Merlin sells €1.9 billion bank branch portfolio to BBVA

BBVA exercises its preferential right to purchase 683 bank branches put on sale by the Spanish REIT MERLIN Properties SOCIMI, S.A.

Last Friday, Merlin properties confirmed the sale of the «Tree Portfolio» to BBVA composed of 683 bank branches which had been put on sale last year as announced by the REIT’s CEO, Ismael Clemente. For these retail units, BBVA will pay a price of c. €1,987,000,000.

This portfolio was the first acquisition completed by Merlin Properties following its initial public offering. The book value of the portfolio according to its balance sheet was 1.750 million euros and the sale has been achieved at a 13% premium. According to the information transmitted by the REIT to the Spanish securities exchange (CNMV), Merlin has managed to achieve a profit on this operation of €304 million, in other words 0,65 euros per share. This transaction earned an 18% return for the company.

This bank branch portfolio was sold to Merlin as a sale & leaseback with an obligatory term until 2040 on a triple net basis with an annual revision to European inflation levels, multiplied by 1.5.

BBVA is understood to have paid a rent amounting around €80 to €85 million euros a year. Important to note that this quantity paid in 2022 and following years was increasing as the rents were indexed with inflation, which would make the financial entity have to increase its rental obligation to between 86 and 91 million per annum. Extrapolating this obligation to 2039, and without considering inflation, BBVA would have had to pay at least 1.5 billion in rent.

The liquidity influx from this sale to BBVA will be used for dividends and debt reduction.

A total of 1.250 million euros will be added to the REIT’s cash account on their balance sheet. 250 million euros will be destined to be distributed as an extraordinary dividend and the resting amount will be destined to reduce the debt that the REIT has recently acquired for its growth strategy. As at the end of fiscal year 2021, Merlin’s net financial debt was 5.247 million euros, after repaying 548 million euros in debt.

The focus on reducing debt has allowed Merlin to lower their average cost of debt down to 2.04% and down to an average duration of 5.7 years. In 2023, a 740 million euro bond will reach its maturity date and in 2024 so will an 850 million euros syndicated loan.

With regards to dividends, Merlin announced it would pay a dividend of 0.4 euros per share in 2021 and expected to pay 0.45 euros per share in 2022. After the sale of Tree, the dividend would double the initially expected amount in 2022.

BBVA: More flexibility in their banking network

On the other hand, BBVA justifies the acquisition of the bank branches by emphasizing that they will achieve better flexibility in their management of their banking network and they expect to achieve substantial economic savings with time when compared to having kept the leasing agreement. The transaction is expected to be finalized by the end of the second semester of 2022.