Merlin Properties has announced that it has reached agreement to take over fellow Madrid-based company Metrovacesa to create the 'undisputed leading Spanish REIT' with €9.3 bn of real estate assets under management.
The combined company will leap into the top tier of listed European real estate companies. Its portfolio of €9.3 bn puts the new REIT in provisional 15th place among its listed peers, based on PropertyEU's ranking by AUM at H1 2015. The ranking was part of the Top 100 Investors which was published in October 2015.
In a statement late on Tuesday, Merlin said that the new entity will own the single largest diversified property portfolio in Spain, with greater exposure to the Madrid and Barcelona office CBD and a dramatic increase in scale in shopping centres tobecome the number two player in the sector in Spain. Once the integration is completed, the company will reach a pro-forma gross asset value of €9.3 bn, net asset value of €4.9 bn and annual gross rents of €450 mln.
Simultaneously, Metrovacesa will combine its multi-family rented residential portfolio with Testa Residencial, a subsidiary of Merlin, to create one of the Spanish leaders in this sector. It will have more than 4,700 units under management, a pro-forma GAV of €980 mln, NAV of €617 mln and annual gross rents of €35 mln, which could grow through further contributions.
The transaction will take place in several stages. Firstly, Metrovacesa is being spun off into three business lines: commercial property with a GAV of €3.2 bn and annual gross rents of €152 mln, rented residential with a GAV of €692 mln and annual gross rents of €22 mln and development assets, which will be retained by Metrovacesa’s shareholders.
Secondly, Merlin will acquire Metrovacesa's commercial property portfolio at a valuation of €1.7 mln in exchange for 147 million new Merlin shares. The resulting stakes will be held by Merlin shareholders (68.76%) and Metrovacesa shareholders (31.24%), with the latter covered by a lock-up period of 180 days.
Metrovacesa is also adding its multi-family rented residential at net asset value to Testa Residencial, in exchange for Testa Residencial shares. Metrovacesa shareholders will hold 65.76% of the resulting stakes, Merlin shareholders 34.24%. The transaction is subject to the approval of both MERLIN and Metrovacesa General Shareholders Meetings, which are expected to take place in September.
The merger symbolises the transformation of the Spanish listed sector in the last 10 years. Metrovacesa, which traces its history back to 1918, was the largest listed developer in Europe during the last boom and its international ambitions included owning a majority stake in French peer Gecina and paying over €1 bn to acquire HSBC's headquarters in London's Canary Wharf in 2007.
But Metrovacesa, like the Spanish listed sector in general, collapsed following the outbreak of the Global Financial Crisis in 2008. A year later the company reported a €738 mln loss and sold itself to its creditor banks to cancel some €2 bn in debt. The Gecina stake and the HSBC Tower were disposed of as part of a major restructuring. Merlin, on the other hand is one of the first generation of companies created under the Spanish REIT system that was created to kickstart the ailing listed sector.
