Nationwide sites to draw interest: ThePost.ie


TCH Archives > Sunday Business Post > 2007/02/04 > Nationwide sites to draw interest

Nationwide sites to draw interest
Sunday, February 04, 2007 - By Simon Carswell
The wide geographical spread of Irish Nationwide’s branch network across the country is likely to be a source of considerable interest for property developers in the forthcoming sale of the building society.

Although the initial furore over who might buy Irish Nationwide has died down recently, the fact that it owns all but three of its 52 branches, which are in plum locations around the country, might bring the properties into play during a sale and attract developers as potential suitors in association with a banking partner.

Bank of Ireland could be interested in the building society’s commercial property business, which accounts for 70 per cent of Irish Nationwide’s loan book.

However, a takeover by the country’s second-largest bank raises obvious competition issues that could force the bank to offload many of its branches, if a deal materialises. Eighteen branches are located in prominent parts of Dublin, so developers will be watching closely to see what happens in a sale.

Likewise, if a deal involving Danish bank Danske - owner of National Irish Bank and Northern Bank - proceeds, any overlapping branches could be sold. However, Danske has turned its nose up at Irish Nationwide, saying it would not be a ‘‘perfect match’’ for its core retail business. Anglo Irish Bank would have been an obvious suitor for Irish Nationwide years ago, but the two businesses have grown along similar lines and share many customers.

The building society’s properties will undoubtedly attract interest from private investors, whether an existing Irish bank or an international player swoops.

A buyer of Irish Nationwide could easily claw back some of the purchase price, expected to be between €1.5 billion and €2 billion, in a sale and leaseback of the building society’s properties - following similar moves at AIB and Bank of Ireland - or a straight sale of some of the properties.

‘‘It is certainly something that someone would look at,” said Sebastian Orsi, a banking analyst with Merrion Capital.

‘‘The potential might not be recognised on the balance sheet of the building society.

‘‘There could eventually be a sale and leaseback on the branches. It would free up some cash after a takeover. Sale and leasebacks have been a growing trend in Britain and the US - banks have been moving out of real estate so they can reinvest the money and crystalise value.”

The building society’s headquarters on Grand Parade - which stands on a footprint of 1.5 acres by the Grand Canal in Dublin 6, in one of the most expensive and sought-after residential areas in the country - could prove surplus to requirements if an Irish bank buys Irish Nationwide.

The issue of what to do with such a valuable building could be an issue if Irish Nationwide is acquired by an international bank which prefers a city centre headquarters located inside the canals.

The site could also be maximised as it has a considerable amount of warehousing and car parking space.

Given the level of interest in nearby properties - such as the Allianz building on Burlington Road and the adjacent Burlington Hotel - and the prices these properties are commanding, investors would be quick to snap up Grand Parade, given its huge development potential.

Overlooking the Charlemont stop on the Sandyford-St Stephen’s Green Luas line, the building could be flipped quickly, easily yielding a large return as a residential development.

Other desirable Irish Nationwide properties in Dublin include a landmark building on the corner of O’Connell Street overlooking O’Connell Bridge and the branches in Camden Street, Dundrum, Rathmines, Phibsboro, Drumcondra and Dun Laoghaire.

In its most recent annual report, Irish Nationwide values its freehold and leasehold premises at €71.4million on an existing use value basis and €74.1 million on an open market value basis, although the building society last revalued all the group’s properties in 2003.

The properties are likely to have increased considerably in the last three years and the development value could be at least double this.

A cursory glance at the properties that Fingleton has amassed during his three decades in the building society reveal some of the best high-street locations across the country. The words ‘‘Main Street’’ feature regularly in the addresses of outlets in major provincial towns.

Then there is the building society’s development properties.

It added €59.7 million worth of development land in 2005, bringing its landback to €107.2 million.

The building society’s properties could be worth well north of €200 million, if fully realised. This could take up to 10 per cent off the purchase price for Irish Nationwide.

The building society will also make a massive profit on a residential scheme that it’s developing on a prime site at the corner of Booterstown Avenue and Stillorgan Road in south Dublin. It bought the property more than 20 years ago when, for a time, it planned to relocate its headquarters to the site.

The building society received planning permission in 2005 to build 62 apartments on what is just over an acre. A nearby site was sold for €22 million in 2004.The building society will make considerably more than this.

Fingleton knows plenty of developers who might be interested in taking a punt on the building society’s properties; he finances some of the country’s wealthiest developers on projects in Ireland and Britain.

They will be well aware of the potential of some of the building society’s assets.

One of the most prolific of those developers, Sean Mulryan, is involved in a joint venture with Irish Nationwide in Britain.

The latest accounts for the Oxford-based company, Clearstorm, a joint venture between the building society and Mulryan’s Ballymore, showed that it had development properties valued at stg£71.6 million (€108 million) in 2005 - up from stg£35 million the previous year. It recorded losses of stg£9 million for 2005 while it was developing the properties, ‘‘pending the generation of revenues’’.

Irish Nationwide owns 51 per cent of Clearstorm; Ballymore holds the remainder of the company, which owns property in the east end of London. Economist Peter Bacon, a senior Ballymore executive, was appointed a director of Clearstorm just before Christmas.

In the Republic, Irish Nationwide operates three property development firms - Vernia, which has owned property in north Co Dublin, sold €10.8 million worth of development property in 2005.

The company had €32.8million on deposit in the building society at the end of the year. It made a profit of €5.7 million during the year and has closing shareholders’ funds of €22.6 million.

Another Irish Nationwide company, Cedarclose, has been much less active. It sold its remaining development property in 2004, netting €5.6 million. A third company, Pangrove, had investment property valued at €4.5 million at the end of 2005.

It had retained profits of €8.3 million and shareholders’ funds of €10.5 million at the end of the year.

Funding commercial property has been one of the main reasons why Irish Nationwide’s loan book has grown to €7.6 billion. It recorded pre-tax profits of €176million last year, largely on the massive growth in commercial property borrowing in Ireland and Britain.

The Financial Regulator will take a dim view of any potential takeover of the building society by a consortium of developers in a part-property play, like so many other Dublin-centred businesses.

However, the potential development value of the building society’s properties and the continuing demand for prime commercial properties among developers will mean that property investors could well be circling the building society during or after its sale.

The sale process has dragged on for some time now to the point where a piecemeal sale of the building society - the commercial property business to Bank of Ireland, the residential mortgage market to a rival lender and its branches to developers - might yet be considered a possibility.

‘‘Given the growth of private equity out there, I wouldn’t discount property investors becoming involved in some way,” said one senior banker.

‘‘Everything and everyone is a target.”