Royal Bank of Scotland reduced its non-core global commercial real estate lending by £1.9bn over the third quarter, taking the running year-to-date total de-leveraging to £6.5bn reducing the bank’s unwanted secured property lending exposure to £25.0bn.
The non-core real estate loan book, which has fallen from £31.5bn over the nine months to the end of September, now comprises: £15.3bn in the RBS’ real estate finance division; £6.2bn in Irish real estate loans, £2.9bn in the UK business and commercial division and; £600m in US commercial real estate loans.
Over the three quarters to the end of September, RBS’ £6.5bn in global commercial real estate lending – comprised of predominantly UK, then Irish, US and German lending – includes:
- £3.6bn in run-offs from maturing commercial property loans;
- £1.0bn in property disposals, enforcements and restructurings;
- £1.2bn in impairment charges;
- £800m in adverse currency movements against sterling;
- While there has been just £100m in loan roll-overs in the first quarter.
Separately, RBS has reduced its circa £500m nominally-valued CMBS bond portfolio by a rounded £100m to £400m over the third quarter.
See table at the end of the article for RBS’ non-core deleveraging chart.
The £6.5bn which RBS has so far shed over the first nine months of 2011 is £4.6bn less than the annual non-core global commercial real estate deleveraging which the bank achieved across the entire 2011 calendar year.
Across the full 2011, RBS completed £5.6bn in loan run-offs, £2.4bn in property disposals, enforcements and restructurings, allocated £3.4bn in provisions against impaired loans, extended £700m worth of loans and took a £400m currency hit against non-sterling denominated lending.
While £4.6bn is a considerable total to reach over the fourth quarter, if RBS is to equal its 2011 de-leveraging rate, the final quarter tends to be the biggest three-month period for deal closures. In the fourth quarter of 2011, RBS shed £3.8bn.
In its now one quarter shy of four years since RBS began its mammoth asset deleveraging programme at the turn of 2009. In that three years and nine month period to the end of September 2012, RBS has shed £37.8bn in non-core global commercial real estate lending – from £62.8bn as at the end of 2008 to £25.0bn at the end of this third quarter reporting period.
RBS’s total commercial real estate-related non-core book – which also includes unsecured corporate lending to property companies, guaranteed at company level rather than with specific real estate collateral – fell by £3.78bn over the third quarter, and by £7.74bn over the year, to the end of September, taking the loan book to £30.32bn.
The 83%-government owned bank’s entire real estate loan book – including core and non-core and unsecured corporate lending to property companies but excluding the CMBS bond portfolio – ended September with a net £1.57bn reduction to £70.01bn.
But this masks significant differences between the two distinct internal operations. RBS’ core commercial real estate lending rose by £2.22bn to £39.69bn in the third quarter, while non-core lending fell by £3.78bn to £30.32bn, taking the net position to £1.57bn.
Across the three quarters to the end of September, RBS’ core commercial real estate lending – which has fluctuated during the year – has risen by £986m to £39.69bn.
By contrast, RBS’ quarterly non-core deleveraging has picked up pace each quarter, reducing by £1.72bn in the first quarter, followed by £2.24bn in the second quarter and by £3.78bn in the third quarter – taking the aggregate three-quarter £7.74bn decrease to the £30.32bn end of period level.
Over the final quarter, RBS is expected to close the disposal of the centrepiece German office buildings in the Pegasus portfolio, Berlin’s 16-storey Kurfürstendamm Boulevard tower and the 81,600 sq m Die Welle, a glass tower in Frankfurt’s financial district.
RBS – which took ownership of the Pegasus portfolio in April 2010 after Morgan Stanley’s P2 Value German property fund walked away from the defaulted circa 90% €1.86bn financing package – sold the two office blocks to new joint venture parters, AXA Real Estate Investment Management and Norges Bank Investment Management for €784m.
The disposal will unwind the bulk of RBS’ unintended ownership in direct German office real estate.