Merlin sells €225M office portfolio and negotiates retail asset contribution.

Spain’s largest REIT, Merlin Properties SOCIMI, S.A. (MC: MRL) has sold a portfolio of 8 office parks (26 offices) to US-based Cain International and Germany’s Freo for €225 million.

Merlin is also reportedly in talks with Mazabi’s yet to be listed REIT, Silicius, to contribute three shopping centres worth €175 million in exchange for shares of the REIT which expects to list in 2020. The agreement, which would involve a capital increase, would lift Silicius’ total portfolio from €470 million to approximately €650 million, closer to its goal of reaching €1billion in assets in Q1 of 2020. The properties include some of Merlin’s best retail properties: Murcia’s Thader shopping centre, La Fira Shopping Centre in Reus (Catalonia) and a Leroy Merlin store in Madrid.

The REIT currently trades at €12.85 per share, up 15% over the last year with a price to earnings ratio of 9 which is 18% below the sector median according. According to Lee Davidson, Head of Quantitative Research for Morningstar, Inc., the stock has a quantitative fair value of €13.48 and thus approximately fairly valued as at the 3rd of December 2019.

Cain International is a privately held real estate investment firm which operates in Europe and the United States and has invested c. €5 billion since 2014 in real estate debt and equity and expects to double its European portfolio to €2 billion by the end of 2020. The US fund also invests in lifestyle & leisure businesses that deliver experiences, services and amenities for modern consumers. 

The portfolio, which comprises six office parks in Madrid and two in Barcelona, has a total area of 133,000m² (1.4 million sq ft). It is around three-quarters let, offering significant opportunities to add value through securing additional tenants, refurbishment and redevelopment. According to businessimmo.com the deal represents a 5.2% yield and a slight premium over latest appraisal.

Cain International’s partner on this transaction is FREO Group, with whom they have an existing joint venture for the development of a 15,000m² Class A office development in the 22@ district of Barcelona.

Daniel Harris, Head of European Investments at Cain International, said: “The Spanish office market is experiencing significant growth, with rents increasing and vacancy reducing, and these well-located assets offer substantial scope for value creation through a granular approach.

“We are pleased to be adding to our portfolio through this deal and are actively continuing to seek out further investment opportunities.  With this acquisition, our development in 22@ in Barcelona and our current pipeline, we are aggregating a portfolio of close to €500M which demonstrates our confidence in the current cyclical opportunity in Spain”

In June, the firm announced it had signed six deals valued at €1 billion in the past 18 months. With this closing and the current pipeline of transactions, the firm expects to double its European portfolio to €2 billion by the end of 2020.

Cain International and FREO Group were advised by Herbert Smith Freehills LLP, Garrigues and JLL. The vendor was advised by Uría Menéndez. Financing for the transaction was arranged by Starwood Property Trust, Inc. (NYSE: STWD), Starwood European Finance Partners Limited.