Inmobiliaria Colonial, SOCIMI, S.A. and Subsidiaries

Consolidated Financial Statements for the year ended 31 December 2018, prepared in accordance with International Financial Reporting Standards and Consolidated Management Report

Translation of a report originally Issued in Spanish based on our work performed In accordance with the audit regulations In force in Spain and of consolidated financial statements originally Issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group In Spain (see Notes 2 and 24). In the event of a discrepancy, the Spanish-language version prevails.

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP)





















			31 December 2017



			406,366

			(559)
			70,415



			3,591,828
			2,087,870
			5,679,698




			44,362
			4,591,915

			39,350



			235,906
11,487,314 10,507,519	TOTAL LIABILITIES AND EQUITY	11,487,314	10,507,519

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP)

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP)
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2018
(Thousands of euros)
Income statement	Note	2018	2017

Revenue Other income	18-a 18-b	348,273 5,677	283,287 2,714
Staff costs	18-c	(29,138)	(28,936)
Other operating expenses	18-d	(60,094)	(40,921)
Depreciation and amortisation Net change in provisions	8 18-e	(3,353) 2,436	(2,445) (5,704)
Net gains/(losses) on sales of assets	18-g	11,721	527
Operating profit		275,522	208,522

Changes in fair value of investment property Gains/(losses) on changes in value of assets and impairment	18-f 18-f	701,952 (131,390)	933,435 (5,220)

Finance income	18-h	7,831	7,802
Finance costs Impairment of financial assets	18-h 18-h	(149,433) (143)	(86,846) (401)
Profit before tax		704,339	1,057,292

Income tax expense Consolidated net profit	17	(26,230) 678,109	23,159 1,080,451

Net profit for the year attributable to the Parent Net profit attributable to non-controlling interests	12	524,763 153,346	682,523 397,928

Basic earnings per share (euros)	5	1.17	1.83
Diluted earnings per share (euros)	5	1.17	1.83

Statement of comprehensive income
Consolidated net profit		678,109	1,080,451

Other components of comprehensive income recognised directly in equity		(53,854)	69,028
Gains/(losses) on hedging instruments	12 and 14	956	(94)
Gains/(losses) on available-for-sale financial assets	10	(54,777)	69,098
Tax effect on prior years' profit or loss	12 and 14	(33)	24
Transfers to comprehensive income		(2,429)	91
Gains/(losses) on hedging instruments	12 and 14	(2,472)	122
Tax effect on prior years' profit or loss	12 and 14	43	(31)
Consolidated comprehensive income		621,826	1,149,570
Comprehensive income for the year attributable to the Parent		468,467	751,633
Comprehensive income attributable to non-controlling interests		153,359	397,937
Comprehensive basic earnings per share (euros)		1.05	2.01
		1.05	2.01

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018

					INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	(COLONIAL GROUP) FOR THE YEAR ENDED 31 DECEMBER 2018 (Thousands of euros)
				Reserves of the	Reserves at consolidated	Valuation adjustments recognised in equity - financial	Valuation adjustments on available-for- sale financial	Other equity			Equity attributable to shareholders of	Non-controlling
Balance at 31 December 2016	Note	Share capital 892,058	Share premium 731,326	Parent 250,634	companies 199,417	instruments (571)	assets 1,317	instruments 3,697	Treasury shares (49,811)	Profit/(loss) 273,647	the Parent 2,301,714	interests 1,706,205	Equity 4,007,919
Total income and expense recognised in the year		-	-	-	-	12	69,098	-	-	682,523	751,633	397,937	1,149,570
Transactions with shareholders: Capital increases Treasury share portfolio Distribution of 2016 profit Share-based payment transactions Changes in the scope of consolidation Other changes		196,235 - - - - -	394,922 - - - - -	(6,691) 10,371 (7,910) (1,286) - -	- - 218,808 - 79 (11,938)	- - - - - -	- - - - - -	- - - 989 - -	- 2,956 - 2,537 (2) 13,058	- - (273,647) - - -	584,466 13,327 (62,749) 2,240 77 1,120	- - (27,000) 641 9,737 350	584,466 13,327 (89,749) 2,881 9,814 1,470
Balance at 31 December 2017	12	1,088,293	1,126,248	245,118	406,366	(559)	70,415	4,686	(31,262)	682,523	3,591,828	2,087,870	5,679,698
Total income and expense recognised in the year		-	-	-	-	(1,519)	(54,777)	-	-	524,763	468,467	153,359	621,826
Transactions with shareholders: Capital increases Treasury share portfolio		181,994 - - - - -	463,517 - (11,326) - - -	(1,149) 7,332 (33,798) (1,513) - -	- - 650,026 - 151,426 15,679	- - - - - -	- - - - - (15,638)	- - - 1,667 - (336)	- 22,754 - 2,902 - -	- - (682,523) - - -	644,362 30,086 (77,621) 3,056 151,426 (295)	- - (52,273) 358 (899,425) 597	644,362 30,086 (129,894) 3,414 (747,999) 302
Distribution of 2017 profit Share-based payment transactions Changes in the scope of consolidation Other changes

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP)

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED

31 DECEMBER 2018 (Thousand of euros)

	Note	2018	2017
CASH FLOWS IN OPERATIONS
1. CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES
Profit from operations		275,522	208,522
Adjustments to profit
Depreciation and amortisation (+)		3,353	2,445
Net change in provisions (+/-)	18-e	(2,436)	5,704
Other	18-a	3,489	(11,079)
Gains/(losses) on sale of investment property (+/-)	18-g	(11,721)	(527)
Adjusted profit		268,207	205,065
Taxes recovered (paid) (+/-)		(11,834)	29,434
Interest received (+)		2,460	-
Increase/(decrease) in current assets and liabilities
Increase/(decrease) in receivables (+/-)		15,279	929
Increase/(decrease) in payables (+/-)		(107,866)	9,845
Increase/(decrease) in other assets and liabilities (+/-)		11,107	4,866
Total net cash flows in operating activities		177,353	250,139
2. CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Investments in (-)
Intangible assets		(2,973)	(1,318)
Property, plant and equipment	8	(4,063)	(2,867)
Investment property	9	(307,661)	(128,862)
Non-current financial assets and others		(216,776)	(211,886)
Business combinations	2-f	(843,149)	(316,540)
Cash and cash equivalents acquired in a business combination	10	160,157	16,223
		(1,214,465)	(645,250)
Disposals of (+)
Investment property	9	378,959	450,671
		378,959	450,671
Total net cash flows in investing activities		(835,506)	(194,579)
3. CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
Dividends paid (-)	12	(129,894)	(89,749)
Repayment of bank borrowings (-)	13	(955,744)	(572,925)
Repayment of debts with bondholders (-)	13	(675,000)	(300,700)
Interest paid (+/-)	18	(142,723)	(94,406)
Post-control transactions (+/-)	21	-	(266)
Treasury share transactions (+/-)	12	(58)	13,327
		(1,903,419)	(1,044,719)
New bank borrowings obtained (+)	13	120,440	609,968
New bondholder borrowings obtained (+)	13	1,412,500	800,000
Capital increases (+)	12	-	591,157
Expenses associated with capital increases	12	(1,149)	(6,691)
Other proceeds/(payments) for current financial investments and other (+/-)		(6,527)	(5,874)
		1,525,264	1,988,560
Total net cash flows in financing activities		(378,155)	943,841
4. NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS
Cash flow for the year		(1,036,308)	999,401
Cash and cash equivalents at beginning of year	13	1,104,601	105,200
Cash and cash equivalents at end of year	13	68,293	1,104,601

The accompanying Notes 1 to 24 and the Appendix are an integral part of the consolidated statement of cash flows at 31 December 2018.

Inmobiliaria Colonial, SOCIMI, S.A. and Subsidiaries

Notes to the consolidated financial statements for the year ended 31 December 2018

1. Colonial Group business activity

Inmobiliaria Colonial, S.A. is a public limited company incorporated in Spain, for an indefinite period, on 8 November 1956. Its registered offices are at Paseo de la Castellana, 52, Madrid.

On 29 June 2017, the shareholders at the Parent's Annual General Meeting resolved to adopt the SOCIMI (hereinafter, REIT) Tax Regime and to make the corresponding bylaw amendments to bring the Company Bylaws into line with the requirements stipulated in this regime, which included changing the corporate name to Inmobiliaria Colonial, SOCIMI, S.A.

On 30 June 2017, the Parent submitted a request to the tax authorities to be included in the REIT Tax Regime, applicable as of 1 January 2017.

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

the acquisition and development of urban properties for lease;
the ownership of interests in the share capital of listed real estate investment companies (REITs) or other nonresident entities in Spain with the same corporate purpose, which are subject to a regime similar to that established for REITs in relation to the obligatory profit distribution policy stipulated by law or the bylaws;
the ownership of interests in the share capital of other resident or non-resident entities in Spain, the main corporate purpose of which is the acquisition of urban properties earmarked for lease, which are subject to the regime established for REITs in relation to the obligatory profit distribution policy stipulated by law or the bylaws and meet the investment requirements stipulated for these companies; and
the ownership of shares or equity interests in collective real estate investment undertakings governed by 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 relating to the main corporate purpose, the Parent may also carry on any other ancillary activities, i.e., those that they generate income representing less than 20%, taken as a whole, of its income in each tax period, or those that may be considered ancillary activities under the legislation applicable at any time, including, in any case, the management, restoration and operation of properties and the performance of all manner of studies, reports, appraisals, valuations and surveys; and in general, the provision of real estate consulting and advisory services, property asset management, development and marketing services, and technical assistance through contracts with other public or private companies or entities.

Activities that by law are attributable exclusively to special purpose vehicles are expressly excluded from its corporate purpose.

All activities included in the corporate purpose will be carried out as authorised by current legislation at any given time, expressly excluding its own activities that are exclusively granted by prevailing legislation to natural persons or legal persons other than this Parent.

The Parent may also carry out the aforementioned activities, in full or in part, indirectly through ownership interests in other companies with an identical or similar corporate purpose.

Inmobiliaria Colonial, SOCIMI, S.A. and Subsidiaries ("the Group") carry out their activities in Spain (mainly in Barcelona and Madrid) and in France (Paris) through the group of which the parent is Société Foncière Lyonnaise, S.A. (hereinafter, the "SFL subgroup" or "SFL" for the subsidiary).

Inmobiliaria Colonial, SOCIMI, S.A. has been listed on the Spanish electronic trading system and Stock Exchange since 19 June 2017, when it was included on the benchmark stock market index, the IBEX-35.

In 2018, the Parent improved the credit rating obtained from Standard & Poor's Rating Credit Market Services Europe Limited, which is now a "BBB+" long-term credit rating and an "A-2" short-term credit rating, both with a stable outlook. In addition, the Parent maintained the "Baa2" credit rating with a negative outlook from Moody's. In 2018, the subsidiary SFL maintained its credit rating of "BBB+" with a stable outlook, and the "A-2" short-term credit rating.

In view of the business activity carried on by the Group, it does not have any environmental expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these explanatory notes. However, the Group does apply a proactive environmental policy in relation to urban development, construction, maintenance and the preservation of its property portfolio.

2. Basis of presentation of the consolidated financial statements

a) Basis of presentation

These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (EU-IFRSs) as adopted by the European Union, taking into account all mandatory accounting policies and rules and measurement bases, the Spanish Code of Commerce, the Spanish Limited Liability Companies Law, the Spanish Securities Markets Law and other applicable company law, as well as regulations laid down by the Spanish National Securities Market Commission (CNMV), to present a true and fair view of the Colonial Group's consolidated equity and financial position at 31 December 2018 and of the comprehensive income from its operations, the changes in consolidated equity and the consolidated cash flows for the year then ended.

The consolidated financial statements of Inmobiliaria Colonial, SOCIMI, S.A. and Subsidiaries for the year ended 31 December 2018 were prepared on the basis of the accounting records kept by the Parent and by the other companies comprising the Colonial Group, and were authorised for issue by the Parent's directors at the Board of Directors meeting held on 26 February 2019.

However, since the accounting policies and measurement bases used in preparing the Group's consolidated financial statements at 31 December 2018 may differ from those used by certain Group companies, the required adjustments and reclassifications were made on consolidation to unify the policies and bases used and to make them compliant with EU-IFRSs.

In order to present on a consistent basis the various items that make up the consolidated financial statements, the accounting principles and measurement bases used by the Parent were applied to all the companies included in the scope of consolidation.

The Group's consolidated financial statements for the year ended 31 December 2017 were approved by the shareholders at the Parent's Annual General Meeting held on 24 May 2018.

b) Adoption of International Financial Reporting Standards

The Colonial Group's consolidated financial statements are presented in accordance with EU-IFRSs, pursuant to Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002. In Spain, the obligation to present consolidated financial statements under European IFRSs is also regulated in final provision eleven of Law 62/2003, of 30 December, on tax, administrative and social measures.

The main accounting principles and measurement bases adopted by the Colonial Group are detailed in Note 4.

Standards and interpretations effective this year

New accounting standards came into force in 2018 and were accordingly taken into account when preparing these consolidated financial statements. These new standards are as follows:

IFRS 4 (Amendment) "Applying IFRS 9 'Financial instruments' with IFRS 4 'Insurance contracts'"- Amendments to IFRS 4":

IFRS 9, "Financial instruments"
IFRS 15 "Revenue from contracts with customers".
In relation to the entry into force of IFRS 15, the Colonial Group considers that, based on the nature of the business, it will not have a significant impact on the Group's consolidated financial statements.

IFRS 15 (Amendment) "Clarifications to IFRS 15 'Revenue from contracts with customers'"

Annual improvements to IFRSs. 2014-2016 Cycle: The amendments affect IFRS 1 and IAS 28 and apply to annual periods beginning on or after 1 January 2018. The main amendments refer to:
IFRS 1 "First-time adoption of International Financial Reporting Standards".
IAS 28 "Investments in associates and joint ventures".
IFRS 2 (Amendment) "Classification and measurement of share-based payment transactions"
IAS 40 (Amendment) "Transfers of investment property"
IFRIC 22 "Foreign currency transactions and advance consideration"
The impact of the interpretation of these amendments has not been significant.

Standards and interpretations issued but not yet effective

At the date of authorisation for issue of these consolidated financial statements, the following standards, amendments or interpretations were published by the IASB but had not yet come into force, and although early application is permitted, the Group opted not to apply them early:

IFRS 16, "Leases"

The application of IFRS 16 entered into force on 1 January 2019. At this date, the Group had commitments for non-cancellable operating leases amounting to 15,664 thousand euros (Note 18-d).
The Group expects to recognise right-of-use assets for approximately 27,192 thousand euros on 1 January 2019, lease liabilities for 30,576 thousand euros and negative consolidated reserves amounting to 3,384 thousand euros.

The Group expects net profit after tax to decrease by approximately 723 thousand euros in 2019 as a result of adopting the new standards. Operating profit is expected to increase by approximately 720 thousand euros, given that the operating lease payments are included in operating profit, as is the case with the amortisation of the right-of-use assets. However, the interest on the lease liabilities is excluded.

Cash flows from operating activities will increase and cash flows from financing activities will decrease by approximately 3,676 thousand euros, since the reimbursement of part of the principal of the lease liabilities will be classified as cash flows from financing activities.

The Group's activities as a lessor are not material and, therefore, are not expected to have a significant impact on the Group's financial statements. However, additional information will have to be disclosed as of next year.

IFRS 9 (Amendment) "Prepayment component with negative compensation".
IFRIC 23 "Uncertainty over income tax treatments"

Accordingly, at the date of authorisation for issue of these consolidated financial statements, the following standards, amendments or interpretations were published by the IASB but had not yet come into force, and are subject to approval by the European Union:

IFRS 10 (Amendment) and IAS 28 (Amendment) "Sale or contribution of assets between an investor and its associate or joint venture"
IFRS 17 "Insurance contracts"
IAS 28 (Amendment) "Long-term interests in associates and joint ventures"
Annual improvements to IFRSs. 2015-2017 Cycle: The amendments affect IFRS 3, IFRS 11, IAS 12 and IAS 23 and shall apply to annual periods beginning on or after 1 January 2019, all of which are subject to adoption by the EU. The main amendments refer to
IFRS 3 "Business combinations".
IFRS 11 "Joint arrangements".
IAS 12 "Income taxes".
IAS 23 "Borrowing costs".
IAS 19 (Amendment) "Plan amendment, curtailment or settlement".
IFRS 3 (Amendment) "Definition of a business"
IAS 1 (Amendment) and IAS 8 (Amendment) "Definition of material"
The application of new standards, amendments and interpretations will be considered by the Group once they have been ratified and adopted, where appropriate, by the European Union.

The Parent's directors have reviewed the potential impacts of the future application of these standards and consider that their entry into force will not have a significant effect on the consolidated financial statements.

c) Functional currency

These consolidated financial statements are presented in the Group's functional currency, the euro, as this is the currency of the main economic area in which the Group operates.

d) Responsibility for the information provided and estimates and judgements made

The information in these consolidated financial statements is the responsibility of the Parent's directors. Management of the Parent has made estimates based on objective data in order to quantify certain assets, liabilities, income, expenses and commitments reported herein. These estimates and criteria relate to the following:

The market value of properties for own use, investment properties and inventories (Notes 8 and 9).

The market value was obtained from the appraisals periodically made by independent experts. Such appraisals were made on 31 December 2018 and 2017 in accordance with the methods described in Notes 4-b and 4-c.

Classification, measurement and impairment of financial investments (Note 4-e).
Estimate of the appropriate allowances for doubtful debts (Note 11).
Measurement of deferred tax liabilities recognised in the consolidated statement of financial position (Notes 4-m and 17).
Measurement of assets classified as held for sale (Notes 4-s and 22).
Goodwill impairment testing (Note 7).
The market value of certain financial assets (Note 10), including derivative financial instruments (Note 14).
Evaluation of lawsuits, obligations, and contingent assets and liabilities at year-end (Note 16).

Although these estimates were made on the basis of the best available information at the date of authorising these consolidated financial statements for issue, events that take place in the future might make it necessary to change these estimates (upwards or downwards). Changes in accounting estimates would be applied prospectively and would be recognised in the consolidated statement of comprehensive income.

e) Basis of consolidation

The main consolidation principles applied by the Parent's directors in preparing these consolidated financial statements were as follows:

1. The accompanying consolidated financial statements were prepared from the accounting records of Inmobiliaria Colonial, SOCIMI, S.A. and of the companies controlled thereby, whose financial statements were prepared by each Group company's management. The Parent is considered to have effective control in the circumstances outlined in point 6 below.
1. The results of the subsidiaries acquired or sold during the year are included in consolidated income from the effective date of acquisition and are no longer included from the date of disposal, as appropriate.
1. All accounts receivable and payable and other transactions between the consolidated companies have been eliminated on consolidation.
1. Where necessary, the financial statements of the subsidiaries are adjusted to ensure uniformity with the accounting policies applied by the Parent. All subsidiaries have the same reporting date as the Parent, i.e., 31 December.
1. The interest of non-controlling shareholders is established in proportion to the fair values of the identifiable assets and liabilities recognised. Non-controlling interest in:
a. Investees' equity: recognised in equity under "Non-controlling interests" in the consolidated statement of financial position.
b. Profit or loss for the year: recognised under "Net profit attributable to non-controlling interests" in the consolidated statement of comprehensive income.
1. The Group used the following criteria to determine the consolidation method applicable to the various companies comprising the Group:

Full consolidation:

Subsidiaries are fully consolidated and are considered to be all entities in which the Group directly or indirectly controls the financial and operating policies such that power is exercised over the investee. This is generally accompanied by an ownership interest of more than half of an entity's voting rights. In addition, to evaluate whether the Group controls another entity, it considers the power over the investee; the exposure or rights to variable returns of the investment; and the ability to use this power over the investee to affect the amount of the investor's returns. When evaluating whether the Group exercises control over an entity, the existence and the effect of any potential voting rights, both those held by the Parent and by third parties, are taken into consideration, provided they are of a substantive nature.
Subsidiaries are accounted for using the acquisition method. The acquisition cost is the fair value of the assets delivered, the equity instruments issued and the liabilities incurred or assumed at the acquisition date. Identifiable assets acquired and identifiable liabilities and contingencies incurred in a business

combination are measured initially at fair value at the acquisition date, regardless of the effect of noncontrolling interests. When the acquisition cost is higher than the fair value of the Group's interest in the identifiable net assets acquired, the difference is recognised as goodwill. If the acquisition cost is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the consolidated statement of comprehensive income (details of the companies consolidated at 31 December 2018 and 2017 are included in the Appendix).

The accompanying consolidated financial statements do not include the tax effect, if any, of transferring the reserves of the consolidated companies to the Parent's equity, since it is considered that these reserves will be used to finance the operations of each company and any potential distributions will not represent a significant additional tax cost.

f) Changes in the scope of consolidation

The following changes occurred in the scope of consolidation in 2018:

On 16 January 2018, the Parent acquired 100% of the share capital of the Spanish company LE Offices Egeo, S.A.U. (hereinafter, "Egeo"), the owner of an office building located in Madrid (Note 9). The acquisition price was 49,098 thousand euros, plus associated acquisition costs. In addition, in 2018 the loan held by Egeo with a financial institution for 30,182 thousand euros, including interest, was paid off early.
Voluntary takeover bid to acquire shares of Axiare Patrimonio SOCIMI, S.A.

On 28 December 2017, the Spanish National Securities Market Commission authorised the voluntary takeover bid to acquire shares of Axiare Patrimonio SOCIMI, S.A. submitted by the Parent on 24 November 2017, as it considered that its terms were in line with applicable laws and that the contents of the explanatory prospectus were sufficient.

The offer was made for 100% of the share capital of Axiare Patrimonio SOCIMI, S.A. consisting of 79,062,486 shares, admitted for trading on the Barcelona, Bilbao, Madrid and Valencia Stock Exchanges and included in the Spanish Stock Market Interconnection System, not including 22,762,064 shares, representing 28.79% of the share capital, which were blocked by the offeror. Consequently, the offer was effectively extended to the acquisition of 56,300,422 shares of Axiare Patrimonio SOCIMI, S.A., which represent 71.21% of the share capital.

The price offered was 18.36 euros per share; this amount arises through deducting the amount of the dividend paid by Axiare after the takeover bid was announced, of 0.14 euros per share, from the price initially offered of 18.50 euros per share.

On 28 December 2017, the first of the announcements referred to in Article 22 of Royal Decree 1066/2007, of 27 July, for the takeover bid of Axiare Patrimonio SOCIMI, S.A. by Inmobiliaria Colonial, SOCIMI, S.A., was made. Consequently, in accordance with the terms set forth in the prospectus of the aforesaid offer, the acceptance period lasted from 29 December 2017 to 29 January 2018, both inclusive.

With this expenditure, the value of the ownership interest in Axiare Patrimonio SOCIMI, S.A. amounted to 1,207,647 thousand euros, including the value of the ownership interest held by the Parent prior to the date of the takeover (Note 10-b). As a result, taking into account the shares already previously held by the Parent, the latter now holds 68,674,633 shares, representing 86.86% of the share capital of Axiare Patrimonio SOCIMI, S.A.

Reason for the business combination -

As explained in the prospectus of the takeover bid, with the acquisition of Axiare, the Colonial Group consolidated its position as the European platform in the prime office market of Paris, Madrid and Barcelona. Axiare's asset portfolio at 30 September 2017, with 74% relating to offices, of which 93% are located in Madrid, clearly complements the Colonial Group's strategy, which consists of investing in the office markets of Madrid, Barcelona and Paris, with a focus on high-quality buildings. The acquisition of Axiare will allow Colonial to increase the value of its current portfolio and increase the Group's exposure in Spain. Furthermore, the synergies with the acquisition of Axiare may represent a savings in operating costs. Accordingly, it will potentially enable Axiare's financing structure to be optimised as a result of its integration into the Group with a credit rating of BBB by Standard & Poor's and Baa2 by Moody's.

Net assets acquired and cost of business combination -

The Parent's directors made an initial allocation of the cost of the business combination, provisionally estimating that the difference between the cost of the business combination and the fair value of the net assets acquired is as shown in the following table:

		Thousands of Euros
	Carrying amount	Value adjustment	Fair value
Investment property	1,734,566	(3,193)	1,731,373
Other non-current assets	32,662	-	32,662
Current assets	180,414	9,969	190,383
Non-current liabilities	(645,213)	-	(645,213)
Current liabilities	(116,181)	(3,999)	(120,180)
Total net assets	1,186,248	2,777	1,189,025
Consideration paid on the investment (*)			1,207,645
Capital increase as a result of the merger			157,909
Positive combination difference (Goodwill)			176,529

(*) The consideration paid was calculated as the total acquisition price plus the revaluation of the investment acquired prior to the acquisition of control.

These initial estimates are provisional and the Group has a one-year period to adjust them on the basis of any subsequent more significant or complete information that it may receive.

The fair value of the net assets in the property portfolio of Axiare Patrimonio SOCIMI, S.A. and subsidiaries was estimated using valuations made by independent experts of the property assets acquired as of 31 December 2017.

"Other operating expenses" in the consolidated statement of comprehensive income for 2018 includes 8,021 thousand euros in transaction costs associated with the transaction.

The fair value of the accounts receivable acquired, mainly of a commercial nature, amounted to 15,886 thousand euros and did not differ from their gross contractual amounts. The Parent's directors do not consider that, at the acquisition date, there were signs that such accounts would not be collected in full.

The operating income of the Axiare subgroup in January 2018 amounted to losses of 57,234 thousand euros, including 47,842 thousand euros relating to incentive and indemnity plans and 12,579 thousand euros relating to the takeover bid launched by Inmobiliaria Colonial, SOCIMI, S.A.

Allocation to the cash-generating unit and impairment of goodwill

In accordance with IAS 36, Management identifies the different cash-generating units by looking at the smallest identifiable group of assets that generates cash inflows for the entity that are largely independent of the cash inflows from other assets or groups of assets.

In this context, the Group has considered, when defining its cash-generating units, how the management of the different real estate assets that make up the Group is organised, and also how to frame them within the business segment.

The Parent's directors consider that the change in value recorded by the structured portfolio acquired through the business combination with Axiare after the date of the acquisition of control represents the materialisation of the expectations existing at the date of this business combination.

Merger by absorption between Inmobiliaria Colonial, SOCIMI, S.A. (absorbing company) and Axiare Patrimonio SOCIMI, S.A. (absorbed company)

On 4 July 2018, the merger deed executed on 2 July 2018 between Inmobiliaria Colonial, SOCIMI, S.A. and Axiare Patrimonio SOCIMI, S.A. was registered with the Madrid Mercantile Registry. In this respect, to meet the exchange of the merger, the Parent issued 19,273,622 new ordinary shares with a par value of 2.50 euros each of the same class and series as those currently in circulation, representing 4.43% of the share capital of Colonial prior to the merger, to be delivered to Axiare's shareholders in accordance with the exchange rules and procedures established for this purpose. The total amount of the increase amounted to 157,909 thousand euros, of which 48,184 thousand euros are related to share capital and 109,725 thousand euros to share premium. The new shares were admitted to trading on 9 July 2018.

On 20 March 2018, Utopicus increased its share capital by 4 thousand euros, corresponding to 3,638 shares with a par value of 1 euro each, plus a share premium, which was subscribed and paid in full by the Parent.
On 7 May 2018, the Parent acquired 100% of Peñalvento from the subsidiary Agisa for 20,755 thousand euros.
On 16 November 2018, the Parent acquired 10,323,982 shares of the subsidiary SFL from Qatar Holding, LLC and DIC Holding, LLC through (i) the Parent's contribution of 7,136,507 shares of the subsidiary as consideration for the subscription of the 53,523,803 new shares of the Company (Note 12-a), (ii) the exchange of 400,000 shares of the subsidiary SFL for 3,000,000 shares of the Parent that it held as treasury shares (Note 12-f), and (iii) the sale to the Parent of 2,787,475 shares of the subsidiary SFL for 203,486 thousand euros.
On 29 November, the Parent acquired 281,022 shares of the subsidiary SFL for 18,969 thousand euros.
In addition, the Parent acquired 441,000 shares of the subsidiary SFL through the exchange of 315,000 shares of the Parent held as treasury shares (Note 12-f) and 8,442 thousand euros.

The following changes arose in the scope of consolidation in 2017:

On 18 May 2017, the subsidiary Inmocol Torre Europa, S.A. (hereinafter, "Inmocol") was incorporated. The initial share capital of 20,000 thousand euros was fully subscribed by the Parent and its shareholder as follows:
o The shareholder subscribed 50% of the share capital through a non-monetary contribution of land located at Hospitalet del Llobregat, valued at 10,000 thousand euros, on which Inmocol will construct an office building.
o The remaining 50% of the share capital was subscribed by the Parent, having only paid 25% of the capital subscribed, i.e., 2,500 thousand euros. The unpaid share capital subscribed will be paid by the Parent when agreed upon by the Board of Directors of Inmocol.
During the first half of 2017, the Parent also acquired 4,700 shares in its subsidiary SFL, for a total of 265 thousand euros, thus increasing its interest in the share capital from 58.55% to 58.56%.
On 27 September 2017, the Parent acquired all the shares of the Spanish company LE Offices Arturo Soria, S.L. (currently Colonial Arturo Soria, S.L., and hereinafter, "Arturo"), the owner of an office building located in Madrid (Note 9). The acquisition price was 19,747 thousand euros, plus associated acquisition costs. Of this amount, 4,200 thousand euros were deferred until 31 January 2018 at the latest (Note 15), and were paid in 2018. In addition, the loan held by Arturo Soria with a financial institution for 13,159 thousand euros, including interest, was paid off early, which was registered with the Property Registry on 26 November 2017.
On 27 October 2017, the Parent acquired 61.51% of the share capital of the Spanish company Utopicus Innovación Cultural, S.L. (hereinafter, "Utopicus"), the head of the Utopicus co-working platform. The acquisition price amounted to 2,633 thousand euros, including associated acquisition costs, and 205 thousand euros were deferred, which were recognised under "Trade payables" in the consolidated statement of financial position (Note 15). On this same date, Utopicus increased its share capital by 1,001 thousand euros,

corresponding to 910 shares of one euro par value each, plus a share premium, which was subscribed and paid in full by the Parent, thus increasing its interest in the share capital of Utopicus to 69.60%.

On 30 November 2017, after the previous tenant left, the subsidiary SFL acquired the Emile Zola property (Note 9) through (i) the acquisition of all share capital of the French company SAS Société Immobilière Victoria, which owns the land and a portion of the buildings of this property, directly from the subsidiary SFL, and (ii) the subsidiary SFL acquired the rest of the property that was not owned by SAS Société Immobilière Victoria. The acquisition cost totalled 165,000 thousand euros.
On 20 December 2017, the Parent acquired all the share capital of the Spanish companies Almacenes Generales Internacionales, S.A. (hereinafter, "Agisa") and Soller, S.A., which own several plots of land located in Madrid (Note 9). The acquisition price was 178,220 thousand euros, including associated acquisition costs. Of this amount, 41,335 thousand euros were deferred until 31 December 2018 at the latest (Note 15). Several guarantees were extended as collateral for the deferred amount (Note 13-i). On 31 December 2018, the deferred amounts were paid and the guarantees extended were cancelled.
On 20 and 27 December 2017, Agisa acquired 64.60% of the share capital of the Spanish company Peñalvento, S.L. (hereinafter, "Peñalvento"), which owns a plot of land in Madrid (Note 9). The acquisition price was 12,127 thousand euros, including associated acquisition costs. Of this amount, 632 thousand euros were deferred until 31 December 2018 (Note 15). Several guarantees were extended as collateral for the deferred amounts (Note 13-i). In addition, in a single deed, the loan held by Peñalvento with a financial institution for 20,192 thousand euros, including interest, was paid off early, which is expected to be registered in the property registry on 30 January 2018. With the acquisition of the aforementioned ownership interest, together with the 35.40% interest in the share capital of Peñalvento owned by Agisa, the Parent now owns all share capital of Peñalvento.

At 31 December 2018 and 2017, Colonial Invest, S.L.U., Colonial Tramit, S.L.U., Axiare Properties, S.L.U., SB2 SAS, SB3 SAS and SCI SB3 were inactive subsidiaries.

g) Comparison of information

The information relating to 2018 included in these notes to the consolidated financial statements is presented, for comparison purposes, with the information relating to 2017.

h) Aggregation of items

Certain items in the consolidated statement of financial position, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows are grouped together in order to facilitate comprehension. However, whenever the amounts involved are material, the information is broken down in the related notes to the consolidated financial statements.

i) Correction of errors

No significant errors were detected in the preparation of the accompanying consolidated financial statements that would have made it necessary to restate the amounts included in the consolidated financial statements for 2017.

j) Negative working capital

At 31 December 2018, the Group had a negative working capital of 176,230 thousand euros, however, the Group hassufficient undrawn lines of financing to cover this amount (Note 13).

3. Distribution of the Parent's profit

The distribution of profit for 2018 proposed by the Board of Directors of the Parent and that will be submitted for approval at the Annual General Meeting is as follows:

	Thousands of euros
Profit for the year of the Parent	36,308
To legal reserve To dividends	3,631 32,677
Total distributed	36,308

The Parent's Board of Directors will submit for approval at the Annual General Meeting a proposed distribution of dividends totalling 0.20 euros per share, which would give rise to a total maximum dividend of 101,623 thousand euros based on the current number of outstanding shares. The definitive amount of the dividend, as well as the nature of the reserves to be distributed, will be determined prior to its distribution based on the treasury shares held by the Parent (Note 12-f).

In the past five years, the Parent has distributed the following dividends:

Thousands of euros	2013	2014	2015	2016	2017
Dividends distributed	-	-	47,833	62,749	77,219

4. Accounting policies and measurement bases

The main accounting policies and measurement bases used to prepare the consolidated financial statements, in accordance with EU-IFRSs and the interpretations in force when these consolidated financial statements were prepared, are as follows:

a) Business combinations and intangible assets

Business combinations

Business combinations are accounted for by applying the acquisition method (Note 2-e).

The cost of the business combination is allocated at the acquisition date by recognising, at fair value, all assets, liabilities and contingent liabilities of the acquired entity that meet the criteria for recognition established in IFRS 3. The excess of the cost of a business combination over the acquiree's allocated assets, liabilities and contingent liabilities is recognised as goodwill, which, accordingly, represents advance payments made by the Colonial Group for future economic benefits generated by the assets of the acquiree that are not individually and separately identifiable and recognisable.

The negative different, if any, between the cost of the business combination and the allocation to assets, liabilities and contingent liabilities of the acquired entity, is recognised as profit or loss in the year in which it is incurred.

If a business combination is achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at fair value at the acquisition date and recognises any resulting gain or loss in the consolidated statement of comprehensive income or under other consolidated comprehensive income, where appropriate.

Intangible assets

As a general rule, intangible assets are initially measured at their acquisition or production cost. They are then measured at cost less the corresponding accumulated amortisation and, where applicable, less any impairment losses. These assets are amortised over their useful life.

b) Property, plant and equipment (Note 8)

Properties for own use, including other property, plant and equipment, are recognised at acquisition cost less any accumulated depreciation and any impairment.

Historical cost includes expenses directly attributable to the acquisition of the properties. Any potential impairment losses on the properties are recognised in accordance with the same valuation assumptions described in Note 4-d.

Subsequent costs are capitalised or recognised as a separate asset only when it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset can be determined reliably. Maintenance and upkeep expenses are charged to the consolidated statement of comprehensive income in the year incurred.

Group companies depreciate their property, plant and equipment for own use and other items of property, plant and equipment using the straight-line method, distributing the cost of the assets over the years of estimated useful life. The breakdown of the useful life of property for own use located in Spain and France is as follows:

	Years of estimated useful life
	Spain	France
Property for own use
Buildings	50	50
Fixtures	10 to 15	10 to 50
Other property, plant and equipment	4 to 10	5 to 50

Gains or losses arising on the disposal (Note 18-g) or derecognition of an asset (Note 18-f) from this heading are determined as the difference between the sale price and its carrying amount and are recognised in the consolidated statement of comprehensive income.

c) Investment property (Note 9)

"Investment property" in the consolidated statement of financial position reflects the values of land, buildings and other constructions held to either earn rents or to obtain capital gain from their future sale due to increases in their respective market prices.

Investment property is stated at its fair value at the end of the reporting period and is not subject to annual depreciation.

Profit or loss arising from changes in the fair value of investment property is included in income in the same period in which it occurs and recognised under "Changes in fair value of investment property" in the consolidated statement of comprehensive income. These gains or losses are not included in operating profit as the changes in value are not directly within the control of the Group's management.

Assets are transferred from investment property in progress to investment property when they are ready for use. The classification of an investment property to the investment property in progress heading takes place only when the rehabilitation or renovation project will exceed 1 year in length.

When the Group recognises as an increase in fair value of an investment property the cost of an asset that replaces another already included in such amount, the Group reduces the value of the property by the fair value of the asset replaced, recognising the impact under "Gains/(losses) on changes in value of assets and impairment" in the consolidated statement of comprehensive income (Note 18-f). If the fair value of the assets replaced cannot be reliably determined, the cost of the replacement is included in the carrying amount of the property, whose fair value is later reassessed periodically on the basis of appraisals performed by independent experts.

In accordance with IAS 40, the Group calculates the fair value of its investment property on a regular basis. Fair value is determined based on the valuations made by independent experts (Jones Lang LaSalle and CB Richard Ellis Valuation in Spain, and Jones Lang La Salle and Cushman & Wakefield in France, in both 2018 and 2017) at the date of preparing the consolidated statement of financial position, so that the year-end fair values for investment property items reflect prevailing market conditions. The valuation reports prepared by independent experts contain only the standard warnings and/or disclaimers concerning the scope of the findings of the appraisals carried out, referring basically to the comprehensiveness and accuracy of the information provided by the Group.

The Discounted Cash Flow (hereinafter, "DCF") method was primarily used to determine the market value of the Group's investment property in 2018 and 2017.

The DCF method applied over a 10-year horizon is used, in accordance with current market practices, unless the specific characteristics of the investment suggest another course of action. The cash flow is considered throughout the period on a monthly basis to reflect increases in the CPI, the timetable for future rent reviews, the maturity of operating leases, etc.

With regard the increases in the CPI, the generally accepted forecasts are normally adopted.

Given that the appraiser does not know with certainty whether there will be periods of vacancy in the future, nor their duration, their forecasts are prepared based on the quality and location of the building, and they will generally adopt an average lease period if there is no information about the future intentions of each tenant. The assumptions determined in relation to the periods of vacancy and other factors are explained in each valuation.

The resulting profitability or Terminal Capitalisation Rate (hereinafter, "TCR") adopted in each case refers not only to the market conditions forecast at the end of each cash flow period, but also to the rental conditions that are expected to be maintained and the physical location of the property, taking into account any possible improvements planned for the property and included in the analysis.

With regard to acceptable discount rates, conversations are regularly held with various institutions to assess their attitude towards different investment rates. This general consensus, together with the data on any sales made and market forecasts relating to variations in the discount rates, serve as starting points for the appraisers to determine the appropriate discount rate in each case.

The properties were assessed individually, considering each of the lease agreements in force at the end of the reporting period. Buildings with unlet floor space were valued on the basis of future estimated rental income, net of an estimated letting period.

The key inputs in this valuation method are the determination of net income, the period of time over which they are discounted, the estimated realisable value at the end of each period and the target internal rate of return used to discount the cash flows.

The estimated yields are mainly determined by the type, age and location of the properties, by the technical quality of the asset, as well as the type of tenant and occupancy rate, etc.

The yields and other assumptions used in determining future cash flows in 2018 and 2017 are set out in the tables below:

		Gross
	31 December	31 December
Yields (%) - Offices	2018	2017

Barcelona – Prime Yield
Leased out	4.72	4.92
Total portfolio	4.75	5.00

Madrid – Prime Yield
Leased out	4.53	4.56
Total portfolio	4.51	4.57

Paris – Prime Yield
Leased out	3.23	3.25
Total portfolio	3.24	3.26

		Assumptions made at 31 December 2018
Rent increases (%) - Offices	Year 1	Year 2	Year 3	Year 4	Year 5 and thereafter

Barcelona – Leased out	3.0	3.0	3.0	3.0	2.25
Total portfolio	3.0	3.0	3.0	3.0	2.25
Madrid –
Leased out	3.0	3.0	3.0	3.0	2.5
Total portfolio	3.0	3.0	3.0	3.0	2.5
Paris –
Leased out	0.5	1.0	1.5	1.5	1.5
Total portfolio	0.5	1.0	1.5	1.5	1.5

		Assumptions made at 31 December 2017
Rent increases (%) - Offices	Year 1	Year 2	Year 3	Year 4	Year 5 and thereafter

Barcelona –
Leased out	3.0	3.0	3.0	3.0	2.25
Total portfolio	3.0	3.0	3.0	3.0	2.25
Madrid –
Leased out	3.0	3.0	3.0	3.0	2.5
Total portfolio	3.0	3.0	3.0	3.0	2.5
Paris –
Leased out	1.0	1.50	2.0	2.0	2.0
Total portfolio	1.0	1.50	2.0	2.0	2.0

In addition, developments in progress were valued using the dynamic residual method, which was deemed the best approach. This method begins with an estimate of the income yielded by the developed and fully leased property; from this value, development, planning, construction and demolition costs, professional fees, permit and marketing costs, borrowing costs and development profit, among other items, are then deducted, in order to arrive at a price that a developer might pay for the asset under development.

A change of one-quarter of one point in yields would have the following impact on the valuations used by the Group at 31 December 2018 and 2017 to determine the value of its investment property: property, plant and equipment for own use, investment property, inventories and assets classified as held for sale.

		Thousands of euros
		Decrease of	Increase of
Sensitivity of valuations to a change of		one quarter of	one quarter of
one quarter of a point in yields	Valuation	a point	a point

December 2018	11,348,133	776,117	(671,522)
December 2017	8,933,035	639,037	(551,470)

A reconciliation between the valuations used by the Group and the carrying amounts of the headings of the consolidated statement of financial position where the valued assets are recognised, is as follows:

	31 December	31 December
	2018	2017

Headings of the consolidated statement of financial position -
Property, plant and equipment	34,734	33,781
Investment property (Note 9)	11,083,133	8,792,396
Inventories (Note 9)	46,587	-
Assets classified as held for sale (Note 22)	26,091	-
Trade and other receivables – Lease incentives (Note 11)	88,061	78,746
Total headings of the consolidated statement of financial position	11,278,606	8,904,923

Unrealised gains on assets recognised under IAS 16	31,614	28,292
Unrealised gains on other assets	11,913	-
Payments outstanding	26,000	-
Assets not valued	-	(180)
Valuation	11,348,133	8,933,035

Although the sensitivity of other key variables was considered, such analysis was not carried out given that reasonable changes that could arise would not lead to a material change in the fair value of the assets.

The income earned in 2018 and 2017 from the lease of investment properties amounted to 348,273 thousand euros and 283,287 thousand euros, respectively (Note 18-a) and is recognised under "Revenue" in the accompanying consolidated statement of comprehensive income.

In addition, the bulk of repair and maintenance expenses incurred by the Colonial Group in connection with the operation of its investment properties is passed on to the respective tenants (Note 4-q).

d) Impairment of property, plant and equipment

At each reporting date, the Colonial Group assesses the carrying amounts of its property, plant and equipment to determine if there are indications that the assets have been impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of the fair value of the asset less costs to sell or otherwise dispose of the asset and value in use. Where the asset does not generate cash inflows that are independent of those from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount; however, the increased carrying amount cannot exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cashgenerating unit) in prior years.

e) Financial instruments (excluding derivative financial instruments)

Financial assets (Note 10)

Initial recognition

Financial assets are initially recognised at the fair value of the consideration given, plus any directly attributable transaction costs.

Classification and subsequent measurement

The financial assets held by the Group are classified in the following categories:

Loans and receivables: this heading includes loans granted to third parties and associates. They are measured at face value and classified according to maturity. This heading also includes non-current deposits and

guarantees granted, primarily in relation to deposits placed with official entities in connection with guarantees collected from lessees, in accordance with prevailing legislation.

Investments held to maturity: this heading includes non-derivative financial assets, such as current and noncurrent fixed-income securities that are generally held until maturity and measured at amortised cost. Current fixed-income securities are recognised under "Current financial assets" in the consolidated statement of financial position. Interest income is calculated in the year in which it accrues, in accordance with financial criteria.
Available-for-sale financial assets: this heading includes investments where the Group does not exercise significant influence or control. They are measured at fair value and the profit or loss on changes in this fair value is recognised under other consolidated comprehensive income.

Financial liabilities (Note 13)

Financial liabilities consist primarily of bank borrowings and bond issues and are recognised at amortised cost.

Accounts payable are initially measured at the fair value of the consideration received, adjusted for directly attributable transaction costs, and are subsequently measured at amortised cost.

Financial liabilities are derecognised when the obligations giving rise to them cease to exist. When debt instruments are exchanged between the Group and a third party, as long as these instruments have substantially different conditions, the Group derecognises the original financial liability and recognises the new financial liability. The difference between the carrying amount of the original liability and the consideration paid, including any attributable transaction costs, is recognised in the consolidated statement of comprehensive income.

The Group considers the terms and conditions of financial liabilities to differ substantially whenever the present value of the discounted cash flows, under the new terms and conditions, including any fees and commissions paid, net of any fees and commissions received and using the original effective interest rate in discounting, differs by at least 10% from the discounted present value of the cash flows still remaining from the original financial liability.

f) Receivables (Note 11)

Receivables are measured at their recoverable amount, i.e. net, where applicable, of the allowances recognised to cover past-due balances where circumstances reasonably warrant their consideration as doubtful debts.

g) Cash and cash equivalents (Note 13-l)

This heading includes bank deposits, carried at the lower of cost or market value.

Financial investments that are readily convertible into a known amount of cash and that are not subject to any significant risk of changes in value are deemed to be cash equivalents.

Bank overdrafts are not considered to be cash and cash equivalents.

h) Own equity instruments (Note 12)

An equity instrument represents a residual interest in the equity of the Parent after deducting all of its liabilities.

Equity instruments issued by the Parent are recognised in equity at the proceeds received, net of direct issue costs.

Any treasury shares of the Parent acquired during the year are recognised as a deduction from equity at the value of the consideration paid. Any gains or losses on the acquisition, sale, issue or retirement of own equity instruments are recognised directly in equity and not in the consolidated statement of comprehensive income.

i) Provisions and contingent liabilities (Note 16)

In preparing the consolidated financial statements, the Parent's directors distinguish between:

Provisions: credit balances covering obligations arising as a consequence of past events which could give rise to liabilities at the Group companies, the nature of which is certain but the amount and timing of which cannot be determined, and
Contingent liabilities: possible obligations arising from past events, the materialisation of which will be confirmed only by the occurrence or non-occurrence of one or more future events not within the control of the consolidated companies.

The consolidated financial statements include all the material provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. Contingent liabilities are not recognised, but are disclosed in Note 16.

The provisions, which are quantified taking into consideration the best information available concerning the consequences of the events on which they are based, and which are revised at each reporting close, are recognised in order to cover the specific and likely risks for which they were originally recognised, and are fully or partially reversed if and when said risks cease to exist or are reduced.

j) Employee benefits

Termination benefits

Under current legislation, the Group is required to pay severance to employees terminated under certain conditions. Severance payments that can be reasonably quantified are recorded as a expense in the year in which the decision to terminate the contract is taken and a valid expectation regarding termination is transmitted to third parties. At 31 December 2018, the Parent did not record any provisions in this connection.

Pension obligations

In 2018 and 2017 the Parent assumed a commitment with executive directors and one member of senior management to make a defined contribution to an external pension plan that meets the requirements established by Royal Decree 1588/1999, of 15 October.

At 31 December 2018 and 2017, the SFL subgroup had several defined benefit pension plans. Defined benefit obligations are calculated on a regular basis by independent actuarial experts. The actuarial assumptions used to calculate these liabilities are adapted to the situation and to applicable French legislation, in accordance with IAS 19. The actuarial cost recorded in the consolidated statement of comprehensive income in relation to these plans is the sum of the service costs for the period, the interest expense and actuarial gains and losses. At 31 December 2018, net liabilities for defined benefits amounted to 902 thousand euros (872 thousand euros at 31 December 2017).

Share-based payments (Note 19)

The Group recognises the goods and services received as an asset or an expense, depending on their nature, when they are received, along with an increase in equity if the transaction is settled using equity instruments or the corresponding liability if the transaction is settled at an amount based on the value of the equity instruments.

In the case of transactions settled with equity instruments, 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. If, on the other hand, they are settled in cash, the goods and services received and the corresponding liability are recognised at the fair value of the goods and services received as of the date on which the recognition requirements are met.

k) Derivative financial instruments (Note 14)

The Group uses financial derivatives to manage its exposure to variations in interest rates. All derivative financial instruments, whether or not they are designated as hedging instruments, are carried at fair value, market value in the case of listed securities, or using option valuation methods or discounted cash flow analysis for non-listed securities. The fair value of the derivative financial instruments is determined based on the valuations made by independent experts (Solventis A.V., S.A., in 2018 and 2017).

The following valuation criteria have been applied:

Cash-flow hedges: fair value gains or losses arising on transactions which classify for hedge accounting are recognised, net of taxes, directly in other consolidated comprehensive income, under "Gains/(losses) on hedging instruments", until the underlying or expected transaction occurs, at which point they are reclassified, where appropriate, to "Finance costs" or "Finance income" in the consolidated statement of comprehensive income. Any valuation gains and losses on the ineffective portion of the hedge are recognised directly as financial profit or loss in the consolidated statement of comprehensive income.
Treatment of financial instruments that are not allocated to a specific liability and do not qualify for hedge accounting: gains or losses arising from the restatement at fair value of these financial instruments are recognised directly as financial profit or loss in the consolidated statement of comprehensive income.

In accordance with IFRS 13, the Group estimated its own credit risk and that of the counterparty in the measurement of its derivative portfolio.

Hedge accounting is discontinued when a hedging instrument expires or is sold or exercised, or when the hedge no longer qualifies for hedge accounting. Gains or losses on hedging instruments recognised in other consolidated comprehensive income remain under this heading until the related transaction is performed. Once the related cash flow occurs, any cumulative gain or loss recognised in other consolidated comprehensive income is transferred to consolidated net profit or loss for the year. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in other consolidated comprehensive income is transferred to consolidated net profit or loss for the year.

Prospective and retrospective testing for hedge effectiveness is carried out on a monthly basis:

Retrospective tests measure how effectively the instrument would have hedged the liability over its life, using historical interest rates to date.
Prospective tests measure the instrument's expected effectiveness on the basis of forward interest rates as published by Bloomberg at the measurement date. This is adjusted monthly from the inception of the hedge on the basis of the historical interest rates already established.

The method used to determine the effectiveness of hedging instruments consists of calculating the statistical correlation between the benchmark interest rates at each measurement date for the derivative and the related hedged liability, taking into consideration that the hedging instrument is considered effective if this statistical correlation is between 0.80 and 1.

The Group's use of financial derivatives is governed by a set of approved risk management policies and hedges.

l) Current / non-current

The normal operating cycle is understood to be the period of time between the acquisition of the assets that form part of the Group's various business activities and the realisation of the finished assets in the form of cash or cash equivalents.

The Group's primary business is the lease of assets and its normal business cycle is the calendar year. Therefore, assets and liabilities maturing in one year or less are classified as current assets and those maturing in more than one year are classified as non-current assets, except for receivables arising from the recognition of lease incentives (Notes 4-n and 11-b), which are applied on a straight-line basis over at least the term of the lease agreement and are considered to be current assets.

Bank borrowings are classified as non-current if the Group has the irrevocable right to make payments after twelve months from the end of the reporting period.

m) Income tax (Note 17)

General regime

The expense for Spanish corporate income tax and similar taxes applicable to consolidated foreign operations is recognised in the consolidated statement of comprehensive income, except when the tax expense is generated by a transaction whose gains or losses are taken directly to equity, in which case the corresponding tax is also recognised in equity.

Income tax expense is the sum of the tax payable on profit for the year and the variation in recognised deferred tax assets and liabilities.

Corporate income tax expense for the year is calculated based on taxable profit for the year, which differs from the net profit or loss presented in the consolidated statement of comprehensive income because it excludes certain taxable profit and deductible expenses from prior years, as well as other exempt items. The Group's current tax liabilities are calculated using tax rates that have been enacted or substantively enacted by the reporting date.

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, deferred tax assets not recorded in the consolidated statement of financial position are reassessed at the end of each reporting period and are recorded to the extent that it has become probable that they will be recovered through future taxable profits. In accordance with IAS 12, changes in deferred tax assets and liabilities caused by changes in tax rates or tax laws are recognised in the consolidated statement of comprehensive income for the year in which these changes are approved.

In accordance with that established in IAS 12, the measurement of the Group's deferred tax liabilities reflects the tax consequences that would follow from the manner in which the carrying amount of its assets is expected to be recovered or settled. In this regard, for deferred tax liabilities that arise from investment properties that are measured using the IAS 40 fair value model, there is a refutable presumption that their carrying amount will be recovered through their sale. Consequently, the deferred tax liabilities arising from the Group's investment properties located in Spain were calculated by applying a tax rate of 25%, less any existing tax credits not recognised at 31 December 2018. The effective settlement rate was therefore 18.75%.

Until 31 December 2016, the Parent was the head of a group of companies filing consolidated tax returns under tax group no. 6/08.

REIT Regime

Effective as of 1 January 2017 (Note 1), the tax regime of the Parent and the majority of its subsidiaries is governed by Law 11/2009, of 26 October, as amended by Law 16/2012, of 27 December, governing listed real estate investment companies (REITs). Article 3 establishes the investment requirements of this type of company, namely:

REITs must have invested at least 80% of the value of their assets in urban properties earmarked for lease, in land to develop properties to be earmarked for that purpose, provided that development begins within three years following their acquisition, and in equity investments in other companies referred to in Article 2.1 of the aforementioned Law.

The value of the asset is calculated based on the average of the quarterly individual balance sheets of the year. To calculate this value, the REIT may opt to substitute the carrying amount for the fair value of the items contained in these balance sheets, which will apply to all the balance sheets of the year. Any money or collection rights arising from the transfer of the aforementioned properties or investments made in the year or in prior years will not be included in the calculation unless, in the latter case, the reinvestment period referred to in Article 6 of the aforementioned Law has expired.

This percentage must be calculated on the average of the consolidated balances if the company is the parent of a group, in accordance with the criteria established in Article 42 of the Spanish Commercial Code, regardless of its place of residence and of the obligation to formally prepare consolidated financial statements. Such a group must be composed exclusively of the REITs and the other entities referred to in Article 2.1 of the aforementioned Law.

Similarly, at least 80% of the rental income from the tax period corresponding to each year, excluding the rental income arising from the transfer of the ownership interests and the properties used by the company to achieve its main corporate purpose, once the holding period referred to below has elapsed, should be obtained from the lease of properties and dividends or shares of profits arising from the aforementioned investments.

This percentage must be calculated on the basis of consolidated profit if the company is the parent of a group, in accordance with the criteria established in Article 42 of the Spanish Commercial Code, regardless of its place of residence and of the obligation to formally prepare consolidated financial statements. Such a group must be composed exclusively of the REITs and the other entities referred to in Article 2.1 of the aforementioned Law.

The properties included in the REIT's assets should remain leased for at least three years. The time during which the properties have been made available for lease will be included in calculating this term, with a maximum of one year.

The term will be calculated:

a) For properties that are included in the REIT's assets before the company avails itself of the regime, from the beginning 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 shall apply.

b) For properties developed or acquired subsequently by the REIT, from the date on which they were leased or made available for lease for the first time.

c) In the case of shares or ownership interests in the companies referred to in Article 2.1 of this Law, they should be retained on the asset side of the REIT's balance sheet for at least three years following their acquisition or, as appropriate, from the beginning of the first tax period in which the special tax regime set forth in this Law is applied.

As established in transitional provision one of Law 11/2009, of 26 October, amended by Law 16/2012, of 27 December, governing listed real estate investment companies, these companies may opt to apply the special tax regime under the terms and conditions established in Article 8 of this Law, even if it does not meet the requirements established therein, provided that such requirements are met within two years after the date of the option to apply that regime.

Failure to meet this condition will require the REIT to file income tax returns under the general tax regime from the tax period in which the aforementioned condition is not met. The REIT will also be obliged to pay, together with the amount relating to the aforementioned tax period, the difference between the amount of tax payable under the general tax regime and the amount paid under the special tax regime in the previous tax periods, including any applicable late-payment interest, surcharges and penalties.

The corporate income tax rate for REITs was set at 0%. However, where the dividends that the REIT distributes to its shareholders holding an ownership interest equal to or exceeding 5% are exempt from tax or are subject to a tax rate lower than 10%, at the main office of this shareholder, the REIT shall be subject to a special charge of 19%, which shall be considered to be the income tax charge, on the amount of the dividend distributed to these shareholders. If applicable, this special charge must be paid by the REIT within two months after the dividend distribution date.

SIIC regime – SFL subgroup

Since 1 January 2003, the SFL subgroup companies have filed tax returns under the French tax regime applicable to listed real estate investment companies ("the SIIC regime"). This regime enabled the assets allocated to the rental business to be recognised at market value at the date on which it availed itself of this tax regime, currently subject to a tax rate of 19% (hereinafter, "exit tax"), payable within a period of four years, on the capital gains recognised.

This regime affects only real estate activities, and is not applicable to companies engaged in sales and services, such as Segpim, S.A. and Locaparis SAS in the SFL subgroup, to properties under finance leases (unless the lease is cancelled early) or to the subgroups and investees in conjunction with third parties.

This regime affords the SFL subgroup an exemption from taxes on earnings generated from its rental business and on capital gains obtained from the sale of properties, provided that 95% of profit from that activity and 60% of the capital gains obtained from property sales of companies under this regime are distributed each year in the form of dividends.

On 30 December 2006, a new amendment to the SIIC regime ("SIIC 4") was approved, which established, among other provisions, that dividends paid annually to shareholders that directly or indirectly hold more than 10% of the share capital of an SIIC and that are exempt from tax or subject to a tax rate that is less than two-thirds of the standard French income tax rate would be subject to a 20% levy, payable by the SIIC. This provision applies to the dividends distributed from 1 July 2007 onwards. At 31 December 2007, the Parent notified SFL that dividends distributed from 1 July 2007 would be taxed in Spain at a rate of over 11.11% as a result of the partial waiver of the exemption for these dividends. As a result, the 20% tax withheld at source described above was not applicable.

After the Parent adhered to the REIT regime, the 20% tax withheld at source was no longer applicable, provided the significant shareholders comply with their minimum tax obligations in accordance with SIIC regulations.

n) Revenue and expenses (Note 18)

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.

However, in accordance with the accounting principles established in the EU-IFRS conceptual framework, the Group recognises revenue when it is earned together with all the necessary associated expenses. The sale of goods is recognised when the goods have been delivered and ownership transferred.

Interest income is accrued on a time proportion basis, according to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts the future cash receipts estimated over the expected life of the financial asset from the asset's carrying amount.

Dividend income from investments is recognised when the shareholder's rights to receive payment have been established, i.e. when shareholders at the Annual General Meetings of the subsidiaries approve the distribution of the corresponding dividend.

Property leases-

In accordance with IFRS 16, leases are classified as finance leases whenever their terms imply that substantially all the risks and rewards incidental to ownership of the leased asset have been transferred to the lessee. Other leases are classified as operating leases. At 31 December 2018 and 2017, all of the Group's leases qualified as operating leases.

Revenue from operating leases is recognised as income on a straight-line basis over the term of the lease, and the initial direct costs incurred in arranging these operating leases are taken to the consolidated statement of comprehensive income on a straight-line basis over the minimum term of the lease agreement.

The minimum term of a lease is considered to be the time elapsed from the start of the lease to the first option for renewing the lease.

Specific lease terms and conditions: lease incentives -

Lease agreements include certain specific conditions linked to incentives or rent-free periods offered by the Group to its customers. The Group recognises the aggregate cost of incentives granted as a reduction in rental income of the lease agreement. The effects of the rent-free periods are recognised during the minimum term of the lease agreement on a straight-line basis.

The indemnity payments made by lessees to cancel their lease agreements prior to their minimum termination date are also recognised as income in the consolidated statement of comprehensive income on the date on which they are claimable by the Group.

o) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of investment property (Note 9), which require preparation during a significant period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

p) Consolidated statement of cash flows (indirect method)

The terms used in the consolidated statement of cash flows are defined as follows:

Cash flows: inflows and outflows of cash and equivalent financial assets, 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 and other activities that are not investing or financing activities.
Investing activities: the acquisition, sale or disposal by other means of non-current assets and other investments not included in cash and cash equivalents.
Financing activities: activities that result in changes in the size and composition of equity and borrowings that are not operating activities.

q) Costs passed on to lessees

In accordance with EU-IFRSs, the Group does not consider the costs incurred by lessees from its investment properties as income and they are recognised, less the corresponding costs, in the consolidated income statement. In 2018 and 2017, a total of 65,341 thousand euros and 46,935 thousand euros, respectively, were invoiced in this regard.

Direct operating expenses associated with investment properties that generated rental income in 2018 and 2017, included under "Operating profit" in the consolidated income statement, amounted to 82,681 thousand euros and 65,841 thousand euros, respectively, prior to deducting the costs passed on to the lessees. The expenses incurred in connection with investment properties that did not generate rental income were not significant.

r) Related party transactions

The Group's transactions with related parties are all carried out at market prices. Furthermore, the transfer prices applied are fully documented and supported and the Parent's directors therefore do not consider that transfer prices pose a significant risk that could give rise to a material liability in the future.

s) Assets classified as held for sale (Note 22)

Assets classified as held for sale are measured at the lower of their carrying amount in accordance with applicable measurement rules and fair value less costs to sell.

Non-current assets are classified as held for sale if it is estimated that their carrying amounts will be recovered principally through a sale rather than through continuing use. This condition is met when the sale of the asset is considered highly probable, the asset is ready for immediate sale in its current state and the sale is expected to be fully complete within a period of no more than twelve months from the classification of the asset as held for sale.

The Colonial Group classifies assets as held for sale when the Board of Directors or Executive Committee has officially approved the disposal and the sale is considered highly probable within a period of twelve months.

t) Inventories

Inventories, consisting of land, developments under construction and finished developments, are measured at acquisition cost or execution cost.

Execution cost includes direct and indirect construction costs in addition to the expenses incurred in financing the construction work while in progress, as long as the construction work takes longer than one year.

Prepayments made in connection with call options on properties are recognised as inventory prepayments and it is assumed that expectations regarding the conditions enabling their exercise will be met.

The Group records inventory impairment provisions, as appropriate, when market value is lower than carrying amount.

The corresponding valuation was carried out based on appraisals performed by independent experts (Jones Lang LaSalle) in accordance with the Appraisal and Valuation Standards issued by the Royal Institute of Chartered Surveyors (RICS) of the United Kingdom, and the International Valuation Standards (IVS) issued by the International Valuation Standards Committee (IVSC).

The land portfolio was valued using the residual method, which was deemed the best approach. This approach was complemented by the use of the comparable sales method in order to verify the consistency of the resulting unit valuations.

Developments in progress were valued using the dynamic residual method, which was deemed the best approach. This method begins with an estimate of the income yielded by the developed and fully leased property; from this value, development, planning, construction and demolition costs, professional fees, permit and marketing costs, borrowing costs and development profit, among other items, are then deducted, in order to arrive at a price that a developer might pay for the asset under development.

In 2018 no capitalised borrowing costs associated with inventories were recognised.

u) Fair value hierarchy

Financial assets and liabilities measured at fair value are classified according to the following hierarchy established in IFRS 7 and IFRS 13:

Level 1: Inputs are based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs are based on quoted prices for similar assets or liabilities in active markets (not included in level 1), prices quoted for identical or similar assets or liabilities in markets that are not active, techniques based on valuation models for which all relevant inputs are observable in the market or can be corroborated by observable market data.
Level 3: In general, inputs are unobservable and reflect estimates based on market assumptions to determine the price of the asset or liability. Unobservable data used in the valuation models are significant in the fair values of the assets and liabilities.

In accordance with IFRS 13, the Group estimated the bilateral credit risk in order to reflect both its own risk, as well as counterparty risk in the fair value of its derivatives (Note 4-k). Credit risk at 31 December 2018 and 2017 was not considered to be material.

The detail of the Group's financial assets and liabilities measured at fair value according to the aforementioned levels is as follows:

31 December 2018

		Thousands of euros
	Level 1	Level 2	Level 3

Assets
Non-current financial assets available for sale	-	-	-
Derivative financial instruments:
Not classified as hedges	-	591	-
Total assets (Note 10)	-	591	-

Liabilities
Derivative financial instruments:
Classified as hedges	-	2,650	-
Not classified as hedges	-	1,041	-
Total liabilities (Note 14)	-	3,691	-

31 December 2017

		Thousands of euros
	Level 1	Level 2	Level 3

Assets
Non-current financial assets available for sale	419,277	-	-
Derivative financial instruments:
Not classified as hedges	-	1,484	-
Total assets (Note 10)	419,277	1,484	-
Liabilities
Derivative financial instruments:
Classified as hedges	-	348	-
Not classified as hedges	-	153	-
Total liabilities (Note 14)	-	501	-

5. Earnings per share

Basic earnings per share are calculated by dividing earnings for the year attributable to shareholders of the Parent (after tax and non-controlling interests) by the weighted average number of shares outstanding during that year.

At 31 December 2018 and 2017, there were no instruments that may have had a diluting effect on the Parent's average number of ordinary shares.

		Thousands of euros
	31 December 2018	31 December 2017
Consolidated profit for the year attributable to shareholders of the Parent:	524,763	682,523
	No. of shares	No. of shares
Weighted average number of ordinary shares (in thousands)	448,214	373,312
	Euro	Euro
Basic earnings per share Diluted earnings per share:	1.17 1.17	1.83 1.83

6. Segment reporting

a) Segmentation criteria

Segment reporting is organised, firstly, on the basis of the Group's business segments, and, secondly, by geographical segment.

The business lines described below have been defined in line with the Colonial Group's organisational structure at 31 December 2018 and 2017, which has been used by the Group's management to analyse the financial performance of the various operating segments.

b) Basis and methodology for business segment reporting

The segment information below is based on monthly reports prepared by Group management, generated using the same computer application that prepares all of the Group's accounting data.

Segment revenue comprises revenue directly attributable to each segment, as well as gains from the sale of investment properties. Segment revenue excludes both interest and dividend income.

Segment expenses comprise operating expenses directly attributable to each segment and losses on the sale of investment properties. Allocated expenses do not include interest, the income tax expense or general administrative expenses incurred in the provision of general services that are not directly allocated to any business segment.

Segment assets and liabilities are those directly related to the segment's operating activities. The Group has no set criteria for allocating borrowings or equity by business segment. Borrowings are attributed in full to the "Corporate Unit".

Segment information for these businesses is as follows:

2018 segment reporting

	Thousands of euros
			Equity			Corporate
	Barcelona	Madrid	Paris	Other	Total equity	Unit	Total Group
Income
Revenue (Note 18-a) Other income (Note 18-b)	41,629 20	106,144 281	193,509 3,943	6,757 -	348,039 4,244	234 1,433	348,273 5,677
Net gains/(losses) on sales of assets (Note 18-g)	-	11,745	21	(45)	11,721	-	11,721
Operating profit/(loss) Changes in fair value of investment property	38,802	105,522	185,577	6,466	336,367	(60,845)	275,522
(Note 18-f) Gains/(losses) on changes in value of assets and	180,263	237,583	289,014	(4,908)	701,952	-	701,952
impairment (Note 18-f)	(15,610)	(10)	-	-	(15,620)	(115,770)	(131,390)
Financial profit/(loss) (Note 18-h)	-	-	-	-	-	(141,745)	(141,745)
Profit before tax	-	-	-	-	-	704,339	704,339
Consolidated net profit	-	-	-	-	-	678,109	678,109
Net profit/(loss) attributable to non-controlling interests (Note 18-j)	-	-	-	-	-	(153,346)	(153,346)
Net profit/(loss) attributable to shareholders of the Parent (Note 5)	-	-	-	-	-	524,763	524,763

There were no significant inter-segment transactions in 2018.

None of the Group's customers represented more than 10% of the income from ordinary activities.

		Thousands of euros
		Equity
	Barcelona	Madrid	Paris	Other	Total equity	Corporate Unit	Total Group
Assets
Goodwill	-	-	-	-	62,225	-	62,225
Intangible assets, property,
plant and equipment,
investment property, assets
classified as held for sale and
inventories (Notes 8, 9 and
22).	1,246,581	3,344,285	6,459,341	111,540	11,161,747	41,155	11,202,902
Financial assets	2,468	3,714	820	2	7,004	95,043	102,047
Other non-current assets	-	-	-	-	-	411	411
Trade receivables and other
current assets
	-	-	-	-	-	119,729	119,729
Total assets	1,249,049	3,347,999	6,460,161	111,542	11,230,976	256,338	11,487,314

		Thousands of euros
			Equity
	Barcelona	Madrid	Paris	Other	Total equity	Corporate Unit	Total Group
Liabilities
Bank borrowings and other
financial liabilities (Note 13)	-	-	-	-	-	733,028	733,028
Bonds and similar	-	-	-	-	-	4,061,108	4,061,108
securities issued (Note 13)
Operating liabilities (suppliers	-	-	-	-	-	114,779	114,779
and payables)
Other liabilities	-	-	-	-	-	476,604	476,604
Total liabilities	-	-	-	-	-	5,385,519	5,385,519

			Thousands of euros

	Barcelona	Madrid	Paris	Other	Total equity	Corporate Unit	Total Group
Other information
Investments in intangible assets, property, plant and equipment and investment property	82,105	104,899	50,667	871	238,542	1,918	240,460
Depreciation and amortisation	(62)	(302)	(468)	-	(832)	(2,521)	(3,353)
Expenses that do not entail outflows of cash other than the depreciation and amortisation for the year:
- Changes in provisions (Note 18-e)	(95)	266	(660)	-	(489)	2,925	2,436
- Changes in fair value of investment property (Note 18-f) - Gains/(losses) on changes in value of assets	180,263	237,583	289,014	(4,908)	701,952	-	701,952
and impairment (Note 18-f)	(15,610)	(10)	-	-	(15,620)	(115,770)	(131,390)

2017 segment reporting

			Equity			Corporate
	Barcelona	Madrid	Paris	Other	Total equity	Unit	Total Group
Income
Revenue (Note 18-a)	34,871	52,270	195,780	366	283,287	-	283,287
Other income (Note 18-b)	7	69	2,145	-	2,221	493	2,714
Net gains/(losses) on sales of assets (Note 18-g)	8	519	-	-	527	-	527
Operating profit/(loss)	33,497	46,300	188,513	260	268,570	(60,048)	208,522
Changes in fair value of investment property
(Note 18-f)	78,155	139,404	715,421	455	933,435	-	933,435
Gains/(losses) on changes in value of assets and
impairment (Note 18-f)	(287)	(2,129)	-	-	(2,416)	(2,804)	(5,220)
Financial profit/(loss) (Note 18-h)	-	-	-	-	-	(79,445)	(79,445)
Profit before tax	-	-	-	-	-	1,057,292	1,057,292
Consolidated net profit	-	-	-	-	-	1,080,451	1,080,451
Net profit/(loss) attributable to non-controlling
interests (Note 18-j)	-	-	-	-	-	(397,928)	(397,928)
Net profit/(loss) attributable to shareholders of
the Parent (Note 5)	-	-	-	-	-	682,523	682,523

There were no significant inter-segment transactions in 2017.

None of the Group's customers represented more than 10% of the income from ordinary activities.

	Thousands of euros
		Equity
	Barcelona	Madrid	Paris	Other	Total equity	Corporate Unit	Total Group
Assets
Intangible assets,
property, plant and
equipment and
investment property
(Notes 8 and 9)	906,338	1,759,960	6,119,969	7,691	8,793,958	40,844	8,834,802
Financial assets	1,659	3,899	2,181	-	7,739	1,541,224	1,548,963
Other non-current
assets	-	-	-	-	-	407	407
Trade receivables and other current
assets	-	-	-	-	-	123,347	123,347
Total assets	907,997	1,763,859	6,122,150	7,691	8,801,697	1,705,822	10,507,519

	Thousands of euros
		Equity
	Barcelona	Madrid	Paris	Other	Total equity	Corporate Unit	Total Group
Liabilities
Bank borrowings and other financial liabilities (Note 13)	-	-	-	-	-	896,587	896,587
Bonds and similar securities issued (Note 13)	-	-	-	-	-	3,321,207	3,321,207
Operating liabilities (suppliers and payables)	-	-	-	-	-	143,880	143,880
Other liabilities	-	-	-	-	-	466,147	466,147
Total liabilities	-	-	-	-	-	4,827,821	4,827,821

		Equity
Barcelona	Madrid	Paris	Other	Total equity	Unit	Total Group

10,447	25,236	96,452	66	132,201	3,648	135,849
(1)	(118)	(485)	-	(604)	(1,841)	(2,445)

(61)	(24)	1,915	-	1,830	(7,534)	(5,704)
78,155	139,404	715,421	455	933,435	-	933,435
(287)	(2,129)	-	-	(2,416)	(2,804)	(5,220)
					Thousands of euros	Corporate

7. Goodwill

The changes in this heading in 2018 were as follows:

	Thousands of
	euros
	Goodwill
Balance at 31 December 2017	-
Business combinations (Note 2-a)	176,529
Impairment of goodwill (Note 18)	(114,304)
Balance at 31 December 2018	62,225

The goodwill recognised at 31 December 2018 relates to the business combination with Axiare Patrimonio SOCIMI, S.A. and subsidiaries (Note 2-a).

At 31 December 2018, the amount of goodwill was reduced in line with the revaluation of investment property arising from the business combination (Note 2-a).

The recoverable amount was estimated on the basis of its value in use, which was based on assumptions of cash flows, growth rates and discount rates consistent with those applied in the calculation of the market values of investment property.

The value in use has been calculated as the present value of the cash flows resulting from the financial projections discounted at rates that take into account specific risks of the assets and the implementation of a strategic plan based on a long-term approach. The projections are made for a time horizon of 10 years.

The projections are prepared based on the evolution and historical experience in the market of similar assets under the management of the Colonial Group.

The main variables that influence the calculations of these projections are:

A discount rate of 4.60%, taking into account the exit yields used by independent experts in the valuations of the assets of the Axiare subgroup.
Income flows, in line with expected market rents, and new expected rents derived from current portfolio investment projects.

8. Property, plant and equipment

The changes in this heading of the consolidated statement of financial position in 2018 and 2017 were as follows:

		Thousands of euros
	Properties for own use	Other property, plant and equipment	Total
Balance at 31 December 2016	32,328	11,733	44,061
Acquisition cost	44,783	19,570	64,353
Accumulated depreciation	(7,814)	(7,837)	(15,651)
Accumulated impairment	(4,641)	-	(4,641)
Additions	2,077	982	3,059
Additions to the scope of consolidation (Note 2-f)	195	130	325
Depreciation charge	(434)	(1,033)	(1,467)
Disposals	(97)	(197)	(294)
Transfers	(13)	(3,886)	(3,899)
Impairment (Note 18-f)	(287)	(2,129)	(2,416)
Balance at 31 December 2017	33,769	5,600	39,369
Acquisition cost	42,697	12,814	55,511
Accumulated depreciation	(4,000)	(7,214)	(11,214)
Accumulated impairment	(4,928)	-	(4,928)
Additions	2,947	977	3,924
Additions to the scope of consolidation (Note 2-f)	131	505	636
Depreciation charge	(575)	(1,063)	(1,638)
Disposals	(270)	(330)	(600)
Transfers	-	11	11
Impairment (Note 18-f)	1,630	-	1,630
Balance at 31 December 2018	37,632	5,700	43,332
Acquisition cost	44,789	13,553	58,342
Accumulated depreciation	(3,859)	(7,853)	(11,712)
Accumulated impairment	(3,298)	-	(3,298)

At 31 December 2018 and 2017, the Group used two floors of the building located at Avenida Diagonal, 530, in Barcelona, one floor of the building located at Paseo de la Castellana, 52, in Madrid and one floor of the building located at 42 rue Washington in Paris for its own use, while the rest of these buildings are rented out. The cost of buildings earmarked for the Group's own use is recognised under "Properties for own use".

On 5 September 2017, the subsidiary Finresa sold an asset for 425 thousand euros, resulting in the disposal of 193 thousand euros and a profit of 190 thousand euros.

In 2017 certain assets amounting to 3,899 thousand euros were reclassified to "Investment property" in the consolidated statement of financial position (Note 9), given that the Group expects to earn rental income or obtain a gain from its sale as a result of future increases in their market prices.

At 31 December 2018, it became evident that an impairment loss in the amount of 1,630 thousand euros had to be reversed, evidenced by the appraisals performed by independent experts (Note 18-f). In 2017, an impairment loss on the value of the assets in the amount of 2,416 thousand euros was recognised (Note 18-f).

Lastly, assets amounting to 538 thousand euros and 101 thousand euros were derecognised due to being replaced in 2018 and 2017, respectively (Note 18-f).

9. Investment property

The changes in this heading of the consolidated statement of financial position in 2018 and 2017 were as follows:

		Thousands of euros
		Investment
	Investment property	property in	Total
		progress
Balance at 31 December 2016	7,462,928	299,699	7,762,627
Additions	74,277	57,175	131,452
Additions to the scope of consolidation (Note 2-f)	359,678	11,033	370,711
Disposals (Note 18-g)	(5,049)	-	(5,049)
Transfers (Notes 8 and 22)	(271,528)	(132,925)	(404,453)
Changes in fair value (Note 18-f)	925,082	12,026	937,108
Balance at 31 December 2017	8,545,388	247,008	8,792,396
Additions	106,450	127,148	233,598
Additions to the scope of consolidation (Note 2-f)	1,700,094	110,616	1,810,710
Disposals (Note 18-g)	(358,466)	(24,368)	(382,834)
Transfers (Notes 8, 9 and 22)	(147,292)	(74,603)	(72,689)
Changes in fair value (Note 18-f)	651,382	50,570	701,952
Balance at 31 December 2018	10,497,556	585,577	11,083,133

Movements in 2018

The additions for the year relate to the following transactions:

On 18 January 2018, Colonial acquired an asset located in Plaza Gal-la Placidia, Barcelona, for 13,744 thousand euros, including acquisition costs.
On 2 July 2018, the Parent acquired a property located at Avenida Diagonal 525, Barcelona, for 29,285 thousand euros, including purchase costs, and provided the seller with guarantees to secure payment of the deferred amounts.
In September 2018, the Parent acquired a property located at Josefa Valcárcel, 40bis, for 30,201 thousand euros, including acquisition costs.
In 2018, the Parent finalised the acquisition of three logistics warehouses in San Fernando de Henares, making payments for a total amount of 17,842 thousand euros, including acquisition costs, established in the turnkey contract.
The other additions in 2018 relate to the investments made in various properties, both under development and in operation, for a total amount of 142,526 thousand euros, including 5,307 thousand euros in capitalised borrowing costs.

In addition, as indicated in Note 2-f, the following additions were made to the scope of consolidation:

In January 2018, the Parent acquired all the shares of the subsidiary Egeo, which resulted in an addition of 79,337 thousand euros to the scope of consolidation of the office building owned by the subsidiary.
In February 2018, the business combination between the Parent and Axiare Patrimonio, SOCIMI, S.A. was recognised (Note 2-a), which led to the addition of 1,731,373 thousand euros to the scope of consolidation.

The derecognitions in 2018 relate to the following transactions (Notes 4-c and 18-g):

On 11 January and 12 June 2018, the Parent disposed of premises located on calle Orense in Madrid and a flat in Tenerife for a total joint sale of 1,930 thousand euros, giving rise to a net profit of 713 thousand euros, taking into account the indirect costs of the sale.
On 9 March 2018, the Parent sold a shopping centre in Collado Villalba (Madrid) for 19,700 thousand euros. The transfer did not generate any margin.
On 21 May 2018, the Parent sold a hotel in Madrid for 15,500 thousand euros. The transfer did not generate any margin.
On 26 September 2018, the Parent sold six properties located in Madrid for a total of 281,500 thousand euros.
On 27 December 2018, the Parent sold an asset located in Madrid for 5,300 thousand euros.
Lastly, assets amounting to 15,618 thousand euros were derecognised due to being replaced in 2018 (Note 18-f).

On 3 October 2018, the Parent entered into a sale and purchase agreement, subject to conditions precedent, for an assets to be built on land that it owns, which will be executed between May 2022 and February 2023, provided the conditions precedent envisaged in the agreement have been met. In this regard, the Parent's directors considered that there was a change in use of this asset, whereby it was reclassified to "Inventories" in the consolidated statement of financial position in the amount of 46,587 thousand euros. As of the date on which the agreement was signed, the Parent received 14,142 thousand euros on the price.

At 31 December 2018, a property was reclassified from "Investment property" to "Assets classified as held for sale" in the statement of financial position in the amount of 26,091 thousand euros (Notes 22 and 24).

Movements in 2017

The additions in 2017 related to the following transactions:

On 30 November 2017, the subsidiary SFL acquired the Emile Zola property through (i) the acquisition of all share capital of the French company SAS Société Immobilière Victoria, which owns the land and a portion of the buildings of this property, resulting in an addition to the scope of consolidation of 107,721 thousand euros, and (ii) the rest of the property that was not owned by SAS Société Immobilière Victoria directly from the subsidiary SFL, resulting in an addition of 62,289 thousand euros.
The remaining additions related to development and renovation projects, mainly on properties of the SFL subgroup, in the amount of 33,961 thousand euros, and at properties of other Group companies, in the amount of 35,202 thousand euros. The above amounts included 2,591 thousand euros in capitalised borrowing costs.

In addition, as indicated in Note 2-f, the following additions were made to the scope of consolidation:

On 18 May 2017, the subsidiary Inmocol Torre Europa, S.A. was included in the scope of consolidation, resulting in the addition to the scope of consolidation of land contributed by the shareholder of this company in the amount of 10,000 thousand euros, plus 80 thousand euros in associated acquisition costs.
On 27 September 2017, the Parent acquired all shares in Colonial Arturo Soria, S.L.U., resulting in the addition to the scope of consolidation of the office building owned by the subsidiary, for 32,579 thousand euros.
As set forth above in the changes due to additions, on 30 November 2017, the subsidiary SFL acquired the Emile Zola property through the acquisition of all share capital of the French company SAS Société Immobilière Victoria, which owns the land and a portion of the buildings of this property, representing an addition to the scope of consolidation of 107,721 thousand euros.
On 20 and 27 December 2017, the Parent acquired all shares in Agisa, Soller and Peñalvento, resulting in the addition to the scope of consolidation of the land owned by these companies for 220,331 thousand euros.

The derecognitions in 2017 related to the following transactions (Notes 4-c and 18-g):

On 12 January 2017, the Parent disposed of several of its properties located on calle Orense in Madrid, for a total of 5,600 thousand euros, resulting in the disposal of 4,650 thousand euros and a profit of 290 thousand euros.
On 31 October 2017, the subsidiary Finresa sold an asset for 410 thousand euros, resulting in the disposal of 399 thousand euros and a profit of 11 thousand euros.

Transfers in 2017 related to the following transactions:

In the first half of the year, the subsidiary reclassified the In&Out property under "Assets classified held for sale" in the consolidated statement of financial position (Note 22), once the subsidiary's Board of Directors passed the resolution to sell this asset. The amount transferred totalled 408,352 thousand euros.
Furthermore, several assets amounting to a total of 3,899 thousand euros were reclassified from "Property, plant and equipment" in the consolidated statement of financial position, given that the Group expected to earn rental income or obtain a gain from their sale as a result of future increases in their market prices.

a) Changes in fair value of investment property

"Changes in fair value of investment property" in the consolidated income statement includes the profit from the revaluation of the investment property for 2018 and 2017, in the amount of 701,952 thousand euros and 937,108 thousand euros (Note 18-f), respectively, in accordance with the appraisals of independent experts at 31 December 2018 and 2017 (Note 4-c).

b) Capitalised borrowing costs

The table below details the borrowing costs capitalised in 2018 and 2017 (Note 18-h):

	Thousands of
	euros
	Amount
	capitalised during	Average interest
	the period	rate

2018:
Inmobiliaria Colonial, SOCIMI, S.A.	755	2.44%
Moorage inversions 2014, S.L.U.	297	2.44%
SFL subgroup	4,255	1.72%
Total 2018:	5,307	-

2017:
Inmobiliaria Colonial, SOCIMI, S.A.	857	2.53%
Danieltown Spain, S.L.U.	141	2.52%
Moorage inversions 2014, S.L.U.	84	2.53%
SFL subgroup	1,509	1.90%
Total 2017:	2,591	-

c) Other information

The total surface area (above and under-ground) of investment property and projects under development at 31 December 2018 and 2017 is as follows:

			Total surface area (m2 ) of investment property
	Investment property		progress	Investment property in	Total
Minimum	31	31	31	31	31	31
	December	December	December	December	December	December
	2018	2017	2018	2017	2018	2017

Barcelona (*)	356,486	286,655	60,220	81,838	416,706	368,493
Madrid	562,419	385,461	55,066	153,165	617,485	538,626
Rest of Spain	492,324	13,048	83,399	-	575,723	13,048
Paris (*)	362,742	377,426	78,292	64,867	441,034	442,293
	1,773,971	1,062,590	276,977	299,870	2,050,948	1,362,460

(*) Including 100% of the floor space of Washington Plaza (a property owned by the Group company SCI Washington, 66%-owned by SFL), the Haussmann, Champs Élysées, 82-88 and Champs Élysées, 90 buildings (owned by the Parholding subgroup, a company 50%-owned by SFL), the Torre del Gas property (owned by Torre Marenostrum, S.L., a company 55%-owned by the Parent) and the Torre Europa, 46-48 building (owned by Inmocol Torre Europa, S.A., a company 50%-owned by the Parent).

At 31 December 2018, the Group has pledged assets as collateral for mortgage loans with a carrying amount of 1,826,491 thousand euros to secure debts amounting to 515,642 thousand euros (Note 13-g). At 31 December 2017, the corresponding balances were 1,048,232 thousand euros and 237,980 thousand euros, respectively.

10. Non-current financial assets

The changes in this heading of the consolidated statement of financial position in 2018 and 2017 were as follows:

		Thousands of euros
		Additions to the
		scope of
		consolidation		31 December
	31 December 2017	(Note 2-f)	Disposals	2018

Deposits and guarantees given	23,589	12,886	(612)	31,863
Derivative financial instruments	1,484	660	(1,553)	591
Available-for-sale financial assets	419,277	-	(419,277)	-
Total	444,350	13,546	421,442	32,454

	Thousands of euros
			Additions to the
	31 December 2016	Acquisitions or provisions	scope of consolidation (Note 2-f)	31 December 2017

Deposits and guarantees given	12,383	4,616	6,590	23,589
Derivative financial instruments	-	1,484	-	1,484
Available-for-sale financial assets	138,293	280,984	-	419,277
Total	150,676	287,084	6,590	444,350

a) Deposits and guarantees given

Long-term deposits and guarantees basically comprise deposits made with the official bodies in each country for deposits collected from lessees, in accordance with prevailing legislation.

b) Available-for-sale financial assets - Interest in Axiare Patrimonio SOCIMI, S.A.

In 2016, the Parent acquired 10,846,541 shares of Axiare Patrimonio SOCIMI, S.A. (hereinafter, "Axiare"), representing 15.09% of its share capital.

In March 2017, the Parent acquired 1,404,000 shares of Axiare, representing 1.78% of the company's current share capital, for 18,801 thousand euros, obtaining an interest of 15.49% in Axiare.

In November 2017, the Parent acquired 10,511,523 shares of Axiare, representing 13.30% of Axiare's share capital at this date, for a total amount of 193,085 thousand euros, equivalent to 18.36 euros per share, obtaining an interest of 28.79% in Axiare.

In 2017, the Parent received 3,681 thousand euros in dividends from its interest in Axiare, which were recognised under "Finance income" in the consolidated statement of comprehensive income (Note 18-h).

At 31 December 2017, the Parent recognised its shareholding in Axiare Patrimonio SOCIMI, S.A. at the year-end share price of 18.42 euros per share, which represented a cumulative impact on the Parent's equity of 70,415 thousand euros (1,317 thousand euros at 31 December 2016).

The Parent's directors considered that the Parent did not exercise, nor could it exercise, significant influence over Axiare at 31 December 2017, and thus it was considered to be a financial investment.

During 2018, and until the date on which control of Axiare Patrimonio SOCIMI, S.A. was obtained, the Parent continued to recognise changes in the fair value of the investment directly against the item "Valuation adjustments of availablefor-sale financial assets" in consolidated equity.

Following the acquisition of control of the investee, the cost of the investment became part of the cost of the business combination in stages described in Note 2.

11. Trade and other receivables

The breakdown of this current asset heading in the accompanying consolidated statement of financial position at 31 December 2018 and 2017 is as follows:

		Thousands of euros
	31 December	31 December
	2018	2017

Trade receivables for sales and services	15,027	27,049
Accrual of lease incentives	88,061	78,746
Other receivables	85,704	86,564
Other current assets	1,277	386
Impairment of receivables -
- Trade receivables for sales and services	(4,624)	(4,040)
- Other receivables	(85,473)	(85,473)
Total trade and other receivables	99,972	103,232

a) Trade receivables from sales and services

This mainly includes the amounts receivable from customers, fundamentally from the Group's rentals business in France, that are billed monthly, quarterly or yearly. At 31 December 2018 and 2017, no material amounts were past due.

b) Accrual of lease incentives (Note 4-n)

This includes the amount of the incentives in the operating lease agreements (rent-free periods, etc.) that the Group offers its customers, which are recognised in the consolidated statement of comprehensive income during the minimum operating lease term. Of that amount, 68,014 thousand euros have a maturity of more than 1 year (61,300 thousand euros at 31 December 2017).

c) Other receivables

At 31 December 2018 and 2017, the amounts owed by Nozar, S.A., resulting from the cancellation of the purchase agreements entered into in July 2007 as a result of failing to comply with the conditions precedent, were recognised under "Other receivables", and totalled 85,473 thousand euros, including accrued interest.

Nozar, S.A. is currently involved in bankruptcy proceedings; consequently, at 31 December 2018 and 2017, the accompanying consolidated statement of financial position included an impairment loss for the entire amount of this company's trade receivables.

12. Equity

a) Share capital

At 31 December 2016, the Parent's share capital was represented by 356,823,399 shares with a par value of 2.50 euros each, which had been fully subscribed and paid.

In 2017, the Parent carried out two capital increases, both with a charge to monetary contributions and the disapplication of pre-emption rights, through the accelerated bookbuild offering for qualified investors:

The increase was registered with the Mercantile Registry on 5 May 2017. Its purpose is to reinforce the Parent's equity in order to take full advantage of investment opportunities which are currently available, carry out repositioning and improvement investments to maximise the quality, occupancy and value of the assets that already formed part of its portfolio, as well as consolidate its credit rating and possible improve it. As a result of the placement, 35,646,657 new shares were issued each with a par value of 2.50 euros, for a total amount of 253,092 thousand euros, prompting an increase in share capital and the share premium of 89,117 thousand euros and 163,975 thousand euros, respectively. The new shares were admitted to trading on 8 May 2017 on the Barcelona and Madrid Stock Exchanges.
The increase aimed at ensuring and optimising the funding for the takeover bid for the shares of Axiare Patrimonio SOCIMI, S.A. (Note 9-c) not owned by Colonial was registered with the Mercantile Registry on 29 November 2017. As a result of the placement, 42,847,300 new shares were issued each with a par value of 2.50 euros, for a total amount of 338,065 thousand euros, prompting an increase in share capital and the share premium of 107,118 thousand euros and 230,947 thousand euros, respectively. The new shares were admitted to trading on 4 December 2017 on the Barcelona and Madrid stock exchanges.

As a result, the Company's share capital at 31 December 2017 was represented by 435,317,356 fully subscribed and paid up shares with a par value of 2.50 euros each.

The following capital increases took place in 2018:

On 4 July 2018, the merger deed executed on 2 July 2018 between Inmobiliaria Colonial, SOCIMI, S.A. and Axiare Patrimonio SOCIMI, S.A. was registered with the Madrid Mercantile Registry. In this respect, to meet the exchange of the merger, the Parent issued 19,273,622 new ordinary shares with a par value of 2.50 euros each of the same class and series as those currently in circulation, representing 4.43% of the share capital of Colonial prior to the merger, to be delivered to Axiare's shareholders in accordance with the exchange rules and procedures established for this purpose. The total amount of the increase amounted to 157,909 thousand euros, of which 48,184 thousand euros are related to share capital and 109,725 thousand euros to share premium. The new shares were admitted to trading on 9 July 2018.
On 16 November 2018, the issuance of 53,523,803 new shares with a par value of 2.50 euros each for 487,602 thousand euros, resulting in a capital increase of 133,810 thousand euros, plus a share premium of 353,792 thousand euros, was registered with the Mercantile Registry.

As a result, the Parent's share capital at 31 December 2018 was represented by 508,114,781 fully subscribed and paid up shares with a par value of 2.50 euros each.

Based on the pertinent notifications regarding the number of company shares to the Spanish National Securities Market Commission (CNMV), the shareholders owning significant direct or indirect interests in the Parent at 31 December 2018 and 2017 were as follows:

	31 December 2018		31 December 2017
	Number of		Number of
	shares*	% ownership	shares*	% ownership

Name or corporate name of the shareholder:
Qatar Investment Authority	80,892,169	15.92%	41,610,141	9.56%
Finaccess Group	80,028,647	15.75%	79,378,647	18.23%
Aguila Ltd.	28,800,183	5.67%	28,800,183	6.62%
DIC Holding, LLC	21,782,588	4.29%	-	-
Inmo S.L.	20,011,190	3.94%	20,011,190	4.60%
BlackRock Inc	15,256,886	3.00%	10,955,962	2.52%
Deutsche Bank A.G.	8,135,390	1.60%	8,135,390	1.87%

* Does not include certain financial instruments linked to shares of the Parent.

At 31 December 2018 and 31 December 2017, Blackrock Inc. and Deutsche Bank AG formally obtained financial instruments associated with the Parent's shares that, in the event the instruments are exercised, could give rise to an additional interest in the share capital of Colonial. The Parent has no knowledge of other significant equity interests.

The Parent has no knowledge of other significant equity interests.

The shareholders at the Annual General Meeting held on 24 May 2018 resolved to authorise the Board of Directors to issue, on behalf of the Parent and on one or more occasions and for a maximum period of 5 years, bonds convertible into new shares of the Parent or other similar securities that may give the right, directly or indirectly, to subscribe the Parent's shares, with the express power to exclude the pre-emption right of the shareholders up to a maximum of 20% of the share capital, and to increase share capital by the amount necessary to meet the conversion. The total maximum amount of the issue or issues of the securities that may be performed under this authorisation may not exceed a combined amount of 500,000 thousand euros or its equivalent in another currency.

Additionally, on 24 May 2018, the shareholders at the Parent's Annual General Meeting resolved to authorise the Board of Directors, in accordance with Article 297.1 b) of the Spanish Limited Liability Companies Law, to increase the share capital through monetary contributions by up to half the amount of the share capital, within a maximum period of five years, on one or more occasions and at the time and by the amount it deems appropriate. Within the maximum amount indicated, the Board of Directors is empowered to exclude the pre-emption right up to a maximum of 20% of the share capital.

b) Share premium

In 2018, as a result of the two aforementioned capital increases, the share premium increased by 463,517 thousand euros.

In 2018, the amount of the share premium was also reduced by 11,326 thousand euros as a result of the resolution for the distribution of dividends approved by the shareholders at the Annual General Meeting on 24 May 2018.

The two accelerated bookbuild offerings carried out in 2017 gave rise to an increase in the share premium of 394,922 thousand euros.

c) Legal reserve

Under the Consolidated Spanish Limited Liability Companies Law, 10% of 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.

The legal reserve may be used to increase capital in an amount equal to the portion of the balance that exceeds 10% of capital after the increase. Otherwise, until it exceeds 20% of share capital and provided there are no sufficient available reserves, the legal reserve may only be used to set off losses.

At 31 December 2016, the legal reserve amounted to 33,615 thousand euros. In 2017, taking into account the allocation to the legal reserve included in the distribution of the Parent's profit for 2016 approved by the shareholders at the Annual General Meeting held on 29 June 2017, the legal reserve amounted to 39,099 thousand euros. At 31 December 2018, taking into account the allocation to the legal reserve included in the distribution of the Parent's profit for 2017 approved by the shareholders at the Annual General Meeting held on 24 May 2018, the legal reserve amounted to 42,349 thousand euros, although it had not yet reached the stipulated level at the date of authorisation for issue of these consolidated financial statements.

d) Other reserves of the Parent

The shareholders at the Annual General Meeting held on 29 June 2017 approved, among other resolutions, the distribution of a dividend of 13,394 thousand euros with a charge to reserves as part of the distribution of profit for 2016.

The shareholders at the Annual General Meeting held on 24 May 2018 approved, among other resolutions, the distribution of a dividend of 37,046 thousand euros with a charge to reserves as part of the distribution of profit for 2017.

As a result of the capital increases described in Note 11-a, costs of 1,149 thousand euros were reported in 2018 (6,691 thousand euros in 2017) under "Reserves of the Parent" in consolidated equity.

In 2018, the Parent carried out transactions involving treasury shares, which gave rise to a gain of 7,332 thousand euros (profit of 10,371 thousand euros in 2017), and which were registered directly in the Parent's equity.

The income generated from the delivery of treasury shares to the beneficiaries of the long-term incentives plan (Note 19-a), calculated as the difference between the carrying amount of the shares delivered and the amount of the obligation assumed by the Parent (Note 4-j), which amounted to 1,513 thousand euros in 2018 (1,286 thousand euros in 2017) was also recognised in the Parent's reserves.

At 31 December 2018, the Parent held 169,439 thousand euros in restricted reserves.

e) Valuation adjustments recognised in other consolidated comprehensive income - financial instruments

This heading of the consolidated statement of financial position includes the sum of gains and losses arising from changes in the fair value of efficient financial derivatives classified as cash flow hedges (Note 14).

The changes in this heading are as follows:

	Thousands of euros
	31 December 31 December 2018 2017

Beginning balance	(559)	(571)
Changes in the fair value of hedges in the year	(3,890)	(39)
Transfers to consolidated net profit	2,371	51
Ending balance	(2,078)	(559)

In 2018, and as a result of the business combination described in Note 2, the Group included the financial instruments arising from Axiare Patrimonio SOCIMI, S.A. and its subsidiaries described in Note 14. "Changes in the fair value of hedges in the year" includes the impact of the changes in value of these instruments from the date of the takeover. Subsequent to this date, the Parent cancelled the various derivative financial instruments arising from the absorbed company Axiare Patrimonio SOCIMI, S.A., which entailed the transferred to consolidated net profit of 2,299 thousand euros.

During 2017, the subsidiary Torre Marenostrum cancelled the derivative financial instrument it held with a financial institution. This instrument was assigned as a hedge to the subsidiary's mortgage loan with this financial institution, which was novated, though the conditions are not substantially different. Consequently, the subsidiary transferred the amount of the hedging derivative financial instrument recognised directly in equity to the statement of comprehensive income at the time of novation on a straight-line basis over the initial outstanding term of the cancelled derivative. The amount recycled in 2018 amounted to 72 thousand euros (51 thousand euros in 2017). The subsidiary Torre Marenostrum contracted a new derivative financial instrument in 2017 that was assigned as a hedge of the new mortgage loan mentioned above.

f) Treasury shares of the Parent

At 31 December 2018 and 2017, the number of the Parent's treasury shares and their acquisition cost were as follows:

		31 December 2018		31 December 2017
		Thousands of		Thousands of
	No. of shares	euros	No. of shares	euros

Beginning balance	4,279,940	29,421	5,469,985	35,426
Buyback plan 14 November 2016	-	-	6,837,328	46,787
Buyback plan 16 October 2017	-	41	2,260,000	17,797
Delivery of incentives plan shares (Note 19)	(421,813)	(2,902)	(380,116)	(2,537)
Other acquisitions	133	-	-	-
Other disposals	(3,315,000)	(22,812)	(9,907,257)	(68,052)
Ending balance	543,260	3,748	4,279,940	29,421

Share buyback plans of the Parent -

On 14 November 2016, the Parent's Board of Directors agreed to carry out a treasury share buyback programme. The purposes of the plan are to complete the coverage of the share plan approved at the General Shareholders Meeting on 21 January 2014 and additional initiatives that the Board of Directors may consider advisable in the Company's business interest. The maximum monetary amount assigned to the programme amounted to 68,000 thousand euros and a maximum of 10,000,000 shares may be acquired, equivalent to 2.8% of the Parent's share capital as of that date. The maximum duration of the programme was six months, i.e., up to 15 May 2017. However, it would be ended early if the maximum number of shares or the maximum monetary amount was reached before said date. The buyback programme was completed in 2017.

On 16 October 2017, the Parent's Board of Directors agreed to implement a new programme involving the repurchase of treasury shares in accordance with the authorisation granted by the shareholders at the Annual General Meeting held on 30 June 2014. The maximum monetary amount assigned to the programme amounted to 100,000 thousand euros and the maximum number of shares to be acquired is 12,000,000 shares, equivalent to 3% of the Parent's share capital as of that date. The maximum duration of the programme was six months, i.e., up to 17 April 2018. However, it would be ended early if the maximum number of shares or the maximum monetary amount is reached before said date. On 3 November 2017, the Parent ended the share buyback programme early.

Deliveries of Parent shares deriving from the long-term incentives plan (Note 19) -

Every year, the Parent settles the obligations to comply with the previous year's plan through the delivery of shares to the beneficiaries of the Remuneration Plan, once it has assessed the degree of attainment of the indicators included therein.

Other disposals -

On 29 November 2017, the Parent sold 9,907,257 shares at a price equivalent to the issue price of the new shares issued in the framework of the accelerated bookbuild offering carried out on the same date (Note 12-a), i.e., at 7.89 euros per share.

On 16 November 2018, the Company exchanged 3,000,000 treasury shares for 400,000 shares of the subsidiary SFL (Note 4-f). In December 2018 a total of 315,000 shares of the Parent were exchanged for 42,000 additional shares of the subsidiary SFL.

g) Liquidity contracts

The Parent enters into liquidity contracts to enhance the liquidity of its transactions and the regularity of its quoted share price.

At 31 December 2018 and 2017, the Parent's treasury shares included in the liquidity contracts and their acquisition cost were as follows:

	31 December 2018			31 December 2017
		Thousands of		Thousands of
	No. of shares	euros	No. of shares	euros

Beginning balance	229,500	1,841	209,603	1,329
Liquidity contract dated 22 June 2015	-	-	30,480	482
Liquidity contract dated 11 July 2017	-	17	(10,583)	30
Ending balance	229,500	1,858	229,500	1,841

Liquidity contract dated 22 June 2015 -

On 22 June 2015, the Parent entered into a liquidity contract to enhance the liquidity of its transactions and the regularity of its quoted share price as provided for under CNMV Circular 3/2007, of 19 December.

Upon issue of CNMV Circular 1/2017, of 26 April 2017, the Parent terminated the liquidity contract on 10 July 2017, effective as of 10 July 2017.

Liquidity contract dated 11 July 2017 -

On 11 July 2017, the Parent entered into a new liquidity contract to enhance the liquidity of its transactions and the regularity of its quoted share price as provided for under CNMV Circular 1/2017, of 26 April. The contract is valid for 12 months. The contract has been suspended.

h) Treasury shares of SFL

In 2017 the treasury shares of SFL, amounting to 13,056 thousand euros, were reclassified from "Treasury shares" to "Consolidated reserves" in the consolidated statement of financial position.

i) Non-controlling interests

The changes in this heading of the consolidated statement of financial position are as follows:

				Thousands of euros
	Torre	Inmocol
	Marenostrum	Torre Europa,	Utopicus		Axiare	Total
	, S.L.	S.A.	subgroup	SFL subgroup	subgroup (*)
Balance at 31 December 2016	23,962	-	-	1,682,243	-	1,706,205
Profit/(loss) for the year	1,954	1,037	(65)	395,002	-	397,928
Dividends and other	(1,574)	-	11	(24,446)	-	(26,009)
Changes in the scope of consolidation					-
(Note 2-f)	-	10,000	80	(343)		9,737
Financial instruments	9	-	-	-	-	9
Balance at 31 December 2017	24,351	11,037	26	2,052,456	-	2,087,870
Profit/(loss) for the year	2,831	563	(478)	147,971	2,459	153,346
Dividends and other	(619)	-	12	(50,711)	-	(51,318)
Changes in the scope of consolidation
(Note 2-f)	-	-	645	(897,611)	(2,459)	(899,425)
Financial instruments	13	-	-	-	-	13
Balance at 31 December 2018	26,576	11,600	205	1,252,105	-	1,290,486

(*) Non-controlling interests of the Axiare subgroup generated from the date of the takeover until the date of the merger (Note 2-f).

The breakdown of the items included in "Dividends and other" at 31 December 2018 and 2017 is as follows:

		Thousands of euros
	31 December 2018	31 December 2017

Dividend paid by the SFL subgroup to non-controlling interests	(44,089)	(19,909)
Dividend paid by Washington Plaza to non-controlling interests	(6,921)	(5,516)
Dividend paid by Torre Marenostrum to non-controlling interests	(618)	(1,575)
Other	310	991
Total	(51,318)	(26,009)

The SFL subgroup has the following shareholders agreements with Prédica:

Agreement in SCI Washington, in which SFL holds 66%. In the event of a change of control of SFL, Prédica may consent to the change of control, or acquire or sell all of the shares and current accounts held by SFL in the common subsidiary, at a price agreed between the parties or at market value.
Agreement in Parholding, in which SFL holds 50%. In the event of a change of control of SFL, Prédica may consent to the change of control, or acquire or sell all of the shares and current accounts held by SFL in the common subsidiary, at a price agreed between the parties or at market value.

13. Bank borrowings, other financial liabilities and bonds and similar securities issued

The detail of these headings of the consolidated statement of financial position, by type of debt and maturity, at 31 December 2018 and 2017 is as follows:

31 December 2018

		Thousands of euros
	Current				Non-current
	Less than 1 year	1 to 2 years	2 to 3 years	3 to 4 years	4 to 5 years	More than 5 years	Total non current	Total

Bank
borrowings:
Lines of credit	-	-	-	-	-	-	-	-
Loans	7,494	10,721	62,186	268,265	90,282	176,955	608,409	615,903
Syndicated loans	-	-	-	20,000	50,000	-	70,000	70,000
Interest	1,313	-	-	-	-	-	-	1,313
Debt arrangement expenses	(2,711)	(2,645)	(2,472)	(1,761)	(1,237)	(1,830)	(9,945)	(12,656)
Total bank borrowings	6,096	8,076	59,714	286,504	139,045	175,125	668,464	674,560
Other financial liabilities:
Current accounts	-	52,246	-	-	-	-	52,246	52,246
Interest on current accounts	40	-	-	-	-	-	-	40
Derivative financial instruments	473	-	-	2,098	899	221	3,218	3,691
(Note 14)
Other financial liabilities	2,491	-	-	-	-	-	-	2,491
Total other financial liabilities	3,004	52,246	-	2,098	899	221	55,464	58,468

Total bank borrowings and other financial liabilities	9,100	60,322	59,714	288,602	139,944	175,346	723,928	733,028
Bonds and similar securities
issued:
Bond issues	262,500	-	350,000	350,000	500,000	2,600,000	3,800,000	4,062,500
Interest	26,310	-	-	-	-	-	-	26,310
Arrangement expenses	(4,568)	(4,576)	(4,542)	(4,220)	(3,672)	(6,124)	(23,134)	(27,702)
Total bonds and similar
securities issued	284,242	(4,576)	345,458	345,780	496,328	2,593,876	3,776,866	4,061,108
Total at 31 December 2018	293,342	55,746	405,172	634,382	636,272	2,769,222	4,500,794	4,794,136

31 December 2017

		Thousands of euros
	Current				Non-current
	Less than 1 year	1 to 2 years	2 to 3 years	3 to 4 years	4 to 5 years	More than 5 years	Total non current	Total
Bank borrowings: Lines of credit Loans	33,459 4,087	- 154,151	- 14,218	- 79,280	- 197,217	- 199,383	- 644,249	33,459 648,336
Syndicated loans Interest Debt arrangement expenses	- 1,180 (2,276)	- - (2,085)	- - (1,742)	150,000 - (1,458)	13,400 - (441)	- - (469)	163,400 - (6,195)	163,400 1,180 (8,471)
Total bank borrowings	36,450	152,066	12,476	227,822	210,176	198,914	801,454	837,904
Other financial liabilities:
Current accounts	-	55,645	-	-	-	-	55,645	55,645
Interest on current accounts	56	-	-	-	-	-	-	56
Derivative financial instruments (Note 14)	363	-	-	-	-	138	138	501
Other financial liabilities	2,481	-	-	-	-	-	-	2,481
Total other financial liabilities	2,900	55,645	-	-	-	138	55,783	58,683
Total bank borrowings and other financial liabilities	39,350	207,711	12,476	227,822	210,176	199,052	857,237	896,587
Bonds and similar securities issued:
Bond issues	-	375,000	-	500,000	500,000	1,950,000	3,325,000	3,325,000
Interest Arrangement expenses	17,348 (3,774)	- (3,404)	- (3,148)	- (3,105)	- (2,702)	- (5,008)	- (17,367)	17,348 (21,141)
Total bonds and similar securities issued	13,574	371,596	(3,148)	496,895	497,298	1,944,992	3,307,633	3,321,207
Total at 31 December 2017	52,924	579,307	9,328	724,717	707,474	2,144,044	4,164,870	4,217,794

The changes in net financial debt in 2018, which arose from cash flows and other, are detailed in the table below:

		Thousands of euros
	31		Changes in	31
	December	Cash flows	control of	December
	2017		subsidiaries	2018

Lines of credit	33,459	(33,459)	-	-
Loans	648,336	(708,445)	676,012	615,903
Syndicated loans	163,400	(93,400)	-	70,000
Bond issues	3,325,000	737,500	-	4,062,500
Gross financial debt (gross nominal debt)	4,170,195	(97,804)	676,012	4,748,403

Cash and cash equivalents	(1,104,601)	1,196,819	(160,511)	(68,293)
Net financial debt	3,065,594	1,099,015	515,501	4,680,110

a) Issues of the Parent's straight bonds

In April 2018, the Parent issued new straight bonds under the EMTN programme for a nominal amount of 650,000 thousand euros maturing in April 2026, with an annual coupon of 2% and an issue price of 99,481% of their nominal value.

In July 2018, the Parent paid off early the outstanding balance of 375,000 thousand euros for the issue of nonconvertible bonds maturing in June 2019.

The breakdown of the issues of straight bonds made by the Parent at 31 December 2018 and 2017 is as follows:

				(Thousands of euros)
			Fixed-rate
			coupon	Amount	31	31
			payable	of the	December	December
Issue	Term	Maturity	annually	issue	2018	2017

05/06/2015	5 years	05 /06/2019	1,863%	750,000	-	375,000
05/06/2015	8 years	05/06/2023	2,728%	500,000	500,000	500,000
28/10/2016	8 years	28/10/2024	1,450%	600,000	600,000	600,000
10/11/2016	10 years	10/11/2026	1,875%	50,000	50,000	50,000
28/11/2017	8 years	28/11/2025	1,625%	500,000	500,000	500,000
28/11/2017	12 years	28/11/2029	2,500%	300,000	300,000	300,000
17/04/2018	8 years	17/04/2026	2,000%	650,000	650,000	-

Total issues			2,600,000	2,325,000

The bonds were admitted for trading on the Irish Stock Exchange's main securities market.

At 31 December 2018 and 2017, the fair value of the bonds issued by the Parent was 2,557,454 thousand euros and 2,378,881 thousand euros, respectively.

European Medium Term Note Programme -

On 5 October 2016, the Parent registered a 12-month European Medium Term Note programme for 3,000,000 thousand euros, which can be extended to 5,000,000 thousand euros, on the Irish Stock Exchange. On 27 November 2018, the Spanish National Securities Market Commission (CNMV) approved the registration of the Company's Euro Medium Term Note Programme in the official registers.

Compliance with financial ratios -

These straight bonds establish the obligation, at 30 June and 31 December of each year, to meet a financial ratio, whereby the value of the non-guaranteed asset of the Colonial Group in the consolidated statement of financial position at each of these dates must at least be equal to the financial debt not guaranteed. This ratio had been met at 31 December 2018 and 2017.

b) Issue of SFL straight bonds

In May 2018, SFL issued new straight bonds for a nominal amount of 500,000 thousand euros and maturing in May 2025, with an annual coupon of 1.50% and an issue price of 99,199% of their nominal value.

In September 2018, the subsidiary SFL paid off early the 300,000 thousand euros corresponding to the issue of nonconvertible bonds maturing in November 2021 and November 2022.

The breakdown of issues of non-convertible bonds by SFL is as follows:

				(Thousands of Euros)
			Fixed-rate
			coupon	Amount	31	31
			payable	of the	December	December
Issue	Term	Maturity	annually	issue	2018	2017

20/11/2014	7 years	26/11/2021	1,875%	500,000	350,000	500,000
16/11/2015	7 years	16/11/2022	2,250%	500,000	350,000	500,000
29/05/2018	7 years	29/05/2025	1,500%	500,000	500,000	-

Total issues					1,200,000	1,000,000

The bonds are unsubordinated obligations, all of which rank pari passu. They are traded on the Euronext Paris exchange.

At 31 December 2018 and 2017, the fair value of the bonds issued by SFL was 1,222,330 thousand euros and 1,062,635 thousand euros, respectively.

In November 2017, the subsidiary SFL settled the bonds maturing from the 2012 issue, with an outstanding nominal amount of 300,700 thousand euros.

c) Issuance of promissory notes of the Parent

In December 2018, the Parent registered a European Commercial Paper Programme for maximum limit of 300,000 thousand euros and maturing in the short term. At 31 December 2018, no promissory notes had been issued (Note 24).

d) Issuance of promissory notes of SFL

In September 2018, the subsidiary SFL registered a short-term promissory note issuance programme (NEU CP) for a maximum of 300,000 thousand euros, with issuances in force as at 31 December 2018 of 262,500 thousand euros (Note 24).

e) Syndicated financing of the Parent

The breakdown of the Parent's syndicated financing at 31 December 2018 and 2017 is detailed in the table below:

			31 December 2018	31 December 2017
Thousands of euros	Maturity		Nominal		Nominal
			amount		amount
			drawn		drawn
		Limit	down	Limit	down

Credit facility	December 2023	500,000	50,000	350,000	150,000
Credit facility	March 2022	375,000	20,000	375,000	13,400
Total syndicated financing of the Parent		875,000	70,000	725,000	163,400

The variable interest rate is tied to the EURIBOR plus a spread.

In May 2018, the Parent refinanced the syndicated loan signed in November 2015, amounting to 350,000 thousand euros and maturing in November 2021, increasing the nominal amount to 500,000 thousand euros, extending its maturity until December 2023 and reducing the financing spread. This line of credit is aimed at covering its general corporate needs. A total of 13 banks took part in the process, with Natixis acting as agent bank. This refinancing was not considered to be a substantial modification to the liability. At 31 December 2018, the amount of the loan drawn down stood at 50,000 thousand euros.

In March 2017, the Parent signed a new syndicated line of credit for 375,000 thousand euros, maturing at five years. This line of credit was intended to cover the Parent's general corporate needs. A total of 10 banks took part in the process, with Crédit Agricole acting as lead bank.

Compliance with financial ratios –

The loans are subject to compliance with the following financial ratios on a quarterly basis:

Ratios
Loan-to-value ratio ≤ 55% Interest coverage ratio ≥ 2x Secured mortgage debt / Value of property assets ≤15% (25% for the new syndicated loan) Secured non-mortgage debt / Value of non-property assets ≤15% (25% for the new syndicated loan) Value of the consolidated assets >= 4.5 billion euros

At 31 December 2018 and 2017, the Parent complied with all financial ratios.

f) Syndicated financing of SFL

The breakdown of SFL's syndicated financing at 31 December 2018 and 2017 is as follows:

		31 December 2018		31 December 2017
Thousands of euros	Maturity		Nominal		Nominal
			amount		amount
			drawn		drawn
		Limit	down	Limit	down

Credit facility	October 2019	-	-	150,000	-
Credit facility	July 2020	250,000	-	400,000	-
Total SFL syndicated loan		250,000	-	550,000	-

The credit facility maturing in October 2019 was paid off in June 2018 and the limit of the credit facility maturing in July 2020 was reduced to 150,000 thousand euros.

The variable interest rate is tied to the EURIBOR plus a spread.

Compliance with financial ratios -

SFL syndicated loans must meet the following financial ratios every six months:

Ratios

Loan-to-value ratio ≤ 50%
Interest coverage ratio ≥ 2
Secured debt / Equity value ≤ 20%
Appraisal value of unmortgaged properties >= 2 billion euros
Gross financial debt of subsidiaries / Gross consolidated financial debt < 25%

At 31 December 2018 and 2017, SFL complied with the financial ratios stipulated in the respective financing agreements.

g) Mortgage-backed loans

At 31 December 2018 and 2017, the Group held the following mortgage-backed loans for certain investment properties:

		Thousands of euros
		31 December 2018 31 December 2017
	Mortgage debt	Market value of collateral	Mortgage debt	Market value of collateral
Investment property (Note 9)	515,642	1,828,786	237,980	1,054,197
Total	515,642	1,828,786	237,980	1,054,197

At 31 December 2018, 55% of the mortgage debt (281,656 thousand euros) relates to bilateral loans arranged by companies of the former Axiare subgroup. These are floating rate loans tied to EURIBOR plus an additional spread, although a number of derivative financial instruments have been arranged to cover 40% of the outstanding nominal amount at 31 December 2018 (Note 14).

The remainder relates to the SFL subgroup (201,240 thousand euros at a fixed rate) and to the subsidiary Torre Marenostrum, S.L. (32,746 thousand euros tied to EURIBOR plus an additional spread).

In the second half of 2018, the Parent paid off early 334,136 thousand euros on various loans from Axiare Patrimonio SOCIMI, S.A.

Compliance with financial ratios -

The Group's mortgage-backed loans are subject to compliance with various financial ratios (LTV and Debt Service Coverage Ratio, whose thresholds vary according to the assets financed). At 31 December 2018 and 2017, the Group complied with the financial ratios required in its mortgage loan agreements.

h) Other loans

At 31 December 2018, the Group had seven bilateral loans not secured by a mortgage guarantee, that were subject to compliance with various ratios. The total limits and balances drawn down are as follows:

				31 December 2018	31 December 2017
Thousands of euros	Company	Maturity		Nominal		Nominal
				amount		amount
				drawn		drawn
			Limit	down	Limit	down

Other loans:
BECM	SFL	April 2019	-	-	150,000	150,000
BECM	SFL	July 2023	150,000	-	-	-
Banco Sabadell	SFL	June 2020	70,000	-	70,000	10,000
BNP Paribas	SFL	May 2021	150,000	50,000	150,000	75,000
CADIF	SFL	June 2023	175,000	-	175,000	175,000
Banque Postale	SFL	June 2024	75,000	-	75,000	-
Société Générale	SFL	October 2023	100,000	-	75,000	-
Bankinter	Colonial	July 2024	50,000	50,000	-	-
Total other loans			770,000	50,000	620,000	410,000

In 2018, the subsidiary SFL paid off early the BECM loan maturing in April 2019.

In July and October 2018, the subsidiary SFL took out two new revolving lines of credit with BECM and Sociéte Générale, maturing in five years, for 150,000 thousand euros and 100,000 thousand euros, respectively.

In November 2018, the Parent took out a bilateral loan with Bankinter for 50,000 thousand euros maturing in six years.

In 2017, the subsidiary SFL signed two new lines of credit with CADIF and Banque Postale for a total of 175,000 thousand euros and 75,000 thousand euros, maturing in 6 and 7 years, respectively. Furthermore, SFL increased the limit of the bilateral loan that it had taken out with Banco Sabadell by 20,000 thousand euros, which was set at 70,000 thousand euros.

Compliance with financial ratios

The loan corresponding to the Parent is subject to compliance with the following financial ratios on a quarterly basis:

Ratios Loan-to-value ratio ≤ 55% Interest coverage ratio ≥ 2x Secured mortgage debt/Value of property assets ≤ 15% (25% for the new syndicated loan) Secured non-mortgage debt/Value of non-property assets ≤ 15% (25% for the new syndicated loan) Value of the consolidated assets ≥ 4.5 billion euros

The loans corresponding to the subsidiary SFL are subject to compliance with the following financial ratios on a halfyearly basis:

Ratios
Loan-to-value ratio ≤ 50%
Interest coverage ratio ≥ 2
Secured debt / Equity value ≤ 20% Appraisal value of unmortgaged properties >= 2 million
euros
Gross financial debt subsidiaries / Gross consolidated financial debt < 25%

At 31 December 2018 and 2017, the Parent and SFL complied with the financial ratios stipulated in the respective financing agreements.

Lastly, at 31 December 2018, the companies of the Utopicus subgroup had four loans drawn down for a total of 261 thousand euros (356 thousand euros at 31 December 2017). These loans are not subject to compliance with any ratio.

i) Credit facilities

At 31 December 2018, the Group did not have any credit facilities drawn down. At 31 December 2017, the balance drawn down was 33,459 thousand euros.

j) Other financial liabilities - Current accounts

At 31 December 2018, the Group had a current account in the amount of 52,246 thousand euros extended to the Group company SCI Washington (55,645 thousand euros at 31 December 2017). This current account accrues an additional spread on the three-month Euribor.

k) Guarantees given

At 31 December 2018, the Parent had granted guarantees to government bodies, customers and suppliers in the amount of 24,155 thousand euros (1,102,474 thousand euros at 31 December 2017). These include the following guarantees granted to cover deferred payments deriving from acquisition transactions:

Of the amount remaining, the main guarantee provided amounted to 4,946 thousand euros to secure the obligations acquired by Asentia Accordingly, the Parent and this subsidiary have an agreement in place whereby if any of the guarantees are enforced, Asentia must compensate the Parent for any damages sustained within 15 days.

The following guarantees at 31 December 2017 had been cancelled in 2018:

In February 2018, the bank guarantee presented to the CNMV as security for the voluntary takeover bid for shares of Axiare Patrimonio SOCIMI, S.A., issued by Caixabank for an amount of 1,033,676 thousand euros, and guaranteed with a cash deposit, was cancelled.
In May 2018, the bank guarantee deposited as security for the deferred payment on the acquisition of 100% of the shares in the subsidiary Moorage, amounting to 15,680 thousand euros, was cancelled.
Lastly, in December 2018 the bank guarantees provided to purchase Agisa, Soller and Peñalvento (Note 2-f), for the sum of 41,767 thousand euros, were cancelled. The amount payable was recognised under "Trade payables" in the consolidated statement of financial position (Note 15).

l) Cash and cash equivalents

At 31 December 2018 and 2017, amounts of 68,293 thousand euros and 1,104,601 thousand euros, respectively, were recognised under "Cash and cash equivalents", of which 1,777 thousand euros and 1,045,668 thousand euros, respectively, were either restricted or pledged.

The balance at 31 December 2017 included 1,033,676 thousand euros relating to the cash required to meet the voluntary takeover bid for the shares of Axiare Patrimonio, SOCIMI, S.A., which was secured by the aforementioned bank guarantee and which has already been cancelled.

m) Debt arrangement expenses

At 31 December 2018 and 2017, the debt arrangement expenses assumed by the Group and not yet accrued amounted to 40,358 thousand euros and 29,612 thousand euros, respectively. These expenses are taken to the consolidated income statement during the term of the debt in accordance with financial criteria. In this regard, in 2018 and 2017 the Group recognised 6,384 thousand euros and 5,191 thousand euros, respectively, in the consolidated income statement corresponding to the costs paid during the year.

n) Interest rate on borrowings

The interest rate on the Group's borrowings, the Group's average credit spread, with and without accrual of the financing fees for 2018 and 2017, is shown in the table below:

	(Thousands of euros)
	2018		2017
	Without With		Without	With
	accrual	accrual	accrual	accrual
Issue	of fees	of fees	of fees	of fees

Average interest rate of the Group	2.00%	2.28%	2.35%	2.49%
Average credit spread of the Group	1.37%	1.65%	1.56%	1.87%

The interest rate of the Group's outstanding debt at 31 December 2018 is 1.77% (1.86% at 31 December 2017).

The accrued interest outstanding recognised in the consolidated statement of financial position at 31 December 2018 and 2017 amounted to:

		(Thousands of euros)
	31	31
	December	December
Issue	2018	2017

Parent bonds	20,211	15,006
SFL bonds	6,099	2,342
Bank borrowings	1,313	1,180
Other financial liabilities - Current accounts	40	56
Total	27,663	18,584

o) Capital management and risk management policy

Companies operating in the real estate sector need to make heavy upfront investments to ensure development of their projects and growth of their businesses through the purchase of rental properties and/or land.

The Group's financial structure requires its sources of financing to be diversified In terms of entities, products and maturity dates, in order to ensure the continuity of its companies as profitable businesses and to be able to maximise returns for shareholders.

The various bond issues launched from 2015 to 2018 have enabled the Parent to finance its corporate transactions and real estate asset acquisitions carried out during these years, to reduce the finance costs of its borrowings, and to extend and diversify the maturity dates thereof. The Parent's financing is granted entirely over the long term and structured in such a manner that it allows the performance of the underlying business plan.

p) Financial risk management policy

The Group efficiently manages its financial risks with the aim of having an adequate financial structure that allows it to maintain high levels of liquidity, minimise borrowing costs, reduce volatility due to changes in capital and ensure compliance with its business plans.

Interest rate risk: The risk management policy is designed to limit and control the impact of interest rate fluctuations on profit and cash flows, to maintain the level of debt, and to keep overall borrowing costs at reasonable levels in accordance with the Group's credit rating.

In order to attain these objectives, the Group enters into interest rate hedges to hedge against potential fluctuations in finance costs if necessary. The Group's policy is to arrange instruments that comply with accounting rules to be considered effective hedges and, therefore, to recognise changes in market value directly in the Group's other consolidated comprehensive income. At 31 December 2018, 90% of total debt in Spain and 93% in France was hedged or at fixed rates (93% and 85%, respectively, at 31 December 2017).

Liquidity risk: Based on the annual cash budget, the Colonial Group draws up the monthly follow-up report on its cash forecasts to manage its liquidity risk and meet its various financing needs.

The Group considers the following mitigating factors in managing liquidity risk: (i) recurring cash flow generation by the Group's core activities, (ii) its ability to renegotiate and obtain new financing on the basis of long-term business plans, and (iii) the quality of the Group's assets.

Cash surpluses may eventually arise that enable the Group to have lines of credit available but not yet drawn down or highly-liquid deposits with no risk. At 31 December 2018, the Group had sufficient lines of credit available to meet its short-term maturities. The Group does not use high-risk financial products as a method for investing cash surpluses.

Counterparty risk: the Group mitigates this risk by using top-tier financial institutions to arrange its financing and by accessing the debt market through bond issues.
Credit risk: the Parent analyses the exposure implied by at-risk accounts receivable on an ongoing basis, monitoring their settlements and recognising charges whenever its receivables are deemed impaired.

14. Derivative financial instruments

The following table details the financial instruments and their fair values at 31 December 2018 and 2017:

					Notional value	Fair value –
					(thousands of	Asset /
Derivative financial instrument	Company	Counterparty	Interest rate	Maturity	euros)	(Liability)

Swap	SFL	CA-CIB	0.23%	2022	100,000	(1,041)
Cap	SFL	CADIF	0.25%	2022	100,000	591
Swap	Colonial*	Santander	0.25%	2022	18,000	(205)
Swap	Colonial*	ING	0.95%	2022	18,650	(823)
Swap	Colonial*	DB	0.27%	2022	18,650	(230)
Swap	Venusaur*	DB	0.43%	2023	57,000	(899)
Vanilla swap	Torre Marenostrum	CaixaBank	0.94%	2032	26,197	(493)
Total at 31 December 2018					338,497	(3,100)

* Arising from the business combination with Axiare described in Note 2-a.

Derivative financial instrument	Company	Counterparty	Interest rate	Maturity	Notional value (thousands of euros)	Fair value – Asset / (Liability)
Swap Cap Swap (redeemed step-up) Cap Cap Vanilla swap	SFL SFL Colonial Colonial Colonial Torre Marenostrum	CA-CIB CADIF BBVA ING Morgan Stanley CaixaBank	0.23% 0.25% 4.40% 1.25% 1.25% 0.94%	2022 2022 2018 2018 2018 2032	100,000 100,000 4,212 300,000 130,000 27,728	(103) 1,484 (50) - - (348)
Total at 31 December 2017					661,940	983

With the business combination between the Parent and Axiare Patrimonio SOCIMI, S.A., the Parent has integrated the derivative financial instrument contracts of the subsidiary for a nominal amount of 394,249 thousand euros. After the date of the business combination, various financial instruments were cancelled, generating a finance cost of 3,267 thousand euros, which was recognised under "Finance costs" in the consolidated statement of comprehensive income.

The impact for 2018 and 2017 of accounting for derivatives qualifying for hedge accounting on the consolidated income statement was a net finance cost of 6,345 thousand euros and 322 thousand euros, respectively (Note 18-h).

a) Hedge accounting -

At 31 December 2018, the Parent and Torre Marenostrum applied hedge accounting to all derivative financial instruments. At 31 December 2017, hedge accounting was only applied to Torre Marenostrum.

At 31 December 2018, a balance receivable of 2,078 thousand euros was recognised in the consolidated statement of comprehensive income as a result of hedge accounting, net of the tax effect and consolidation adjustments. At 31 December 2017, a balance receivable of 559 thousand euros was recognised in the consolidated statement of comprehensive income (Note 12).

b) Fair value of derivative financial instruments -

The fair value of the derivatives was calculated by discounting estimated future cash flows based on an interest rate curve and on assigned volatility at 31 December 2018, using the appropriate discount rates established by an independent expert.

15. Trade payables and other non-current liabilities

The breakdown of these headings in the consolidated statement of financial position, by item and maturity, is as follows:

	Thousands of euros
	31 December 2018			31 December 2017
	Current Non-current		Current	Non-current

Trade and other payables	45,219	-	26,487	-
Payables for the purchase of properties	32,676	-	72,636	4,600
Advances	22,748	14,142	17,047	-
Guarantees and deposits received	2,207	51,710	4,628	39,497
Payable to Social Security	1,782	-	2,292	-
Unearned income	564	-	4,657	-
Other payables and liabilities	9,583	481	16,133	265
Total	114,779	66,333	143,880	44,362

a) Trade and other payables

This heading includes primarily the amounts payable by the Group for business-related purchases and associated costs.

b) Payables for the purchase of properties

This heading includes the amounts payable arising from acquisitions of ownership interest and/or properties. At 31 December 2017, the amount included under this line item relates mainly to the refurbishment or renovation work on various properties carried out by SFL, mainly the Louvre Saint-Honoré building, in the amount of 19,996 thousand euros (10,218 thousand euros at 1 December 2017).

In 2018 the deferred amounts were paid for the acquisitions of the ownership interest (Note 2-f) in Moorage (20,280 thousand euros, including the contingent price classified as non-current), in Agisa, Soller and Peñavento (41,967 thousand euros), and in Colonial Arturo Soria, S.L.U. (4,200 thousand euros).

The effect of the updated deferred payments was not material.

c) Advances

Current advances relate mainly to the amounts paid upfront by lessees for bi-monthly or quarterly rent.

Non-current advances include 14,142 thousand euros on the price of the investments, in accordance with the sale and purchase agreement subject to conditions precedent signed by the Parent (Note 9).

d) Guarantees and deposits received

This heading includes mainly security deposits paid by lessees.

e) Unearned income

This heading includes the amounts received by SFL for rights of entry, which relate to the amounts invoiced by lessees to reserve a unique space, and that were recognised as income on a straight-line basis over the minimum term of the related lease agreement.

f) Average period of payment to suppliers and trade creditors

The table below sets forth the information on the various Spanish Group companies required by final provision two of Law 31/2014, of 3 December, amending the Spanish Limited Liability Companies Law to improve corporate governance, and amending additional provision three of Law 15/2010, of 5 July, amending Law 3/2004, of 29 December, which establishes measures to combat late payment in commercial transactions, all in accordance with that established in the resolution of 29 January 2016 issued by the Spanish Accounting and Audit Institute (ICAC) on disclosures to be included in the notes to the consolidated financial statements with regard to the average period of payment to suppliers in commercial transactions involving the various Spanish companies pertaining to the Group.

	2018	2017
	Days	Days
Average supplier payment period	32	31
Ratio of transactions settled	32	31
Ratio of transactions pending payment	48	31
	Amount	Amount
	(in thousands	(in thousands
	of euros)	of euros)
Total payments made	221,716	93,540
Total payments pending	8,205	5,212

The figures shown in the foregoing table in relation to payments to suppliers relate to suppliers that because of their nature are trade creditors for the supply of goods and services and, therefore, they include the figures relating to certain line items of "Trade payables" in the accompanying consolidated statement of financial position.

Law 11/2013 on measures to support entrepreneurs, stimulate growth and create employment, which amended the Law on late payments (Law 3/2004, of 29 December), entered into force on 26 July 2013. The new law stipulates that the maximum payment period to suppliers as of 29 July 2013 is 30 days, unless there is an agreement between the parties which increases the maximum period to 60 days.

With regard payments made after the legally established period, note that these are primarily payments relating to works contracted and property refurbishment, which are paid within the payment terms stipulated in the contracts signed with the various contractors.

16. Provisions and contingent assets and liabilities

Changes in "Current provisions" and "Non-current provisions" in the consolidated statement of financial position for 2018 are as follows:

		Thousands of euros
	Non-current provisions		Current provisions
		Provisions for
	Provisions for	contingencies and	contingencies and
	employee benefits	other provisions	other provisions
Balance at 31 December 2017	1,244	10,206	20,283
Provisions	59	10	8,402
Disposals/Amounts used (Note 18-e)	(12)	-	(11,025)
Disposals/Amounts used (Note 18-h)	-	(10,127)	-
Balance at 31 December 2018	1,291	89	17,660

a) Non-current provisions

Provisions for the outstanding urban development costs of UE-1. –

As a result of restructuring the financial debt of Desarrollos Urbanísticos Entrenúcleos 2009, S.L.U. (hereinafter, "DUE"), a former subsidiary, the Company granted a loan for a maximum of 85,000 thousand euros, the purpose of which, among others, is to finance the development of the project implemented by DUE and to cover the costs of the work yet to be carried out on the UE-1, up to an amount of no more than 20,000 thousand euros. The Parent recognised the appropriate provisions (Note 16).

The Parent had a restricted cash line of credit with BBVA to cover the outstanding execution costs of the UE-1, which was drawn down when DUE showed that the development work had been carried out. At 31 December 2017, 9,876 thousand euros had been drawn down.

In 2018 the Parent sold the loan granted to DUE to a third party for 1 euro, thus being released from all its obligations.

Provisions for employee benefits -

This line item includes the retirement benefits and seniority bonuses of employees of SFL (Note 4-j).

b) Current provisions

Current provisions include an estimate of the Parent's various future risks.

c) Contingent assets

In 2010, the Parent filed certain lawsuits against former directors for transactions carried out between June 2006 and December 2007 regarding the following corporate actions for liability, with the following currently in process:

A corporate action for liability against certain former directors in relation to the purchase of assets by the Parent for reinvestment of the proceeds by the sellers in shares of the Company, as part of the 29 June 2006 capital increase or otherwise.
A corporate action for liability against certain former directors in connection with the losses caused to the Company by the acquisition of shares of Riofisa in 2007.

Given that the aforementioned lawsuits relate to claims filed against third parties in favour of Colonial, the only contingency that may arise is the payment of legal costs in the event that both cases are lost. At 31 December 2018, the appropriate provision had been recognised to meet any potential costs.

17. Tax matters

a) Adherence to the REIT Tax Regime and dissolution of the tax group, both effective as of 1 January 2017

Up until 31 December 2016, the Parent was the head of a group of companies filing consolidated tax returns since 1 January 2008. This consolidated tax group included only subsidiaries incorporated in Spain, in which the Parent either directly or indirectly owns at least 75% of their share capital (this threshold falls to 70% in the case of listed subsidiaries) and has the majority of the voting rights.

In addition to the Parent, the consolidated tax group for 2016 included Danieltown Spain, S.L.U., Colonial Invest, S.L.U. and Colonial Tramit, S.L.U.

On 30 June 2017, the Parent chose to operate within the REIT Tax Regime (Note 1-a). Adherence to this tax regime entailed the dissolution of the Parent's tax group at 31 December 2016, effective as of 1 January 2017, and the outstanding adjustments to be recovered from the tax group.

In addition to the Parent, in 2017 the following subsidiaries also chose to operate under the REIT Tax Regime: Danieltown Spain, S.L.U., Moorage Inversions 2014, S.L.U., Hofinac Real Estate, S.L.U. and Fincas y Representaciones, S.A.U. Likewise, in 2017 the subsidiary Colonial Arturo Soria, S.L.U. was acquired, which had already chosen to operate under the REIT Tax Regime prior to 1 January 2017. In 2018 the subsidiaries Agisa, Soller, Peñalvento, Axiare Investments and Venusaur chose to operate under the REIT Tax Regime, and LE Offices Egeo, a subsidiary acquired in January 2018, had already chosen to operate under the REIT Tax Regime.

b) Tax receivables and tax payables

The breakdown of "Tax assets" in the accompanying consolidated statement of financial position is as follows:

	Thousands of euros
	Current		Non-current
	31 December	31 December	31 December	31 December
	2018	2017	2018	2017

Tax refunds receivable	19 2		-	-
Income tax refunds receivable	1,555 13,294		-	-
VAT recoverable	18,183 6,819		-	-
Deferred tax assets	- -		411	407
Total tax receivables	19,757	407

At 31 December 2017, "Income tax refunds receivable" included a balance in favour of the Parent of 12,113 thousand euros arising from minimum income tax prepayments made in 2016. The amount of those prepayments related to the minimum payment of 23% and of the accounting profit/(loss) at the date of the prepayment, in accordance with the temporary measures in force for 2016. In January 2018, the tax authorities refunded the remaining 12,113 thousand euros.

The breakdown of "Tax liabilities" in the accompanying consolidated statement of financial position is as follows:

	Thousands of euros Current Non-current
	31 December	31 December	31 December	31 December
	2018	2017	2018	2017
Income tax payable Other taxes payable Exit tax payable (SFL Group) VAT payable Deferred tax liabilities	422 3,428 9,242 3,257 -	2,349 2,827 8,437 5,206 -	- - 13,368 - 361,514	- - 21,390 - 349,843
Total tax payables	16,349	18,819	374,882	371,233

Exit tax SFL (Note 4-m)-

In 2017, the subsidiary SFL acquired the Emile Zola property, which qualified for the SIIC regime in December 2017, thus generating exit tax in the amount of 21,138 thousand euros, which must be paid in four equal annual payments between 2018 and 2021.

In 2016, the subsidiary SFL executed the purchase option in the finance lease agreement that it held with respect to the property Wagram 131. This asset was subject to the SIIC regime, giving rise to the corresponding obligation to pay the exit tax, totalling 13,012 thousand euros, which must be paid to the French tax authorities in four equal annual payments between 2017 and 2020.

c) Reconciliation of the accounting profit/(loss) to the taxable profit/(tax loss)

The reconciliation of the accounting profit/(loss) before tax to the taxable profit/(tax loss) after temporary differences is shown in the following table:

	Thousands of euros
Accounting profit before tax (aggregate of individual expenses) SFL profit/(loss) subject to the SIIC regime (Note 4-m) REIT profit/(loss) (Note 4-m) Permanent differences Temporary differences Aggregate taxable profit/(tax loss) before use of unused tax losses Offset of tax losses Aggregate taxable profit/(tax loss) Taxable profit recognised for accounting purposes Taxable loss not recognised for accounting purposes	2018	2017

	453,371	882,811
	(377,025)	(812,025)
	(88,524)	(8,715)
	(38,364)	(17,532)
	37,535	(20,512)

	(13,007)	24,027
	(2,496)	-
	(15,503)	24,027
	22,046	28,846
	(37,549)	(4,819)

d) Reconciliation of income tax expense

Income tax -

Article 29 of Corporate Income Tax Law 27/2014, of 27 November, which entered into force on 1 January 2015, established a standard tax rate of 25% for taxpayers liable for this tax.

The above-mentioned Royal Decree Law also established the limit for tax loss carryforwards at 25% of the tax base, prior to their offset, for companies whose revenue is equal to or greater than 60 million euros.

On 30 June 2017, the Parent chose to operate within the REIT Tax Regime, which is applicable effective as of 1 January 2017 (Note 1). After adhering to the REIT regime, the profit arising from REIT activities will be taxed at a rate of 0%, provided that the stipulated requirements are met (Note 4-m).

The breakdown of "Income tax expense" in the consolidated statement of comprehensive income for 2018 and 2017 is as follows:

	Thousands of euros
	2018	2017
Corporate income tax expense	(7,397)	(9,842)
Deferred tax on the restatement of assets at their fair value (IAS 40)	(10,488)	(56,990)
Reduction in deferred liabilities due to the drop in the tax rate - France	-	13,779
Reduction in deferred liabilities due to reversal liability SIIC-4	-	72,159
Other non-primary components	(8,345)	4,053
Income tax expense	(26,230)	23,159

e) Deferred tax assets

The breakdown of the deferred tax assets recognised by the Group is as follows:

		Thousands of euros
	Recognised for accounting purposes
	31 December 31 December
Deferred tax assets	2017	Increase	Decrease	2018

Valuation of financial instruments	339	-	(10)	329
Other	68	14	-	82
	407	14	(10)	411

Prior years' tax loss carryforwards –

The corporate income tax in force as of 1 January 2016 stipulates that prior years' tax loss carryforwards may be offset in future years without any time limit, although it generally establishes an offset limit of 70% of taxable profit, with a minimum of 1 million. In the event that the revenue recognised by the Company or the tax group falls between 20 million euros and 60 million euros, the offset is limited to 50% of taxable profit, while if revenue is equal to or exceeds 60 million euros the offset limit is reduced to 25% of taxable profit.

As indicated above, some of the Group companies formed part of consolidated tax group 6/08, which means that certain transactions among companies included in the tax group were eliminated from the aggregate sum of the individual tax loss balances; they are not included in consolidated taxable profit until the gain or loss on the respective transaction is realised with third parties. In addition, the consolidated tax regime allowed companies with taxable profit to make use of the tax losses generated by other companies within the same consolidated tax group.

Following the dissolution of the Parent's tax group at 31 December 2016, effective as of 1 January 2017, the outstanding adjustments for transactions among the companies of the extinguished consolidated tax group were recovered, and the resulting tax losses were assigned to each of the companies of the group based on how they contributed to incurring these losses.

The following table shows the aggregate tax loss carryforwards to be offset by Spanish companies:

	Thousands of euros
	Companies forming
Year	part of the Group

2000	12,979
2001	5,468
2003	140
2004	38,516
2005	36
2006	25,053
2007	321,571
2008	1,200,383
2009	865,940
2010	530,185
2011	117,894
2012	111,873
2013	85,767
2014	16,317
2015	2,075,745
2016	1,012
2017	4,010
2018	38,292
Total	5,451,181

Deferred tax asset for tax credit carryforwards

The nature and amount of unused tax credits at 31 December 2018 by the Group due to insufficient taxable profit in prior years, and the last years for offset are set out below:

		Thousands of euros

Type	Year incurred	Amount	Last year for use


Double taxation tax credit	2008	6,553	n.a.
	2009	238	n.a.
	2010	227	n.a.
	2011	295	n.a.
	2012	168	n.a.
	2013	69	n.a.
	2014	135	n.a.
Tax credit for donations
	2010	4	2020
	2011	4	2021
	2012	4	2022
	2013	6	2023
	2014	6	2024
	2015	9	2025
	2016	22	2026
Tax credit for training
	2008	1	2023
	2009	1	2024
	2010	1	2025
Tax credit for reinvestment
	2003	3,316	2018
	2004	1,056	2019
	2005	92	2020
	2006	1,314	2021
	2007	7,275	2022
	2008	1,185	2023
	2009	434	2024
	2010	713	2025
	2011	39	2026
	2012	123	2027
	2013	112	2028
	2014	24	2029
		23,426

Tax credit for reinvestment -

As set forth in prevailing legislation, for the tax credit for reinvestment of extraordinary gains to be applicable, the assets acquired with the proceeds must be held for a five-year period (three years, in the case of financial investments), unless the assets failing to comply with the deadline are reinvested within the prevailing timeframe. The terms for holding the amounts reinvested by the Parent are as follows:

	Thousands of euros
	2019
Reinvested by the Parent Associated profit	18,701 188

The Parent's directors consider that the Parent will comply with the stipulated timeframes.

f) Deferred tax liabilities

The breakdown of deferred tax liabilities and the changes therein are provided below:

	Thousands of euros
	31 December		31 December
Deferred tax liabilities	2017	Increase	Decrease	2018

Asset revaluations	344,089	16,025	(4,045)	356,069
Asset revaluations (Spain)	146,113	8,939	(4,045)	151,007
Asset revaluations (France)	197,976	7,086	-	205,062
Deferral for reinvestment	5,158	-	(188)	4,970
Other	596	-	(121)	475
	349,843	16,025	(4,354)	361,514

Deferred tax liability for asset revaluations –

This deferred tax liability relates mainly to the difference between the accounting cost of investment properties measured at fair value (under IFRS) and their tax cost (acquisition cost less depreciation and any impairment that may be deductible).

Asset revaluations (Spain)

This line item includes the deferred taxes associated with the Group's investment property located in Spain that would be accrued if these assets were transferred at the fair value at which they are recognised, using the effective rate that would be applicable to each of the companies taking into account applicable legislation and any unrecognised tax credits.

Following the adoption of the REIT Tax Regime, the changes in the deferred taxes recognised in 2017 relate mainly to the properties owned by the companies that did not choose to operate under this regime, i.e., Torre Marenostrum, S.L. and Inmocol Torre Europa, S.A., and to certain adjustments arising from corporate transactions. Accordingly, the deferred taxes associated with the investment property of Colonial Group companies, wholly owned by the Parent, were recognised at an effective rate of 18.75% (tax rate of 25% with a limit on tax loss carryforwards of 25%). Consequently, in calculating its deferred tax liabilities, the Group considers applying the deferred tax asset of 44,385 thousand euros arising from the tax losses (the difference between the 25% tax rate and the effective settlement rate applied of 18.75%).

Asset revaluations (France)

"Asset revaluations (France)" records the amount of the deferred taxes associated with the Group's investment property located in France, which would accrue if those assets are sold. It should be noted that practically all of the assets in France are subject to the SIIC regime (Note 4-m), and therefore no additional tax would arise at the time of their sale. Only the assets of the companies forming part of the Parholding subgroup would fall outside of that tax regime at 31 December 2018 and 2017.

The Colonial Group also recognised deferred tax under this heading in connection with the asset revaluations under the SIIC regime (the SIIC-4 liability), calculated as the minimum stipulated dividend under the regime, in the event that all capital gains on the investment properties recognised by the SFL Group are realised, taking into account an effective tax rate for the calculation of the deferred tax of 11.15% Following the adoption of the REIT Tax Regime, and given that the dividend distributed by the subsidiary SFL to the Parent will no longer be subject to this taxation, the deferred tax recognised in this connection amounting to 72,159 thousand euros was reversed.

In 2017 the subsidiary SFL recognised the impact of the gradual reduction in the French tax rate, which dropped from 33.33% to 25%, and which entailed a decrease in the deferred tax liabilities due to the adjustment made to assets of 13,779 thousand euros.

g) Years open for review and tax audits

The Group has the last four years open for review by the tax inspection authorities for all applicable taxes in Spain and France, except income tax of Spanish companies with tax loss carryforwards or unused tax credits, in which case the period under review for this tax is extended to ten years. In 2016 the Parent filed supplementary income tax returns for 2011 to 2014, breaking the statute of limitations for these years.

No additional material liability for the Group is expected to arise in the event of a new tax audit.

h) Disclosure requirements arising from REIT status, Law 11/2009, amended by Law 16/2012

The disclosure requirements arising from the status of the Parent and certain subsidiaries as REITs (Note 17-a) are included in the related notes to the individual financial statements.

i) Adherence to the Code of Best Tax Practices

On 10 December 2015, the Company's Board of Directors agreed to adhere to the Code of Best Tax Practices. This resolution was reported to the tax authorities on 8 January 2016.

18. Revenue and expenses

a) Revenue

Revenue comprises basically rental income from contracts with customers arising from the Group's rental properties, which are concentrated in the cities of Barcelona, Madrid and Paris. The breakdown of revenue, by geographical segment, in 2018 and 2017 is shown in the table below:

Rental segment		Thousands of euros
	2018	2017

Barcelona	41,629	34,871
Madrid	106,144 52,270
Rest of Spain	6,991 366
Paris	193,509	195,780
	348,273	283,287

Revenue for 2018 and 2017 includes the effect of the lease incentives throughout the minimum term of the lease agreement (Note 4-n). Revenue also includes the accrued amounts received in connection to rights of entry (Note 15-e). At 31 December 2018 and 2017, these accruals increased revenue by 536 thousand euros and 13,061 thousand euros, respectively.

At 31 December 2018 and 2017, the total minimum future lease payments receivable corresponding to the Group's non-cancellable operating leases, based on the leases currently in force at each date, without taking into account the impact of common expenses, future increases in the CPI or future contractual lease payment revisions based on market parameters, were as follows:

		Thousands of euros
	Nominal amount
Minimum operating	31 December	31 December
lease payments	2018	2017

Less than one year	313,327	268,060
Spain	131,841	83,567
France	181,486	184,493
Between one and five years	639,112	562,568
Spain	206,842	124,389
France	432,270	438,179
Over five years	151,105	141,118
Spain	68,163	16,492
France	82,942	124,626
Total	1,103,544
Spain	406,846	224,448
France	696,698	747,298

b) Other operating income

This heading relates mainly to property services rendered, and amounted to 5,677 thousand euros and 2,714 thousand euros at 31 December 2018 and 2017, respectively.

c) Staff costs

The breakdown of "Staff costs" in the accompanying consolidated statement of comprehensive income is as follows:

		Thousands of euros
	2018	2017

Wages and salaries	19,688	18,092
Social security costs	6,935	6,580
Other employee benefit costs	3,014	4,710
Contributions to defined benefit plans	241	239
Internal reallocation	(740)	(686)
Total staff costs	29,138	28,936
Spain	16,350	13,527
France	12,788	15,409

"Other employee benefit costs" includes amounts corresponding to costs accrued in 2018 under the Parent's longterm remuneration plan (Note 19-a) and SFL's share option plan detailed in Note 19-c, totalling 3,406 thousand euros (2,880 thousand euros in 2017).

The contributions made by the Parent in 2018 and 2017 to defined benefit plans amounted to 241 thousand euros and 239 thousand euros, respectively, and are recognised under "Staff costs" in the consolidated statement of comprehensive income. At year-end 2017 and 2016, there were no contributions payable to this pension plan.

The Group headcount at 31 December 2018 and 2017, and the average headcount in 2018 and 2017, by job category and gender, is as follows:

	Number of employees				Average headcount,	Average headcount,
		2018	2017 2018				2017
	Men	Women	Men	Women	Men	Women	Men	Women

General and area managers Technical graduates and middle	14	7	14	6	16	7	13	5
managers	34	40	32	37	36	41	33	32
Administrative staff	26	73	16	53	21	64	16	52
Other	5	1	5	3	5	2	4	2
Total employees	79	121	67	99	78	114	66	91

d) Other operating expenses

The breakdown of "Other operating expenses" in the consolidated statement of comprehensive income is as follows:

		Thousands of euros
	2018	2017

External and other expenses	30,726	17,979
Taxes other than income tax	29,368	22,942
Total other operating expenses	60,094	40,921

Operating leases as lessee -

At the end of 2018 and 2017, the subsidiary Utopicus had agreed the following minimum lease payments with the lessors, based on the leases in force, taking into account the charging of expenses, future increases in the CPI or other lease payment revisions:

	Thousands of euros
	2018 2017

Less than 12 months	3,514	282
Between 1 and 5 years	11,884	832
More than 5 years	266	348
Total minimum operating lease
payments as lessee	15,664	1,461

These amounts relate to the lease agreements signed by Utopicus for the premises at which it offers its co-working services.

e) Net change in provisions

The changes in "Net change in provisions" in the consolidated statement of comprehensive income during the year are as follows:

	Thousands of euros
	2018	2017
Net charge to operating provisions (Note 16) Net charge to provisions for doubtful debts and	5,289	(5,592)
other	(953)	(112)
Total net change in provisions	4,336	(5,704)

f) Changes in the fair value of investment property and Gains/(losses) on changes in value of assets and impairment

The breakdown of "Changes in fair value of investment property" in the consolidated statement of comprehensive income for 2018 and 2017, by type, is as follows:

		Thousands of euros
	2018	2017
Investment property (Note 9) Assets classified as held for sale - Investment property (Note 22)	701,952 -	937,108 (3,673)
Changes in fair value of investment property	701,952	933,435
Spain	412,938	218,014
France	289,014	715,421

The breakdown, by nature, of the impairment charges recognised under "Gains/(losses) on changes in value of assets and impairment" in the consolidated statement of comprehensive income is as follows:

	Thousands of euros
	2018	2017

Impairment of goodwill	(114,304)	-
Impairment/(Reversal of impairment) of properties for own use (Note 8)	1,630	(287)
Impairment of other property, plant and equipment (Note 8)	-	(2,129)
Other impairment	(447)	(2,703)
Derecognitions of replaced assets (Notes 8 and 9)	(18,269)	(101)
Gains/(losses) on changes in value of assets and impairment	(131,390)	(5,220)

g) Net gains/(losses) on sales of assets

The breakdown of the Group's net gains/(losses) on sales of assets (Notes 8, 9 and 22), and their geographical distribution, is detailed as follows:

	Thousands of euros
	Spain			France		Total
	2018	2017	2018	2017	2018	2017

Sale price	388,930	6,435	260	445,000	389,190	451,435
Asset derecognition	(366,986)	(5,242)	(230)	(404,679)	(367,216)	(409,921)
Derecognition grace periods	-	-	-	(40,321)	-	(40,321)
Indirect costs and other	(10,244)	(666)	(9)	-	(10,244)	(666)
Net gains/(losses) on sales of assets	11,700	527	21	-	11,721	527

h) Finance income and costs

The breakdown of finance income and costs in 2018 and 2017 is as follows:

	Thousands of euros
	2018	2017
Finance income: Revenue from equity investments (Note 10-b)	71	3,681
Interest and similar income	2,389	1,435
Income from derivative financial instruments (Note 14)	64	95
Capitalised borrowing costs (Note 9)	5,307	2,591
Total finance income	7,831	7,802
Finance costs: Finance and similar costs Finance costs associated with loan repayment Finance costs associated with the repurchase of bonds Finance costs associated with arrangement expenses (Note 13-m) Expense on derivative financial instruments (Note 14)	(105,235) (6,946) (24,459) (6,384) (6,409)	(78,996) (2,242) - (5,191) (417)
Total finance costs	(149,433)	(86,846)
Impairment of financial assets (Note 16)	(143)	(401)
Total financial loss	(141,745)	(79,445)

i) Related party transactions

The main related party transactions undertaken in 2018 and 2017 were as follows:

	Thousands of euros
	2018 2017
	Building leases Building leases
Gas Natural, SDG, S.A. (*)	5,300	5,227
Total	5,300	5,227

(*) Gas Natural, SDG, S.A. is the shareholder of the Parent in the subsidiary Torre Marenostrum, S.L.

On 16 November 2018, the Parent acquired 10,323,982 shares of the subsidiary SFL from Qatar Holding, LLC and DIC Holding, LLC through (i) the Parent's contribution of 7,136,507 shares of the subsidiary as consideration for the subscription of the 53,523,803 new shares of the Company (Note 12-a), (ii) the exchange of 400,000 shares of the subsidiary SFL for 3,000,000 shares of the Parent that it held as treasury shares (Note 12-f), and (iii) the sale to the Parent of 2,787,475 shares of the subsidiary SFL for 203,486 thousand euros.

j) Profit/(loss) by company

The contribution of the consolidated companies to profit/(loss) for the year was as follows:

	Thousands of euros
Company	Net profit/(loss) attributable to Consolidated net profit/(loss) non-controlling interests			Net profit/(loss) for the year attributable to the Parent
	2018	2017	2018	2017	2018	2017

Inmobiliaria Colonial, SOCIMI, S.A.	120,534	154,306	(2,699)	-	117,835	154,306
SFL subgroup	384,646	868,431	(147,971)	(395,002)	236,675	473,429
Torre Marenostrum, S.L.	6,291	4,505	(2,831)	(1,954)	3,460	2,551
Danieltown Spain, S.L.U.	15,424	3,311	-	-	15,424	3,311
Moorage Inversiones 2014, S.L.U.	70,351	5,194	-	-	70,351	5,194
Hofinac Real Estate, S.L.U.	31,152	32,494	-	-	31,152	32,494
Fincas y representaciones, S.A.U.	10,879	3,345	-	-	10,879	3,345
Inmocol Torre Europa, S.A.	1,125	1,993	(563)	(1,037)	562	956
Colonial Arturo Soria, S.L.U.	2,589	3,511	-	-	2,589	3,511
LE Offices Egeo, S.A.U.	6,071	-		-	6,071	-
Agisa, S.A.U.	6,731	1,842	-	-	6,731	1,842
Soller, S.A.U.	5,628	2,421	-	-	5,628	2,421
Peñalvento, S.L.U.	10,243	2,019	-	-	10,243	2,019
Utopic_US subgroup	(2,780)	(2,917)	478	65	(2,302)	(2,852)
Axiare Investments, S.A.	(3,197)	-	206	-	(2,991)	-
Axiare Properties, S.A.	(4)	-	-	-	(4)	-
Axiare I+D+i, S.A.	(835)	-	10	-	(825)	-
Venusaur, S.A.	10,370	-	94	-	10,464	-
Chameleon (Cedro),	2,895	-	(70)	-	2,825	-
Colonial Invest, S.L.U.	(2)	(2)	-	-	(2)	(2)
Colonial Tramit, S.L.U.	(2)	(2)	-	-	(2)	(2)
Total	678,109	1,080,451	(153,346)	(397,928)	524,763	682,523

19. Stock option plans

a) Long-term remuneration plan linked to fulfilment of several management indicators

On 21 January 2014, the shareholders at the Parent's Annual General Meeting set up a long-term remuneration plan for the Chairman and the Managing Director of the Parent and for members of the Group's Management Committee, applicable from 2014 to 2018.

Between 1 and 15 April of each of the following periods, at the proposal of the Nomination and Remuneration Committee, the Board of Directors must determine the number of shares that correspond to each beneficiary of the plan based on fulfilment of the indicators the previous year. The shares will be delivered to the beneficiaries between 15 and 30 April each year.

Shares received under this plan may not be sold or transferred by beneficiaries within the first three years of receiving them, except as required to pay any taxes chargeable in this regard.

The determination of shares to be allocated will be subject to a final adjustment to ensure that the cash value of the shares does not exceed the average Colonial share price for November 2013 by more than 150%.

The plan includes the customary clauses to adapt the number of shares to be received by the beneficiaries in cases of dilution.

In 2018 and 2017, the Parent recognised 1,454 thousand euros and 1,334 thousand euros, respectively, under "Staff costs - Other employee benefit costs" in the consolidated income statement to cover the incentive plan (Note 18-c).

On 25 April 2018, the Parent settled the outstanding obligations relating to compliance with the plan once the Board determined the number of shares to be delivered to the beneficiaries of the Plan in accordance with the level of fulfilment of indicators for 2017, which was 348,394 shares (Note 12). The shares were delivered to the beneficiaries on this date. Of these shares, 195,100 shares were delivered to members of the Board of Directors and 153,294 shares to members of senior management, with a market value upon delivery of 1,828 thousand euros and 1,436 thousand euros, respectively.

On 26 April 2017, the Board determined the number of shares to be delivered to beneficiaries of the Plan in accordance with the level of fulfilment of indicators for 2016 was 313,954 shares (Note 12). The shares were delivered to the beneficiaries on the same date. Of these shares, 175,814 shares were delivered to members of the Board of Directors and 138,140 shares to members of senior management, with a market value upon delivery of 1,257 thousand euros and 988 thousand euros, respectively.

b) Extension of the term of the long-term remuneration plan linked to fulfilment of several management indicators

On 29 June 2017, the shareholders at the Annual General Meeting agreed to extend the term for applying the share delivery plan approved at the General Shareholders Meeting held on 21 January 2014 for an additional two years, in accordance with the terms and conditions thereof.

c) Share option plans on SFL shares

The subsidiary SFL had two bonus share plans at 31 December 2018, the breakdown of which is as follows:

	Plan 4	Plan 4	Plan 5
Meeting date	13.11,2015	13.11,2015	20.04,2018
Board of Directors date	26.04,2016	03.03,2017	20.04,2018
Initial target number	32,036	33,376	33,592
Initial expected %	70.83%	70.83%	100%
Initial expected number	22,691	23,640	33,592
Amount per share (euros)	41.49	42.61	48.64
Options cancelled/disposals	(1,168)	(2,268)	(1,456)
Expected % at year-end	150%	100%	100%
Estimated number at year-end	46,302	31,108	32,136

Each allocation plan has been calculated based on the expected number of shares multiplied by the unit fair value of those shares. The expected number of shares is the total number of shares multiplied by the expected percentage of take-up in the grant, The resulting amount is charged on a straight-line basis over the grant period.

The fair value of the shares allocated is determined by the quoted price at the grant date, adjusted by the discounted value of future dividends paid during the acquisition period applying the Capital Asset Pricing Model (CAPM).

In the first half of 2018, a total of 37,896 bonus shares were delivered in accordance with Plan 3 for 2015.

At 31 December 2018 and 2017, a total of 1,952 thousand euros and 1,546 thousand euros relating to these bonus share plans were recognised in the consolidated income statement (Note 18-c).

20. Balances with related parties and associates

At 31 December 2018 and 2017, the Group did not have any balances outstanding with related parties and associates.

21. Director and senior management remuneration and other benefits

a) Composition of the Parent's Board of Directors

The Parent's Board of Directors was made up of ten men and one woman at 31 December 2018 and nine men and one woman at 31 December 2017.

At 31 December 2018, the composition of the Parent's Board of Directors is as follows:

Director	Position	Type of director
Juan José Brugera Clavero	Chairman	Executive
Pedro Viñolas Serra	Chief Executive Officer	Executive
Carlos Fernández González	Director	Proprietary
Javier López Casado	Director	Proprietary
Sheikh Ali Jassim M. J. Al-Thani	Director	Proprietary
Adnane Mousannif	Director	Proprietary
Juan Carlos García Cañizares	Director	Proprietary
Carlos Fernández-Lerga Garralda	Lead Director	Independent
Ms Ana Sainz de Vicuña	Director	Independent
Javier Iglesias de Ussel Ordís	Director	Independent
Luis Maluquer Trepat	Director	Independent

On 24 May 2018, the shareholders at the Annual General Meeting appointed Javier López Casado as the new proprietary director.

On 24 January 2019, Ana Sainz de Vicuña tendered her resignation as an independent director . On this same date, Silvia-Mónica Alonso-Castrillo Allain was appointed as an independent director .

In 2017, Juan Villar-Mir de Fuentes resigned from his position as director.

Pursuant to Article 229 of the Spanish Limited Liability Companies Law, the directors have reported that neither they nor any parties related thereto have any direct or indirect conflict with the interests of the Parent.

b) Remuneration of Board members

The breakdown of the remuneration received in 2018 and 2017 by the members of the Board of Directors of the Parent, by item, is as follows:

31 December 2018

	Thousands of euros
	Parent	Other Group companies	Total
Remuneration earned by executive directors (*):	3,347	150	3,497
Attendance fees for non-executive directors:	561	80	641
Directors' attendance fees	537	80	617
Additional attendance fees for the Chairman	24	-	24
Attendance fees for executive directors:	-	45	45
Fixed remuneration of non-executive directors:	780	100	880
Directors' remuneration	505	60	565
Additional remuneration for the Audit and Control Committee Additional remuneration for the Nomination and	125	40	165
Remuneration Committee	150	-	150
Executive directors' remuneration:	-	70	70
Total 2018	4,688	445	5,133
Remuneration for
executive directors (*):	3,347	265	3,612

(*) Does not include the amount corresponding to expenses accrued in relation to the long-term incentive plan described in Note 18.

31 December 2017

	Thousands of euros
	Parent	Other Group companies	Total
Remuneration earned by executive directors (*):	4,866	150	5,016
Attendance fees for non-executive directors:	580	95	575
Directors' attendance fees	557	95	652
Additional attendance fees for the Chairman	23	-	23
Attendance fees for executive directors:	-	50	50
Fixed remuneration of non-executive directors:	780	100	880
Directors' remuneration	495	60	555
Additional remuneration for the Audit and Control Committee Additional remuneration for the Nomination and	135	40	175
Remuneration Committee	150	-	150
Executive directors' remuneration:	-	70	70
Total 2017	6,226	465	6,691

Remuneration for executive directors (*):	4,866	270	5,136

(*) Does not include the amount corresponding to expenses accrued in relation to the long-term incentive plan described in Note 18.

At 31 December 2018 and 2017, the Parent had taken out a civil liability insurance policy covering all of its directors, executives and employees, for a premium of 369 thousand euros and 393 thousand euros, respectively. The aforementioned amount includes the insurance premium paid for both periods for civil liability insurance to cover damages caused by acts or omissions.

The shareholders at the Annual General Meeting held on 28 June 2016 approved the granting of a defined contribution scheme for executive directors covering retirement and, when applicable, disability and death. At 31 December 2018 and 2017, the Parent recognised 180 thousand euros and 178 thousand euros, respectively, in this connection under "Staff costs" in the consolidated income statement.

In addition to the matters indicated in the preceding paragraph, the Group has not granted any loans or taken out any pension plans or life insurance for former or serving members of the Parent's Board of Directors.

At 31 December 2018 and 2017, two members of the Board of Directors had signed golden parachute clauses in the event of certain cases of termination or change of control, all of which were approved at the General Shareholders Meeting.

In 2018 and 2017, there were no finalisations, modifications or early terminations of contracts outside of the normal business activities between the Parent and the members of the Board of Directors or any other person acting on their behalf.

c) Remuneration of senior management

The Parent's senior management team is formed by senior executives and other persons responsible for the management of the Company, reporting to the CEO. The Company's senior management team was made up of two men and two women at 31 December 2018 and 2017.

Monetary compensation earned by senior management in 2018 amounted to 1,505 thousand euros. Furthermore, they received 1,436 thousand euros corresponding to the long-term incentives plan (1,918 thousand euros and 988 thousand euros, respectively, in 2017).

At its meeting held on 27 July 2016, the Board of Directors approved the granting of a defined contribution scheme for a member of senior management covering retirement and, when applicable, disability and death. At 31 December 2018 and 2017, the Parent recognised 62 thousand euros and 61 thousand euros, respectively, in this connection under "Staff costs" in the consolidated statement of comprehensive income.

At 31 December 2018 and 2017, one member of senior management had signed a golden parachute clause, in the event of termination under certain circumstances or a change of control.

22. Assets classified as held for sale

The changes in this heading in 2018 and 2017 were as follows:

	Thousands of
	euros
	Investment property
Balance at 31 December 2016	-
Transfers (Note 9)	408,352
Disposals (Note 18-g)	(404,679)
Changes in value (Note 18-f)	(3,673)
Balance at 31 December 2017	-
Transfers (Note 9)	26,091
Balance at 31 December 2018	26,091

Investment property (Note 9) -

Movements in 2018

In 2018, the Parent transferred a property from "Investment property" in the consolidated statement of financial position amounting to 26,091 thousand euros (Note 24).

Movements in 2017

In the first half of 2017, the subsidiary SFL transferred the In&Out building from "Investment property" in the consolidated statement of financial position amounting to 408,352 thousand euros. The value of the property at 30 June 2017 took into consideration the price of the sale commitment signed by the subsidiary SFL on 25 July 2017, which amounted to 445,000 thousand euros, less transaction costs. In September 2017, the sale commitment was executed for the aforementioned amount (Note 18-g).

"Changes in fair value of investment property" in the consolidated statement of comprehensive income includes the loss of 3,673 thousand euros from the revaluation of the assets classified as held for sale for 2017 (Note 17-f), in accordance with the appraisals of independent experts at 31 December 2017 (Note 4-c).

23. Auditors' fees

Fees incurred for auditing services in 2018 and 2017 provided to the various companies composing the Colonial Group by the principal auditor and other auditors are set forth below:

		Thousands of euros
		2018	2017
Description	Principle auditor	Other auditors	Principle auditor	Other auditors
Audit services	756	237	569	239
Other attest services	176	25	91	3
Total audit and related services	932	262	660	242
Tax advisory services Other services	- 47	18 717	- 135	- 542
Total professional services	47	735	135	542

The principal auditor of the Colonial Group for 2018 and 2017 was PricewaterhouseCoopers Auditores, S.L.

The fees for other attest services include 149 thousand euros relating to services provided to the Company for issuing comfort letters and agreed-upon procedure reports on ratios linked to financing agreements and an agreed-upon procedure report on the net asset value (88 thousand euros for 2017). In addition, the Company provided services to subsidiaries on agreed-upon procedures on ratios linked to financing agreements for 2 thousand euros. The principal auditor's fees represent less than 1% of its revenue in Spain.

24. Events after the reporting period

From 31 December 2018 to the date on which these consolidated financial statements were authorised for issue, the following significant events took place:

From 1 January to 25 February 2019, the Parent carried out various short-term promissory note issuances amounting to a total of 172 million euros. The subsidiary SFL also carried out various short-term promissory note issuances amounting to a total of 244 million euros.
On 31 January 2019, and once the parties had met all of their obligations, the Hotel Centro Norte was sold for a price of 27,500 thousand euros (Note 22), of which 2,750 thousand euros had been received by the Parent as a prepayment.
In January and February 2019, the Parent repaid 206 million euros of the debt from Axiare and refinanced the outstanding debt amounting to 76 million euros, thus improving its margin, which was tied to the company's ESG rating. In addition, a sustainable loan was taken out for 75 million euros, the margin of which is tied to the ESG assessment.

APPENDIX

Companies included in the scope of consolidation

At 31 December 2018 and 2017, fully consolidated subsidiaries and related information were as follows:

		% ownership
		Direct		Indirect	Shareholder	Business

	2018	2017	2018	2017
Torre Marenostrum, S.L. (*) Avda. Diagonal 532	55%	55%	-	-		Real estate
08006 Barcelona (Spain)
Colonial Invest, S.L.U.	100%	100%	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
Colonial Tramit, S.L.U.	100%	100%	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
Danieltown Spain, S.L.U.	100%	100%	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
Moorage Inversiones 2014, S.L.U.	100%	100%	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
Hofinac Real Estate, S.L.U.	100%	100% (*)	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
Fincas y representaciones, S.A.U.	100%	100%	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
Inmocol Torre Europa, S.A. (*)	50%	50%	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
Colonial Arturo Soria, S.L.U.	100%	100%	-	-		Real estate
Avda. Diagonal 532
08006 Barcelona (Spain)
LE Offices Egeo, S.A.U.	100%	-	-	-		Real estate
Pº de la Castellana, 52
28046 Madrid (Spain)
Chameleon (Cedro), S.L.U.	100%	100%	-	-		Real estate
Avda. Diagonal, 532
08006 Barcelona (Spain)
Venusaur, S.L.U.	100%	100%	-	-		Real estate
Avda. Diagonal, 532
08006 Barcelona (Spain)
Axiare Invesments, S.L.U.	100%	100%	-	-		Real estate
Pº de la Castellana, 52
28046 Madrid (Spain)
Axiare Properties, S.L.U.	100%	100%	-	-		Real estate
Pº de la Castellana, 52
28046 Madrid (Spain)
Axiare Investigación, Desarrollo e	100%	100%
Innovación, S.L.U.			-	-		Real estate
Pº de la Castellana, 52
28046 Madrid (Spain)
Almacenes Generales Internacionales,	100%	100%
S.A.U.			-	-		Real estate
Pº de la Castellana, 52
28046 Madrid (Spain)
Soller, S.A.U.	100%	100%	-	-		Real estate
Pº de la Castellana, 52
28046 Madrid (Spain)
Peñalvento, S.L.U.	100%	-	-	100%	Almacenes Generales	Real estate
Pº de la Castellana, 52					Internacionales, S.A.U.
28046 Madrid (Spain)

	% ownership
		Direct		Indirect	Shareholder	Business
	2018	2017	2018	2017
Utopicus Innovación Cultural, S.L.	83.47%	69.60%	-	-		Co-working
Duque de Rivas, 5
28012 Madrid (Spain)
Zincshower, S.L.U.	-	-	100%	100%	Utopicus Innovación	Co-working
Colegiata, 9					Cultural, S.L.
28012 Madrid (Spain)
Colaboración e Innovación Virtual,	-	-			Utopicus Innovación
S.L.U.			100%	100%	Cultural, S.L.	Co-working
Duque de Rivas, 5
28012 Madrid (Spain)
Société Foncière Lyonnaise, S.A. (SFL)	81.71%	58.55%	-	-		Real estate
42, rue Washington
75008 Paris (France)
Condorcet Holding SNC (**)	-	-	100%	100%	SFL	Real estate
42, rue Washington
75008 Paris (France)
Condorcet PROPCO SNC (**)	-	-	100%	100%	Condorcet Holding SNC	Real estate
42, rue Washington
75008 Paris (France)
SCI Washington (*)	-	-	66%	66%	SFL	Real estate
42, rue Washington
75008 Paris (France)
SCI 103 Grenelle (*)	-	-	100%	100%	SFL	Real estate
42, rue Washington
75008 Paris (France)
SCI Paul Cézanne (*)	-	-	100%	100%	SFL	Real estate
42, rue Washington
75008 Paris (France)
Segpim, S.A. (*)	-	-	100%	100%	SFL	Sale of real estate and
42, rue Washington						provision of services
75008 Paris (France)
Locaparis, SAS (*) 42, rue Washington	-	-	100%	100%	Segpim	Sale of real estate and provision of services
75008 Paris (France)
Maud, SAS (*)	-	-	100%	100%	SFL	Real estate
42, rue Washington
75008 Paris (France)
SAS Société Immobilière Victoria (*)	-	-	100%	-	SFL	Real estate
42, rue Washington
75008 Paris (France)
SB2, SAS (*)	-	-	100%	100%	SFL	Real estate
42, rue Washington
75008 Paris (France)
SB3, SAS (*)	-	-	100%	100%	SFL	Real estate
42, rue Washington
75008 Paris (France)
SCI SB3	-	-	100%	100%	SFL	Real estate
42, rue Washington
75008 Paris (France)
SAS Parholding (*)	-	-	50%	50%	SFL	Real estate
42, rue Washington
75008 Paris (France)
SCI Parchamps (*)	-	-	100%	100%	SAS Parholding	Real estate
42, rue Washington
75008 Paris (France) SCI Pargal (*)	-	-	100%	100%	SAS Parholding	Real estate
42, rue Washington
75008 Paris (France)
SCI Parhaus (*)	-	-	100%	100%	SAS Parholding	Real estate
42, rue Washington
75008 Paris (France)

* Company audited in 2018 by PricewaterhouseCoopers

** Company audited in 2018 by Deloitte & Associés

At 31 December 2018 and 2017, the Colonial Group companies were audited by PricewaterhouseCoopers Auditores, S.L., with the exception of the SFL Group, which was audited jointly by Deloitte and PricewaterhouseCoopers.

Inmobiliaria Colonial, SOCIMI, S.A. and Subsidiaries

Consolidated Management Report for the year ended 31 December 2018

1. Company situation

State of the rental market

Barcelona

During the fourth quarter of 2018, 65,000 sqm of offices were signed in the offices market in Barcelona, a figure +40% above the average over the last five years. Barcelona closed 2018 with a take-up volume of 366,000 sqm, a figure above the previous year, confirming the positive trend of the rental market. The vacancy rate continued a downward trend, thanks to good domestic demand, a key factor for the growth of the offices market. Currently the vacancy rate stands at 5.7%, positioning it at an all-time low in the last decade. In the CBD area, this has dropped further to 2.1%. A lack of future supply and the solid demand experienced in some areas of the city is driving up rents. Consequently, prime rents reached €25.25/sqm/month, which represents a year-on-year growth of +8.6%. Long-term forecasts remain bullish, positioning Barcelona as one of the cities with the greatest expected rental growth in Europe.

Madrid

During the fourth quarter of 2018, the take-up in the offices market in Madrid was 122,000 sqm, substantially higher than the average over the last five years. In total, Madrid had a take-up volume of close to 486,000 sqm in 2018. The vacancy rate stood at 10.5%, in line with the previous year, due to the entry into operation of new projects. In the CBD, the vacancy rate decreased to reach 6.7%. This decrease makes it increasingly more difficult to find quality spaces in the city centre and puts pressure on demand while increasing prime rents which continue to rise, resulting in a price of €34.50/sqm/month. It is worth mentioning that Madrid is positioned as one of the cities with the greatest expected rental growth in Europe.

Paris

In the offices market in Paris, the take-up in 2018 reached 2,540,000 sqm, a figure which continues to exceed the average over the last ten years. Available office space was reduced to below 3 million sqm, 10% lower than the vacancy rate the previous year. This decrease in available office space reached levels below those of 2009. In the CBD, the vacancy rate stood at 1.4%. As a consequence, prime rents continue to increase, reaching levels above €810/sqm/year.

Source: Reports by Jones Lang Lasalle, Cushman & Wakefield, CBRE and Savills

Organisational structure and functioning

Colonial is a benchmark REIT in the high-quality office market in Europe and has been a member of the IBEX 35, the benchmark Spanish stock market index, since the end of June 2017.

The company has a stock market capitalisation of approximately 4,500 million euros with a free float of around 60%, and manages an asset volume of more than 11,000 million euros.

The Company's strategy focuses on creating an industrial value through the creation of prime high-quality products, through the repositioning and transformation of real estate assets.

In particular, its strategy is based on the following:

A business model focused on the transformation and creation of high-quality offices in prime locations, mainly central business districts (CBD).
Maximum commitment to the creation of offices that meet the most demanding market requirements, with particular emphasis on efficiency and sustainability.
A pan-European strategy, diversified in the Madrid, Barcelona and Paris office markets.
An investment strategy combining core acquisitions and prime factory acquisitions with value added components.
A clear industrial real estate approach to capture value creation that exceeds the market average.

Today Colonial is a leading European company that specifically focuses on areas in city centres and leads the Spanish property market in terms of quality, sustainability and efficiency in its portfolio of offices.

It has also adopted a comprehensive approach in all areas of corporate social responsibility and aspires to maximum standards of (1) sustainability and energy efficiency, (2) corporate governance and transparency, and (3) excellence in human resources and social actions, making them an integral part of the Group's strategy.

Over the last three years, the Group has successfully executed its acquisition programme, making investments of more than 2,200 million euros (committed amounts including future capex). All acquisitions relate to assets in excellent locations with good fundamentals, the potential for additional return through property repositioning and always maintaining maximum financial discipline.

At the close of 2018, the Colonial Group had a robust capital structure with a solid investment grade rating. The Group's LTV stood at 39.3% in December 2018.

The Company's strategy is to consolidate itself as a leader in prime office rentals in Europe, with special emphasis on the Barcelona, Madrid and Paris markets:

A solid capital structure with a clear commitment to maintaining the highest credit rating standards – investment grade.
Attractive returns for shareholders based on recurring return combined with the creation of real estate value based on value added initiatives.

2. Business performance and results

Introduction

At 31 December 2018, the Group's revenue amounted to 348 million euros.

Profit from operations amounted to 276 million euros.

According to the independent appraisals carried out by Jones Lang Lasalle and CB Richard Ellis Valuation in Spain and Jones Lang LaSalle and Cushman & Walkfield in France at year-end, the investment property was valued at 702 million euros. This revaluation, reported both in France and in Spain, reflects a 8% increase in value in like-for-like terms on rental assets in operation with respect to December 2017 (15% in Spain and 5% in France).

The net finance cost was 142 million euros.

After taking into account the profit attributable to non-controlling interests (153 million euros), the profit after tax attributable to the Parent amounted to 525 million euros.

Profit for the year

The highlights of the rental business are as follows:

2018 was an excellent year for the Colonial Group, with a total return for shareholders of 19%, due to the increase in the EPRA NAV per share of 17% in combination with a dividend yield of 2%.

This return is a result of the strategy to specialise in prime offices in the Barcelona, Madrid and Paris markets, with a focus on creating real estate value -"Prime Factory"- that awards the quality of return while maintaining maximum financial discipline.

On 9 July 2018, the merger of Inmobiliaria Colonial, SOCIMI, S.A. with Axiare Patrimonio SOCIMI, S.A. was undertaken, an operation that has allowed the leadership of the Colonial Group in prime offices to be consolidated by offering our clients more than 1.2 million above grade square metres in office buildings, through 73 assets in the best locations in Madrid, Barcelona and Paris.

The merger of both companies constitutes a transformational event in the strategic plan, accelerating the Group's growth with the incorporation of a portfolio of top quality offices in Spain.

The Group's successful strategy is reflected in all sections of the financial and operating results for 2018:

Total Shareholder Return of 19%
Net Asset Value of €10.03/share, +17% vs. previous year
Gross asset value of 11,348 million euros, + 22% (+8% like-for-like)
Income from the rental business of 347 million euros, +23%
Net profit of 525 million euros, €1.17/share
Recurring net earnings of 101 million euros, +22%

The Group resulting from the merger has obtained very sound operating results, capturing strong rental increases in all markets

Attracting growth in rent signed +8% vs market rent in December 2017, +26% in "release spread"
Sound occupancy levels of 96%

Increase in recurring profit

Recurring net profit attributable to the Parent amounted to 101 million euros, an increase of +22% year-on-year., which is explained mainly by three elements:

A solid year-on-year increase in rental income of 5%.
1. An improvement in financial loss.
1. Less corporate income tax expense.

Growth in rental income

The Colonial Group posted 5% growth in rental income on a like-for-like basis with regard to the end of the previous year, which is one of the highest increases in the sector.

Rental income increased in Spain by 4% on a like-for-like basis, thanks to the strong result of the portfolio. The Paris portfolio increased by 5% on a like-for-like basis, underpinned by the contracts signed for the Washington Plaza, Cézanne Saint Honoré, 103 Grenelle & Percier buildings.

Creation of real estate value

The gross asset value at 31 December 2018 amounted to 11,348 million euros (11,915 million euros including transfer costs), with an increase of +22% year-on-year after the integration of Axiare.

In like-for-like terms, the increase in the value of the portfolio was +8% year-on-year, with solid growth in all segments of the asset portfolio.

The office buildings in Barcelona are highlighted with an annual increase of +19% like-for-like, and those in Madrid up +12% like-for-like, both driven by significant growth in the rental prices achieved in 2018.

The Paris portfolio increased +5.5% like-for-like in 2018, a much higher growth than the majority of competitors.

Solid fundamentals in all segments

The Colonial Group's business showed excellent performance with an upward trend in lease agreements, maintaining close to full occupancy levels.

Lease agreements with significant increases in rent

The Colonial Group's business has performed very well with a robust pace in new leases and levels close to full occupancy.

In 2018, the Colonial Group signed 103 rental contracts, corresponding to more than 175,000 sqm and secured an annual rental income of 43 million euros.

In Barcelona, rents were signed +10% above market rents, in the Madrid portfolio it was +8% and in the Paris portfolio it was +5%. Release spreads were in double digits in 2018: Barcelona +23%, Madrid +29% and Paris +14%.

Solid occupancy levels

The total vacancy of the Colonial Group's portfolio (including all uses: offices, retail and logistics) stood at 4% at the end of 2018. Particularly noteworthy are the office portfolios of Barcelona and Paris, registering a vacancy rate of 1%.

The Madrid office portfolio's vacancy rate stood at 11% at the close of 2018, 7% correspond to the Axiare portfolio, 1% of the vacancy corresponds to the recently delivered projects of The Discovery Building and The Window building, and the rest of the Madrid portfolio has a vacancy of 2%. The vacancy rate of the Madrid portfolio reached 7%, due mainly to new surface areas available as a result of the delivery of the Discovery project. Not including this new product, the rest of the Madrid portfolio has a vacancy rate of 2%.

At the end of 2018, the logistics portfolio of the Colonial Group had a vacancy of 14%, mainly due to the entry into operation of the first phase of the project located in San Fernando de Henares.

Active portfolio management and growth vectors

The Colonial Group has an attractive growth profile based on the following vectors:

A. Colonial-Axiare merger & integration

Colonial has successfully completed the merger and integration of Axiare in record time, consolidating its leadership in prime offices in Spain and Europe, through the creation of a strong growth platform with a unique exposure to CBD in Europe.

The integration of both companies has enabled the identification and implementation of important sources of value creation, which are only partially reflected in the 2018 figures and will fully crystalize in the coming quarters.

Consolidation of prime office leadership
More thab 347 millon euros in rental income corresponding to recurring business, with 154 million euros in Spain
More than 11,300 million euros in asset value with 4,779 million euros in Spain
75% of the offices GAV in the CBD
1. Integration of the processes in the Colonial Group's real estate value chain
Professionalization and internalization of the commercial circuit and supply chain
Optimization of the IT systems
Integration of 8 people from Axiare into the Colonial Group

3. Optimization of the resulting asset portfolio

Definition of a Business Plan reviewed asset by asset
Review and optimization of the project portfolio
Identification of non-strategic assets
1. Income synergies strengthened competitive position in the Madrid market
Maximization of rental prices through leadership in Grade A product
Usage of the integrated portfolio for cross-selling strategies
Greater scope of product offering to retain and attract clients
1. Operational cost synergies

Annual cost savings of more than 5 million euros

Implementation of personnel cost synergies
Elimination of duplications in other costs
1. Optimization of the financial structure of the merged Group
Cancellation and/or refinancing of more than 500 million euros in bilateral debt
B. A portfolio of contracts to obtain the cycle: an attractive contract maturity profile to continue to obtain significant rental price increases, as shown by the results of the second half of 2018.
C. An attractive project pipeline: Colonial has a project pipeline of more than 1,280 million euros (total cost of completed product) corresponding to more than 210,000 sqm to create prime products that offer strong returns and therefore, future value creation with solid fundamentals.

	Proyecto	Ciudad	% Grupo	Entrega	$GLA$ $(m2)$	Total Coste €m	Total Coste € sqm	Yield on Cast
	Pedralbes Center Prima Comuments	Barcelona	100%	1H 19	6,917	38	5,502	6.3%
$\mathbf{2}$	Gala Placidia / Utopic us	Barcelona	100%	1H 19	4,312	17	3,922	7.0%
3	Miguel Angel 23	Madrid	100%	2H 20	8,036	64	7,999	5.8%
	Castellana, 163	Madrid	100%	2020 / 21	10,910	52	4,803	6.5%
5	Diagonal 525	Barcelona	100%	1H 21	5,710	37	6,460	6.0%
	Emile Zola / Destination XV	Paris	82%	2H 21	24,500	280	11,428	5.0%
	lena 96	Paris	82%	1H 21	9,300	147	15,801	5.0%
8	Velazquez Padilla 17	Madrid	100%	1H 21	17.239	113	6,532	6.5%
9	Plaza Europa 34	Barcelona	50%	2H 21	14,306	32	2,257	7.0%
10 ¹⁰	Mendez Alvaro Campus	Madrid	100%	2H 22	89,871	287	3,188	7.5%
11	Sagasta 27	Madrid	100%	2H 22	4,481	23	5,044	6.5%
12	Prima Louvré SaintHonoré Commercial	Paris	82%	2023	16,000	205	12,831	7.3%
	TOTAL OFFICE PIPELINE				211 582	1 295	6.119	£ 3%

Alpha III Acquisitions

At the beginning of 2018, Colonial acquired five assets with a total investment of 480 million euros. The investment consists of the development of more than 110,000 sqm of offices in the south of the Madrid CBD.

In addition, two high quality assets were acquired in new business areas in Madrid and an asset located in the CBD of Barcelona, where a total refurbishment will be carried out in order to develop coworking initiatives.

City Center	Méndez Álvaro Campus Madrid - Inside M-30		Value Added - Prime factory GLA: 89 871m ²	Total Inversión ¹ : 272€m - 287€m Yield on Cost ² : $7\% - 8\%$
$\mathbf{I}$ MADRID	$\overline{2}$ Méndez Álvaro office Scheme Madrid - Inside M-30		Value Added - Prime factory GLA: 20.275m ²	Total Inversión ¹ : 68€m Yield on Cost ² : 7%-8%
	3 EGEO Madrid - Campo de las Naciones		Core with value added potential GLA: 18.254m ²	Total Inversión ¹ : 79€m Yield on Cost ² : 5%
MADRID	4 Arturo Soria Madrid - New Business Area		Core with value added potential GLA: 8.663m ²	Total Inversión ¹ : 33€m Yield on Cost ² : 6%
BARCELONA	5 Gala Placidia Barcelona CBD	utopic_US	Value Added - Prime factory GLA: 4.312m ²	Total Inversion ¹ : 17€m Yield on Cost ² : $\geq 7\%$
	1. Dracia da admisición + canov total ostimado del erovado. O Dotantial ruppino violde on cost nara los próvimos años

(1) Last GAV reported: GAV 06/18 for operating assets and acquisition cost + capex in the future project

Alpha IV Acquisitions

In mid-November 2018, the Colonial Group completed the Alpha IV project, which involved the disposal of non-core assets and mature products and/or assets outside CBD for 441 million euros, and the acquisition of prime assets for a total of 756 million euros.

The main characteristics of the Alpha IV acquisitions are the following:

1. Disposals: In the third quarter, Colonial sold 7 office buildings and a turnkey project in Madrid for a total of 441 million euros. The disposals were closed on very favourable terms for the Company, achieving a premium of +12% on the previous valuation1. The assets sold were non-strategic and mature properties and/or located outside of the CBD, with a gross lettable area of more than 106,000 sqm.
1. Acquisition of 22% of SFL: In November, Colonial and Qatar Investment Authority (QIA) reached an agreement in which Colonial would control up to 81% of its French subsidiary SFL. The transaction was on very advantageous

terms for Colonial which had access to 10.3 million SFL shares, representing 22.2% of the share capital, at an average price of €69.6 per share, resulting in an average discount of 19% over the last reported NAV.

Acquisition of a prime asset in Barcelona - Diagonal 525: Colonial has acquired a 5,710 sqm above-ground office building on Barcelona's prime Avenida Diagonal. It is expected to undergo a full-scale refurbishment in 2019 and become an iconic office building in the area.

Capital structure and value of the share

Active management of the balance sheet

In 2018, a year marked by the acquisitions of Axiare and a 23% stake of SFL, an important active liability management has been carried out, that has allowed for an upgrade on the Standard & Poors rating up to BBB+, highest rating in Spanish real estate. The main actions taken are presented below:

Issuance of Colonial bond, under the EMTN programme, for a total amount of 650 million euros maturing in April 2026, with an annual coupon of 2%.
Bond buyback with maturity in 2019: In July, Colonial made an early repayment of the outstanding balance (375 million euros) from the bond issue maturing in June 2019 and that yielded an annual coupon of 1.863%.
Refinancing of Colonial's syndicate loan for 350 million euros, increasing the amount to 500 million euros, extending maturity to December 2023 and reducing the financing spread.
Repayment of the debt from Axiare amounting to 396 million euros, all of which is secured by a mortgage guarantee. In the first quarter of 2019 and up until the date of issue of this report, the Parent repaid 206 million euros of the debt from Axiare and refinanced the outstanding debt amounting to 76 million euros, thus improving its margin, which was tied to the company's ESG rating. In addition, a sustainable loan was taken out for 75 million euros, the margin of which is tied to the ESG assessment.
The main transactions carried out by SFL were the following:
A bond issue for SFL for the nominal amount of 500 million euros, maturing in May 2025, with an annual coupon of 1.5%.
The limit and maturity of its credits were adjusted, cancelling and/or reducing the limit of its undrawn facilities for 300 million euros, extending the maturity of another credit limit of 150 million euros from 2020 to 2023, and obtaining a new facilities with an available balance of 100 million euros.
In Septembrer, it bought back 300 million euros of its bonds maturing in November 2021 (150 million euros) and November 2022 (150 million euros).
Also in September, SFL started a short-term Euro Commercial Paper program, for the maximum amount of 300 million euros, with the current issues of 263 million euros at 31 December 2018.

Solid evolution on the stock market

At 2018 year-end, Colonial's shares closed with an annual decrease of 2%, a negative figure that nonetheless outperformed its peers in Spain and France as well as the EPRA & IBEX35 benchmark indices.

There are currently 25 analysts, both national and international, covering the company. It is worth highlighting the reports issued by JP Morgan, with a target price of €11.2/share, as well as Renta4 and Barclays with a target price of €11.1/share and €10.6/share respectively.

3. Liquidity and capital resources

See "Capital management and risk management policy" under Note 13-o to the consolidated financial statements for the year ended 31 December 2018.

The average payment period of the Group's Spanish companies to its suppliers was around 48 days in 2018. With regard payments made after the legally established period, note that these are primarily payments relating to works contracted and property refurbishment, which are paid within the payment terms stipulated in the contracts signed with the various contractors.

The Group has established two payment days per month to comply with the requirements set forth in Law 11/2013, of 26 July. Accordingly, invoices received are entered on the 5th and the 20th of each month and the related payments are made on the 5th and the 20th of the following month.

4. Risk management policies and objectives

Colonial is exposed to a variety of risk factors arising from the countries in which it operates and from the very nature of its activities. Colonial's Board of Directors is responsible for determining the risk management and control policy, identifying the Group's main risks, and implementing and supervising the Control and Risk Management System that Colonial has developed and which is the foundation for the efficient and effective management of risks throughout the organisation.

Section E of the Annual Corporate Governance Report sets out the main risks that arose during the year and the circumstances that prompted them. The risks associated with the Group's activities are described below.

Strategic risks:

The risks related to the sector and environment in which the Group carries on its business, the markets in which it operates and strategies adopted to carry out its activities are analysed.

Risks associated with the situation of the sector: The Colonial Group pays special attention to the economic, political, legal and social risks related to the countries in which it operates (Spain and France). The European real estate sector has maintained the dynamism of the previous year in spite of the political uncertainty and economic policies of the last year, characterised by reaching very significant investment levels. The maturity of the French real estate sector and the high level of investment in the Spanish real estate sector in recent years have enabled the Group to have a more optimistic outlook over the coming years in terms of increased returns from its investments and sustainable growth.
Risks associated with a competitive sector: The real estate sector is characterised as being highly competitive, reaching high levels of investment in recent years, and was driven by specialised international investment funds and by listed real estate investment companies (REITs). The high quality of the Colonial Group's assets, the value of these assets and its strategy of focusing mainly on its office rental activities in prime central business district (CBD) areas have positioned the Group as a key benchmark in the real estate sector in Europe. The successful investment and growth strategy implemented by the Colonial Group in recent years, and the acquisition and merger of Axiare Patrimonio SOCIMI, S.A. in 2018, have strengthened the Group's position in the sector.
Risks related to the value of assets: Every six months the Group carries out appraisals, through independent experts and by applying objective market criteria, on all of its property assets. Colonial allocates a significant portion of its resources to investing in and maintaining its property assets in order to enhance their value and position on the market, and to optimise income and returns.

Corporate risks:

Risks relating to the organisational structure, corporate culture, corporate policies and key decision-making processes of the governing bodies are analysed.

Reputational risk and risks concerning social commitment: The Colonial Group's corporate social responsibility policy sets out the principles and bases of the Group's voluntary commitment to its stakeholders. Management of these expectations forms part of the Group's objectives in terms of sustainability and creating value for these stakeholders.
Corporate governance risk: The Group's management of corporate governance focuses on maintaining its commitment to continue making progress on a model based on the principles of efficiency, regulatory compliance and transparency, that are in line with the main international regulations and standards.
Anticipation of new trends: As is the case with other sectors, the real estate sector requires continuous adaptation to emerging trends. The growing implementation of digitalisation in all sectors, the new technology supplied in the real estate sector, and the increase in co-working spaces result in constant changes that specifically affect the real estate sector. In 2018 the Colonial Group continued to assign specific resources and activities for the purpose of implementing these trends by boosting the growth of its co-working platform by opening new centres and the

development of digitalisation and new technologies in developing services and new business models in the real estate sector.

Operational risks:

Operational risks refer to the risks arising from losses due to failures or flawed management of operations.

Financial risks: The Group efficiently manages its financial risks with the aim of maintaining adequate liquidity and debt levels, minimising borrowing costs and ensuring compliance with its business plans:
Risk of exposure to interest rate fluctuations: The purpose of managing this risk is to reduce interest rate volatility to limit and control the impact of interest rate fluctuations on profit and cash flows and to keep overall borrowing costs at reasonable levels. The Colonial Group analyses the arrangement of financial instruments to hedge interest rate fluctuations. A high percentage of the Group's gross financial debt is at fixed rates.
Risks relating to financing and debt: The Group's financial structure warrants diversification of its sources of financing by entity, product and maturity. In 2018, the two new bond issues amounting to 650 million euros and 500 million euros in Spain and France, respectively, the improvement in the credit rating that is now BBB+ with a stable outlook, the repayment of Axiare's debt and the arrangement of the two short-term promissory note programmes with the issuance of notes amounting to 263 million euros in France represented an improvement in the Group's financial structure, thus extending and diversifying the maturity of its debt. The Colonial Group's net financial debt is held at suitable levels, measured using the loan-to-value ratio, providing the Group with sufficient financial capacity to carry out both its projects and to take on important growth targets for the coming years.
Liquidity risk: As mentioned in the preceding paragraph, the Group has the necessary sources of financing to undertake its current projects in addition to those laid down in its business plan. The Group increased its capacity to attract capital and obtain liquidity and new lines of financing, through two new bond issues and the execution of the two short-term promissory note programmes.
Asset management risks: Sustainable property management requires that the Group allocate a significant portion of its investments to acquiring, constructing, renovating and maintaining the high quality of its properties, which stand out as a result of their high energy efficiency. This property management strategy is a key part of the Group's organisation and business plan.
Risk of loss or damage to property assets: The Colonial Group's properties are exposed to general risks of damage as a result of fire, flooding or other events, regardless of whether or not they are attributable to natural causes. Colonial has arranged hedges to cover the reconstruction costs of the properties it owns, as well as any damage caused to third parties.
Security risk of information systems: The digital revolution brought about great benefits in innovation and growth, however, it also constitutes a source of new threats. The Group, aware of these growing threats, reviews the control measures to secure its information systems and to undertake and mitigate this risk.

Compliance risks:

Potential risks in relation to compliance with obligations arising from applicable legislation, agreements with third parties and obligations self-imposed by the Group, mainly through its Code of Ethics and Code of Conduct, are analysed.

Regulatory compliance risks: The process of identifying and assessing risks of regulatory or contractual breach that may give rise to legal proceedings against the Group allows it to take the appropriate corrective measures to mitigate these risks or, where applicable, any possible impact thereof, through the controls established in the crime prevention model defined and implemented by the Group. The Company has also taken out insurance to cover any legal costs or possible damage against directors and executives.
Tax risks: The Colonial Group must adhere to the general tax legislation of the countries in which it operates, as well as any specific regulations for the REIT regime in Spain and the SIIC regime in France. Accordingly, Colonial has a tax policy, a tax strategy and a tax risk management system, establishing adequate measures to control and monitor the management of risks in this connection.

Reporting risks:

In order to cover any reporting risks that may arise from errors or a failure to comply with requirements concerning the public information to be disclosed, and to ensure the reliability of this public information, Colonial has developed an Internal Control over Financial Reporting (ICFR) Organisational and Monitoring Model. Internal Audit is responsible for performing the necessary tests to verify compliance with the ICFR policies, manuals and procedures, validating the efficacy of the controls in place in these processes.

5. Events after the reporting period

From 31 December 2018 to the date on which these consolidated financial statements were authorised for issue, the following significant events took place:

From 1 January to 25 February 2019, the Parent carried out various short-term promissory note issuances amounting to a total of 172 thousand euros. The subsidiary SFL also carried out various short-term promissory note issuances amounting to a total of 244 thousand euros.
On 31 January 2019, and once the parties had met all of their obligations, the Hotel Centro Norte was sold for a price of 27,500 thousand euros (Note 22), of which 2,750 thousand euros had been received by the Parent as a prepayment.
In January and February 2019, the Parent repaid 206 million euros of the debt from Axiare and refinanced the outstanding debt amounting to 76 million euros, thus improving its margin, which was tied to the company's ESG rating. In addition, a sustainable loan was taken out for 75 million euros, the margin of which is tied to the ESG assessment.

6. Future outlook

The outlook for the Madrid, Barcelona and Paris office markets is as follows:

Barcelona and Madrid

In recent months, the Spanish economy has continued to show a positive trend regarding certain aspects that have been drivers of economic growth in Spain over the last few years, specifically: 1) favourable performance of the labour market; 2) trade surplus and 3) low interest rates.

Due to the shortage of large high-quality spaces in the Barcelona market, especially in the city centre, forecasts indicate that many projects will be delivered with partial or full pre-lease agreements. Consequently, long-term forecasts for rent levels continue to increase, whereby Barcelona is considered one of the fastest growing cities in Europe in terms of expected growth in rent, with an annual growth rate of more than 3% between 2018 and 2022. Furthermore, Madrid is positioned as the second European city with the highest growth prospects with regard to rent in Europe for 2018-2021.

Paris

The Paris market is one of the most important markets in the world. The last few quarters saw clear signs of an improvement in demand, especially in CBD areas, where there is an apparent scarcity of prime rentals. Today the vacancy rate for office space in this area is the lowest of the last ten years.

Consequently, leading consultants expect this positive trend that began at the end of 2014 to be consolidated for prime property rentals in CBD areas.

With regard to growth forecasts, the French economy is expected to grow at around 1.6% for the next two years, a positive sign since this growth represents an increase on 2018 and is above the average for the euro zone.

Strategy for the future

The investment market has shown record contracting levels. In the current climate of low interest rates, expectations are that investors will continue to be interested in the Paris market, as one of the major fields of office operations in the euro zone.

In this market context, the Parent is implementing a selective investment policy, in order to maximise value for its shareholders.

In particular, it has focused its efforts on acquiring top-quality properties in high-potential market areas, including assets with the wherewithal to become prime rentals through repositioning.

7. Research and development activities

As a result of the nature of the Group, its business activities and structure, Inmobiliaria Colonial, S.A. does not habitually carry out any R&D activities.

8. Treasury shares

At 31 December 2018, the Company had 772,760 treasury shares with a nominal value of 1,932 thousand euros, which represents 0.15% of the Parent's share capital.

9. Other relevant information

On 10 December 2015, the Parent's Board of Directors agreed to adhere to the Code of Best Tax Practices. This resolution was reported to the tax authorities on 8 January 2016.

10. Alternative Performance Measures (European Securities and Markets Authority)

Below follows a glossary of the Alternative Performance Measures, including their definition and relevance for Colonial, in accordance with the recommendations of the European Securities and Markets Authority (ESMA) published in October 2015 (ESMA Guidelines on Alternative Performance Measures). These alternative performance measures have not been audited or reviewed by the Parent.

Alternative Performance Measure	Calculation method	Definition/Relevance

EBIT (Earnings before interest and taxes)	Calculated as the "Operating profit" plus "Changes in fair value of investment property" and "Gains/(losses) on changes in value of assets and impairment".	Indicator of the profit generating capacity of the Group, considering only its productive activity less debt and tax effects.
EBITDA	Calculated as the "Operating profit" adjusted for "Depreciation and	Indicator of the profit generating capacity of the Group, considering only its
(Earnings Before Interest, Taxes, Depreciation and Amortization)	amortisation" and the "Net change in provisions".	productive activity, eliminating any provisions for depreciation and amortisation, debt and tax effects.
Gross financial debt (GFD)	Calculated as the sum of "Bank borrowings and other financial liabilities" and "Issuance of bonds and other similar securities", excluding "Interest" (accrued), "Arrangement expenses" and "Other financial liabilities" in the consolidated statement of financial position.	Relevant indicator for analysing the financial position of the Group.
EPRA1 NAV (EPRA Net Asset Value)	Calculated based on the Company's equity and adjusting specific items according to EPRA recommendations.	Standard analysis ratio for the real estate sector and recommended by the EPRA.
EPRA1 NNNAV (EPRA "triple net")	Calculated by adjusting the following items in the EPRA NAV: The market value of the financial instruments, the market value of the financial debt, any taxes that would be accrued with the sale of assets at market value, applying the reinvestment tax rebate and the tax credit recognised in the balance sheet taking into account the going concern criteria.	Standard analysis ratio for the real estate sector and recommended by the EPRA.
Market value excluding transaction costs or Gross Asset Value (GAV) excluding transfer costs	Appraisal of all the assets in the Group's portfolio carried out by the Group's external appraisers, deducting the transaction costs or transfer costs.	Standard analysis ratio for the real estate sector.
Market value including transaction costs or GAV including transfer costs	Appraisal of all the assets in the Group's portfolio carried out by the Group's external appraisers, before deducting the transaction costs or transfer costs.	Standard analysis ratio for the real estate sector.

¹ EPRA (European Public Real Estate Association) which recommends the standards for best practices to follow in the real estate sector. The calculation method for these APM has been carried out following the instructions established by the EPRA.

Alternative Performance Measure	Calculation method	Definition/Relevance
Like-for-like Rentals	Amount of rental income from leases included in "Revenue" comparable between the two periods. To obtain these, the rental income from investments or divestments made between both periods are excluded, together with those from assets included in the portfolio of projects and renovations, as well as other atypical adjustments (for example, compensation for early termination of lease agreements).	This permits the comparison, on a like for-like basis, of the changes in the rental income of an asset or group of assets.
Like-for-like Appraisal	Market value excluding transaction costs or the market value including transaction costs, comparable between the two periods. To obtain these, the rental income from investments or divestments made between both periods are excluded.	This permits the comparison, on a like for-like basis, of the changes in the market value of the portfolio.
Loan to Value Group or LtV Group	Calculated as the result of dividing the gross financial debt less the amount of "Cash and cash equivalents" between the market value, including transaction costs, of the Group's asset portfolio.	This permits an analysis of the relation between the net financial debt and the appraisal value of the Group's asset portfolio.
LtV Holding or LtV Colonial	Calculated as the result of dividing the gross financial debt less the amount of "Cash and cash equivalents" of the Parent and the Spanish subsidiaries wholly owned thereby between the sum of the market value, including transaction costs of the asset portfolio of the head of the Group and the Spanish subsidiaries wholly owned thereby, and the EPRA NAV of the rest of the financial investments in subsidiaries.	This permits an analysis of the relation between the net financial debt and the appraisal value of the asset portfolio of the Group's parent.

The alternative performance measures included in the above table are based on items in the consolidated financial statements of Inmobiliaria Colonial or on the breakdown of the items (sub-items) included in the corresponding explanatory notes to the financial statements, unless otherwise indicated below.

Following is a reconciliation of those alternative performance measures whose origin does not fully derive from items or sub-items in the consolidated financial statements of Inmobiliaria Colonial, as provided for in paragraph 28 of the aforementioned recommendations.

EPRA NAV (EPRA Net Asset Value)

	31/12/2018	31/12/2017
EPRA NAV (EPRA Net Asset Value)		(Millions of euros)
"EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT"	4,811	3,592
Includes:
(i.a) Revaluation of investment assets	24	13
(i.a) Revaluation of assets under development	7	n.a.
(i.c) Revaluation of other investments	26	(58)
(ii) Revaluation of finance leases	n.a.	n.a.
(iii) Revaluation of assets classified as held for sale	n.a.	n.a.
Excludes:
(iv) Market value of financial instruments	2	(1)
(v.a) Deferred taxes	228	198
(v.b) Goodwill resulting from deferred assets	n.a.	n.a.
Includes/excludes:
Adjustments of (i) to (v) in relation to the interests of strategic alliances	n.a.	n.a.
EPRA NAV	5,098	3,744

EPRA NNNAV (EPRA "triple net")

	31/12/2018	31/12/2017
EPRA NNNAV (EPRA "triple net")	(Millions of euros)
EPRA NAV	5,098	3,744
Includes:
(i) Market value of financial instruments	(2)	1
(ii) Market value of the debt	(14)	(117)
(iii) Deferred taxes	(229)	(200)
EPRA NNNAV	4,853	3,428

	31/12/2018	31/12/2017
Market value excluding transaction costs or GAV excluding transfer costs	(Millions of euros)
Barcelona	1,175	836
Madrid	2,511	1,497
Paris	6,256	6,064
Operating portfolio	9,942	8,398
Projects	925	519
Other	481	16
Shareholding value in Axiare	0	349
Total market value excluding transaction costs	11,348	9,282
Spain	4,778	3,053
France	6,570	6,229

Market value excluding transaction costs or GAV excluding transfer costs

Market value including transaction costs or GAV including transfer costs

	31/12/2018	31/12/2017
Market value including transaction costs or GAV including transfer costs	(Millions of euros)
Total market value excluding transaction costs	11,348	9,282
Plus: transaction costs	567	459
Total market value including transaction costs	11,915	9,741
Spain	4,910	3,121
France	7,005	6,619

Like-for-like rentals

	Barcelona	Madrid	Logistics	Paris	TOTAL
Like-for-like rentals	(Millions of euros)
Rental income 2016	30	43	0	198	271
Like-for-like	3	1	0	6	10
Projects and registrations	0	0	0	(5)	(5)
Investments and divestments	2	8	0	(3)	7
Others and compensation	0	0	0	0	0
Rental income 2017	35	52	0	196	283
Like-for-like	1	2	0	9	12
Projects and registrations	0	3	0	(1)	2
Investments and divestments	1	4	0	(10)	(5)
Axiare	5	32	19	0	56
Others and compensation	0	0	0	0	0
Rental income 2018	42	93	19	194	348

Like-for-like appraisal

	31/12/2018	31/12/2017
Like-for-like appraisal	(Millions of euros)
Valuation at 1 January	9,282	8,069
Like-for-like Spain	381	265
Like-for-like France	341	679
Acquisitions	1,422	625
Divestments	(78)	(356)
Valuation at 31 December	11,348	9,282

Loan to Value Group or LtV Group

	31/12/2018	31/12/2017
Loan to Value Group or LtV Group	(Millions of euros)
Gross financial debt	4,748	4,170
Less: "Cash and cash equivalents"	(68)	(1,104)
(A) Net financial debt	4,680	3,066
Market value including transaction costs	11,915	9,741
Plus: Treasury shares of the Parent valued at EPRA NAV	8	39
(B) Market value including transaction costs and
treasury shares of the Parent	11,923	9,780
Loan to Value Group (A)/(B)	39.3%	31.3%

LtV Holding or LtV Colonial

LtV Holding or LtV Colonial	31/12/2018	31/12/2017
Holding Company		(Millions of euros)
Gross financial debt	3,002	2,488
Less: "Cash and cash equivalents" of the Parent and Spanish subsidiaries wholly owned thereby	(41)	(1,085)
(A) Net financial debt	2,961	1,403
(B) Market value including transaction costs	8,538	5,562
Loan to Value Holding (A)/(B)	34.7%	25.2%

11. Annual Corporate Governance Report

Pursuant to Article 538 of the Spanish Limited Liability Companies Law, it is hereby noted that the Annual Corporate Governance Report for 2018 is included in this Management Report in a separate section.

Inmobiliaria Colonial, SOCIMI, S.A.

Annual Corporate Governance Report for 2018

The Annual Corporate Governance Report has been sent to the CNMV on February 26 of 2019 and can be consulted at the following electronic address

https://www.cnmv.es/portal/Consultas/EE/InformacionGobCorp.aspx?nif=A-28027399&lang=en

Inmobiliaria Colonial, SOCIMI, S.A.

Financial Statements for the year ended 31 December 2018 and Management Report, together with the Auditor's Report

Translation of a report originally Issued in Spanish based on our work performed in accordance with the audit regulations in force in Spain and of financial statements originally Issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the company In Spain (see Notes 2 and 24). In the event of a discrepancy, the Spanish-language version prevails.

BALANCE SHEET AT 31 DECEMBER 2018

(Thousands of euros)

	Notes to the				Notes to the
	financial				financial
ASSETS	statements	31.12.2018	31.12.2017	LIABILITIES	statements	31.12.2018	31.12.2017


NON-CURRENT ASSETS:				EQUITY:
Intangible assets-	Note 5	163,187		1,684 SHAREHOLDERS' EQUITY		3,096,736	2,462,145
Goodwill		160,347	-	Share capital		1,270,287	1,088,293
Intellectual property		1,451		676 Issued capital		1,270,287	1,088,293
Computer software		1,389		1,008 Share premium		1,578,439	1,126,248
Property, plant and equipment-	Note 6	18,783		17,445 Reserves-		215,991	245,118
Land and buildings		18,131		18,188 Legal and bylaw reserves		42,349	39,099
Plant and other property, plant and equipment		3,950		4,185 Other reserves		173,642	206,019
Impairment of property, plant and equipment		(3,298)		(4,928) Treasury shares		(5,606)	(31,262)
Investment property	Note 7	2,742,136		1,531,337 Profit for the year		36,308	32,497
Land		1,654,032		1,160,562 Other equity instruments		1,317	1,251
Buildings and installations		1,000,909		373,685 VALUATION ADJUSTMENTS-		(492)	70,415
Investment property in progress		155,642		76,726 Available-for-sale financial assets		-	70,415
Impairment of investment property		(68,447)		(79,636) Hedging transactions		(492)	-
Non-current investments in Group companies and associates-	Note 9	3,155,478	2,138,741	Total equity	Note 13	3,096,244	2,532,560
Non-current equity instruments of the Group		3,008,823	2,075,941
Loans to companies	Note 19	156,016	65,752
Impairment of financial investments in Group companies and associates		(9,361)	(2,952)
Non-current financial investments-	Note 9	18,191	432,100
Non-current equity instruments		-	423,277
Other non-current financial assets		18,191	8,823
Total non-current assets		6,097,775	4,121,307


				NON-CURRENT LIABILITIES:
				Non-current provisions-	Note 14	160	10,289
				Non-current employee benefit obligations		71	83
				Other provisions		89	10,206
				Non-current payables-		2,920,628	2,488,366
				Debt instruments and other marketable securities	Note 15	2,582,966	2,310,656
				Bank borrowings	Note 15	316,205	160,412
				Derivatives	Note 10	1,108	-
				Other non-current financial liabilities	Note 16	20,349	17,298
				Non-current payables to Group companies and associates-	Note 19	44,842	18,094
				Deferred tax liabilities and other payables to public authorities-	Note 17	38,636	39,363
				Non-current accrued expenses and deferred income	Note 9	14,142	-
				Total non-current liabilities		3,018,408	2,556,112
Non-current assets held for sale	Note 11	26,091	-
Trade and other receivables		50,796		18,587 CURRENT LIABILITIES:
Trade receivables for sales and services		2,844		1,571 Current provisions	Note 14	16,311	19,914
Trade receivables from Group companies and associates	Note 19	23,203		210 Current payables-		19,715	11,573
Sundry account receivables	Note 12	13,628		3,859 Debt instruments and other marketable securities	Note 15	17,116	12,120
Advances to suppliers		949		91 Bank borrowings	Note 15	2,446	(608)
Employee receivables		5		4 Derivatives	Note 10	150	50
Other accounts receivable from public authorities	Note 17	10,167		12,852 Other current financial liabilities		3	11
Current investments in Group companies and associates-	Note 19	4,190		192 Current payables to Group companies and associates	Note 19	6,653	48
Current loans to Group companies and associates		4,190		192 Trade and other payables		56,174	89,368
Current financial investments-	Note 12	1,300		9 Payable to suppliers		45,081	78,729
Current equity instruments		9		9 Sundry accounts payable		6,845	8,273
Other current financial assets		1,291	-	Customer advances		2,750	-
Current prepayments and accrued income		121		135 Other payables to public authorities	Note 17	1,498	2,366
Cash and cash equivalents.	Note 15	33,236		1,069,355 Current accrued expenses and deferred income		4	10
Total current assets		115,734	1,088,278	Total current liabilities		98,857	120,913
TOTAL ASSETS		6,213,509	5,209,585	TOTAL EQUITY AND LIABILITIES		6,213,509	5,209,585

The accompanying Notes 1 to 24 and the Appendix are an integral part of the balance sheet at 31 December 2018.

(Thousands of euros)

	Notes to the
	financial
	statements	2018	2017

CONTINUING OPERATIONS:
Revenue-	Note 18	198,422	100,545
Sales		123,976	70,725
Services rendered		1,587	703
Income from holdings in Group companies		72,859	29,117
Other operating income-		7	2
Non-core and other current operating income		7	2
Staff costs-	Note 18	(15,147)	(13,268)
Wages, salaries and similar expenses		(12,645)	(11,219)
Employee benefit costs		(2,502)	(2,049)
Other operating expenses-		(29,556)	(27,285)
Outside services		(25,590)	(16,993)
Taxes other than income tax		(7,680)	(2,197)
Losses on, impairment of and changes in allowances for trade receivables	Note 18	3,776	(8,073)
Other current operating expenses		(62)	(22)
Depreciation and amortisation-	Notes 5, 6 and 7	(59,008)	(25,275)
Impairment and gains/(losses) on disposal of non-current assets-	Note 18	17,876	32,499
Impairment and losses		4,053	32,285
Gains/(losses) on disposals and other		13,823	214
Profit from operations-		112,594	67,218

Finance income-	Note 18	2,626	4,895
From investments in equity instruments-		-	3,681
Third parties		-	3,681
From marketable securities and other financial instruments-		2,626	1,214
Group companies and associates	Note 19	1,746	268
Third parties		880	946
Finance costs-	Note 18	(84,395)	(42,151)
On payables to Group companies and associates	Note 19	(422)	(193)
On payables to third parties		(83,973)	(41,958)
Change in fair value of financial instruments-	Note 18	11,309	(2)
Trading portfolio and other		(4,329)	(2)
Allocation to profit or loss of fair value changes in financial assets		15,638	-
Impairment and gains/(losses) on disposal of financial instruments-	Notes 9 and 18	(6,553)	5,236
Impairment and losses		(6,553)	5,230
Gains/(losses) on disposals and other		-	6
Financial loss-		(77,013)	(32,022)
Profit before tax-		35,581	35,196
Income tax	Note 17	727	(2,699)
Profit for the year from continuing operations-		36,308	32,497
Profit for the year-		36,308	32,497

INCOME STATEMENT FOR 2018

The accompanying Notes 1 to 24 and the Appendix are an integral part of the income statement for 2018.

STATEMENT OF CHANGES IN EQUITY FOR 2018

A) STATEMENT OF RECOGNISED INCOME AND EXPENSE

(Thousands of euros)

	Notes to the
	financial
	statements	2018	2017

PROFIT PER INCOME STATEMENT (I)		36,308	32,497
Income and expense recognised directly in equity:
Arising from cash flow hedges	Note 13	(2,791)	-
Adjustments to fair value of available-for-sale financial assets	Note 10	(54,777)	69,098
Total income and expense recognised directly in equity (II)		(57,568)	69,098
Amounts transferred to the income statement:
Arising from cash flow hedges	Note 13	2,299	-
Adjustments to fair value of available-for-sale financial assets	Note 9	(15,638)	-
Total transfers to profit or loss (III)		(13,339)	-
Total recognised income and expense (I+II+III)		(34,599)	101,595

The accompanying Notes 1 to 24 and the Appendix are an integral part of the statement of recognised income and expense for 2018.

STATEMENT OF CHANGES IN EQUITY FOR 2018

B) STATEMENT OF CHANGES IN EQUITY

(Thousands of euros)

	Notes to the financial		Share		Treasury	Profit	Other equity	Financial assets available	Hedging
	statements	Share capital	premium	Reserves	shares	for the year	instruments	for sale	transactions	Total
Balance at 31 December 2016		892,058	731,326	250,634	(36,755)	54,839	1,168	-	-	1,893,270
Total recognised income and expense		-	-	-	-	32,497	-	70,415	-	102,912
Transactions with shareholders:	Note 13
Capital increases		196,235	394,922	(6,691)	-	-	-	-	-	584,466
Treasury shares transactions (net)		-	-	10,371	2,956	-	-	-	-	13,327
Distribution of profit		-	-	(7,910)	-	(54,839)	-	-	-	(62,749)
Accrual long-term remuneration plan 2017	Note 18	-	-	-	-	-	1,334	-	-	1,334
Delivery long-term remuneration plan 2016	Note 20	-	-	(1,286)	2,537	-	(1,251)	-	-	-
Balance at 31 December 2017		1,088,293	1,126,248	245,118	(31,262)	32,497	1,251	70,415	-	2,532,560
Total recognised income and expense		-	-	-	-	36,308	-	(70,415)	(492)	(34,599)
Transactions with shareholders:	Note 13
Capital increases		181,994	463,517	(1,149)	-	-	-	-	-	644,362
Treasury shares transactions (net)		-	-	7,332	22,754	-	-	-	-	30,086
Distribution of profit		-	(11,326)	(33,796)	-	(32,497)	-	-	-	(77,619)
Accrual long-term remuneration plan 2018	Note 18	-	-	-	-	-	1,454	-	-	1,454
Delivery long-term remuneration plan 2017	Note 20	-	-	(1,514)	2,902	-	(1,388)	-	-	-
Balance at 31 December 2018		1,270,287	1,578,439	215,991	(5,606)	36,308	1,317	-	(492)	3,096,244

The accompanying Notes 1 to 24 and the Appendix are an integral part of the statement of recognised income and expense for 2018.

STATEMENT OF CASH FLOWS FOR 2018

(Thousands of euros)

	Notes to the
	financial statements	2018	2017
CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES (I):		(52,542)	56,949
Profit for the year before tax from continuing operations-		35,581	35,196
Profit/(loss) for the year before tax from discontinued operations-		-	-
Adjustments to profit-		41,509	(759)
Depreciation and amortisation	Notes 5, 6 and 7	59,008	25,275
Impairment losses	Note 18	(4,053)	(32,285)
Changes in provisions	Notes 14 and 18	(3,777)	8,073
Gains/(losses) on derecognition and disposal of non-current assets	Notes 5, 6 and 7	(13,823)	(214)
Impairment and gains/(losses) on disposal of financial instruments	Notes 8 and 18	6,553	(5,236)
Finance income	Note 18	(2,626)	(4,895)
Income from holdings in Group companies	Note 19	(72,859)	(29,117)
Finance costs	Note 18	84,395	42,151
Change in fair value of financial instruments	Notes 9 and 18	(11,309)	2
Other income and expenses		-	(4,513)
Changes in working capital		(126,306)	13,747
Trade and other receivables		(28,327)	(258)

Other current assets		4,181	432
Trade and other payables		(101,003)	11,518
Other current liabilities		(1,157)	(8)
Other non-current assets and liabilities		-	2,063
Other cash flows from operating activities-		(3,326)	8,765
Interest paid		(76,313)	(47,315)
Income from holdings in Group companies	Notes 18 and 19	72,859	29,117
Finance income		128	4,038
Other taxes received (paid)		-	23,534
Proceeds from and payments for cancellation of derivatives		-	(609)

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES (II)		(800,142)	(388,896)

Payments for investments-		(1,203,185)	(393,853)
Group companies and associates	Note 8	(313,861)	(157,356)
Intangible assets	Note 5	(2,251)	(1,152)
Property, plant and equipment	Note 6	(494)	(2,792)
Investment property	Note 7	(143,968)	(16,667)
Other financial assets	Note 8	(45,545)	(215,886)
Business combinations	Note 23	(693,159)	-
Other financial assets	Note 12	(3,907)	-
Proceeds from sales of investments-		403,043	4,957
Property, plant and equipment		-	11

Investment property	Note 7	378,708	4,940
Other current financial assets	Notes 9 and 19	24,335	6

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES (III)		(183,435)	1,321,893
Proceeds from and payments for equity instruments-		(77,371)	535,044
Issue of equity instruments	Note 13	-	591,157
Distribution of dividends	Note 3	(77,619)	(62,749)
Acquisition/Disposal of own equity instruments	Note 13	1,397	13,327
Expenses associated with capital increases	Note 13	(1,149)	(6,691)
Proceeds from and payments for financial liability instruments-		(106,064)	786,849
Issue of bank borrowings	Note 15	262,555	435,000
Bonds and similar marketable securities issued	Note 15	650,000	800,000
Issue of borrowings from Group companies and associates	Note 19	33,353	(60,615)
Credit issues with Group companies and associates	Note 19	-	5,938
Other payables		12,213
Redemption and repayment of bank borrowings	Note 15	(689,177)	(393,474)
Redemption and repayment of bonds and similar marketable securities	Note 15	(375,000)	-
Other payables		(8)	-
Reimbursements of contributions - Group companies		-	(182)

NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III+IV)		(1,036,119)	989,764
Cash and cash equivalents at beginning of year		1,069,355	79,591
Cash and cash equivalents at end of year		33,236	1,069,355

The accompanying Notes 1 to 24 and the Appendix are an integral part of the statement of cash flows for 2018.

Inmobiliaria Colonial, SOCIMI, S.A.

Notes to the financial statements for the year ended 31 December 2018

1. Company activity

Inmobiliaria Colonial, S.A. is a public limited company incorporated in Spain, for an indefinite period, on 8 November 1956. Its registered offices are at Paseo de la Castellana, 52, Madrid.

On 29 June 2017, the shareholders at the Company's Annual General Meeting resolved to adopt the SOCIMI (hereinafter, REIT) Tax Regime and to make the corresponding bylaw amendments to bring the Company Bylaws into line with the requirements stipulated in this regime, which included changing the corporate name to Inmobiliaria Colonial, SOCIMI, S.A.

On 30 June 2017, the Company submitted a request to the tax authorities to be included in the REIT Tax Regime, applicable as of 1 January 2017.

In 2007, Inmobiliaria Colonial, S.A. (formerly, Grupo Inmocaral, S.A.) was merged by absorption into Inmobiliaria Colonial, SOCIMI, S.A. (absorbed company) In 2008 Inmobiliaria Colonial, S.A. (absorbing company) merged with Subirats-Coslada Logística, S.L.U., Diagonal Les Poxes 2002, S.L.U., Dehesa de Valme, S.L., Urbaplan 2001, S.A.U., Entrenúcleos Desarrollo Inmobiliario, S.L., Inversiones Tres Cantos, S.L. and Inversiones Notenth, S.L. (absorbed companies).

In 2010, the spin-off and contribution to the subsidiary Asentia Project, S.L. (hereinafter, "Asentia") of the land and development business, was performed, including shares in the subsidiary Desarrollos Urbanísticos Entrenúcleos 2009, S.L.U. (hereinafter, "DUE") to which a project in Seville was transferred. In addition, the non-monetary contribution of the Llacuna property development in Barcelona to the subsidiary Abix Service, S.L.U. (hereinafter, "Abix") was carried out. These transactions took place under the scope of the framework refinancing agreement signed between the Company and the banks on 19 February 2010.

The aforementioned mergers, spin-offs and non-monetary contributions availed themselves of the tax regime provided for in Title VII, Chapter VIII, of the Spanish Corporate Income Tax Law. In accordance with legal requirements, all relevant information regarding these corporate transactions is detailed in the financial statements for the years concerned.

In 2014, the assets and liabilities of Abix, a wholly-owned company until this date, were transferred en bloc to Inmobiliaria Colonial, SOCIMI, S.A. The aforementioned transaction entailed the transfer en bloc by universal succession of all of Abix's assets and liabilities to the Company, and the subsequent dissolution of the investee, all in accordance with Article 87.1 of Law 3/2009, of 3 April, on structural changes to corporations.

On 2 February 2018, the Company carried out the merger by absorption with Axiare Patrimonio SOCIMI, S.A., whose registered office was located at Calle Ortega y Gasset 29, 5ª, Madrid, and which mainly engaged in the acquisition and development of urban properties for lease and the holding of equity interests in other real estate investment trusts. The merger was carried out in order to optimise the Company's resources, improving the cost structure in carrying out its activities and acting as a single entity in the market.

The Company's corporate purpose, as set out in its Bylaws, is as follows:

the acquisition and development of urban properties for lease;
the ownership of interests in the share capital of listed real estate investment companies (REITs) or other non-resident entities in Spain with the same corporate purpose, which are subject to a regime similar to that established for REITs in relation to the obligatory profit distribution policy stipulated by law or the bylaws;
the ownership of interests in the share capital of other resident or non-resident entities in Spain, the main corporate purpose of which is the acquisition of urban properties earmarked for lease, which are subject to the regime established for REITs in relation to the obligatory profit distribution policy stipulated by law or the bylaws and meet the investment requirements stipulated for these companies; and
the ownership of shares or equity interests in collective real estate investment undertakings governed by 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 relating to the main corporate purpose, the Company may also carry on any other ancillary activities, i.e., those that they generate income representing less than 20%, taken as a whole, of its income in each tax period, or those that may be considered ancillary activities under the legislation applicable at any time, including, in any case, the management, restoration and operation of properties and the performance of all manner of studies, reports, appraisals, valuations and surveys; and in general, the provision of real estate consulting and advisory services, property asset management, development and marketing services, and technical assistance through contracts with other public or private companies or entities.

Activities that by law are attributable exclusively to special purpose vehicles are expressly excluded from its corporate purpose.

The Company may also carry out the aforementioned activities, in full or in part, indirectly through ownership interests in other companies with an identical or similar corporate purpose.

Inmobiliaria Colonial, SOCIMI, S.A. carries out its activities in Spain (mainly in Barcelona and Madrid) and in France (Paris) through the group of which the parent is Société Foncière Lyonnaise, S.A. (hereinafter, "SFL").

In 2018, the Company improved the credit rating obtained from Standard & Poor's Rating Credit Market Services Europe Limited, which is now a "BBB+" long-term credit rating and an "A-2" short-term credit rating, both with a stable outlook. In addition, the Company maintained the "Baa2" credit rating with a negative outlook from Moody's.

In view of the business activity carried on by the Company, it does not have any environmental expenses, assets, provisions or contingencies that might be material with respect to its equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these explanatory notes. However, the Company does apply a proactive environmental policy in relation to urban development, construction, maintenance and the preservation of its property portfolio.

The Company is the head of a group of subsidiaries and is obliged under current legislation to prepare consolidated financial statements separately. The consolidated financial statements for 2017 were approved by the shareholders at the Annual General Meeting of Inmobiliaria Colonial, SOCIMI, S.A. held on 24 May 2018, and they were subsequently filed with the Barcelona Mercantile Registry.

2. Basis of preparation

a) Regulatory financial reporting framework applicable to the Company

These financial statements have been authorised for issue by the directors in accordance with the financial reporting regulatory framework applicable to the Company, as set out in:

a) The Spanish Commercial Code and other commercial and corporate legislation.
b) The Spanish National Chart of Accounts approved by Royal Decree 1514/2007, along with Royal Decrees 1159/2010 and 602/2016, amending certain aspects of the Chart of Accounts and its sectorial adaptations and, in particular, the Sectorial Adaptation of the National Chart of Accounts of Property Companies approved by the Order of 28 December 1994, and the provisions approved by the Spanish National Securities Market Commission (CNMV).
c) Mandatory standards approved by the Spanish Accounting and Audit Institute in implementing the General Chart of Accounts and its supplementary regulations, the Securities Market Law and other regulations issued by the Spanish National Securities Market Commission.
d) All other applicable Spanish accounting legislation.

b) True and fair view

The accompanying financial statements were prepared on the basis of the accounting records kept by the Company, and are presented in accordance with the applicable financial reporting regulatory framework and, in particular, with the accounting policies and measurement bases contained therein, to present a true and fair view of the Company's equity, financial position, income, and cash flows for the year then ended. These financial statements were prepared by the Company's directors for approval by the shareholders at the Annual General Meeting and are expected to be approved without any changes.

The 2017 financial statements were approved by the shareholders at the Annual General Meeting held on 24 May 2018.

c) Non-mandatory accounting policies applied

No non-mandatory accounting policies have been applied. Accordingly, the directors have authorised these financial statements for issue on the basis of all mandatory accounting policies and standards that have a material effect on such statements. All mandatory accounting principles were applied.

d) Key issues in relation to the measurement and estimation of uncertainty

In preparing the accompanying financial statements, estimates were made by the Company's directors in order to measure certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates and criteria relate to the following:

Impairment losses or reversals of impairment losses recognised in previous years on property for own use and investment property as a result of lower or higher property appraisals carried out by independent experts vis-à-vis the carrying amount recognised for these assets (Notes 6 and 7).

The market value of the property for own use and of the investment property was obtained from the appraisals periodically made by independent experts. Such appraisals were made on 30 June 2018 and 31 December 2018 in accordance with the methods described in Notes 4-b and 4-c.

The useful life of property for own use and of investment property (Notes 4-b and 4-c).
Classification, measurement and impairment of financial investments (Note 4-e).
Measurement of non-current assets held for sale (Note 4-f).
Estimate of the appropriate allowances for doubtful debts (Note 4-g).
Measurement of deferred tax liabilities recognised in the balance sheet (Notes 4-m and 17).
The market value of certain financial assets, including derivative financial instruments (Notes 4-e and 9).
Evaluation of lawsuits, obligations, and contingent assets and liabilities at year-end (Note 14).
The measurement and impairment of goodwill (Notes 4-a and 5).

Although these estimates were made on the basis of the best information available at 2018 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 and would be recognised in the related income statement.

e) Comparison of information

The information relating to 2018 included in these notes to the financial statements is presented for comparison purposes with that relating to 2017.

f) Aggregation of items

Certain items in the balance sheet, income statement, statement of changes in equity and statement of cash flows are grouped together in order to facilitate comprehension. However, whenever the amounts involved are material, the information is broken down in the related notes to the financial statements.

g) Correction of errors

No significant errors were detected in the preparation of the accompanying financial statements that would have made it necessary to restate the amounts included in the financial statements for 2017.

h) Functional currency

These financial statements are presented in euros as this is the currency of the main economic area in which the Company operates.

3. Distribution of profit

The distribution of the 2018 profit proposed by the Board of Directors of the Company for approval at the Annual General Meeting is as follows:

	Thousands of
	euros
Profit for the year of the Company	36,308
To legal reserve	3,631
To dividends	32,677
Total distributed	36,308

The Company's Board of Directors will submit for approval at the Annual General Meeting a proposed distribution of dividends totalling 0.20 euros per share, which would give rise to a total maximum dividend of 101,623 thousand euros based on the current number of outstanding shares. The definitive amount of the dividend, as well as the nature of the reserves to be distributed, will be determined prior to its distribution based on the treasury shares held by the Company (Note 13).

In the past five years, the Company has distributed the following dividends:

Thousands of euros	2013	2014	2015	2016	2017
Dividends distributed	-	-	47,833	62,749	77,619

4. Accounting policies and measurement bases

The main accounting policies and measurement bases used by the Company to prepare its financial statements, in accordance with the National Chart of Accounts, were as follows:

a) Intangible assets

Computer software-

"Computer software" includes mainly the cost of acquiring and implementing an integrated IT system, in addition to subsequent extensions or upgrades of such system. The cost is amortised on a straight-line basis at a rate of 25% per year.

Goodwill-

Goodwill arises from the differences between the cost of the business combination and the net amount of the assets acquired and the liabilities assumed (Note 23).

The Company assigns goodwill arising on the business combination to each of the cash-generating units (CGUs) that are expected to benefit from the synergies of the combination and determines their useful life separately for each CGU. After initial recognition, goodwill is measured at cost less any accumulated amortisation and impairment losses. After initial recognition, goodwill is carried at cost, less any accumulated amortisation and any accumulated impairment losses recognised.

The Company amortises goodwill on a straight-line basis over 10 years.

In addition, the cash-generating units to which the goodwill has been assigned are tested at least once a year for indications of impairment.

Impairment losses on goodwill are not reversed in subsequent periods.

b) Property, plant and equipment

Properties for own use, including other property, plant and equipment, are recognised at acquisition cost less any accumulated depreciation and any impairment.

Subsequent costs are capitalised or recognised as a separate asset only when it is probable that the future economic benefits associated with the asset will flow to the Company and the cost of the asset can be determined reliably. Maintenance and upkeep expenses are charged to the income statement in the year incurred.

The Company depreciates its property, plant and equipment for own use and other items of property, plant and equipment using the straight-line method at annual rates based on the years of estimated useful life, as follows:

	Years of estimated useful life
Property for own use
Buildings	50
Fixtures	10 to 15
Other property, plant and
equipment	4 to 10

Impairment of property, plant and equipment -

At each reporting date, the Company assesses the carrying amounts of its property, plant and equipment to determine if there are indications that the assets have been impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of the fair value of the asset less costs to sell or otherwise dispose of the asset and value in use. Where the asset does not generate cash inflows that are independent of those from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

c) Investment property

"Investment property" in the balance sheet reflects the values of the land, buildings and other constructions held to earn rent or for capital appreciation upon disposals due to future increases in their respective market prices.

Investment property is recognised at acquisition cost, plus any capital gains assigned as a result of the merger between Grupo Inmocaral, S.A. (absorbing company) and Inmobiliaria Colonial, SOCIMI, S.A. and between Inmobiliaria Colonial, SOCIMI, S.A. (Notes 1 and 23) (absorbing company) and Axiare Patrimonio SOCIMI, S.A. (absorbed company), less accumulated depreciation and the relevant accumulated impairment losses.

The costs of expansion, modernisation or improvement leading to increased productivity, capacity or efficiency or to a lengthening of the useful lives of assets are capitalised as an increase in the cost of the related assets, while upkeep and maintenance costs are expensed currently.

For developments in progress, the only costs capitalised are execution and borrowing costs, provided such expenses were accrued before the asset was ready for use and the construction work lasted over one year.

Investment property in progress is transferred to investment property in operation when the assets are ready for use. The classification of an investment property to the investment property in progress heading takes place only when the rehabilitation project will exceed 1 year in length.

The Company depreciates its investment properties by the straight-line method at annual rates based on the years of estimated useful life, as follows:

	Years of
	estimated
	useful life

Properties:
Buildings	50
Fixtures	10 to 15
Other property, plant and equipment	4 to 10

The Company periodically compares the carrying amount of its investment property with the market value based on valuations made by independent experts for each of them. The appropriate impairment losses are recognised on investment property when the market value of an asset is lower than the carrying amount. The market value is determined on a half-yearly basis: that is, at 30 June and at 31 December of each year, based on the valuations made by independent experts (Jones Lang LaSalle and CB Richard Ellis Valuation in Spain for the years 2018 and 2017), so that the year-end market values for investment property items reflect prevailing market conditions. The valuation reports prepared by independent experts contain only the standard warnings and/or disclaimers concerning the scope of the findings of the appraisals carried out, referring basically to the comprehensiveness and accuracy of the information provided by the Company.

The Discounted Cash Flow (hereinafter, "DCF") method was primarily used to determine the market value of the Company's investment property in 2018 and 2017.

With regard the increases in the CPI, the generally accepted forecasts are normally adopted.

The estimated yields are mainly determined by the type, age and location of the properties, by the technical quality of the asset, as well as the type of tenant and occupancy rate, etc.

The yields and other assumptions used in determining future cash flows in 2018 and 2017 are set out in the tables below:

	Gross
Exit yields (%) - Offices	31 December 2018	31 December 2017

Barcelona – Prime Yield
Leased out	4.75	4.85
Total portfolio	4.77	4.88
Madrid – Prime Yield
Leased out	4.48	4.45
Total portfolio	4.44	4.47

Assumptions made at 31 December 2018
Rent increases (%) - Offices	Year 1	Year 2	Year 3	Year 4	Year 5 and thereafter
Barcelona – Leased out Total portfolio	3.00 3.00	3.00 3.00	3.00 3.00	3.00 3.00	2.25 2.25
Madrid – Leased out Total portfolio	3.00 3.00	3.00 3.00	3.00 3.00	3.00 3.00	2.50 2.50

Assumptions made at 31 December 2017
Rent increases (%) - Offices	Year 1	Year 2	Year 3	Year 4	Year 5 and thereafter
Barcelona – Leased out Total portfolio	3.00 3.00	3.00 3.00	3.00 3.00	3.00 3.00	2.25 2.25
Madrid – Leased out Total portfolio	3.00 3.00	3.00 3.00	3.00 3.00	3.00 3.00	2.50 2.50

Changes of one-quarter of one point in yields would have the following impact on the valuations used by the Company to determine the value of its assets recognised under "Property, plant and equipment" and "Investment property" in the balance sheet:

Sensitivity of valuations to a
change of one quarter of a point		Decrease of one	Increase of one
in yields	Valuation	quarter of a point	quarter of a point

December 2018	3,444,420	145,801	(163,407)
December 2017	1,923,747	94,384	(84,360)

The income earned in 2018 and 2017 from the lease of these investment properties amounted to 123,976 thousand euros and 70,725 thousand euros, respectively, and is recognised under "Revenue" in the income statement (Note 18).

Gains or losses arising on the disposal or derecognition of an asset are determined as the difference between the sale price and its carrying amount, and are recognised under "Impairment and gains/(losses) on disposal of non-current assets" in the income statement.

d) Leases

Finance leases-

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. Other leases are classified as operating leases. At 31 December 2018 and 2017, all of the Company's leases qualified as operating leases.

Operating leases-

Income and expenses deriving from operating leases are recognised in the income statement in the year in which they accrue.

The acquisition cost of the leased assets is presented in the balance sheet in accordance with the nature of the asset, plus the costs directly attributable to the lease, which are expensed over the term of the lease on the same basis as lease income.

Any collection or payment made on entering into an operating lease is treated as an advance collection or payment and is taken to profit or loss over the lease term, as benefits from the leased asset are received or provided.

e) Financial instruments

Financial assets

Initial recognition -

Financial assets are initially recognised at the fair value of the consideration given, plus any directly attributable transaction costs.

In the case of equity investments in Group companies that exercise control over subsidiaries, the fees paid to legal advisors and other professionals related to the acquisition of the investment are recognised directly in profit or loss.

Classification-

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

Loans and receivables: financial assets arising from the sale of goods or the rendering of services in the ordinary course of business, or financial assets that do not arise from the ordinary course of business and are not equity instruments or derivatives with fixed or determinable payments and are not traded in an active market.
Investments held to maturity: debt securities, with a fixed maturity date and determinable collection amounts traded in an active market and which the Company has expressed its intent and capacity to hold until their maturity date.
Equity investments in Group companies, associates and jointly controlled entities: Group companies are those linked to the Company by a relationship of control, and associates are companies over which the Company exercises a significant influence. In addition, the category of jointly controlled entities includes companies over which, by virtue of an arrangement, joint control is exercised with one or more partners.
Available-for-sale financial assets: include debt securities and equity instruments of other companies that are not classified under any of the foregoing categories.

Subsequent measurement-

Loans, receivables and investments held to maturity are measured at their amortised cost.

Investments in Group companies, associates and jointly controlled entities are measured at cost less, if applicable, any accumulated impairment losses. Such losses are calculated as the difference between the carrying amount and the recoverable amount, where the latter 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, the estimated impairment of these investments takes into account the equity of the investee, adjusted by the unrealised gains existing at the valuation date. The correction of value, and, when applicable, its reversal, is entered in the income statement of the year in which it occurs.

Lastly, available-for-sale financial assets are measured at fair value. Fair value gains and losses are recognised in equity until the asset is disposed of or is determined to be impaired (on a prolonged or permanent basis), at which point the cumulative gains or losses are reclassified to the income statement. Permanent impairment is presumed to exist if the market value of the asset has fallen by more than 40% or if a prolonged decline in the price has occurred over a year and a half without a recovery in value.

Unless better evidence of the recoverable amount of the investees is available, the EPRA Triple Net Asset Value (EPRA NNNAV) is used.

The Company tests its financial assets that are not carried at fair value for impairment at least at the end of each reporting period. If the recoverable amount of the financial asset is lower than its carrying amount, objective evidence of impairment is deemed to exist, in which case, it is recognised in the income statement.

In particular, the Company calculates valuation adjustments relating to trade and other receivables by carrying out a case-by-case analysis of the solvency of the debtor.

The Company derecognises a financial asset when the contractual rights to cash flows from the asset expire or have been assigned, and substantially all the risks and rewards of ownership of the financial asset have been transferred.

However, the Company does not derecognise financial assets, and recognises a financial liability for an amount equal to the consideration received, in transfers of financial assets in which substantially all the risks and rewards of ownership are retained.

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 which, not having commercial substance, cannot be classified as derivatives.

Accounts payable are initially measured at the fair value of the consideration received, adjusted for directly attributable transaction costs, and are subsequently measured at amortised cost.

Liability derivative financial instruments are measured at fair value, using the same criteria as those applied to financial assets held for trading described in the preceding section.

The Company derecognises financial liabilities when the obligations giving rise to them cease to exist. When a debt instrument swap takes place between the Company and a third party, as long as these instruments have substantially different conditions, the Company derecognises the original financial liability and recognises the new financial liability. The difference between the carrying amount of the original liability and the consideration paid, including any attributable transaction costs, is recognised in the income statement.

If debt instruments that do not have substantially different terms are exchanged, the original financial liability is not derecognised and the amount of the fees paid are recognised as an adjustment to its carrying amount. The amortised cost of the financial liability is determined by applying the effective interest rate, which is equal to the carrying amount of the financial liability on the date of modification with the cash flows to be paid according to the new conditions.

The Company considers the terms and conditions of financial liabilities to differ substantially whenever the present value of the discounted cash flows, under the new terms and conditions, including any fees and commissions paid, net of any fees and commissions received and using the original effective interest rate in discounting, differs by at least 10% from the discounted present value of the cash flows still remaining from the original financial liability.

Own equity instruments (Note 13)-

An own equity instrument represents a residual interest in the equity of the Company after deducting all of its liabilities.

Equity instruments issued by the Company are recognised in equity at the proceeds received, net of direct issue costs.

Treasury shares acquired by the Company during the year are recognised at the value of the consideration delivered in exchange and are deducted directly from equity. Any gains or losses on the acquisition, sale, issue or retirement of own equity instruments are recognised directly in equity and in no case are they recognised in profit or loss.

Derivative financial instruments (Note 10) -

The Company uses financial derivatives to manage its exposure to variations in interest rates. All derivative financial instruments, whether or not they are designated as hedging instruments, are carried at fair value, market value in the case of listed securities, or using option valuation methods or discounted cash flow analysis for non-listed securities. The following valuation criterion has been applied:

Derivative financial instruments that meet the criteria for hedge accounting are initially recognised at fair value, plus any transaction costs, if applicable, directly attributable to their arrangement or less any transaction costs, if applicable, directly attributable to their issue. However, the transaction costs are subsequently recognised in profit or loss, such that they do not form part of the effective change of the hedge.
Treatment of financial instruments that are not allocated to a specific liability and do not qualify for hedge accounting: gains or losses arising from the restatement at fair value of these financial instruments are recognised directly in the income statement.

Hedge accounting is discontinued when a hedging instrument expires or is sold or exercised, or when the hedge no longer qualifies for hedge accounting. Gains or losses on hedging instruments accumulated directly in equity remain in equity until the related transaction materialises. Once the related cash flow occurs, any cumulative gain or loss recognised in the Company's equity is transferred to the income statement for the year.

Prospective and retrospective testing for hedge effectiveness is carried out on a monthly basis:

Retrospective tests measure how effectively the instrument would have hedged the liability over its life, using historical interest rates to date.
Prospective tests measure the instrument's expected effectiveness on the basis of forward interest rates as published by Bloomberg at the measurement date. This is adjusted monthly from the inception of the hedge on the basis of the historical interest rates already established.

The method consists of calculating the statistical correlation between the benchmark interest rates at each measurement date for the derivative and the hedged liability. This is applicable to the hedged portion of the derivative liability.

A hedging instrument is considered effective if this statistical correlation is between 0.80 and 1.

The Company's directors have considered the credit risk in the measurement of the derivatives portfolios, with no significant impact seen as at 31 December 2018 and 2017.

The Company's use of financial derivatives is governed by a set of approved risk management policies and hedges.

f) Non-current assets and disposal groups classified as held for sale

Non-current assets held for sale are measured at cost or at the fair value less costs to sell, whichever is lower.

Non-current assets are classified as held for sale if it is estimated that their carrying amounts will be recovered principally through a sale rather than through continuing use. This condition is met when the sale of the asset is considered highly probable, the asset is in a condition to be immediately sold and the sale is expected to be fully realised within a period of no more than twelve months from its classification as a held-for-sale asset.

The Company classifies non-current assets as assets held for sale when the Board of Directors or Executive Committee has officially approved the disposal and the sale is considered highly probable within a period of twelve months.

g) Receivables

Trade receivables are measured at their recoverable amount, i.e. net, where applicable, of the allowances recognised to cover past-due balances where circumstances warrant their consideration as doubtful debts. At 31 December 2018 and 2017, there were no unprovisioned past-due debt risks in relation to accounts receivable.

h) Statement of cash flows (indirect method)

The terms used in the statement of cash flows are defined as follows:

Cash flows: inflows and outflows of cash and equivalent financial assets, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value.
Operating activities: principal revenue-producing activities 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 equivalents.
Financing activities: activities that result in changes in the size and composition of equity and borrowings that are not operating activities.

i) Cash and cash equivalents.

This heading includes bank deposits, carried at the lower of cost or market value.

Financial investments that are readily convertible into a known amount of cash and that are not subject to any significant risk of changes in value are deemed to be cash equivalents.

Bank overdrafts are not considered to be cash and cash equivalents.

j) Current / non-current

The normal operating cycle is understood to be the period of time between the acquisition of the assets that form part of the Company's various business activities and the realisation of the finished assets in the form of cash or cash equivalents.

The Company's primary business is the lease of assets and its normal business cycle is the calendar year. Therefore, assets and liabilities maturing in one year or less are classified as current assets and those maturing in more than one year are classified as non-current assets, except for receivables arising from the recognition of income associated with incentives or grace periods (Notes 4-n and 12), which are applied on a straight-line basis over the term of the lease agreement and are considered to be a current asset.

Bank borrowings are classified as non-current if the Company has the irrevocable right to make payments after twelve months from the end of the reporting period.

k) Provisions and contingent liabilities

In preparing the financial statements, the Company's directors distinguish between:

Provisions: creditor balances covering present obligations arising from past events with respect to which it is probable that an outflow of resources will be required to settle the obligation, which is uncertain as to its amount and/or timing.
Contingent liabilities: possible obligations arising from past events, the materialisation of which will be confirmed only by the occurrence or non-occurrence of one or more future events beyond the control of the Company.

The financial statements include all the material provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. Contingent liabilities are not recognised, but are disclosed in Note 14.

Provisions are recognised at the present value of the best possible estimate of the consideration required to settle or transfer the obligation, taking into account the information available concerning the event and its consequences and recognising any adjustments arising from the discounting of provisions as a finance cost when accrued.

The receivable from a third party upon settlement of the obligation, when the reimbursement is virtually certain, is recognised as an asset, except where there is a legal obligation to outsource the risk discharging the Company of this obligation. In this case, benefits are used to estimate any amount to be recognised as the provision.

l) Employee benefits

Termination benefits-

Under current legislation, the Company is required to pay severance to employees terminated under certain conditions. Severance payments that can be reasonably quantified are recorded as a expense in the year in which the decision to terminate the contract is taken and a valid expectation regarding termination is transmitted to third parties. At 31 December 2018 and 2017, the Company did not record any provisions in this connection.

Pension obligations (Note 18) -

In 2018 and 2017 the Company assumed a commitment with executive directors and one member of senior management to make a defined contribution to an external pension plan that meets the requirements established by Royal Decree 1588/1999, of 15 October.

Share-based payments (Note 20) -

The Company recognises the goods and services received as an asset or an expense, depending on their nature, when they are received, along with an increase in equity if the transaction is settled using equity instruments or the corresponding liability if the transaction is settled at an amount based on the value of the equity instruments.

m) Income tax expense (Note 17)

Income tax expense (income) includes the amount of current tax payable (receivable) and deferred tax liability (asset).

The current income tax expense is the amount payable by the Company as a result of income tax settlements for a given year. Tax credits and other tax benefits, excluding tax withholdings and prepayments, and tax loss carryforwards effectively offset in the current period, reduce the current income tax expense.

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 by applying the tax rate at which the asset is expected to be realised or the liability is expected to be settled to the corresponding temporary difference or tax asset.

Deferred tax liabilities are recognised for all taxable temporary differences, except for those arising from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and affects neither the accounting profit (loss) nor taxable profit (tax loss). Deferred tax assets and liabilities arising from transactions charged or credited directly to equity are also recognised with a balancing entry in equity.

In accordance with the regulations in effect, the measurement of the Company's deferred tax liabilities reflects the tax consequences that would follow from the manner in which the carrying amount of its assets is expected to be recovered or settled. In this regard, for deferred tax liabilities that arise from investment properties, it is considered that there is a rebuttable presumption that their carrying amount will be recovered through their sale. When determining the deferred tax attributable to the capital gains assigned to the business combination described in Note 1, a portion of the cost of which was not tax deductible, the 25% tax rate was applied less 25% of the offset of tax loss carryforwards as stipulated by the current limitation established by law at 31 December 2018. The effective rate taken into consideration was 18.75% after the legislative amendment of December 2016 that established new limitations on the offset of tax loss carryforwards, among other matters.

The balance sheet includes those tax credits considered likely to be recoverable within a reasonable timeframe, either because of the performance of the property market itself, or through taxable profits generated by the activities carried out by the Company's management.

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. Unrecognised deferred tax assets are also reassessed at the end of each reporting period, and are recognised to the extent it is likely they will be recovered through future taxable profit.

REIT Regime -

Effective as of 1 January 2017 (Note 1), the tax regime of the Company and the majority of its Spanish subsidiaries is governed by Law 11/2009, of 26 October, as amended by Law 16/2012, of 27 December, governing listed real estate investment companies (REITs). Article 3 establishes the investment requirements of this type of company, namely:

REITs must have invested at least 80% of the value of their assets in urban properties earmarked for lease, in land to develop properties to be earmarked for that purpose, provided that development begins within three years following their acquisition, and in equity investments in other companies referred to in Article 2.1 of the aforementioned Law.

This percentage must be calculated on the average of the consolidated balances if the company belongs to a group, in accordance with the criteria established in Article 42 of the Spanish Commercial Code, regardless of its place of residence and of the obligation to formally prepare consolidated financial statements. Such a group must be composed exclusively of the REITs and the other entities referred to in Article 2.1 of the aforementioned Law.

Similarly, at least 80% of the rental income from the tax period corresponding to each year, excluding the rental income arising from the transfer of the ownership interests and the properties used by the company to achieve its main corporate purpose, once the holding period referred to below has elapsed, should be obtained from the lease of properties and dividends or shares of profits arising from the aforementioned investments.

This percentage must be calculated on the basis of consolidated profit if the company belongs to a group, in accordance with the criteria established in Article 42 of the Spanish Commercial Code, regardless of its place of residence and of the obligation to formally prepare consolidated financial statements. Such a group must be composed exclusively of the REITs and the other entities referred to in Article 2.1 of the aforementioned Law.

The properties included in the REIT's assets should remain leased for at least three years. The time during which the properties have been made available for lease will be included in calculating this term, with a maximum of one year.

The term will be calculated:

For properties that are included in the REIT's assets before the company avails itself of the regime, from the beginning 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.
For properties developed or acquired subsequently by the REIT, from the date on which they were leased or made available for lease for the first time.
In the case of shares or ownership interests in the companies referred to in Article 2.1 of this Law, they should be retained on the asset side of the REIT's balance sheet for at least three years following their acquisition or, as appropriate, from the beginning of the first tax period in which the special tax regime set forth in this Law is applied.

n) Revenue and expenses

General criteria-

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, less discounts and tax.

Revenue from sales is recognised when the significant risks and rewards from ownership of the sold asset have been transferred to the buyer, where daily management of the asset is not exercised and effective control is not held.

Property leases -

Revenue from operating leases is recognised as income on a straight-line basis over the term of the lease, and the initial direct costs incurred in arranging these operating leases are taken to the income statement on a straight-line basis over the minimum term of the lease agreement.

The minimum term of a lease is considered to be the time elapsed from the start of the lease to the first option for renewing the lease.

Specific lease terms and conditions: lease incentives -

Lease agreements include certain specific conditions linked to incentives or rent-free periods offered by the Company to its customers (Note 4-j). The Company recognises the aggregate cost of incentives granted as a reduction in rental income over the minimum term of the lease on a straight-line basis. The effects of the rentfree periods are recognised during the minimum term of the lease agreement.

The indemnity payments made by lessees to cancel their lease agreements prior to their minimum termination date are also recognised as income in the income statement on the date on which they are claimable.

Interest and dividends received -

Interest received on financial assets is recognised using the effective interest rate method, and dividends are recognised when the right of the shareholder to receive them is declared. Interest and dividends from financial assets accrued subsequent to acquisition are recognised as income in the income statement.

Pursuant to the Resolution of Spanish Accounting and Audit Institute Official Bulletin 79, regarding the recognition of certain items of income (dividends, income from loans to related companies, etc.) for companies whose corporate purpose is the holding of equity investments, the Company recognises dividend income from the investments held in companies over which it has control as an increase in "Revenue" in the income statement (Notes 18 and 19).

o) Related party transactions (Note 19)

The Company carries out all transactions with related parties at arm's length. In addition, as transfer prices are adequately documented, the Company's directors consider that there are no significant risks that could give rise to material liabilities in the future.

p) Costs passed on to lessees

The bulk of repair and maintenance expenses incurred by the Company in connection with the operation of its assets are passed on to the respective lessees of the properties. The Company does not consider the costs incurred by lessees from its investment property as income and they are recognised, less the corresponding costs, in the income statement. In 2018 and 2017, a total of 27,320 thousand euros and 18,503 thousand euros, respectively, were invoiced in this regard.

Direct operating expenses associated with rented investment property net of costs passed on that generated rental income in 2018 and 2017, included under "Operating profit" in the income statement, amounted to 11,025 thousand euros and 5,712 thousand euros, respectively. The expenses incurred in connection with investment properties that did not generate rental income were not significant.

q) Business combinations

Business combinations arising from the acquisition of all assets and liability of a company or a portion thereof that represents one or more businesses are recognised in line with the acquisition method.

In the case of business combinations arising as a result of the acquisition of shares or investments in the share capital of a company, the Company recognises the investment in line with that established for holdings in the equity of Group companies, jointly controlled entities and associates (Note 23).

5. Intangible assets

The changes in this heading of the balance sheet in 2018 and 2017, and the most significant information affecting this heading, were as follows:

		Thousands of euros
	Goodwill	Intellectual property	Computer software	Total
Balance at 31 December 2016	-	290	771	1,061
Acquisition cost	-	306	4,708	5,014
Accumulated amortisation	-	(16)	(3,937)	(3,953)
Additions	-	500	654	1,154
Amortisation charge	-	(114)	(417)	(531)
Balance at 31 December 2017	-	676	1,008	1,684
Acquisition cost	-	806	3,483	4,289
Accumulated amortisation	-	(130)	(2,475)	(2,605)
Additions	-	1,156	1,095	2,251
Business combinations (Note 23)	176,529	-	1,298	177,827
Amortisation charge	(16,182)	(381)	(752)	(17,315)
Disposals (Note 18-e)	-	-	(1,260)	(1,260)
Balance at 31 December 2018	160,347	1,451	1,389	163,187
Acquisition cost	176,529	1,962	4,477	182,891
Accumulated amortisation	(16,182)	(511)	(3,088)	(19,704)

In 2018, and as a result of the business combination described in Note 1, the Company recognised goodwill in the amount of 176,529 thousand euros (Note 23).

At year-end 2018 and 2017, the Company had fully amortised intangible assets still in use amounting to 1,916 thousand euros and 1,675 thousand euros, respectively.

6. Property, plant and equipment

The changes in this heading of the balance sheet in 2018 and 2017, and the most significant information affecting this heading, were as follows:

	Thousands of euros
	Land and buildings	Other property, plant and equipment	Total
Balance at 31 December 2016	13,389	2,177	15,566
Acquisition cost	19,471	11,050	30,521
Accumulated depreciation	(1,441)	(8,873)	(10,314)
Accumulated impairment	(4,641)	-	(4,641)
Additions	216	2,576	2,505
Depreciation charge	(55)	(475)	(530)
Disposals (Note 18-e)	(3)	(93)	(5,721)
Impairment (Note 18-d)	(287)	-	(96)
Balance at 31 December 2017	13,260	4,185	17,445
Acquisition cost	19,680	7,912	27,592
Accumulated depreciation	(1,492)	(3,727)	(5,219)
Accumulated impairment	(4,928)	-	(4,928)
Additions	-	494	494
Business combinations (Note 23)	-	577	577
Depreciation charge	(57)	(786)	(843)
Disposals (Note 18-e)	-	(520)	(520)
Impairment (Note 18-d)	1,630	-	1,630
Balance at 31 December 2018	14,833	3,950	18,783
Acquisition cost	19,680	7,136	26,816
Accumulated depreciation	(1,549)	(3,186)	(4,735)
Accumulated impairment	(3,298)	-	(3,298)

The Company uses two floors of the building located at Avenida Diagonal, 532, in Barcelona and one floor of the building located at Paseo de la Castellana, 52, in Madrid.

In 2018, the Company derecognised certain assets under "Property, plant and equipment", with a net carrying amount of 520 thousand euros (96 thousand euros in 2017), which were reclassified under "Impairment and gains/(losses) on disposal of non-current assets - Gains/(losses) on disposals and other" in the income statement (Note 18-e).

At 31 December 2018, the need to recognise an impairment loss reversal in the amount of 1,630 thousand euros on properties for own use was evidenced by the appraisals performed by an independent expert (Note 4-b). The amount was recognised under "Impairment and gains/(losses) on disposal of non-current assets - Impairment and losses" in the income statement (Note 18-d). In the year ended 31 December 2017, an impairment loss was recognised on the value of the properties for own use amounting to 287 thousand euros.

At year-end 2018 and 2017, the Company had fully depreciated property, plant and equipment still in use amounting to 2,006 thousand euros and 2,299 thousand euros, respectively.

The Company has no property, plant and equipment outside of Spanish territory, and it has no purchase commitments.

The Company's policy is to take out insurance policies to cover any risks affecting items of property, plant and equipment. At 31 December 2018 and 2017, these items were fully insured.

7. Investment property

The changes in this heading of the balance sheet in 2018 and 2017, and the most significant information affecting this heading, were as follows:

	Thousands of euros
		Buildings and	Investment
	Land	installations	property in	Total
			progress
Balance at 31 December 2016	1,041,956	396,877	71,272	1,510,105
Acquisition cost	1,160,545	721,983	71,272	1,953,800
Accumulated depreciation	-	(325,106)	-	(325,106)
Accumulated impairment	(118,589)	-	-	(118,589)
Additions	17	12,053	5,454	17,524
Depreciation charge	-	(24,214)	-	(24,214)
Disposals (Note 18-e)	-	(13,053)	-	(13,053)
Write-offs for depreciation	-	2,022	-	2,022
Write-offs for impairment	6,381	-	-	6,381
Impairment (Note 18-d)	32,572	-	-	32,572
Balance at 31 December 2017	1,080,926	373,685	76,726	1,531,337
Acquisition cost	1,160,562	720,983	76,726	1,958,271
Accumulated depreciation	-	(347,298)	-	(347,298)
Accumulated impairment	(79,636)	-	-	(79,636)
Additions	17,811	50,957	75,955	144,723
Business combinations (Note 23)	625,832	736,287	131,580	1,493,699
Depreciation charge	-	(40,850)	-	(40,850)
Disposals (Note 18-e)	(171,457)	(182,366)	(43,859)	(397,682)
Write-offs for depreciation	-	21,897	10,515	32,412
Write-offs for impairment	2,165	-	-	2,165
Transfers (Note 11)	21,284	61,643	(84,759)	(1,832)
Transfers from depreciation	-	(19,495)	(11,364)	(30,859)
Application of impairment	6,600	-	-	6,600
Impairment (Note 18-d)	2,423	-	-	2,423
Balance at 31 December 2018	1,585,585	1,001,758	154,793	2,742,136
Acquisition cost	1,654,032	1,387,504	155,643	3,197,179
Accumulated depreciation	-	(385,746)	(849)	(386,595)
Accumulated impairment	(68,448)	-	-	(68,448)

Movements in 2018 -

The additions in 2018 relate to the following acquisitions:

On 18 January 2018, the Company acquired an asset located in Plaza Gal-la Placidia, Barcelona, for 16,561 thousand euros, including acquisition costs.
On 2 July 2018, the Company acquired an asset located at Diagonal 523-525, Barcelona, for 29,285 thousand euros, including acquisition costs.
In September 2018, the Company acquired a property located at Josefa Valcárcel, 40bis, for 30,201 thousand euros, including acquisition costs.
In 2018, the Company finalised the acquisition of three logistics warehouses in San Fernando de Henares, making payments for a total amount of 17,842 thousand euros, including acquisition costs, established in the contract.
The other additions in 2018 relate to the investments made in various properties, both under development and in operation, for a total amount of 50,835 thousand euros, including 755 thousand euros in capitalised borrowing costs.

The disposals carried out in 2018 relate to the following (Note 18-e):

On 11 January and 12 June 2018, the Company sold the premises located on calle Orense de Madrid and a flat located in Tenerife for a total of 1,930 thousand euros.
On 9 March 2018, the Company sold a shopping centre in Collado Villalba (Madrid) for 19,700 thousand euros.
On 21 May 2018, the Company sold a hotel in Madrid for 15,500 thousand euros.
In August 2018, the Company sold a property located in Madrid for a total of 65,000 thousand euros.
In September 2018, the Company sold various properties located in Madrid for a total of 281,500 thousand euros.
On 27 December 2018, the Company sold a property located at Lagasca, 88, Madrid for 5,300 thousand euros.

The Company derecognised assets amounting to 5,102 thousand euros due to being replaced in 2018.

Movements in 2017 -

The additions in the year ended 31 December 2017 relate to the investments made in various properties, both under development and in operation, for a total amount of 17,524 thousand euros, including 857 thousand euros in capitalised borrowing costs.

On 12 January 2017, the Company officially sold part of an asset located at calle Orense, Madrid for 5,600 thousand euros (Note 18-e).

Impairment -

At 31 December 2018, the need to recognise an impairment loss reversal for the amount of 2,423 thousand euros on investment properties was evidenced by the appraisals performed by independent experts. The amount was recognised under "Impairment and gains/(losses) on disposal of non-current assets - Impairment and losses" in the income statement (32,572 thousand euros in 2017) (Note 18-d).

Other information -

The total surface area by location (above and under-ground) of investment property and projects in use and in progress at 31 December 2018 and 2017 is as follows:

	Total surface area (m2)
Location	Investment property in use		Investment property in progress			Total
	31 December 2018	31 December 2017	31 December 2018	31 December 2017	31 December 2018	31 December 2017

Barcelona	284,828	244,890	41,414	33,138	326,242	278,028
Madrid	386,275	264,044	21,560	18,717	407,835	282,761
Rest of Spain	492,324	12,735	83,399	-	575,723	12,735
	1,163,427	521,669	146,373	51,855	1,309,800	573,524

The Company has no contractual obligations for the acquisition, construction or development of investment properties or for repairs and maintenance.

At 31 December 2018, the Company had properties provided as collateral for mortgage debt with a carrying amount of 533,868 thousand euros included under "Investment property" in the balance sheet (Note 15-c). At 31 December 2017, the Company did not have any property provided as a mortgage guarantee.

At year-end 2018 and 2017, the Company had fully depreciated investment property still in use amounting to 159,269 thousand euros and 140,547 thousand euros, respectively.

The Company has no property, plant and equipment outside of Spanish territory, and it has no purchase commitments.

The Company's policy is to take out insurance policies to cover any risks affecting investment properties. At 31 December 2018 and 2017, these items were fully insured.

8. Operating leases - Lessor

At year-end 2018 and 2017, the Company had contracted with tenants the following minimum irrevocable lease payments under the leases currently in force, without taking into account the impact of common expenses, future increases in the CPI or future contractual lease payment revisions:

	Thousands of euros
	Nominal amount
Minimum operating lease	31 December	31 December
payments	2018	2017

Less than one year	103,620	63,972
Between one and five years	160,825	93,659
Over five years	68,163	16,490
Total	332,608	174,121

9. Non-current investments in Group companies and associates and non-current financial investments

a) Non-current equity instruments in Group companies

The breakdown by subsidiary at 31 December 2018 and 2017 is as follows:

31 December 2018

	Thousands of euros
			Business
	Beginning	Additions or	combinations	Ending
	balance	charges	(Note 23)	balance

Cost:
Société Foncière Lyonnaise, S.A.	1,511,370	748,643	-	2,260,013
Torre Marenostrum, S.L.	24,790	-	-	24,790
Colonial Tramit, S.L.U.	13	10	-	23
Colonial Invest, S.L.U.	13	-	-	13
Danieltown Spain, S.L.U.	30,038	-	-	30,038
Moorage Inversiones 2014, S.L.U.	49,355	-	-	49,355
Hofinac Real Estate, S.L.U.	202,000	-	-	202,000
Fincas y Representaciones, S.A.U.	46,681	-	-	46,681
Inmocol Torre Europa, S.A.	10,080	-	-	10,080
Colonial Arturo Soria, S.L.U.	19,747	877	-	20,624
Almacenes Generales Internacionales, S.A.U.	100,124	1,180	-	101,304
Soller, S.A.U.	78,096	920	-	79,016
Peñalvento, S.L.U.	-	20,755	-	20,755
Axiare Investments, S.L.U.	-	-	18,067	18,067
Axiare Properties, S.L.U.	-	-	2	2
Axiare I+D+i, S.L.U.	-	-	149	149
Venusaur, S.L.U.	-	-	63,001	63,001
Chameleon (Cedro), S.L.U.	-	-	24,056	24,056
LE Offices Egeo, S.A.U.	-	51,222	-	51,222
Utopicus Innovación Cultural, S.L.	3,634	4,000	-	7,634
Total cost	2,075,941	827,607	105,275	3,008,823

Impairment:
Colonial Tramit, S.L.U.	(8)	(2)	-	(10)
Colonial Invest, S.L.U.	(7)	(2)	-	(9)
Axiare Investments, S.L.U.	-	(3,197)	-	(3,197)
Axiare Properties, S.L.U.	-	(2)	-	(2)
Axiare I+D+i, S.L.U.	-	(149)	-	(149)
Utopicus Innovación Cultural, S.L.	(2,937)	(3,057)	-	(5,994)
Total impairment losses	(2,952)	(6,409)	-	(9,361)
Net total	2,072,989	821,198	105,275	2,999,462

31 December 2017

	Thousands of euros
	Beginning	Additions or	Disposals or	Ending
	balance	charges	reversals	balance

Cost:
Société Foncière Lyonnaise, S.A.	1,511,105	265	-	1,511,370
Torre Marenostrum, S.L.	26,201	-	(1,411)	24,790
Colonial Tramit, S.L.U.	13	-	-	13
Colonial Invest, S.L.U.	13	-	-	13
Danieltown Spain, S.L.U.	30,038	-	-	30,038
Moorage Inversiones 2014, S.L.U.	49,355	-	-	49,355
Hofinac Real Estate, S.L.U.	202,000	-	-	202,000
Fincas y Representaciones, S.A.U.	46,620	61	-	46,681
Inmocol Torre Europa, S.A.	-	10,080	-	10,080
Colonial Arturo Soria, S.L.	-	19,747	-	19,747
Almacenes Generales Internacionales, S.A.U.	-	100,124	-	100,124
Soller, S.A.U.	-	78,096	-	78,096
Utopicus Innovación Cultural, S.L.	-	3,634	-	3,634
Total cost	1,865,345	212,007	(1,411)	2,075,941

Impairment:
Colonial Tramit, S.L.U.	(5)	(3)	-	(8)
Colonial Invest, S.L.U.	(5)	(2)	-	(7)
Moorage Inversiones 2014, S.L.U.	(5,010)	-	5,010	-
Hofinac Real Estate, S.L.U.	(803)	-	803	-
Fincas y Representaciones, S.A.U.	(2,359)	-	2,359	-
Utopicus Innovación Cultural, S.L.	-	(2,937)	-	(2,937)
Total impairment	(8,182)	(2,942)	8,172	(2,952)
Total net carrying amount	1,857,163	209,065	6,761	2,072,989

The information related to Group companies at 31 December 2018 and 2017 is disclosed in Appendix I to these notes.

Movements in 2018 -

On 16 January 2018, the Company acquired 100% of the share capital of the Spanish company LE Offices Egeo, S.A.U. (hereinafter, "Egeo"), the owner of an office building located in Madrid. The acquisition cost totalled 49,098 thousand euros. Also, on 30 November 2018, an earn-out amounting to 2,124 thousand euros was paid. On this same date the earn-out associated with the acquisition of Colonial Arturo Soria, S.L. shares amounting to 877 thousand euros was paid.

On 20 March 2018, the subsidiary Utopicus Innovación Cultural, S.L. increased share capital through the issuance of 3,368 shares, with a par value of 1 euro each, plus a share premium of 3,996 thousand euros. This capital increase was fully subscribed and paid by the Company in the amount of 4,000 thousand euros.

On 7 May 2018, the Company acquired 100% of Peñalvento, S.L. from the subsidiary Agisa for 20,755 thousand euros. On 3 October 2018, the Company entered into a sale and purchase agreement, subject to conditions precedent, for 100% of the shares of Peñalvento. The agreement indicates that the sale will be executed between May 2022 and February 2023, provided the conditions precedent envisaged in the agreement have been met. As of the date on which the agreement was signed, the Company received 14,142 thousand euros on the price of the investments.

On 16 November 2018, the Company acquired 10,323,982 shares of the subsidiary LLC from Qatar Holding, LLC and DIC Holding, LLC through (i) the Company's contribution of 7,136,507 shares of the subsidiary as consideration for the subscription of the 53,523,803 new shares of the Company for 487,602 thousand euros (Note 13-d); (ii) the exchange of 400,000 shares of the subsidiary for 3,000,000 shares of the Company that it held as treasury shares

for 27,330 thousand euros (Note 13-d); and (iii) the sale to the Parent of 2,787,475 shares of the subsidiary SFL 203,486 thousand euros.

On 29 November 2018, the Company acquired 281,022 shares of the subsidiary SFL for 18,969 thousand euros.

In addition, in December 2018 the Company acquired 441,000 shares of the subsidiary SFL through the exchange of 315,000 shares of the Company held as treasury shares (Note 12-d) for 2,814 thousand euros and the delivery of cash in the amount of 8,442 thousand euros.

As a result of the acquisitions detailed above, the Company's ownership interest in the share capital of the subsidiary SFL increased from 58.56% to 81.71%.

Movements in 2017 -

In 2017, the Company acquired 4,700 shares in its subsidiary SFL, for a total of 265 thousand euros, thus increasing its interest in the share capital from 58.55% to 58.56%.

On 18 May 2017, Inmocol Torre Europa, S.A. (hereinafter, "Inmocol") was incorporated. The initial share capital of 20,000 thousand euros was fully subscribed by the Company and its shareholder as follows:

The shareholders subscribed 50% of the share capital through a non-monetary contribution of land located at Hospitalet del Llobregat, valued at 10,000 thousand euros, on which Inmocol will construct an office building.
The remaining 50% of the share capital was subscribed by the Company, having only paid 25% of the capital subscribed, i.e., 2,500 thousand euros. The unpaid share capital subscribed will be paid by the Company when agreed upon by the Board of Directors of Inmocol.

On 27 September 2017, the Company acquired all shares of the Spanish company LE Offices Arturo Soria, S.L. (currently Colonial Arturo Soria, S.L., and hereinafter, "Arturo"), the owner of an office building located in Madrid. The acquisition price was 19,747 thousand euros. Of this amount, 4,200 thousand euros were deferred until 31 January 2018 at the latest, and were recognised under "Trade payables" in the balance sheet. In addition, the loan held by Arturo Soria with a financial institution for 13,159 thousand euros, including interest was cancelled early and subsequently registered with the Property Registry on 26 November 2017.

On 27 October 2017, the Company acquired 61.51% of the share capital of the Spanish company Utopicus Innovación Cultural, S.L. (hereinafter, "Utopicus"), the head of the Utopicus co-working platform. The acquisition price amounted to 2,633 thousand euros, and 205 thousand euros were deferred, which were recognised under "Trade payables" in the balance sheet. On this same date, Utopicus increased its share capital by 1,001 thousand euros, corresponding to 910 shares of one euro par value each, plus a share premium, which was subscribed and paid in full by the Company, thus increasing its interest in the share capital of Utopicus to 69.60%. At 31 December 2018, the 55 thousand euros that had been deferred were paid.

On 20 December 2017, the Company acquired all share capital of the Spanish companies Almacenes Generales Internacionales, S.A.U. (hereinafter, "Agisa") and Soller, S.A.U., which own several plots of land located in Madrid. The acquisition price was 178,220 thousand euros. Of this amount, 41,335 thousand euros were deferred until 31 December 2018 at the latest, and were recognised under "Trade payables" in the balance sheet. Several guarantees were extended as collateral for the deferred amount (Note 15). On 31 December 2018, the deferred amounts were paid and the guarantees extended to cover these payments were cancelled.

Impairment -

In 2018 and 2017, the Company did not recognise any impairment losses on the financial interest in SFL given that the fair value of that interest, calculated based on SFL's EPRA Triple Net Asset Value (EPRA NNNAV) at the close of 2018 and 2017, was 86.32 and 80.14 euros per share, respectively, higher than the acquisition cost of the shareholding (Note 4-e).

The price of SFL shares at the close of 2018 and 2017 was 60.80 euros and 54.61 euros per share, respectively.

b) Non-current investments in Group companies and associates - Loans to companies

The details of "Loans to companies" in the balance sheet are as follows:

	Thousands of euros
	31 December	31 December
	2018	2017

Danieltown Spain, S.L.U.	12,916	12,486
Moorage Inversiones 2014, S.L.U.	13,605	6,035
Hofinac Real Estate, S.L.U.	426	-
Colonial Arturo Soria, S.L.U.	12,159	13,159
LE Offices Egeo, S.A.U.	28,182	-
Almacenes Generales Internacionales, S.A.U.	-	11,495
Peñalvento, S.L.U.	20,711	22,577
Axiare Investments, S.L.U.	25,102	-
Axiare I+D+i, S.L.U.	500	-
Venusaur, S.L.U.	13,962	-
Chameleon (Cedro), S.L.U.	25,157	-
Utopicus Innovación Cultural, S.L.	3,296	-
Total	156,016	65,752

Loans granted to Group companies earn interest at market rates.

c) Non-current equity instruments

The breakdown of "Non-current equity instruments" in the balance sheet at 31 December 2018 and 2017 was as follows:

	Thousands of euros
	31 December 31 December
	2018	2017

Fair value:
Non-current equity instruments
Axiare Patrimonio SOCIMI, S.A.	-	419,277
Advances for purchases of shares	-	4,000
Total fair value	-	423,277

Axiare Patrimonio SOCIMI, S.A. –

In 2016, the Company acquired 10,846,541 shares of Axiare Patrimonio SOCIMI, S.A., (hereinafter, "Axiare"), which represented 15.09% of its share capital.

In March 2017, the Company acquired 1,404,000 shares of Axiare representing 1.78% of the company's current share capital, for 15,801 thousand euros, including acquisition costs, obtaining an interest of 15.49% in Axiare.

At 31 December 2017, the Company held an ownership interest of 28.7%, represented by 22,762,064 Axiare shares.

In 2018, and up until the date on which the Company obtained control over Axiare, the Company recognised the changes in the fair value of the investment directly in equity.

Once the takeover bid for Axiare was completed (Note 23), and control over this company was obtained, the cost of the investment at the date of the takeover formed part of the cost of the financial interest in the subsidiary and, subsequently, the cost of the business combination in stages (Note 23). In addition, the Company reclassified to the income statement the amount recognised in equity as a result of measuring the investment at fair value up until the date of the takeover, which amounted to 15,638 thousand euros.

Advances for purchases of shares –

In 2017, the Company signed a call option for all shares of LE office Egeo, S.A.U., the option premium of which amounted to 4,000 thousand euros. On 16 January 2018, the Company exercised the call option and acquired all shares of LE Offices Egeo, S.A.U. (Note 9-a).

d) Other non-current financial assets

The breakdown of "Other non-current financial assets" in the balance sheet at 31 December 2018 and 2017 was as follows:

	Thousands of euros
	31 December 31 December
	2018	2017

Cost:
Other non-current financial assets
Account receivable held with former shareholders	-	7,751
Guarantees and deposits	18,191	8,823
Total cost	18,191	16,574

Impairment:
Account receivable held with former shareholders	-	(7,751)
Total impairment losses	-	(7,751)
Total other non-current financial assets	18,191	8,823

Account receivable held with former shareholders-

"Other non-current financial assets" included the account receivable held with companies of a former shareholder of the Company relating to the tax effect of the difference between the tax and accounting bases of the assets contributed in the capital increase dated 29 June 2006. This receivable is secured by a guarantee on first demand.

In 2015, the Company returned the guarantees corresponding to the amounts deemed unrecoverable, thus recognising on the balance sheet only those amounts considered to be recoverable, totalling 7,751 thousand euros. This amount was fully impaired at 31 December 2017.

At 31 December 2018, the companies of the former shareholders were in an advanced phase of liquidation, and it was considered that the provisions for the full amounts recognised in the balance sheet would not be recovered. The Company therefore derecognised these amounts for accounting purposes.

Non-current deposits and guarantees-

This heading includes the amount of non-current deposits and guarantees granted, primarily in relation to deposits made with official entities in connection with security deposits collected from tenants, in accordance with prevailing legislation.

10. Derivative financial instruments

The derivative financial instruments held by the Company at 31 December 2018 and 2017 are as follows:

31 December 2018

				Thousands of euros
Financial instrument	Counterparty	Interest rate	Maturity	Nominal amount	Fair value – Asset / (Liability)

Interest rate swap	ING	0.95%	2022	18,650	(824)
Interest rate swap	Deutsche Bank	0.27%	2022	18,650	(230)
Interest rate swap	Banco Santander	0.25%	2022	18,000	(204)
Total at 31 December 2018				55,300	(1,258)

31 December 2017

					Thousands of euros
Financial instrument	Counterparty	Interest rate	Maturity	Nominal amount	Fair value – Asset / (Liability)

Swap (redeemed step-up)	BBVA	4.40%	2018	4,212	(50)
Cap	ING	1.25%	2018	300,000	-
Cap	Morgan Stanley	1.25%	2018	130,000	-
Total at 31 December 2017				434,212	(50)

At 31 December 2017, the Company had arranged 2 CAPs of a total nominal amount of 430,000 thousand euros, with a hedge level of 1.25% (strike), maturing on 31 December 2018. The amount paid for the premiums was 8,580 thousand euros, which was recognised in full as a hedging expense in the 2014 income statement, valuing the CAPs at 0 thousand euros in the balance sheet.

In 2017, the CA-CIB CAP was sold for 6 thousand euros, resulting in income of that amount in the "Impairment and gains/(losses) on disposal of financial instruments – Gains/(losses) on disposals and other" in the income statement (Note 18-f).

At 31 December 2018 and 2017, the impact on the income statement of recognising derivative financial instruments amounted to 4,329 thousand euros and 2 thousand euros in finance costs, respectively (Note 18-f). This impact is recognised in "Change in fair value of financial instruments – Trading portfolio and others" in the income statement.

The fair value of the derivative financial instruments was calculated by discounting estimated future cash flows based on an interest rate curve and on assigned volatility at each calculation date.

11. Non-current assets held for sale

The changes in this heading of the balance sheet in 2018 and 2017, and the most significant information affecting this heading, were as follows:

	Thousands of euros
	Transfers (Note 7)	Total
Balance at 31 December 2016	-	-
Balance at 31 December 2017	-	-
Transfers (Note 7)	26,091	26,091
Balance at 31 December 2018	26,091	26,091

Movements in 2018 -

On 28 December 2018, the Company entered into a private agreement for the sale of the Hotel Centro Norte property and received 2,750 thousand euros as a prepayment. The transfer will take place in 2019, provided that all conditions established in this agreement has been fulfilled.

12. Current financial investments and sundry account receivables

a) Current financial investments

The detail of the balances recognised under "Current financial investments" in the balance sheet at 31 December 2018 and 2017 is as follows:

	Thousands of euros
	31 December	31 December
	2018	2017

Cost:
Current equity instruments	9	9
Loans to companies (DUE)	-	74,266
Other current financial assets	1,291	-
Total cost	1,300	74,275
Impairment:
Impairment (DUE)	-	(74,266)
Total impairment	-	(74,266)
Total current financial investments	1,300	9

Loan to Desarrollos Urbanísticos Entrenúcleos 2009, S.L.U. (DUE)–

As a result of restructuring the financial debt of the then investee DUE, the Company granted a loan for a maximum of 85,000 thousand euros, which was fully impaired at year-end 2017, the purpose of which was to finance the development of the project implemented by DUE and to cover the costs related to the work yet to be carried out on the UE-1, among other things. In this regard, the amount yet to be drawn down at 31 December 2017 totalled 10,214 thousand euros, and for such purpose, in accordance with the obligations assumed, the Company recognised the appropriate provision under "Other non-current provisions" on the balance sheet for the part not drawn (Note 14).

In accordance with the provisions of the agreement between both companies, the loan granted by the Company was convertible into a participating loan provided that the company DUE was in the process of dissolution. In this regard, on 25 June 2015, in response to the request by DUE, 72,451 thousand euros were converted into a participating loan.

In 2018 the Company sold the loan granted to Desarrollos Urbanísticos Entrenúcleos 2009, S.L.U. to a third-party for 1 euro, thus be released from all its obligations.

Other current financial assets -

These assets mainly relate to deposits made by the Company to guarantee the performance of its obligations.

b) Sundry account receivables

The detail of the balances recognised under "Sundry account receivables" in the balance sheet at 31 December 2018 and 2017 is as follows:

	Thousands of euros
	31 December	31 December
	2018	2017
Cost:
Nozar, S.A.	85,473	85,473
Lease incentives (Note 4-m)	13,616	3,471
Other	12	388
Total cost	99,101	89,332
Impairment:
Nozar, S.A.	(85,473)	(85,473)
Total impairment	(85,473) (85,473)
Total sundry account receivables	13,628 3,859

At 31 December 2018 and 2017, the amounts owed by Nozar, S.A. resulting from the termination of purchase contracts formalised in July 2007 due to breach of compliance with the conditions precedent, are recognised under "Sundry account receivables".

Nozar, S.A. is currently involved in bankruptcy proceedings; consequently, at 31 December 2018 and 2017, the balance sheet includes an impairment loss for the entire amount of this company's trade receivables.

Lease incentives –

"Lease incentives" includes the amount of the incentives in the operating lease agreements (rent-free periods, etc.) that the Company offers its customers, which are recognised in the income statement during the minimum operating lease term (Note 4-m). Of that amount, 10,474 thousand euros have a maturity of more than 1 year (2,360 thousand euros at 31 December 2017).

13. Equity

a) Share capital

At 31 December 2016, the Company's share capital was represented by 356,823,399 shares with a par value of 2.50 euros each, which had been fully subscribed and paid.

In 2017, the Company carried out two capital increases, both with a charge to monetary contributions and the disapplication of pre-emption rights for the accelerated bookbuild offering for qualified investors:

The increase was registered with the Mercantile Registry on 5 May 2017. Its purpose is to reinforce the Company's equity in order to take full advantage of investment opportunities which are currently available, carry out repositioning and improvement investments to maximise the quality, occupancy and value of the assets that already formed part of its portfolio, as well as consolidate its credit rating and possible improve it. As a result of the placement, 35,646,657 new shares were issued each with a par value of 2.50 euros, for a total amount of 253,092 thousand euros, prompting an increase in share capital and the share premium of 89,117 thousand euros and 163,975 thousand euros, respectively. The new shares were admitted to trading on 8 May 2017 on the Barcelona and Madrid Stock Exchanges.
The increase aimed at ensuring and optimising the funding for the takeover bid for the shares of Axiare Patrimonio SOCIMI, S.A. (Note 23) not owned by Colonial was registered with the Mercantile Registry on 29 November 2017. As a result of the placement, 42,847,300 new shares were issued each with a par value of 2.50 euros, for a total amount of 338,065 thousand euros, prompting an increase in share capital and the share premium of 107,118 thousand euros and 230,947 thousand euros, respectively. The new shares were admitted to trading on 4 December 2017 on the Barcelona and Madrid stock exchanges.

In 2018, the Company carried out two capital increases, both charged to monetary contributions and the disapplication of pre-emption rights for the accelerated bookbuild offering for qualified investors:

The increase aimed at ensuring and optimising the funding for the takeover bid for Axiare Patrimonio SOCIMI, S.A. shares not owned by Colonial once the takeover was executed was registered with the Mercantile Registry on 2 July 2018 (Note 23). As a result of the placement, 19,273,622 new shares were issued each with a par value of 2.50 euros, for a total amount of 157,909 thousand euros, prompting an increase in share capital and the share premium of 48,184 thousand euros and 109,725 thousand euros, respectively. The new shares were admitted to trading on 9 July 2018 on the Barcelona and Madrid Stock Exchanges.
On 16 November 2018, the issuance of 53,523,803 new shares with a par value of 2.50 euros each for 487,602 thousand euros, resulting in a capital increase of 133,810 thousand euros, plus a share premium of 353,792 thousand euros, was registered with the Mercantile Registry.

As a result, the Parent's share capital at 31 December 2018 was represented by 508,114,781 fully subscribed and paid up shares with a par value of 2.50 euros each.

Based on the pertinent notifications regarding the number of company shares to the Spanish National Securities Market Commission (CNMV), the shareholders owning significant direct or indirect interests in the Company at 31 December 2018 and 2017 are as follows:

	31 December 2018		31 December 2017
	Number of		Number of
	shares*	% ownership	shares*	% ownership

Name or corporate name of the shareholder:
Qatar Investment Authority	80,892,169	15.92%	41,610,141	9.56%
Finaccess Group	80,028,647	15.75%	79,378,647	18.23%
Aguila Ltd.	28,800,183	5.67%	28,800,183	6.62%
DIC Holding, LLC	21,782,588	4.29%	-	-
Inmo S.L.	20,011,190	3.94%	20,011,190	4.60%
BlackRock Inc	15,256,886	3.00%	10,955,962	2.52%
Deutsche Bank A.G.	8,135,390	1.60%	8,135,390	1.87%

* Does not include certain financial instruments linked to shares in the Company.

At 31 December 2018 and 2017, Blackrock Inc. and Deutsche Bank AG formally obtained financial instruments associated with the Company's shares that, in the event the instruments are exercised, could give rise to an additional interest in the share capital of Colonial.

The shareholders at the Annual General Meeting held on 24 May 2018 resolved to authorise the Board of Directors to issue, on behalf of the Company and on one or more occasions and for a maximum period of 5 years, bonds convertible into new shares of the Company or other similar securities that may give the right, directly or indirectly, to subscribe the Company's shares, with the express power to exclude the pre-emption right of the shareholders up to a maximum of 20% of the share capital, and to increase share capital by the amount necessary to meet the conversion. The total maximum amount of the issue or issues of the securities that may be performed under this authorisation may not exceed a combined amount of 500,000 thousand euros or its equivalent in another currency.

Additionally, on 24 May 2018, the shareholders at the Company's Annual General Meeting resolved to authorise the Board of Directors, in accordance with Article 297.1 b) of the Spanish Limited Liability Companies Law, to increase the share capital through monetary contributions by up to half the amount of the share capital, within a maximum period of five years, on one or more occasions and at the time and by the amount it deems appropriate.

Within the maximum amount indicated, the Board of Directors is empowered to exclude the pre-emption right up to a maximum of 20% of the share capital.

b) Share premium

In 2018, as a result of the aforementioned capital increases, the share premium increased by 463,517 thousand euros.

On 24 May 2018, dividends were distributed with a charge to the share premium for a total of 11,326 thousand euros.

In 2017, as a result of the aforementioned accelerated bookbuild offerings, the amount of the share premium increased by 394,922 thousand euros.

c) Legal

Legal reserve -

At 31 December 2016, the legal reserve amounted to 33,615 thousand euros. At 30 December 2017, taking into account the allocation to the legal reserve included in the distribution of the Company's profit for 2016 approved by the shareholders at the Annual General Meeting held on 29 June 2017, the legal reserve amounted to 39,099 thousand euros as part of the distribution of profit for 2017.

At 31 December 2018, taking into account the allocation to the legal reserve included in the distribution of Company's profit for 2017 approved by the shareholders at the Annual General Meeting held on 24 May 2018, the legal reserve amounted to 42,349 thousand euros, although it had not yet reached the stipulated level at the date of authorisation for issue of these financial statements.

Other reserves-

As a result of the capital increases described in Note 13-a), costs of 1,149 thousand euros were reported in 2018 (6,691 thousand euros in 2017), under "Reserves" in equity.

In 2018, the Company carried out transactions involving treasury shares, which gave rise to a gain of 7,332 thousand euros (10,371 thousand euros for 2017), and which were registered directly in the Company's equity. The income generated from the delivery of treasury shares to the beneficiaries of the long-term incentives plan (Note 20-c), calculated as the difference between the carrying amount of the shares delivered and the amount of the obligation assumed by the Company, which amounted to 1,514 thousand euros in 2018 (1,286 thousand euros in 2017) was also recognised in the Company's reserves.

At 31 December 2018 and the 2017, the Company had a voluntary reserves amounting to 169,439 thousand euros classified as restricted.

d) Treasury shares

At 31 December 2018 and 2017, the Company's treasury shares and their acquisition cost were as follows:

	31 December 2018		31 December 2017
		Thousands of		Thousands of
	No. of shares	euros	No. of shares	euros

Beginning balance	4,279,940	29,421	5,469,985	35,426
Buyback plan 14 November 2016	-	-	6,837,328	46,787
Buyback plan 16 October 2017	-	41	2,260,000	17,797
Delivery of incentives plan shares (Note 20-c)	(421,813)	(2,902)	(380,116)	(2,537)
Other acquisitions	133	-	-	-
Other disposals	(3,315,000) (22,812)		(9,907,257)	(68,052)
Ending balance	543,260	3,748	4,279,940	29,421

Company share buyback plans -

On 14 November 2016, the Company's Board of Directors agreed to carry out a treasury share buyback programme. The purposes of the plan are to complete the coverage of the share plan approved at the General Shareholders Meeting held on 21 January 2014 and additional initiatives that the Board of Directors may consider advisable in the Company's business interest. The maximum monetary amount assigned to the programme amounted to 68,000 thousand euros and a maximum of 10,000,000 shares may be acquired, equivalent to 2.8% of the Company's share capital as of that date. The maximum duration of the programme was six months, i.e., up to 15 May 2017. However, it would be ended early if the maximum number of shares or the maximum monetary amount was reached before said date. The buyback programme was completed in 2017.

On 16 October 2017, the Company's Board of Directors agreed to implement a programme involving the repurchase of treasury shares in accordance with the authorisation granted by the shareholders at the Annual General Meeting held on 30 June 2014. The maximum monetary amount assigned to the programme amounted to 100,000 thousand euros and the maximum number of shares to be acquired is 12,000,000 shares, equivalent to 3% of the Company's share capital as of that date. The maximum duration of the programme was six months, i.e., up to 17 April 2018. However, it would be ended early if the maximum number of shares or the maximum monetary amount is reached before said date. On 3 November 2017, the Company ended the share buyback programme early.

Deliveries of Company shares deriving from the long-term incentives plan (Note 20-c) -

Every year, the Company settles the obligations to comply with the previous year's plan through the delivery of shares to the beneficiaries of the Remuneration Plan, once it has assessed the degree of attainment of the indicators included therein.

Other disposals -

On 16 November 2018, the Company exchanged 3,000,000 shares for 400,000 shares in the subsidiary SFL (Note 9-a). In December 2018 a total of 315,000 shares of the Company were exchanged for 42,000 additional shares of subsidiary SFL.

On 29 November 2017, the Company sold 9,907,257 shares at a price equivalent to the issue price of the new shares issued in the framework of the accelerated bookbuild offering carried out on the same date, i.e. at 7.89 euros per share.

e) Liquidity contracts

The Company enters into liquidity contracts to enhance the liquidity of its transactions and the regularity of its quoted share price.

At 31 December 2018 and 2017, the Company's treasury shares included in the liquidity contracts and their acquisition cost were as follows:

		31 December 2018		31 December 2017
		Thousands of		Thousands of
	No. of shares	euros	No. of shares	euros

Beginning balance	229,500	1,841	209,603	1,329
Liquidity contract dated 22 June 2015	-	-	30,480	482
Liquidity contract dated 11 July 2017	-	17	(10,583)	30
Ending balance	229,500	1,858	229,500	1,841

Liquidity contract dated 22 June 2015 -

On 22 June 2015, the Company entered into a liquidity contract to enhance the liquidity of its transactions and the regularity of its quoted share price, as provided for under CNMV Circular 3/2007, of 19 December.

On 10 July 2017, upon the issue of CNMV Circular 1/2017, of 26 April 2017, the Company terminated the liquidity contract.

Liquidity contract dated 11 July 2017 -

On 11 July 2017, the Company entered into a new liquidity contract to enhance the liquidity of its transactions and the regularity of its quoted share price, as provided for under CNMV Circular 1/2017, of 26 April. The contract was valid for 12 months. The liquidity contract has been suspended.

f) Valuation adjustments - Available-for-sale financial assets

This balance sheet heading included the net amount of changes in the fair value of financial investments available for sale described in Note 9-c.

g) Valuation adjustments – Hedging transactions

The changes in 2018 in this heading of the balance sheet are as follows:

	Thousands of euros
	31 December	31 December
	2018	2017

Beginning balance	-	-
Changes in the fair value of hedges in the year	(2,792)	-
Transfers to the income statement	2,299	-
Ending balance	(492)	-

In 2018, as a result of the business combination described in Note 23, the Company incorporated the derivative financial instruments of Axiare Patrimonio SOCIMI, S.A. "Changes in the fair value of hedges during the year" includes the impact of changes in the value of these instruments since the takeover date.

In 2018, the Company cancelled the various derivative financial instruments arising from the absorbed company Axiare Patrimonio SOCIMI, S.A., which entailed the transfer to the income statement of 2,299 thousand euros.

14. Provisions and contingencies

a) Provisions

The breakdown of current and non-current provisions in the balance sheet at year-end 2018 and 2017, as well as the main changes in 2018, are as follows:

	Thousands of euros
	Current		Non-current
	Provisions for		Provisions for
	contingencies	Provisions for	contingencies	Total non
	and charges	personnel	and charges	current
Balance at 31 December 2017	19,914	83	10,206	10,289
Provisions (Note 18-c)	7,422	-	10	10
Disposals/amounts used (Note 18-c)	(11,025)	(12)	-	(12)
Disposals/amounts used (Note 18-f)	-	-	(10,127)	(10,127)
Balance at 31 December 2018	16,311	71	89	160

Provision for contingencies and charges - Non-current

As a result of restructuring the financial debt of Desarrollos Urbanísticos Entrenúcleos 2009, S.L.U. (hereinafter, "DUE") (Note 12), the Company granted a loan for a maximum of 85,000 thousand euros, the purpose of which, among others, is to finance the development of the project implemented by DUE and to cover the costs of the work yet to be carried out on the UE-1, up to an amount of no higher than 20,000 thousand euros. At 31 December 2017, the urban planning costs amounting to 9,786 thousand euros were paid. In 2018 the Company assigned all of the rights and obligations of Desarrollos Urbanísticos Entrenúcleos 2009, S.L.U. to a third party, and the Company derecognised the provision corresponding to the outstanding urban planning costs, which amounted to 10,127 thousand euros.

Provision for contingencies and charges - Current

Current provisions relate to an estimate of the Company's various business risks.

b) Contingent assets

In 2010, the Company filed certain lawsuits on behalf of the Company against former directors for transactions carried out between June 2006 and December 2007 regarding the following corporate actions for liability:

A corporate action for liability against certain former directors in relation to the purchase of assets by the Company for reinvestment of the proceeds by the sellers in shares of the Company, as part of the 29 June 2006 capital increase or otherwise.
A corporate action for liability against certain former directors in connection with the losses caused to the Company by the acquisition of shares of Riofisa in 2007.

Given that the aforementioned lawsuits relate to claims filed against third parties in favour of Colonial, the only contingency that may arise is the payment of legal costs in the event that both cases are lost. The Company's directors do not expect such possible rulings to have a significant impact on the financial statements, given that at 31 December 2018, the appropriate provision had been recognised to meet any possible costs.

15. Bank borrowings, debt instruments and other marketable securities

At 31 December 2018 and 2017, the breakdown by debt type and maturity is as follows:

31 December 2018

	Thousands of euros
	Current				Non-current
	Less than 1	1 to 2 years	2 to 3 years	3 to 4	4 to 5 years	More than	Total non	Total
	year			years		5 years	current

Bank
borrowings:
Syndicated loans	-	-	-	20,000	50,000	-	70,000	70,000
Mortgage loans	3,343	6,504	7,906	71,049	12,295	104,859	202,613	205,956
Other loans	-	-	-	-	-	50,000	50,000	50,000
Fees and interest	639	-	-	-	-	-	-	639
Debt arrangement	(1,536)	(1,546)	(1,539)	(1,048)	(791)	(1,484)	(6,408)	(7,944)
Total bank
borrowings	2,446	4,958	6,367	90,001	61,504	153,375	316,205	318,651
Debt instruments and other
marketable securities:
Bonds issues	-	-	-	-	500,000	2,100,000	2,600,000	2,600,000
Fees and interest	20,211	-	-	-	-	-	-	20,211
Debt arrangement	(3,095)	(3,103)	(3,095)	(3,095)	(2,822)	(4,919)	(17,034)	(20,129)
Total debt instruments and
other marketable securities	17,116	(3,103)	(3,095)	(3,095)	497,178	2,095,081	2,582,966	2,600,082
Total at 31 December 2018	19,562	1,855	3,272	86,906	558,682	2,248,456	2,899,171	2,918,733

31 December 2017

	Thousands of euros
	Current				Non-current
	Less than 1 year	1 to 2 years	2 to 3 years	3 to 4 years	4 to 5 years	More than 5 years	Total non current	Total
Bank
borrowings:
Syndicated loans	-	-	-	150,000	13,400	-	163,400	163,400
Fees and interest	372	-	-	-	-	-	-	372
Debt arrangement	(980)	(980)	(983)	(911)	(114)	-	(2,988)	(3,968)
Total bank
borrowings	(608)	(980)	(983)	149,089	13,286	-	160,412	159,804
Debt instruments and other
marketable securities:
Bonds issues	-	375,000	-	-	-	1,950,000	2,325,000	2,325,000
Fees and interest	15,006	-	-	-	-	-	-	15,006
Debt arrangement	(2,886)	(2,530)	(2,273)	(2,267)	(2,267)	(5,007)	(14,344)	(17,230)
Total debt instruments and other marketable securities	12,120	372,470	(2,273)	(2,267)	(2,267)	1,944,993	2,310,656	2,322,776
Total at 31 December 2017	11,512	371,490	(3,256)	146,822	11,019	1,944,993	2,471,068	2,482,580

a) Issues of the Company's straight bonds

The breakdown of the issues of straight bonds made by the Company at 31 December 2018 and 2017 is as follows:

					Thousands of euros
Issue	Term	Maturity	Fixed-rate coupon payable annually	Amount of the issue	31 December 2018	31 December 2017
5/06/2015 5/06/2015 28/10/2016 10/11/2016 28/11/2017 28/11/2017 17/04/2018	5 years 8 years 8 years 10 years 8 years 12 years 8 years	5 /06/2019 5/06/2023 28/10/2024 10/11/2026 28/11/2025 28/11/2029 17/04/2026	1.86% 2.73% 1.45% 1.88% 1.68% 2.50% 2.00%	750,000 500,000 600,000 50,000 500,000 300,000 650,000	- 500,000 600,000 50,000 500,000 300,000 650,000	375,000 500,000 600,000 50,000 500,000 300,000 -
Total bond issues				2,600,000	2,325,000

The bonds were admitted for trading on the Irish Stock Exchange's main securities market.

The bonds issued by the Company that are traded on a regulated market had a fair value of 2,620,211 thousand euros and 2,378,881 thousand euros (par value of 2,600,000 thousand euros and 2,325,000 thousand euros, respectively) at 31 December 2018 and 2017.

European Medium Term Note Programme -

On 5 October 2016, the Company registered a 12-month European Medium Term Note programme for 3,000,000 thousand euros, which can be extended to 5,000,000 thousand euros, on the Irish Stock Exchange. On 27 November 2018, the Spanish National Securities Market Commission (CNMV) approved the registration of the Company's Euro Medium Term Note Programme in the official registers.

Compliance with financial ratios -

These straight bonds establish the obligation, at 30 June and 31 December of each year, to meet a financial ratio whereby the value of the non-guaranteed asset in the balance sheet at each of these dates must at least be equal to the financial debt not guaranteed. This ratio had been met at 31 December 2018 and 2017.

b) Syndicated financing

The breakdown of the Company's syndicated debt at 31 December 2018 and 2017 is provided below:

			31 December 2018 31 December 2017
Thousands of euros	Maturity		Nominal		Nominal
			amount		amount
		Limit	drawn down	Limit	drawn down

Credit facility	March 2022	375,000	20,000	375,000	13,400
Credit facility	December 2023	500,000	50,000	350,000	150,000
Total syndicated financing		875,000	70,000	725,000	163,400

The variable interest rate is tied to the EURIBOR plus a spread.

Colonial refinanced its syndicated loan, taken out in November 2015 for a total of 350,000 thousand euros and maturing in November 2021, thus increasing the nominal amount to 500 million euros reducing the financing spread and extending its maturity to December 2023.

Compliance with financial ratios –

The loans are subject to compliance with the following financial ratios on a quarterly basis:

Ratios

Loan-to-value ratio ≤ 55%
Interest coverage ratio ≥ 2x
Secured mortgage debt / Value of property assets ≤ 15%
Secured non-mortgage debt / Value of non-property assets ≤ 15%
Value of the consolidated assets ≥ 4.5 billion euros

At 31 December 2018 and 2017, the Company complied with all the financial ratios.

c) Mortgage loans

The detail of the mortgage-backed loans on certain assets of the Company at 31 December 2018 and 2017 is shown in the table below:

	Thousands of euros
	31 December 2018			31 December 2017
		Market		Market
	Mortgage	value of	Mortgage	value of
	debt	collateral	debt	collateral

Investment property (Note 7)	205,955	592,235	-	-
Total mortgage loans	205,955	592,235	-	-

Compliance with financial ratios -

The mortgage-backed loans are subject to compliance with various financial ratios (LTV and debt service coverage ratio, whose thresholds vary according to the assets financed). At 31 December 2018, the Company complied with the financial ratios required in its mortgage loan agreements.

d) Other loans

At 31 December 2018, "Other loans" was comprised of a loan for 50,000 thousand euros maturing in 2024.

e) Other guarantees given

At 31 December 2018, the Company has granted guarantees to government bodies, customers and suppliers in the amount of 24,155 thousand euros (1,091,123 thousand euros at 31 December 2017). These include to guarantees for a total of 14,250 thousand euros arranged to guarantee the deferred payments deriving from investment property acquisitions.

Of the amount remaining, the main guarantee provided amounted to 4,946 thousand euros to secure the obligations acquired by Asentia. The Company and Asentia have an agreement in place whereby if any of the guarantees is enforced, Asentia must compensate the Company for any damage sustained within 15 days.

The following guarantees at 31 December 2017 had been cancelled in 2018:

In February 2018, the bank guarantee presented to the CNMV as security for the voluntary takeover bid for shares of Axiare Patrimonio SOCIMI, S.A., issued by Caixabank for an amount of 1,033,676 thousand euros, and guaranteed with a cash deposit, was cancelled.
In May 2018, the bank guarantee deposited as security for the deferred payment on the acquisition of 100% of the shares in the subsidiary Moorage, amounting to 15,680 thousand euros, was cancelled.
Lastly, in December 2018 the bank guarantees provided to purchase Agisa, Soller and Peñalvento (Note 9), for the sum of 41,767 thousand euros, were cancelled. The amount of the accounts payable was recognised in "Payable to suppliers" in the balance sheet.

f) Fees and interest

The interest rate on the Company's borrowings, its average credit spread, with and without accrual of the financing fees for 2018 and 2017, is shown in the table below:

	Thousands of euros
		2018	2017
Issue	Without accrual of fees	With accrual of fees	Without accrual of fees	With accrual of fees
Average interest rate Average credit spread	2.23% 1.47%	2.35% 1.73%	2.55% 1.61%	2.69% 1.94%

The interest rate on the outstanding debt at 31 December 2018 is 1.98% (1.99% at 31 December 2017).

The accrued interest outstanding recognised in the balance sheet at 31 December 2018 and 2017 amounts to:

	Thousands of euros
	31 31
	December	December
Issue	2018 2017

Bonds	20,211	15,006
Bank borrowings	639	372
Total	20,850	15,378

g) Loan arrangement expenses

At 31 December 2018 and 2017, the debt arrangement expenses assumed by the Company and not yet accrued amounted to 28,071 thousand euros and 21,198 thousand euros, respectively. These expenses are taken to the income statement during the term of the debt generating them on a time proportion basis. In this regard, in 2018 and 2017, the Company recognised 3,727 thousand euros and 2,045 thousand euros, respectively, in the income statement, corresponding to the costs repaid during the year (Note 18-f).

h) Cash and cash equivalents.

At 31 December 2018 and 2017, amounts of 33,233 thousand euros and 1,069,355 thousand euros, respectively, were recognised under "Cash and cash equivalents", of which 1,777 thousand euros and 11,992 thousand euros, respectively, were either restricted or pledged. The balance for 2017 included 1,033,676 thousand euros with the necessary cash to be able to carry out the voluntary takeover bid for the acquisition of shares of Axiare Patrimonio, SOCIMI, S.A. (Note 23), the amount of which was secured by a bank guarantee. This guarantee was cancelled after the takeover bid was executed.

16. Other non-current financial liabilities

At 31 December 2018, this heading included 20,349 thousand euros relating to the guarantee is received from lessees and other deposits receipt and to the contingent consideration on the deferred payment for the purchase of the shares in Utopicus (54 thousand euros).

In 2018, a total of 4,600 thousand euros were paid in relation to the contingent consideration for the purchase of shares in the subsidiary Moorage.

At 31 December 2017, this heading amounted to 17,298 thousand euros relating to the guarantees received from lessees and other deposits received, the contingent consideration on the acquisition of the shares in Moorage (4,600 thousand euros) and the deferred payment for the acquisition of Utopicus shares (72 thousand euros).

17. Tax matters

Up until 31 December 2016, Inmobiliaria Colonial, S.A. was the parent of a group of companies filing consolidated tax returns, since 1 January 2008. This consolidated tax group included only subsidiaries incorporated in Spain in which the Company owned at least 75%, either directly or indirectly (this threshold falls to 70% in the case of listed subsidiaries), and in which it held the majority of voting rights.

On 30 June 2017, the Company chose to operate within the REIT Tax Regime (Note 1). Adherence to this tax regime entailed the dissolution of the Group's tax group at 31 December 2016, effective as of 1 January 2017.

The detail of balances with the tax authorities at 31 December 2018 and 2017 is as follows:

	Thousands of euros
		Tax receivables	Tax payables
	31 December	31 December	31	31
	2018	2017	December	December
			2018	2017

Tax receivables and payables	-	-	1,196	1,079
Value added tax receivable and payable	9,471	64	-	1,008
Current tax refundable and payable	696	12,788	-	-
Other deferred taxes	-	-	187	187
Social Security payable	-	-	115	92
Total current balances	10,167	12,852	1,498	2,366

Deferred tax due to the merger (Note 1)	-	-	33,192	33,731
Other deferred taxes	-	-	5,444	5,632
Total non-current balances	-	-	38,636	39,363

Current tax refundable –

At 31 December 2018, the Company had a balance in its favour of 676 thousand euros deriving from income tax for 2017. In January 2019, the tax authorities refunded this amount.

The reconciliation of the accounting profit/(loss) to the taxable profit/(tax loss) at 31 December 2018 and 2017 is as follows:

31 December 2018

	Thousands of euros
	General regime	REIT regime	Total

Accounting profit/(loss) for the period (before tax)	49,852	(14,271)	35,581
Permanent differences:
Dividends SFL (Note 19)	-	(62,664)	(62,664)
Other dividends - subsidiaries (Note 19)	-	(4,395)	(4,395)
Plan contribution (Note 20)	-	242	242
Capital increase costs (Note 13)	-	(1,149)	(1,149)
Other	(321)	7,905	7,584
Temporary differences:
Arising in prior years
Deferral for reinvestment	750	-	750
Non-deductible provisions	(90,996)	3,001	(87,995)
Non-deductible amortisation and depreciation	(1,339)	-	(1,339)
Arising in the year
Impairment of the portfolio (Note 9)	-	6,409	6,409
Amortisation of SFL financial goodwill	-	(282)	(282)
Amortisation of Axiare goodwill (Nota 23)	-	16,182	16,182
Non-deductible provisions	-	5,661	5,661
Retirements from deferred tax on asset gains	9,338	75,351	84,689
Non-deductible finance costs	(1,533)	40,343	38,810
Taxable profit (tax loss)	(34,249)	72,333	38,084

A distinction has been made between the portion of accounting profit for 2018 that will be taxed under the general income tax regime and the portion that falls under the REIT Regime. The following table shows the main differences between accounting profit/(loss) and taxable profit/(tax loss) for 2018:

General regime -

Pursuant to Law 16/2012, of 27 December, the depreciation of property, plant and equipment, intangible assets and investment property for the tax periods initiated within 2013 and 2014 would be deductible from taxable profit up to 70 per cent of that which would be tax deductible. In this regard, the Company carried out the corresponding adjustments to its taxable profit. In 2018, and according to the provisions of the Law, the Company has recovered a tenth part of the allocations made to depreciation in 2013 and 2014, which were considered non-deductible.
Other provisions which were not tax deductible in prior years.
Inclusion in taxable profit of differences between the carrying amounts and the tax bases arising from corporate transactions recognised in prior years (Note 1).

REIT Regime -

Exemption for dividends from subsidiaries.
Impairment of properties that are not tax deductible.
Impairment losses on financial interests considered not tax deductible.
In accordance with the resolution in Royal Decree Law 12/2012, of 30 March, amending Article 20 of the Corporate Income Tax Law, the Company has temporarily adjusted the finance cost that exceeds 30% of the yearly profit.
Inclusion in taxable profit of differences between the carrying amounts and the tax bases arising from corporate transactions recognised in prior years (Note 1).
Non-deductible provisions (Notes 9 and 14).

31 December 2017

		Thousands of euros
	General regime	REIT regime	Total
Accounting profit/(loss) for the period (before tax)	32,120	3,076	35,196
Permanent differences:
Dividends SFL (Note 19)	-	(28,603)	(28,603)
Dividends Torre Marenostrum, S.L. (Note 19)	-	(514)	(514)
Plan contribution (Note 20)	-	239	239
Recovery of the tax impairment	-	4,289	4,289
Non-deductible provision	(1,168)	1,251	83
Capital increase costs (Note 13)	-	(6,691)	(6,691)
Other	(10)	57	47
Temporary differences:
Arising in prior years
Deferral for reinvestment	750	-	750
Non-deductible provisions	(3,150)	-	(3,150)
Impairment of the portfolio (Note 9)	(8,171)	-	(8,171)
Non-deductible amortisation and depreciation	(1,339)	-	(1,339)
Arising in the year
Impairment of the portfolio (Note 9)	-	2,941	2,941
Amortisation of SFL financial goodwill	-	(283)	(283)
Non-deductible provisions	-	11,169	11,169
Retirements from deferred tax on asset gains	(20,229)	-	(20,229)
Non-deductible finance costs	(835)	22,671	21,836
Other	(273)	1	(272)
Taxable profit (tax loss)	(2,305)	9,603	7,298

A distinction has been made between the portion of accounting profit that will be taxed under the general regime and the portion that falls under the REIT Regime. The following table shows the main differences between accounting profit/(loss) and taxable profit/(tax loss) for 2017:

General regime

Recovery of impairment of equity interests with Group companies, considered not tax deductible in prior years.
Pursuant to Law 16/2012, of 27 December, the depreciation of property, plant and equipment, intangible assets and investment property for the tax periods initiated within 2013 and 2014 would be deductible from taxable profit up to 70 per cent of that which would be tax deductible. In this regard, the Company carried out the corresponding adjustments to its taxable profit. In 2017, and according to the provisions of the Law, the Company has recovered a tenth part of the allocations made to depreciation in 2013 and 2014, which were considered non-deductible.
Recovery of impairment of properties which were not deductible.
Other provisions which were not tax deductible in prior years.
REIT Regime
Dividends from the subsidiaries SFL and Torre Marenostrum, S.L. in application of the exemption as provided for under Article 21 of the Corporate Income Tax Law.
Impairment of equity interests allocated in 2017 with Group companies, considered not tax deductible.
In accordance with the resolution in Royal Decree Law 12/2012, of 30 March, amending Article 20 of the Corporate Income Tax Law, the Company has temporarily adjusted the finance cost that exceeds 30% of the yearly profit.
Non-deductible provisions (Notes 9 and 14).

The reconciliation between the accounting profit/(loss) and the income tax expense recognised in the income statement for 2018 and 2017 is as follows:

	Thousands of euros
	2018 (*)	2017 (*)

Accounting profit before tax	35,581	35,196
Permanent differences (**)	(60,382)	(31,150)
Adjusted accounting profit/(loss)	(24,801)	4,046
- REIT Regime	(74,332)	(26,896)
- General regime	49,531	30,942
Accounting profit adjusted to the General Regime	49,531	30,942
- Unregistered deferred tax assets offset in the year	(93,868)	(13,768)
Taxable profit/(loss) with the General Regime	(44,337)	17,174
Corporate income tax expense at 25%	-	4,294
Activation shield	305	(689)
Other adjustments	(1,032)	(906)
Total tax expense recognised in	(727)	2,699
the income statement
- Current tax	-	3,605
- Deferred tax	(727)	(906)

(*) Income tax expense is calculated for the accounting profit which is taxed under the General Regime. The rest of the accounting

profit, which is taxed under the special REIT regime, will be taxed at a rate of 0% and does not generate tax expense.

(**) The 1,149 thousand euros and 6,691 thousand euros of capital increase expenses recognised directly in the Company's equity in 2018 and 2017 are not included.

Deferred tax assets –

The breakdown of deferred tax assets at 31 December 2018 and 2017 by item is as follows:

31 December 2018

	Thousands of euros
Deferred tax assets (Tax base)	General Regime base	REIT base
Tax loss carryforwards	5,413,609	-
Non-deductible impairment	-	5,661
Non-deductible impairment on the portfolio	8	9,350
Non-deductible finance costs	396,246	63,015
Non-deductible amortisation	8,036	-
Non-deductible provisions	66,716	14,170
Other	100	10
Total tax credits and deferred tax assets	5,884,715	92,046
Balance recognised for accounting purposes (*)	-	-

(*) In accordance with the above, when determining the deferred tax liability at 31 December 2018, the Company has considered the application of tax credits totalling 10,939 thousand euros, with these being calculated at the effective settlement rate, estimated at 18.75% (Note 4-m).

31 December 2017

	Thousands of euros
Deferred tax assets (Tax base)	General Regime base	REIT base

Tax loss carryforwards	5,379,360	-
Non-deductible impairment	-	287
Non-deductible impairment on the portfolio	8	2,941
Non-deductible finance costs	397,779	22,671
Non-deductible amortisation	9,377	-
Non-deductible provisions	157,712	11,169
Other	100	-
Total tax credits and deferred tax assets	5,994,336	37,068
By transactions in tax group	3	-
Total transactions with tax group companies	3	-
Total deferred tax assets	5,994,339	37,068
Balance recognised for accounting purposes (*)	-	-

(*) In accordance with the above, when determining the deferred tax liability at 31 December 2017, the Company has considered the application of tax credits totalling 11,000 thousand euros, with these being calculated at the effective settlement rate, estimated at 18.75% (Note 4-m).

Deferred tax assets relating to prior year tax loss carryforwards –

The Corporate Income Tax Law in force as of 1 January 2015 stipulates that prior years' tax loss carryforwards may be offset in future years without any time limit.

	Thousands of euros
Year incurred	Taxable profit under
	the general regime

2000	12,979
2001	5,468
2003	140
2004	38,516
2005	36
2006	25,053
2007	321,571
2008	1,200,383
2009	865,940
2010	530,183
2011	117,893
2012	85,756
2013	83,618
2014	15,028
2015	2,074,346
2016	145
2017	2,305
2018	34,249
Total	5,413,609

The following table details the tax loss carryforwards generated by the Company as at 31 December 2018:

Deferred tax liabilities -

The breakdown of deferred tax liabilities at 31 December 2018 and 2017 by item is as follows:

31 December 2018

	Thousands of
	euros
Deferred tax liabilities	Tax base

Deferral for reinvestment outstanding	18,906
Deferred liability for financial goodwill	2,470
Deferred liability from gains allocated to investment
property and financial assets	261,004
Capitalised tax credits	(128,238)
Total	154,142
Deferred tax liabilities (*)	38,823

(*) Of the deferred tax liabilities, 38,636 are recognised under "Non-current deferred tax liabilities" and 186 thousand euros are recognised in current liabilities under "Other payables to public authorities".

31 December 2017

	Thousands of
	euros
Deferred tax liabilities	Tax base

Deferral for reinvestment outstanding	19,656
Deferred liability for financial goodwill	2,180
Deferred liability from gains allocated to investment
property and financial assets	264,382
Capitalised tax credits	(129,457)
Total	156,761
Deferred tax liabilities (*)	39,550

Tax credit for reinvestment –

As set forth in prevailing legislation, for the tax credit for reinvestment of extraordinary gains to be applicable, the assets acquired with the proceeds must be held for a five-year period (three years, in the case of financial investments), unless the assets failing to comply with the deadline are reinvested within the prevailing timeframe under applicable laws. The terms for holding the amounts reinvested by the Company are as follows:

Thousands of euros	2019
Reinvested by the Company	18,701
Associated profit	188

The Company's directors consider that the Company will comply with the stipulated timeframes.

Deferred liability for gains allocated to investment property and financial assets –

The deferred tax attributable to the capital gains assigned to the merger of Grupo Inmocaral, S.A. and Inmobiliaria Colonial, SOCIMI, S.A. (Note 1) was calculated based on a 25% tax rate on 41,077% of the total capital gains attributable to those assets, as determined in 2015 by an independent third party (Loan Agency Services).

"Deferred liability for gains allocated to investment property and financial assets", as detailed in Note 4-m, includes the amount of deferred taxes associated with the Company's investment property that would accrue if these assets were transferred using the effective rate that would be applicable, taking into account applicable legislation and any unrecognised tax credits. Accordingly, the deferred taxes associated with the Company's investment property were recognised at an effective rate of 18.75% (tax rate of 25% with a limit on tax loss carryforwards of 25%).

Unused tax credits –

The breakdown of unused tax credits due to insufficient taxable profit at 31 December 2018 and 2017 by item is as follows:

	Thousands of euros 2018 2017

Unused tax credits for dividends receivable	7,685	7,685
Unused tax credits for deductions for donations	55	55
Unused tax credits for training	3	3
Unused tax credits for reinvestment	15,683	16,141
Total unused tax credits	23,426	23,884
Balance recognised for accounting purposes	-	-

The nature and amount of the unused tax credits at 31 December 2018 due to insufficient taxable profit in prior years and the corresponding last year for use are as follows:

		Thousands of euros
		Unrecognised
Type	Year	for accounting	Last year
	incurred	purposes	for use

Double taxation tax credit	2008	6,553	n.a.
	2009	238	n.a.
	2010	227	n.a.
	2011	295	n.a.
	2012	168	n.a.
	2013	69	n.a.
	2014	135	n.a.

Tax credit for donations	2010	4	2020
	2011	4	2021
	2012	4	2022
	2013	6	2023
	2014	6	2024
	2015	9	2025
	2016	22	2026

Tax credit for training	2008	1	2023
	2009	1	2024
	2010	1	2025
		7,743

	Thousands of euros
Year incurred		Last year for
	Amount	use

2003	3,316	2018
2004	1,056	2019
2005	92	2020
2006	1,314	2021
2007	7,275	2022
2008	1,185	2023
2009	434	2024
2010	713	2025
2011	39	2026
2012	123	2027
2013	112	2028
2014	24	2029
Total	15,683

At 31 December 2018, the unused tax credits for reinvestment due to insufficient taxable profit and the corresponding last year for use are as follows:

Years open for review and tax audits -

The Company has the last four years open for review by the tax inspection authorities for all applicable taxes. In 2015, the Company filed supplementary income tax returns for 2011 to 2014, breaking the statute of limitations for these years.

No additional material liability for the Company is expected to arise in the event of a tax audit.

Adherence to the Code of Best Tax Practices –

On 10 December 2015, the Company's Board of Directors agreed to adhere to the Code of Best Tax Practices. This resolution was reported to the tax authorities on 8 January 2016.

Disclosure requirements arising from REIT status, Law 11/2009 -

a) Reserves arising from years prior to the application of the tax regime established in this Law.

	Thousands of
	euros
Share premium	1,126,248
Legal and bylaw reserves	39,099
Other reserves:
Restricted reserve	169,439
Other reserves	36,580
Total reserves at 31 December 2018	1,371,366

b) Reserves arising from years in which the tax regime established under this Law was applied, differentiating the part arising from income subject to the tax rate of 0%, or of 19%, with respect to those which, where appropriate, were taxed at the standard tax rate.

	Thousands of euros
	General regime	REIT regime	Total
Reserves from 2017: Appropriation to the legal reserve (Note 13-c) Gains on treasury shares and Capital increase costs	- -	3,250 4,668	3,250 4,668
Total	-	7,918	7,918

In addition, in 2018 the share premium increased by 452,191 thousand euros as a result of the capital increases carried out during the year.

c) Dividends distributed with a charge to profit for each year in which the tax regime established under this Law was applicable, differentiating the part arising from income subject to the tax rate of 0%, or of 19%, with respect to those which, where appropriate, were taxed at the standard tax rate.

	Thousands of euros
	General REIT regime Total regime

2017 dividend	-	29,247	29,247
Total	-	29,247	29,247

d) In the event of the distribution of dividends with a charge to reserves, designation of the year in which the reserve used was set up, and whether such reserves were subject to the tax rate of 0%.19% or a standard tax rate.

	Thousands of euros
	General REIT regime Total regime

2017 dividend	48,371	-	48,371
Total	48,371	-	48,371

The dividend corresponding to 2017 and paid in 2018 included the distribution of 11,326 thousand euros as a share premium and 37,045 thousand euros to reserves from profit generated in the years prior to adhering to the REIT regime.

e) Date on which it was resolved to distribute the dividends referred to in letters c) and d) above.

The resolution for the distribution of dividends for 2017 was approved by the shareholders at Annual General Meeting of 24 May 2018.

f) Acquisition date of the properties earmarked for lease and of the equity interests in companies referred to in Article 2.1 of this Law.

Property	Location	Date of acquisition	Maintenance start date

Pedralbes Centre	Barcelona	19 Dec 92	1 Jan 17
Avda. Diagonal, 530	Barcelona	19 Dec 92	1 Jan 17
Sant Antoni Mª Claret, 436	Barcelona	19 Dec 92	1 Jan 17
Amigó, 11-17	Barcelona	28 Dec 94	1 Jan 17
Berlín-Numancia	Barcelona	15 Apr 97	1 Jan 17
Avda. Diagonal, 682	Barcelona	30 Dec 97	1 Jan 17
Pº de la Castellana, 52	Madrid	28 Jul 98	1 Jan 17

			Maintenance start
Property	Location	Date of acquisition	date
Vía Augusta, 21-23	Barcelona	26 Oct 98	1 Jan 17
Francisco Silvela, 42	Madrid	25 Oct 04	1 Jan 17
Alfonso XII	Madrid	28 Mar 00	1 Jan 17
Ramírez de Arellano, 37	Madrid	30 Nov 99	1 Jan 17
Sant Cugat - Sant Joan	Sant Cugat del Vallès	24 Dec 99	1 Jan 17
Les Glòries - Diagonal	Barcelona	9 Jun 00	1 Jan 17
Jose Ortega y Gasset, 100	Madrid	5 Jul 00	1 Jan 17
Pg. dels Til·lers, 2-6	Barcelona	15 Sep 00	1 Jan 17
Poeta Joan Maragall	Madrid	18 Apr 01	1 Jan 17
Avda. Diagonal, 409	Barcelona	9 Oct 01	1 Jan 17
Parc Central 22@ A.1.6 - A.1.7	Barcelona	17 Feb 05	1 Jan 17
Recoletos, 37-41	Madrid	21 Oct 05	1 Jan 17
Pº de la Castellana, 43	Madrid	21 Oct 05	1 Jan 17
Miguel Ángel, 11	Madrid	21 Oct 05	1 Jan 17
José Abascal, 56	Madrid	21 Oct 05	1 Jan 17
López Hoyos, 35	Madrid	21 Oct 05	1 Jan 17
Martinez Villergas, 49	Madrid	24 Mar 06	1 Jan 17
Orense, 46-48	Madrid	27 Jun 05	1 Jan 17
Pérez Rozas, 25	Santa Cruz de Tenerife	17 Jun 02	1 Jan 17
Botánico, 8	Puerto de La Cruz	17 Jun 02	1 Jan 17
Hotel Mojacar	Mojacar	3 Jul 06	1 Jan 17
Párraco Ramón Glez Guedes, 15	Las Palmas de Gran Canaria	17 Jun 02	1 Jan 17
Plaza Europa, 42-44	L'Hospitalet Llobregat	30 Dec 14	1 Jan 17
Príncipe de Vergara, 112-114	Madrid	14 Jul 15	1 Jan 17
Génova, 17	Madrid	28 Jul 15	1 Jan 17
Santa Engracia	Madrid	17 Dec 15	1 Jan 17

José Abascal, 45	Madrid	21 Jun 16	1 Jan 17
Travessera de Gràcia, 47-49	Barcelona	28 Dec 16	1 Jan 17
Avda. Diagonal, 609	Barcelona	19 Dec 92	1 Jan 17
Torre Bcn	Barcelona	31 Oct 01	1 Jan 17
Travessera de Gràcia, 11	Barcelona	28 Dec 94	1 Jan 17
Hotel Centro Norte	Madrid	16 Oct 02	1 Jan 17
Illacuna	Barcelona	6 May 14	1 Jan 17
Ricard Roca, 1	Palma de Mallorca	19 Dec 92	1 Jan 17
Diagonal, 197	Barcelona	4 Dec 14	4 Dec 14
Park Cugat	Sant Cugat	16 Mar 17	16 Mar 17
Virto	Alcobendas	28 Jul 14	28 Jul 14
Cabanillas I	Cabanillas del Campo	29 Jul 14	29 Jul 14
Azuqueca I	Azuqueca de Henares	30 Jul 14	30 Jul 14
Rivas	Rivas-Vaciamadrid	24 Sep 14	24 Sep 14
Guadalix	San Agustín de Guadalix	9 Oct 14	9 Oct 14
Camarma I	Camarma de Esteruelas	9 Oct 14	9 Oct 14
Manuel de Falla, 7	Madrid	24 May 16	24 May 16
Ribera de Loira, 28	Madrid	4 Dec 14	4 Dec 14
Tucumán	Madrid	30 Mar 15	30 Mar 15
Velázquez, 80 bis	Madrid	22 May 15	22 May 15
Ramírez de Arellano, 15	Madrid	21 Jul 15	21 Jul 15
Avda. Bruselas, 38	Alcobendas	23 Sep 15	23 Sep 15
Alcalá, 506	Madrid	23 Sep 15	23 Sep 15
Las Mercedes Open Park	Madrid	23 Sep 15	23 Sep 15
Don Ramón de la Cruz, 82	Madrid	8 Oct 15	1 May 16
Josefa Valcárcel, 24	Madrid	26 Jan 16	26 Jan 16
San Fernando Logistics Park I	San Fernando de Henares	24 Oct 18	24 Oct 18
Sagasta, 31-33	Madrid	17 Nov 16	17 Nov 16
Alcalá de Henares I	Alcalá de Henares	25 Nov 16	25 Nov 16
Azuqueca II	Azuqueca de Henares	25 Nov 16	25 Nov 16
J.I. Luca de Tena, 7	Madrid	23 Dec 16	23 Dec 16
Miguel Ángel, 23	Madrid	16 Jan 17	16 Jan 17

			Maintenance start
Property	Location	Date of acquisition	date
Puerto de Somport, 8	Madrid	20 Jan 17	2 Jan 16
Sagasta, 27	Madrid	4 Apr 17	4 Apr 17
Josefa Valcárcel, 40 bis	Madrid	16 Nov 17	30 Sep 18
Dos Hermanas	Dos Hermanas	30 Jul 14	30 Jul 14
Valls Logístics	Valls	9 Oct 14	9 Oct 14
Les Gavarres	Tarragona	4 Dec 14	4 Dec 14
Constantí	Constantí (Tarragona)	30 Jul 15	30 Jul 15
Viapark	Vicar (Almería)	14 Apr 16	14 Apr 16

Financial investment	Date of acquisition	Maintenance start date

Société Foncière Lyonnaise, S.A.	9 Jun 04	1 Jan 17
Danieltown, S.L.U.	28 May 15	1 Jan 17
Moorage Inversiones 2014, S.L.U.	25 May 16	1 Jan 17
Hofinac Real State, S.L.U.	30 Jun 16	1 Jan 17
Fincas y Representaciones, S.A.U.	29 Dec 16	1 Jan 17
Colonial Arturo Soria, S.L.	27 Sep 17	27 Sep 17
L.E. Offices Egeo, S.L.U.	16 Jan 18	16 Jan 18
Almacenes Generales Internacionales, S.A.U. (AGISA)	20 Dec 17	1 Jan 18
Soller, S.A.U.	20 Dec 17	1 Jan 18
Peñalvento, S.L.U.	31 May 18	31 May 18
Axiare Investments, S.L.U.	6 Jul 18	1 Jan 18
Venusaur, S.L.U.	2 Dec 16	1 Jan 18
Chameleon (Cedro), S.L.U.	31 Jan 17	31 Jan 17

g) Identification of the asset included in the 80% referred to in Article 3.1 of this Law.

All the properties in the above list are included within the 80%.

The consolidated balance sheet of the Colonial Group company meets the minimum 80% investment requirement.

h) Reserves from years in which the special tax regime established under this Law was applied, used in the tax period, which are not intended for distribution or to offset losses, identifying the year in which such reserves originated.

Not applicable.

18. Revenue and expenses

a) Revenue -

The Company's revenue relates to sales in Barcelona, Madrid and Paris. The detail by type of business activity is as follows:

	Thousands of euros
Activity	2018	2017

Building leases (Note 4-c)	123,976	70,725
Services rendered	1,587	703
Income from holdings in Group companies (Note 4-n)	72,859	29,117
Total	198,422	100,545

Geographical	Thousands of euros
markets	2018	2017

Barcelona	39,475	29,644
Madrid	81,733	40,714
Paris (*)	62,664	28,603
Other (**)	14,550	1,584
Total	198,422	100,545

(*) The total amount corresponds to finance income from dividends of SFL (Note 19).

(**) Includes 10,195 thousand euros and 514 thousand euros in 2018 and 2017, respectively, relating to dividends from the shareholding in various Spanish subsidiaries (Note 19).

Income from 2018 and 2017 includes the effect of incentives to leasing throughout the minimum term of the contract (Note 4-n), which has led to an increase in revenue of 2,653 thousand euros and 1,742 thousand euros, respectively.

b) Staff costs -

The detail of "Staff costs" in the income statement is as follows:

	Thousands of euros
	2018	2017

Wages and salaries	12,645	11,219
Social security costs	1,154	883
Other employee benefit costs	1,741	1,612
Contributions to defined benefit pension plans	347	239
Internal reallocation	(740)	(685)
Total	15,147	13,268

At 31 December 2018 and 2017, "Other employee benefit costs" included 1,454 thousand euros and 1,334 thousand euros, respectively, relating to the amount accrued in the year from the long-term remuneration plan described in Note 20-d.

c) Losses on, impairment of and changes in allowances for trade receivables -

The breakdown of "Losses on, impairment of and changes in allowances for trade receivables" in the income statement is as follows:

	Thousands of euros
	2018	2017
Period provision for doubtful debts (Note 4-g)	8	85
Reversal of period provision for doubtful debts (Note 4-g)	(191)	(18)
Period provision for contingencies and charges (Note 14)	7,422	7,988
Reversal of period provision for contingencies and charges (Note 14)	(11,025)	-
Period provision for other trade balances	10	18
Total impairment/charges	(3,776)	8,073

d) Impairment of property assets

The changes in the impairment of property assets in the various balance sheet headings at 31 December 2018 and 2017 are presented below:

		Thousands of euros
	Property, plant and equipment (Note 6)	Investment property (Note 7)	Total
Balance at 31 December 2016	(4,641)	(118,589)	(123,230)
Provision	(287)	(694)	(981)
Reversal	-	33,266	33,266
Disposals	-	6,381	6,381
Balance at 31 December 2017	(4,928)	(79,636)	(84,564)
Provision	-	(20,587)	(20,587)
Reversal	1,630	23,010	24,640
Disposals	-	2,165	2,165
Transfers	-	6,601	6,601
Balance at 31 December 2018	(3,298)	(68,447)	(71,745)

The reconciliation with the income statement is as follows:

	Thousands of euros
	2018	2017
Provisions for non-current assets Use of provisions for non-current assets	(20,587) 24,640	(981) 33,266
Total impairment/charges	4,053	32,285

e) Gains/(losses) on disposals and other

The detail of "Impairment and gains/(losses) on disposal of non-current assets - Gains/(losses) on disposals and other" in the income statement is as follows:

	Thousands of euros
	2018	2017
Gains/(losses) on disposals:
Property, plant and equipment	-	12
Investment property	20,705	298
Total gains/(losses) on disposal of assets	20,705	310

Other (derecognition due to replacement):
Intangible assets (Note 5)	(1,260)	-
Property, plant and equipment (Note 6)	(520)	(96)
Investment property (Note 7)	(5,102)	(8)
Total other (derecognition due to replacement)	(6,882)	(96)
Total	13,823	214

		Thousands of euros
	2018	2017

Sale price	388,930	5,612
Net asset value (Note 7)	(358,003)	(4,642)
Indirect costs and other	(10,222)	(660)
Net gains/(losses) on sales of assets	20,705	310

The gains/(losses) from disposals of the Company's assets in 2018 and 2017 were as follows:

f) Finance income and costs

The breakdown of finance income and costs in 2018 and 2017 is as follows:

	Thousands of euros
	2018	2017

Finance income and other	127	89
Income from investments in equity instruments	-	3,681
Capitalised borrowing costs (Note 7)	755	857
Finance income from Group companies and associates (Note 19)	1,744	268
Total finance income	2,626	4,895

Interest on borrowings and bonds	(64,913)	(37,563)
Debt arrangement expenses accrued (Note 15-g)	(3,727)	(2,045)
Interest from derivatives	(1,667)	-
Costs associated with the repurchase of bonds	(7,303)	-
Costs associated with loan repayment	(6,223)	(2,242)
Other finance costs	(140)	(108)
Finance costs - Group companies and associates (Note 19)	(422)	(193)
Total finance costs	(84,395)	(42,151)

Change in available-for-sale financial assets (Note 9-c)	15,638	-
Change in derivative instruments (Note 10)	(4,329)	(2)
Change in fair value of financial instruments	11,309	(2)

Impairment of the financial interest in Hofinac Real Estate, S.L.U.	-	803
Impairment of the financial interest in Fincas y Representaciones, S.A.U.	-	2,359
Impairment of the financial interest in Moorage Inversiones 2014, S.L.U.	-	5,010
Impairment of the financial interest in Utopicus Innovación Cultural, S.L.
(Note 9)	(3,057)	(2,937)
Impairment of the financial interest in Colonial Tramit, S.L.U. (Note 9)	(2)	(3)
Impairment of the financial interest in Colonial Invest, S.L.U. (Note 9)	(2)	(2)
Impairment of the financial interest in Axiare Investments, S.L. (Note 9)	(3,197)	-
Impairment of the financial interest in Axiare Properties, S.L. (Note 9)	(2)	-
Impairment of the financial interest in Axiare I+D+I, S.L.U. (Note 9)	(149)	-
Application of provision for contingencies and charges (Note 14)	10,127	368
Impairment of credit facilities with DUE (Note 10)	(10,270)	(368)
Impairment and gains/(losses) on disposal of financial instruments	(6,552)	5,230

Sale of derivatives (Note 9)	-	6
Gains/(losses) on disposals and other	-	6
Total financial profit (loss)	(77,012)	(32,022)

19. Related party transactions and balances

a) Related party transactions

Details of transactions with related parties in 2018 and 2017 are as follows:

2018

	Thousands of euros
	Financial
	Services	Dividends	interest	Financial
	rendered	received	income	interest costs

Torre Marenostrum, S.L.	181	756	-	-
Colonial Tramit, S.L.U.	2	-	-	-
Colonial Invest, S.L.U.	2	-	-	-
Danieltown Spain, S.L.U.	72	-	367	-
Moorage Inversiones 2014, S.L.U.	62	9	319	-
Hofinac Real Estate, S.L.U.	151	4,406	-	(422)
Fincas y Representaciones, S.A.U.	101	919	-	-
Inmocol Torre Europa, S.A.	219	-	-	-
Colonial Arturo Soria, S.L.U.	67	425	-	-
LE Offices EGEO, S.A.U.	213	41	-	-
Almacenes Generales Internacionales, S.A.U.	61	-	-	-
Soller, S.A.U.	61	428	-	-
Peñalvento, S.L.U.	62	3,211	602	-
Axiare Investments, S.L.U.	30	-	-	-
Venusaur, S.L.U.	37	-	313	-
Chameleon (Cedro), S.L.U.	30	-	143	-
Utopicus Innovación Cultural, S.L.	63	-	-	-
Société Foncière Lyonnaise, S.A.	-	62,664	-	-
Total 2018	1,414	72,859	1,744	(422)

2017

		Thousands of euros
	Services	Services	Services	Services
	rendered	rendered	rendered	rendered

Torre Marenostrum, S.L.	162	514	-	-
Société Foncière Lyonnaise, S.A.	-	28,603	-	-
Danieltown Spain, S.L.U.	60	-	183	-
Moorage Inversiones 2014, S.L.U.	60	-	85	-
Hofinac Real Estate, S.L.U.	122	-	-	(193)
Fincas y Representaciones, S.A.U.	84	-	-	-
Inmocol Torre Europa, S.A.	137	-	-	-
Colonial Arturo Soria, S.L.U.	15	-	-	-
Total 2017	640	29,117	268	(193)

In addition to the transactions listed in the preceding table, in 2017 the Company received an extraordinary dividend with a charge to reserves from Torre Marenostrum for 1,411 thousand euros, which was recognised as a reduction in the cost of the financial interest (Note 9).

b) Related party balances -

At 31 December 2018 and 2017, the Company recognised the following balances with related parties in the balance sheet:

2018

	Thousands of euros
	Current accounts receivable	Non-current loans granted	Current loans granted	Non-current payables to Group companies	Current payables to Group companies

Torre Marenostrum, S.L.	17	-	30	-	-
Danieltown Spain, S.L.U.	624	13,524	43	-	-
Moorage Inversiones 2014, S.L.U.	17,742	13,424	-	-	(10)
Hofinac Real Estate, S.L.U.	31	-	82	(17,017)	-
Fincas y Representaciones, S.A.U.	2,706	-	-	-	(99)
Inmocol Torre Europa, S.A.	22	-	-	(7,500)	-
Colonial Arturo Soria, S.L.U.	6	12,159	11	-	-
LE Offices Egeo, S.A.U.	6	28,182	-	-	(1,499)
Almacenes Generales Internacionales, S.A.U.	6	-	-	(17,029)	(1,995)
Soller, S.A.U.	637	-	-	(3,296)	(2)
Peñalvento, S.L.U.	1,366	21,313	-	-	(1)
Axiare Investments, S.L.	6	24,500	-	-	-
Axiare Properties, S.L.	-	-	1	-	-
Axiare I+D+i, S.L.U.	-	500	500	-	-
Venasur, S.L.U.	6	14,152	-	-	-
Chameleon (Cedro), S.L.U.	6	25,062	3,523	-	(3,047)
Utopicus Innovación Cultural, S.L.	22	3,200	-	-	-
Total	23,203	156,016	4,190	(44,842)	(6,653)

2017

	Thousands of euros
				Non-current	Current
	Current			payables to	payables to
	accounts	Non-current	Current loans	Group	Group
	receivable	loans granted	granted	companies	companies

Torre Marenostrum, S.L.	16	-	-	-	-
Danieltown Spain, S.L.U.	73	12,486	-	-	(25)
Moorage Inversiones 2014, S.L.U.	73	6,035	152	-	(23)
Hofinac Real Estate, S.L.U.	12	-	18	(10,594)	-
Fincas y Representaciones, S.A.U.	8	-	22	-	-
Inmocol Torre Europa, S.A.	22	-	-	(7,500)	-
Colonial Arturo Soria, S.L.	6	13,159	-	-	-
Almacenes Generales Internacionales, S.A.U.	-	11,495	-	-	-
Peñalvento, S.L.U.	-	22,577	-	-	-
Total	210	65,752	192	(18,094)	(48)

20. Director and senior management remuneration and other benefits

a) Composition of the Company's Board of Directors

The Company's Board of Directors was made up of ten men and one woman at 31 December 2018 and nine men and one woman at 31 December 2017.

At 31 December 2018, its composition was as follows:

Director	Position	Type of director
Juan José Brugera Clavero	Chairman	Executive
Pedro Viñolas Serra	Chief Executive Officer	Executive
Sheikh Ali Jassim M. J. Al-Thani	Director	Proprietary
Adnane Mousannif	Director	Proprietary
Carlos Fernández González	Director	Proprietary
Javier López Casado	Director	Proprietary
Juan Carlos García Cañizares	Director	Proprietary
Carlos Fernández-Lerga Garralda	Lead Director	Independent
Ana Sainz de Vicuña	Director	Independent
Javier Iglesias de Ussel Ordís	Director	Independent
Luis Maluquer Trepat	Director	Independent

On 24 May 2018, the shareholders at the Annual General Meeting appointed Javier López Casado as the new proprietary director.

On 24 January 2019, Ana Sainz de Vicuña tendered her resignation . On this same date, Silvia-Mónica Alonso-Castrillo Allain was appointed as a new independent director .

In 2017, Juan Villar-Mir de Fuentes resigned from his position as director.

In accordance with the provisions of Article 229 of the Spanish Limited Liability Companies Law, at the end of 2018 the Company's directors did not report to other members of the Board any direct or indirect conflict of interest that they, or any person associated with them as defined by the Spanish Limited Liability Companies Law, may have with respect to the Company.

b) Remuneration of Board members

Remuneration received in 2018 and 2017 by members of the Board of Directors of the Company, by item, is as follows:

	Thousands of euros
	2018	2017
Remuneration earned by executive directors (*):	3,347	4,866
Attendance fees:	561	580
Attendance fees for directors	537	557
Additional attendance fees for the Chairman and Deputy Chairman	24	23
Fixed remuneration:	780	780
Directors' remuneration	505	495
Additional remuneration for members of the Audit and Control Committee	125	135
Additional remuneration for members of the Nomination and Remuneration Committee	150	150
Total	4,688	6,226
Remuneration earned by executive directors (*):	3,347	4,866

(*) Does not include the amount corresponding to expenses accrued in relation to the long-term incentive plan subsequently described.

At 31 December 2018 and 2017, the Company had taken out a civil liability insurance policy covering all of its directors, executives and employees, for a total of 369 thousand euros and 393 thousand euros, respectively. The aforementioned amount includes the insurance premium paid for both periods for civil liability insurance to cover damages caused by acts or omissions.

The shareholders at the Annual General Meeting held on 28 June 2016 approved the granting of a defined contribution scheme for executive directors covering retirement and, when applicable, disability and death, with overall annual contributions of 180 thousand euros and 178 thousand euros in 2018 and 2017, respectively.

In addition to the matters indicated in the preceding paragraph, the Company has not granted any loans or taken out any additional pension plans or life insurance for former or serving members of the Company's Board of Directors.

In 2018 and 2017, there were no finalisations, modifications or early terminations of contracts outside of the normal business activities between the Company and the members of the Board of Directors or any other person acting on their behalf.

c) Remuneration of senior management

The Company's senior management team is formed by senior executives and other persons responsible for the management of the Company, reporting to the CEO, as per the definition provided in the Good Governance Code for listed companies. The Company's senior management team was made up of two men and two women at 31 December 2018 and 2017.

Monetary compensation earned by senior management in 2018 amounted to 1,411 thousand euros. Furthermore, they received 1,436 thousand euros corresponding to the long-term incentives plan (1,818 thousand euros and 988 thousand euros, respectively, in 2017).

At its meeting held on 27 July 2016, the Board of Directors approved the granting of a defined contribution scheme for a member of senior management covering retirement and, when applicable, disability and death. At 31 December 2018 and 2017, the Company recognised an annual contribution for this item under "Staff costs" in the income statement of 62 thousand euros and 61 thousand euros, respectively.

At 31 December 2018 and 2017, one member of senior management had signed a golden parachute clause, in the event of termination under certain circumstances or a change of control.

d) Long-term bonus scheme linked to delivery of several management indicators

On 21 January 2014, the Company's General Shareholders Meeting set up a long-term bonus scheme for the Chairman and Chief Executive Officer of Inmobiliaria Colonial, SOCIMI, S.A. and for members of the Company's Executive Committee that will apply from 2014 to 2018.

Following a proposal submitted by the Nomination and Remuneration Committee, from 1 to 15 April in each of these years, the Board of Directors must determine the number of shares to be allocated to each beneficiary under the plan based on compliance with the indicators for the previous year. The shares will be delivered to the beneficiaries between 15 and 30 April each year.

Shares received under this plan may not be sold or transferred by beneficiaries within the first three years of receiving them, except as required to pay any taxes chargeable in this regard.

The plan includes the customary clauses to adapt the number of shares to be received by the beneficiaries in cases of dilution.

In 2018 and 2017, the Company recognised 1,454 thousand euros and 1,334 thousand euros (Note 18-b) under "Staff costs", respectively, to cover this incentives plan.

On 25 April 2018, the Company settled the outstanding obligations relating to compliance with the plan once the Board determined the number of shares to be delivered to the beneficiaries of the Plan in accordance with the level of fulfilment of indicators for 2017 would be 348,394 shares (Note 13-d). The shares were delivered to the beneficiaries on 26 May 2018. Of these shares, 195,100 shares were delivered to members of the Board of Directors and 153,294 shares to members of senior management, with a market value upon delivery of 1,828 thousand euros and 1,436 thousand euros, respectively.

On 26 April 2017, the Company settled the outstanding obligations relating to compliance with the plan once the Board determined the number of shares to be delivered to the beneficiaries of the Plan in accordance with the level of fulfilment of indicators for 2016 would be 313,934 shares (Note 13-d). The shares were delivered to the beneficiaries on 26 April 2017. Of these shares, 175,814 shares were delivered to members of the Board of Directors and 138,140 shares to members of senior management, with a market value upon delivery of 1,257 thousand euros and 988 thousand euros, respectively.

e) Extension of the term of the long-term remuneration plan linked to fulfilment of several management indicators

21. Other information

a) Employees

The number of Company employees at 31 December 2018 and 2017, as well as the average number of employees for 2018 and 2017, by job category and gender, is as follows:

	No. of employees at 31 December				Average no. of employees
		2018		2017		2018		2017
Professional category	Men	Women	Men	Women	Men	Women	Men	Women
General and area managers	5	4	5	3	5	4	5	3
Technical graduates and middle	14	7	11	8	13	8	12	6
managers
Administrative staff	22	43	14	32	18	38	14	33
Total	41	54	30	43	36	50	31	42

The Company also had one female employee with a disability equal to or exceeding 33% at 31 December 2018 and 2017.

b) Audit fees

Fees incurred for auditing services to the Company in 2018 and 2017 by the principal auditor (PricewaterhouseCoopers Auditores, S.L.) set forth below:

	Thousands of euros
Description	2018	2017

Audit services	414	223
Other attest services	151	88
Total audit and related services	565	311

Tax advisory services	-	-
Other services	20	82
Total professional services	20	82

The fees for other attest services include 149 thousand euros relating to services provided to the Company for issuing comfort letters and agreed-upon procedure reports on ratios linked to financing agreements and an agreedupon procedure report on the net asset value (88 thousand euros for 2017). In addition, the Company provided services to subsidiaries on agreed-upon procedures on ratios linked to financing agreements for 2 thousand euros.

c) Capital management: policies and objectives

As indicated in Note 1, the Company is the parent of the Colonial Group.

The Company's financial structure requires its sources of financing to be diversified In terms of entities, products and maturity dates, in order to ensure the continuity of its companies as profitable businesses and to be able to maximise returns for shareholders.

On 23 December 2018, the Company formally implemented a 12-month Euro Commercial Paper programme to issue promissory notes up to a maximum of 300,000 thousand euros, which may be expanded to 500,000 thousand euros. No promissory notes were issued as at 31 December 2018.

The various bond issues launched in recent years have enabled the Company to finance its corporate transactions and real estate asset acquisitions carried out during these years, to reduce the finance costs of its borrowings, and to extend and diversify the maturity dates thereof. The Company's financing is granted in full at long term, structured in such a manner that it allows the development of its underlying business plan.

Financial risk management policy –

The Company efficiently manages its financial risks with the aim of having an adequate financial structure that allows it to maintain high levels of liquidity, minimise borrowing costs, reduce volatility due to changes in capital and ensure compliance with its business plans.

Interest rate risk: The risk management policy is designed to limit and control the impact of interest rate fluctuations on profit and cash flows, to maintain the level of debt, and to keep overall borrowing costs at reasonable levels in accordance with the Company's credit rating.

In order to attain these objectives, the Group enters into interest rate hedges to hedge against potential fluctuations in finance costs if necessary. The Company's policy is to arrange instruments that comply with accounting rules to be considered effective hedges and, therefore, to recognise changes in market value directly in the Company's income statement. At 31 December 2018, 90% of total debt in Spain and 93% in France was hedged or at fixed rates (93% and 85%, respectively, at 31 December 2017).

Liquidity risk: Based on the annual cash budget, the Company draws up the monthly follow-up report on its cash forecasts to manage its liquidity risk and meet its various financing needs.

The Company considers the following mitigating factors in managing liquidity risk: (i) recurring cash flow generation by the Company's core activities; (ii) its ability to renegotiate and obtain new financing on the basis of long-term business plans; and (iii) the quality of the Company's assets.

Cash surpluses may eventually arise that enable the Group to have lines of credit available but not yet drawn down or highly-liquid deposits with no risk. At 31 December 2018, the Company had sufficient lines of credit available to meet its short-term maturities. The Company does not use high-risk financial products as a method for investing cash surpluses.

Counterparty risk: the Company mitigates this risk by using top-level financial institutions.
Credit risk: the Company analyses the exposure implied by at-risk accounts receivable on an ongoing basis, monitoring their settlements and recognising charges whenever its receivables are deemed impaired.

The Company holds a majority stake in several companies (Note 9-a). The accompanying financial statements cover the Company individually and, therefore, do not reflect any changes in the components of equity that would be recognised if the aforementioned subsidiaries were to be consolidated. The Company prepares its consolidated financial statements on the basis of the International Financial Reporting Standards (IFRSs). According to the consolidated financial statements, shareholders' equity at the company at 31 December 2018 amounted to 4,811,309 thousand euros, attributable consolidated profit to 524,763 thousand euros, and assets and revenue to 11,487,314 thousand euros and 348,273 thousand euros, respectively.

22. Average supplier payment period

Following is the information required by final provision two of Law 31/2014, of 3 December, amending the Spanish Limited Liability Companies Law to improve corporate governance, and amending additional provision three of Law 15/2010, of 5 July, amending Law 3/2004, of 29 December, which establishes measures to combat late payment in commercial transactions, all in accordance with that established in the resolution of 29 January 2016 issued by the Spanish Accounting and Audit Institute (ICAC) on disclosures to be included in the notes to the financial statements in relation to the average period of payment to suppliers in commercial transactions.

	2018	2017
	Days	Days
Average supplier payment period	29	30
Ratio of transactions settled	28	30
Ratio of transactions pending payment	50	29
	Amount (in thousands of	Amount (in thousands of
	euros)	euros)
Total payments made	159,620	67,232
Total payments pending	6,202	3,803

The figures in the table above on payments to suppliers refer to suppliers which by their nature are trade creditors because they are suppliers of goods and services. Therefore, they include the figures for "Payable to suppliers" and "Sundry account payables" on the accompanying balance sheet.

23. Business combinations

On 28 December 2017, the Spanish National Securities Market Commission authorised the voluntary takeover bid to acquire shares of Axiare Patrimonio SOCIMI, S.A. presented by the Company on 24 November 2017, as it considered that its terms were aligned with applicable laws and that the contents of the explanatory prospectus were sufficient.

On 2 February 2018, the Spanish National Securities Market Commission published the result of the takeover bid, which was accepted for 45,912,569 shares, representing 81.55% of the shares targeted by the takeover bid and 58.07% of the share capital of Axiare Patrimonio SOCIMI, S.A. As a result, taking into account the shares already previously held by the Company, the latter now holds 68,674,633 shares, representing 86.86% of the share capital of Axiare Patrimonio SOCIMI, S.A.

On 24 May 2018, the shareholders at the Company's Annual General Meeting and on 25 May 2018 at the Annual General Meeting of Axiare Patrimonio SOCIMI, S.A. approved the merger by absorption of Axiare by the Company and the dissolution without liquidation and the transfer en bloc of all its assets and liabilities to the Company effective for accounting purposes as of 2 February 2018.

On 4 July 2018, the merger deed executed on 2 July 2018 between Inmobiliaria Colonial, SOCIMI, S.A. and Inmobiliaria Colonial, S.A. was registered in the Madrid Mercantile Registry. (absorbing company) and Axiare Patrimonio SOCIMI, S.A. (absorbed company). In this respect, to meet the exchange of the merger, the Company issued 19,273,622 new ordinary shares, with a par value of 2.50 euros, of the same class and series as those currently in circulation, representing 4.43% of Colonial's share capital prior to the merger, to be delivered to Axiare's shareholders in accordance with the exchange rules and procedures established for this purpose. The total amount of the increase amounted to 157,909 thousand euros, of which 48,184 thousand euros relate to share capital and 109,725 thousand euros to share premium (Note 13). The new shares were admitted to trading on 9 July 2018.

The assets and liabilities of Axiare Patrimonio SOCIMI, S.A. included in the merger, as indicated on the its balance sheet at 2 February 2018, are summarised below:

ASSETS	02.02,2018

Non-current assets:
Intangible assets	1,298
Property, plant and equipment	656
Investment property	1,085,203
Non-current investments in Group companies and associates	127,016
Non-current financial investments	21,326
Total non-current assets	1,235,499

Current assets:
Trade and other receivables	13,983
Current investments in Group companies and associates	3,586
Current financial investments	207
Current prepayments and accrued income	4,167
Cash and cash equivalents.	149,941
Total current assets	171,884
TOTAL ASSETS	1,407,383

EQUITY AND LIABILITIES	02.02,2018

Equity:
Shareholders' equity-	754,747
Valuation adjustments-	(4,562)
Total equity	750,185
Non-current liabilities:
Non-current payables-	569,597
Total non-current liabilities	569,597
Current liabilities:
Current payables	14,439
Trade and other payables	72,011
Current accrued expenses and deferred income	1,151
Total current liabilities	87,601
TOTAL EQUITY AND LIABILITIES	1,407,383

The revenue and operating profit obtained by Axiare Patrimonio SOCIMI, S.A. at 31 December 2017 amounted to 61,776 thousand euros and 17,615 thousand euros, respectively.

As a result of the merger between the Company and the absorbed company and in accordance with the rules applied for the preparation of consolidated financial statements, deposit the difference from the merger resulting from the difference between the acquisition cost of the absorbed company and its shareholders' equity was allocated to the various asset and liability headings as follows:

	Thousands of
	euros

Carrying amount of the investment prior to the merger:	1,207,645
Capital increase as a result of the merger:	157,909
Equity of the absorbed company	(750,185)
Positive difference of the merger	615,369


Difference allocated to:
Property, plant and equipment	(79)
Investment property	408,496
Non-current investments in Group companies and associates	21,235
Current financial investments	9,966
Current payables - Other current financial liabilities	(651)
Trade and other payables	(127)
Goodwill	176,529

24. Events after the reporting period

From 31 December 2018 to the date on which these financial statements were authorised for issue, the following significant events took place:

From 1 January to 25 February 2019, the Company carried out various short-term promissory note issuances amounting to a total of 172,000 thousand euros.
On 31 January 2019, and once the parties had met all of their obligations, the Hotel Centro Norte was sold for a price of 27,500 thousand euros (Note 11), of which 2,750 thousand euros had been received by the Company as a prepayment.
In January and February 2019, the Company repaid 206 million euros of the debt from Axiare Patrimonio SOCIMI, S.A. In addition, a sustainable loan was taken out for 75 million euros, the margin of which is tied to the ESG assessment.

APPENDIX

INVESTMENTS IN GROUP COMPANIES

							Thousands of
			Thousands of euros					euros
			Reserves, share premium		Valuation
2018	Address		and interim	Profit/(loss)	adjustments	Dividend	% ownership	Cost
		Share capital	dividend			(Note 19)		(Note 9)
Torre Marenostrum, S.L. (*)	Avda. Diagonal 532, Barcelona (Spain)	5,334	9,474	1,868	(987)	756	55%	24,790
Colonial Tramit, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	3	12	(2)	-	-	100%	23
Colonial Invest, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	3	3	(2)	-	-	100%	13
Danieltown Spain, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	541	22,504	(678)	-	-	100%	30,038
Moorage Inversiones 2014, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	63	21,708	(79)	-	9	100%	49,355
Hofinac Real Estate, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	24,943	139,278	5,626	-	4,406	100%	202,000
Fincas y Representaciones, S.A.U.	Avda. Diagonal 532, Barcelona (Spain)	926	1,808	176	-	919	100%	46,681
Inmocol Torre Europa, S.A. (*)	Avda. Diagonal 532, Barcelona (Spain)	12,500	(61)	(90)	-	-	50%	10,080
Colonial Arturo Soria, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	3	12,026	1,482	-	425	100%	20,624
LE Offices Egeo, S.A.U.	Avda. Diagonal 532, Barcelona (Spain)	60	36,030	2,167	-	41	100%	51,222
Almacenes Generales Internac., S.A.U.	Pº de la Castellana 52, Madrid (Spain)	2,083	31,845	7,062	-	-	100%	101,304
Soller, S.A.U.	Pº de la Castellana 52, Madrid (Spain)	2,524	8,093	(30)	-	428	100%	79,016
Peñalvento, S.L.U.	Pº de la Castellana 52, Madrid (Spain)	2,400	615	(177)	-	3,211	100%	20,755
Axiare Investments, S.L.U.	Pº de la Castellana 52, Madrid (Spain)	1,503	2,507	(78)	-	-	100%	18,067
Axiare Properties, S.L.U.	Pº de la Castellana 52, Madrid (Spain)	3	(1)	(4)	-	-	100%	2
Axiare I+D+i, S.L.U.	Pº de la Castellana 52, Madrid (Spain)	3	146	(835)	-	-	100%	149
Venusaur, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	3	62,658	(1,767)	(899)	-	100%	63,001
Chameleon (Cedro), S.L.U.	C/ Rosario Pino, 14-16, Madrid (Spain)	453	4,277	1,479	-	-	100%	24,056
Utopicus Innovación Cultural, S.L.	C/ Duque de Rivas 5, Madrid (Spain)	8	4,876	(2,869)	-	-	83.47%	7,634
Société Foncière Lyonnaise, S.A. (**)	42, rue Washington, Paris (France)	93,058	3,565,161	351,636	-	62,664	81.71%	2,260,013

* Company audited by PricewaterhouseCoopers

** Company co-audited by PricewaterhouseCoopers and Deloitte & Associés

INVESTMENTS IN GROUP COMPANIES

		Thousands of euros						Thousands of euros
2017	Address	Share capital	Reserves, share premium and interim dividend	Profit/(Loss)	Valuation adjustments	Dividend (Note 19)	% ownership	Cost (Note 9)

Torre Marenostrum, S.L. (*)	Avda. Diagonal 532, Barcelona (Spain)	5,334	9,322	1,525	(954)	514	55%	24,790
Colonial Tramit, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	3	4	(2)	-	-	100%	13
Colonial Invest, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	3	5	(2)	-	-	100%	13
Danieltown Spain, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	541	22,844	(340)	-	-	100%	30,038
Moorage Inversiones 2014, S.L.U.	Avda. Diagonal 532, Barcelona (Spain)	63	21,707	10	-	-	100%	49,355
Hofinac Real Estate, S.L. (*)	Avda. Diagonal 532, Barcelona (Spain)	24,943	138,789	4,896	-	-	100%	202,000
Fincas y Representaciones, S.A.U.	Avda. Diagonal 532, Barcelona (Spain)	926	1,579	1,149	-	-	100%	46,681
Inmocol Torre Europa, S.A. (*)	Avda. Diagonal 532, Barcelona (Spain)	12,500	-	(61)	-	-	50%	10,080
Colonial Arturo Soria, S.L.	Avda. Diagonal 532, Barcelona (Spain) Avda. Diagonal 532, 08006 Barcelona, Spain	3	12,026	425	-	-	100%	19,747
Almacenes Generales Internac., S.A.U.	Pº de la Castellana 52, Madrid (Spain)	2,083	36,008	(3,414)	-	-	100%	100,124
Soller, S.A.U.	Pº de la Castellana 52, Madrid (Spain)	2,524	8,093	428	-	-	100%	78,096
Utopicus Innovación Cultural, S.L.	C/ Duque de Rivas 5, Madrid (Spain)	252	1,038	(405)	-	-	69.60%	3,634
Société Foncière Lyonnaise, S.A. (**)	42, rue Washington, Paris (France)	93,058	587,202	272,390	-	28,603	58.56%	1,511,370

* Company audited by PricewaterhouseCoopers

** Company co-audited by PricewaterhouseCoopers and Deloitte & Associés

Inmobiliaria Colonial, S.A.

Management report for the year ended 31 December 2018

1. Company situation

State of the Spanish rental market Barcelona

Madrid

Paris

Source: Reports by Jones Lang Lasalle, Cushman & Wakefield, CBRE and Savills

Organisational structure and functioning

Colonial is a benchmark REIT in the high-quality office market in Europe and has been a member of the IBEX 35, the benchmark Spanish stock market index, since the end of June 2017.

The company has a stock market capitalisation of approximately 4,500 million euros with a free float of around 60%, and manages an asset volume of more than 11,000 million euros.

The Company's strategy focuses on creating an industrial value through the creation of prime high-quality products, through the repositioning and transformation of real estate assets.

In particular, its strategy is based on the following:

A business model focused on the transformation and creation of high-quality offices in prime locations, mainly central business districts (CBD).
Maximum commitment to the creation of offices that meet the most demanding market requirements, with particular emphasis on efficiency and sustainability.
A pan-European strategy, diversified in the Madrid, Barcelona and Paris office markets.
An investment strategy combining core acquisitions and prime factory acquisitions with value added components.
A clear industrial real estate approach to capture value creation that exceeds the market average.

At the close of 2018, the Colonial Group had a robust capital structure with a solid investment grade rating. The Group's LTV stood at 39.3% in December 2018.

The Company's strategy is to consolidate itself as a leader in prime office rentals in Europe, with special emphasis on the Barcelona, Madrid and Paris markets:

A solid capital structure with a clear commitment to maintaining the highest credit rating standards – investment grade.
Attractive returns for shareholders based on recurring return combined with the creation of real estate value based on value added initiatives.

2. Business performance and results

Introduction

Revenue totalled 347 million euros at 31 December 2018, and was generated by the Group's rental business.

Profit from operations amounted to 276 million euros.

According to the independent appraisals carried out by Jones Lang Lasalle and CB Richard Ellis Valuation in Spain and Jones Lang LaSalle and Cushman & Walkfield in France at year-end, the investment property was valued at 702 million euros. This revaluation, reported both in France and in Spain, reflects a 8% increase in value in like-forlike terms on rental assets in operation with respect to December 2017 (15% in Spain and 5% in France).

The net finance cost was 142 million euros.

After taking into account the profit attributable to non-controlling interests (153 million euros), the profit after tax attributable to the Company amounted to 525 million euros.

Profit for the year

The highlights of the rental business are as follows:

2018 was an excellent year for the Colonial Group, with a total return for shareholders of 19%, due to the increase in the EPRA NAV per share of 17% in combination with a dividend yield of 2%.

The merger of both companies constitutes a transformational event in the strategic plan, accelerating the Group's growth with the incorporation of a portfolio of top quality offices in Spain.

The Group's successful strategy is reflected in all sections of the financial and operating results for 2018:

Total Shareholder Return of 18%
Net Asset Value of €10.03/share, +17% vs. previous year
Gross asset value of 11,348 million euros, + 22% (+8% like-for-like)
Income from the rental business of 347 million euros, +23%
Net profit of 525 million euros, €1.17/share
Recurring net earnings of 101 million euros, +22%

The Group resulting from the merger has obtained very solid operating results, capturing strong rental increases in all markets

Attracting growth in rent signed +8% vs market rent in December 2017, +26% in "release spread"
Solid occupancy levels of 96%

Increase in recurring profit

Recurring net profit attributable to the Parent amounted to 101 million euros, a 22% increase on the previous year, which is explained mainly by three elements:

1. A solid year-on-year increase in rental income of 5%.
1. An improvement in financial loss.
1. Less corporate income tax expense.

Growth in rental income

The Colonial Group posted 5% growth in rental income on a like-for-like basis with regard to the end of the previous year, which is one of the highest increases in the sector.

Creation of real estate value

The gross asset value at 31 December 2018 amounted to 11,348 million euros (11,915 million euros including transfer costs), with an increase of +22% year-on-year after the integration of Axiare.

In like-for-like terms, the increase in the value of the portfolio was +8% year-on-year, with solid growth in all segments of the asset portfolio.

The Paris portfolio increased +5.5% like-for-like in 2018, a much higher growth than the majority of competitors.

Solid fundamentals in all segments

The Colonial Group's business showed excellent performance with an upward trend in lease agreements, maintaining close to full occupancy levels.

Lease agreements with significant increases in rent

The Colonial Group's business has performed very well with a robust pace in new leases and levels close to full occupancy.

In 2018, the Colonial Group signed 103 rental contracts, corresponding to more than 175,000 sqm and secured an annual rental income of 43 million euros.

Solid occupancy levels

At the end of 2018, the logistics portfolio of the Colonial Group had a vacancy of 14%, mainly due to the entry into operation of the first phase of the project located in San Fernando de Henares.

Active portfolio management and growth vectors

The Colonial Group has an attractive growth profile based on the following vectors:

A. Colonial-Axiare merger & integration

1. Consolidation of prime office leadership
More than 347 million euros in rental income corresponding to recurring business, with 154 million euros in Spain
More than 11,300 million euros in asset value with 4,779 million euros in Spain
75% of the offices GAV in the CBD
1. Integration of the processes in the Colonial Group's real estate value chain
Professionalisation and internationalisation of the commercial circuit and supply chain
Optimization of the IT systems
Integration of 8 people from Axiare into the Colonial Group
1. Optimisation of the resulting asset portfolio
Definition of a business plan reviewed asset by asset
Review and optimisation of the project portfolio
Identification of non-strategic asset
1. Income synergies strengthened competitive position in the Madrid market
Maximisation of rental prices through leadership in Grade A product
Usage of the integrated portfolio for cross-selling strategies
Greater scope of product offering to retain and attract clients
1. Operating cost synergies

Annual cost savings of more than 5 million euros

Implementation of personnel cost synergies
Elimination of duplications in other costs
1. Optimisation of the financial structure of the merged Group
Cancellation and/or refinancing of more than 500 million euros in bilateral debt
B. A portfolio of contracts to obtain the cycle: an attractive contract maturity profile to continue to obtain significant rental price increases, as shown by the results of the second half of 2018.
C. An attractive pipeline of projects: Colonial has a project pipeline of more than 1,280 million euros (total cost of completed product) corresponding to more than 210,000 sqm to create prime products that offer strong returns and therefore, future value creation with solid fundamentals.

	Proyecto	Ciudad	% Grupo	Entrega	$GLA$ $(m2)$	Total Coste €m	Total Coste €/ sqm	Yield on Cast
	Prima Pedralbes Center Commerci i	Barcelona	100%	1H 19	6,917	38	5,502	6.3%
$\mathbf{2}$	Gala Placidia / Utopic us	Barcelona	100%	1H 19	4,312	17	3,922	7.0%
3	Miguel Angel 23	Madrid	100%	2H 20	8,036	64	7,999	5.8%
4	Castellana, 163	Madrid	100%	2020 / 21	10,910	52	4,803	6.5%
5	Diagonal 525	Barcelona	100%	1H 21	5,710	37	6,460	6.0%
c	Emile Zola / Destination XV	Paris	82%	2H 21	24,500	280	11,428	5.0%
7	lena 96	Paris	82%	1H 21	9,300	147	15,801	5.0%
8	Velazquez Padilla 17	Madrid	100%	1H 21	17,239	113	6,532	6.5%
э	Plaza Europa 34	Barcelona	50%	2H 21	14,306	32	2,257	7.0%
10 ¹⁰	Mendez Alvaro Campus	Madrid	100%	2H 22	89,871	287	3,188	7.5%
11	Sagasta 27	Madrid	100%	2H 22	4,481	23	5,044	6.5%
$12 \,$	Prima Louvré SaintHonoré Commercial	Paris	82%	2023	16,000	205	12,831	7.3%
	TOTAL OFFICE PIPELINE				211,582	1.295	6.119	6.3%

D. Acquisition programme: During the past years, Colonial has successfully delivered the organic investment targets announced to capital markets: asset acquisitions, prioritising off-market deals and identifying properties with value-added potential in market segments with solid fundamentals.

Alpha III Acquisitions

City Center		Méndez Álvaro Campus Madrid - Inside M-30	TIME - AND	Value Added - Prime factory GLA: 89.871m ²	Total Inversion ¹ : 272€m - 287€m Yield on Cost ² : $7\% - 8\%$
MADRID		$\overline{2}$ Méndez Álvaro office Scheme Madrid - Inside M-30		Value Added - Prime factory GLA 20 275m ²	Total Inversion1: 68€m Yield on Cost ² : 7%-8%
	3	$\mathbf{3}$ EGEO Madrid - Campo de las Naciones		Core with value added potential GLA: 18.254m ²	Total Inversion ¹ : 79€m Yield on Cost ² : 5%
MADRID		Arturo Soria Madrid - New Business Area		Core with value added potential GLA: 8.663m ²	Total Inversion ¹ : 33€m Yield on Cost ² : 6%
BARCELONA		5 Gala Placidia Barcelona CBD	utopic_US	Value Added - Prime factory GLA: 4.312m ²	Total Inversion ¹ : 17€m Yield on Cost ² : $\geq 7\%$

(1) Last GAV reported: GAV 06/18 for operating assets and acquisition cost + capex in the future project

Alpha IV Acquisitions

The main characteristics of the Alpha IV acquisitions are the following:

Disposals: In the third quarter, Colonial sold 7 office buildings and a turnkey project in Madrid for a total price of 441 million euros. The disposals were closed on very favourable terms for the Company, achieving a premium of 12% on the previous valuation. The assets sold were non-strategic and mature properties and/or located outside of the CBD, with a gross lettable area of more than 106,000 sqm.
1. Acquisition of 22% of SFL: In November, Colonial and Qatar Investmet Authority (QIA) reached an agreement in wich Colonial would control up to 81% of its French subsidiary SFL. The transaction was on very advantageous terms for Colonial wich had access to 10.3 million SFL shares, representing 22.2% of the share capital, at an average price of 69.6 euros per share, resulting in an average discount of 19% over the last reported NAV.
1. Acquisition of a prime asset in Barcelona Diagonal 525: Colonial has acquired a 5,710 sqm above-ground office building of Barcelona's prime Avenida Diagonal. It is expected to undergo a full-scale refurbishment in 2019 and become an iconic office building in the area.

Capital structure and value of the share

Active management of the balance sheet

Issuance of Colonial bond, under the EMTN programme, for a total amount of 650 million euros maturing in April 2026, with an annual coupon of 2%
Bond buyback with maturity in 2019: In July, Colonial made an early repayment of the outstanding balance (375 million euros) from the bond issue maturing in June 2019 and that yielded an annual coupon of 1.863%.
Refinancing of Colonial's syndicate loan for 350 million euros, increasing the amount to 500 million euros, extending maturity to December 2023 and reducing the financing spread.
Cancellation of 396 million euros in debt from Axiare, all of it secured by mortgage guarantees. Additionally, in the first quarter of 2019, 206 million euros in Axiare debt has already been cancelled, and the rest of the pending debt has been refinanced for the remaining amount of 76 million euros, improving margins and cancelling mortgage guarantees which was tied to the company's ESG rating. In addition, a sustainable loan was taken out for 75 million euros, the margin of which is tied to the ESG assessment.
The main transactions carried out by SFL were the following:
A bond issue for SFL for the nominal amount of 500 million euros, maturing in May 2025 with an annual coupon of 1.5%.
The limit and maturity of its credits were adjusted, cancelling and/or reducing the limit of its undrawn facilities for 300 million euros, extending the maturity of another credit limit of 150 million euros from 2020 to 2023, and obtaining a new facilities with an available balance of 100 million euros.
In September, it bought back 300 million euros of its bonds maturing in November 2021 (150 million euros) and November 2022 (150 million euros).
Also in September, SFL started a short-term Euro Commercial Paper program, for the maximum amount of 300 million euros, with the current issues of 263 million euros at 31 December 2018.

Solid evolution on the stock market

At 2018 year-end, Colonial's shares closed with an annual decrease of 2%, a negative figure that nonetheless outperformed its peers in Spain and France as well as the EPRA & IBEX35 benchmark indices.

There are currently 25 analysts, both national and international, covering the company. It is worth highlighting the reports issued by JP Morgan, with a target price of €11.2/sharea, as well as Renta4 and Barclays with a target price of €11.1 /share and €10.6/share respectively.

3. Liquidity and capital resources

See Note 21 to the financial statements for the year ended 31 December 2018.

The Company's average payment period to its suppliers was around 29 days in 2018. With regard payments made after the legally established period, note that these are primarily payments relating to works contracted and property refurbishment, which are paid within the payment terms stipulated in the contracts signed with the various contractors. The Company has established two payment days per month to comply with the requirements set forth in Law 11/2013. Accordingly, invoices received are entered on the 5th and the 20th of each month and the related payments are made on the 5th and the 20th of the following month (Note 22).

4. Risk management policies and objectives

Section E of the Annual Corporate Governance Report sets out the main risks that arose during the year and the circumstances that prompted them. The risks associated with the Company's activities are described below.

Strategic risks:

The risks related to the sector and environment in which the Company carries on its business, the markets in which it operates and strategies adopted to carry out its activities are analysed.

Risks associated with the situation of the sector: The Colonial Group pays special attention to the economic, political, legal and social risks related to the countries in which it operates (Spain and France). In spite of the political uncertainty and economic policies of the last year, the European real estate sector has reached very significant investment levels. The maturity of the French real estate sector and the high level of investment in the Spanish real estate sector in recent years have enabled Colonial to have a more optimistic outlook over the coming years in terms of increased returns from its investments and sustainable growth.
Risks associated with a competitive sector: The real estate sector is characterised as being highly competitive, reaching high levels of investment in recent years, and was driven by specialised international investment funds and by listed real estate investment companies (REITs). The high quality of Colonial's assets, the value of these assets and its strategy of focusing mainly on its office rental activities in prime central business district (CBD) areas have positioned the Group as a key benchmark in the real estate sector in Europe. The successful investment and growth strategy implemented by Colonial in recent years, and the acquisition and merger of Axiare Patrimonio SOCIMI, S.A. in 2018, have strengthened the Company's position in the sector.
Risks related to the value of assets: Every six months the Company carries out appraisals, through independent experts and by applying objective market criteria, on all of its property assets. Colonial allocates a significant portion of its resources to investing in and maintaining its property assets in order to enhance their value and position on the market, and to optimise income and returns.

Corporate risks:

Risks relating to the organisational structure, corporate culture, corporate policies and key decision-making processes of the governing bodies are analysed.

Reputational risk and risks concerning social commitment: The Colonial Group's corporate social responsibility policy sets out the principles and bases of Colonial's voluntary commitment to its stakeholders. Management of these expectations forms part of the Company's objectives in terms of sustainability and creating value for these stakeholders.
Corporate governance risk: Colonial's management of corporate governance focuses on maintaining its commitment to continue making progress on a model based on the principles of efficiency, regulatory compliance and transparency, that are in line with the main international regulations and standards.

Anticipation of new trends: As is the case with other sectors, the real estate sector requires continuous adaptation to emerging trends. The growing implementation of digitalisation in all sectors, the new technology supplied in the real estate sector, and the increase in co-working spaces result in constant changes that specifically affect the real estate sector. In 2018 Colonial continued to assign specific resources and activities for the purpose of implementing these trends by boosting the growth of its co-working platform by opening new centres and the development of digitalisation and new technologies in developing services and new business models in the real estate sector.

Operational risks:

Operational risks refer to the risks arising from losses due to failures or flawed management of operations.

Financial risks: The Company efficiently manages its financial risks with the aim of maintaining adequate liquidity and debt levels, minimising borrowing costs and ensuring compliance with its business plans:
Risk of exposure to interest rate fluctuations: The purpose of managing this risk is to reduce interest rate volatility to limit and control the impact of interest rate fluctuations on profit and cash flows and to keep overall borrowing costs at reasonable levels. Colonial analyses the arrangement of financial instruments to hedge interest rate fluctuations. The Company maintains a high percentage of its gross financial debt tied to fixed rates.
Risks relating to financing and debt: Colonial's financial structure warrants diversification of its sources of financing by entity, product and maturity. In 2018, the new bond issue amounting to 650 million euros, the improvement in the credit rating that is now BBB+ with a stable outlook, the repayment of Axiare's debt and the arrangement of a short-term promissory note programme represented an improvement in the Company's financial structure, thus extending and diversifying the maturity of its debt. Colonial's net financial debt is held at suitable levels, measured using the loan-to-value ratio, providing the Company with sufficient financial capacity to carry out both its projects and to take on important growth targets for the coming years.
Liquidity risk: As mentioned in the preceding paragraph, Colonial has the necessary sources of financing to undertake its current projects in addition to those laid down in its business plan. The Company increased its capacity to attract capital and obtain liquidity and new lines of financing, whereby in 2018 it launched a new bond issue and arranged a short-term promissory note programme.
Asset management risks: Sustainable property management requires that Colonial allocate a significant portion of its investments to acquiring, constructing, renovating and maintaining the high quality of its properties, which stand out as a result of their high energy efficiency. This property management strategy is incorporated into the Company's organisation and business plan.
Risk of loss or damage to property assets: Colonial's properties are exposed to general risks of damage as a result of fire, flooding or other events, regardless of whether or not they are attributable to natural causes. The Company has arranged hedges to cover the reconstruction costs of the properties it owns, as well as any damage caused to third parties.
Security risk of information systems: The digital revolution brought about great benefits in innovation and growth, however, it also constitutes a source of new threats. The Company, aware of these growing threats, reviews the control measures to secure its information systems and to undertake and mitigate this risk.

Compliance risks:

Potential risks in relation to compliance with obligations arising from applicable legislation, agreements with third parties and obligations self-imposed by the Company, mainly through its Code of Ethics and Code of Conduct, are analysed.

Regulatory compliance risks: The process of identifying and assessing risks of regulatory or contractual breach that may give rise to legal proceedings against Colonial allows it to take the appropriate corrective measures to mitigate these risks or, where applicable, any possible impact thereof, through the controls established in the crime prevention model defined and implemented by the Company. Colonial has also taken out insurance to cover any legal costs or possible damage against directors and executives.
Tax risks: Colonial must adhere to the general tax legislation of the countries in which it operates, as well as any specific regulations for the REIT regime. Accordingly, the Company has a tax policy, a tax strategy and a tax risk management system, establishing adequate measures to control and monitor the management of risks in this connection.

Reporting risks:

In order to cover any reporting risks that may arise from errors or a failure to comply with requirements concerning the public information to be disclosed by the Company, and to ensure the reliability of this public information, Colonial has developed an Internal Control over Financial Reporting (ICFR) Organisational and Monitoring Model. Internal Audit is responsible for performing the necessary tests to verify compliance with the ICFR policies, manuals and procedures, validating the efficacy of the controls in place in these processes.

5. Events after the reporting period

From 31 December 2018 to the date on which these financial statements were authorised for issue, the following significant events took place:

From 1 January to 25 February 2019, the Company carried out various short-term promissory note issuances amounting to a total of 172,000 thousand euros.
On 31 January 2019, and once the parties had met all of their obligations, the Hotel Centro Norte was sold for a price of 27,500 thousand euros (Note 11), of which 2,750 thousand euros had been received by the Company as a prepayment.
In January and February 2019, the Company repaid 206 million euros of the debt from Axiare Patrimonio SOCIMI, S.A. In addition, a sustainable loan was taken out for 75 million euros, the margin of which is tied to the ESG assessment.

6. Future outlook

The outlook for the Madrid, Barcelona and Paris office markets is as follows:

Barcelona and Madrid

Paris

Consequently, leading consultants expect this positive trend that began at the end of 2014 to be consolidated for prime property rentals in CBD areas.

Strategy for the future

In this market context, the Company is implementing a selective investment policy, in order to maximise value for its shareholders.

In particular, it has focused its efforts on acquiring top-quality properties in high-potential market areas, including assets with the wherewithal to become prime rentals through repositioning.

7. Research and development activities

As a result of the nature of the Company, its business activities and structure, Inmobiliaria Colonial, S.A. does not habitually carry out any R&D activities.

8. Treasury shares

At 31 December 2018, the Company had 772,760 treasury shares with a nominal value of 1,932 thousand euros, which represents 0.15% of the Company's share capital.

9. Other relevant information

On 10 December 2015, the Company's Board of Directors agreed to adhere to the Code of Best Tax Practices. This resolution was reported to the tax authorities on 8 January 2016.

10. Alternative Performance Measures (European Securities and Markets Authority)

Below follows a glossary of the Alternative Performance Measures, including their definition and relevance for Inmobiliaria Colonia, S.A., in accordance with the recommendations of the European Securities and Markets Authority (ESMA) published in October 2015 (ESMA Guidelines on Alternative Performance Measures). These alternative performance measures have not been audited or reviewed by the Company auditor.

Alternative Performance Measure	Calculation method	Definition/Relevance
EBIT (Earnings before interest and taxes)	Calculated as the "Operating profit" plus "Changes in fair value of property" and investment "Gains/(losses) on changes in value of assets and impairment".	Indicator of the profit generating capacity of the Group, considering only its productive activity less debt and tax effects.
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)	Calculated as the "Operating profit" adjusted for "Depreciation and amortisation" and the "Net change in provisions".	Indicator of the profit generating capacity of the Group, considering only its productive activity, eliminating any provisions for depreciation and amortisation, debt and tax effects.
Gross financial debt (GFD)	Calculated as the sum of "Bank borrowings and other financial liabilities" and "Issuance of bonds and other similar securities", excluding "Interest" (accrued), "Arrangement expenses" and "Other financial liabilities" in the consolidated statement of financial position.	Relevant indicator for analysing the financial position of the Group.
EPRA1 NAV (EPRA Net Asset Value)	Calculated based on the Company's equity and adjusting specific items according to EPRA recommendations.	Standard analysis ratio for the real estate sector and recommended by the EPRA.

Alternative Performance Measure	Calculation method	Definition/Relevance
EPRA1 NNNAV (EPRA "triple net")	Calculated by adjusting the following items in the EPRA NAV: The market value of the financial instruments, the market value of the financial debt, any taxes that would be accrued with the sale of assets at market value, applying the reinvestment tax rebate and the tax credit recognised in the balance sheet taking into account the going concern criteria.	Standard analysis ratio for the real estate sector and recommended by the EPRA.
Market value excluding transaction costs or Gross Asset Value (GAV) excluding transfer costs	Appraisal of all the assets in the Group's portfolio carried out by the Group's external appraisers, deducting the transaction costs or transfer costs.	Standard analysis ratio for the real estate sector.
Market value including transaction costs or GAV including transfer costs	Appraisal of all the assets in the Group's portfolio carried out by the Group's external appraisers, before deducting the transaction costs or transfer costs.	Standard analysis ratio for the real estate sector.
Like-for-like Rentals	Amount of rental income from leases included in "Revenue", comparable between the two periods. To obtain these, the rental income from investments or divestments made between both periods are excluded, together with those from assets included in the portfolio of projects and renovations, as well as other atypical adjustments (for example, compensation for early termination of lease agreements).	This permits the comparison, on a like for-like basis, of the changes in the rental income of an asset or group of assets.

Alternative Performance Measure	Calculation method	Definition/Relevance
Like-for-like Appraisal	Market value excluding transaction	This permits the comparison, on a like
	costs or the market value including transaction costs, comparable between the two periods. To obtain these, the rental income from investments or divestments made between both periods are excluded.	for-like basis, of the changes in the market value of the portfolio.
Loan to Value Group or LtV Group	Calculated as the result of dividing the gross financial debt less the amount of "Cash and cash equivalents" between the market value, including transaction costs, of the Group's asset portfolio.	This permits an analysis of the relation between the net financial debt and the appraisal value of the Group's asset portfolio.
LtV Holding or LtV Colonial	Calculated as the result of dividing the gross financial debt less the amount of "Cash and cash equivalents" of the Parent and the Spanish subsidiaries wholly owned thereby between the sum of the market value, including transaction costs of the asset portfolio of the head of the Group and the Spanish subsidiaries wholly owned thereby, and the EPRA NAV of the rest of the financial investments in subsidiaries.	This permits an analysis of the relation between the net financial debt and the appraisal value of the asset portfolio of the Group's parent.

1 EPRA (European Public Real Estate Association) which recommends the standards for best practices to follow in the real estate sector. The calculation method for these APM has been carried out following the instructions established by the EPRA.

EPRA NAV (EPRA Net Asset Value)

	31/12/2018	31/12/2017
EPRA NAV (EPRA Net Asset Value)	(Millions of euros)
"EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT"	4,811	3,592
Includes:
(i.a) Revaluation of investment assets	24	13
(i.a) Revaluation of assets under development	7	n.a.
(i.c) Revaluation of other investments	26	(58)
(ii) Revaluation of finance leases	n.a.	n.a.
(iii) Revaluation of assets held for sale	n.a.	n.a.
Excludes:
(iv) Market value of financial instruments	2	(1)

	31/12/2018	31/12/2017
EPRA NAV (EPRA Net Asset Value)	(Millions of euros)
(v.a) Deferred taxes	228	198
(v.b) Goodwill resulting from deferred assets	n.a.	n.a.
Includes/excludes:
Adjustments of (i) to (v) in relation to the interests of strategic alliances	n.a.	n.a.
EPRA NAV	5,098	3,744

EPRA NNNAV (EPRA "triple net")

	31/12/2018	31/12/2017
EPRA NNNAV (EPRA "triple net")	(Millions of euros)
EPRA NAV	5,098	3,744
Includes:
(i) Market value of financial instruments	(2)	1
(ii) Market value of the debt	(14)	(117)
(iii) Deferred taxes	(229)	(200)
EPRA NNNAV	4,853	3,428

	Market value excluding transaction costs or GAV excluding transfer costs
---	--------------------------------------------------------------------------

	31/12/2018	31/12/2017
Market value excluding transaction costs or GAV excluding transfer costs	(Millions of euros)
Barcelona	1,175	836
Madrid	2,511	1,497
Paris	6,256	6,064
Operating portfolio	9,942	8,398
Projects	925	519
Other	481	16
Shareholding value in Axiare	-	349
Total market value excluding transaction costs	11,348	9,282
Spain	4,778	3,053
France	6,570	6,229

Market value including transaction costs or GAV including transfer costs

	31/12/2018	31/12/2017
Market value including transaction costs or GAV including transfer costs	(Millions of euros)
Total market value excluding transaction costs	11,348	9,282
Plus: transaction costs	568	459
Total market value including transaction costs	11,916	9,741
Spain	4,911	3,121
France	7,005	6,619

Like-for-like rentals

	Barcelona	Madrid	Paris	TOTAL
Like-for-like rentals	(Millions of euros)
Rental income 2016	30	43	198	271
Like-for-like	3	1	6	10
Projects and registrations	0	0	(5)	(5)
Investments and divestments	2	8	(3)	7
Others and compensation	-	-	-	-
Rental income 2017	35	52	196	283
Like-for-like	1	2	-	9
Projects and registrations	-	3	-	(1)
Investments and divestments	1	4	-	(10)
Axiare	5	32	19	-
Others and compensation	-	-	-	-
Rental income 2018	42	93	19	194

Like-for-like appraisal

	31/12/2018	31/12/2017
Like-for-like appraisal	(Millions of euros)
Valuation at 1 January	9,282	8,069
Like-for-like Spain	381	265
Like-for-like France	341	679
Acquisitions	1,422	625
Divestments	(78)	(356)
Valuation at 31 December	11,348	9,282

Loan to Value Group or LtV Group

	31/12/2018	31/12/2017
Loan to Value Group or LtV Group	(Millions of euros)
Gross financial debt	4,748	4,170
Less: "Cash and cash equivalents"	(68)	(1,104)
(A) Net financial debt	4,680	3,066
Market value including transaction costs	11,915	9,741
Plus: Treasury shares of the Parent valued at EPRA NAV	8	39
(B) Market value including transaction costs and the Company's treasury shares	11,923	9,780
Loan to Value Group (A)/(B)	39.3%	31.3%

LtV Holding or LtV Colonial

LtV Holding or LtV Colonial	31/12/2018	31/12/2017
Holding Company	(Millions of euros)
Gross financial debt	3,002	2,488
Less: "Cash and cash equivalents" of the Company and Spanish subsidiaries wholly owned thereby	(41)	(1,085)
(A) Net financial debt	2,961	1,403
(B) Market value including transaction costs	8,538	5,562
Loan to Value Holding (A)/(B)	34.7%	25.2%

11. Annual Corporate Governance Report

Inmobiliaria Colonial, SOCIMI, S.A.

Annual Corporate Governance Report for 2018

The Annual Corporate Governance Report has been sent to the CNMV on February 26 of 2019 and can be consulted at the following electronic address

https://www.cnmv.es/portal/Consultas/EE/InformacionGobCorp.aspx?nif=A-28027399&lang=en

AI Terminal

Inmobiliaria Colonial Socimi S.A.

1843_10-k_2019-02-27_5bb6fb0e-3371-47c8-a28b-12c0a97f2953.pdf

Inmobiliaria Colonial, SOCIMI, S.A. and Subsidiaries

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP)

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP)

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2018

INMOBILIARIA COLONIAL, SOCIMI, S.A. AND SUBSIDIARIES (COLONIAL GROUP)

Inmobiliaria Colonial, SOCIMI, S.A. and Subsidiaries

1. Colonial Group business activity

2. Basis of presentation of the consolidated financial statements

a) Basis of presentation

b) Adoption of International Financial Reporting Standards

Standards and interpretations effective this year

Standards and interpretations issued but not yet effective

IFRS 16, "Leases"

c) Functional currency

d) Responsibility for the information provided and estimates and judgements made

e) Basis of consolidation

Full consolidation:

f) Changes in the scope of consolidation

Reason for the business combination -

Allocation to the cash-generating unit and impairment of goodwill

g) Comparison of information

h) Aggregation of items

i) Correction of errors

j) Negative working capital

3. Distribution of the Parent's profit

4. Accounting policies and measurement bases

a) Business combinations and intangible assets

Business combinations

Intangible assets

b) Property, plant and equipment (Note 8)

c) Investment property (Note 9)

d) Impairment of property, plant and equipment

e) Financial instruments (excluding derivative financial instruments)

Financial assets (Note 10)

Initial recognition

Classification and subsequent measurement

Financial liabilities (Note 13)

f) Receivables (Note 11)

g) Cash and cash equivalents (Note 13-l)

h) Own equity instruments (Note 12)

i) Provisions and contingent liabilities (Note 16)

j) Employee benefits

Termination benefits

Pension obligations

Share-based payments (Note 19)

k) Derivative financial instruments (Note 14)

l) Current / non-current

m) Income tax (Note 17)

General regime

REIT Regime

SIIC regime – SFL subgroup

n) Revenue and expenses (Note 18)

Property leases-

Specific lease terms and conditions: lease incentives -

o) Borrowing costs

p) Consolidated statement of cash flows (indirect method)

q) Costs passed on to lessees

r) Related party transactions

s) Assets classified as held for sale (Note 22)

t) Inventories

u) Fair value hierarchy

31 December 2018

31 December 2017

5. Earnings per share

6. Segment reporting

a) Segmentation criteria

b) Basis and methodology for business segment reporting

2018 segment reporting

There were no significant inter-segment transactions in 2018.

2017 segment reporting

7. Goodwill

8. Property, plant and equipment

9. Investment property

Movements in 2018

Movements in 2017

a) Changes in fair value of investment property