csr16 - merlin properties...ı 5 ı 2016 corporate social responsibility report these commitments...

2016 CORPORATE SOCIAL RESPONSIBILITY REPORT

CSR16

MERLIN PROPERTIESIS THE LEADING SOCIMI IN THE SPANISH REALESTATE MARKET

4 1. LETTER FROM THE VICE-CHAIRMAN

AND CHIEF EXECUTIVE OFFICER

62. LEADING COMMERCIAL

REAL ESTATE COMPANY IN THE IBERIAN PENINSULA

103. MERLIN PROPERTIES,

A STORY OF SUCCESS

224. ACCOUNTABLE

GOVERNANCE MODEL

345. VALUE CREATION FOR

STAKEHOLDERS

566. OUR ENVIRONMENTAL

MANAGEMENT

707. ABOUT THE

ANNUAL REPORT

CONTENTSCSR16

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For the first time, this report has been adapted to the market’s main standard for CSR reporting (Global Reporting Initiative), which guarantees that the content refers to matters that are relevant to our stakeholders.

MERLIN also presents this report to enhance the transparency of the activities undertaken to assure responsible behaviour. This year our Board of Directors has approved a specific CSR policy defining MERLIN’s commitment to carry on business responsibly, as described in this report.

1. LETTER FROM THE VICE-CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Ismael ClementeVice-Chairman and CEO of MERLIN Properties

I am pleased to present MERLIN Properties’ Corporate Social Responsibility Report containing a balanced account of our economic, environmental and social performance, as well as our contribution to sustainable development in the environments in which we operate.

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2016 Corporate Social Responsibility Report

These commitments relate to our main stakeholders. MERLIN Properties has a duty to its shareholders and investors, who place their trust in our business project, as well as to guarantee that the necessary mechanisms are in place to fulfil the expectations of other stakeholders such as tenants, employees, public administrations, local communities and suppliers.

This is the meaning of responsibility for the Company: to carry on its business contributing to the creation of value for these stakeholders and to define the mechanisms necessary to prevent or minimise any adverse impact.

As part of this approach, sound economic results are essential to ensure that the Company is able to continue to generate value in other areas. In his regard, 2016 was a good year for MERLIN Properties. The Company’s rental income rose by €117 million, pushing recurring EBITDA up to €304 million, one of the highest in our industry in Europe.

Additionally, 2016 was a key year for the consolidation of our portfolio, the large merger transactions undertaken with METROVACESA and SABA PARQUES LOGÍSTICOS have demonstrated our commitment to efficiency and precision. As a result, the Company has increased its GLA in stock as well as the area suitable for expansion projects, achieving unprecedented penetration in its main markets. This position will allow us to offer our customers comprehensive solutions.

MERLIN Properties has also taken major steps to guarantee that its portfolio, corporate operations and, in general, all its activities are managed with integrity. Thanks to the efforts of those charged with its governance, MERLIN Properties has built a solid internal control system that assures compliance with applicable legislation, ethical conduct and correct management of business risks.

The Company has also made a major effort to enhance environmental performance by investing in efficiency and quality improvements in the facilities of its assets and playing an active role in the management of buildings in operation.

To date, our energies have been focused on our office buildings, which account for over one half of the total energy consumption of the assets in our portfolio. Due to the actions and measures implemented, MERLIN has cut energy consumption by 5% in the like-for-like portfolio and water consumption by 4% compared with 2015.

Knowing that the best opportunities to improve its environmental performance may now be found in its shopping centres, MERLIN’s attention will focus in this direction in the coming years.

In order to assure that the measures implemented are in line with international standards, the Company looks to obtain certificates from organisations that are sustainability benchmarks.

At present, 38% of our portfolio, excluding Metrovacesa and high street retail, is already certified under the leading sustainable construction standards (LEED and BREEAM). MERLIN plans to increase this initial level of certification in the coming years so as to reach 97% portfolio certification by 2018 under a specific approved plan.

These magnificent results would not be possible without the effort and dedication of the people who are part of our Company. MERLIN’s employees are the benchmark thanks to their commitment to the business project and their efficiency, which is well above the market average and is one of the Company’s main distinctive features.

I would like to thank them in particular for their work and I encourage them to carry on working exactly as they have been in the future.

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|02|LEADING COMMERCIAL REAL ESTATE COMPANY IN THE IBERIAN PENINSULA

MERLIN Properties Socimi, S.A. is the leading listed real estate company devoted to commercial assets in the Iberian peninsula.It is engaged mainly in the acquisition, active management, operation and selective rotation of quality commercial real estate assetsin the core and core-plus investment segments.

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2016 performance. Highlights

MERLIN presents its CSR report in accordance with GRI-G4 requirements so as to provide our stakeholders with information on the Company’s economic, environmental and social performance.

ECONOMIC PERFORMANCE

SOCIAL PERFORMANCE

ENVIRONMENTAL PERFORMANCE

325 M€ VALUE DISTRIBUTED TO STAKEHOLDERS2

3.36 / 4CUSTOMER SATISFACTION

1.1 M€CAPEX ON SUSTAINABILITY

9,310 tCO2eq

GREENHOUSE GAS EMISSIONS

22 ASSETSWITH SUSTAINABLE CONSTRUCTION CERTIFICATION3

244,728 m3

WATER CONSUMPTION IN ASSETS MANAGED

38,844 MWhENERGY CONSUMPTION IN ASSETS MANAGED

217 tWASTE RECOVERED

260 M€EBITDA

4,853 M€MARKET CAP1

4,471 M€NET DEBT

165 EMPLOYEES

1 As of Dec 31st 20162 This concept includes salary payments, payments to suppliers, payments to governments,

community investments and operating costs. Relates to the EC-1 indicator included in GRI-G4 guidelines.

3 Sustainable construction certification includes LEED and BREEAM.

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MERLIN Propertie’s portfolioMERLIN has a representative critical mass diversified through different commercial assets. At present, the Company leads the Spanish office, high street retail and logistics markets, and is ranked second in shopping centers.

OVERALL PORTFOLIO1

9,824 M€GROSS ASSET VALUE (GAV)

1,157ASSETS

3,001 k sqmGROSS LETTABLE AREA (GLA)2

451 M€GROSS RENTAL INCOME (GRI)3

7.2 yearsWAULT

91.3%OCCUPANCY RATE

Core business lines

Fu

lly c

on

solid

ate

dM

ino

rity

sta

kes

1.613 M€ GAV

17 ASSETS

455 k sqm GLA

92 M€ GRI

TRES AGUAS 50%

1 ASSET

63 k sqm GLA

10 M€ GRI

Shopping centers

4,541 M€ GAV

138 ASSETS

1,246 k sqm GLA

212 M€ GRI

Offices High street retail

2.205 M€ GAV

931 ASSETS

461 k sqm GLA

103 M€ GRI

Existing assets

472 M€ GAV

34 ASSETS

755 k sqm GLA

33 M€ GRI

Work in progress

110 M€ GAV

12 ASSETS

477 k sqm GLA

21 M€ GRI

ZAL PORT 32%

42 ASSETS

381 k sqm GLA

24 M€ GRI

Logistics

1 Including non-strategic assets2 Excluding Opción Shopping Center3 Annualized GRI has been calculated as the monthly passing rent as of December 31st 2016 multiplied by 12.

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|03|MERLIN PROPERTIES, A STORY OF SUCCESS

Since its beginning, MERLIN has engaged in operations that have allowed the Company to continue its expansion, increasing the portfolio while assuring diversification in different business lines, focusing on strategic assets. With this aim, the Company pursues a high quality asset portfolio, an efficient capital structure and active management of properties to maximise return.

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3.1. MERLIN’s history. Major milestones

During its two-year history, MERLIN has become Spain’s leading real estate company and has created one of Europe’s most important diversified commercial REITs. The most relevant milestones are described below, focusing on 2016.

MERLIN Properties: best valued real estate company in Spain

In 2016, MERLIN obtained a BBB (stable) rating stable outlook from Standard&Poors and a Baa2 rating from Moody’s, becoming the best rated real estate company in Spain.

Changes to Corporate Governance

In 2016 there were new appointments and changes on the Board of Directors and Board committees. The number of directors grew from 10 to 15, together with the number of women on the Board.

MERLIN’s debut in bond market

In 2016, MERLIN made its debut in capital market with a bond issue:

• In April, the Company placed €850 million in 7-year bonds in order to repay half of the debt from Testa acquisition.

• In October, €800 million was placed in 10-year bonds to pay back a Metrovacesa bridge loan.

Beginning of the sustainability certification plan

In 2016, MERLIN launched its building sustainability certification plan, with the aim of reaching 97% of its portfolio (in GAV excluding Metrovacesa and high street retail) certified under the most stringent sustainable construction standards within 3 years.

To date, 15 office buildings, 2 shopping centers and 5 logistic assets been certified under sustainable construction standards (LEED or BREEAM).

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In June 2016, MERLIN Properties absorbed Metrovacesa, valuing its assets at €3,200 million. The option has allowed:

Takeover of Metrovacesa

Achieve unprecedented penetration.

• Leader in Spain’s office market, increasing its presence in the Madrid and Barcelona CBDs*.

• Critical mass in shoping centers located in the cities with the highest GDP per capita.

Become the leading company in the Spanish and European markets.

• Opportunity to leverage the recovery in the Spanish market.

• Creation of one of the leading REITs in Continental Europe’s diversified commercial market.

May2015

€614m Capital increase

Dec2014

Refinancing of Tree debt €940m

July2015

€1,034m capital increase to partially finance the Testa acquisition

Acquisition of Tree portfolio (888 BBVA branches) for €740m of equity

Julio 2014

€1,290m IPO

June2014

Acquisition of Testa for an equity value of ca. €2.0bn creating the leading Spanish RE company

June2015

Acquisition of 17 assets for an aggregate amount of €652m

July 2014 June 2015

1 CBD: Central Business District

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Obtain tangible growth potential

• Ready to generate value in the short and medium term by improving occupancy, rents, repositioning, additional income and cost synergies.

• Management team’s commitment to the efficiency targets agreed, sharing sinergies with investors.

Enhance opportunities for non-strategic assets.

• Creation of a leading portfolio of residential assets deconsolidated from MERLIN.

• Increase in the hotel portfolio’s appeal.

Feb2016

BBB S&P rating

Inaugural bond issuance €850m

April2016

Oct2016

Oct2016

Baa 2 Moody’s rating

Bond issuance €800m

Acquisition of Metrovacesa for an equity

value of ca. €1.7bn

June2016

Dec2015

Inclusion in IBEX 35 Index

Dec2015

Refinancing of Testa debt and repayment of the Testa acquisition bridge loan (€1.7bn)

Acquisition of 43 assets and ZAL port for an aggregate amount of €325m

Sep2015Jan2016

Acquisition of 3 logistic assets in Spain and 2 office

buildings in Portugal for an aggregate

amount of €142m

March2016

Oct2016

Oct2016

Merger of Testa and

Metrovacesa in MERLIN

Acquisition of Saba Parques

Logisticos for an equity of

€115m

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In October 2016, MERLIN completed the acquisition of SABA’s logistics assets. For MERLIN, this entailed:

Acquisition of SABA Parques Logísticos

Consolidation of its positioning in Barcelona by acquiring Parc Logistic Zona Franca.

Increase in MERLIN’s penetration in the south (Seville), north (Vitoria) and west (Lisbon) of the Iberian market.

3.2. Business lines

MERLIN Properties’ business is focused on offices, high street retail, logistics and shopping centers.

The Company has a portfolio of real estate assets valued at €9,824 million . Its investments include 931 high street retail assets, 138 office buildings, 34 logistics assets (46 including facilities under development) and 18 shopping centers.

The portfolio has a leased Gross Lettable Area of more than 3 million sqm, with an annualised Gross Rental Income of €451.3 million.

MERLIN’s portfolio in each business line (% GAV)1

Otros

Residencial en alquiler

Hoteles

Locales comerciales

Logístico

�Centros comerciales

�O�cinas

Offices 47.6%

High street retail 22.4%

Shopping centers 16.4%

Logistics 5.9%

Others2 7.6%9,824M€ GAV

1 GAV of Land for development included in the respective asset class category (Offices and Logistics) 2 It includes 3 hotels and non-strategic assets

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Metrovacesa integration at the end of 2016 turned MERLIN into the leading real estate company in Spain’s office market, with a portfolio of 138 assets located in the main business areas of Madrid and Barcelona.

OFFICES

4,541 M€ GAV

212 M€ GRI

138 ASSETS

87,9% OCCUPANCY RATE

1,246 k sqm GLA

3,5 years WAULT

37% buildings in prime zones and CBDs

Acquisition of the ADEQUA business park

• In 2016, MERLIN acquired Adequa business park, the largest in the north of Madrid. It has a total area of 120,800 sqm, 75,900 sqm of which are built and leased (98% occupancy – 100% of office stock and 68% of the service and restaurant center).

• The project will consolidate with the construction of two office buildings. One of them is a 25-storey tower with an area of 29,100 sqm.

Lease renegotiation

• In 2016, the Company leased 124.920 sqm in its office buildings, 59% of which were renewals with existing tenants.

2016Milestones

Complete Refurbishment of assets in Madrid and Lisbon.

• Over the next few years MERLIN will undertake major repositioning work on three assets: Avenida de Europa, Eucalipto 33, both in Madrid, and the Monumental in Lisbon, with a total investment of more than € 28 million.

• These projects will help the Company to continue to build a high-quality office portfolio.

Future objectives

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MERLIN’s commercial portfolio comprises 33 supermarkets leased to Caprabo in Catalonia and the assets from the acquisition of Tree Inversiones Inmobiliarias in 2014, consisting of 866 branches and 5 buildings leased to BBVA, with a total area of 367,000 sqm distributed throughout Spain.

The portfolio also includes three key commercial areas in Madrid city center: Plaza de los Cubos, the ground floor of Torre de Madrid and the venue occupied by the FNAC in Plaza de Callao.

HIGH STREET RETAIL

2,205 M€ GAV

103 M€ GRI

931 ASSETS

100% OCCUPANCY RATE

461 k sqm GLA

20.3 years WAULT

Start of the sale of branch offices

• At the beginning of this year, the Company implemented a programme to selectively sell to private individuals its portfolio of 888 branches leased and occupied by BBVA. In 2016, MERLIN sold 17 branches for 19.6 million €. This sale plan will continue in forthcoming years.

2016 milestones and future

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MERLIN is currently the second-biggest owner of shopping centers in Spain. After Metrovacesa integration, the Company has 18 assets in its portfolio, in the main Spanish and Portuguese cities.

SHOPPING CENTERS

10 M€GRI

C.C. TRES AGUAS 50%

1ASSET

63 k sqmGLA

1,613 M€ GAV

92 M€ GRI

17ASSETS

88,6%OCCUPANCY RATE

455 k sqm GLA

100 M FOOTFALL PER YEAR

MERLIN begins intensive asset management in its shopping centers

• In 2016, the Company has begun to negotiate and offer portfolio solutions to commercial operators. It has also managed to increase the presence of commercial operators in different shopping centers within MERLIN’s portfolio.

2016 Milestones

Refurbishment of shopping centers in Valencia, Murcia, Madrid and Malaga

• As from 2017 an intensive repositioning campaign will start amounting to more than €34 million which will improve facilities, access and efficiency at the El Saler shopping center in Valencia, the Thader shopping center in Murcia, the Arturo Soria Plaza shopping center in Madrid and the Larios shopping center in Malaga.

Future objectives

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472 M€ GAV

110 M€ GAV

33 M€ GRI

34 ASSETS

95,4% OCCUPANCY RATE

755 k sqm GLA

EXISTING ASSETS

21 M€ GRI

12 ASSETS

477 k sqmGLA

WORK IN PROGRESS

25 M€ GRI

42 ASSETS

381 k sqm GLA

CILSA 32%

At present, MERLIN has a portfolio of 34 assets and 12 more assets under development in the Iberian Peninsula’s main corridors. As a result of 2016 acquisitions, MERLIN has become the leading company for this asset class in Spain.

LOGISTICS ASSETS

Acquisition of SABA Parques Logísticos

• In 2016, MERLIN acquired SABA’s logistics activities, a portfolio of five parks with a total built area of 350,000 sqm, plus 1,500,000 sqm for potential developments. As a result, MERLIN consolidates its position in Barcelona and improves its presence in the Iberian Peninsula’s main logistics corridors.

2016 milestones

Growth in MERLIN Properties’ logistics portfolio

• In the coming years, the Company will develop over 100,000 sqm of new-generation logistics warehouses, more than 250,000 sqm in turnkey projects and over 130,000 sqm in developments resulting from land acquisitions.

Future objectives

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Sale of hotels to Foncière des Murs

• In December 2016, MERLIN sold most of its hotel portfolio to the French company Foncière des Murs for €535 million. The assets, which consisted mainly of urban hotels, excluded those hotels that had office space in the same building.

Deconsolidation of residential assets

• In 2016, MERLIN assigned its residential portfolio at a premium of 18.4% on GAV to Testa Residencial, which currently has a portfolio of 4,681 houses.

2016 milestones

Continue the sale of non-strategic assets

• Further sales of assets in non-strategic business lines will continue in the coming years.

• In 2017, MERLIN will set up a REIT specialised in rented residential, targeting its residential assets, as well as the residential assets contributed by Banco Santander, BBVA and Banco Popular that will create a 8,068 housing units portfolio valued at €1,700 million.

Future objectives

MERLIN has other non-strategic asset portfolios resulting from Testa and Metrovacesa operations, mainly hotels and rented residential. MERLIN has an asset rotation policy and 2016 was a remarkable year in this respect, thanks both to the deconsolidation of rented residential and the sale of hotels.

ASSET ROTATION

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3.3. Strategic pillars

MERLIN has been committed from the outset to building a portfolio of top-quality leased assets, an efficient cost structure and a team of professionals with proven experience in the Iberian real estate market, focusing all its efforts and resources to develop the business with a firm objective: create sustainable, long-term value for the society and its shareholders.

• Focused on extracting value from the

existing portfolio, seeking to optimise

asset quality and maximise portfolio

return through selective acquisitions.

• Limited rotation of assets; focus on

optimised assets.

• Internal asset management teams to

optimise portfolio performance.

• Focused on

core and core-

plus commercial

assets: mainly office buildings,

supported by cash flow from

shopping centers and logistic assets.

• Selective development of AAA

buildings given the scarcity of this

product type.

• Diversified REIT by product

type.

• Assets in Spain and, to a

lesser extent, in Portugal.

• Governed by the best REIT

practices

• Target annual levered return

of 8%-10%

• Attractive,

sustainable

dividend flow

• Prudent capital

structure; leverage

limit of 50% of the portfolio’s

total value

Co

mp

any

Cap

ital st

ructu

re

Man

ag

em

en

tP

ort

folio

Target portfolio for 2018

10-15% Logistics

20-25% Shoping centers

20-25% High street retail

40% Offices

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|04|ACCOUNTABLE GOVERNANCE MODEL

MERLIN Propertie’s governance structure is dynamic, diversified, experienced and committed to the business project. Corporate governance imposes a culture of ethics and responsibility on the Company’s operations, as reflected in a solid internal control system.

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• Changes to the governance structure due to the capital increase and takeover of Metrovacesa.

• Implementation of the Internal Audit Department.

• Approval of MERLIN’s CSR policy to comply with the Corporate Governance recommendations.

• Assurance work on specific risks identified in the Company’s Risk Map.

• Full audit of personal data protection following Testa and Metrovacesa integrations.

2016 milestones

Future challenges

MAIN INDICATORS 2016

Independent directors

Evolution 15/162016

9/15 -10 percentage points

Women on the Board of Directors 5/15 +3.3 percentage points

Attendance rate

98% +1 percentage point

0 -Complaints received

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4.1. Capital structure

MERLIN Properties’ share capital currently consists of 469,770,750 ordinary shares with a par value of €1 each.

The Company has a solid shareholder structure in which Banco Santander is the principal shareholder after Metrovacesa takeover, followed by BBVA and by the US fund BlackRock.

MERLIN Properties’ has a free-float of 62%.

MERLIN’s capital structure

Share capital increases in MERLIN Properties

Company’s share capital has evolved as a result of several capital increases.

PRINCIPAL

PRINCIPAL

BBVA

BANCO SANTANDER

Free Float

Invesco

Principal Financial Group

Standard Life

Blackrock

BBVA

Banco Santander

Free Float

Invesco

Principal Financial Group

Standard Life

Blackrock

BBVA

Banco Santander

Free Float

Invesco 1%

Principal Financial Group 3%

Standard Life 3%

Blackrock 3%

BBVA 6%

Banco Santander 22%

Free Float 62%

PRINCIPAL

PRINCIPAL

BBVA

BANCO SANTANDER

Free Float

125,000 shares

4,152,001 shares

64,605,999 shares

129,212,000 shares

146,740,750 shares

60,000 shares

Capital increase. 7 August 2015

Capital increase. 8 May 2015

Capital increase. 14 July 2014

Capital increase. 30 June 2014

Constitution. 25 March 2014

Capital increase. 28 October 2016

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4.2. Governing bodies

MERLIN Properties is managed by the following bodies:

BO

AR

DM

AN

AG

EM

EN

T T

EA

M

Board of Directors

Audit and Control Committee

Appointments and Remuneration Committee

Investment Committee CEO

Executive Committee

Reviews and monitors MERLIN’s financial information and the processes through which it is generated. Supervises the integrity of the financial information, the external and internal audit processes, and the financial reporting and risk control systems.

Oversees and recommends remuneration policies to the Board and determines remuneration packages for the CEO and the other Executive Team members and is also responsible for the structure, size and composition of the Board of Directors and Board Committees.

Responsible for analysing and approving investments, divestments and closing of operations that are not reserved for the Board of Directors (<€150 million).

Responsible for implementing the Board’s strategy, leading the Company’s daily activities and supervising all matters not reserved for the Board or Board Committees.

It supports the Chief Executive Officer and is formed by multi-disciplinary members of the Management Team who assist the CEO in the supervision of MERLIN’s operations and performance.

Responsible for MERLIN’s long-term strategy and for monitoring implementation. The Board provides leadership and principles to be followed; it is also responsible for the Company’s corporate governance. The Board is supported by the Audit and Control Committee and the Appointments and Remuneration Committee.

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Audit and Control Committee Appointments and Remuneration Committee Independent Directors

Mónica Martín de Vidales

Secretary

Ildefonso Polo del Mármol Vice-Secretary

Rodrigo Echenique Non-Executive Chairman

Ismael Clemente CEO & Executive Vice-chairman

Miguel Ollero Executive Director

Javier García-CarranzaPropietary Director

Francisca OrtegaPropietary Director

Agustín Vidal-Aragón Propietary Director

María Luisa Jordá Independent Director Chairman A&C Committee

Ana García Fau Independent Director

Alfredo Fernández Independent Director

Fernando Ortiz Independent Director

Donald Johnston Independent Director Chairman A&R Committee

John Gómez Hall Independent Director

Ana de Pro Independent Director

Juan María Aguirre Independent Director

Pilar Cavero Independent Director

The integration of Metrovacesa and Testa led MERLIN to renew its Board of Directors in 2016, until which time the Board had been formed by ten directors, two of whom were executive directors and seven independent directors.

Two new directors have now joined the governing body as independent directors, as well as four nominee directors, one representing BBVA and three representing Banco Santander. The number of women on the Board of Directors has also increased.

Composition of the Board of Administration and Board Committees

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33,3% Women on the Board

12 meetings Board of Directors 12 meetings

Audit and Control Committee10 meetings Appointments and Remuneration Committee

60% Independent directors

During 2016, MERLIN’s Board of Directors met 12 times with 98% attendance. The Audit and Control Committee met 12 times and the Appointments and Remuneration Committee met 10 times. The main activities of the governing bodies in these meetings are summarized below.

The integration of Metrovacesa and MERLIN has increased the presence of women and independent directors in the Board of the Company

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AP

PO

INT

ME

NT

S A

ND

R

EM

UN

ER

AT

ION

CO

MM

ITT

EE

Re-election and appointment of Board of Directors and Board Committees.

Proposal concerning the remuneration of management personnel, including executive directors, for submission to the Board of Directors.

Preparation and approval of the Board’s and Chairman’s Evaluation Report.

Preparation of the new remuneration policy for the Board of Directors.

AU

DIT

AN

D

CO

NT

RO

L C

OM

MIT

TE

E

Presentation of financial statements for 2015. Supervision of internal audit work.

Corporate operations carried out with Testa Inmuebles en Renta, Socimi, S.A. and Metrovacesa, S.A.

Update of Risk Map

Approval of ICFR Manual and Accounting Policy Manual.

Supervision of criminal risk monitoring and control.

BO

AR

D O

F

DIR

EC

TO

RS Update of the

Board of Director’s Regulation.

Monitor new appointments of the Board and its Board Committees.

Monitor Testa, SABA Parques Logísticos and Metrovacesa transactions. Formulation of the annual accounts

Approval of the Code of Conduct, approval of the CSR Policy and approval of the CSR Report.

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The remuneration of the members of the Board takes into account both their category and the economic environment, the Company’s results, the Group’s strategy, legal requirements, good corporate governance recommendations and market best practices. On this basis, the Board of Directors determines the directors’ remuneration, following a report from the Appointments and Remuneration Committee. It comprises the following items, depending on the type of director:

Remuneration model

Board of directors’ remuneration is based on the following principles:

Please find more information on the Board of Directors’ remuneration in the Annual Report on Directors’ Remuneration in Listed Companies available through www.merlinproperties.com.

Independent directors

Executive directors

Fixed remuneration

Fixed remuneration

Variable remuneration

Management Stock Plan

Transparency of information on

Board director’s remuneration.

Consistency with MERLIN’s long-term business strategy,

objectives, values and interests.

Focus on the Company’s

profitability and sustainability.

Competitiveness in relation to market

standards.

Capacity to attract and retain

the best professionals.

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Ethics and corporate responsibility

Financial performance

Res

pect

for t

he environment and balanced urban development

Objectivity & Integrity

Respect for Human Rights

Asset protection

4.3. Ethics and compliance

MERLIN is firmly committed to ethics, transparency and value creation for shareholders and other stakeholders. This is reflected in the Company’s corporate vision and in the values that guide its professionals.

MERLIN Properties’ vision and values

Code of Conduct and Ombudsman

The Company’s vision and values are enshrined in the Code of Conduct, the framework of MERLIN’s commitments and principles on business ethics and process transparency. This Code applies to all the Company’s professionals irrespective of their hierarchical level, in all their activities and relationships.

The Code of Conduct also includes information on the Ombudsman, through which any non-compliance detected in the Company’s activities and relationships may be reported.

Regulatory compliance

Ethical conduct entails scrupulous compliance with prevailing legislation. Since the outset, MERLIN’s bodies, policies and procedures have guaranteed compliance at all levels. During its 2-year history, the Company has focused on compliance with the primary regulatory requirements in view of its corporate structure, industry and the nature of the activities developed.

“To be the REIT of reference in the Iberian Peninsula for our commitment to long-term value creation and the generation of a sustainable, growing dividend for our shareholders in a context of transparency, ethics and responsibility in business and society”

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MERLIN’s key regulatory compliance

20160 complaints were reported through the Ombudsman

MERLIN’s financial control is

also in line with best practices,

having instruments in the

framework of the Internal

Control over Financial

Reporting, including the

ICFR itself and the relevant

Guidelines, complementing the

aforementioned tools.

MERLIN has implemented

a model to prevent

criminal conduct that

allows organisational and

management procedures

to be applied, including

surveillance and control

measures to prevent any

criminal activity in the

organisation.

Cri

me

pre

ve

nti

on

Inte

rnal C

on

tro

l o

ve

r F

inan

cia

l R

ep

ort

ing

(IC

FR

) sy

ste

mF

igh

tin

g c

orr

up

tio

nControl tools are in place

to assure compliance with

applicable money

laundering legislation,

including an ICU

(Internal Control

Unit), a SEPBLAC

(government body

working to prevent money

laundering) representative

and annual external money

laundering audits.

Pre

ve

nti

on

of

mo

ney lau

nd

eri

ng The Company has

additional control

mechanisms,

such as the Guidelines on Tax

Policy and Relations with Public

Administrations, which addresses

the Company’s processes

for its interaction with Public

Administrations: general standards

for relationships with public officials,

contributions to political parties,

conduct in tender processes, etc.

ı 32 ı

4.4. Risk management

MERLIN developed a risk management system in 2016 using a model that identifies the Company’s key risk events, assesses them based on impact and probability of occurrence, taking into account controls in place, and monitors and reports on status periodically. The referred model or “Map of Risks” has identified and evaluates 111 risks that have been detected as those with potencial impact over the Company’s ordinary course of business.

MERLIN’s Risk Management System is aligned with international standards on risk management (COSO II).

In order to develop risk control and management, the Board of Directors is supported by the Audit and Control Committee, which oversees and reports on the system’s adequacy and effectiveness.

The Audit and Control Committee is in charge of supervising the risk control and management system (including internal controls) in order to verify its adequacy and integrity.

MERLIN has currently identified 14 key risks, grouped into 4 categories: strategic, compliance, reporting and operational.

ı 33 ı


Supervision and control

The alignment of MERLIN’s activities with its vision and values is guaranteed by the internal audit function, created by the Company with the goal of improving the monitoring and management of risks in the process of improving governance practices and enhancing the assessment and effectiveness of risk management, control and governance processes.

The internal audit process guarantees the adequacy of all control and management systems for the framework in which the Company operates. Under the Annual Audit Plan, approved by the Audit and Control Committee, all the Company’s business processes are selectively reviewed by means of an annual risk analysis.

MERLIN’S RISK MANAGEMENT MODEL

1st line of defence 2nd line of defence 3rd line of defence

AUDIT COMMITTEE

HE

ALT

H &

SA

FETY

TECHN

OLO

GY

INT

ER

NA

L P

OLIC

IES & TRAINING

FINANCIAL CONTROL

LE

GA

L

RISK

MA

N

AGEMENT

ENVIRONMENT

EXECUTIVE COMMITTEE

INTERNAL CONTR

OLS

Identify

Assess & quantify

Report risks & mitigation to the board

Re-assess risk post mitigtation

Develop action plans to mitigate

We contextualise risk in terms of our goals & objectives

MANAG

EM

EN

T T

EA

M

BOARD

EXTERNAL AUDIT

INTERNAL AUD

IT

ı 34 ı

|05|VALUE CREATION FOR STAKEHOLDERS

MERLIN Properties promotes transparency and value creation for stakeholders. The Company is in permanent contact with its stakeholders to identify their expectations and define the main response mechanisms.

ı 35 ı


MERLIN’s activities take into account its stakeholders, i.e. the agents or organisations that are affected by the Company’s business and, in turn, have the capacity to influence its performance.

MERLIN’s main stakeholders are its investors, employees, tenants and local communities. The Company has also identified other stakeholders with whom it has periodic relationships like regulators, public administrations, analysts, suppliers and the media.

MERLIN works to identify expectations and evaluate material aspects. With this in mind, the Company has defined communication channels to respond to stakeholders’ needs and concerns, and to keep them up to date with regarding any relevant event that might affect them.

MERLIN Properties’ main stakeholders

Main stakeholders Relevant aspects

Communication channels

On

-sit

e

meeti

ng

s

Co

nfe

ren

ces,

w

ork

sho

p a

nd

oth

er

even

ts

Co

rpo

rate

w

eb

site

Peri

od

ic r

ep

ort

s an

d o

ther

co

rpo

rate

d

ocu

men

ts

Sati

sfacti

on

su

rveys

Tele

ph

on

e a

nd

em

ail

co

nta

ct

Co

mm

un

icati

on

ag

en

cy

Investors• Long-term dividend.• Share price. • • • • • •

Analysts• Relevant information.• Company’s operations.• Share price evolution.

• • • •Employees

• Uncertainty arising from mergers and restructurings.

• Employments terms and conditions.

• Impacts of the relocations to new headquarters.

• • •

Tenants• Personalised attention.• Availability of space for future

growth.

• • • •

Suppliers• Maintenance, development and

refurbishment of the Company assets.

• •

Local communities

• Impact of the Company’s assets on the environment and local economy.

• •

Regulators

• Public announcements. • Compliance with legislation

and periodic reporting requirements.

• • •

Public administration

• Compliance with legislation by the Company’s portfolio (permits, licenses…)

• • •

Media• Transactions and public

announcements. • • • • •

ı 36 ı

5.1. Investors

• MERLIN is the highest-rated real estate company in Spain, having obtained investment grade ratings from Standard and Poor’s (BBB) and Moody’s (Baa2).

• Liquidity up to €27.1 million in average daily trading volume.

• Distribution of 101 m€ to shareholders (0.3 €/share)

• Changes to the Company’s compensation plan.

2016 milestones

Future challenges


Evolution 15/162016

Share price (€) 10.33 -10,5%

Pay-outs (€) 101,205,299 +300%

Average daily trading volume (M€) 27.1 +18%

24 +41%Number of analysts covering the Company

ı 37 ı


MERLIN’s distinctive aspects for investors

MERLIN seeks to generate sustainable return for investors through the selective acquisition, management and rotation of real estate assets in moderate risk profile segments.

In addition to a sustainable return, some of the Company’s most outstanding values for investors are predictability, efficiency and expertise.

Financial Performance

Seeking to guarantee shareholder’s dividend

since the outset.

Expertise

In market movements, due to its size and the management

team’s knowledge and experience.

Predictability

Capacity to attract l ong-term investments thanks to predictable behaviour.

Efficiency

Both internal and external to reduce operating costs.

ı 38 ı

Company’s results and shareholder dividend

MERLIN Properties closed 2016 with €351 million of gross rents, entailing an increase of 64% on the previous year and €260 million of EBITDA (61% up on 2015).

Additionally, the Company achieved an operating cash flow per share of 40 euro cents, representing a rise of 21% with respect to 2015. This reflects MERLIN’s capacity to efficiently deploy the capital provided by its shareholders.

As regards the capital structure, the value of the Company’s assets grew in 2016. The year-end NAV of MERLIN’s portfolio rose to €5,275 million (€11.23 per share), 66% up on end-2015.

MERLIN’s net debt rose by 40% in 2016 to €4,471 million. During the year, the Company completed two bond issues. This funding has been employed to optimise MERLIN’s capital structure by lengthening the average maturity period and increasing the percentage of fixed-rate borrowings.

Financial highlights (€ million)

In the coming years, MERLIN will modify its compensation plan in view of the new shareholder profile, given the shift to a traditional institutional investor profile focused more on the long term. The Company will adapt its shareholder remuneration system to European and US regulatory recommendations, eliminating absolute returns.

1 NAV: Net Asset Value

2016 Change 16 vs 15

Gross rents 351 64%

EBITDA 260 61%

FFO 189 76%

Net debt 4,471 40%

Net Asset Value (NAV) 5,275 66%

ı 39 ı


Evolution of the share price in 2016

Markets in general were affected by economic and political uncertainty in 2016. The main factor influencing MERLIN’s share price during 2016 was the US interest rate rise, causing international portfolios to shift to fixed income and bank stocks.

This situation led to a 10.5% fall in MERLIN Properties’ share price in 2016.

The liquidity of MERLIN’s stock was noteworthy, the daily average trading volume having reached around €27 million in 2016.

MERLIN’s share price in 2016. Evolution, comparison to the main indexes

-7.8%

-2.0%

-10.5%

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

MERLIN EPRA Index Ibex 35

(€)

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16

Communication with investors and analysts

MERLIN has created direct investor communication channels to respond to all information requests. The Company extends this transparent relationship to analysts, in view of their key role as opinion generators for their distribution and reaching power.

The Investor Relations Department is responsible for these particular stakeholder relationships.

ı 40 ı

Guarantee full accessibility for investors and

analysts to corporate information,

assuring continuous communication with

all of them.

Work daily to enhance the

information released to the market so that it is clear, detailed,

understandable and useful for investors.

Respond as quickly as possible to investors’ and analysts’ doubts

and concerns.

Keep the corporate website permanently up-to-date to allow investors to consult all the information

necessary to create a valuable opinion.

In addition to the traditional communication channels, MERLIN has two specific tools for investor and analyst relations:

Participation in industry conferences and events

• MERLIN takes active part in conferences and other industry events. In 2016, the Company attended to 27 of the main conferences and round tables. In all cases, individual and group meetings were held with investors.

• MERLIN held roadshows in the main European and US markets following the results announcement and after Metrovacesa deal. In November, the Company also conducted a corporate governance roadshow.

Visits to the company’s assets

• MERLIN organises guided visits for its investors and analysts to the Company’s main assets. This enhances their insight into the type of properties in the portfolio, their locations, the Company’s strategy and, in short, the way the market operates.

• In 2016, MERLIN organised around 40 visits for these stakeholders.

Relations with investors and analysts. Main activities to foster communication and transparency

ı 41 ı


• Integration of Testa and Metrovacesa workforces.

• Creation of a single Human Resources (HR) team to centralise all aspects related to human capital for the three workforces integrated in MERLIN.

• Resumption of the unified Training Plan for the entire team.

• Relocation into a new workplace.

• Approval of MERLIN Properties’ HR Procedures Manual.

• Approval of the Welcome Manual.

2016 milestones

Future challenges


Evolution 15/162016

Number of employees 165 +37.5%

% Women in the workforce 44% 0

percentage point

Turnover 0% 0%

58 M€ +13%GAV1/employee

5.2. Employees

1 GAV: Gross Asset Value

ı 42 ı

ExcellenceThe Company has a team of highly-trained, experienced professionals committed to

and aligned with the corporate objectives.

IndependenceThe Company has a team of proactive, responsible professionals who are provided with the necessary skills and independence to make decisions.

Efficiency The volume of assets

managed by employee is up to 3 times higher than

similar companies

Distinctive aspects of MERLIN’s human capital

Human capital is a key, distinctive factor at MERLIN. All the group’s employees have considerable experience, skills, qualifications and training to carry out their functions and have a recognised high capacity for work and commitment, as well as honesty in the performance of their duties.

Despite their varied backgrounds, all the workers share the Company’s philosophy and are perfectly aligned to achieve its objectives.

ı 43 ı


Workforce composition

The corporate transactions and company integrations completed by MERLIN Properties have had direct human capital implications, entailing the adaptation of the Company’s working structure and arrangements, requiring the creation of a single Human Resources Department.

In 2016, the Company finished the integration of MERLIN’s employees with those of Testa and Metrovacesa. Following this process, the Company has 165 employees.

The integration of the three companies has had highly positive effects for MERLIN thanks basically to the inclusion in the Company of top professionals with broad industry experience.

In order to simplify the human capital structure, MERLIN has divided the workforce into only two categories (executives, comprising 7% of employees, and other employees, the remaining 93%).

Current profile of MERLIN Properties’ workforce*

100% of employees have indefinite contracts

100% of employees are covered by the collective agreement

72% of employees are aged between 30 and 50

44% of the workforce are women

1 Data at 31st December 2016 after the integration of Testa and Metrovacesa

ı 44 ı

Diversity and equal opportunities

MERLIN is committed to diversity in the workforce and ensures that there is no discrimination of any kind between its professionals, and that any evaluations or promotions are based on individuals’ skills and performance.

At present, the workforce composition reflects the recent integration of Metrovacesa and Testa employees.

MERLIN keeps its commitment to monitor their progress in order to determine the suitability of their position, development, skills and remuneration, as well as to eliminate any possible discrimination prior to their entrance in the Company.

Headcount breakdown by gender

Men

Woman

16

92

4

73

2014 2015 2016

67

53

Executive team

Mujeres

Hombres

Mujeres

Hombres

8%

92%

Rest of workforce

Mujeres

Hombres

Mujeres

Hombres

47% 53%

ı 45 ı


Talent attraction and retention

When hiring employees, MERLIN guarantees equal opportunities and transparency, selecting new professionals based on their skills, knowledge and alignment with the corporate values and objectives.

The Company affords priority to professionals who have recently entered the job market and accompanies them during their internal training process, providing the knowledge necessary to build profiles that meet the Company’s needs.

However, in the current circumstances, the Company has chosen to retain and leverage the knowledge and experience of the professionals from Testa and Metrovacesa, rather than taking on new employees.

Consequently, hirings completed since 2014 have been minimal in response to concrete needs associated with corporate positions requiring specific training and know-how.

For talent retention purposes, MERLIN’s human resources team continuously analyses ways to motivate and reward its professionals for their involvement and commitment through three key tools: remuneration, professional development and social benefits.

The turnover rate for MERLIN’s professionals is currently 0%, clearly reflecting the alignment of their interests with the Company and its capacity to resolve their concerns.

ı 46 ı

Re

mu

ne

rati

on Remuneration is a key tool to attract and retain the best talent.

The Company’s remuneration system includes three distinctive features:

1. Low (base) salary slope between categories.

2. Better salary than the market average.

3. Prioritisation of performance over any other variable when determining remuneration. Continuous monitoring of employees’ progress.

Pro

fess

ion

al d

eve

lop

me

nt

MERLIN professionals’ proactivity is the key to their advancement.

The Company’s horizontal structure and youth allows its professionals to define the pace and direction of development based on their capabilities and aspirations. During their time at the Company, all professionals have the opportunity to move between different positions and take on new responsibilities.

MERLIN also offers employees post-specific training to boost their development process. In 2016, the Company provided 23 hours of language training per trained employee

The Company is working on the approval of a new Training Plan for 2017 targeting all the employees.

So

cia

l b

en

efi

ts

All MERLIN’s employees receive social benefits in addition to remuneration. These include first-class medical insurance. This benefit has been extended to all employees.

This year a Flexible Remuneration Plan has been created and currently includes lunch vouchers, nursery vouchers, transport passes and training.

The plan has been extended to all the Company’s employees, including those who joined as a result of the mergers.

To facilitate the integration of all employees and safeguarding the corporate philosophy, MERLIN will move its headquarters to a new building in which all employees will work in an open space office. This operation will take place in the first quarter of 2017.

Talent retention. Main mechanisms

ı 47 ı


5.3. Tenants

• Broad range of products for all sorts of tenants.

• Consolidation of relations with tenants leading to new lease agreements in new projects.

• Development of corporate manuals to encourage more sustainable behaviours by tenants.

2016 milestones

• Comprehensive reform of shopping centers to improve facilities and services for tenants.

• Extension of ISO 9001 certification to all multi-tenant office buildings (excluding Metrovacesa).

• Introduction of sustainability criteria in clauses for tenants of shopping centers and logistics assets.

• Implementation of an official complaints mechanism for tenants.

Future challenges


Evolution 15/162016

Score in satisfaction surveys

3.36 out of 4 +10%

Asset occupancy 91.3% -3 percentage

points

16 +7%ISO 9001 certified buildings

ı 48 ı

MERLIN’s distinctive aspects in relation to tenants

Tenants play a key role in MERLIN’s value chain. The Company therefore strives to keep in permanent contact with them to gather their opinions, concerns, needs and improvement suggestions.

MERLIN’s capacity to design unique solutions, the quality of its interventions and the focus on cooperation and joint work are other key aspects of MERLIN’s relation to tenants.

Joint workMERLIN works with its tenants to enhance the

management of the Company’s buildings using different tools.

.

Maximum qualityMERLIN guarantees maximum quality in

the service provided to its tenants through an

externally certified Quality Management System.

Compenhensive solutionsBy means of its own asset management team and thanks to the size of its portfolio, MERLIN is able to offer thorough solutions to tenants.

Valuing their opinion

The Company values its tenants opinions received

through specific communications

channels.

Long-term trust and cooperation

MERLIN has achieved a solid, diversified tenant base by adapting to their needs and searching for tailored solutions in each of its business lines.

ı 49 ı


Creation of comprehensive

solutions across asset portfolios

in response to tenants’ needs

Thanks to this approach, MERLIN has built trusting relationships with its tenants achieveing a retention ratio of 80.3%.

This achievement has been particularly relevant in the logistics portfolio, in which 100% of leases expiring leasing agreements have been renewed.

Thanks to its solid relationships and exclusive solutions for tenants, MERLIN has increased offices and logistics portfolios’ occupancy.

100%MERLIN has

renewed 100% of its

expiring leasing agreements for logistics assets.

High street retail Prime locations.

Availability of a broad range of properties to meet tenants’ needs.

Logistics Comprehensive solutions for logistics operators that wish to operate throughout the Iberian Peninsula.

Shopping centers Possibility of attracting leading retailers thanks to a portfolio of shopping centers located in the main population centers.

Capacity to offer critical mass.

Offices Capacity to relocate tenants, should they need it, within the Company’s portfolio.

Flexibility to offer customers space in multi-tenant or single-tenant assets.

Capacity to meet tenants’ expansion needs.

ı 50 ı

Occ

up

ancy

(%

)W

AU

LT (

year

s)

Quality and excellence in the service provided to our tenants

One of the key aspects of the excellent service provided by MERLIN to its tenants is the existence of an internal leasing management team, which is able to anticipate tenants’ needs and offer genuinely useful solutions.

Quality is another fundamental factor in this approach. MERLIN currently manages its buildings under an externally-certified ISO 9001 quality management system. The Company thus guarantees a high-quality service that meets tenants’ requirements and needs.

MERLIN develops annual satisfaction surveys to its office building tenants for the purposes of ISO 9001 certification, so as to obtain their opinion on asset management.

Surveys address aspects such as the cleanliness of facilities, administrative management, response to needs and incidents, or treatment afforded by MERLIN’s personnel.

On the basis of the findings and improvements suggestions received, the corrective measures are implemented in the assets.

Occupancy rate and WAULT in MERLIN’s portfolio

In 2016, 172 satisfaction surveys were sent to tenants. The score in the surveys received to date averages 3.36 out of 4.

3.36/4

Offices

87.9%

3.5

20.3

High street retail

100%

2.3

Shopping centers

88.6%*

4.0

Logistic assets

95.4%

* Excluding Opción SC.

ı 51 ı


5.4. Local communities

• • Achievement of DIGA accessibility certification for the Marineda City (La Coruña) shopping center, the first in Spain to obtain a Five-Star Certification.

2016 Milestones

Future challenges

• Extension of DIGA accessibility certification to the office assets.

• Reform of the Monumental building in Lisbon, which will significantly improve the square in which it stands.


Evolution 15/162016

Economic value distributed (M€) 325 -

Purchases from suppliers (M€) 54.4 +118%

39 +34%Average supplier payment period (days)

0 0%Social or environmental claims from communities (No.)

100%1 -Shopping centers with accessibility certification (%)

1 Excluding Metrovacesa

ı 52 ı

MERLIN’s distinctive aspects in relation to local communities

MERLIN’s assets represent an opportunity for socio-economic growth and dynamism in local communities. From the outset, the Company promotes trusting relationships with these communities so as to both maximise this positive impact and avoid any inconvenience. MERLIN’s relationship management is based on 4 key aspects:

Dialogue and transparency

Interacting with stakeholders in asset locations to provide

information, meet their needs and manage any

complaints, forging trusting relationships.

Impact management and

value creationAssessing potential impacts associated with the assets,

promoting positive impacts, mitigating negative ones and

identifying alternatives to encourage local community

development.

Quality spacesCreating spaces both in our own assets and in community areas to maximise user experience and respond to their needs

AccessibilityAllowing the use and

enjoyment of the Company’s assets by the

entire community, without distinction.

Impact management and contribution to local community growth

MERLIN’s assets have direct impacts on local communities.

There are negative impacts, which the Company seeks to minimise. When a new site is opened, an ongoing dialogue is initiated with key agents that are potentially affected (particularly local associations and public administrations) so as to jointly analyse impacts and identify corrective measures.

When designing developments and refurbishments, MERLIN conducts sunlight studies to determine the impact of its assets on the natural light received by the surrounding buildings so as to avoid any reduction, implement the necessary measures to offset any negative effect. This is one example of the measures adopted by the Company to avoid inconvenience caused by its activities.

ı 53 ı


However, the Company’s assets usually bring positive impacts for local communities. These include:

Some of MERLIN’s assets, such as Torre Castellana 259, include public-use areas to which the Company applies the same quality standards as in its assets and also takes care of maintenance. Through these spaces, MERLIN contributes added value to the local community by developing squares, garden areas and parks.

Improvement of public-use areas

The presence of MERLIN’s assets is associated with economic development and revival in local communities, as well as the recovery of certain population centers due to improved communications with the city centre and growth in secondary activities due to the existence of the assets.

Upgrading the local environment

The Company’s assets, particularly shopping centers and logistics assets, generate direct employment on site and indirect employment due to the growth in economic activity in the local community.

Job creation

In shopping centers, MERLIN organises workshops, talks, training sessions and cultural competitions on a variety of themes for visitors. Examples include photography competitions organised by the Porto Pi shopping center and the healthy cooking course for children held in the Larios shopping center in June.

Training and awareness

MERLIN cooperates with NGOs and local entities to support projects and initiatives that allow living conditions for underprivileged groups to improve. For example, in logistic assets, the Company participates in Food Bank collection campaigns by assigning storage space.

Social action

In shopping centers, MERLIN organises workshops, talks, training sessions and cultural competitions on a variety of themes for visitors. Examples include photography competitions organised by the Porto Pi shopping center and the healthy cooking course for children held in the Larios shopping center in June.

Promotion of local culture and development

ı 54 ı

Purchasing and contracting

One of the positive impacts that MERLIN has on its surroundings are the purchases and contracts of products and services, comprising two main types:

In its contracting processes, MERLIN affords priority to local suppliers provided they submit a competitive bid, meet quality standards imposed by the Company and required for the work, guarantee fulfilment of all applicable legal requirements and proof a level of responsibility in their work in line with corporate values.

Specially in relation to contractors responsible for developments and refurbishments, MERLIN works with local companies, in accordance with sustainable construction standards, which generates a significant volume of business and jobs in the local communities.

In 2016, products and services expenditure totalled €54.4 million.

MERLIN meets payment commitments acquired with its suppliers in shorter periods than stipulated in applicable legislation. The Company’s average payment period is 39 days, well below the average for IBEX 35 companies.

Annual expenditure on purchases and contracting associated to MERLIN’s assets (M€)

24.9

54.4

2015 2016

Building contractors that carry out the development and refurbishment of the Company’s assets.

Suppliers responsible for asset’s general maintenance, including control, cleaning, gardening and security.

ı 55 ı


Accessibility in MERLIN’s assets

Another of the Company’s priorities in relation to its assets is to guarantee that both their occupants and all potential users have the same options to access the facilities and enjoy all the services offered, irrespective of their capabilities.

MERLIN has begun to adapt its assets to the highest accessibility standards and is working, specifically in its commercial assets, to obtain DIGA certification (Indicative Sign of Accessibility Degree).

At present, all shopping centers have obtained this certification and Marineda City (La Coruña) is particularly worthy of note, having been granted the first Five-Star certification for a shopping center in Spain.

Marineda City

Arturo Soria Plaza

Centro Oeste

Porto Pi

Larios Centro

The Company also promotes accessibility in its other assets and intends to adopt the same approach in its office portfolio. On this basis, in 2017 MERLIN will start a specific plan to reach certification in these assets.

ı 56 ı

|06|OUR ENVIRONMENTAL MANAGEMENT

MERLIN Properties is committed to environmental improvement in its portfolio. The inclusion of sustainability criteria in development and refurbishment processes, and active consumption management in buildings, not only enhance operational efficiency but also bring added value to tenants.

ı 57 ı


* In brackets, value expressed in like-for-like terms

• Pre-certification of the Torre Chamartín project under the LEED Platinum standard before its development.

• Inclusion of improvements in illumination and air conditioning during the renovation of office buildings in 2016 (Juan Esplandiu 11-13, Princesa 5, Ventura Rodríguez 7 and Ática 4) and logistics warehouses (Coslada and Pedrola).

• Development of the Company’s Guidelines on Good Environmental Practices for the management of corporate assets.

• Registration of all the Company’s buildings for LEED or BREEAM certification processes and certification of 15 assets.

• Fulfilment of the objective of the sustainable construction certification plan (97% of the portfolio, excluding Metrovacesa and high street retail, by 2018).

• Extension of the scope of ISO 14001 certification to include 100% of multi-tenant office buildings (excluding Metrovacesa).

• Energy audits in buildings to subsequently implement ISO 50001 certification of Energy Management Systems.

2016 milestones

Future challenges

MAIN INDICATORS 2016*

Evolution 15/162016

Energy consumption MWh +3% (+2%)38.84 (13.84)

Water consumption (m3) +76% (-4%)244,728 (12,132)

Greenhouse gas emissions (tCO

2eq)

% of the portfolio (in GAV terms, excluding Metrovacesa and high street retail) under LEED or BREEAM certification

+804%38%

1,080,000 +208%Environmental investment (€)

-11% (-14%)9,310 (3,307)

ı 58 ı

Management of buildings in operation

• Active consumption management

• Collaboration with tenants (training sessions, Guidelines

on Good Environmental Practices)

Development or refurbishment

• Inclusion of sustainability criteria in the design

• Mitigation of impacts during execution

• Extension of environmental requirements to contractors (contractual requirements

and environmental monitoring by MERLIN)

6.1. Environmental improvement in our asset portfolio

The improvement of the portfolio’s environmental performance requires an assessment of environmental aspects and courses of action open to MERLIN in each of the operations undertaken in its buildings.

MERLIN approaches environmental performance from an integrated perspective and in each phase of the asset’s life cycle, identifies possible impacts and takes action to minimise them.

Through this continuous improvement, MERLIN both enhances its portfolio’s environmental performance and improves the quality of its assets, the efficiency of their operations and appeal to tenants.

Environmental aspects are already considered in initial decision-making related to the acquisition of new assets. MERLIN assesses environmental performance by means of a specific due diligence addressing aspects such as the possible existence of environmental penalties or infringements, pollution or construction features, based on sustainable building criteria.

Environmental management of MERLIN’s portfolio

Acquisition of new buildings

• Environmental due diligences on the buildings

(legal compliance, penalties, construction features, etc.)

Renovation

• Fitting of more consumption-efficient equipment and systems

• Certification of buildings under sustainable construction standards

(LEED or BREEAM)

ı 59 ı


Poor performance in any of these areas is a risk for the Company that must be considered when studying the acquisition.

The environmental behaviour of buildings also plays a significant role when conceiving new developments or comprehensive reforms.

The Company analyses potential environmental impacts from the works and determines measures to mitigate them, including sustainability creating criteria in the design of new assets.

Torre Chamartín is the first development project undertaken by MERLIN Properties.

Its initial design includes equipment and facilities that assure considerable improvements in energy efficiency and water consumption.

Systems such as bicycle parks and electric vehicle charging points promote the use of alternative means of transportation to connect with the town centre, in addition to its location close to public transport systems.

This has allowed the project to obtain a LEED Platinum pre-certification.

Environmentally friendly design in the Torre Chamartín development

ı 60 ı

The Company also extends its commitment to environmental responsibility to subcontractors, by means of both specific contractual clauses and constant supervision by MERLIN.

Asset refurbishment provides further opportunities to improve environmental performance. MERLIN implements systems and equipment to enhance building’s efficiency each time there is an intervention.

In 2016, the Company kicked-off an intensive repositioning plan of its shopping centers and logistic assets, these being the business areas with the most obsolete facilities and most room for sustainability improvements, which will increase their efficiency, among other aspects. Regarding logistics assets, these works included energy and water efficiency measures, together with measures to improve indoor air quality.

All the office building refurbishments in 2016 included the fitting of efficient lighting equipment and air-conditioning systems, as well as mechanisms to reduce water consumption in taps and toilet flushing systems.

MERLIN asks its contractors to submit building structure optimisation studies to maximise the reuse of materials on site. The Company also promotes the reduction of emissions in the transportation of people and materials associated to these works, encouraging the use of local materials.

ı 61 ı


When managing assets under operation, MERLIN prefers to install, whenever possible, equipment and systems that increase efficiency in the use of the facilities, as well as responsible management as a key to maximise performance.

In its multi-tenant buildings, where MERLIN has a freer hand, the Company cooperates with its tenants in the interests of environmental efficiency. With this aim, the Guidelines on Good Environmental Practices in Buildings have been drawn up to assure proper management of the environmental aspects affecting its assets. These guidelines also include ways to carry out building maintenance guaranteeing energy consumption savings and thus maximising efficiency. Every tenant is provided with the guidelines.

MERLIN has put in place measures to improve the environmental behaviour of its asset occupants and users.

For example, bicycle parks and electric vehicle charging points are installed in the Company’s buildings. In its shopping centers, MERLIN takes part in awareness campaigns to encourage the use of public transport in association with local administrations, as well as improving access.

Also to optimise transportation, the Company has prepared Efficient Driving Guidelines for its employees and collaborators.

Improvement in building users’ environmental performance

In some assets, MERLIN has also fitted other mechanisms to improve daily management efficiency, such as training sessions for shopping center operators to assure better management of energy systems and build environmental awareness.

MERLIN has an environmental management system certified under ISO 14001 that currently acts as an umbrella for 16 portfolio buildings, the aim being to cover all multi-tenant office assets (excluding Metrovacesa) in the next certification audit, including several shopping centers.

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Involvement in industry initiatives related to environmental behaviour in buildings

MERLIN is currently participating, through its office buildings, in the initiative: “Technical classification of office buildings” promoted by the Spanish Office Association (AEO). This pioneering voluntary project seeks to develop a technical quality rating for offices buildings, taking into account environmental aspects such as efficiency or certification, among other matters.

MERLIN forms part of the group of companies that are promoting this rating, which will enhance transparency in the industry while helping building owners to identify asset improvement needs.

6.2. Sustainable construction certification plan

Building certification under the leading sustainable construction standards endorses the assets’ construction quality and guarantees that their design and operation include features and systems that allow maximum environmental efficiency.

As regards certification standards, MERLIN has chosen LEED and BREEAM, the most appropriate alternative being selected based on the characteristics of the building or its tenants.

In this regard, the Company has approved a plan to achieve 97% (in GAV terms, excluding Metrovacesa and high street retail) certification of its buildings from 2016 to 2018.

Certified buildings currently account for 38% (in GAV terms, excluding Metrovacesa and high street retail) of the total portfolio. MERLIN has also registered the rest of its buildings for the certification process.

MERLIN’s asset certification plan 2016-2018 (% GAV)

Certified

In process

4035

58 61

Offices Shopping centers

Logistics

36

64

97%Under its Certification Plan 2016-2018, MERLIN Properties will invest over €6 million in the certification of 97% of its portfolio under BREEAM or LEED standards.

98% 100% 96%

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6.3. Consumption management

Energy and water consumption are two of the main environmental aspects associated with the functioning of a building. MERLIN assesses both aspects in the assets managed, defining and implementing measures to keep them at efficient levels.

At present, the Company controls energy and water consumption of 52% of its portfolio (in GAV, excluding Metrovacesa and high street retail) (see table).

Assets in which MERLIN controls consumption

Asset type Occupancy Like for like1 Area (sqm)

Ática 1 Office Multi-tenant 7 080

Ática 2 Office Mono-tenant 5,644

Ática 3 Office Multi-tenant 5,746

Ática 4 Office Multi-tenant 4,936

Partenón, 16-18 Office Multi-tenant 18,343

Partenón, 12-14 Office Multi-tenant 19,289

Castellana, 83-85 Office Multi-tenant 15,171

Costa Brava, 2-4 Office Mono-tenant 16,000

Juan Esplandiú Office Multi-tenant 27,997

Princesa, 3 Office Mono-tenant 17,810

Princesa, 5 Office Multi-tenant 5,788

Ventura Rodríguez, 7 Office Multi-tenant 10,071

Pedro de Valdivia, 10 Office Multi-tenant 6,721

Muntadas I Office Multi-tenant 24,409

Diagonal, 605 Office Multi-tenant 14,265

Diagonal, 514 Office Multi-tenant 9,664

Sant Cugat I Office Multi-tenant 15,378

Sant Cugat II Office Multi-tenant 10,008

Muntadas II Office Multi-tenant 3,783

Arroyo de Valdebebas2 Office Multi-tenant 10,685

Padres Dominicos T4 Office Multi-tenant 5,985

Avda. de Bruselas, 243 Office Multi-tenant 9,174

WTC6 Office Multi-tenant 14,461

WTC8 Office Multi-tenant 14,542

Torre Castellana 259 Office Multi-tenant 21,390

Arturo Soria Plaza4 Shopping center Multi-tenant 9,596

Marineda City Shopping center Multi-tenant 104,589

Centro Oeste Shopping center Multi-tenant 27,893

Larios Shopping center Multi-tenant 26,036

Porto Pi Shopping center Multi-tenant 71,553

Coslada Logistic asset Multi-tenant 36,234

Sollana Logistic asset Multi-tenant 26,612

616,853

1 According to EPRA definition, like-for-like portfolio for sustainability data reporting includes all assets in operation during two consecutive years

before the reporting2 Asset in which consumption has been controlled since April 20163 Asset in which consumption has been controlled since July 20164 Asset in which consumption has been controlled since September 2015. MERLIN’s share of this property rose from 40% to 90% in October 2016,

affecting total portfolio consumption

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6.4. Energy consumption in MERLIN’s portfolio

As regards energy, MERLIN has begun to assess the initial status of its assets and an energy classification has been obtained for 100% of the assets managed by MERLIN.

This is the starting point for future energy efficiency actions such as the following:

• Replacing conventional lighting with LED technology.

• Installing presence sensors.

• Replacing conventional boilers with condensing boilers.

• Renewing refrigerating, cooling and VRV equipment with more efficient alternatives.

• Renewing air-conditioning equipment and refrigeration towers

Energy classification of MERLIN’s assets (% of total assets)1

1 *Excluding Metrovacesa and high street retail.

ASSETS: 36

Logistic assets

F; 3%

B; 3%A; 0%

E; 31%

D; 22%

C; 42%

ASSETS: 5

Shopping Centers

F; 0% E; 0%

A; 0% B; 0%

D; 60%

C; 40%

ASSETS: 37

Offices

F; 0%

A; 0%

E; 8%

D; 22%

C; 51%

B; 19%

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In the future, after performing energy audits in the buildings, MERLIN will work to implement an Energy Management System certified under ISO 500011.

Energy consumption in MERLIN’s buildings amounted to 38,843,546 kWh in 2016. In the like-for-like portfolio, consumption totalled 13,836,998 kWh. In both cases, there was an increase of 1% in absolute terms and 2% in the like-for-like portfolio with respect to 2015.

This evolution has had different sign depending on the assets considered. Office assets have reduced their consumption, mainly of fuel. This decline was 13% in absolute terms and 25% in like-for-like terms, which appears to indicate that the measures implemented in assets such as the Ática complex or Diagonal 605 (both in MERLIN’s portfolio since 2015) are beginning to bear fruit.

With the refurbishment of logistics assets, portfolio energy efficiency is likely to improve, as seems to be the case of already remodelled assets like Coslada, where consumption has fallen by 23%.

1 In 2017 MERLIN will subject to ISO 50001 certification 3 office buildings and a business park, with a total area 88.073 sqm and representing around a 10% of the office portfolio (excluding Metrovacesa), in terms of GAV.

Absolute consumption by business line (kWh) and absolute consumption intensity (kWh/sqm)

Like-for-like consumption by business line (kWh) and like-for-like consumption intensity (kWh/sqm)

81.90 83.26

13,836,998

2016

13,610,720

2015

94,306 128,879

8,226,764

5,289,650

8,706,312

5,001,807

38,843,54637,667,623

63.50 62.97

20162015

136,719 161,962

12,959,456

24,571,448

14,097,359

24,584,226

Energy consumption offices (kWh)

Energy consumption shopping centers (kWh)

Energy consumption logistic assets (kWh)

Intensity of energy comsuption (kWh/sqm)

Energy consumption offices (kWh)

Energy consumption shopping centers (kWh)

Energy consumption logistic assets (kWh)

Intensity of energy comsuption (kWh/sqm)

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Electricity comsuption (kWh) Fuel comsuption (kWh)

38,843,546

2016

37,667,623

2015

7,245,678

30,421,945

6,529,065

32,314,482

13,836,998

2016

13,610,720

2015

1,374,996

12,235,724

1,033,990

12,803,008

Absolute consumption by business line (m3) and absolute consumption intensity (m3/sqm)

Absolute consumption by energy source (kWh)

Like-for-like consumption by business line (m3) and like-for-like consumption intensity (m3/sqm)1

Like-for-like consumption by energy source (kWh)

Water consumption in MERLIN’s portfolio

Water consumption in 2016 totalled 244,728” m3, entailing a unit consumption of 0.41 m3/sqm. Consumption has risen in absolute terms because shopping center consumption was not monitored in 2015, although a 3% reduction in total consumption and a 4% fall in the like-for-like portfolio may be observed in unit terms.

0.43 0.41

Water comsuption offices (m3)

Water comsuption shopping centers (m3)

Water comsuption logistic assets (m3)

Intensity of water comsuption (m3/sqm)

244,728

2016

139,157

2015

4,875

4,784

134,282

106,118

133,826

0.36 0.35

Water comsuption offices (m3)

Intensity of water comsuption (m3/sqm)

12,132

2016

12,675

2015

12,67512,132

1 Like-for-like water consumption has been calculated only for office buildings, since there are no consumption records for other assets.

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Greenhouse gas emissions

The Company’s buildings generate greenhouse gas (GHG) emissions along the different phases of their life cycle.

MERLIN monitors emissions associated to the buildings in which energy consumption is controlled.

In 2016, these emissions from fuel consumption (Scope 1 emissions) and electricity consumption (Scope 2 emissions) amounted 9,310 t CO

2eq (-11% compared to 2015).

In the like-for-like portfolio, GHG emissions totalled 3,307 t CO2eq (-14% compared

to 2015).

These decreases are due mainly to the change in the electricity mix emission factor in Spain (-17% compared to 2015) used in the calculations.

1 The electricity mix emission factor is the value that expresses CO2 emissions associated to the generation

of electricity and is thus an indicator of the energy sources used to produce electricity. The lower the factor, the higher the contribution from low-carbon energy sources. In particular, it has been used for each year the emission factor corresponding to the average of the electrical mix provided by “Red Eléctrica de España”.

Absolute GHG emissions by business line (t CO

2eq) and absolute emission intensity

(t CO2eq/sqm)

Like-for-like GHG emissions by business line (t CO

2eq) and like-for-like emission intensity

(t CO2eq/sqm)

GHG emissions offices (t CO2eq) GHG emissions shopping centers (t CO

2eq)

GHG emissions logistics assets (t CO2eq) Intensity of GHG emissions (t CO

2eq/sqm)

0.018 0.015

9,310

2016

10,464

2015

0.023 0.020

3,307

2016

3,826

2015

27

3139

40

6,6665,859

1,413 1,169

3,412

3,758

2,107

2,386

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Scope 1 (t CO2eq)

Scope 2 (t CO2eq)

The emission factors used to calculate Scope-1 and Scope 2 GHG emissions, are those recommended by the Ministry of Agriculture and Fishing, Food and Environment of Spain

Absolute GHG emissions broken down by scope (t CO

2eq)

Like-for-like GHG emissions broken down by scope (t CO

2eq)

MERLIN seeks to minimise and offset these emissions during asset design, construction and subsequent operation.

Some of the Company’s buildings, mainly office buildings, have alternative energy facilities .MERLIN also owns a photovoltaic plant in Coslada logistic asset, which generated 462,635 kWh of renewable energy in 2016.

MERLIN cooperates, through the association REFORESTA, in the forest recovery and the fight against desertification, while mitigating emissions from its assets. As part of this project, in 2016 the Company invested €9,787 in the reforestation of the Sierra de Guadarrama, Tres Cantos and La Pedriza.

The Company also purchases renewable energy certificates (REC) to offset emissions derived from electricity consumption at some of its buildings. This ensures that the electricity consumed in its assets is offset by generating the same quantity of renewable energy. In 2016, MERLIN purchased 46.311 MWh of renewable energy.

9,310

2016

10,464

2015

8,822

1,642

7,820

1,490

3,307

2016

3,826

2015

3,548

278

3,098

209

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6.5. Waste management

In its multi-tenant buildings, the Company manages hazardous and non-hazardous waste arising from maintenance works carried out in common areas. This work is always performed by authorised management companies.

In its ISO 14001 certified assets, the Company selectively collects waste and prioritises energy recovery over disposal.

In these assets, a total of 226,392 kg of waste were generated in 2016, 99% of which were non-hazardous waste.

Most waste (96%) were bound for waste management. Only 4% were deposited in a landfill.

Waste management 96%

Disposal 4%

Main destinatioin of waste generated in MERLIN’s portfolio

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|07|ABOUT THE ANNUAL REPORT

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7.1. Basis for the preparation of this report

Reporting scope

This CSR report provides information on MERLIN Properties’ economic, environmental and social performance in 2016. Where relevant, prior-year information has been included to show the evolution of the Company’s results.

Standards employed

The report has been drawn up in accordance with the Core option indicated in the Global Reporting Initiative (GRI) G4 Guidelines on the preparation of Sustainability Reports. Additionally, specific content has been provided for the industry in which the Company operates, as indicated in the GRI industry supplement Construction & Real Estate.

Principles applied

The GRI G4 Sustainability Report guidelines lay down a number of principles that have been applied when preparing the report:

• Stakeholder inclusiveness. MERLIN Properties’ 2016 Sustainability Report has been prepared taking into account our stakeholders’ expectations and concerns in connection with the Company’s operations and performance. These expectations have been considered by the MERLIN Properties personnel who are in contact with our stakeholders, while relevant matters published in the media and included in questionnaires and sustainability indices targeting investors, such as DJSI, EPRA or GRESB, have also been analysed.

• Sustainability context at MERLIN Properties. The way in which the Company’s activities and services interact with the social, economic and environmental context has been evaluated.

• Materiality. A materiality analysis has been conducted to define the CSR aspects that are most relevant to MERLIN Properties, as explained on the following pages.

• Completeness. After identifying material aspects, the content of the report has been designed to include sufficient information on these aspects to allow stakeholders to assess and understand MERLIN Properties’ economic, environmental and social performance in recent years.

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GRI principles for information processing and quality

This report has been drawn up applying the following GRI information quality principles:

• Balance. This principle states that CSR reports should reflect positive and negative aspects of the Company’s performance. By applying this principle, a broad and unbiased picture of MERLIN Properties’ overall performance has been provided.

• Comparability. The Company has compiled and reported information so that stakeholders are able to analyse how its performance has evolved in recent years, thus supporting analysis relative to other organisations.

• Accuracy. The information contained in this report is intended to include sufficient details to meet the expectations expressed by the Company’s stakeholders.

• Timelines. MERLIN Properties aims to update the content of this CSR report annually to provide stakeholders with regular access to information on the Company’s performance.

• Clarity. MERLIN Properties seeks to report on performance in a manner that is accessible and clear to all our stakeholders.

• Reliability. MERLIN Properties has described the report preparation process, which guarantees that the content can be subject to external examination to establish the quality and materiality of the information.

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Materiality analysis

In line with the GRI G4 guidelines, this document includes information on indicators associated with aspects that have been classed as material.

To achieve this objective, a specific analysis of the key CSR issues has been carried out, based either on their influence on stakeholders’ assessments and perceptions or on their direct impact on the medium- and long-term success of MERLIN Properties’ strategy.

Specifically, the main activities carried out to analyse materiality are as follows:

• Meetings with the directors and managers of the Company’s key areas.

• Comparative analysis of the content included in the CSR/Sustainability reports of other companies operating in MERLIN Properties’ industry.

• Identification of investors’ CSR requirements based on an analysis of the content/indicators requested by initiatives such as GRESB, EPRA and Dow Jones Sustainability Index (DJSI).

• Analysis of over 40 news stories on the Company and its industry in 2016

These actions have resulted in the following materiality matrix:

Gobenance

Sustainable certification

Energy efficiency

Transparency & communication

Economic performance

Ethics, compliance & fiscal

Asset intervertion & development

Accesibility

Tenant wellbeing

GHG emissions

Talent management (employees)

Local community integration

Supply chain sustainability

assurance

WaterWaste

Dividend sustainability

Rele

van

ce f

or

the S

takeh

old

ers

gro

up

s o

f M

ER

LIN

Relevance for MERLIN-

+

Operational/business aspects

Economic aspects

Enviromental aspects

Social aspects

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Coverage of material aspect

Category Material aspectInside the organisation

Outside the organisation

Operational /Business

Governance

Ethics, compliance and fiscal responsibility

Asset intervention and development

Economic


Dividend sustainability

Environment

Sustainable certification

Energy efficiency

Greenhouse gas emissions

Waste

Water

Social

Tenant wellbeing

Talent management (employees)

Accessibility

Transparency and communication

Local community integration

Supply chain sustainability assurance

ı 75 ı


Having identified the material aspects (including coverage), the information required to prepare the report was compiled by means of interviews with and forms completed by the heads of the Company’s main areas.

Once the data was received and the information necessary to analyse materiality compiled, MERLIN Properties drew up the final version of this report. The GRI content table included in the following section shows readers the sections in which the information on each of the GRI standard indicators may be found.

Where all the requirements of the guidelines could not be covered in connection with a specific indicator, this has been mentioned in the table. MERLIN Properties plans to improve its information systems so as to include the data required in the following editions of this report.

Contact details

Please contact MERLIN Properties at the following address for any clarifications on the information reported or any aspect of the Company’s CSR performance: [email protected]

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7.2. GRI content index

Strategy and analysis

G4-1 4-5 Statement from the most senior decision-maker of the organization (such as CEO, chair, or equivalent senior position) about the relevance of sustainability to the organization and the organization’s strategy for addressing sustainability

G4-2 Part E of Annual Report on Corporate Governance

Key impacts, risks and opportunities

Organizational profile

G4-3 4 Name of the organization

G4-4 14-18 Primary brands, products and services

G4-5 Back cover Location of the organization’s headquarters

G4-6 Spain and Portugal Countries of operation

G4-7 24 Nature of ownership and legal form

G4-8 14-18 Markets served

G4-9 7, 8 Scale of the organization, number of employees, number of operations, total revenues

G4-10 44 Total number of employees by gender, employment type, contract and region

G4-11 100% of employees are covered by collective agreement

Employees covered by collective bargaining agreements

G4-12 MERLIN’s supply chain mainly comprises contractores and other service suppliers involved in asset operations

Description of the organization’s supply chain

G4-13 12, 13, 24 Significant changes to the organization’s size, structure, ownership, or its supply chain

G4-14 Not applicable State whether and how the precautionary approach or principle is addressed by the organization

G4-15 MERLIN has participated in the Dow Jones Sustainability Index

List of externally developed economic, environmental and social charters, principles, or other initiatives to which the organization subscribes or which it endorses

G4-16 › Asociación Española de Oficinas

› Asociación Española de Centros Comerciales

› International Council of Shopping Centers

List memberships of associations (such as industry associations) and national or international advocacyorganizations in which the organization:› Holds a position on the governance body› Participates in projects or committees› Provides substantive funding beyond routine membership dues› Views membership as strategic

General standard disclousures

General standard disclosures

Page or direct answer

Omissions Description

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Material Aspects and Boundaries

G4-17 Financial statements include MERLIN Properties and all its dependant societies. Annual accounts included in the Management Report are available through the corporate webpage: www.merlinproperties.es

List of entities included in the organization’s consolidated financial statements or equivalent documents

G4-18 71-73 Process for defining the report content and the Aspect Boundaries

G4-19 74 Material Aspects identified in the process for defining report content

G4-20 74. Material aspects are so for all MERLIN Properties’ societies.

Material Aspect Boundary within the organization

G4-21 This characterization has not been developed for this report. It will be developed in future edi-tions of the CSR Report

Material Aspect Boundary outside the organization

G4-22 Not applicable Restatements of information

G4-23

This report includes MERLIN’s first materiality analysis

Significant changes from previous reporting periods in the Scope and Aspect Boundaries

Stakeholder engagement

G4-24 35 Stakeholder groups engaged by the organization

G4-25 35 Basis for identification and selection of stakeholders with whom to engage

G4-26 35, 71 Approach to stakeholder engagement

G4-27 35, 71 Key topics and concerns raised through stakeholder engagement

Report Profile

G4-28 2014-2016 Reporting period

G4-29 2015 Date of most recent previous report

G4-30 MERLIN Properties will produce yearly reports

Reporting cycle

G4-31 75 Contact point for questions regarding the report or its contents

G4-32 Core Accordance’ option the organization has chosen and GRI Content Index for the chosen option. Reference to the External Assurance Report, if the report has been externally assured





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ECONOMIC PERFORMANCE


G4-DMA 36-38 Management approach

G4-EC1 7, 38. Direct economic value generated is ex-pressed as gross rents.

Direct economic value generated and distributedIncluding revenues, operating costs, employee wages and benefits, payments to providers of capital and to government and community investments

Indirect Economic Impacts

G4-DMA 53 Management approach

G4-EC7 53 There are not available data disaggregated on the investments to which this chapter refers. MERLIN will consider including it in future CSR reports

Development and impact of infrastructure investments and services supported

G4-EC8 53 Significant indirect economic impacts, including the extent of impacts

ENVIRONMENTAL PERFORMANCE

Energy

G4-DMA 63, 64 Management approach





G4-33 The indicators included in the Independent Review Report of pages 84 and 85 have been externally reviewed

Organization’s policy and current practice with regard to seeking external assurance for the report. Information about the relationship between the organization and the assurance providers and whether the highest governance body or senior executives are involved in seeking assurance for the organization’s sustainability report

Governance

G4-34 25 Governance structure of the organization, i ncluding committees of the highest governance body and any committees responsible for decision-making on economic, environmental and social impacts

Ethics and integrity

G4-56 30 Organization’s values, principles, standards and norms of behavior such as codes of conduct and codes of ethics

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G4-EN3 65, 66 Energy consumption within the organization (fuel consumption from renewable and non-renewable sources, purchased, generated and sold electricity) and standards, methodologies, and assumptions used

G4-EN5 65, 66 Energy intensity

G4-CRE1 65, 66 Building energy intensity

Agua


G4-EN8 66. Water consumed by MERLIN’s assets is supplied from municipal distribution networks.

Total water withdrawal by source

G4-CRE2 66 Building water intensity

Emissions


G4-EN15 67, 68 Direct greenhouse gas (GHG) emissions (Scope 1)

G4-EN16 67, 68 Energy indirect greenhouse gas (GHG) emissions (Scope 2)

G4-EN18 67, 68 Greenhouse gas (GHG) emissions intensity

G4-CRE3 67, 68 Greenhouse gas emissions intensity from new construction and redevelopment activity

G4-CRE4 This data are not currently available. It will be included in future editions of the CSR Report

Greenhouse gas emissions intensity from new construction and redevelopment activity





Effluents and Waste


G4-EN23 69 Assets whose waste manages MERLIN represent 63% of the portfolio of assets in which MERLIN carries out the control of consumption

Total weight of waste by type and disposal method

Products & Services


G4-EN27 65 Extent of impact mitigation of environmental impacts of products and services

Compliance


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G4-EN29 MERLIN has not received any fine or sanction

Monetary value of significant fines and total number of non-monetary sanctions for non- compliance with environmental laws and regulations

Overall


G4-EN31 57 Environmental expenditures are not currently available. They will be included in future editions of the CSR Report

Total environmental protection expenditures and investments by type

Environmental Grievance Mechanisms


G4-EN34 51 Number of grievances about environmental impacts filed, addressed, and resolved Through formal grievance mechanisms

SOCIAL PERFORMANCE – LABOR PRACTICES AND DECENT WORK

Employment


G4-LA1 45 In 2016, the company has hired 4 employees (25% women). 25% of the new hires are less than 30 years old, 50% between 30 and 50 years old, and the remaining 25% is older than 50 years old. The ups and downs caused by the processes of mergers, as well as retirement and employee internships / fellowship trainings are excluded from the calculations.

Total number and rates of new employee hires and employee turnover by age group, gender, and region

G4-LA2 46 Benefits provided to full-time employees that are not provided to temporary or part-time employees, by significant locations of operation





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Training and Education


G4-LA9 46 35% of the training hours went to women. The training went to employees in non-managerial positions.

Average hours of training per year per employee by gender, and by employee category

Diversity and Equal Opportunity


G4-LA12 26,43,44 Breakdown by age:ManagementBetween 30 and 50 years old: 75%Above 50 years old: 25%

Rest of employees:Under 30 years old: 5%Between 30 and 50 years old: 72%Above 50 years old: 23%

Board of Directors:Between 30 and 50 years old: 40%Above 50 years old: 60%”

Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity

SOCIAL PERFORMANCE – SOCIETY

Local communities


G4-SO1 MERLIN extents to all its assets all dialogue and participation tools considered in the management approach

Percentage of operations with implemented local community engagement, impact assessments, and development programs

G4-SO2 52 Operations with significant actual or potential negative impacts on local communities

G4-CRE7 No person has been displaced or resettled for MERLIN’s assets.

Number of persons voluntarily and involuntarily displaced and/or resettled by development,broken down by project

Anti-corruption


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G4-SO3 Risks, including corruption, are evaluated through the corporate Risk Management System

Total number and percentage of operations assessed for risks related to corruptionAnd the significant risks identified

G4-SO4 31 Communication and training on anti-corruption policies and procedures

G4-SO5 The Company has not detected any cases of corruption

Confirmed incidents of corruption and actions taken

Anti-competitive Behaviour


G4-SO7 The Company has not received any lawsuit for anti-trust practices

Total number of legal actions for anti-competitive behaviour, anti-trust, and Monopoly practices and their outcomes

Compliance


G4-SO8 The Company has not received any fine or sanction

Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations

Grievance Mechanisms for Impacts on Society


G4-S011 51 Number of grievances about impacts on society filed, addressed, and resolved through formal grievance mechanisms

SOCIAL PERFORMANCE – PRODUCT RESPONSIBILITY

Customer Health and Safety


G4-PR1 MERLIN evaluates possible impacts on health and safety on the occupants (tenants and visitors) of all its assets

Percentage of significant product and service categories for which health and safety impacts are assessed for improvement

G4-PR2 There has not been any incident related to health and safety regulations

Total number of incidents of non-compliance with regulations and voluntary codes concerning the health and safety impacts of products and services during their life cycle, by type of outcomes

Labelling of products and services

G4-DMA 55, 62, 64 Management approach

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G4-PR4 There has not been any incompliance of the regulation or volun-tary codes related to products and services’ labelling

Total number of incidents of non-compliance with regulations and voluntary codesconcerning product and service information and labelling, by type of outcomes

G4-PR5 50 Results of surveys measuring customer satisfaction

G4-CRE8 55,62, 64 Type and number of sustainability certification, rating and labelling schemes for new construction, management, occupation and redevelopment

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7.3. Independent review report

ı 85 ı


RSC 16

Paseo de la Castellana, 257

28046 Madrid

+34 91 769 19 00

[email protected]

www.merlinproperties.com

csr16 - merlin properties...ı 5 ı 2016 corporate social responsibility report these commitments...

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