Nationwide has £7.1bn legacy CRE debt remaining after confirmed £694m Adelaide sale

Nationwide’s legacy commercial property loan exposure has fallen to £7.1bn, comprised of £3.1bn in loan run-offs, maturity and enforcement as well as the post financial year sale of a European sub-performing loan portfolio, virtually completing the building society’s exit from Continental property lending.

Nationwide logoThe building society, which raised £550m in new capital last December to bolster its financial strength, confirmed in its annual results this morning that it sold the £694m (c.€850m) Project Adelaide European commercial property loan – to Oaktree Capital Management – post the financial year in addition to £2.4bn in legacy CRE loan run-offs.

Nationwide stated in its annual results this morning: “Since the year end, we have sold over 90% of our non-UK CRE portfolio representing gross loans of £694m as at 4 April 2014, with net sales proceeds in line with their carrying value; the sale will be recognised in the first quarter of 2014/15 and will increase our Common Equity Tier 1 ratio by an estimated 0.5%.”

CoStar News understands Oaktree paid circa €675m for Adelaide, financed with a five-year loan-on-loan facility provided by JPMorgan and AIG. JPMorgan was understood to have come into the deal late.

While there are no successive loan sales planned by the building society, Nationwide has not ruled out potential future loan portfolio sales.

Nationwide’s £7.07bn remaining performing and non-performing commercial property loan book – post the Project Adelaide sale – is comprised of:

  • £2.62bn in NPLs comprised of £1.9bn secured by regional UK, £454m in the South East and £260m secured by London CRE;
  • £4.39bn in performing loans, comprised of £2.17bn in London, £782m in the South East and £1.44bn in the rest of the UK;
  • Approximately £65m in remaining European CRE-secured commercial property loans, following the £694m Project Adelaide sale.

Of Nationwide’s £4.39bn in performing loans, £3.07bn, or 39%, are impaired.

Nationwide stated in its annual results this morning: “Over the year, funding liquidity in the lending market has improved with a number of new entrants and traditional lenders returning to the market.

“There are tentative signs of improvement in CRE both in London and the surrounding regions, albeit this recovery has not been seen in most of the depressed secondary and tertiary assets. As a result, provision coverage ratios in London have remained stable whilst the highest increase in coverage ratios has been seen in other regions.”

Nationwide stated that in the financial year to April 2015, £1.4bn of commercial real estate loans are scheduled to mature. Of which, £900m, or 64%, have provisions against the individual loans of £0.5bn. The remaining £0.5bn in unprovisioned maturing loans have an interest cover ratio of greater than 130%.

The building society added that the outlook for commercial credit risks is “stable” albeit that a number of challenges remain.

“With the CRE sector continuing to absorb capital from the industry as a consequence of the performance of the market and changes to regulatory capital requirements, there are limited funds available to act as a stimulus to drive asset values up, particularly for secondary assets.

As a result the spread between prime and secondary markets is likely to remain at current levels for some time.”

About CoStar News

Finance Editor, CoStar News
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