Economic storm over Titanic Island may be easing, but there is still some way to go
Titanic Island has been tackling some serious financing problems for the last three years. After easier progress in earlier years, Titanic Island now has an impressive, if incomplete, series of developments. The area houses significant new residential accommodation, the Titanic (Film) Studios, the Belfast Metropolitan College and the Public Record Office.
Titanic Island is the main property development company developing 161 acres of land at Queen’s Island on a long lease from the Belfast Harbour Commissioners, formerly used by Harland and Wolff. Titanic Island is a private sector company completely separate from the Titanic Foundation which controls the main Titanic building, housing the visitor centre and exhibition.
Titanic Island is the Northern Ireland subsidiary of Jersey registered Titanic Investments. The main shareholders are Entice Holdings, represented on the board by Mr M Walsh, and Dockside Investments, which is represented on the board by Mr N Doherty. These shareholders are playing an important part in financing the development of Titanic Island through the provision of continuing loans of £42.3m.
The 2013 consolidated trading results for Titanic Island (TI) and its several subsidiaries have now been registered and are summarised in the table.
The serious fall in property values in the last five years has hit this group sharply. Four years ago in 2010, before the major changes impacted, this group had annual turnover of £61m and pre-tax profits of nearly £15m. The business was financed using extensive external funds valued at over £119m at the end of 2010.
In the most recent year, 2013, business conditions were extremely testing. Property development has slowed, turnover was just over £7m and, after exceptional costs and major adjustments to the value of the development land, pre-tax losses were over £38m. The balance sheet value of shareholders’ funds was a negative £36m.
The trading results and financial details for 2013, perhaps unsurprisingly, offer a very challenging picture. However, as the general economy continues to improve, there may be an expectation that business will improve and the worst could be over. The company report says that ‘the directors consider that the losses (in 2013) in all probability reflect the nadir of the challenging market conditions that have pertained until recently…’
Alongside the difficult market conditions, the group reports a number of other features which may adversely affect it.
High on the list of concerns is the element of uncertainty about the future financing of the group. It points to the lack of availability of bank finance for property development and links this to the possible impact on the group of the decision by Royal Bank of Scotland (RBS)/Ulster Bank to sell the outstanding loans now supporting TI.
The concerns go much wider. In a not very disguised critical comment, TI refers to uncertainty “in the ability to transact with Belfast Harbour Commissioners (BHC) under the Titanic Quarter management agreement and BHC’s competing interests in City Quays”. This seems to relate to the development of modern new office accommodation and a hotel by the BHC which, in present market conditions, is a major competitor for TI.
Linked to the competitive tension with BHC and the need to gain the agreement of BHC to some of the proposed developments by TI, the group has taken a radical approach to reassessing the balance sheet value of its property assets.
The directors have taken advice on the carrying values of the development land in TI, assuming that it would be sold over the next six to 12 months in the open market.
The total value, assessed at December 31 2013, was £39.1m. This contrasts with a value of £72.7m a year earlier: a fall of over £33m which, indirectly, was enough to reduce the shareholders’ capital value to a negative figure.
The directors believe that the restatement of the development value of the land bank based on a current (lower) market valuation and away from its original cost is now more appropriate.
TI now needs to raise funds to allow it to proceed with two new building projects to accommodate financial services as well as the proposed Titanic Exchange and Titanic Media Campus. These projects are subject to formal agreement with BHC.
In a reflection of the priorities within the group, the Gateway Hotel was sold last June for £6m.
The directors of TI must hope that the improving local economy will mean that the worst of the recessionary impact is now over.