Merlin Properties Socimi S.A.

CCAA Merlin Properties 2020 (EN) MERLIN PROPERTIES, SOCIMI, S.A. Financial Statements for the year ended 31 December 2020 and Director's Report, together with Independent Auditor's Report Translation of a financial statements originally issued in Spanish and prepared in accordance with regulatory financial reporting framework applicable to the Company in Spain (see Notes 2 and 25). In the event of a discrepancy, the Spanish-language version prevails. MERLIN PROPERTIES, SOCIMI, S.A. Financial Statements for the year ended 31 December 2020 and Management Report Translation of a financial statements originally issued in Spanish and prepared in accordance with regulatory financial reporting framework applicable to the Company in Spain (see Notes 2 and 25). In the event of a discrepancy, the Spanish-language version prevails. Translation of a financial statements originally issued in Spanish and prepared in accordance with regulatory financial reporting framework applicable to the Company in Spain (see Notes 2 and 25). In the event of a discrepancy, the Spanish-language version prevails. MERLIN PROPERTIES SOCIMI, S.A. BALANCE SHEET AS OF 31 DECEMBER 2020 (Thousands of euros) ASSETS Notes 31-12-2020 31-12-2019 EQUITY AND LIABILITIES Notes 31-12-2020 31-12-2019 NON-CURRENT ASSETS 8,533,832 8,590,954 EQUITY: Note 11 3,791,649 3,868,527 Intangible assets 116,590 222,536 OWN FUNDS 3,797,262 3,875,118 Goodwill Note 5 115,801 138,962 Subscribed capital 469,771 469,771 Consession projects Note 6 — 82,903 Share premium 3,813,409 3,813,409 Other intangible assets 789 671 Reserves (406,842) (438,200) Property, plant and equipment 2,292 2,697 Treasury shares (54,149) (56,860) Investment property Note 7 4,474,152 4,513,252 Other equity holder contributions 540 540 Land 2,153,744 2,172,566 Profit / (loss) for the period (25,467) 179,397 Buildings 2,170,355 2,228,634 (Interim dividend) Note 3 — (92,939) Under construction and advances 150,053 112,052 VALUATION ADJUSTMENTS Note 11.4 (5,613) (6,591) Non-current investments in group companies and associates 3,626,576 3,553,683 Hedging transactions (625) (1,889) Equity instruments Note 10 3,155,797 3,131,190 Finanacial assets available for sale Note 11.5 (4,988) (4,702) Loans to companies Notes 8 y 17.2 470,779 422,493 Non-current investments Note 8 236,106 219,884 NON-CURRENT LIABILITIES: 5,425,780 5,059,322 Equity instruments 2,595 1,173 Non-current provisions Note 13 17,527 31,364 Financial assets held for sales 103,775 17,540 Long-term employee benefits 9,220 22,683 Loans to third parties 95,550 165,704 Other provisions 8,307 8,681 Other financial assets 34,186 35,467 Non-current payables 4,998,465 4,623,923 Deferred tax assets Note 15.3 78,116 78,902 Debt instruments and other marketable securities Note 12 4,065,802 3,723,414 Non-current bank borrowings Note 12 870,875 840,415 CURRENT ASSETS 929,335 608,818 Derivatives Note 12 15,971 10,570 Inventories 43 69 Other financial assets Note 13 45,817 49,524 Advances to suppliers 43 69 Group companies and associates, non-current Notes 8 y 17.2 14,621 8,771 Trade and other receivables Note 8 10,755 15,763 Deferred tax liabilities Note 15.4 395,167 395,264 Trade receivables 610 7,672 Trade receivables from groups and associates Note 8 y 17.2 3,327 1,167 Other receivables 435 377 CURRENT LIABILITIES: 245,738 271,924 Personnel 184 184 Current provisions Note 13 — 778 Public entities, other Note 15 6,199 6,363 Current payables 40,614 38,397 Current investments in group companies and associates Notes 8 y 17.2 718,561 452,630 Debt instruments and other marketable securities Note 12 36,291 34,631 Loans to companies 718,523 430,024 Current bank borrowings Note 12 1,525 1,026 Other financial assets 38 22,606 Other financial liabilities Note 13 2,798 2,740 Current investments Note 8 75,694 4,532 Group companies and associates, current Notes 8 y 17.2 112,725 101,591 Equity instruments 18 18 Trade and other payables Note 14 92,349 131,158 Loans to companies 71,767 236 Suppliers 23,045 34,944 Debt securities 3,849 3,849 Suppliers, group companies and associates Notes 8 y 17.2 34,351 32,014 Other financial assets 60 429 Other payables Note 14 10,065 7,343 Short term accruals 12,564 9,978 Personnel (salaries payable) Note 14 16,875 51,423 Cash and cash equivalents Note 9 111,718 125,846 Current tax liabilities Note 14 8,013 5,432 Cash 110,930 113,058 Public entities, other Note 15 — 2 Cash and cash equivalents 788 12,788 Short term accruals Note 14 50 — TOTAL ASSETS 9,463,167 9,199,773 TOTAL PATRIMONIO NETO Y PASIVO 9,463,167 9,199,773 The accompanying notes 1 to 25 are an integral part of the statement of financial position as of 31 December 2020. 1 Translation of a financial statements originally issued in Spanish and prepared in accordance with regulatory financial reporting framework applicable to the Company in Spain (see Notes 2 and 25). In the event of a discrepancy, the Spanish-language version prevails. MERLIN PROPERTIES SOCIMI, S.A. STATEMENT OF PROFIT OR LOSS FOR THE PERIOD ENDED ON DECEMBER 31 2020 (Thousands of euros) Period Period Notes 2020 2019 CONTINUING OPERATIONS: Revenue Note 19.1 338,466 485,583 Other operating income 1,217 2,306 Personnel expenses Note 19.2 (38,435) (74,706) Salaries and wages (35,795) (72,320) Social contributions (2,640) (2,386) Other operating expense Note 19.3 (39,773) (40,958) Depreciation and amortization Notes 5, 6 y 7 (64,005) (68,207) Provision surpluses (704) 154 Imapairment and gains / (losses) on disposal of fixed assets Note 7 y 10 (27,524) (1,741) Impairment and losses (27,524) (1,741) PROFIT / (LOSS) FROM ORDINARY ACTIVITIES 169,242 302,431 Finance income Note 19.4 3,335 656 Marketable securities and other financial instruments 3,165 494 - Group companies and associates 3,165 494 Other finance income Note 9 170 162 Finance expenses Note 19.4 (113,904) (93,861) Group companies and associates (1,086) (1,956) Third parties (105,954) (91,580) Other finance expense (6,864) (325) Change in fair value of financial instruments (9,508) (8,721) Impairment and gains / (losses) on disposals of financial instruments Note 8.3 y 10 (73,942) (21,091) Impairment and losses (73,766) (21,283) Gains / (losses) on disposals (176) 192 NET FINANCE INCOME / (EXPENSE) (194,019) (123,017) PROFIT / (LOSS) BEFORE TAX (24,777) 179,414 Income tax Note 15.2 (690) (17) PROFIT / (LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS (25,467) 179,397 The accompanying notes 1 to 25 are an integral part of the consolidated income statement for the period ended 31 December 2020. 2 Translation of a financial statements originally issued in Spanish and prepared in accordance with regulatory financial reporting framework applicable to the Company in Spain (see Notes 2 and 25). In the event of a discrepancy, the Spanish-language version prevails. MERLIN PROPERTIES SOCIMI, S.A. STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2020 A) STATEMENT OF INCOME AND EXPENSES RECOGNISED (Thousands of euros) Period Period 2020 2019 PROFIT / (LOSS) FROM INCOME STATEMENT (I) (25,467) 179,397 Income and expenses recognised directly in equity - Income and expenses recognised directly in equity Financial assets available for sale (286) (581) TOTAL INCOME AND EXPENSES RECOGNISED DIRECTLY IN EQUITY (II) (286) (581) Total amounts transferred to income statement - From cash flow hedges 1,264 1,260 TOTAL AMOUNTS TRANSFERRED TO INCOME STATEMENT 1,264 1,260 TOTAL INOCME AND EXPENSES RECOGNISED (I+II+III) (24,489) 180,076 The accompanying explanatory Notes 1 to 25 an integral part of the statement of changes in equity as of 31 December 2020. 3 Translation of a financial statements originally issued in Spanish and prepared in accordance with regulatory financial reporting framework applicable to the Company in Spain (see Notes 2 and 25). In the event of a discrepancy, the Spanish-language version prevails. MERLIN PROPERTIES SOCIMI, S.A. STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2020 B) TOTAL STATEMENT OF CHANGES IN EQUITY (Thousand euros) Other Profit / Share Share Merger Treasury Valuation equity holder (loss) for Interim capital premium Reserves Reserve shares adjustments contributions the period dividend TOTAL BALANCES AS OF PERIOD ENDED 2018 469,771 3,858,624 (159,431) (309,966) (68,322) (7,270) 540 208,572 (93,522) 3,898,996 Total recognised income and expense — — — — — 679 — 179,397 — 180,076 Transactions with equity holders: — — — — — — — — — — - Application of the profit / (loss) for the period 2018 — — 115,050 — — — — (208,572) 93,522 — - Distribution of dividends — (45,215) (94,193) — — — — — (92,939) (232,347) Acquisition of own shares — — — — (633) — — — — (633) Recognition of share-based payments (Note 18) — — 32,026 — — — — — — 32,026 Delivery of shares of 2016 stock plan — — (21,686) — 12,095 — — — — (9,591) BALANCES AS OF PERIOD ENDED 2019 469,771 3,813,409 (128,234) (309,966) (56,860) (6,591) 540 179,397 (92,939) 3,868,527 Total recognised income and expense — — — — 978 — (25,467) — (24,489) Transactions with equity holders: — — — — — — — — — - Application of the profit / (loss) for the period 2019 — — 86,458 — — — — (179,397) 92,939 — - Distribution of dividends — — (68,518) — — — — — — (68,518) Acquisition of own shares — — — — (279) — — — — (279) Recognition of share-based payments (Note 18) — — 16,258 — — — — — — 16,258 Delivery of shares of 2017 stock plan — — (2,840) — 2,990 — — — — 150 BALANCES AS OF PERIOD ENDED 2020 469,771 3,813,409 (96,876) (309,966) (54,149) (5,613) 540 (25,467) — 3,791,649 The accompanying explanatory Notes 1 to 25 are are an integral part of the statement of changes in equity as at 31 December 2020. 4 Translation of a financial statements originally issued in Spanish and prepared in accordance with regulatory financial reporting framework applicable to the Company in Spain (see Notes 2 and 25). In the event of a discrepancy, the Spanish-language version prevails. MERLIN PROPERTIES SOCIMI, S.A. STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 31 DECEMBER 2020 (Thousand euros) Notas de la Period Period Memoria 2020 2019 CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES (I) 104,899 418,018 Profit/(loss) for the period before tax (24,777) 179,414 Adjustments for- 176,205 10,974 - Depreciation and amortisation Notes 5, 6 y 7 64,005 68,207 - Changes in fair value of investment property Notes 7 y 10 97,280 23,121 - Changes in provisions 19,079 95 - Gains/(losses) on disposals of assets Notes 7 y 10 4,010 (96) - Gains/(losses) on disposals of financial assets (11) (5) - Changes in fair value of financial instruments 9,508 8,721 - Finance income (3,335) (656) - Finance expenses Note 19.4 113,904 93,861 - Dividend income Note 19.1 (103,308) (208,982) - Other Income and expenses (27,927) 26,708 Changes in working capital (74,320) 119,466 - Inventories 25 684 - Trade and other receivables 4,913 135,594 - Other current assets 369 (1,939) - Trade and other payables (70,823) (6,616) - Other assets and liabilities (8,804) (8,257) Other cash flows from/(used in) operating activities 27,791 108,164 - Interest paid (121,281) (88,064) - Trade and other receivables 68,370 208,982 - Other current assets 995 162 - Trade and other payables 79,337 (341) - Other assets and liabilities Note 15.1 370 (12,575) CASH FLOWS FROM INVESTING ACTIVITIES (II) (107,174) (188,913) Payments for investments (107,174) (368,830) - Group companies and associates (1,119) (313,388) - Intangible assets (468) (1,196) - Property, plant and equipment (3) (242) - Investment property Note 7 (104,086) (54,004) - Financial investments (1,498) — Proceeds from sale of investments — 179,917 - Group companies and associates — — - Investment property — 179,917 CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES (III) (11,853) (203,696) Proceeds and payments from equity instruments (68,548) (232,980) - Treasury stock acquisitions Note 11.3 (30) (633) - Share premium refund — (45,215) - Dividends paid (68,518) (187,132) Proceeds and payments from financial liabilities 56,695 29,284 - Issue of debt with financial institutions 28,249 842,249 - Issue of debentures and bonds 595,691 493,621 - Redemption and payment of debt with financial institutions — (990,000) - Issue of debt with group companies and associates (308,331) (316,586) - Redemption and payment of other debt (258,914) — EFFECT OF CHANGES IN EXCHANGE RATES (IV) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (I+II+III+IV) (14,128) 25,409 Cash and cash equivalents at beginning of period 125,846 100,437 Cash and cash equivalents at end of period 111,718 125,846 The accompanying explanatory Notes 1 to 25 are an integral part of the statement of cash flows for the period ended as at 31 December 2020. 5 Merlin Properties, SOCIMI, S.A. Notes to the Financial Statements Year ended 31 December 2020 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 Corporate Enterprises Act (Ley de Sociedades de Capital). On 22 May 2014, the Company requested to be included in the tax regime for real estate investment trusts (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 real estate for subsequent leasing, including the refurbishment of buildings as per the Value Added Tax Law 37/1992, of 28 December; –The holding of equity interests 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 equity interests in other resident or non-resident entities in Spain whose corporate purpose is to acquire urban real estate for subsequent leasing, and that 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 that fulfil the investment requirements stipulated for these companies; and –The holding of shares or equity interests in collective real estate investment undertakings regulated under Law 35/2003, of 4 November, on collective investment undertakings, or any law that may replace it 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 applicable 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 or equity interests in companies with a similar or identical corporate purpose. The direct and, where applicable, indirect performance of any activities which are reserved under special legislation are excluded. If the law prescribes the need for a professional qualification, administrative authorisation, entry in a public register, or any other requirement for the purpose of exercising any of the activities within the corporate purpose, no such activity can be exercised until all the applicable professional or administrative requirements have been met. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 6 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 Law 43/1995, of 27 December, on Corporation Tax (Spanish Corporation Tax Act [Ley 43/1995 de 27 de diciembre del Impuesto sobre sociedades]) relating to mergers is broken down in the 2016 financial statements. Merlin Properties SOCIMI, S.A. (“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. 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 2020 and the average market price for the fourth quarter amounted to EUR 7.78 and EUR 7.22 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 2020 were formally prepared by the directors at the Board meeting held on 25 February 2021. The consolidated financial statements for 2020 of the Merlin Group prepared in conformity with the IFRSs adopted by the European Union present total assets of EUR 13,477,612 thousand and equity attributable to the Parent’s shareholders of EUR 6,696,267 thousand. Consolidated sales and consolidated profit attributable to the Parent in 2020 amount to EUR 446,132 thousand and EUR 56,358 thousand, respectively. 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 REIT Tax Regime Merlin Properties, SOCIMI, S.A., as the Parent of its Group, is governed by Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, by which REITs are ruled. Article 3 of this Law sets out the investment requirements for these types of companies, namely: 1.At least 80% of an REIT's assets must be invested in urban real estate for leasing purposes and/or in land to be developed for leasing purposes provided such development starts within three years of acquisition, along with investments in the capital or equity of other entities referred to in Article 2.1 of the Law. The value of the assets will be determined according to the average of the individual balance sheets for each quarter of the year, whereby the REIT may opt to calculate such value by taking into account the market value of the assets included in such balance sheets instead of their carrying amount, in which case that value would apply to all balance sheets for the year. For these purposes, the money and 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 article 6 of this Law has not elapsed. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 7 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 article 42 of the Commercial Code, redardless of the place of residence and the obligation to prepare consolidated financial statements. That group must be exclusively composed by the REIT and all the other entities referred to in article 2.1 of that Law. 3. The REIT’s real estate assets must be leased for at least three years. The time that the properties have been offered for lease, up to a maximum of one year, will be included for the purposes of this calculation. This period will be calculated: a)In the case of properties that are included in the REIT’s assets before it avails itself to the regime, from the date of commencement of the first tax period in which the special tax regime set forth in this Law is applied, provided that the property is leased or offered for lease at that date. Otherwise, the following letter will apply. b)In the case of properties developed or acquired subsequently by the REIT, from the date in which they were leased or offered for lease for the first time. c)In the case of shares in entities referred to in article 2.1 of the aforementioned Law, they must be held in the assets of the REIT’s balance sheet for at least three years following their acquisition or, where applicable, from the beginning of the first tax period in which the special tax regime set forth in this Act is applied. As established in First transitional Provision of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, regulating REITs, these companies may opt to apply the special tax regime pursuant to article 13 of this Law, even when the requirements stipulated therein are not fulfilled, under the condition that such requirements are met within two years since the 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 equity holder owning at least 5% of the REIT’s share capital are exempt from taxation or taxed below 10%, the REIT will be subject to a special charge of 19% of the dividends distributed to the said equity holder, under the denomination of corporate income tax. If deemed applicable, this special charge will be paid by the REIT within two months after the dividend distribution date. On 17 June 2020, the Annual Shareholders General Meeting of the Company agreed to distribute an ordinary dividend from the P&L for 2019 on which the exemption established in article 21 of Law 27/2014, of 27 November, from Corporate Income Tax applicable to shareholders who meet the requirements of that provision. 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 2020, and concluded that all requirements are met. Consequently, the Company's financial statements for 2020, 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 8 1.2 Corporate transactions 2020 No corporate transactions were performed in 2020. 2019 In 2019 Holding Jaureguizar 2002, S.A.U. was wound up and there was no impact on the Company's equity. The Company did not receive any taxable profit from the wound-up company. 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 corporate law; –The General Accounting Plan approved by Royal Decree 1514/2007 and its industry adaptations. –The mandatory rules approved by the Spanish Accounting and Audit Institute in order to implement the Spanish National Chart of Accounts and its supplementary rules. –Law 11/2009, of 26 October, as amended by Law 16/2012, of 27 December, governing 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 2020, 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 Degree 1159/2010, and, accordingly, present fairly the Company’s equity, financial position, results of operations and cash flows for 2020. 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 2020 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 2019. 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 9 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 deemed 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 2020. –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). –Definition of the transactions carried out by the Company as a business combination in accordance with Recognition and Measurement Standard 19 or as an acquisition of assets. –Compliance with the requirements governing REITs (see Notes 1 and 16). –Management of financial risk and, in particular, of liquidity risk (see Note 22). Although these estimates were made based on the best information available at 2020 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 2019. 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 The appearance of COVID-19 in China in January 2020 and its recent global expansion has resulted in the viral outbreak being classified as a pandemic by the World Health Organisation since 11 March 2020. This situation has affected global financial markets, since restrictions have been placed on transportation and business activity in many sectors. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 10 On March 14th, 2020, the Government of Spain declared a State of Alarm under Royal Decree 463/2020, which remained in force until 21 June 2020. According to the declaration of the state of alarm, certain commercial and lodging activities have been classified as essential, where opening is permitted, while the others have been classified as non-essential based on their nature and therefore subject to forced administrative closure. In addition, in 2020, the Spanish Government and the Autonomous Communities took coordinated action to control the COVID-19 pandemic, including limiting mobility at night and between regions. The Company's activity has been affected in various areas, before which it has taken various measures to mitigate the effects of the COVID-19 pandemic. The Company’s Directors believe that the COVID-19 crisis represents a significant event that, under accounting regulations, requires the submission of separate breakdowns on the impacts. The main impacts related to COVID-19 and the actions carried out by the Company to mitigate their impact are presented below. The Directors continue to evaluate and implement additional measures to adapt the Company's operations and to adopt the necessary measures based on how the pandemic progresses, and they believe that it is not possible to reasonably predict the impact of COVID-19. The general operational and financial impact will greatly depend on the extent and duration of the COVID-19 pandemic, including the possible appearance of additional new outbreaks, and it may be affected by other factors that cannot yet be foreseen. The Directors and Management of the Company believe that the COVID-19 health emergency and its effects on the Group's activities primarily affect the following aspects: a.The Group's estimates and, the case being, the book value of the assets and liabilities on the balance sheet. b.Financial risks: credit risk and liquidity risk. These do not include all of the impacts, although the Directors and Management believe that the others not listed above will not have a significant effect on the Company's activity. 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 valueof its real estate 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. On December 31st, 2020, the valuations carried out by CBRE Valuation Advisory, S.A. and Jones Lang LaSalle, S.A. (responsible for the valuation of 71.5% of the Group), although they point out that the pandemic and the measures taken to deal with COVID-19 continue to affect the economy and the real estate market at the global level, they highlight that, at the date of their valuation, the real estate markets have already begun to function again, with a volume of transactions and other sufficient market evidence to base their valuation opinion. In the case of the valuations carried out by the independent external party, Savills Consultores Inmobiliarios, S.A. (which, at 31 December 2020, valuates 28.5% of the Group's GAV), these are issued based on ‘material valuation uncertainty’ according to VPS 3 and VPGA 10, the RICS Global Valuation Standards, and therefore recommend keeping the valuation under frequent review. The valuation methods from last year have not been modified, although they were influenced by, among other things, the following aspects derived from the effects of COVID-19. •Closure of activities in shopping centres. •Loss of customers and reductions in traffic. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 11 •The positive impact on logistics distributors. •The risk of losing major contracts. •Payments of rent for commercial spaces. •Increased discount rates and exit capitalisation rates due to future uncertainty. Liquidity risk The Directors of the Company believe that the appearance of the health crisis and the impact on the economy caused by the need for lockdown has caused a significant impact on the general financial position of companies, which can be divided into the specific liquidity risk of the companies or groups and the liquidity risk of customers (credit risk). In this context, at 31 December 2020, the Company had a treasury position of EUR 111.7 million at the end of 2020 and a liquidity position of EUR 1,108.7 million, including its cash position, EUR 786 million of the undrawn credit facility and EIB loans, EUR 54 million in treasury stock and EUR 157 million of receivables from the sale of non-core portfolio and purchases of shares in Silicius. Both transactions were carried out in the last quarter of 2019 and the first quarter of 2020 respectively. The S&P and Moody's rating agencies also confirmed MERLIN Group's credit rating following the COVID-19 pandemic taking into account the commercial policy it implemented, which will be explained below. S&P rated the Group BBB with a stable perspective, while Moody's rated it Baa2 with a negative perspective. The Company, in turn, has taken the following measures to strengthen its capital structure: •CapEx investments. The Group has revised its investment plans to prioritise the implementation of investments in assets already started or with high levels of pre-rentals. •Reduced structure costs. In its meeting on the 8th of April 2020, the Board of Directors decided to reduce its remuneration by 25%, and it agreed with the CEO, the General Corporate Director and the management team to renounce all of their remuneration and incentives plans for 2020. These measures represent EUR 11 million in savings on the year. •Drawdown of additional financing. On the 20th of March 2020, the Group drew down from its corporate line of credit, which was fully available, for a sum of EUR 700 million. This drawdown was made with the goal of strengthening the Group's financial position in the uncertain setting of the pandemic. After June, EUR 500 million of bond financing was issued with a 7-year maturity, which was used to partially repay two bonds maturing in 2022 and 2023 and two mortgage loans maturing in 2025 (see Note 12). The Group also repaid EUR 700 million of the credit facility mentioned at the beginning of this point. •Dividends. On 8 July 2020, the supplemental 2019 dividend was paid out after it was passed in the General Shareholders Meeting held on 17 June 2020, for a sum of EUR 68,518 thousand. However, that General Meeting approved a refund of the share premium for a maximum of EUR 0.174 per share payable in cash, and the decision on its payment was delegated to the Board of Directors, which will decide if it should be paid out once the impact of COVID-19 on the evolution of the business becomes clear. The Board of Directors finally decided not to refund the share premium. The Company's Directors and Management are constantly monitoring the evolution of the situation and the effects it may have on the credit market, and they believe that the Company's situation at 31 December 2020 and the measures mentioned above ensure that solvent to fulfil the current obligations on the balance sheet at 31 December 2020, and there is no material uncertainty about the continuity of the Company's operations. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 12 Credit risk As indicated in the director's report for the year ended 31 December 2019, the deterioration of the Company's receivables was not significant, taking into account that the risk of default was less than 1% of turnover and that the Company has deposits from its tenants to secure the credits. In 2020, in response to the COVID-19 pandemic, the Company launched two commercial policies: Commercial policy After the outbreak of the pandemic, the Company implemented a commercial policy that offered 100% rent credits to commercial tenants whose activities where shut down administratively due to the state of alarm and that were current in their contractual obligations. This policy was in force during the shutdown mandated due to the state of alarm and involved a 100% rent relief for tenants that continued to pay common expenses and waived their right to any future actions against Merlin in relation to COVID-19. This commercial policy has resulted in a EUR 9.9 million net income reduction at 2020 year-end. The Company recorded these reliefs as lower turnover, in accordance with accounting regulations and the consideration that there are have been no significant changes to the leases. Additional commercial measures The Company also approved a series of complementary commercial measures that will last from June to 31 December 2020. These measures are designed for most of the tenants with commercial activities in the portfolio of assets of the Group headed by the Company, to help them reopen and recover during the rest of 2020. The measures consist on applying a decreasing partial rent relief, from 60% applicable in June, to 10% applicable in December 2020. These measures have resulted in a EUR 9.4 million net income reduction at 2020 year-end, the equivalent of 10.1% of gross rental income of the Company during the year. The Directors recorded the entire amount subsidised at 31 December 2020 under the heading ‘Net amount of turnover’ in the accompanying income statement. Due to the current situation and evolution of the COVID 19 pandemic, the Spanish Government has continued to take various measures to contain the spread of the virus, which continue to affect the performance of economic activities such as trade, food and beverage, and tourism. In this context, and with the aim of continuing to assist the tenants, the Group, of which the Company is a Parent, has approved complementary commercial measures, the implementation period of which ranges from January to 30 June 2021. These measures are aimed at retail tenants who are up to date in their contractual obligations, including the payment of prior rent and common expenses. The measure consists of a 100% rent-relief in the event of forced lockdown exclusively during the period in which the tenants are not legally authorised to open and an average 25% rent-relief granted to the tenants (30% for leisure and catering). Accounting implications of COVID-19 on the calculation of the expected loss of receivables One of the implications considered by the Company due to COVID-19 has been the assessment of customer credit risk in the current market setting, which may increase, depending on the activity of its businesses and the degree of severity that COVID-19 has on them. At the date of preparation of these financial statements, the Directors assessed possible impacts arising from COVID-19, taking into account the characteristics of the Company's contracts. It should thus be noted that the Company's usual practise is to bill each month in advance, while also holding deposits and security from tenants as an additional guarantee of payment. It should also be taken into account that the Company has a very high-quality base of customers, which mitigates the credit risk. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 13 In this context, the Company has tried to help its customers affected by mandatory closures or severe restrictions in their operations, by implementing the commercial policies described above, which has allowed the Company to present very low default rates. Based on these facts, the Company evaluated applying the simplified approach of impairment and credit risk, and also taking into consideration other differential factors of the Company’s 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. At 31 December 2020, the default risk was less than 1% of turnover. In relation to its other financial assets exposed to credit risk, which mainly correspond to loans to associates and third parties, the Directors 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 above all on the historical experience with those entities, which make it possible to estimate that the credit risk of the financial asset will remain in line with the previous year. Nevertheless, the Company is constantly monitoring the evolution of this credit risk. Other effects Investment in assets and health measures derived from COVID-19 Since the start of the COVID-19 pandemic, the Company has launched various initiatives in its assets, which have been categorised into the main lines of recommendations from the competent authorities: (i) social distancing measures; (ii) hygiene and cleaning measures; and (iii) and organisational measures. The objective of these measures is to minimise the risk of infection with COVID-19, preserving the health and safety of those who enter the buildings, taking into consideration the evolution of the spread of the virus, and the latest provisions adopted by the various administrations, in addition to the various recommendations and ministerial orders of the Ministry of Health and the Ministry of Industry, Commerce and Tourism. At any rate, since the current situation of the pandemic is highly dynamic, the adopted measures will be adapted at all times as necessary to how COVID-19 evolves and the recommendations from the competent authorities. Based on this situation, the Company has adopted gloves, masks, sanitiser gels, protective screens and other measures for sensitive areas (stairs, lifts and restrooms). In addition, Merlin, its employees and its management team participated in the acquisition of eight robots with an investment of EUR 668 thousand. The Company's Directors are monitoring the evolution of the situation constantly with the goal of successfully dealing with the possible financial and non-financial impacts that may arise. 3. Distribution of profit/(loss) The distribution of profit for the year proposed by the Company’s directors for approval by its shareholders at the Annual General Meeting is as follows: Thousands of euros Profit/(Loss) for the year (25,467) Distribution: To retained losses 25,467 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 14 On 17 June 2020, the General Shareholders Meeting approved the distribution of a dividend of EUR 68,518 thousand charged to the profit for 2019. In the last five years, the Company distributed the following dividends and Share Premium refunds (thousand euros): 2020 2019 2018 2017 2016 Shareholder remuneration 68,518 232,347 215,364 187,411 101,202 3.1 Restrictions relating to the distribution of dividends The Company is subject to the special regime for REITs. As established in article 6 of Law 11/2009, of 26 October 2009, amended by Law 16/2012, of 27 December 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, the distribution must be passed within six months from year end, and the dividends paid within one month from the date on which the pay-out is passed. Moreover, as specified in Law 11/2009, of 26 October 2009, amended by Law 16/2012, of 27 December, the Parent must distribute the following as dividends: –100% of the profit from dividends or shares in profits distributed by the entities referred to in Article 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 article 2.1 of Law 11/2009, of 26 October, subsequent to expiry of the time limits referred to in article 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 said activity within three years after the transfer date. Otherwise these profits should be distributed in full together with any profit arising in the year in which the reinvestment period expires. If the items to be reinvested are transferred prior to the end of the holding period, that profit must be distributed in full together with, if applicable, the profit generated during the year in which the items were transferred. The obligation to distribute profit does not apply to the portion of the profit attributable to prior years in which the Company was not included under the special tax regime 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 2020 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 15 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 for goodwill must not be reversed in a subsequent period. 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. Concession projects This heading includes administrative concessions which are recognised at acquisition or production cost less any accumulated amortisation and any accumulated impairment losses. Administrative concessions are recognised at the amount paid by the Company in operating fees and are amortised on a straight-line basis over the years of the concession. The gains or losses arising from the derecognition of a concession project 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 income statement when the asset is derecognised. 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 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 assets and investment property is determined based on the evaluation of an independent expert (see Notes 6 and 7). 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 16 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: Estimated years of useful life 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. 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, based on the normal decline in value caused by their use and by wear and tear, without prejudice to the technological 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). Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 17 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 7. 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 tenant. 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 will be 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 landlord. 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. Also, the acquisition cost of the leased asset is presented in the balance sheet in accordance with 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. 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. Any collection or payment that might be made when arranging an operating lease will be treated as a prepaid lease collection or payment that will be allocated to profit or loss over the lease term in accordance with the time pattern in which the benefits of the leased asset are provided or received. Any collection or payment that might be made when arranging an operating lease will be treated as a prepaid lease collection or payment that will be allocated to profit or loss over the lease term in accordance with the time pattern in which the benefits of the leased asset are provided or received. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 18 4.5 Financial assets Classification The financial assets held by the Company are classified in the following categories: a)Loans and receivables: financial assets arising from the sale of goods or the rendering of services in the ordinary course of the Company’s business, or financial assets that, not having commercial substance, are not equity instruments or derivatives, have fixed or determinable payments and are not traded in an active market. Interest income is calculated in the year in which it accrues on a time proportion basis. b) Equity investments in Group companies, associates and jointly controlled entities: 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 include companies over which, by virtue of an agreement, the Company exercises joint control with one or more other investors. c) Held-to-maturity investments: debt securities with fixed maturity and determinable payments that are traded in an active market and that the Company has the positive intention and ability to hold to the date of maturity. d) Held-for-trading financial assets: assets acquired with the intention of selling them in the short term and assets that form part of a portfolio for which there is evidence of a recent actual pattern of short-term profit-taking. This category also includes financial derivatives that are not financial guarantees and that have not been designated as hedging instruments. e) Available-for-sale financial assets: including debt securities and equity instruments of other companies that are not classified in any of the aforementioned categories. Initial recognition Financial assets are initially recognised, in general, at the fair value of the consideration given, plus any directly attributable transaction costs. In the case of equity investments in Group companies affording control over the subsidiary, since 1 January 2010 the fees paid to legal advisors and other professionals relating to the acquisition of the investment have been recognised directly in profit or loss. Subsequent appraisal Loans and receivables and held-to-maturity investments are measured at amortised cost. Financial assets held for trading are measured at fair value and the gains or losses arising from changes in fair value are recognised in the income statement. 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). Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 19 In the case of Group companies with an equity deficit, the Company follows the policy of recognising provisions for this equity deficit. The available-for-sale financial assets are measured at their fair value, recognising in the Equity the result of the variations in that fair value until the asset is disposed or has suffered an impairment (of a stable or permanent nature). At this point, those retained earnings previously recognised in the Equity are recognised in the income statement. In this sense, the existence of impairment (permanent nature) is presumed if there has been a fall of over 40% in the market value of the asset or if there has been a decline in it over a period of one and half years without recovering the value. 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. 4.6 Financial liabilities Financial liabilities 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 and those that, not having commercial substance, cannot be classed as derivative financial instruments. Accounts payable 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. Liability derivative financial instruments are measured at fair value using the same methods as those described above for held-for-trading financial assets. 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 Severance Under current legislation, 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 2020, the Company does not have commitments for this item, and there is no Downsizing Plan in force. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 20 4.9 Provisions and contingencies When preparing the financial statements, the Company’s Directors draw a distinction between: 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 arising from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events not within the Company’s control. The financial statements include all the provisions with regard to 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 whereby 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. Additionally, the Annual General Shareholders Meeting held on 26 April 2017 approved a new remuneration plan for the management team and other important members of the Company’s workforce (which includes, inter alia, the Executive Directors and Senior Management), the measurement period of which is from 1 January 2017 to 31 December 2019 (“2017-19 Incentive Plan”). In accordance with that established in this plan, members of the management team may be entitled to receive (i) a certain monetary amount based on the increase in the share price and (ii) shares of the Company, provided that certain objectives are met. Vesting of the incentive will independently be conditional upon the total rate of return obtained by the shareholder during the three-year period due to: •the increase in the quoted price of the Company’s share plus the dividends distributed by the Company to shareholders during the measurement period; and •the increase in the quoted price of the Company’s share plus the dividends distributed by the Company to shareholders during the measurement period. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 21 In order for the right to the share-based incentive and to the EPRA NAV-based incentive to be vested, the total shareholder rate of return (TSR) must be at least 24%, as detailed below: TSR NAV / TSR share price Percentage assigned to beneficiaries (“PR”) Percentage assigned to shareholders < 24% 0% 100% ≥ 24% and < 36% 6% 94% ≥ 36% 9% 91% To calculate the TSR, (i) the percentage assigned to the Beneficiaries in accordance with the above table will be applied to the result of multiplying the Share Price TSR multiplied by the number of Shares of the Company as of 31 December 2019; (ii) the result of that transaction will be balanced through an adjustment mechanism in favour of the Beneficiaries, as, once a minimum return is reached, the Beneficiaries will be entitled to the assigned percentage of the total return generated from the start. The date for calculating the amount of the incentive tied to the EPRA NAV per share and the amount of the incentive tied to the quoted price of the shares was 31 December 2019. The maximum amount to be received for the incentive tied to the share price from 2017 to 2019 amounted to EUR 37.5 million, which was paid out in 2020. Also, the maximum amount of the incentive tied to EPRA NAV per share will be EUR 75 million and a maximum of 6,000,000 shares have been allocated for its payment. At 31 December 2019, there were 5,874,111 shares that were ultimately allocated to the incentive benchmarked to the EPRA NAV. 50% of the allocated shares will be paid out on the second settlement date, i.e., on the second business day after the formulation of the 2020 annual financial statements. The remaining 50% of the allocated shares will be paid out on the third settlement date, i.e., on the second business day after the formulation of the 2021 annual financial statements. However, these amounts may be modified based on how the EPRA NAV evolves in 2021 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. Deductions and other tax benefits, excluding withholdings and prepayments, along with tax loss carryforwards from prior years effectively set off in the current period reduce the current 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 Company 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 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 22 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. 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% corporate income tax rate, provided certain requirements are met. Particularly noteworthy amongst those conditions is that at least 80% of income must come from urban real estate used for leasing purposes and acquired in full ownership or through holdings in Spanish or foreign companies, regardless of whether or not they are listed on organised markets, that meet the same investment and profit distribution requirements. Likewise, the main sources of income for these entities must come from the real estate market, either through leasing the properties, their subsequent sale after a minimum lease period, or the income generated from holdings in entities with similar characteristics. Nevertheless, tax is accrued in proportion to dividend distributions. Dividends received by the shareholders are exempt, unless the recipient is a legal person subject to corporate income tax or a permanent establishment of a foreign entity, in which case a deduction in the tax liability is established, so that these earnings are taxed at the shareholder’s rate. However, the remaining earnings 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, which regulate REITs, the entity will be subject to a special tax rate of 19% on the total dividends or profit shares distributed to shareholders with a shareholding in the entity of 5% or more, when these dividends are exempt or taxed at a rate below 10% in the shareholders. The Group has therefore established the procedure guaranteeing confirmation by shareholders of their tax rate, proceeding where applicable, to withhold 19% of the dividend distributed to shareholders that do not meet the aforementioned tax requirements. On 17 June 2020, the General Meeting of Shareholders of the Company agreed to distribute an ordinary dividend from the profit/(loss) for 2019 on which the exemption established in section 21 of Law 27/2014, of 27 November, from Corporate Income Tax could apply to shareholders who meet the requirements of that provision. 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. 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 23 For these purposes, unmatured accrued explicit interest as well as the dividends agreed upon by the competent body at the time of acquisition are independently recognised, by maturity, when the financial assets are initially recognised. Explicit interest is that obtained on applying the contractual interest rate of the financial instrument. If the dividends distributed clearly originate from profit generated prior to the date of acquisition, as a result of the amounts distributed being greater than the profit generated by the investee since then, they are not recognised as income and the carrying amount of the investment is reduced. 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 has been 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 Related-party transactions 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 deemed 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. 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, whereby the identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair value. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 24 Goodwill or the loss on the combination is the difference between the fair values of the assets acquired and liabilities assumed 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. Those amounts are taken directly to profit or loss. In the exceptional case in which a loss 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 converted 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. –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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 25 5. Goodwill The goodwill recognised at 31 December for 2020 arose from the merger by absorption with Testa Inmuebles en Renta, SOCIMI, S.A. in 2016. The changes in this heading in 2020 and 2019 were as follows (in thousands of euros): Balance at 31/12/2019 Additions Amortisation Balance at 31/12/2020 Cost 138,962 — (23,161) 115,801 Total 138,962 — (23,161) 115,801 Balance at 31/12/2018 Additions Amortisation Balance at 31/12/2019 Cost 162,123 — (23,161) 138,962 Total 162,123 — (23,161) 138,962 The Company amortises goodwill over a period of 10 years and, therefore, recognised the related amortisation for the year under “Amortisation of property” in the accompanying income statement for 2020 (EUR 23,160 thousand at 31 December 2019). The Company's Directors, in accordance with their expectations of the evolution of the real estate market, as well as the market values of the acquired assets, have not identified any signs of impairment in their recoverable value. At 31 December 2020 the existing gains in the property assets from Testa Inmuebles en Renta SOCIMI, S.A. amounted to EUR 889,637 thousand (EUR 877,957 thousand in 2019), as detailed as follows: 2020 2019 Carrying amount of the investment property from Testa Inmuebles en Renta SOCIMI, S.A. 2,330,127 2,313,927 Fair value of the investment property from Testa Inmuebles en Renta SOCIMI, S.A. 3,219,764 3,191,884 Unrealised gains 889,637 877,957 The fair value indicated above was obtained from the valuations performed by independent experts, applying the methodology described in Note 7 below. 6. Concessions The changes in concession projects at year-end 2020 are as follows: Thousands of euros Balance at 31 December 2018 84,419 Additions 309 Depreciation and amortisation charge (1,825) Balances at 31 December 2019 82,903 Additions 7 Depreciation and amortisation charge (285) Disposals (82,625) Balance at 31 December 2020 — Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 26 In 2016, after the integration of the commercial assets of Metrovacesa, S.A., the Company added the La Fiura shopping centre located in Reus (Tarragona), which entered into service in November 2015. This shopping centre is operated under an administrative concession granted by the Reus Municipal Council for a maximum term of 50 years, maturing in 2065. On 27 February 2020, the Company proceeded with a capital increase of Silicius Real Estate, S.L., contributing certain secondary commercial assets. That contribution included the La Fira Shopping Centre and, therefore, the Company derecognised the related administrative concession (see Note 10). 7. Investment property The breakdown of and changes in this heading in 2020 and 2019 are as follows (in thousands of euros): Initial balance 31.12.2019 Entries, Additions and Contributions Removals, Disposals, and Reversals Transfers Closing balance at 31.12.2020 Cost: Land 2,330,799 11,559 (13,411) — 2,328,947 Buildings 2,368,578 54,390 (70,430) — 2,352,538 Property, plant and equipment in the course of construction and advances 112,052 38,137 — — 150,189 4,811,429 104,086 (83,841) — 4,831,674 Accumulated depreciation: Buildings (136,162) (39,517) 3,686 — (171,993) (136,162) (39,517) 3,686 — (171,993) Impairment: Land (158,233) (16,973) 3 — (175,203) Buildings (3,782) (6,410) 2 — (10,190) Property, plant and equipment in the course of construction and advances — (136) — — (136) (162,015) (23,519) 5 — (185,529) Investment property 4,513,252 41,050 (80,150) — 4,474,152 Initial balance 31.12.2018 Entries, Additions and Contributions Removals, Disposals, and Reversals Transfers Closing balance at 31.12.2019 Cost: Land 2,491,589 1,521 (128,004) (34,307) 2,330,799 Buildings 2,372,149 42,122 (134,103) 88,410 2,368,578 Property, plant and equipment in the course of construction and advances 158,167 10,361 — (56,476) 112,052 5,021,905 54,004 (262,107) (2,373) 4,811,429 Accumulated depreciation: Buildings (103,777) (41,458) 6,700 2,373 (136,162) (103,777) (41,458) 6,700 2,373 (136,162) Impairment: Land (170,525) (1,627) 13,919 — (158,233) Buildings (14,179) (945) 11,342 — (3,782) (184,704) (2,572) 25,261 — (162,015) Investment property 4,733,424 9,974 (230,146) — 4,513,252 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 27 The heading ‘Land and buildings’ includes operating real estate assets. In addition, undeveloped land amounting to EUR 97,151 thousand (EUR 105,577 thousand in 2019) 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 2020 Additions The main acquisition of assets made in 2020 corresponds to the purchase of the office building called Plaza Cataluña in Barcelona amounting to approximately EUR 15,410 thousand. Improvements to buildings in use and in progress The main additions to ‘Land and Buildings’ correspond 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 development of Castellana 85, Torre Gloriés and Plaza Ruiz Picasso in the office segment. Disposals The disposals in 2020 correspond to the contribution of two shopping centres to the investee, Silicus Socimi (see Note 10), in the capital increase process it carried out. 2019 Additions The main acquisitions of assets during 2019 corresponded to the purchase of an office building in Barcelona for EUR 4 million. Improvements to buildings in use and in progress The main additions to ‘Land and Buildings’ corresponded to the improvement and adaptation works that were carried out on certain properties owned by the Company, mainly in the Torre Glóries building in Barcelona and the Larios shopping centre in Málaga. The other additions corresponded to ongoing work carried out on the buildings Castellana Building 85, Diagonal 605 and Arturo Soria 343. Transfers The transfers in 2019 corresponded mainly to completion of the works on Torre Glories. Disposals The disposals in 2019 corresponded mainly to the sale of a set of office real estate assets located in Madrid and Barcelona amounting to EUR 225,000 thousand and an associated cost of approximately EUR 202 million. The aforementioned agreement included certain investment commitments made by the Company on the aforementioned assets, amounting to a total of EUR 17.8 million to be performed according to a calendar in 2020 and 2021. Likewise, the agreement called for the Company to grant the buyer a loan amounting to EUR 70 million, with market interest and maturity in 2021 (see Note 8.4). At present, liabilities associated with the Company s investment obligations amounting to EUR 3 million remain. The costs associated with the sale amounted to EUR 9,618 thousand. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 28 The Company takes out the insurance policies it considers necessary to cover the risks that might affect its investment property. At 31 December 2020, the Company’s directors considered that the property, plant and equipment were fully insured against these risks. At 31 December 2020, the Company does not hold any firm purchase commitments for real estate investments, with the exception of the aforementioned amounts associated with the sale of assets for 2019. In 2020 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 2020, the Company did not have any investment property that was fully depreciated. At 31 December 2020, the Company does not hold any real estate 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 2020 and 2019, the gross surface areas and occupancy rates of the assets by line of business were as follows: 2020 GLA Occupancy rate (%) Offices 867,783 93% Shopping centres 169,262 90% Logistics 194,705 98% Others 81,619 70% Total surface area 1,313,369 92% * Not including projects underway or land 2019 GLA Occupancy rate (%) Offices 869,234 95% Shopping centres 254,941 89% Logistics 194,705 98% Others 79,839 69% Total surface area 1,398,719 93% * Not including projects underway 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 real estate 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 29 In 2020, affected mainly by the global situation of the COVID-19 pandemic, the valuations were calculated in an uncertain environment (see Note 2.9). Therefore, the situation of the rental property market could lead to material differences between the fair value of the of the Company’s investment properties and their effective realisable values. The recoverable amount of the Company’s investment property at 31 December 2020, 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 6,117,575 thousand at 31 December 2020 (EUR 6,147,481 thousand at 31 December 2019). 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 23,519 thousand (EUR 2,572 thousand at 31 December 2019) was recognised under “Impairment and gains or losses on disposals of non-current assets” in the income statement for 2020. Income and expenses In 2020 the rental income from the investment property owned by the Company amounted to EUR 208,248 thousand (EUR 252,818 thousand at 31 December 2019) and the operating expenses of all kinds relating to them totalled EUR 74,024 thousand (EUR 83,822 thousand at 31 December 2019). At the end of 2020 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 tenant At the end of 2020 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). Operating leases Nominal value Minimum lease payments 2020 2019 Within one year 801 801 Between one and five years 55 923 Total 856 1,724 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 at market prices and extended until February 2022, and 557 square metres of leasehold were extended in 2019. The total lease expense accrued in 2020 amounted to EUR 760 thousand (EUR 594 thousand in 2019). The income for subleases in 2020 and 2019 from Magic Real Estate, S.L.U. increased to EUR 5 thousand respectively, and is recognised under “Other operating income” in the attached income statement for 2020. b) Operating leases as landlord At the end of 2020 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). Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 30 Minimum lease payments 2020 2019 Within one year 203,443 221,017 Between one and five years 362,380 417,854 After five years 51,419 26,790 Total 617,242 665,661 The detail of the operating lease and sublease payments recognised as an expense and as income, respectively, in 2020 is as follows (in thousands of euros): 2020 2019 Minimum lease payments 208,251 252,818 Transfer of common expenses 48,658 56,443 Total 256,909 309,261 The expenses passed on to the tenants recognised in the income statement for 2020 decreased the balance of “Other operating expenses” (Note 19.3). 8. Financial assets The detail of “Current and non-current financial investments” at 31 December 2020 and 2019 is as follows (in thousands of euros): 31 Dec 20 31 Dec 19 Non-current financial investments- Equity instruments 2,595 1,173 Available-for-sale financial assets 103,775 17,540 Guarantees given and prepayments 34,186 35,467 Loans to Group companies 470,779 422,493 Loans to third parties 95,550 165,704 706,885 642,377 Current financial investments- Equity instruments 18 18 Loans to Group companies 718,561 452,630 Loans to third parties 71,767 236 Trade and other receivables 10,755 15,763 Debt securities and other financial assets 3,909 4,278 805,010 472,925 Total 1,511,895 1,115,302 8.1 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 2020 amounted to EUR 32,317 thousand (EUR 33,400 thousand at 31 December 2019), as well as the deposits amounting to EUR 1,707.2 thousand at that date (EUR 1,707 thousand at 31 December 2019). Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 31 8.2 Available-for-sale financial assets At 31 December 2020, the Company's holding in Aedas Homes, S.A. is included in the amount of EUR 17,254 thousand, equivalent to 1.7% of its share capital. The negative variation in the fair value of this holding in 2020 in the amount of EUR 286 thousand is recognised in the “Valuation adjustments” heading in the appended 2020 balance sheet. That valuation has been obtained from the share price of Aedas Homes, S.A. at 31 December 2020 (EUR 21.10 per share). At 31 December 2020, the Company holds 817,727 shares of Aedas Homes, S.A., representing a 1.7% stake. This company is listed on the Madrid Stock Exchange. The corporate purpose of Aedas Homes, S.A. is the acquisition, development and refurbishment of any property assets for their holding, enjoyment, disposal and lease; the acquisition, holding, enjoyment, swap, sale and management of national or foreign transferable securities, as well as any type of titles or rights, such as shares in private limited liability companies. In addition, this heading includes 15.29% (after dilution of capital gains, Note 10) in Silicius Real Estate, S.L., amounting to EUR 86,521 thousand acquired by the Company through an asset injection in 2020, on which the Company has an option to sell to Silicius itself for the initial cost. This company is not yet listed. At 31 December 2020, the Company's exercise of the put option is highly probable at the acquisition price, without the Company's Management’s analysis identifying any signs of impairment on the recoverable value of that financial asset. 8.3 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 2020 and 2019 (in thousands of euros): Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 32 31/12/2020 Long-term loans Short-term loans Current accounts - receivables Trade receivables Non-current payables Current payables Current accounts - payables Suppliers Group companies: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. — — — — — (33,057) — — Merlin Retail, S.L.U. — 161,749 — 148 — — — — Merlin Oficinas, S.L.U. — — — 386 — (7,772) 2 — Merlin Logística, S.L.U. — 159,880 — 188 — — — — Sevisur Logística, S.A. — 19,795 — 40 — — (143) — Parc Logistic de la Zona Franca, S.A. — — — 62 (8,771) (16,142) (37) — Innovación Colaborativa, S.L.U. — 5,475 — 7 — — — — Exhibitions Company, S.A.U. — — — — — (4,333) — — Gescentesta, S.L.U. — — — — — (123) — — Metroparque, S.A.U. — — — 120 — (26,013) — — La Vital Centro Comercial y de Ocio, S.L.U. — — — 21 — (2,542) — — Desarrollo Urbano de Patraix, S.A.U. — 6,938 — — — — — (32,007) Sadorma 2003, S.L.U. — 52 — — — (19,936) — — Global Murex Iberia, S.L.U. 2,534 — — — — (2,483) — — Varitelia Distribuciones, S.L.U — 201,321 — 124 — — — — Global Carihuela Patrimonio Comercial, S.L.U — 49,035 — 19 — — — — MPCVI - Compra e Venda Imobiliária, S.A. 14,383 — — 8 — — — — MPEP - Properties Escritórios Portugal, S.A. 17,363 — — 9 — — — — MP Monumental, S.A. 58,212 — — 19 — — (146) — MP Torre A, S.A. 36,472 — — 14 — — — — VFX Lógística, S.A. 23,543 — — 20 — — — — Promosete Investimentos Imobiliarios, S.A. 21,300 353 — 15 — — — — Praça do Marquês Serviços Auxiliares, S.A. — — — 20 — — — — Torre Dos Oceanus Investimentos Imobiliarios S.A. 19,639 — — 12 — — — — Forum Almada- Gestão Centro Comercial Sociedade Unipessoal, Lda 276,708 94,435 — 964 — — — — Forum Almada II, S.A. — — — 691 — — — — Torre Arts-Investimentos imobiliarios S.A. — — — 24 — — — — Torre Fernão Magalhaes-Investimentos Imobiliarios, S.A. — — — 13 — — — — Milos Asset Development — 17,396 — — — — — — Renazca, S.A. — — 36 49 — — — — Associates: Provitae Centros Asistenciales, S.L. — 1,081 1 — — — — — Pazo de Congresos de Vigo, S.A. — — — 340 — — — — Paseo Comercial Carlos III, S.A. — 1,005 — 10 — — — — Centro Intermodal de Logística, S.A. — — — 4 — — — — G36 Development, S.A. 625 8 — — — — — — Silicius Real Estate, S.L. — — — — (5,850) — — (2,344) Total 470,779 718,523 38 3,327 (14,621) (112,401) (324) (34,351) Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 33 31/12/2019 Long-term loans Short-term loans Current accounts - receivables Trade receivables Non-current payables Current payables Current accounts - payables Suppliers Group companies: Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. - - - 181 - (7,486) - - Merlin Retail, S.L.U. - - - 174 - (18,399) (11) - Merlin Oficinas, S.L.U. - - - 237 - (510) (42) - Merlin Logística, S.L.U. - 109,830 - 168 - - - - Sevisur Logística, S.A. - 11,569 969 - - - - - Parc Logistic de la Zona Franca, S.A. - - - - (8,771) (14,901) - - Innovación Colaborativa, S.L.U. - 5,002 - 23 - - - - Exhibitions Company, S.A.U. - - - - - (4,332) - - Gescentesta, S.L.U. - - - - - (259) - - Metroparque, S.A.U. - - - - - (31,456) - - La Vital Centro Comercial y de Ocio, S.L.U. - - - - - (1,442) - - Desarrollo Urbano de Patraix, S.A.U. - 6,873 - - - - - (32,007) Sadorma 2003, S.L.U. 335 51 - - - (20,270) - - Global Murex Iberia, S.L.U. 2,520 - - - - (2,483) - - Varitelia Distribuciones, S.L.U - 178,401 21,622 44 - - - (7) Global Carihuela Patrimonio Comercial, S.L.U - 25,663 - - - - - - MPCVI - Compra e Venda Imobiliária, S.A. 13,666 - - - - - - - MPEP - Properties Escritórios Portugal, S.A. 13,554 - - - - - - - MP Monumental, S.A. 43,792 - 15 - - - - - MP Torre A, S.A. 34,687 - - - - - - - Promosete, Invest Inmobiliaria 17,833 2,466 - - - - - - Torre Dos Oceanus Investimentos Inmobiliarios,S.A. 18,773 - - - - - - - Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 276,708 89,113 - - - - - - Associates: Provitae Centros Asistenciales, S.L. - 1,054 - - - - - - Pazo de Congresos de Vigo, S.A. - - - 340 - - - - G36 Development, S.A. 625 2 - - - - - - Total 422,493 430,024 22,606 1,167 (8,771) (101,538) (53) (32,014) Long-term loans to Group and associated companies 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 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 maturity set for 31 January 2022. Those loans accrue interest at a mean annual rate of 2.71%. At 31 December 2020, the accrued and unpaid interest amounted to EUR 29,388 thousand (EUR 21,824 thousand in 2019) and is recognised under the heading ‘Short-term loans’ on the accompanying balance sheet. –Also in 2018, as a result of the 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%. The outstanding balance of principal plus accrued and unpaid interest at the 2020 year-end amounts to EUR 19,639 thousand. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 34 –Meanwhile in 2017, as a result of the 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 annual rate of 5%. The balance of principal at the end of 2020 amounts to EUR 21,300 thousand and the accrued and unpaid interest is EUR 353 thousand. –Similarly, in 2016, as a result of the 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 5.64%. The outstanding balance of principal amounts to EUR 38,000 thousand plus accrued and unpaid interest at the 2020 year-end of EUR 7,971 thousand. –Also in 2016, as a result of the 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 5.64%. The outstanding balance of principal amounts to EUR 31,122 thousand plus accrued and unpaid interest at the 2020 year-end of EUR 5,350 thousand. –The Company holds a participatory 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 2020, the outstanding balance of the loan is impaired in an amount of EUR 15,466 thousand (EUR 15,497 thousand in 2019). –Lastly, in 2020, the Company signed a credit facility for CAPEX 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 2020, including principal and interest, is EUR 23,543, EUR 12,241 and EUR 3,131 thousand respectively. Short-term loans and debts to Group companies and associates –As a result of the 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 2020 amounted to EUR 65,049 thousand. –Loan agreement between Group companies with Merlin Logistics, S.L.U. lasting one year, with subsequent renewals allowed for similar periods, at an interest rate of 1.15% per year. The outstanding balance of principal at the 2020 year-end amounts to EUR 159,880 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 accrues interest at a fixed rate of 1.15%. The outstanding balance of principal plus accrued and unpaid interest at the 2020 year-end amounts to EUR 49,035 thousand. –Inter-Group loan agreement with Varitelia Distribuciones, S.L.U. for a period of one year, allowing subsequent renewals for similar periods, at an interest rate of 1.15% per year. The outstanding balance of principal plus accrued and unpaid interest at the 2020 year-end amounts to EUR 201,321 thousand. –Inter-Group loan agreement with with Sevisur Logistics, S.A. for a period of one year, 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 2020 year-end amounts to EUR 19,795 thousand. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 35 –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 accrues interest at a fixed rate of 1.15%. The outstanding balance of principal plus accrued and unpaid interest at the 2020 year-end amounts to EUR 26,013 thousand. –Loan agreement with Sardorma 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 accrues interest at a fixed rate of 1.15%. The outstanding balance of principal plus accrued and unpaid interest at the 2020 year-end amounts to EUR 19,936 thousand. –Loan agreement with Tree Investments Inmobiliarias SOCIMI, S.A., the duration of which is one year, with subsequent renewals allowed for similar periods, yielding an interest rate of 1.15% annually. The outstanding balance of principal plus accrued and unpaid interest at the 2020 year-end amounts to EUR 33,057 thousand. –Loan agreement with Parc Logisctic, Zona Franca, S.A. This agreement has a duration of one year, with subsequent renewals allowed for similar periods, at an interest rate of 1.15% per year. The outstanding balance of principal plus accrued and unpaid interest at the 2020 year-end amounts to EUR 16,142 thousand. –In 2020, the Company generated impairment of the short-term loans with the companies Innovación Collaborativa, S.L.U and Milos Asset Development, S.L.U amounting to EUR 4,522 and EUR 90 thousand, which was recorded under the heading ‘Impairment and disposal of financial instruments’ in the accompanying income statement. Current accounts with Group companies and associates The main reductions of this heading of the Balance Sheet appended are as follows: –At 31 December 2019, the Company maintained an account receivable with Varitelia Distribuciones, S.L.U. and Sevisur Logística, S.A. amounting to EUR 21,622 thousand and EUR 969 thousand respectively corresponding to the outstanding balance of the VAT Group that has been settled against the Company's short-term loan. 8.4 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 (see Note 10), with a market interest rate. At 31 December 2020, the outstanding amount was EUR 86,397 thousand in principal and EUR 1,725 thousand in interest. In relation to the aforementioned loan, the Company has guarantees from the creditor associated with 10% of the shares in Distrito Castellana Norte, S.A. In addition, under this heading, rent linearisation and tenant installation costs amounting to EUR 7,371 thousand are recorded. The “Third-party Loans” heading under current assets includes the loan provided to Juno Holdings 1, S.a.r.l. for EUR 70,000 thousand, which has a bullet repayment on maturity in November 2021. That loan accrues an annual interest rate of 2% due at maturity. At 31 December 2020, the outstanding amount was EUR 70,000 thousand in principal and EUR 1,530 thousand in interest. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 36 8.5 Trade and other receivables “Trade and other receivables” included the following items at 31 December 2020 (in thousands of euros): 31/12/20 31/12/19 Current assets Trade and notes receivable 610 7,672 Group companies and associates 3,327 1,167 Sundry account receivables 435 377 Employee receivables 184 184 Other accounts receivables from public authorities (Note 15) 6,199 6,363 Total 10,755 15,763 “Trade and notes receivable” in the balance sheet at 31 December 2019 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 2019). 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. The movement in the provision for impairment and bad debt in 2020 was as follows (in thousands of euros): 2020 2019 Beginning balance (7,423) (7,352) Charges for the year (661) (480) Reversals/amounts used 230 327 Other — 82 Ending balance (7,854) (7,423) Losses from bad debts amounted to EUR 175 thousand in 2020. The majority of impaired receivables are overdue by more than six months. 9. 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 110,930 thousand (EUR 113,058 thousand in 2019). At 31 December 2020, the balances included under “Cash and cash equivalents” amounting to EUR 788 thousand (EUR 788 thousand at 31 December 2019) were not available as they were pledged to secure the various obligations existing at that date. The interest earned in this regard in 2020 amounted to EUR 170 thousand and is recognised under “Finance Income” in the accompanying income statement (EUR 162 thousand in 2019). Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 37 10. Non-current investments in Group companies and associates The breakdown of and changes in the balance of “Equity instruments” at 2020 and 2019 year-end is as follows (in thousands of euros): 2020 Balance 31 Dec 19 Additions Disposals Impairment Balance 31 Dec 20 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 Logística, S.A. 37,629 — — — 37,629 Parc Logistic de la Zona Franca, S.A. 118,310 — — — 118,310 Innovación Colaborativa, S.L.U. — — — — — Exhibitions Company, S.A.U. 4,287 — — — 4,287 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 — — — 25,090 Sadorma 2003, S.L.U. 18,404 — — 199 18,603 Global Murex Iberia, S.L.U. — — — — — Varitelia Distribuciones, S.L.U. 48,478 — — (26,926) 21,552 Global Carihuela Patrimonio Comercial, S.L.U. 33,231 — — (20,106) 13,125 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 — — — 20,348 MP Torre A, S.A. 10,186 — — — 10,186 VFX Logística, S.A. 17,495 — — 868 18,363 Promosete, Invest Inmobiliaria, S.A. 11,246 — (860) — 10,386 Praça Do Marques Servicios 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. 31,533 2,241 — — 33,774 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. 1 — — (1) — Associates: Provitae Centros Asistenciales, S.L. 4,574 — — (1,065) 3,509 Pazo de Congresos de Vigo, S.A. — — — — — 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. 2,136 — — (779) 1,357 PK Hoteles 22, S.L. 2,467 — — — 2,467 Distrito Castellana Norte, S.A. 168,893 1,119 — (626) 169,386 Silicius Real Estate, S.L. — 91,021 — (20,478) 70,543 G36 Development, S.L. 2,027 — — — 2,027 Total net value of the investment 3,131,190 94,381 (860) (68,914) 3,155,797 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 38 2019 Balance 31 Dec 18 Additions Disposals due to mergers Additions due to mergers Impairment Balance 31 Dec 19 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 Merlin Parques Logísticos, S.A. 118,310 — (118,310) — — — Sevisur Logística, S.A. 37,629 — — — — 37,629 Parc Logistic de la Zona Franca, S.A. — — — 118,310 — 118,310 Innovación Colaborativa, S.L.U. — 3,868 — — (3,868) — Exhibitions Company, S.A.U. 4,287 — — — — 4,287 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 Holding Jaureguizar 2002, S.A.U. — — — — — — Desarrollo Urbano de Patraix, S.A.U. 25,090 — — — — 25,090 Sadorma 2003, S.L.U. 20,287 — — — (1,883) 18,404 Global Murex Iberia, S.L.U. — — — — — — Varitelia Distribuciones, S.L.U. 40,623 18,579 — — (10,724) 48,478 Global Carihuela Patrimonio Comercial, S.L.U. 17,102 17,000 — — (871) 33,231 MPCVI - Compra e Venda Imobiliária, S.A. 6,418 — — — — 6,418 MPEP - Properties Escritórios Portugal, S.A. 54 — — — 31 85 MP Monumental, S.A. 20,348 — — — — 20,348 MP Torre A, S.A. 10,186 — — — — 10,186 VFX Logística, S.A. 17,213 3,150 — — (2,868) 17,495 Promosete, Invest Inmobiliaria, S.A. 11,246 — — — — 11,246 Praça Do Marques Servicios 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. 31,533 — — — — 31,533 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 — — (1) 1 Associates: Provitae Centros Asistenciales, S.L. 4,600 — — — (26) 4,574 Pazo de Congresos de Vigo, S.A. — — — — — — 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. 2,136 — — — — 2,136 PK Hoteles 22, S.L. 2,467 — — — — 2,467 Distrito Castellana Norte, S.A. — 168,893 — — — 168,893 G36 Development, S.L. 2,027 — — — — 2,027 Total net value of the investment 2,826,572 324,828 (118,310) 118,310 (20,210) 3,131,190 In compliance with article 155 of the Corporate Enterprises Law, the Company reported the holdings that exceed 10% of share capital in the companies described in the table above. The most significant transactions executed in 2020 are as follows: Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 39 a)Silicius Real Estate, S.L. On 27 February 2020, the Company resorted to a capital increase of Silicius Real Estate, S.A. for a sum of EUR 173 million. The capital increase was performed by contributing certain secondary commercial assets owned by the Company, namely those entitled Thader, La Fira and Nassica. The capital increase saw the Company acquire 34.37% of the shares in the company, which is a multi-product company managed externally. The asset contribution also entailed the assumption of certain obligations associated with the contributed assets for a total of EUR 9 million, at a rate of EUR 1.8 million a year, of which, as of December 31 2020, there are outstanding obligations of EUR 8.1 million per year, recorded as “Other financial liabilities”, current and non-current, respectively. The contribution indicated above includes certain conditions related to the shares received. Thus, for 50% of the shares it received, the Company has a put option by Silicius at the same contribution price. This option expires 24 months after the contribution. The remaining 50%, in turn, has a liquidity mechanism starting the fifth year after the contribution, so Silicius itself has the option to buy them at a market price associated with their NAV at the time plus a differential. If the option is not exercised, the Company can sell them by collecting certain assets of the investee company at the same price indicated above. The Company recorded the shares associated with 50% of the investment as “financial assets available for sale” for a sum of EUR 86.5 million, because it considers it highly likely that it will exercise its option to sell and that there is therefore no exposure to the investee company's future risks and benefits (See Note 8.2). For its part, the remaining amount of the stake increased by EUR 91,021 thousand, representing 17.19% of the share capital, under the heading ‘equity instruments.’ In 2020 Silicius Real Estate, S.L., carried out capital increase by means of non-monetary contribution in which the the Company did not participate, and the percentage of its ownership was therefore diluted to 15.29%. This transaction caused the Company a capital loss of EUR 3,891 thousand, after considering the expenses associated with it, as well as the obligations assumed, as indicated above. At the end of the year, the Company evaluated the recoverable value of the shares to the extent that it identified signs of impairment affected by the real estate market situation, mostly affected by the impact of COVID-19. In this context, and using the equity interest of the investee as a reference after considering the value adjustments of the properties and assets owned by the investee, it proceeded to record an impairment of EUR 18,485 thousand under the heading ‘impairment and profit or loss on disposals of financial instruments’ of the attached income statement. The most significant transactions executed in 2019 are as follows: a)Torre Arts, Investimentos inmobiliàrios, S.A. (anteriormente denominada Edificio 160 Arts, S.A.) On 17 January 2019, the Company acquired 100% of the share capital of Torre Arts, Investimentos inmobiliàrios, S.A. for EUR 85,781 thousand. The main line of business of the acquired company is the lease of offices. Its only asset is the Arts building in Lisbon that is 97% leased and has a surface area of 22,150 square meters. Its fair value at the time of purchase according to an independent appraiser was EUR 85,391 thousand. b)Torre Fernão Magalhães Investimentos inmobiliàrios, S.A. (formerly known as Edificio 048 Magellexpo, S.A.) On 17 January 2019, the Company acquired 100% of the share capital of Torre Fernão Magalhães Investimentos inmobiliàrios, S.A. for EUR 27,555 thousand. The main line of business of the acquired company is the lease of offices. Its only asset is the Torre Magallanes building in Lisbon that is 100% leased and has a surface area of 7,837 square meters. Its fair value at the time of purchase according to an independent appraiser was EUR 27,455 thousand. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 40 c)Innovación Colaborativa, S.L.U On 26 March 2019, the Parent acquired 53.97% of Innovación Colaborativa, S.L. for EUR 1,667 thousand. With this acquisition, the Parent shares 100% of the share capital of this company. The core business of the acquired company is flexible office space management. At 31 December 2019, the holding in this company was completely impaired. d)Distrito Castellana Norte, S.A.. On 30 October 2019, the Company acquired from Desarrollos Urbanísticos Udra, S.A.U. (part of the San José Business Group) a 14.46% stake in Distrito Castellana Norte, S.A. (DCN) for a total of EUR 168,893 million. Its current activity consists of preparing the future development of the land owned by ADIF (the Spanish Railway Infrastructure Administrator) and RENFE-Operator, in the urban areas APR 08.03 ‘La Castellana Extension’ and APE 05.27 ‘Colonia Campamento’ of the current Madrid General Plan for their subsequent real estate exploitation. In addition, as an integral part of the transaction of the sale, the Company granted Desarrollos Udra, S.A. a loan amounting to EUR 129,109 thousand divided into two tranches: (i) EUR 86,397 thousand maturing in 20 years; and (ii) EUR 42,712 thousand maturing in December 2019, with both loans at an interest rate of 2% per annum due at maturity (see Note 8.4). e)Global Carihuela Patrimonio Comercial, S.L.U. In 2019, the Company joined the capital increase by offsetting loans made by Global Carihuela amounting to EUR 17,000 thousand, subscribing 1,700,000 shares with a nominal value of EUR 1 each and a share premium of EUR 9. f)Varitelia Distribuciones, S.L.U On 28 June 2019, the Company capitalised the dividend approved by its sole shareholder, Merlin Properties SOCIMI, S.A. amounting to EUR 18,579 thousand. That contribution was instrumentalised by offsetting loans between Varitelia Distribuciones, S.L.U. and Merlin Properties SOCIMI, S.A. for that amount. At 31 December 2019, the stake in this company was impaired by EUR 10,724 thousand. g)Merger of companies In addition to the winding up described in Note 1.2, in 2019, the reverse merger took place between Merlin Parques Logística, S.A. and Parc Logistic de la Zona Franca, S.A. approved by these companies’ Managing Bodies on 5 July 2019. 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 2020. 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 addition to what was noted about the stake in Silicius, indications of additional impairment were identified in the year for a total amount of EUR 48,658 thousand, mainly related to the shares held in Varitelia Distribuciones, S.L.U. and Global Carihuela Patrimonio Comercial, S.L.U. The most significant information in relation to investments in Group companies and associates at 2020 and 2019 year-end is detailed in Appendix I. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 41 11. Equity and owners’ equity 11.1 Share capital and share premium The detail of “Equity” and of the changes therein is presented in the statement of changes in equity. Share capital At 31 December 2020, the share capital of Merlin Properties SOCIMI, S.A., amounted to EUR 469,771 thousand, represented by 469,770,750 fully subscribed and paid shares of EUR 1 par value each, all of which are of the same class and confer the holders thereof the same rights. All the 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 2020 and the average market price for the fourth quarter amounted to EUR 7.78 and EUR 7.22 per share, respectively. At 31 December 2020, according to 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 according to public information: Shares % of share capital Direct Indirect Total Banco Santander, S.A. 89,254,715 26,072,123 115,326,838 24.549% Manuel Lao Hernandez — 29,459,324 29,459,324 6.271% BlackRock, INC — 18,773,897 18,773,897 3.996% The information of Banco Santander refers to the 2020 period, as communicated to the Company by this significant shareholder. The most significant shareholder movement in the year was the entry into the share capital of the Company of NORTIA CAPITAL INVESTMENT HOLDING, S.L. with 6.271% (whose controlling shareholder is Manuel Lao Hernández). Share premium The Consolidated Text of the Spanish Limited Liability Companies Law 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. 11.2. Reserves Legal reserve The legal reserve will be established in accordance with article 274 of the Consolidated Text of the Corporate Enterprises Law, 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 2020, the Company had not yet reached the legally required minimum established in the revised text of the Corporate Enterprises Law. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 42 In accordance with Law 11/2009, which regulates REITs, the legal reserve of companies that have opted to avail themselves to the special tax regime established under this Law 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. 11.3 Treasury shares At 31 December 2020, the Company held treasury shares amounting to EUR 54,149 thousand. The changes in 2020 were as follows: Number of Shares Thousands of euros Balance at 31 December 2018 6,150,000 68,322 Additions 52,776 633 Disposals (1,125,407) (12,095) Balance at 31 December 2019 5,077,369 56,860 Additions 26,177 279 Disposals (267,043) (2,990) Balance at 31 December 2020 4,836,503 54,149 On 27 April 2017, the shareholders authorised the Board of Directors to acquire shares of the Company. The General Shareholders Meeting held on 7 May 2018 revoked the authorisation granted by the General Meeting of April 2017 in the part not used and then authorised the acquisition of shares by the Company itself or by a Group company, pursuant to section 146 and related provisions of the Corporate Enterprises Act, in accordance with the requirements and restrictions established in prevailing legislation during the five-year period. The authorisation includes the acquisition of shares that, where applicable, must be handed over directly to employees or directors of the Company or of Group companies as a result of the purchase option they hold or for the settlement and payment of share-based incentive plans of which they are beneficiaries. In 2020, the Company acquired 26,177 treasury shares at an average cost of EUR 10.63 per share. At 31 December 2020, the Parent held treasury shares representing 1.03% of its share capital. The withdrawals of own shares amounting to EUR 2,990 thousand (average price of EUR 11.20 per share) correspond mainly to EUR 2,765 thousand (average price of EUR 11.20 per share), to the delivery of shares to employees within the Flexible Remuneration Plan. There were also EUR 225 thousand in sales in 2020 (at an average cost of EUR 11.20 per share). 11.4 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 available-for-sale financial assets. Movement in this heading in 2020 was as follows: Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 43 Thousands of euros Balance at 31 December 2018 (7,270) Changes in the fair value of hedges in 2019 1,260 Changes in the fair value of “Available-for-sale financial assets” (Note 8.2) (581) Balance at 31 December 2019 (6,591) Changes in the fair value of hedges in 2020 1,264 Changes in the fair value of “Available-for-sale financial assets” (Note 8.2) (286) Balance at 31 December 2020 (5,613) 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. 12. Current and non-current financial liabilities The detail of current and non-current liabilities at 31 December 2020 and 2019 is as follows (in thousands of euros): Thousands of euros 2020 2019 Non current: Measured at amortised cost Syndicated loan 850,000 850,000 Syndicated loan arrangement expenses (5,052) (6,562) Total syndicated loan 844,948 843,438 Revolving credit facility — — Non-mortgage loan 29,000 — Formalisation costs of the revolving loan facility (3,073) (3,023) Total other loans 25,927 (3,023) Debentures and bonds 4,091,086 3,750,000 Debenture issue expenses (25,284) (26,586) Total debentures and bonds 4,065,802 3,723,414 Total amortised cost 4,936,678 4,563,829 Measured at fair value Derivative financial instruments 15,971 10,570 Total at fair value 15,971 10,570 Total non-current 4,952,649 4,574,399 Current: Measured at amortised cost Syndicated loan 644 595 Debentures and bonds 36,291 34,631 Non-mortgage loan 125 — Revolving credit facility 404 161 Total amortised cost 37,464 35,387 Measured at fair value Derivative financial instruments 352 270 Total at fair value 352 270 Total current 37,816 35,657 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 44 There is no material difference between the carrying amount and the fair value of financial liabilities at amortised cost. On 20 April 2016, the Group led by the Company was given a credit rating of “BBB” with stable outlook by Standard & Poor’s Rating Credit Market Services Europe Limited. On 24 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. 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. 12.1 Loans The detail of loans at 31 December 2020 and 2019 is as follows (in thousands of euros): 31/12/2020 Initial loan / Limit Debt arrangement expenses Long term Short term Short-term interest Syndicated loan 850,000 (5,052) 850,000 — 644 Revolving credit facilities 700,000 (3,026) — — 404 Non-mortgage loan 115,000 (47) 29,000 — 125 Total 1,665,000 (8,125) 879,000 — 1,173 31/12/2019 Initial loan / Limit Debt arrangement expenses Long term Short term Short-term interest Syndicated loan 850,000 (6,562) 850,000 — 595 Revolving credit facilities 700,000 (3,023) — — 161 Non-mortgage loan 115,000 — — — — Total 1,665,000 (9,585) 850,000 — 756 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 first one-year extension was approved on 2 July 2020, and the new maturity date is 9 May 2025. The corporate loan accrues an interest rate of the one-month EURIBOR + 120 basis points, while the revolving credit facility yields an interest rate of the one-month EURIBOR + 90 basis points, and it incorporates a cost adjustment mechanism based on four sustainability criteria. On 20 March 2020, the Company drew down EUR 700 million from its corporate credit facility to optimise and strengthen its financial position in view of the uncertainty generated by COVID-19. On 17 July 2020 the Group repaid the full amount drawn down from its credit facility. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 45 This financing includes the commitment to maintain certain hedging ratios and in the Company's bonds. The Company’s directors have confirmed that these ratios were met at 31 December 2020 and do not expect that they will not be fulfilled in the coming years. Unsecured loans: On 20 December 2018, the Company formalised a loan without mortgage security with the European Investment Bank in an amount of EUR 51,000 thousand and with 10-year maturity. On 4 November 2019, the Company formalised the second tranche of the mortgage-free loan with the European Investment Bank amounting to EUR 64,000 thousand, amounting to EUR 115,000 thousand. This financing has a maturity of 10 years. This credit facility will be allocated to the development of logistical assets in the Castilla–La Mancha region. On 10 March 2020 and 26 October 2020, the Company drew down EUR 23,400 thousand and EUR 5,600 thousand corresponding to the first tranche of the financing. This loan accruals a fixed interest rate of 60 basis points. Maturity of debt The maturity detail of the amounts provided in these loans is as follows (in thousands of euros): Revolving Loan line of credit Total 2020 — — — 2021 — — — 2022 — — — Over 3 years 879,000 — 879,000 879,000 — 879,000 None of the Company’s debt was denominated in non-euro currencies at 31 December 2020. The Company had undrawn loans at 31 December 2020 with a number of financial institutions totalling EUR 786 million (EUR 815 million at 31 December 2019). There are no significant differences between the fair values and carrying amounts of the Company’s financial liabilities. The finance cost for interest on the loans and the revolving lines of credit totalled EUR 14,765 thousand in 2020 (EUR 15,271 thousand in 2019) and is recognised in the accompanying income statement for 2020. At 31 December 2020, the loan arrangement costs were recognised as a reduction in “Bank borrowings”. In 2020, the Company recognised EUR 2,211 thousand (EUR 2,007 thousand in 2019) associated with the debt under “Finance costs” in the accompanying income statement for 2020. 12.2 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 25 April 2016 and 14 October 2016, respectively, for an overall maximum amount of EUR 2,000 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. This programme was renewed on 22 May 2020. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 46 On 7 February 2020, the Company issued a bond of EUR 100 million at 15 years at 102% of the nominal value and with a coupon of 1.875%, in addition to EUR 500 million of the same bond issued in the fourth quarter of 2019. On June 17, 2020, the General Shareholders' Meeting approved the extension of this bond issuance program up to an amount of EUR 6 billion. On 13 July 2020, the Company issued a bond of EUR 500 million at 7 years with a coupon of 2.375%. Some of the funds were used to repurchase EUR 151.7 million of the bond maturing in 2022 and EUR 107.2 million of the bond maturing in 2023. The remainder (EUR 241.1 million) was used to early settle mortgage loans maturing in 2025. 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 syndicated loan and the revolving credit facility. At year-end 2020, the Company complied with the covenants in this contract and the directors consider that they will be met in 2021. The detail at 31 December 2020 of the bonds issued by Company is as follows: Maturity Nominal amount (millions of euros) Coupon Listed price Yield Market May 2022 548 2.375% MS + 36 p.b. -0.16% Ireland () April 2023 743 2.225% MS + 56 p.b. 0.04% Luxembourg May 2025 600 1.750% MS + 98 p.b. 0.51% Luxembourg November 2026 800 1.875% MS + 118 p.b. 0.75% Luxembourg July 2027 300 2.375% MS + 146 p.b. 1.1% Luxembourg September 2029 600 2.375% MS + 164 p.b. 1.32% Luxembourg December 2034 500 1.875% MS + 185 p.b. 1.74% Luxembourg 4,091 2.085% 2019 Maturity Nominal amount (millions of euros) Coupon Listed price Yield Market May 2022 700 2.375% MS + 32 p.b. 0.31% Ireland () April 2023 850 2.225% MS + 51 p.b. 0.46% Luxembourg May 2025 600 1.750% MS + 72 p.b. 0.68% Luxembourg November 2026 800 1.875% MS + 84 p.b. 0.89% Luxembourg September 2029 300 2.375% MS + 119 p.b. 1.43% Luxembourg December 2034 500 1.875% MS + 146 p.b. 1.95% Luxembourg 3,750 2.068% (*) 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 of the bonds abide by UK laws and are traded on the Irish Stock Exchange. This issue also includes a series of compliance obligations and guarantees, which is common in these types of transactions. At year-end 2020, the Company complied with the covenants in this contract and the directors consider that they will be met in 2021. The finance cost for interest on the debenture issues amounted to EUR 82,109 thousand (EUR 68,787 thousand in 2019) and is recognised in the accompanying income statement for 2020. The accrued interest payable at 31 December 2020 amounted to EUR 36,291 thousand (EUR 34,631 thousand in 2019). Debt arrangement expenses taken to the income statement in 2020 amounted to EUR 5,610 thousand (EUR 4,255 thousand in 2019). The financial expense related to premiums associated with early repurchases of bonds amounted to EUR 6,026 thousand. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 47 12.3 Derivatives In 2016, within the framework of the syndicated financing without mortgage guarantee signed, the Company subscribed an interest rate hedge (IRS), which matures in 2021, for 70% of the notional amount, i.e., EUR 595,000 thousand and a cost of 0.0981%. Following the early repayment of EUR 320,000 thousand relating to Tranche A of the Company’s syndicated financing, the notional amount of this hedge was reduced to EUR 530,000 thousand, thus obtaining a coverage ratio of 100%. In addition, tied to the syndicated financing without mortgage guarantee from Metrovacesa, it includes an interest rate hedge (IRS), which matures in 2021, for a notional amount of EUR 310,000 thousand and a cost of -0.12%. On the occasion of the refinancing of the syndicated loan, a new interest rate swap (IRS) was signed to hedge the extension of the maturity of the financing from 2021 to 2024. The notional contract amounts to EUR 850,000 thousand at a cost of 0.0154%. The detail of the financial instruments as of 31 December 2020 is as follows (in thousands of euros) Thousands of euros Non-current Interest rate derivatives 15,971 Total non-current 15,971 Current Interest rate derivatives 352 Total current 352 13. Other current and non-current liabilities The detail of non-current and current liabilities at 31 December 2020 and 2019 is as follows: 31 Dec 20 31 Dec 19 Non-current Provisions 17,527 31,364 Other payables 3,000 3,000 Guarantees and deposits received 42,817 46,524 63,344 80,888 Current Provisions — 778 Other liabilities 2,798 2,740 2,798 3,518 Total 66,142 84,406 “Provisions” includes mainly the provision for the variable remuneration indicated in Note 18 amounting to EUR 9,220 thousand (EUR 22,683 thousand in 2019) and that will be paid in the long term. This heading also includes the provisions for the measurement of risk associated with a number of lawsuits and claims filed by third parties arising from the Company’s activity, which were recognised in accordance with the best existing estimates. These most notably include the liabilities for tax debts for which there are uncertainties as to their amount or timing, whereby it is likely that the Company may have to dispose of resources to cancel these obligations as the result of a present obligation. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 48 “Guarantees and deposits received” primarily comprise the amounts deposited by tenants to secure leases, which will be reimbursed at the end of the lease term. 14.Trade receivables and other payables The detail of trade and other payables is as follows (in thousands of euros): 2020 2019 Trade and other payables Suppliers 23,045 34,944 Payable to suppliers - Group companies and associates 34,351 32,014 Sundry accounts payable 10,065 7,343 Remuneration payable 16,875 51,423 Other accounts payable to public authorities (Note 15) 8,013 5,432 Advances from customers — 2 Total 92,349 131,158 The decrease in the “Remuneration payable” heading comes from payment in 2020 of the incentive benchmarked to the value of the price of the 2017-19 Incentives Plan for a sum of EUR 37,500 million. The directors consider that the carrying amount of trade payables approximates their fair value. Information on the average period of payment to suppliers. Final provision two of Law 31/2014, of 3 December” Below are the disclosures required by additional provision three of 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. 2020 2019 Days Average payment period to suppliers 32 33.6 Ratio of transactions paid 31.9 34.2 Ratio of transactions payable 35.6 24.7 Thousands of euros Total payments made 175,867 154,722 Total payments pending 6,994 11,216 In accordance with the Spanish Accounting and Audit Institute's Resolution, the average period of payment to suppliers was calculated by taking into account the commercial transactions corresponding to the delivery of goods or provision of services that took place from the date of entry into force of Law 31/2014, of 3 December. For the exclusive purpose of providing the information envisaged in this Resolution, payable to suppliers are considered trade payables for debts with suppliers of goods and services, included under “Trade and other payables” under current liabilities in the attached balance sheet. “Average period of payment to suppliers” is understood as the time elapsed between the date the supplier delivers the goods or provides the services and the date of actual payment. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 49 The maximum payment period applicable to the Company in 2014 and 2015 under Law 3/2004, of 29 December, establishing measures to combat late payment in commercial transactions (Ley 3/2004, de 29 de diciembre, por la que se establecen medidas de lucha contra la morosidad en las operaciones comerciales), and pursuant to the transitional provisions contained in Law 15/2010, of 5 July, was 60 days until the publication of Law 11/2013, of 26 July, and 30 days since publication of the aforementioned Law (unless the conditions mentioned in it are met, in which case the maximum payment period may be increased to 60 days). 15. Tax situation The breakdown of the tax receivables and payables at 31 December 2020 and 2019 is as follows (in thousands of euros): 31 Dec 20 31 Dec 19 Tax receivables: Non-current- Deferred tax assets 78,116 78,902 Current- VAT refundable 2,613 2,712 Deferred input VAT 2,229 2,229 Current tax assets 1,357 1,284 Other tax receivables — 138 84,315 85,265 Tax payables: Non-current- Deferred tax liabilities 395,167 395,264 Current- VAT payable 3,883 2,558 Personal income tax withholdings payable 1,695 433 Payable to the Social Security 206 212 Deferred output VAT 2,229 2,229 403,180 400,696 15.1 Reconciliation of accounting profit, taxable profit and tax expense At 31 December 2020, 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 2020 and 2019 is as follows (in thousands of euros): Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 50 2020 2019 Accounting profit before tax (24,777) 179,414 Temporary differences 24,455 23,736 Permanent differences: 146,876 3,979 Taxable profit prior to offsetting tax losses 146,554 207,130 Offset of tax losses — — Taxable profit 146,554 207,130 Taxable profit under the REIT regime 146,554 206,124 Taxable profit at the standard tax rate — 1,006 Tax charge under the REIT regime (0%) — — Tax charge under the REIT regime (25%) — 252 Adjustments to the tax charge: — — Tax credit for reinvestment — — Tax credit for temporary measures — — Prepayments (1,357) (1,536) Corporation tax payable / (receivable) (1,357) (1,284) Taxable profit under the REIT regime 146,554 206,124 Taxable profit at the standard tax rate — 1,006 Tax charge under the REIT regime (0%) — — Tax charge under the REIT regime (25%) — 252 Activated deductions — — Special encumbrance — 1,099 Total current income tax expense — 1,351 Tax bases — — Recorded deductions 786 786 Offset of corporation tax e.g. previous — (797) Other corporate income tax adjustments — 56 Deferred tax asset adjustments — — Deferred tax liability adjustments (96) (1,379) Total deferred tax expense 690 (1,334) Total corporate income tax expense 690 17 The permanent differences for 2020 relate mainly to non-taxable accounting portfolio provisions amounting to EUR 72,676 thousand. Likewise, the amortisation of goodwill arising from the merger by absorption of Testa Inmuebles en Renta, SOCIMI, S.A., as well as various expenses and provisions not payable in 2020 are included as a permanent difference. Capital increase expenses are treated as a permanent difference because the applicable tax rate is 0%. The detail of the corporation tax (expense)/income at year-end 2020 and 2019 is as follows (in thousands of euros): 2020 2019 Current tax: Continuing operations — 1,351 Deferred tax: Continuing operations 690 (1,334) Total tax (income)/expense 690 17 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 51 15.2 Deferred tax assets recognised The changes in 2020 and 2019 in the deferred tax assets recognised are as follows: Thousands of euros Total deferred tax assets at 31 December 2019 78,902 Offset of tax losses — Offset of deductions (786) Tax adjustment for prior years Total deferred tax assets at 31 December 2020 78,116 Thousands of euros Total deferred tax assets at 31 December 2018 79,331 Offset of tax losses — Offset of deductions (786) Tax adjustment for prior years 357 Total deferred tax assets at 31 December 2019 78,902 At 31 December 2020, the detail of tax credits for tax loss carryforwards is as follows (in thousands of euros): Recognised Tax Tax base credit Tax loss carryforwards: 2009 139,838 34,960 2010 1,650 413 2011 86,402 21,601 Total tax loss carryforwards 227,890 56,974 Other deferred taxes recognised 84,572 21,142 Total capitalized deferred tax assets 312,462 78,116 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 credits at 31 December 2020 amounting to EUR 17,777 thousand (EUR 21,930 thousand in 2019), mainly due to the tax credits for reinvestment. At the 2020 year-end, the Company does not have unrecognised tax loss carryforwards. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 52 15.3 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 2020 and 2019 were as follows: Thousands of euros Total deferred tax liabilities at 31 December 2019 395,264 Sales of real estate assets (97) Total deferred tax liabilities at 31 December 2020 395,167 Thousands of euros Total deferred tax liabilities at 31 December 2018 396,643 Sales of real estate assets (1,379) Total deferred tax liabilities at 31 December 2019 395,264 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. 15.4 Years open to review and tax inspections 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 2020 year-end, the Company had all years since their incorporation open for review for all the taxes applicable to them. 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 53 16. Disclosure requirements arising from REIT status, Law 11/2009, amended by Law 16/2012 a)Reserves arising from the years prior to applying the tax regime established in Law 11/2009, 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% or a 19% tax rate and that which is taxed at the standard tax rate, where applicable.. The following changes in reserves occurred in 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 the general tax rate Not Subject 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% or a 19% tax rate and that which is taxed at the standard tax rate, where applicable. Thousands of euros Subject to a 0% tax rate Subject to a 19% tax rate Subject to the general tax rate 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%, 19% or at the standard tax rate. No dividends were distributed charged to reserves in 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 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. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 54 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 09 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. On 07 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 charged 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.y. 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 article 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. There were no drawdowns on reserves in 2020, 2019, 2018, 2017, 2016, 2015 and 2014. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 55 17. Balances and transactions with related parties 17.1 Transactions with Group companies and associates The detail of the transactions with Group companies and associates in 2020 and 2019 is as follows (in thousands of euros): 2020 2019 Services rendered- Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. 1,587 1,594 Merlin Retail, S.L.U. 689 639 Merlin Oficinas, S.L.U. 688 619 Merlin Logística, S.L.U. 678 526 Sevisur Logística, S.L.U. 142 — Parc Logistic de la Zona Franca, S.A. 231 — Metroparque, S.A.U. 236 29 La Vital Centro Comercial y de Ocio, S.L.U. 84 Varitelia Distribuciones, S.L.U. 451 288 Global Carihuela Patrimonio Comercial, S.L.U. 67 — MPCVI - Compra e Venda Imobiliária, S.A. 32 31 MPEP - Properties Escritórios Portugal, S.A. 27 8 MP Monumental, S.A. 1 34 MP Torre A, S.A. 56 56 VFX Logística, S.A. 1 — Promosete, Invest Inmobiliaria 61 59 Praça do Marqués - Serviços Auxiliares, S.A. 78 71 Torre Dos Oceanus Investimentos Inmobiliarios,S.A. 47 44 Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 457 346 Forum Almada II, S.A. 346 507 Torre Arts - Investimentos Imobiliarios, S.A. 96 89 Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. 49 46 Paseo Comercial Carlos III, S.A. 54 50 6,158 5,036 Dividends- Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. 42,237 143,786 Merlin Retail, S.L.U. 11,779 11,086 Merlin Oficinas, S.L.U 9,442 9,706 Merlin Logística, S.L.U. 11,187 12,295 Sevisur Logística, S.A. 2,406 1,861 Metroparque, S.A.U. 7,612 7,770 La Vital Centro Comercial y de Ocio, S.L.U. 2,421 2,207 Varitelia Distribuciones, S.L.U. 5,959 18,579 Parc Logistic de la Zona Franca, S.A. 6,108 — Torre Arts - Investimentos Imobiliarios, S.A. 1,952 — Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. 526 — MPCVI - Compra e Venda Imobiliária, S.A. 136 354 MP Monumental, S.A. — 220 Centro Intermodal de Logística, S.A. 1,274 882 Silicius Real Estate, S.L. 267 — Parking del Palau, S.A.II., S.L.U. — 45 PK Hoteles 22, S.L. — 191 103,308 208,981 Loan income - Merlin Retail, S.L.U. 645 — Merlin Logística, S.L.U. 1,550 779 Sevisur Logística, S.A. 158 57 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 56 Innovación Colaborativa, S.L.U. 97 22 Holding Jaureguizar 2002, S.A.U. — 32 Desarrollo Urbano de Patraix, S.A.U. 79 78 Varitelia Distribuciones, S.L.U. 2,038 2,033 Global Carihuela Patrimonio Comercial, S.L.U. 486 137 MPCVI - Compra e Venda Imobiliária, S.A. 717 715 MPEP - Properties Escritórios Portugal, S.A. 709 224 MP Monumental, S.A. 2,320 2,173 MP Torre A, S.A. 1,785 1,780 VFX Logística, S.A. 243 — Promosete, Invest Inmobiliaria, S.A. 493 905 Torre Dos Oceanus Investimentos Inmobiliarios, S.A. 867 865 Forum Almada – Gestão Centro Comercial Sociedade Unipessoal, Lda. 7,563 7,542 Milos Asset Development, S.A. 87 Provitae Centros Asistenciales, S.L. 2 3 G36 Development, S.A. 6 2 Paseo Comercial Carlos III, S.A. 5 — 19,851 17,347 Revenue from rental activity- Innovación Colaborativa, S.L.U. 2,458 453 Parking del Palau, S.A.II., S.L.U 18 30 2,476 483 Revenue from rebilling of expenses- Innovación Colaborativa, S.L.U. 619 138 Testa Residencial, S.A. — 3 619 141 Other operating income Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. — 149 Centro Intermodal de Logística, S.A. 8 5 PK Hoteles 22, S.L. — 1 MPEP- Properties Escritórios Portugal, S.A. — 37 8 192 Other operating expenses Merlin Oficinas, S.L.U. (45) — Varitelia Distribuciones, S.L.U. (88) (69) Innovación Colaborativa, S.L.U. (8) — Parking del Palau, S.A.II., S.L.U (13) (13) Testa Residencial, S.A. — 3 (154) (79) Finance income PK Hoteles 22, S.L. — 45 — 45 Finance expenses Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. (100) (809) Merlin Retail, S.L.U. (116) (262) Merlin Oficinas, S.L.U. (42) (65) Parc Logistic de la Zona Franca, S.A. (165) (72) Exhibitions Company, S.A.U. (49) (49) Gescentesta, S.L.U. (3) (5) Metroparque, S.A.U. (332) (404) La Vital Centro Comercial y de Ocio, S.L.U. (20) (31) Sadorma 2003, S.L.U. (232) (231) Global Murex Iberia, S.L.U. (27) (28) (1,086) (1,956) Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 57 At 31 December 2020 and 2019, 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 6,158 thousand and EUR 5,036 thousand, respectively. These services were recognised under “Revenue” in the accompanying income statement. 17.2 Balances with Group companies and associates The amount of the balances in the balance sheet at 31 December 2020 detailed in Note 8 is as follows (in thousands of euros): 31 Dec 20 31 Dec 19 Non-current loans to Group companies and associates 470,779 422,493 Current loans to Group companies and associates 718,523 430,024 Other current financial assets 38 22,606 Non-current payables to Group companies and associates (14,621) (8,771) Current payables to Group companies and associates (112,725) (101,591) Receivable from Group companies and associates 3,327 1,167 Payable to suppliers - Group companies and associates (34,351) (32,014) 17.3 Balances and transactions with related parties The detail of the balances and transactions with related parties is as follows: Thousands of euros 2020 2019 Assets Liabilities Assets Liabilities Balances: Banco Santander, S.A (a) 18,140 65,901 22,439 65,887 Banco Santander, S.A (a) — 223,806 — 223,806 G36 Developments S.L. (c) 625 — 625 — Total 18,765 289,707 23,064 289,693 2020 2019 Income Expenses Income Expenses Transactions: Banco Santander, S.A (b) 830 1,817 818 1,399 G36 Developments S.L. (c) 6 — 2 — Other Transactions: Banco Santander, S.A. (d) — — 1,099 — Total 836 1,817 1,919 1,399 During 2020, only the shareholder Banco Santander, S.A. held the status of significant shareholder pursuant to the regulations in force. (a)Balances with Banco Santander, S.A. At 31 December 2020, the Company had bank balances deposited at Banco Santander, S.A. in the amount of EUR 18,140 thousand. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 58 The Company has financing loans contracted with its significant shareholder, Banco Santander, S.A for a sum of EUR 65,901 thousand, and it has a hedging derivative for its financing positions whose contracted notional value at the 2020 year-end amounted to EUR 223,806 thousand. These positions correspond to Banco de Santander, S.A.’s stake in the loans included among the Company's financing operations, the detail of which can be found in Note 12. As indicated in Note 12, 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. Banco Santander participates in this refinancing with EUR 120 million (7.7% of the total) of which EUR 65.8 million correspond to its share of the corporate loan and EUR 54.2 million correspond to the credit line, on the terms as the other financial entities. The deposits received due to agreements for lease of properties to Banco Santander, S.A. amounted to EUR 95 thousand. The Company also has guarantee lines granted by the shareholder Banco Santander, S.A. in the amount of EUR 5,446 thousand. (b)Transactions with Banco Santander, S.A. In 2020, the Company had 5 leases with Banco Santander, S.A. in different buildings. The duration of the leases covers a period of up to 4 years, and in 2020 they generated of EUR 830 thousand, including income from leasing, as well as parking spaces and transfers of ATM space in shopping centres. In 2020, the financial cost associated with financing operations with Banco Santander, S.A. was EUR 1,720 thousand, including EUR 32 thousand for security commission and EUR 96 thousand for current account management. In addition, the Company has contracted General Shareholders Meeting and shareholder registration organisational services amounting to EUR 65 thousand, in addition to listing agent services on the Euronext Lisboa stock exchange for EUR 32 thousand. (c)G36 Developments S.L. On 1 October 2018, the Company granted a loan amounting to EUR 625 thousand to the associated company G36 Developments, S.L., dedicated to the management of office flexible spaces, which at 31 December 2020 earned interest amounting to EUR 6 thousand. (d)Other transactions with Banco Santander, S.A. In 2019, the Company recorded income corresponding to the special tax provided for in article 9.2 of Law 11/2009, of 26 October, regulating Real Estate Investment Trusts. In addition, the following dividends and other benefits were distributed to related parties in 2020 and 2019. Dividends paid 2020 2019 Significant shareholders 16,999 52,822 Banco Santander, S.A 16,999 52,822 Directors and Executives 695 2,179 Directors 439 1,344 Executives 256 835 Total 17,694 55,001 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 59 18. Information relating to the Company’s Board of Directors and senior executives The Company’s directors and the parties related thereto did not have any conflicts of interest that had to be reported in accordance with article 229 of the revised text of the Corporate Enterprises Act. Directors' compensation and other benefits At 31 December 2020 and 2019, salaries, per diem attendance fees and any other type of compensation paid to members of the Company’s managing bodies totalled EUR 3,149 thousand and EUR 5,812 thousand, as detailed below (in thousands of euros): 2020 2019 Fixed and variable remuneration 2,909 5,802 Statutory compensation — — Termination benefits — — Per diem allowances 228 — Life and health insurance 12 10 Total 3,149 5,812 In addition to the sums above, the Executive Directors were paid a total of EUR 1,815 thousand in relation to the variable objectives for 2019, and to the deferred sums for 2014 and 2017, in accordance with the terms of those plans. At 31 December 2020, the executive directors had not accrued an entitlement to variable remuneration (EUR 2,850 thousand in 2019). There was still EUR 3,250 thousand pending payment associated with the bonus objectives for 2015-19 and that is recorded as long-term provisions. Similarly, the amount of variable remuneration paid over the short term amounts to EUR 3,027 thousand, and is recognised under “Trade and other payables” in the accompanying balance sheet Also, as indicated below in this Note, as members of the management team, the Executive Directors are entitled to payment of a remuneration plan granted to the management team in 2017 for the 2017-19 period, which will be described below. Under that plan, the Executive Directors have been paid EUR 12,500 thousand based on compliance with the incentive linked to increasing the Company’s share price. The Ordinary General Shareholders Meeting of 17 June 2020 approved the appointment of María Ana Forner Beltrán and Ignacio Gil Casares Satrústegui as proprietary directors. The Board of Directors thus consisted of 14 members on 31 December 2020. On 20 January 2021, Director John Gómez Hall resigned. The breakdown, by board member, of the amounts disclosed above is as follows (in thousands of euros): Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 60 2020 2019 Remuneration of board members Javier García Carranza Benjumea Chairman - Proprietary director — — Ismael Clemente Orrego CEO 1,000 2,450 Miguel Ollero Barrera Executive director 1,000 2,400 María Luisa Jordá Castro Independent director 144 129 Ana García Fau Independent director 134 129 George Donald Johnston Independent director 116 117 John Gómez Hall Independent director 97 100 Fernando Ortiz Vaamonde Independent director 111 115 Juan María Aguirre Gonzalo Independent director 146 134 Pilar Cavero Mestre Independent director 124 117 Francisca Ortega Hernández Agero Proprietary director — — Emilio Novela Berlín Independent director 127 111 María Ana Forner Beltrán Proprietary director 73 — Ignacio Gil Casares Satrústegui Proprietary director 65 — Total 3,137 5,802 In its meeting of 8 April 2020, the Board of Directors decided to reduce its remuneration by 25%, and it resolved with the CEO, the General Corporate Director and the management team to waive all of their remuneration and incentives plans for 2020 (see Note 2.9) The Company did not grant any advances, loans or guarantees to any members of the Board of Directors. The Company’s directors are covered by the “Corporate Third-Party Liability Insurance Policies for Directors and Executives” taken out by the Company in order 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 221 thousand (EUR 122 thousand in 2019). Remuneration and other benefits of senior executives The remuneration of the Company's senior executives, including the Head of Internal Audit, excluding those who are simultaneously members of the Board of Directors (whose remuneration is disclosed above) in 2020 and 2019, is summarised as follows: 2020 Number of people Fixed and variable remuneration Other remuneration Total 5 1,865 26 1,891 2019 Number of people Fixed and variable remuneration Other remuneration Total 6 5,477 31 5,508 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 61 In addition to the above amounts and in relation to the variable remuneration for Senior Management corresponding to the prior years' bonuses, an amount of EUR 1,904 thousand was paid related to the variable objectives for 2019, as well as the deferred amounts of the variable objectives for 2014 and 2017 in accordance with the terms set out in the aforementioned plans. EUR 850 thousand recognised as long-term provisions is maintained as unpaid accrued amounts associated with variable remuneration targets for 2015 to 2020, and the variable remuneration that will be paid in the short term amounts to EUR 4,835 thousand and is recognised under the heading ‘Trade and other payables’ in the accompanying balance sheet. Under the 2017-19 incentives plan, Senior Management have been paid EUR 10,063 thousand based on compliance with the incentive linked to increasing the Company’s share price. As regards “golden parachute” clauses for executive directors and other senior executives of the Company in the event of dismissal or takeover, these clauses provide for compensation that represented a total commitment of EUR 4,000 thousand as of 31 December 2020. 2017-19 incentives 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 workforce of the Group led by the Company, the measurement period of which is from 1 January 2017 to 31 December 2019 (“2017-19 Incentive Plan”). According to the plan, the members of the management team may be entitled to receive: (i) a certain monetary amount in accordance with the increase of the share price and (ii) Company shares, if certain objectives are fulfilled. Vesting of the incentive will independently be conditional upon the total rate of return obtained by the shareholder during the three-year period due to: •the increase in the quoted price of the Company’s share plus the dividends distributed to shareholders during the measurement period; and •the increase in the EPRA NAV per share of the Company plus the dividends distributed to shareholders during the measurement period. In order for the right to the share-based incentive and to the EPRA NAV-based incentive to be vested, the total shareholder rate of return (TSR) must be at least 24%. TSR NAV / TSR share price Percentage assigned to beneficiaries (“PR”) Percentage assigned to shareholders < 24% 0% 100% ≥ 24% Y < 36% 6% 94% ≥ 36% 9% 91% To calculate the TSR, (i) the percentage assigned to the Beneficiaries in accordance with the above table will be applied to the result of multiplying the Share Price TSR multiplied by the number of Shares of the Company as of 31 December 2019; (ii) the result of that transaction will be balanced through an adjustment mechanism in favour of the Beneficiaries, as, once a minimum return is reached, the Beneficiaries will be entitled to the assigned percentage of the total return generated from the start. The date for calculating the amount of the incentive tied to the EPRA NAV per share and the amount of the incentive tied to the quoted price of the shares was 31 December 2019. The maximum amount to be received for the incentive tied to the quoted price from 2017 to 2019 amounted to EUR 37.5 million, which was paid out in March 2020. As of 31 December 2020, the Company recognised the expense in the amount Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 62 of EUR 1,974 thousand, corresponding to the vested portion of the 2017-19 Incentive Plan, with a balancing entry under liabilities. Also, the maximum amount of the incentive tied to EPRA NAV per share will be EUR 75 million and a maximum of 6,000,000 shares have been allocated for its payment. At 31 December 2019, there were 5,874,111 shares that were ultimately allocated to the incentive benchmarked to the EPRA NAV. 50% of the allocated shares will be paid out on the second settlement date, i.e., on the second business day after the formulation of the 2020 annual financial statements. The remaining 50% of the allocated shares will be paid out on the third settlement date, i.e., on the second business day after the formulation of the 2021 annual financial statements. However, this amount may be modified based on how the EPRA NAV evolves in 2020 and 2021. As of 31 December 2020, the Company recognised the expense in the amount of EUR 16,258 thousand, corresponding to the vested portion of the 2017-2019 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 2020. Stakes held by directors and their affiliates in other companies The Company’s directors and the parties related thereto did not have any conflicts of interest that had to be reported in accordance with article 229 of the revised text of the Corporate Enterprises Law. 19. Revenue and expenses 19.1 Ordinary revenue The distribution of revenue is as follows (in thousands of euros): 2020 2019 Lease income 208,248 252,818 Revenue from the rendering of services 7,059 6,436 Dividend income 103,308 208,982 Interest income 19,851 17,347 Total revenue 338,466 485,583 The breakdown, by type of activity and geographical market, of rental income for 2020 is as follows (in thousands of euros): Segment 2020 % Offices 160,000 80% Shopping centres 26,368 13% Logistics 8,420 4% Other 7,460 4% Total 208,248 100% Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 63 Autonomous Communities 2020 % Madrid 151,144 73% Cataluña 32,032 15% Comunidad Valenciana 5,508 3% Andalucía 7,393 4% Islas Baleares 4,353 2% Resto de comunidades 7,818 4% Total 208,248 100% 19.2 Staff costs The detail of the remuneration expenses for employees at 31 December 2020 and 2019 is as follows (in thousands of euros): 2020 2019 Wages, salaries and similar expenses 16,396 27,750 Termination benefits 1,167 328 Other employee benefit costs and taxes 2,640 2.386 Variable remuneration 18,232 44,242 Total 38,435 74,706 19.3 Other operating expenses The detail of this heading of the 2020 and 2019 income statements is as follows (in thousands of euros): 2020 2019 Non-recoverable expenses of leased properties 25,366 27,378 Outside services - Professional services 6,975 6,767 Insurance 377 220 Purchase of financial investments 3,106 3,979 Utilities and other outside services 3,296 2,303 Taxes other than income tax 47 37 Losses on, impairment of and change in allowances for trade receivables 606 249 Total other operating expenses 39,773 40,933 19.4 Finance income and finance costs The detail of the balances of these headings in the income statement is as follows (in thousands of euros): Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 64 2020 2019 Interest on deposits and current accounts 3,335 656 Finance income 3,335 656 Interest on loans and other credits (113,904) (93,861) Finance expenses (113,904) (93,861) Changes in fair value of financial instruments (9,508) (8,721) Impairment and other losses (Note 10) (73,766) (21,283) Gains or losses on disposals and other (Note 10) (176) 192 Impairment and gains or losses on disposal of financial instruments (73,942) (21,091) Net finance expense (191,831) (123,017) “Interest on loans and other credits” includes the repayment of the debt arrangement expenses in the amount of EUR 7,821 thousand for 2020 (EUR 6,262 thousand for 2019), applying the effective interest method to the financial debt. 20. Information on employees The average number of employees in the Company, by professional category, in 2020 and 2019 was as follows: Number of employees 2020 2019 Professional category Executive directors 2 2 Senior management 6 6 Management Team 5 5 Middle management 45 42 Other employees 110 107 Total 168 162 The distribution, by gender, of the Company’s workforce at the end of 2020 and 2019 was as follows: 2020 2019 Women Men Women Men Executive directors — 2 — 2 Senior management — 5 — 6 Management Team 1 4 1 4 Middle management 6 37 8 37 Other employees 56 57 56 54 Total 63 105 65 103 The average number of employees at the Company in 2020 and 2019 with a disability equal to or greater than 33%, by category, was as follows Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 65 Number of employees 2020 2019 Professional category Executive directors — — Senior management — — Management Team — — Middle management — — Other employees 5 5 Total 5 5 21. Auditor’s fees In 2020 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 (in thousands of euros): Description 2020 2019 Audit services 270 263 Other audit-related services: Other attest services 132 149 Total audit and related services 402 412 Tax advisory services — — Total other services — — Total 402 412 The heading ‘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. For its part, the audit services include, in addition to the statutory annual audit, services from revisions of intermediate periods. 22. 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 controlled by the Company’s senior management in accordance with the policies established 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: Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 66 •The economic environment in which the Group operates: Designing different economic scenarios and modifying the key variables potentially affecting the Group. Identifying interdependent variables and the extent of their relationship; and •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 2020, the average occupancy rate of the asset portfolio was 92%, with a weighted average unexpired lease term of 2.8 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. Cash and cash equivalents The Company has cash and cash equivalents of EUR 111,718 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 2020, the Company’s working capital amounted to EUR 683,597 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 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 of preparation of the financial statements, taking into account the foregoing, the Company had covered all its funding requirements to fully meet its commitments to suppliers, employees and the authorities based on the cash flow forecast for 2021. 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 Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 67 generate and the occupancy rates of the properties, enables the liquidity risk to be mitigated and excess cash to be produced. Any cash surpluses are used to make short-term investments in highly liquid deposits with no risk. The acquisition of share options or futures, or any other high-risk deposits as a method of investing cash surpluses, is not among the possibilities considered by MERLIN Properties for investing cash surpluses. Interest rate risk in cash flows At 31 December 2020, the Company held current financial assets earning interest at a fixed rate (deposits) to obtain return on the surplus cash not invested in investment property. 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 Company and part of its subsidiaries are subject to the special tax regime for Real Estate Investment Trusts (REITs). The transitional period of the Company ended in 2017 and, therefore, compliance with all requirements established by the regime (see Notes 1 and 5.12) became mandatory. Some of the more formal obligations that the Company 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. Company’s directors, based on the opinion of its tax advisors, assessed compliance with the requirements of the regime, concluding that such requirements were met at 31 December 2020. 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 REITs Law (Ley 16/2012 de 27 de diciembre), 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 Company does not comply with the requirements established in the regime or if the shareholders at the General Meeting 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. 23. Guarantee commitments to third parties and other contingent liabilities At 31 December 2020 and 2019, the Company had granted bank guarantees amounting to EUR 47,833 thousand and EUR 33,957 thousand, respectively. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 68 24.Events after the reporting period In February 2021, the Company sold one non-strategic logistics asset for a amount of EUR 17.8 million. 25. Explanation added for translation to English These financial statements are presented on the basis of the regulatory financial reporting framework applicable to the Company in Spain (see Note 2.1). Certain accounting practices applied by the Group that conform with that regulatory framework may not conform with other generally accepted accounting principals and rules. Merlin Properties, SOCIMI, S.A. 2020 Financial Statements. 69 APPENDIX I - Group companies and associates 2020 Thousands of euros Parent Line of business/Location Ownership interest Share capital Profit (loss) Other Total Dividends Carrying amount Consolidation method Auditor From operations Net Shareholder's equity Equity Received Cost Impairment losses Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 9,323 77,951 51,559 91,189 53,159 42,237 657,984 — 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 8,362 2,438 236,491 256,892 11,780 251,408 — 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 15,787 15,517 718,239 763,430 9,442 771,345 — 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 20,775 16,776 273,211 318,153 11,187 292,304 — Full Consolidation Deloitte Sevisur Logística Urban development, construction and operation of buildings for logistics purposes and shared services. Ctra. de la Esclusa, 15. 41011, Sevilla. 100% 17,220 3,706 3,553 9,173 29,946 2,406 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 4,624 4,939 107,017 127,657 6,108 118,310 — Full Consolidation Deloitte Exhibitions Company , S.A.U. Provision of all kinds of technical, commercial or economic services/ Paseo de la Castellana 257, Madrid 100% 180 (36) 10 4,205 4,395 — 4,287 — Full Consolidation N/A Gescentesta, S.L.U. Service provision / Paseo de la Castellana 257, Madrid 100% 3 192 147 635 785 — 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 6,030 6,354 33,086 95,633 7,612 231,557 — 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 1,537 1,552 18,576 34,973 2,421 56,788 — Full Consolidation Deloitte Desarrollo Urbano de Patraix, S.A. Land management / Avda. Barón de Carcer, 50, Valencia 100% 2,790 (22) (102) 22,453 25,141 — 25,090 — Full Consolidation N/A Sadorma 2003, S.L. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 73 (2) 199 18,332 18,603 — 24,605 (6,002) 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 — 21 (15.501) (15.466) — — (15.466) Full Consolidation N/A Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 70 Thousands of euros Parent Line of business/Location Ownership interest Share capital Profit (loss) Other Total Dividends Carrying amount Consolidation method Auditor From operations Net Shareholder's equity Equity Received Cost Impairment losses Varitelia Distribuciones, S.L.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 15,443 (18,531) (20,560) 26,670 21,553 5,959 172,979 (151,427) 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 (13,937) (14,420) 24,242 13,125 — 34,102 (20,977) Full Consolidation N/A MPCVI – Compra e Venda Imobiliária, S.A. Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 1,050 1,071 274 5,941 7,265 136 6,418 — Full Consolidation Deloitte Portugal MPEP – Properties Escritórios Portugal, S.A. Adquisición y promoción de bienes inmuebles para su arrendamiento / Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 50 798 78 22 150 — 85 — Full Consolidation Deloitte Portugal MP Monumental, S.A. Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 50 (680) (2,674) 8,636 6,012 — 20,348 — Full Consolidation Deloitte Portugal MP Torre A, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 50 1,515 (269) 325 106 — 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, Lisboa 100% 5,050 1,118 875 12,445 18,370 — 20,913 (2,550) Full Consolidation Deloitte Portugal Promosete, Invest. Inmobil. SA. Acquisition and development of property assets for lease. Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 200 1,607 863 6,924 7,987 — 10,384 — 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, Lisboa 100% 15,893 2,809 2,758 60,595 79,246 — 56,361 — Full Consolidation Deloitte Portugal Torre Dos Oceanus Investimentos Inmobiliarios,S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 50 1,535 521 3,319 3,890 — 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, Lisboa 100% 5 (5,252) (7,221) 12,905 5,689 — 33,774 — Full Consolidation Deloitte Portugal Forum Almada II, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 10,000 13,255 9,369 47,767 67,136 — 298,143 — Full Consolidation Deloitte Portugal Torre Arts - Investimentos Imobiliarios, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 100 2,666 2,030 83,653 85,783 1,952 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, Lisboa 100% 100 719 557 26,870 27,526 526 27,555 — Full Consolidation Deloitte Portugal Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 71 Thousands of euros Parent Line of business/Location Ownership interest Share capital Profit (loss) Other Total Dividends Carrying amount Consolidation method Auditor From operations Net Shareholder's equity Equity Received Cost Impairment losses Innovación Colaborativa, S.L. Selection, contracting, fitting out, organisation and management of coworking-type collaborative workspaces / Paseo de la Castellana 257, Madrid 100% 4 (4,601) (4,699) (751) (5,446) — 3,868 (3,868) Full Consolidation N/A Milos Asset Development, Acquisition, holding, administration, disposal and development of land located within the project "Distrito Castellana Norte" / Paseo de la Castellana 257, Madrid 100% 3 (36) (123) (1) (121) — 3 (3) 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 (1,672) (3,472) 25,409 30,635 — 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) (47) (1,112) 5,155 — 5,061 (1,553) 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 12,299 9,063 113,906 141,889 1,274 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.d n.d n.d. n.d. n.d — 3,600 (3,600) Equity method n.d PK. Hoteles 22, S.L. Acquisition and development of property assets for lease / C. Príncipe de Vergara, 15. Madrid 33% 5,801 625 369 (220) 5,920 — 2,467 — 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 (76) (78) 527 2,147 — 2,137 (779) Equity method BDO Araba Logística, S.A. Acquisition and development of property assets for lease / Avda. Álava s/n Rivabellosa (Álava) 25% 1,750 723 194 1,873 3,817 — 2,257 (2,257) Equity method Deloitte Distrito Castellana Norte, S.A. Carrying out all types of real estate activities / Paseo de la Castellana 216, Madrid 14% 175,853 (5,807) (4,327) (23,018) 148,508 — 170,012 (626) Equity method KPMG Silicius Real Estate, S.L. Carrying out all types of real estate activities/ Calle de Velázquez, 123, Madrid 15% 361,122 (13,259) (11,957) 6,986 356,141 267 91,021 (20,478) Equity method PWC Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 72 APPENDIX I - Group companies and associates 2019 Miles de Euros Parent Line of business/Location Ownership interest Share capital Profit (loss) Other Total Dividends Carrying amount Consolidation method Auditor From operations Net Shareholder's equity Equity Received Cost Impairment losses Tree Inversiones Inmobiliarias, SOCIMI, S.A.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 9,323 72,040 52,478 133,427 61,763 143,785 657,984 — 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 19,434 14,725 248,271 266,122 11,086 251,408 — 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 12,085 11,802 727,681 757,355 9,706 771,345 — 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 17,474 13,983 284,397 312,417 12,295 292,304 — Full Consolidation Deloitte Sevisur Logística Urban development, construction and operation of buildings for logistics purposes and shared services. Ctra. de la Esclusa, 15. 41011, Sevilla. 100% 17,220 3,124 3,033 11,605 28,825 1,861 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 5,339 7,636 113,126 128,827 — 118,310 — Full Consolidation Deloitte Exhibitions Company , S.A.U. Provision of all kinds of technical, commercial or economic services/ Paseo de la Castellana 257, Madrid 100% 180 (1) 36 4,205 4,385 — 4,287 — Full Consolidation N/A Gescentesta, S.L.U. Service provision / Paseo de la Castellana 257, Madrid 100% 3 205 154 635 638 — 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 9,135 9,515 40,698 96,891 7,770 231,557 — 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 3,030 3,027 20,997 35,843 2,207 56,788 — Full Consolidation Deloitte Desarrollo Urbano de Patraix, S.A. Land management / Avda. Barón de Carcer, 50, Valencia 100% 2,790 — (84) 22,452 25,242 — 25,090 — Full Consolidation N/A Sadorma 2003, S.L. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 73 (10) (2,016) 18,332 18,404 — 25,485 (7,080) 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 (15,500) (15,487) — — (15,497) Full Consolidation N/A Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 73 Miles de Euros Parent Line of business/Location Ownership interest Share capital Profit (loss) Other Total Dividends Carrying amount Consolidation method Auditor From operations Net Shareholder's equity Equity Received Cost Impairment losses Varitelia Distribuciones, S.L.U. Acquisition and development of property assets for lease / Paseo de la Castellana 257, Madrid 100% 15,443 9,889 7,855 33,035 48,478 18,579 172,979 (124,501) 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 (1,340) (1,487) 24,242 27,545 — 34,102 (871) Full Consolidation N/A MPCVI – Compra e Venda Imobiliária, S.A. Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 1,050 1,058 260 5,934 7,244 354 6,418 — Full Consolidation Deloitte Portugal MPEP – Properties Escritórios Portugal, S.A. Adquisición y promoción de bienes inmuebles para su arrendamiento / Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 50 249 19 3 72 — 85 — Full Consolidation Deloitte Portugal MP Monumental, S.A. Acquisition and development of property assets for lease / Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 50 (166) (2,381) 11,497 9,165 220 20,348 — Full Consolidation Deloitte Portugal MP Torre A, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 50 1,507 (386) 711 375 — 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, Lisboa 100% 5,050 (2,813) (2,848) 15,292 17,495 — 20,913 (3,394) Full Consolidation Deloitte Portugal Promosete, Invest. Inmobil. SA. Acquisition and development of property assets for lease. Av. Fontes Pereira de Melo, Nº 51, Lisboa 100% 200 1,480 444 6,416 7,059 — 11,245 — 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, Lisboa 100% 15,893 2,307 12,098 48,628 76,618 — 56,361 — Full Consolidation Deloitte Portugal Torre Dos Oceanus Investimentos Inmobiliarios,S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 50 1,350 394 2,925 3,369 — 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, Lisboa 100% 5 13,791 7,052 4,979 12,036 — 31,533 — Full Consolidation Deloitte Portugal Forum Almada II, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 10,000 13,099 9,224 38,543 57,767 — 289,302 — Full Consolidation Deloitte Portugal Torre Arts - Investimentos Imobiliarios, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 100 2,570 1,959 83,646 85,705 — 85,781 — Full Consolidation Deloitte Portugal Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 74 Miles de Euros Parent Line of business/Location Ownership interest Share capital Profit (loss) Other Total Dividends Carrying amount Consolidation method Auditor From operations Net Shareholder's equity Equity Received Cost Impairment losses Torre Fernao Magalhaes - Investimentos Imobiliarios, S.A. Acquisition and development of property assets for lease / Avda. Fontes Pereira de Melo, 51, Lisboa 100% 100 701 543 26,853 27,496 — 27,555 — Full Consolidation Deloitte Portugal Innovación Colaborativa, S.L. Selection, contracting, fitting out, organisation and management of coworking-type collaborative workspaces / Paseo de la Castellana 257, Madrid 100% 4 (1,993) (2,015) 1,264 (747) — 3,868 (3,868) Full Consolidation N/A Milos Asset Development, Acquisition, holding, administration, disposal and development of land located within the project "Distrito Castellana Norte" / Paseo de la Castellana 257, Madrid 100% 3 — — (1) 2 — 3 (1) 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 2,562 (266) 25,407 34,105 — 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 (40) (47) (1,112) 5,202 — 5,061 (488) 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 12,954 8,759 107,705 135,384 882 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.d n.d n.d. n.d. n.d — 3,600 (3,600) Equity Method n.d PK. Hoteles 22, S.L. Acquisition and development of property assets for lease / C. Príncipe de Vergara, 15. Madrid 33% 5,801 978 566 (811) 5,556 191 2,467 — 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% 1,698 216 161 394 2,253 45 2,137 — Equity Method BDO Araba Logística, S.A. Acquisition and development of property assets for lease / Avda. Álava s/n Rivabellosa (Álava) 25% 1,750 140 (416) 1,439 2,774 — 20,669 (20,669) Equity Method Deloitte Distrito Castellana Norte, S.A. Carrying out all types of real estate activities / Paseo de la Castellana 216, Madrid 14% 168,111 (388) (278) (23,014) 144,819 — 168,893 — Equity Method KPMG Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 75 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 Spanish Law 11/2009, amended by Spanish Law 16/2012. ACQ. DATE ASSET NAME ADDRESS CITY ASSET TYPE USE 1 01-ene-15 Av. de Bruselas, 24 AV Bruselas 24 Alcobendas Invest. Property Offices 2 01-ene-15 Av. de Bruselas, 26 AV Bruselas 26 Alcobendas Invest. Property Offices 3 01-ene-15 Av. de Bruselas, 33 AV Bruselas 33 Alcobendas Invest. Property Offices 4 14-sep-16 Encinar CL Manuel Pombo Angulo 20 Alcobendas Invest. Property Offices 5 14-sep-16 Av. Europa, 1 - Edificio A-B AV Europa 1 Alcobendas Invest. Property Offices 6 14-sep-16 Vegacinco I-II CL Francisca Delgado 9 Alcobendas Invest. Property Offices 7 14-sep-16 Factory Bonaire CA A3 Km 345 Aldaya Invest. Property Shopping Center 8 01-ene-15 Naves Alovera I-II-III CL Rio Henares 1 Alovera Invest. Property Logístico 9 01-ene-15 Naves Azuqueca I, II, III y IV CL Milan 8 y 12 Azuqueca de Henares Invest. Property Logístico 10 01-ene-15 Vilanova, 12-14 AV Vilanova 12 Barcelona Invest. Property Offices 11 14-sep-16 Diagonal 199 AV Diagonal 199 Barcelona Invest. Property Offices/Hotel 12 14-sep-16 Diagonal 458 AV Diagonal 458 Barcelona Invest. Property Offices 13 01-ene-15 Diagonal, 514 AV Diagonal 514 Barcelona Invest. Property Offices 14 01-ene-15 Diagonal, 605 AV Diagonal 605 Barcelona Invest. Property Offices 15 14-sep-16 Balmes CL Balmes 236-238 Barcelona Invest. Property Offices 16 14-sep-16 P.E. Poble Nou 22@ Ed. A-C-D CL Bac de roda 52 Barcelona Invest. Property Offices 17 14-sep-16 P.E. Poble Nou 22@ Ed. B CL Fluviá 65 Barcelona Invest. Property Offices 18 14-sep-16 Bizcargi 1 1D CL Bizcargi 1 1D Bilbao Invest. Property Other 19 01-ene-15 Naves Cabanillas I CL Castilla la Mancha P. I. Cabanillas Cabanillas del Campo Invest. Property Logístico 20 01-ene-15 Naves Coslada I AV de la Cañada 64 Coslada Invest. Property Shopping Center 21 01-ene-15 Naves Coslada III CL Torres Quevedo 1 Coslada Invest. Property Logístico 22 14-sep-16 N. Río Guadalq.Getafe AV Río Guadalquivir S/N Getafe Invest. Property Logístico 23 14-sep-16 N-IV Km.12,7 Getafe CA Polig. Industrial Los Ángles P-33 Getafe Invest. Property Shopping Center 24 01-ene-15 Escudo del Carmen CL Escudo del Carmen 31 Granada Invest. Property Other 25 14-sep-16 P.E. Alvia Ed. 1-2-3 CL Jose Echegaray 8 Las Rozas Invest. Property Offices 26 14-sep-16 P.I. Európolis CL Londres S/N Las Rozas Invest. Property Offices 27 01-ene-15 Mangraners CL Els Mangraners N-240 Km.88 Lerida Invest. Property Other 28 14-sep-16 Torre De Madrid PL De España 18 Madrid Invest. Property Offices 29 14-sep-16 Torre de Madrid (Viviendas) PL de España 18 Madrid Invest. Property High Street Retail 30 01-ene-15 Plaza de los Cubos CL Princesa 3 Madrid Invest. Property Other 31 01-ene-15 Princesa, 3 CL Princesa 3 Madrid Invest. Property High Street Retail 32 01-ene-15 Princesa, 5 CL Princesa 5 Madrid Invest. Property Offices 33 01-ene-15 Aparcamiento Princesa CL Princesa 5 Madrid Invest. Property Offices 34 01-ene-15 Ventura Rodríguez, 7 CL Ventura Rodriguez 7 Madrid Invest. Property Parking 35 14-sep-16 Callao PL Callao 5 Madrid Invest. Property Offices 36 01-ene-15 Partenón, 12-14 AV Partenon 12 Madrid Invest. Property High Street Retail 37 01-ene-15 Partenón, 16-18 AV Partenon 16 Madrid Invest. Property Offices 38 01-ene-15 Eucalipto, 25 CL Eucalipto 25 Madrid Invest. Property Offices 39 01-ene-15 Eucalipto, 33 CL Eucalipto 33 Madrid Invest. Property Offices 40 01-ene-15 Josefa Valcárcel, 48 CL Josefa Valcarcel 48 Madrid Invest. Property Offices 41 01-ene-15 Pedro de Valdivia, 10 CL Pedro de Valdivia 10 Madrid Invest. Property Offices 42 01-ene-15 Juan Esplandiú, 11-13 CL Juan Esplandiu 11-13 Madrid Invest. Property Offices 43 01-ene-15 Príncipe de Vergara, 187 CL Principe de Vergara 187 Madrid Invest. Property Offices 44 01-ene-15 Ribera del Loira, 60 CL Ribera del Loira 60 Madrid Invest. Property Offices 45 14-sep-16 P.E. Puerta de las Naciones Ed. 1 a 4 CL Ribera del Loira 38-50 Madrid Invest. Property Offices 46 01-ene-15 Castellana, 83-85 PS de la Castellana 83 Madrid Invest. Property Offices 47 14-sep-16 Cadagua PS de la Castellana 93 Madrid Invest. Property Offices 48 01-ene-15 Local Castellana 191 PS de la Castellana 191 Madrid Invest. Property Offices 49 14-sep-16 Castellana, 278 PS de la Castellana 278 Madrid Invest. Property Other 50 01-ene-15 Torre Castellana 259 PS de la Castellana 259 Madrid Invest. Property Offices 51 14-sep-16 Sollube PL Carlos Trías Bertrán 7 Madrid Invest. Property Offices/Hotel 52 14-sep-16 Santiago de compostela, 94 CL Santiago de Compostela 94 Madrid Invest. Property Offices 53 14-sep-16 Ulises Edificio G-H CL Ulises 16-18 Madrid Invest. Property Offices 54 14-sep-16 Jose María Churruca Ed. I-II CL Almansa 101-105 Madrid Invest. Property Offices 55 14-sep-16 Jose María Churruca Ed. III-IV CL Beatriz de Bobadilla 14-18 Madrid Invest. Property Offices 56 14-sep-16 Fuente De La Mora CM Fuente de la Mora 9 Madrid Invest. Property Offices 57 14-sep-16 P.E. Vía Norte Ed. 1 a 6 CL Quintanavides 11 a 21 Madrid Invest. Property Offices 58 14-sep-16 P.E. Alvento A-B-C-D VI de los Poblados 1 Madrid Invest. Property Offices 59 14-sep-16 Cristalia VI de los Poblados 3 Madrid Invest. Property Offices 60 14-sep-16 Trianon I-II-III-IV VI de los Poblados 9 Madrid Invest. Property Offices Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 76 ACQ. DATE ASSET NAME ADDRESS CITY ASSET TYPE USE 61 14-sep-16 P.E. Sanchinarro Ed. I-II CL María de Portugal 9-11 Madrid Invest. Property Offices 62 14-sep-16 P.E. Las Tablas Ed. 1-2-3 CL Federico Mompou 5 Madrid Invest. Property Offices 63 14-sep-16 Elipse AV Manoteras 18 Madrid Invest. Property Offices 64 14-sep-16 Arturo Soria, 343 CL Arturo soria 343 Madrid Invest. Property Offices 65 14-sep-16 G. Ampudia 12 CL General Ampudia 12 Madrid Invest. Property Offices 66 01-ene-15 Centro Oeste CL El Carralero. Las Moreras Majadahonda Invest. Property Other 67 01-ene-15 C.C. Larios AV de la Aurora 21 Málaga Invest. Property Shopping Center 68 01-ene-15 C.C. Porto Pi AV de Gabriel Roca 54 Palma de Mallorca Invest. Property Shopping Center 69 01-ene-15 Nave Pedrola CL General Motors 1. P.I. El Pradillo Pedrola Invest. Property Shopping Center 70 01-ene-15 Ática II, A-B-C AV de Europa 19 Pozuelo de Alarcón Invest. Property Logístico 71 01-ene-15 Ática 1 AV de Europa 26 Pozuelo de Alarcón Invest. Property Offices 72 01-ene-15 Ática 2 CL Inglaterra 2 Pozuelo de Alarcón Invest. Property Offices 73 01-ene-15 Ática 3 y 4 VI Dos Castillas 33 Edf. 3 y 4 Pozuelo de Alarcón Invest. Property Offices 74 14-sep-16 Ática Ed. 6 VI Dos Castillas 33 Edf.6 Pozuelo de Alarcón Invest. Property Offices 75 14-sep-16 Cerro Gamos I-II-III-V-VI CL Cerro de los Gamos 1 Pozuelo de Alarcón Invest. Property Offices 76 01-ene-15 Sant Cugat I CL Alcalde Barnils 64 San Cugat del Valles Invest. Property Offices 77 01-ene-15 Sant Cugat II AV Via Augusta 71 San Cugat del Valles Invest. Property Shopping Center 78 14-sep-16 Jovellanos 91 CL Jovellanos 91 Sant Adriá del Besos Invest. Property Offices 79 01-ene-15 Borbolla AV Borbolla 5 Sevilla Invest. Property Offices 80 14-sep-16 C.C. El Saler CA Autovía De El Saler 16 Valencia Invest. Property Other 81 01-ene-15 Aparcamiento Palau PS de la Alameda 34 Valencia Invest. Property Offices 82 14-sep-16 C.C. Vilamarina AV Segle XXI 6 Viladecans Invest. Property Shopping Center 83 14-sep-16 Rambla Salvador Sama CL Rambla Salvador Samà 45/49 Vilanova I La Geltrù Invest. Property Other 84 01-ene-15 Aznar Molina CL Aznar Molina 2 Zaragoza Invest. Property Shopping Center 85 12-ene-18 Torre Glories Av. Diagonal, 211 Barcelona Invest. Property Other 86 14-sep-16 San Francisco de Sales San Francisco de Sales 1 Madrid Invest. Property Offices 87 21-ene-20 Plaza de Cataluña, 9 Plaza de Cataluña, 9 Barcelona Invest. Property Offices 88 03-jul-14 Tree Inversiones Inmobiliarias SOCIMI, S.A PS Castellana 257 Madrid Invest. Property Other 89 30-jul-14 Merlin Retail S.L. PS Castellana 257 Madrid Holding 90 04-ago-14 Merlin Oficinas, S.L. PS Castellana 257 Madrid Holding 91 30-jul-14 Merlin Logística, S.L. PS Castellana 257 Madrid Holding 92 14-sep-16 La Vital Centro Comercial y de Ocio, S.L. PS Castellana 257 Madrid Holding 93 14-sep-16 Varitelia Distribuciones, S.L. PS Castellana 257 Madrid Holding 94 14-sep-16 Metroparque, S.A. PS Castellana 257 Madrid Holding 95 14-sep-16 Global Carihuela Patrimonio Comercial, S.L. PS Castellana 257 Madrid Holding 96 18-mar-15 MP Compra e Venda Inmobiliária, S.A. Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 97 31-mar-16 MP Monumental, S.A. Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 98 31-mar-16 MP Torre A S.A. Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 99 28-jul-17 Sevisur, S.A. PS Castellana 257 Madrid Holding 100 07-abr-17 Promosete Investimentos Inmobiliarios, S.A. Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 101 28-sep-17 Praça do Marques - serviços auxiliares, S.A. Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 102 30-abr-18 Torre dos Oceanus - Investimentos Inmobiliarios, S.A. Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 103 17-ene-19 Torre Arts, Investimentos inmobiliàrios, S.A. Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 104 17-ene-19 Torre Fernão Magalhães Investimentos inmobiliàrios, S.A Av Fontes Pereira de Melo 51 Lisboa (Portugal) Holding 105 27-feb-20 Silicius, Real Estate, S.L. Cl Velázquez, 123 Madrid Holding Merlin Properties, SOCIMI, S.A. 2020 Financial Statements.. 77 MERLIN PROPERTIES, SOCIMI, S.A. Individual Management Report for the year ended 31 December 2020 1. Company Situation Economic Situation The markets in which the MERLIN Properties Socimi Group operates (‘MERLIN’ or ‘MERLIN Properties’ or the ‘Group’) were seriously affected in the year by the impact of the COVID-19 pandemic. In both Spain and Portugal, the government has introduced restrictions to contain the epidemiological situation that affected the economy, dragging down GDP by around 8% in Portugal and 11% in Spain. This exceptional situation has also affected consumption, especially physical consumption, as well as employment, despite the mitigating measures taken by the public authorities. This economic situation has led to a general decline in recruitment volumes. However, the discovery of a vaccine against the new disease in record time, together with a tax and monetary expansion never before seen, including the Next Generation European Fund, should enable the economy to recover rapidly. The investment volume for all asset types in Spain has also been reduced, hitting EUR 9,477 million in 2020 1 compared to EUR 12,000 million in direct investment in Spain in 2019 2. Given the Eurozone's expansive monetary policy and the overall context of low interest rates, demand for income-generating assets is expected to remain high. 1.1. Rental market situation 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 been less dynamic than in previous years, impacted by the economic situation. Thus, the superface absorption 3 of offices was 350,414 sqm, a fall of 43% compared to 617,133 sqm in 2019. Availability increased by 60 bp in the year to 9.0%, while income declined by 3.2% on average, although it remained in the Prime range. In relation to the logistics market, its activity has accelerated by COVID-19, reaching high levels of activity in the main axes (A-2, A-4 and A-42) for all segments (XXL warehouses, cross-docking warehouses and last mile solutions). Finally, the shopping centres sector has been significantly affected by the restrictions on opening and capacity resulting from the pandemic. Barcelona The exceptional economic situation has impacted all segments of the rental market in Barcelona. In relation to the office market, rent was stable at EUR 28/sqm/month[1] for prime assets, while average rent declined by 1.6% compared to 2019. The logistics market is suffering from a lack of both available land and quality product for e-commerce operators. As far as shopping centres are concerned, they have been affected both by opening restrictions and by the fall in tourism, which has particularly affected the urban assets. Lisbon Due to the mobility restrictions measures ordered by the Portuguese Government, economic activity in general and the real estate market in particular were affected throughout 2020. The office market closed the year with ~ 138.000 m ² transactions, 30% lower than 2019; and an unemployment rate that rose slightly to 6.4% (compared to 5% 2019). However, prime rents showed a positive evolution during the year, reaching EUR 25/sqm/month, mainly due to the lack of quality supply on the market. In relation to logistics, rents remain stable at EUR 4/sqm/month, on the of Alverca/Azambuja axis. This market continues to be characterised by low quality supply, as well as increasing demand needs, making it possible to anticipate rent growth in the coming years. Finally, the shopping centre sector has been affected by the severe restrictions on movement and opening of premises, which have directly impacted the activity of operators and, consequently, of the entire sector. 1 “Real Estate Market Outlook 2021 España” CBRE 2 “Real Estate Market Outlook 2020 España” CBRE 3 “Mercado de oficinas de Madrid at a glance T4 2020” BNP Paribas Real Estate 4 “Mercado de oficinas de Barcelona at a glance T4 2020” BNP Paribas Real Estate Merlin Properties, SOCIMI, S.A. 2020 Management Report. 1 1.2. Rental market situation by business segment Offices According to BNP Paribas, in 2020 the Spanish office market recorded a significant drop in activity compared to 2019, with recruitment falling by 43% in Madrid and by 55% in Barcelona. Unemployment rose slightly in both markets to 9.0% in Madrid and 7.2% in Barcelona. The performance was similar in Portugal. Premium rents have stood despite the situation, although in more peripheral locations there have been slight declines. Shopping centres The operations of shopping centres were significantly affected in both Spain and Portugal in the course of the year, with forced closures, restrictions on opening, and occupancy restrictions. In addition, the reduction in tourist flows has also affected the sector. This has impacted both inflows and sales. However, the unprecedented vaccination campaign that is taking place in 2021, together with the historic monetary and fiscal expansion, make it possible to foresee a significant recovery in both private consumption and retail sales. Logistics The upward trend in the logistics sector has been favoured by COVID-19, which has fuelled the development of e-commerce in the face of the constraints imposed on occupancy limits and physical opening. Logistics take-up was acute both in the central area and in Catalonia, with other markets reaching similarly high levels of activity (e.g. Valencia). The volume reached by turnkey projects and pre-lets is of particular note given the lack of available logistics platforms that meet current demand requirements. This shortage of quality products has influenced rents of logistics assets. 1.3. Organisational and operational structure As a Group, MERLIN’s main objective is to generate sustainable returns for shareholders through the acquisition, focused management and selective rotation of real estate assets in the moderate risk profile segments ("Core" and "Core Plus"). Its strategy and operations are characterised by: 1.Focusing on Core and Core Plus assets in Spain and Portugal 2.An investment grade capital structure 3.Distribution of 80% of AFFO (see Note 7.1. of the Directors' Report) in the form of dividends 4.Being one of the most efficient REITs in Europe 5.Implementing the best practices of Corporate Governance The description of the internal organisational structure can be summarised as follows: –A Board of Directors made up of 14 directors that receives advice from the Audit and Control Committee, the Appointments Committee and the Remuneration Committee. MERLIN’s Board, comprised a majority of independent directors, focuses its activity on defining, supervising and monitoring the policies, strategies and general guidelines to be followed by the Group. The Board is responsible for the long-term strategy and for monitoring its implementation. Merlin Properties, SOCIMI, S.A. 2020 Management Report. 2 –A Chief Executive Officer reports directly to the Board and sits on it. –An Investment Committee reports to the CEO and consists of the executive team, with the Chief Investment Officer having veto power. 2. Business performance and results 2.1. Business results in 2020 The Company’s business performed excellently during the year, with growth in occupancy, comparable rents and release spread in all asset categories. Merlin Properties closed the year with lease income of EUR 208.2 million, 17.6% less than in 2019 and an operating profit of EUR 169 million. The Company continued its landmark office building improvement plan in 2020, notably including improvements to the El Saler shopping centre in Valencia and the Porto Pi shopping centre in Palma de Mallorca, as well as the development of Castellana 85, Torre Gloriés, Diagonal 605, Arturo Soria 343 and Plaza Ruiz Picasso in the office segment. 2.2. Outlook for the Company in 2021 In 2021 MERLIN expects its occupancy rates to remain high and its cash flow to remain strong given the long lease term remaining (2.8 years from 31 December 2020, weighted by GRI). The Company also expects to continue acquiring assets that mesh with its investment philosophy. To that end, it had a cash position of EUR 111.7 million at the end of 2020 (Note 9 of the 2020 Individual Financial Statements) and a liquidity position of EUR 1,108.4 million, including its cash position, EUR 786 million from a undrawn credit facility and EIB loans, EUR 54 million in treasury stock and EUR 157 million of receivables from the sale of non-core portfolio and purchases of shares in Silicius. Both transactions were carried out in the last quarter of 2019 and the first quarter of 2020 respectively. 3. Capital and Liquidity Resources 3.1 Debt At the end of 2020, the Company's financial debt amounted to approximately EUR 4,970.1 million, made up of corporate financing without mortgage collateral (syndicated loans and bonds). The Company's strategy is to actively manage both the Group's assets and the liabilities. With regard to liabilities, the goal is to extend the average maturity of the debt and to take advantage of current market conditions to reduce or maintain borrowing cost and eliminate the interest rate risk. Currently, 99.8% of the Company’s debt accrues interest at a fixed rate or is subject to interest rate hedges. 3.2. Liquidity available The MERLIN’s liquidity position at 31 December 2020 amounts to EUR 1,108.4 million (Note 9 to the 2020 Individual Financial Statements), including its cash position, EUR 786 million from a undrawn credit facility and EIB loans, EUR 54 million in treasury stock and EUR 157 million of receivables from the sale of non-core portfolio and purchases of shares in Silicius. Both transactions were carried out in the last quarter of 2019 and the first quarter of 2020 respectively. Additionally, the Company has the ability to access the capital markets through the euro medium-term note (EMTN) programme, which has a limit of EUR 5,000 million. At 2020 year end, EUR 909 million was available through the aforementioned programme. Merlin Properties, SOCIMI, S.A. 2020 Management Report. 3 4. Environmental matters Since the assets were acquired, the Company has incorporated sustainability into its decision-making process, aware of its impact on improving the performance of assets and the well-being of tenants. MERLIN seeks to differentiate its properties along these lines and, to that end, in 2020 it has continued with its three key repositioning plans: Landmark I, Flagship and Best II and III, the time horizon for which is 2019-23. These plans are focused on creating value by repositioning selected properties, incorporating sustainability into the process, as well as in obtaining better financing terms linked to meeting sustainability targets. 4.1. Sustainability certification In 2020 the Company continued to make progress on making its asset portfolio sustainable by investing in improving the environmental performance of its properties. 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 our portfolio under the standards of the leaders in this market, BREEAM and LEED, with the aim of certifying 96% of our portfolio. In 2020 the Company certified 12 new assets Asset Category # Assets Certification Rating Date Ulises 16-18 Offices 1 LEED GOLD Jan-20 Juan Esplandiu 11-13 Offices 1 BREEAM GOOD Mar-20 Atica 2 Offices 1 LEED GOLD Jun-20 PE Cerro Gamos Offices 2 LEED GOLD Jun-20 PE Cerro Gamos Offices 1 LEED SILVER Jun-20 Saler Shopping Centres 1 BREEAM VERY GOOD Oct-20 Ática 3 Offices 1 BREEAM GOOD Nov-20 Zaragoza-plaza- II Logistics 1 LEED GOLD Nov-20 Centro Oeste Shopping Centres 1 BREEAM GOOD Dec -20 PE Alvia Offices 1 BREEAM GOOD Dec -20 Sant Cugat I Offices 1 BREEAM VERY GOOD Dec -20 Total 12 Additionally, MERLIN obtained an excellent rating (78%) in the 2020 edition of GRESB, a platform that makes it possible to harmonise and compare information related to sustainability criteria (environmental, social and corporate governance - ESG) in real estate investments. This rating is above the global average and that of our counterparts and reinforces the Company's commitment to investing in sustainability. 4.2. ISO sustainability certifications MERLIN, as manager of its portfolios, has an Environmental Management System (EMS) certified according to ISO 14001, which is the umbrella under which it manages its portfolios and that incorporates new properties into its scope every year. Thus, in 2015 the Company began an ambitious plan for ISO 14001 (environmental management) and ISO 50001 (energy management) certifications to maintain and expand the number of real estate assets that have at least ISO 14001 certification, and subsequently ISO 50001 certification (based on the understanding that it is a natural step to obtain ISO 14001 certification before aspiring to ISO 50001). Merlin Properties, SOCIMI, S.A. 2020 Management Report. 4 In keeping with the optimisation of the environmental performance of its assets, in 2020, given their significant role in the Company’s environmental performance, MERLIN continued with an environmental training program for shopping centre operators in an effort to promote greater awareness and, thus, achieve better asset performance. 4.3. ESG indicators Syndicated Loan In 2019, the Company completed the process of refinancing its debt initiated in 2018 with the firm signing a syndicated corporate loan (EUR 1,550 million) under the sustainable loan format (ESG). The corporate loan marked an important milestone, as it was the largest financing of this type granted to a real estate company in Europe and the second largest obtained in Spain. These transactions highlight the Company's ongoing effort to integrate Corporate Social Responsibility principles by incorporating sustainability criteria in the investments of its asset portfolio, as well as in the management of the liabilities on its balance sheet. This financing includes a cost adjustment mechanism based on management indicators based on four sustainability criteria, which are measured annually and reviewed by the Company's auditor. The indicators for 2019 were: • Investment of at least EUR 2.5 million in energy efficiency improvements across the portfolio • Obtaining at least 11 LEED and BREEAM external energy certifications with a minimum rating of LEED Silver and BREEAM Good. • Obtaining at least 11 AIS/DIGA certifications for disability access for all tenants and consumers • Electricity consumption of at least 30 GW from renewable energy sources At the end of 2020, 4 of the 4 goals were met, with the consequent adjustment to borrowing costs for both loans for 2021. 5. Staff management a.Staff breakdown MERLIN’s staff are its main asset. At 2020 year end, the Company's team was comprised a total of 168 employees, divided into 5 categories in keeping with MERLIN’s strategy of maintaining a horizontal structure. Total number of employees at 2020 year end. Country, Sex, Professional Category and Age Professional category Women Men Overall total Executive Directors - 2 2 Senior management - 5 5 Management Team 1 4 5 Middle management 6 37 43 Other Staff 56 57 113 Total Employees 63 105 168 Merlin Properties, SOCIMI, S.A. 2020 Management Report. 5 Country Professional category Age Range Women Men Overall total SPAIN Executive Directors >50 years old - 2 2 30-50 years old - - - Total Executive Directors - 2 2 Senior management >50 years old - 4 4 30-50 years old - 1 1 Total Senior Management - 5 5 Management Team >50 years old - 1 1 30-50 years old 1 3 4 Total Management Team 1 4 5 Middle management < 30 years old - 1 1 >50 years old 2 14 16 30-50 years old 4 22 26 Total Middle Management 6 37 43 Other Staff < 30 years old 5 7 12 >50 years old 12 14 26 30-50 years old 39 36 75 Total Other Staff 56 57 113 Total SPAIN 63 105 168 Overall total 63 105 168 Total number of employees at 2020 year end by type of employment contract MERLIN has a team of professionals with indefinite-term contracts and an average age of 44. Throughout 2020, to promote the employability of young people, MERLIN, implemented a first job plan for young people 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, MERLIN offers its employees stable contracts to ensure their loyalty and improve its ability to attract talent to the organisation. At the end of 2020, 98.81% of the Company's employees had an indefinite contract. Contract Type Time Total Indefinite-term Full-time 158 Part-time 8 Total Indefinite-term 166 Temporary Full-time 2 Total Temporary 2 Overall total 168 6. Dividend policy 6.1. Dividend policy The Company’s dividend policy takes into account sustainable levels of distribution and reflects the Company's expectation of obtaining recurring profits. The Group does not intend to create reserves that cannot be distributed to Shareholders, except as required by law. Merlin Properties, SOCIMI, S.A. 2020 Management Report. 6 Under the REIT regime, after fulfilling any relevant requirement of the Corporate Enterprises Act (Ley de Sociedades de Capital), the Parent Company is obliged to adopt 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 close of each year, as follows: (i) at least 50% of the profit from the transfer of real estate and shares of qualified subsidiaries, provided that the remaining profit is reinvested in other real estate assets within no more than three years of the date of the transfer or, 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 dividend distribution resolution is not adopted within the legally established period, the Parent 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 has set itself the goal 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. The distributions made to MERLIN shareholders in 2020 are shown in the accompanying table. On 8 July 2020, the supplemental 2019 dividend was paid out after it was passed in the General Shareholders Meeting held on 17 June 2020, for a sum of EUR 68,518 thousand. However, that General Meeting passed a refund of the share premium for a maximum of EUR 0.174 per share payable in cash, its payment was delegated to the Board of Directors, which will decide if it should be paid out once the impact of COVID-19 on the evolution of the business becomes clear in view of the current setting of uncertainty. Finally, the Board of Directors has decided not to execute the aforementioned share premium distribution. 6.2. Table of dividends paid by year Type Payment date Item EUR per share 2015 interim dividend 28 Oct. 15 Dividend 0.0775 2015 final dividend 27 Apr. 16 Dividend 0.0055692 2015 final dividend 27 Apr. 16 Distribution of share premium 0.102608 2015 total dividend 0.19 2016 interim dividend 25 Oct. 16 Dividend 0.185 Extraordinary distribution 25 Oct. 16 Distribution of share premium 0.02 2016 final dividend 18 May 17 Dividend 0.10071014 2016 final dividend 18 May 17 Distribution of share premium 0.09928767 2016 total dividend 0.40 2017 interim dividend 25 Oct. 17 Dividend 0.20 2017 final dividend 25 May 18 Dividend 0.02053654 2017 final dividend 25 May 18 Distribution of share premium 0.24 2017 total dividend 0.46 2018 interim dividend 25 Oct. 18 Dividend 0.20 2018 final dividend 07 May 19 Dividend 0.20270039 2018 final dividend 07 May 19 Distribution of share premium 0.09729961 2018 total dividend 0.50 2019 interim dividend 28 Oct. 19 Dividend 0.20 2019 final dividend 26 Jun 20 Dividend 0.14741659 2019 total dividend 0.34741659 Merlin Properties, SOCIMI, S.A. 2020 Management Report. 7 7. Main risks and uncertainties MERLIN’s Risk Management System is based on the principles, key elements and methodology established in the COSO Framework ("Committee of Sponsoring Organizations of the Treadway Commission"), which aims to minimise the volatility of results (profitability) and, therefore, maximise the Group’s economic value, incorporating risk and uncertainty into the decision-making process to provide reasonable assurance of achieving the strategic objectives established, providing shareholders, other stakeholders and the market in general with an adequate level of guarantees to ensure that the value generated is protected. Based on a comprehensive view of risk management, MERLIN has adopted a methodological approach based on the Enterprise Risk Management Framework - Integrating with Strategy and Performance (COSO ERM 2017), which emphasises the importance of enterprise risk management in strategic planning and incorporates it throughout the organisation, since risk influences strategy and performance in all areas, departments and functions. 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 April 2019. This policy establishes the general guiding principles, rooted in the perception that risk management is an ongoing process based on the identification and assessment of the Group's potential risks according to its strategic and business objectives, the determination of action plans and controls for critical risks, the supervision of the effectiveness of the controls designed and the evolution of residual risk to be reported to the Group's governing bodies. MERLIN’s risk management is a process driven by the Board of Directors and Senior Management and each and every member of the organisation is responsible for it within their own purview. Risk management, supervised by the Audit and Control Committee, allows Management to effectively manage uncertainty and its associated risks, thereby improving the ability to generate value. A central element of the Risk Management System is the Risk Map — drawn up for the first time in 2015, updated every six months by the Audit and Control Committee and approved by the Board of Directors — which reflects and assesses the risks that could potentially impact MERLIN’s ability to meet its strategic objectives. In 2020, and as a result of the health and economic crisis caused by the COVID-19 pandemic, MERLIN’s management, Audit and Control Commission and Board updated the Company's Risk Map up to three times, reflecting at each time the risks and uncertainties that were estimated should be the focus of attention during the crisis. 7.1. Description of MERLIN’s risks MERLIN is exposed to a variety of risks inherent to the various segments of the real estate 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 the Group's management on an annual basis. Merlin Properties, SOCIMI, S.A. 2020 Management Report. 8 Based on the analysis of MERLIN's strategic vision, values and strategy, the various components are periodically analysed according to 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 2020, the MERLIN Risk Map was amended to expressly include a new category of ESG risks (Environmental, Social and Governance), replacing the previous ‘Stakeholder Risks’ category, to highlight the importance of this type of risks in the direction and management of the Company in its commitment to sustainability, social responsibility and governance in accordance with the highest standards of corporate governance. The risks MERLIN identifies and assesses are thus classified under the perspective of the different strategic components and facilitating elements identified above, as shown below: •Business Risks: which affect the strategic objectives of long-term value creation and the generation of sustainable and growing dividends, achievement of which depends mainly on the Group's various assets, grouped together in the different business segments (offices, net leases, shopping centres, logistics and others): occupancy rate of the assets, fluctuation rent levels, rent concentration, loss of property value, inefficiency in investments, political risk, etc. •Resource Risks: which affect the strategic objectives of generating sustainable and growing dividends and the values of transparency, ethics and responsibility, achievement of which depends mainly on the various internal and external resources available to the Group (human, technological and financial): staff dependence and their remuneration, occupational risk prevention, business continuity plan, cybersecurity breaches, technological innovation, the Group's credit rating, volume of short-term debt, compliance with covenants, etc. •ESG Risks: which affect the strategic objectives of leadership and reference (being the benchmark REIT) and the values of transparency, ethics and responsibility; achievement of which depends mainly on the various actions taken and policies implemented by the Group to guarantee the sustainability of its assets (physical impact, transition costs, compliance with sustainability standards) for its various stakeholders (customers, suppliers, society; investors and shareholders; and regulatory bodies); customer and supplier credit risk, the Group's reputation, macroeconomic conditions in the country, shareholder remuneration (dividends), compliance with the REIT regime, etc. Section E of the Annual Corporate Governance Report included in this Directors’ Report details the main risks, the action plans established and, where applicable, those that have materialised during the year and the circumstances that have led to them. 7.2. Financial and tax risks Financial risk management policies within the rental property sector are determined mainly by analysing the investment projects, management of the occupancy of the properties and the situation of the financial markets: • Market risk: 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 2020, the average occupancy rate of the asset portfolio of the Group headed by the Company was 92%, with a weighted average unexpired lease term of 5.4 years (weighted by GRI). Merlin Properties, SOCIMI, S.A. 2020 Management Report. 9 • Credit risk: the credit risk relating to the Group headed by the Company's ordinary business activity is practically non-existent or insignificant, due mainly to the fact that the agreements entered into with the tenants provide for the advance payment of the rent derived from them, in addition to requiring them to provide the legal and additional financial guarantees in the formalisation of the rental agreements and their renewal, which cover the possible non-payment of rent. This risk is also mitigated by the diversification by product type in which the Group invests and, consequently, in the type of customers. • Liquidity risk: To manage liquidity risk and meet its various funding requirements, the Company uses an annual cash budget and a monthly cash projection, the latter being detailed and updated daily. The factor causing the liquidity risk is the working capital deficiency, which mainly includes short-term debt. In addition, liquidity risk has the following mitigating factors, which should be highlighted: (i) the generation of recurrent cash from the businesses on which the Group bases its activity; and (ii) the capacity to renegotiate and obtain new financing facilities based on the Group's long-term business plans and the quality of its assets. At the date of preparation of the Company’s consolidated financial statements, taking into account the foregoing, the Group headed by the Company had covered all its funding requirements to fully meet its commitments to suppliers, employees and the authorities based on the cash flow forecast for 2021. 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. 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 MERLIN Properties. • Interest rate risk: To minimise the Company's exposure to this risk, financial instruments have been arranged to hedge cash flows, such as interest rate swaps. At 31 December 2020, the percentage of debt the interest rate of which is covered by the aforementioned financial instruments was 99.85%. • Foreign currency risk: the Group's policy is to borrow in the same currency as that of the cash flows of each business. Consequently, currently there is no foreign currency risk. However, noteworthy in this connection are the exchange rate fluctuations arising in translating the financial statements of foreign companies whose functional currency is not the euro. At 31 December 2020, the functional currency of all subsidiaries and associates of the MERLIN Group was the euro. • Tax risk: The Parent and a portion of its subsidiaries qualified for 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 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 advisors, assessed compliance with the requirements of the regime, concluding that such requirements were met at 31 December 2020. 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 REITs Act, 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. Merlin Properties, SOCIMI, S.A. 2020 Management Report. 10 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. 8. Acquisition and disposal of treasury shares At 31 December 2020, the Parent held treasury shares amounting to EUR 54,149 thousand. The changes in 2020 were as follows: Number of Thousands of Shares euros Balance at 01 January 2019 6,150,000 68,322 Additions 52,776 633 Disposals (1,125,407) (12,095) Balance at 31 December 2019 5,077,369 56,860 Additions 26,177 279 Disposals (267,043) (2,990) Balance at 31 December 2020 4,836,503 54,149 In 2020 the Parent acquired 26,177 treasury shares at an average cost of EUR 10.63 per share. At 31 December 2020, the Parent held treasury shares representing 1.03% of its share capital. The withdrawals of own shares amounting to EUR 2,990 thousand (average price of EUR 11.20 per share) correspond mainly to EUR 2,765 thousand (average price of EUR 11.20 per share), to the delivery of shares to employees within the Flexible Remuneration Plan and the 2017-19 LTIP. There were also EUR 225 thousand in sales in 2020 (at an average cost of EUR 11.20 per share). 9. Other relevant information 9.1. Stock market information On 31 December 2020, MERLIN shares closed at a price of EUR 7.78, representing a 39% drop in their price compared to the closing price on 31 December 2019 (EUR 12.79). 9.2. Average payment period to suppliers Below are the disclosures required by additional provision three of 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. Merlin Properties, SOCIMI, S.A. 2020 Management Report. 11 2020 2019 Days Average payment period to suppliers 32.0 33.6 Ratio of transactions paid 31.9 34.24 Ratio of transactions payable 35.6 24.7 Thousand of euros Total payments made 175,867 154,722 Total payments pending 6,994 11,216 In accordance with the Spanish Accounting and Audit Institute's Resolution, the average period of payment to suppliers was calculated by taking into account the commercial transactions corresponding to the delivery of goods or provision of services that took place from the date of entry into force of Law 31/2014, of 3 December. For the exclusive purpose of providing the information envisaged in this Resolution, payable to suppliers are considered trade payables for debts with suppliers of goods and services, included under “Trade and other payables” under current liabilities in the attached balance sheet. “Average period of payment to suppliers” is understood as the time elapsed between the date the supplier delivers the goods or provides the services and the date of actual payment. The maximum payment period applicable to the Company in 2014 and 2015 under Law 3/2004, of 29 December, establishing measures to combat late payment in commercial transactions (Ley 3/2004, de 29 de diciembre, por la que se establecen medidas de lucha contra la morosidad en las operaciones comerciales), and pursuant to the transitional provisions contained in Law 15/2010, of 5 July, was 60 days until the publication of Law 11/2013, of 26 July, and 30 days since publication of the aforementioned Act (unless the criteria mentioned in it are met, in which case the maximum payment period may be increased to 60 days). 9.3. R&D+i activities In relation to R&D+I activities and other innovative initiatives, in 2020 MERLIN continued to promote numerous projects of a technological nature to position MERLIN at the forefront in terms of solutions for its clients and internal management. Of those projects the following are of note: –Special projects: •Sensorisation programme for office buildings (in collaboration with Signify) and shopping centres (in collaboration with Vodafone) •Last mile in logistics •Photovoltaic self-consumption project •Introduction of third-party technologies (e.g. Keepeyeonball, Mayordomo and Fillit) •User experience app –Sponsorship: Agreement with Fifth Wall, the largest venture capital firm focused on the real estate industry Merlin Properties, SOCIMI, S.A. 2020 Management Report. 12 10. Annual Corporate Governance Report For the purposes of section 538 of the Corporate Enterprises Act, it is hereby stated that the 2020 Annual Corporate Governance Report forms part of this Directors' Report. (see Annex I) 11. Events after the reporting period In February 2021, the Company sold one non-strategic logistics asset for a amount of EUR 17.8 million. 12. 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 2020 consolidated financial statements. Merlin Properties, SOCIMI, S.A. 2020 Management Report. 13 MERLIN Properties, SOCIMI, S.A. DECLARATION OF RESPONSIBILITY FOR THE 2020 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, 2020, prepared (formuladas) (in English) by the Board of Directors at the meeting held on February 25, 2021, in accordance with the applicable accounting principles, 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) 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 25, 2021

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