National Asset Management Agency - Annual Report 2013


Chief Executive's statement

In 2013, we achieved our first major debt redemption milestone – the repayment of €7.5 billion of the €30.2 billion of Senior Bonds that we issued to acquire our original portfolio of bank loans in 2010 and 2011. Excluding cash receipts arising from the IBRC liquidation, we generated cash proceeds of €4.5 billion in 2013. From inception to the end of 2013, NAMA had overseen the sale of €10.9 billion worth of loans and property and other assets held as security, including the sale of over 10,000 individual properties in Ireland and Britain. And in 2013, for the third year in succession, despite a prudent impairment policy, we generated a profit on our activities.

NAMA has again recorded a significant impairment charge: €914m in 2013 (2012: €518m). This reflects a robust and realistic impairment assessment of our loan portfolio undertaken at end-2013, comprising a line-by-line review of 85% of the portfolio. The impairment review continues to recognise the full extent of the decline in Irish property prices (approx. 25%) between November 2009 (the reference point for NAMA collateral valuations) and mid-2013. Notwithstanding the fact that 2013 saw the start of a recovery in the Irish property market, there is a normal lag effect between property price recovery and the alleviation of impairment provisioning. NAMA expects that impairment will be much less of a feature in NAMA's results from 2014 onwards.

It may well be that, in time, we will look back on 2013 as the year which marked a turning point in the Irish property cycle. Certainly the scale of activity in the commercial market and the degree of price recovery evident in parts of the residential market were well beyond the expectations of most market observers. The volume of activity in the Irish investment market was close to €2 billion which was about three times the level of activity recorded in 2012. What is remarkable is that most of this investment activity was instigated by international capital with very little debt involved. The €2 billion achieved in 2013 was two-thirds of the €3 billion peak level achieved in 2006 when investment activity was fuelled largely by over-zealous domestic investors financed by debt provided by domestic and foreign financial institutions. For the first year since 2007, prices in certain segments of the commercial market recorded year-on-year capital growth, most notably the Dublin prime office market. The residential market also showed evidence of a resurgence of activity, despite the various constraints which are delaying a normalisation of market conditions, including those created by negative equity and by the low level of mortgage lending.

Chief Executive's statement: Figures


I am pleased that NAMA was in a position to make a substantial contribution to the resurgence of activity in the Irish property market in 2013. We always said that we would make assets available to the market in line with its absorption capacity and, as demand picked up in 2013 and the market's capacity increased, we responded accordingly. By end-February 2013, just after IBRC was placed into liquidation, our cumulative sales in the Irish market had reached €900m; by end-February 2014, that had increased to a cumulative €2.3 billion. Our strategy in 2011 and 2012 proved, in retrospect, to have been strategically and commercially sensible: our strategy was to avoid force-feeding assets into a fragile Irish market, to allow prices to recover and, in the meantime, to focus on capturing and maximising the income that the assets produced.

During the first half of 2013, we completed the sale of our first major Irish loan portfolio to Starwood - an €800m par debt portfolio (Project Aspen) secured entirely on Irish commercial property. Innovative features of the transaction included the retention of a 20% equity stake and the provision of vendor finance. Another major sale - a €250m par debt portfolio secured mainly by a number of Irish regional shopping centres (Project Club) - completed in 2014.

The pace of disposal activity has continued into the first quarter of 2014. Transactions which commenced in 2013 and completed in early 2014 included a loan portfolio of €373m par debt– Project Holly – which was secured by offices, hotels and land in Dublin and Meath. In early April 2014, we announced the sale of the Northern Ireland debtor portfolio (Project Eagle) which comprises loans with a par value of £4.6 billion. This highly complex transaction is expected to complete by mid-2014. There are also a number of other loan portfolios which are either currently on the market or due to come to the market over the course of the year.

In 2013, we started to pursue a strategy of offering packaged portfolios of property to target the demand of international capital and the new Irish REIT vehicles. In the early part of 2014, we have completed the sale of two substantial asset portfolios - Project Platinum for €165m, a portfolio of four Dublin office buildings and Central Park (for €311m), a portfolio of office and residential assets in Dublin. We will follow these up by offering for sale a number of other asset portfolios including a portfolio of regional shopping centres and a residential portfolio. We also plan to bring a number of quality hotels to the market during 2014. This is in line with our commitment to ensuring that there is a pipeline of mainly Irish property portfolios (€250m at minimum) available for sale to the market in each quarter.


Our expectation up to the third quarter of 2013 was that we would be in a position to repay another €7.5 billion of Senior Bonds by end-2016 (cumulatively €15 billion) and the remaining €15 billion of our Senior Bonds by 2020. The resurgence in Irish market activity in 2013 has created opportunities for us in terms of accelerating Irish asset disposals and the pace at which we can repay our Senior Bonds. We now anticipate that we may be in a position to complete our work some two years ahead of schedule. That foreshortened horizon also brings with it its own challenges.

NAMA has always had to manage and reconcile many objectives, some of which were set for us by our legislation, others created by the legitimate expectations of the various stakeholders who have an interest in how we conduct our business. At this pivotal point and in the light of improved conditions in the Irish market, we are reviewing our options with a view to formulating a strategy which will continue to reconcile various objectives in a way which is optimal for the taxpayer and for the economy.

Our primary commercial objective was set in Section 10 of the National Asset Management Agency Act, 2009 ('the Act') which requires that we obtain the best achievable financial return for the State from management of our acquired assets.

This we have always interpreted to mean that, at minimum, we repay our €30.2 billion of Senior Bonds and our costs. I should emphasise that NAMA is self-financing and therefore is not, in any way, a drain on the Exchequer. The recent improvement in market conditions means that, in addition to the Senior Bonds, we can also aspire to repaying our €1.6 billion of subordinated debt and possibly returning a surplus to the Exchequer provided it is done in an orderly and phased manner, a strategy which has served us well to date.

Another major objective is to fulfil our commercial remit within the shortest feasible timespan. Of the €30.2 billion of the Senior Bonds that we originally issued, just under €20 billion was outstanding by the end of March 2014. This is a contingent liability of Irish taxpayers and part of our job is to remove that contingent liability progressively but in a commercially astute manner that does not threaten the viability of Ireland's strong return to the international debt market.

We also need to continue to respond dynamically to the strong demand for Irish assets evident during the second half of 2013 and in the early part of 2014. I have already mentioned the recent escalation in our portfolio and loan sales activity. This has enabled us to redeem a greater amount of Senior Bonds than we had envisaged: we have already exceeded the €10 billion cumulative Senior Bond redemption target which we had set for end-2014 and I expect that we will make substantial additional Senior Bonds repayments by the end of the year. We hope to reduce the €20 billion in Senior Bonds (outstanding as at end-March 2014) towards the €15 billion level by end-2014.

Not all assets, however, are suitable for early disposal. The value of some of our assets is being enhanced by intensive asset management activity, including efforts to improve planning and through capital investment and, over time, we are confident that this will yield a much better return for the taxpayer than would a strategy of early disposal.

As the Chairman has mentioned in his Statement, we are committed to making whatever contribution we can to funding residential and office development on a commercial basis over the coming years, particularly to meet current and prospective supply shortages in Dublin and a number of other locations in Ireland.

Notwithstanding the improved Irish market conditions, the challenges facing NAMA remain formidable. Clearly, we would hope that international investor interest in Irish assets will be sustained over the coming years but that cannot be assured. Ireland has made great progress on the path to recovery over recent years but our exposure to global economic and financial developments means that we must seek to take advantage of the relatively benign international environment while we can.

For us in NAMA, that means disposing of assets which are of interest to investors, the majority of whom have been international funds. But where we are different from other deleveraging entities, such as foreign-owned banks, is that our sales prices must make sense not only for the purchasers but also for our ultimate stakeholders, the taxpayers whose interests we are charged with protecting and enhancing. So we will abide by our commitment that there will be no indiscriminate fire sale of assets under the control of our debtors and Receivers as this would be at variance with our statutory obligations.


In my remarks in the 2012 Annual Report, I expressed some concern at the inclusion of the National Treasury Management Agency ('NTMA') within the remit of the public sector remuneration adjustments which were introduced in July 2013 and the implications of that inclusion for NAMA's ability to recruit and retain staff with the appropriate skillsets and experience to manage its portfolio. Since July 2013, we have lost 29 staff, many of them very skilled and experienced and clearly attracted by the better remuneration and lower profile which is available to them from other employers in a recovering market.

At this stage, I can only reiterate my concern that NAMA's capacity to meet the various objectives that I outlined above would be seriously affected if the exodus of expert and experienced staff were to continue. NAMA is different from other State agencies in that it was set up to solve a particularly difficult problem and to do so in an expeditious manner. There are no jobs for life in NAMA nor should there be, but as long as NAMA is being asked to fulfil a challenging commercial mandate, it must retain the expertise to enable it to fulfil that mandate.

Otherwise, there is a serious risk that a short-term 'penny smart and pound foolish' approach could prove to be very costly for the State. The possibility that NAMA may complete its work in advance of 2020 clearly heightens that risk significantly unless appropriate mechanisms are put in place to enable NAMA to retain the necessary skillsets to fulfil the mandate properly.

Finally, following a year of strong performance, I wish to recognise the commitment and effort of the Board, the Board Committees, the Executive team, the staff assigned to NAMA and also to those within the wider NTMA who contributed to another successful year. With each passing year, we have become progressively more confident that NAMA will meet the very challenging mandate which was given to it by the legislature in 2009. After 2013, we can look to the future not only with hope but also with a well-founded optimism that NAMA continues to play a significant part in Ireland's economic recovery.