Item Five on the Agenda

PROPOSED RESOLUTION TO THE ANNUAL SHAREHOLDERS’ MEETING OFMERLIN PROPERTIES, SOCIMI, S.A.CALLED FOR APRIL 5 AND APRIL 6, 2016, ON FIRST AND SECOND CALL, RESPECTIVELY

______

ITEM FIVE ON THE AGENDA:

Approval, for the purposes of article 529 novodeciesof Revised Capital Companies Law, of the Directors’ Compensation Policy.

PROPOSED RESOLUTION:

“For the purposes of article 529 novodecies of the Revised Capital Companies Law, to approve the Directors’ Compensation Policy, which is described and set out in the document entitled “MERLIN-Directors’ Compensation Policy”, which has been made available to the shareholders at the time of the call notice for this Shareholders’ Meeting and is attached as an Exhibit for ease of reference.”

Exhibit

DIRECTORS’ COMPENSATION POLICY OF MERLIN PROPERTIES, SOCIMI, S.A.

______

February 2016

DIRECTORS’ COMPENSATION POLICY OF MERLIN PROPERTIES, SOCIMI, S.A.

The Board of Directors ofmerlin Properties, SOCIMI, S.A., in compliance with article 529 novodecies of the Revised Capital Companies Law (the “LSC”), has approved the following directors’ remuneration policy (the “Compensation Policy”).

1.INTRODUCTION

1.1The Directors’ Compensation Policy of Merlin

Legislative Royal Decree 1/2010, of July 2, 2010, approving the Revised Capital Companies Law (“LSC”) establishes, inter alia, the need for listed companies to have a compensation policy for their directors.

In accordance with article 529 novodecies of the LSC, this policy must be in line with the compensation system established in the bylaws and must be approved by the shareholders’ meeting at least every three years as a separate item on the agenda.

In order to comply with the above-mentioned article, the Board of Directors of MERLIN PROPERTIES, SOCIMI, S.A. (“Merlin”, or the “Company”), at the proposal of the Appointments and Compensation Committee, has approved thisCompensation Policyfor the directors of the Company which will be submitted to the Shareholders’ Meeting for a vote as a separate item on the agenda.

Any compensation received by the directors for the discharge or termination of their office as well as, if applicable, for the discharge of executive functions, will be in accordance with this Policy, except for the compensation that has been expressly approved by the Shareholders’ Meeting of Merlin.

1.2Merlin’s internal regulations on the Compensation Policy for directors

The Compensation Policy for the members of the Board of Directors is set out in article 38 of the Bylaws in which the compensation systems applicable to the directors are determined.

That article describes the compensation items that may be paid by the Company depending on the functions performed by the directors:

• Independent directors (or who, without being executive or nominee directors, are considered other nonexecutive directors).
• Directors who are entrusted with senior management functions.

In turn, article 22 of the Regulations of the Board of Directors also regulates these aspects.

It should be noted that, although the above-mentioned articles establish the possibility that the directors (regardless of their category) may receive fees for attending board meetings, it has been decided to amend their wording in order to clarify that the only fees to be received, where appropriate, will be for attendance at committee meetings (and by the directors participating in those meetings).

Against this backdrop, there follows a description of the main characteristics of the Compensation Policy for the directors of Merlin, in accordance with the provisions of the LSC and of the internal regulations of the Company.

2.GENERAL PRINCIPLES OF THE DIRECTORS’ COMPENSATION POLICY OF MERLIN

The Compensation Policy seeks to attract, retain and ensure the commitment of the best professionals and in this way achieve the Company’s long-term objectives, while incorporating the necessary safeguards to avoid excessive risk taking and rewarding poor results.

It also takes into account the economic environment, the Company’s results, the Group’s strategy, legal requirements, corporate governance recommendations and best market practices.

With that in mind, the compensation policy is based on the following principles and criteria:

• Transparency in the information on the compensation of the members of the Board of Directors.
• Consistency with the business strategy, the objectives, the values and the long-term interests of Merlin.
• Aimed at boosting the profitability and sustainability of the Company in the long term.
• The compensation for the directors who perform their function in their capacity as such is granted exclusively to independent directors (or directors who, without being executive or nominee directors, are considered other nonexecutive directors).
• Executive directors receive their compensation for their executive status, not for their director status. This compensation consists of fixed and variable components, on the terms described in this Compensation Policy.
• Only executive directors receive variable compensation. This compensation is subject in all cases to the achievement of objectives that are specific, quantifiable and directly linked to the interests of the shareholders, with certain specific conditions for its receipt, aligned with prudent risk management and not simply derived from the general performance of the markets.
• The variable components of executive directors’ compensation may contain a mid- and long-term system for the gradual payment of the compensation over several years, in order to link the collection of such compensation over a period that takes into account the underlying economic cycle of the Company and adequate risk management.
• Capable of attracting and retaining the best professionals.
• Competitive with respect to the market standards of companies in the industry.

The Compensation Policy differentiates between directors who perform their function in their capacity as such, as in the case of independent directors, from those who perform executive functions at the Company.

2.1Characteristics of the Compensation Policy for independent directors (or for directors who, without being executive or nominee directors, are considered other nonexecutive directors)

The application of the principles set out in the preceding point to the compensation system for Merlin’s independent directors (or directors who, without being executive or nominee directors, are considered other nonexecutive directors) as directors performing their functions in their capacity as such, must meet the following the requirements:

It must be transparent in the information on the directors’ compensation.

It must provide an incentive by rewarding their dedication, skills and responsibility, without constituting an obstacle to their duty of loyalty or compromising their independence.

2.2Characteristics of the Compensation Policy for executive directors

The compensation system for directors who perform executive functions at the Company must be based on the following general principles and foundations:

The compensation must be assigned for the performance of executive functions in accordance with what is stated in their respective contracts.

It must take into account market trends and be in keeping with the Company’s strategic approach, making it effective at attracting and retaining the best professionals.

It must present a balanced relationship between the variable components and the creation of value for the shareholders.

The variable compensation seeks to align the interests of the executive directors with those of the Company’s shareholders. In no case may this compensation threaten the Company’s ability to maintain its solvency and financial position.

The executive directors’ variable compensation is configured with a mid- and long-term view, which drives the directors’ performance in strategic terms, in addition to the achievement of short-term results.

The compensation policy must therefore be aimed at generating value for the Company, seeking to align the shareholders’ interests with prudent risk management and with strict compliance with the legislation in force on director compensation.

3.COMPENSATION STRUCTURE FOR INDEPENDENT DIRECTORS (OR DIRECTORS WHO, WITHOUT BEING EXECUTIVE OR NOMINEE DIRECTORS, ARE CONSIDERED OTHER NONEXECUTIVE DIRECTORS)

In accordance with article 38 of Merlin’s Bylaws, the compensation structure for independent directors (or directors who, without being executive or nominee directors, are considered other nonexecutive directors) for performing their functions as board members is as follows:

• Fixed annual allowance for each independent director (or who, without being an executive or nominee director, is considered another nonexecutive director) in the amount of 90,000 euros gross.

If a director is appointed or removed during the year, the amount will be prorated according to the time that the director sat on the Board of Directors.

• Fees for attending meetings of each of the Committees on which they sit at any given time, consisting of an annual fixed amount which will be:

-15,000 euros gross for each director for sitting on the Audit and Control Committee.

-10,000 euros gross for each director for sitting on the Appointments and Compensation Committee.

The chairman of each of the Committees will receive an additional 5,000 euros gross per year.

In the event that a director is appointed or removed during the year, that amount will be prorated according to the time that he or she has sat on the Committee in question.

For the purposes of the provisions of article 529 septdecies of the Legislative Royal Decree 1/2010, of July 2, 2010, approving the Capital Companies Law, as amended by Law 31/2014, of December 3, 2014, in order to enhance corporate governance, together with the approval of this Compensation Policy, the setting of the annual maximum amount that Merlin may pay to the entire group of independent directors (or who, without being executive or nominee directors, are considered other nonexecutive directors) at the sum of 715,000 euros gross, which will remain in force until the Shareholders’ Meeting resolves to change it, will be expressly submitted to the Shareholders’ Meeting.

In the event that new independent directors (or who, without being executive or nominee directors, are considered other nonexecutive directors) join the Board of Directors during the term of the Policy, the compensation system described in this section will apply to them, and in such case the total amount to be paid as compensation to the independent directors will be adapted on the terms established in the resolution adopted by Merlin’s Shareholders’ Meeting.

4.COMPENSATION STRUCTURE FOR EXECUTIVE DIRECTORS

The members of the Board of Directorswith executive functions are entitled to receive compensation for the performance of those functions.

In this respect, the compensation structure for executive directors consists of the following elements:

a)Fixed compensation.

b)Annual variable compensation.

c)Management Stock Plan.

d)Severance pay.

Notwithstanding the amount they may receive in respect of the Management Stock Plan, the compensation for directors with executive functions is paid out of (or is subtracted from) the overall amount of compensation for all of the Company’s personnel; this overall amount of compensation is the result of the following formula:

(i)the higher of the following amounts: (i) 6% of the gross income received by the Company and its subsidiaries in the year; and (ii) 0.6% of the net asset value of the Company and its subsidiaries (including cash), calculated in accordance with the standards of the European Public Real Estate Association (“EPRA NAV”);

(ii)less the amount of the annual operating expenses of the Company and of its subsidiaries (including, in particular, audit expenses, expenses for tax, legal and labor advice, expenses for the appraisal and valuation of the real estate portfolio, leases, administrative fees, management and organizational expenses, costs and expenses associated with uncompleted transactions for the acquisition and/or sale of assets, and other general expenses).

The amount which, based on the above calculation, is payable to the executive directors is distributed, in accordance with the Bylaws, among the following items: (i) a fixed amount, in cash and in kind, in keeping with the services and responsibilities assumed; (ii) a variable amount linked to performance indicators of the director or of the Company’s results; (iii) a welfare component, including the appropriate welfare systems and insurance; and/or (iv) compensation for noncompetition undertakings assumed.

Notwithstanding the foregoing, the compensation system for directors does not currently provide for compensation for noncompetition undertakings.

The Board of Directors will be responsible determining for each of the executive directors the specific amount of each compensation item, following a report by the Appointments and Compensation Committee. The Board of Directorswill ensure that the individual compensation resulting from such distribution takes into account the responsibility and level of commitment entailed by the executive or senior management position held by each executive director. The executive directors affected will abstain from attending and participating in the relevant deliberations.

4.1Fixed compensation

The annual fixed compensation for each of the executive directors during the period of validity of the Compensation Policy will be three hundred thousand euros (€300,000), subject to the criteria and quantitative limits established in this Compensation Policy.

These amounts will remain fixed as long as the Board of Directors does not resolve to change them, on which information will be provided in the Annual Report on Directors’ Compensation to be submitted annually to the Shareholders’ Meeting for its consideration.

This compensation is deemed to refer to a complete year. Accordingly, if the executive director vacates his or her office on a date other than the start or the end of the year, he or she will receive the amounts actually accrued, in proportion to the time worked in that year.

4.2Annual variable compensation

The executive directors will be entitled to receive variable compensation or an annual bonus for the provision of their services the amount of which will be determined annually by the Board of Directors, at the proposal of the Appointments and Compensation Committee of the Company, based on its assessment of the achievement of quantitative and qualitative objectives, and will be submitted to the Shareholders’ Meeting for approval, subject to the compensation limits to which the total compensation for directors is subject, as described above.

Once the amount of the annual variable compensation has been determined, it will be split into two elements: (i) the annual bonus and (ii) the Annual Restricted Bonus.

4.2.1Annual bonus

The amount of the annual variable compensation will be determined by the result of applying 50 percent to the total amount of the annual variable compensation determined by the Board of Directors, at the proposal of the Appointments and Compensation Committee, for the executive director in question. This annual bonus will be paid in cash ten (10) days after the preparation of the financial statements of the Company for the year for which the objectives are assessed.

4.2.2Annual Restricted Bonus

This amount of the annual variable compensation consists of the remaining 50 percent of the annual variable compensation and will be subject to and conditional on (a) the executive director continuing to have, on the Payment Date (as defined below), an independent contractor or employment relationship with the Company (either as a director or as an executive) (unless circumstances are present which enable the director to receive the compensation without such relationship) and (b) the following premises:

(i)The executive director will acquire the right to 25 percent of the Annual Restricted Bonuswhich, in each case, corresponds to him or her once ten (10) days have elapsed after the date of preparation of the financial statements for the year for which the objectives of the Annual Restricted Bonus are assessed (“First Award Date”).

(ii)The executive director will acquire the right to 25 percent of the Annual Restricted Bonuswhich, in each case, corresponds to him or her on the dates on which the first, second and third anniversaries of the First Award Date take place.

The full amount of the Annual Restricted Bonus will be paid in cash on the date on which the fifth anniversary of the First Award Date takes place (“Payment Date”).

The executive directors will not be entitled to any payment in respect of the Annual Restricted Bonus until the Payment Date. Accordingly, they may not exercise any right in this connection or request any severance pay in relation to this variable compensation until such date, unless their relationship with the Company is terminated during the period over which the right to theAnnual Restricted Bonus is acquired, in which case the following rules will apply:

a)If the relationship ends due to retirement, death or total or absolute permanent disability, the accrual and the payment date of the Annual Restricted Bonus will be accelerated and brought forward so that the Annual Restricted Bonus will be considered fully accrued and its payment may be claimed upon termination of the contract.

b)The executive directors will not acquire any right whatsoever to receive any amount in respect of the Annual Restricted Bonus (and any amount potentially accrued or acquired will be considered canceled) if the relationship ends as a result of: separation or removal due to a breach of duty, the performance of any act or omission that causes damage to the Company, the occurrence of the necessary circumstances for the Company to be able to bring a company action for liability against the director; or the voluntary resignation of the director followed by the filing of a claim by the Company due to unfair competition or the unlawful soliciting of clients.

c)In any case other than those set out in sections a) and b) above, the Annual Restricted Bonuswill be considered accrued and will be paid on the Payment Date.

In addition, in the event of a change of control at the Company, the Annual Restricted Bonus will accrue in full and will be payable within ten (10) business days after the date of change of control. For these purposes, a change of control will be deemed to exist in either of the following two situations:

(i)A new shareholder directly or indirectly acquires a percentage above 30 percent of the share capital of the Company.

(ii)A new shareholder has the power to appoint a majority of the members of the Board of Directors.

4.3Management Stock Plan (“MSP”)

(i)Summary of the MSP:

The MSP is a variable compensation plan under which the executive directors and other members of the management team may be entitled to receive annually a certain number of shares of the Company once a predetermined period of time has elapsed, provided that the objectives set by the Company are met.