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Archive for October 29th, 2010

One of the NAMA Top 10 developers (and I see marketing itself as “Ireland’s largest property group” on the Treasury China Trust website), Dublin based Treasury Holdings is the key party in two sets of results announced in the last couple of days. This morning, Real Estates Opportunities PLC (REO) announced its results for the six months ending the 31st August, 2010. REO which is 66% owned by Treasury recorded a loss after tax of GBP £45m (€39m) for the six month period – whilst its main UK asset the Battersea Power Station site has increased in value by 1.8% in the six months period to the end of August 2010 (interestingly the UK IPD commercial index increased by 3.5% in the same period) the value of its Irish assets fell by 8.2% though that is mainly down to a weakening of the euro during the period. Other highlights from REO:

(1) NAMA still hasn’t approved its business plan (at 29th October 2010)

(2) It is hopeful of planning permission for Battersea “in the near future”

(3) It still hopes to spin off the GBP £5bn Battersea project into a different company in 2011

(4) It’s is delivering storming results for its Irish rental operation with an annualised rent roll €40.6 million, 92% rent roll prepaid quarterly, 91% of rent subject to upward only reviews, occupancy levels at 95% and arrears of only 5%

(5) Management fees of GBP £1.1m were paid during the six month period to Messrs Ronan and Barrett’s Treasury group.

So not the best set of results but at least losses seem to have largely stabilized. On the other side of the world however, the recently renamed Treasury China Trust, 40% owned by Treasury, has delivered another set of positive results for Q3, 2010 with the following highlights:

(1) Profit after tax of €10.4m (Singapore Dollar 18.675m)

(2) Portfolio Occupancy of 86.9%, up by 3.3% year to date

(3) Real Estate portfolio valuation up 2.5% in the 6 months to 30 June 2010

(4) Completion of USD $480m financing for developments in Shanghai City Centre.

(5) The company is making dividend payments

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Remember those two investments of €3.5bn apiece made by the National Pension Reserve Fund (NPRF) in our two main banks, Bank of Ireland and Allied Irish Banks? Remember that these investments were in preference shares in both banks, paying a princely 8% per annum? Of course the pesky EU forbade those two banks paying out the 8% dividend in cash so we acquired ordinary shares instead  – 198,089,847 ordinary shares from AIB on 13th May 2010 then worth €280m (8% of €3.5bn) and 184,394,378 ordinary shares from BoI on 20th February, 2010 then worth €250.4m (7.2% of €3.5bn because BoI made the distribution over a month before the anniversary of the investment). If you’re of a nervous disposition, look away now because below are the current values of those dividends – yes we received less than a 2% return from AIB and 3.1% from BoI.

So the NPRF which was set up to manage pensions for future generations of our citizens is achieving an average return of 2.5% on €7bn of the €22.3bn total funds under management by the NPRF at the end of 2009. And whilst the €3.5bn invested in BoI is relatively safe for the time being, the same cannot be said of the €3.5bn in AIB which may suffer some deterioration in value. So an average of a 2.5% return then, during a year when globally stock markets rebounded in spectacular fashion – see below. I have used the mid-point of the two investments as the starting point – 20th April, 2009.

Now it is true that some have seen value in Bank of Ireland at these price levels. On 11th October, 2010 (when Bank of Ireland had a trading range of €0.63-0.68), analyst Gary McCarthy at UK brokerage Collins Stewart was talking up the stock with the not unrealistic notion that as the best capitalised of the domestic banks, it should be best placed to take advantage of any upturn with its dominant position in the market place. Two weeks later we are nearly 20% off that day’s mid-prices though it is fair to say that bank shares are volatile at present.

That the €7bn was unwisely invested by reference to 20-20 hindsight is one thing – that we are contemplating using more NPRF funds to prop up the banks is truly worrying – particularly to cover AIB. The government might say that without the banks there won’t be an economy for our pensioners to enjoy their pensions, but that would imply that we are willing to conceal the true cost of the bailouts and put in jeopardy the pensions of this generation.

UPDATE: 29th October, 2010. I am reminded that the NPRF has “agreed” (been “directed” more like) to underwrite the forthcoming AIB share issue. From AIB Investor Relations “A €5.4 billion equity capital raising will be launched during November which will be completed before 31 December 2010.  This equity capital raising will be fully underwritten by the National Pensions Reserve Fund Commission (“NPRFC”) at a fixed price of €0.50 per new ordinary share, which represents a discount of approximately 9.4 per cent to the official closing price of an ordinary share on the Irish Stock Exchange on 29 September 2010. “. With a price of €0.34 today, the NPRF will not only be picking up all the shares but will be realising a loss from Day 1 of €1.728bn. Actually this is probably the bigger story.

UPDATE: 30th October, 2010. The NPRF last night issued its Q3, 2010 performance report which shows that the €7bn investment in AIB and BoI is now worth €6.615bn. It is unclear how the investment has gone negative. The Independent today reminds us of the €1.8bn loss that will be made on Day One of the AIB share issue.

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