Investor Reaction Mixed to Merlin Real Estate IPO

The much-anticipated public debut of the Merlin REIT, the largest IPO in Spain in three years, has started to attract more interest, after losing 3.5 per cent off its IPO price in initial trading.

Merlin, which raised €1.25 billion with the public offering, closed at €10.365 a share on Tuesday, up from €9.65 in its debut on June 30. Shares were initially priced at €10.

Merlin is the fifth Spanish REIT to test the public markets this year, but it’s also the biggest – it was the largest IPO in Spain since lender Bankia went public in 2011, Bloomberg reports.

The Madrid-based fund plans to focus on acquiring office and retail properties, typically with a value between €40 million euros and €110 million. Merlin will use about half of the proceeds from the IPO to acquire Tree Inversiones Inmobiliarias, which leases 880 bank branches and five office buildings in Spain to BBVA, the Spanish lender, according to Bloomberg.

REITs are proving a popular way for funds to raise funds, with financial institutions showing little interest in lending to property companies. REITs also provide an avenue for smaller investors to make a diversified bet on the Spanish property market.

The public markets have supported the REITs, but they clearly remain wary. Lar Espana, a REIT focused on offices in Madrid and Barcelona, as well as retail parks and warehouses, has lost 5.3 per cent of its value since debuting in February.

Merlin reduced the size of its IPO from €1.5 billion to €1.25 billion, citing a “dangerous market.”

Ismael Clemente, chief executive officer of Merlin, discussed the market with Bloomberg:

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