Merlin Creates Largest Spanish REIT in Deal With Metrovacesa

  • Merlin issues $1.9 billion in stock; commercial assets merged
  • Metrovacesa owners get majority stake in residential business

Merlin Properties Socimi SA and Metrovacesa SA agreed to combine their commercial and residential property businesses, creating Spain’s largest real estate investment trust. Merlin shares rose the most in five months.

Merlin will pay 1.7 billion euros ($1.9 billion) in stock to the banks that own Metrovacesa and get a controlling stake in the combined firms’ commercial-property portfolio, issuing 146.7 million new shares at 11.40 euros each, the two firms said in a statement after markets closed on Tuesday. Merlin and Metrovacesa’s rental-apartment units will also combine into a business controlled by Metrovacesa’s shareholders.

The commercial REIT “will own the single largest diversified property portfolio in Spain,” bulking up in the office market in central Madrid and Barcelona, while “a dramatic increase in scale in shopping centers” will make it the nation’s second-largest landlord in that segment, the firms said.

Merlin rose as much as 5.5 percent in Madrid, the most since Jan. 22. The shares were up 45 cents, or 4.7 percent, to 9.88 euros at 9:58 a.m.

The combination will create a portfolio of more than 3 million square meters (32 million square feet) of offices, malls, retail stores and hotels, with a gross asset value of 9.3 billion euros and annual gross rental income of 450 million euros, the firms said. The recovery of Spain’s economy, now in its 12th quarter of expansion, is spurring demand for real estate and propelled a 29 percent annual increase in Spanish home sales in April, the biggest jump since 2008.

Merlin shareholders will own 69 percent of the combined commercial entity, while Metrovacesa’s investors, Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA and Banco Popular Espanol SA, which took control of the firm after the Spanish property bust, will hold 31 percent.

Metrovacesa’s shareholders will control 65.8 percent of the residential business to Merlin’s 34.2 percent. The combined residential business will have 4,700 units with a gross asset value of 980 million euros, and annual gross rents of 35 million euros.

After the transaction, the Metrovacesa brand will continue as a new company developing rental apartments. Goldman Sachs Group Inc. advised Metrovacesa, while Merlin was advised by Morgan Stanley.

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