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Archive for March 29th, 2011

With a group structure that extends to 70 companies and turnover of more than GBP £200m, McAleer and Rushe (M&R), which was founded in 1967, is one of Northern Ireland’s biggest property companies. Its development interests are mostly in the UK though it has some developments in Northern Ireland and the Republic – in the case of the latter, it has been involved in the development of a hotel at Newtown Road in Waterford and the retail park at Trim Road in Navan but the Republic represented just GBP £0.5m of the groups GBP £62m turnover last year. The BBC today reported on its accounts for the year ended March 2010 which were submitted to Companies House last week. The accompanying report confirms that some of the company’s loans are now in NAMA.

The report and accounts show that the year ending 31st March 2010 was a pretty lousy year in which the company made a loss of GBP £11m on turnover of GBP £62m, the turnover was down 45% from the previous year and even extracting out the exceptional costs of GBP £7m, the company was still in the red. Given the claim on the M&R website of annual turnover of GBP £200m, it would seem that these consolidated accounts don’t include all companies in the group. But the company has net assets of GBP £5m, which is no small feat for a property company these days. That said, the auditors did comment on the difficulties in establishing the reliability of the value placed on property assets. The company has paid down GBP £9m in debt last year which meant that at the end of March 2010, net debt was at GBP £58m. The company employed 106 people in March 2010. The highest paid director is recorded as having received GBP £407,993 in that year, up from GBP £287,860 the previous year. NAMA might not be impressed. The company is surprisingly upbeat in respect of its prospects for the construction side of its business and its website reveals a healthy stock of projects under construction. M&R says that it is developing the Favour Royal Hotel and Golf Resort in County Tyrone with fellow Northern Irish property company, Jermon Developments which is presently in administration owing GBP £100m to Anglo and Bank of Ireland.

With respect to the company’s loans, it says that it had, in March 2010, GBP £51m of term loans and a further GBP £10m of overdrafts. All of the loans are said by the company to be repayable on demand which would generally imply there had been a breach of covenant, possibly loan to value covenants. It is not clear what loans have gone to NAMA but the company does say, as at 21st March 2011 (that is, just last week) that it has submitted a business plan to NAMA and is waiting for NAMA to express its views on the plan.

Last year, there was an entry on here that dealt with the disposal by McAleer and Rushe of a property at 2-14 Baker Street in London which was subject to a loan from Bank of Ireland (one of the five Irish financial institutions which is transferring land and development loans to NAMA). The property was reportedly bought for GBP £57m in 2005 and was sold last year for GBP £29m, on the face of it making a nice tidy loss of ~GBP 28m. The question posed on here in the entry titled “Mystery on Baker Street” was what marketing of this property had taken place to ensure the sale price was maximised, because on the face of it, a NAMA-bound loan was being sold at a loss.

This issue is related to the unsubstantiated allegations made by outgoing Fianna Fail senator Mark Daly who has claimed that loans have been sold at below their market value. In the M&R sale of Baker Street, the buyer was property colossus British Land which is unconnected to M&R, but surely there are questions to be asked about the marketing of the loan/property to ensure the sale price was maximised. NAMA claimed to have overseen the sale of €2.7bn of loans in 2010. It may well be time for an investigation into the sale of these assets to ensure that values were maximised in NAMA’s favour. It is worthwhile repeating that although NAMA has a code of practice for the disposal of loans and assets once NAMA takes them over, there was no such code in existence at the banks last year.

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Looking at the Knight Frank publication yesterday of their Global House Price Index, we see that Ireland was yet again a world leader in 2010 with an annual decline in house prices of 10.8%. You might think that the worst is over here, but that may not be the case. Although none of us has a crystal ball, the Central Bank of Ireland (CBI) produced a baseline scenario for property prices just two weeks ago in which it indicated a drop of 55% from peak prices before we begin to recover – this was the CBI’s baseline scenario, its adverse scenario, which is intended to model the worst possible anticipated outcome, shows a drop of 60% from peak. If the CBI is correct in its baseline scenario then by reference to what is the most reputable actual house price series in the country, the ESRI/Permanent TSB index, that means that prices nationally have an average  further 26% to fall from the end of 2010 with a modest annual recovery from 2012 onwards.

It might be worth pointing out that NAMA has recently said that it feels that prices have dropped by more than is claimed by the ESRI/PTSB – NAMA’s chairman, Frank Daly said that prices in November 2009 were already 50% off peak whereas the ESRI/PTSB was, at that point, claiming that prices were only 29% off. Estate agents and property professionals have also claimed that actual price declines have been greater than those shown in the ESRI/PTSB house price series. And if NAMA is correct, that may mean that prices may not have much further to fall by reference to the CBI’s baseline scenario, but it should also mean that prices are already 50%-plus off their peaks in 2007.

For what it is worth, below is the latest list of forecasts and projections. The list is available in this spreadsheet where you will find the source for the forecast/projection in the comments field.

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