the period that elapses from the delivery of the goods or the provision of the services by the supplier to the effective payment of the transaction. The monetary volume and number of invoices paid within the established legal period are detailed below. 2022 Monetary volume (thousands of euros) 193,802 Percentage of total payments made 99.8% Number of invoices 19,752 Percentage of total invoices 99.9% The maximum legal payment period applicable to the Company in 2022 in accordance with Law 3/2004 of 29 December, establishing the measures to fight against default in commercial transactions is 60 days. 9.3. R&D&I activities In relation to R&D&I activities and other innovative initiatives, MERLIN is committed to offering its tenants and users the highest quality comprehensive service, beyond the asset management itself, integrating the most innovative solutions in its assets to maximize the user experience. In line with this philosophy, during the last year MERLIN has continued to focus on improving the quality of life of users in its assets. Thus, it has continued to implement Mayordomo Smart Points, consisting of a system of smart lockers that allow users to conveniently receive packages and the provision of various services that help to achieve a work-life balance. By the end of 2022, 33 MERLIN assets had such points, an increase of 18% compared to 2021. In addition, MERLIN remains committed to LOOM flexible workspaces as a solution to the hybrid work model. During the year, MERLIN has continued to promote numerous technological projects to place MERLIN at the forefront of solutions for its customers and internal management. These include the office building sensorization program, the energy consumption reading project, the photovoltaic self-consumption project and the development of different user experience apps. 10. Events after the reporting period No significant events have occurred between December 31, 2022 and the date of preparation of these financial statements 11. Alternative Performance Measures See the definitions of the APMs, as well as their reconciliation with MERLIN’ financial statements, in the consolidated directors’ report accompanying the 2021 consolidated financial statements. 12. Annual Corporate Governance Report The Annual Corporate Governance Report is available in its entirety on the website of the National Securities Market Commission (www.cnmv.es) and on the Company's website (www.merlinproperties.com). 16 The Annual Corporate Governance Report has also been filed as Other Relevant Information (OIR) with the CNMV. 13. Annual Board Remuneration Report The Annual Board Remuneration Report is available in its entirety on the website of the CNMV (www.cnmv.es) and on the Company's website (www.merlinproperties.com). In addition, the Annual Board Remuneration Report has been reported as Other Relevant Information (OIR) to the CNMV. MERLIN PROPERTIES, SOCIMI, S.A. Preparation (formulación) of the Individual Financial Statements and individual Directors’ Report relating to the fiscal year ended December 31, 2022. In accordance with articles 365 and 366 of the Companies Registry Regulations, in relation to subarticle one of article 253 of the Capital Companies Law in force, the Board of Directors of MERLIN Properties, SOCIMI, S.A. (the “Company”) has prepared (formulado) (in English) the individual financial statements and the individual directors’ report (which has attached, as a separate section, the Annual Corporate Governance Report and the Annual Director Remuneration Report), relating to the year ended December 31, 2022, in single electronic format according with the Commission Delegated Regulation (EU) 2018/815 of 17 December 2018 and included in the electronic file/s with the following hash code/s Number: __________ (The “Individual Financial Statements File”). The Statement of Non-Financial Information is included in the consolidated directors' report. In addition, through the execution and signature of this signature page, and pursuant to subarticle two of said article 253, the members forming the Company’s Board of Directors declare that they have signed, in their own handwriting, the entire contents of the Individual Financial Statements File. _____ Mr. Javier Garcia-Carranza Benjumea (Chairman) ______ Mr. Ismael Clemente Orrego (Deputy Chairman) _____ Ms. Francisca Ortega Hernández-Agero (Member) ______ Ms. Ana Forner Beltran (Member) _____ Ms. María Luisa Jorda Castro (Member) ______ Ms. Pilar Cavero Mestre (Member) _____ Mr. Juan María Aguirre Gonzalo (Member) ______ Mr. Miguel Ollero Barrera (Member) _____ Mr. Fernando Javier Ortiz Vaamonde (Member) _____ Ms. Ana María García Fau (Member) _____ Mr. Emilio Novela Berlin (Member) __________ Mr. George Donald Johnston (Member) ______ Mr. Ignacio Gil-Casares Satrústegui (Member) Madrid, February 27, 2023 18 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

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