21/06/2016
MERLIN Properties and Metrovacesa will merge creating the undisputed leading Spanish REIT and one of the largest European diversified players
MERLIN Properties has entered into a definitive agreement with Metrovacesa’s shareholders for the integration of the company’s commercial portfolio into MERLIN, creating the undisputed leading REIT in Spain and one of the largest diversified players in Europe. The resulting 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 centers, a market segment in which it will become the number two player in Spain. Once the integration is completed, the Company will reach a pro-forma GAV of € 9.3 billion, NAV of € 4.9 billion and annual gross rents of € 450 million.
Simultaneously, Metrovacesa will combine its multifamily rented residential portfolio with Testa Residencial, a subsidiary of MERLIN, to create one of the Spanish leaders in this sector, with more than 4,700 units under management, a pro-forma GAV of €980 million, NAV of € 617 million and annual gross rents of € 35 million, which could grow through further contributions.
The transaction execution will consist of several stages:
• Spin-off of Metrovacesa into three business lines: (i) commercial property with a GAV of € 3,190 million and annual gross rents of € 152 million, (ii) rented residential with a GAV of € 692 million and annual gross rents of € 22 million and (iii) development assets, which will be retained by Metrovacesa’s shareholders.
• Acquisition of Metrovacesa’s commercial property portfolio at a valuation of € 1,673 million in exchange for 146.7 million newly issued MERLIN shares. The resulting shareholding stakes will be: MERLIN shareholders 68.76%, Metrovacesa shareholders 31.24%, the latter being subject to a lock-up period of 180 days.
• Metrovacesa contribution of multifamily rented residential at NAV with MERLIN’s equivalent subsidiary, Testa Residencial, in exchange for Testa Residencial shares. Resulting stakes will be: Metrovacesa shareholders 65.76%, 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 2016. Upon closing, the Board of Directors of MERLIN will be composed of 15 members, 9 independent, 3 representing Santander, 1 representing BBVA and 2 executive directors.
A clear strategic rationale
The shareholders will benefit from:
• Reinforced leadership of the Company in offices, enlarging the presence in Madrid and Barcelona CBD, with GLA of ca. 340,000 sqm of space.
• Dramatic increase in scale in the shopping centers division to become number two player in Spain, with significant presence in dominant and / or urban centers located in the highest GDP per capita regions in Spain.
• Tangible embedded upside in Metrovacesa’s portfolio and increased exposure to market tailwinds. Future increase in occupancy coupled with a shorter maturity profile positions the Company for compelling short-to-medium term value and FFO growth. The successful, rapid integration of Testa and the ability to extract value through like for like rent increase achieved in 2016 demonstrates the capacity of MERLIN to crystallize this growth.
• Enhanced options for the residential and hotel businesses. The transaction creates a national leader in the attractive rented residential market while deconsolidating the residential division from MERLIN, and increases the attractiveness and liquidity of the hotel division, becoming the leading net lease hotel operator in Spain.
• Sound capital structure preserved. MERLIN, BBB rated by S&P, will reinforce its credit through deleveraging (LTV reduced to 49% pre 2016 valuations) and improved financial ratios.
• The resulting entity becomes one of the largest diversified pure-play commercial REITS in Continental Europe and the undisputed Spanish leader across all asset classes. The business, capital structure and capital markets profile of the Company will offer global investors a highly attractive, liquid investment vehicle.
Unique resulting portfolio
The transaction will lead to a unique investment platform with an unparalleled footprint in the Spanish market across all asset categories. The commercial portfolio will span over more than 3 million sqm of office, shopping centers, logistics, high street retail and hotels. It will be predominantly office focused, comprising 44% of the combined portfolio value, high street retail at 21% and 18% shopping centers. The portfolio will enjoy the following key features:
• GAV of € 9.3 billion, NAV of € 4.9 billion, annual gross rents of € 450 million, FFO of € 267 million (based on MERLIN’s 2016 market consensus).
• 5.3% average gross yield, 90% occupancy and 7.1 years of average WAULT.
Appealing transaction from a financial perspective
The transaction will deliver a combined pro-forma NAV for MERLIN of € 10.41 per share (+5.7% versus Dec. 2015 NAV), and a combined pro-forma 2016 FFO per share of € 0.57 (+3.4% versus MERLIN 2016 market consensus). The € 140 million dividend guidance for 2016 will be maintained.
Furthermore, MERLIN management team has unilaterally decided to reduce the maximum limitation on overheads, currently at 6% of gross rents, to 5.75% in 2018/2019 and 5.5% from 2020. The Company, already the most efficient in Spain and on par with the most efficient peers in Europe and the US, will become even more competitive for the benefit of its investors. The Stock Plan will also be adjusted to reflect the increased size of the company.
Goldman Sachs acted as financial advisor to Metrovacesa. Morgan Stanley acted as financial advisor to MERLIN Properties.
Conference call
MERLIN Properties will host a conference call today, June 21, 2016 at 18:30 CET to discuss this announcement. Dial-in instructions for the conference call are outlined below. A replay of the call will be available in our website shortly after.
Webex link:
Conference Call:
Event Plus Passcode: 24707103
Participant Dial in numbers:
Spain +34 91 414 6106
France 0170706078
Germany 069222220489
UK +44 (0) 1452 583087
USA +1 866 629 0058
