Spanish REIT Merlin Properties is paying €1.8bn ($2bn) for listed rival Testa.

An initial 25% stake in Testa, a subsidiary of Spanish property company Sacyr, has been bought by Merlin.

Sacyr said the deal would “significantly improve” its financial position.

The deal, due to complete in the coming months, further increases Merlin’s size.

The Sociedad Anónima Cotizada de Inversión en el Mercado Inmobiliario (SOCIMI) was created in June last year with a €1.5bn initial public offering (IPO) – Spain’s largest since July 2011.

Proceeds from Merlin’s IPO were used to buy a portfolio of fully let, high-quality Spanish real estate and finance expansion through commercial property in the Iberian region, with a focus on prime assets in Spain’s main cities, with some investment in Portugal.

Ismael Clemente and Miguel Ollero, founding partners of Spanish asset manager Magic Real Estate, manage Merlin, along with David Brush, former head of RREEF.

Also in Spain, Canada Pension Plan Investment Board, GIC, Generali and a Qatari sovereign wealth fund recently backed a €1.25bn bond issue by Spanish listed property company, Colonial, it is understood.

Barcelona-based Colonial issued four and eight year notes with an average coupon of 2.2%. The respective €750m and €500m issues were “substantially oversubscribed”.