Merlin & Metrovacesa May Join Forces To Create Housing Socimi

14 June 2016 – El Confidencial

Create the largest Spanish housing Socimi. That is the plan that two giants in the sector, Merlin and Metrovacesa, are currently working on. For weeks now, they have been negotiating the creation of a joint vehicle, into which they would merge the residential assets that they currently rent out.

In total, these two giants together own almost 5,000 homes, of which, just over 1,500 would be contributed by the company chaired by Ismael Clemente, whilst the rest would come from Metrovacesa, which, in turn, has inherited most of those assets from its shareholder banks, above all the former Banif Inmobiliario fund, from Santander.

But, in addition, one of the points that they are analysing during these preliminary conversations is the possibility that both the entity chaired by Ana Botín, as well as its partner in Metrovacesa, BBVA, would benefit from this new company by injecting other homes that they currently hold on their balance sheets, which could add another 5,000 homes into the future vehicle.

If this marriage is consummated, the two parties would end up finding a solution to their respective problems. On the one hand, since it acquired Testa and inherited its residential assets, Merlin has been trying to remove them from its perimeter, given that its strategy is to focus on offices, logistics assets, retail premises and shopping centres.

On the other hand, for Metrovacesa, the main obstacle is management, given that the profound metamorphosis that the company has undergone in the last year, with the receipt of more than €1,000 million in assets and the carve out of its residential business, has converted the group into a giant that is still in the process of adapting to its own size.

Moreover, the complex times that the banking sector is experiencing, with a decrease in margins due to the low interest rate environment and the new regulations that are attacking its real estate assets, are putting pressure on the entities to put their large property portfolios on the market.

Although Rodrigo Echenique, the Chairman of Metrovacesa and a strongman at Santander in Spain, foresaw the recovery that the sector has undergone in the last two years and so decided to put a stop to his company’s asset sales and instead consolidate most of the bank’s property into his firm’s real estate arm, he is also aware that the time has now come to reap the rewards.

In fact, according to sources in the know, these conversations are being held directly between Metrovacesa’s shareholder banks, with Santander taking the lead, with the idea that Merlin’s team would take the reins in terms of the management of the new Socimi, although the entity chaired by Ana Botín would, presumably, be the major shareholder.

Santander controls Metrovacesa, with 70.27% of its share capital, followed by BBVA, which owns 20.52% and Popular, which owns 9.14%, whilst the remaining 0.007% is held by a small group of minority shareholders. By contrast, Merlin does not have a majority shareholder; most of its capital is traded freely on the stock market (free float), although several funds, including Blackrock, Fidelity, Invesco and Principal Financial Group, own significant positions. (…).

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake