Nama cautions on profits as new property taxes bite

Nama has cautioned it may be nearing an end to a two-year trend of upgrading its lifetime profit forecast, as it is caught by new tax laws aimed at overseas buyers of assets from the agency and State’s banks in recent years.

Chief executive Brendan McDonagh told a recent investor briefing in London, hosted by stockbrokers Davy, that while its gross surplus could exceed its current €2.3 billion projection, new tax requirements may leave it unchanged on a net basis.

Nama enjoys a general exemption from corporation tax. However, joint ventures held in various structures will be affected by the Government’s move in October to impose a 20 per cent withholding tax on property held in tax-friendly Qualifying Investor Alternative Funds (QIAIFs) and Irish Collective Asset-management Vehicles (Icavs).

Vulture funds

The Government decided to impose the tax on these funds after reports and Opposition members, including Independent TD Stephen Donnelly and Sinn Féin's Pearse Doherty, drew political attention to how so-called vulture funds had used these vehicles to minimise their tax bills after snapping billions of euros of assets at a discounted prices.

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"We previously stated that we expected Nama's lifetime surplus to be upgraded beyond its €2.3 billion target, but while the agency conceded that on a gross basis this may be the case, allowing for recent property tax changes, the net effect may be unchanged," said Davy analysts Stephen Lyons and Joseph McGinley said a report, published on Friday, based on the London briefing.

This time two years ago, Nama was merely forecasting that it would make enough money to repay its senior bonds and not the €1.6 billion of subordinated debt it had given the State’s banks during the crisis as part-payment for their risky commercial property loans. However, the agency has subsequently raised its forecast a number of times.

Minority stake

Nama's latest annual report shows that it holds a minority stake in a joint venture with Kennedy Wilson in a project, called Capital Dock, on Sir John Rogerson's Quay in Dublin. Planning permission was granted last year for 313,000sq ft of office space and 204 apartments on the site. The development is structured as a QIAIF.

The agency has an interest in 5 Hannover Quay in the Dublin docklands, which is held in an Icav. It also had a minority stake in 8 Hanover Quay, another Icav-structured investment.

Still, any taxes owed by Nama special purpose vehicles and the ultimate net surplus the agency delivers will end up in the same place, the Government’s coffers.

Meanwhile, Nama believes that the Dublin office market will be a beneficiary as UK-based firms move activities as a result of Brexit, according to the Davy analysts.