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The inflows of global equity funds to Ireland and the NAMA effect – an analysis

Patrick Ryan Senior Property Advisor, Hotel & Leisure


Content

• An Overview of NAMA • Myths about NAMA • NAMA’s Hotel Portfolio • NAMA’s Hotel Strategy • Conclusion


An Overview of NAMA


A Brief Outline of NAMA • •

NAMA was created in response to the banking crisis The Agency purchased development and associated loans from

participating institutions

• • •

Operations commenced in March 2010 with challenging objectives The organisation has evolved and adapted to changing market conditions

It continues to have a high public profile and wide range of active stakeholders


Current Location and Quality of Portfolio Property Portfolio by Location Northern Ireland 4%

Rest of World 10%

ROI Portfolio By Sector

Retail 24%

Development 14%

Hotel & Leisure 7%

Dublin 38%

Rest of GB 12%

Industrial 2% Land 14%

Residential 18%

London 17% Rest of Ireland 19%

Office 19% Other 2%


Myths about NAMA’s Hotel Portfolio


Myths versus Realities Myth

Reality

NAMA-secured hotels enjoy a competitive advantage

NAMA will NOT support non-viable Hotels

NAMA Supports loss making Hotels

Hotels which are unable to trade profitably will be sold and will not be supported

NAMA-secured hotels dominate the industry’s landscape

NAMA currently has security over a total of 108 operating Hotels out of 835 currently operating in Ireland (13%) NAMA has 10,700 hotels rooms which represents just 19% of the entire market

NAMA is responsible for all enforced hotels in Ireland

NAMA has enforced on just 27 hotels from a total of 124 where it originally had security

NAMA-secured hotels can undercut competitors on room rates as NAMA is only concerned with short-term cash

Eroding both EBITDA and market share is the fastest way to obliterate the market value of the Hotel asset and NAMA does NOT support this


Working with NAMA • •

Open and Transparent All hotel assets are fully and comprehensively marketed in public by third

party agencies

Reject inaccurate claims that transactions with NAMA are slower than dealing with other banks or institutions. NAMA current credit decision

turnaround time is 4days

• •

Available at all times to meet investors and explain our modus operandi All Enforced Properties are listed on www.nama.ie


NAMA’s Hotel Portfolio


NAMA’s Exposure to the Hotel Market 835 Hotels Operating in Ireland

134 Hotel Assets intitially linked to NAMA Loans acquired in 2010

108 of which are currently operational 10 Sales to date, leaving 124 57,000 Hotel Rooms in Ireland

10,700 operational Hotel Rooms in NAMA


Geographical Spread of 108 NAMA Hotels in Operation Connaught: NAMA Portfolio – 14% 15 Hotels

Munster: NAMA Portfolio – 27% 29 Hotels

Ulster (Excluding Northern Ireland): NAMA Portfolio – 4% 4 Hotels Dublin: NAMA Portfolio – 29% 31 Hotels Leinster (excluding Dublin): NAMA Portfolio – 27% 29 Hotels


Non Operational Hotels 3 Partial Exposure Hotels

11 Closed Hotels •

2 Incomplete Hotels

• •

16 of the 124 assets are not currently trading as hotels . Five of these assets are either incomplete or NAMA only has partial exposure e.g suites To date 11 Hotels (approximately 1,000 rooms) have been closed under NAMA’s remit The eleven closed hotels are located in Dublin (5), the rest of Leinster (2), Munster (2) and Ulster (2)


How are NAMA Hotels Managed By number the majority of the hotel portfolio is managed by owner operators

Owner Operator , 50%

Leased , 27%

Management Contract , 23%


NAMA’s Hotel Strategy


Strategy - Overview •

A key objective is to implement case strategies that balance the most profitable and expeditious disposal options.

• •

Maximise income over the portfolio. The individual characteristics of the property should be considered, for example its location, type, size and letting/planning status.

Determine the related market risk and most likely disposal period on an open market basis.


Strategy Hotel Market Activities/Initiatives Asset Sales

Unviable Assets

Capital Expenditure

Recovery in Irish Property Market

Loan Sales

Vendor Finance


Strategy - Asset Sales Disposals to be phased subject to market absorption capacity and acceptable offers.


Strategy - Asset Sales • • • • •

Over €160 million achieved in asset and loan sales completed to date. 10 hotels sold In Ireland to date, equating to approximately 900 rooms Demand is focused on Prime Dublin Assets but value in regional good quality assets Sales to date have been spread geographically It is likely that the focus will be for prime Dublin assets in the short term

NAMA Hotel Sales to date 8 6 4 2 0 2012 Connaught & Ulster

2013 Dublin

Greater Dublin

Munster


Asset Sales - Recent NAMA Sales Trinity Capital Hotel

• •

195 Bed Hotel Located in Dublin City Centre with a 3 star rating Excess of €35m sale price achieved, equating to over €180,000 per room


Asset Sales - Recent NAMA Sales Fota Island Hotel and Resort

• •

131 Bed Hotel and Resort Located in Cork with a 5 star rating Excess of €20m sale price achieved, equating to €160,000 per room


Asset Sales - Recent NAMA Sales Morrison Hotel, Dublin

• •

138 Bed Hotel located on Dublin’s Quays with a 4 star rating Excess of €22m sale price achieved, equating to €159,000 per room


Asset Sales – Profile of Buyers • Investment into the hotel market is largely made up of private equity investors, funds and independently wealthy individuals

• •

Cash offers dominate

Foreign inward investment is strong. Recent transactions include investment from China and the USA


Strategy - Capital Expenditure NAMA is committed to providing funding to hotels for capital expenditure purposes where such investment is economically viable and is expected to result in a positive Return On Investment.


Strategy – Vendor Finance & Loan Sales Vendor Finance may help potential investors overcome the low availability of credit that currently acts as a barrier to market entry. Loan Sales are a resourceful way to realising disposals and gaining access to large pool of potential investors.


Conclusion


NAMA’s Challenges in the Hotel Sector •

Market Challenges – translating emerging hotel recovery in Prime Markets (e.g. Dublin) to regional markets

• •

Economic Challenges – wider economic backdrop in Ireland and Europe Deleveraging – NAMA needs to be cognisant of deleveraging strategies undertaken by other financial institutions


Hotel Market Outlook • Trading outlook has stabilised generally with moderate growth prospects – retention of 9% VAT rate is of significance

Transactional market has improved significantly, particularly for larger well

located assets.

Two pillar banks have announced a return to lending albeit at more modest levels.

Revaluation by Local Authorities will bring welcome respite to hotels suffering heavy burden of rates liability.

Absence of any meaningful development for some years will allow existing hotel

stock to improve trading in absence of new capacity.


Conclusion • NAMA holds security over just 13% of the operating Hotels in Ireland which are spread throughout the country

• •

Trading outlook for hotels is positive, NAMA’s Hotel portfolio is well located

NAMA is providing capital expenditure in order to enhance value for viable hotels. Unviable operations have not been supported.

A range of strategies to deleverage its exposure to the sector include assets sales,

loans sales and vendor financing are at NAMA’s disposal.



Patrick Ryan - NAMA