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Brookfield Eyes Takeover Of €3.6B Spanish REIT

The Madrid skyline

Brookfield is mulling a takeover bid for one of Europe’s largest REITs, which has a portfolio with a gross asset value of €13B (£11.7B, $15.3B).

The Canadian investment giant has contacted the shareholders of Spanish REIT Merlin Properties about the possibility of buying a stake in the company, or even taking it private, according to Spanish newspaper Expansion. 

Merlin has a market capitalisation of €3.6B and is by far the largest property company in Spain. It was formed in the aftermath of the financial crisis by veteran Spanish investor Ismael Clemente and U.S. expat David Brush, a former director at Brookfield.

The company grew its portfolio from around €1B when it floated in 2014 to more than €13B, principally by snapping up assets from distressed Spanish banks and property companies. It has debt of €5.2B. 

Its shares have fallen by 40% since February, and now trade at a small discount to its NAV, which has attracted Brookfield, Expansion said. Shares in the company rose 10% on news of a potential investment by Brookfield. The company's largest shareholder is Santander, which owns 22% of the company. 

Brookfield has been looking for a big platform in Spain for more than five years and weighed bids for various Spanish property companies in the wake of the last crash. Since the coronavirus, it has taken a 7% stake in UK REIT British Land. That deal was done with Brookfield’s third opportunity fund.

Half of Merlin’s portfolio is in the office sector, about a third in logistics, and the rest in shopping centres and other retail, with the majority in Spain and a small portfolio in Portugal.

It said in its most recent results that its net rental income had fallen 13% to €199M in the first half of the year, as a result of asset sales and the impact of the coronavirus. 

Expansion said Merlin is a minority partner in Madrid Nuevo Norte, a 2.7M SF development project in the north of Madrid, and has previously looked to take control of the project. Brookfield could give it the firepower to buy and build the mixed-use scheme.