The Real Estate Business Model
The Company’s business model covering property development is based on a unique variant of the leaseback arrangement often used in real estate transactions. This is illustrated in Figure 1 for a typical transaction involving restructured properties.
Figure: Transaction Summary for an Indebted Property
Moralltach offers to purchase the property from the owner, at an independently appraised value. The owner is paid with shares of the company’s stock, priced at a premium price to the market. The property is simultaneously leased back to the owner as lessee under a lease for, typically, 15 years plus subject to an annual rent paid to Moralltach as a yield. The lessee has the right to continue using the property, including the rights to any revenues associated with it, including all rental income or profits from the land or buildings.
The lessee pays a yearly lease payment to Moralltach based on the capital realised by the deal and the market rents applying at the time. Uniquely, the lessee retains the right to buy back the property at the expiration of the term of the lease for the market value at that time. Alternatively, the property can be re-leased for a further term on payment terms to be negotiated at that time. Lease payments are higher for the first two years and are constant for the rest of the lease term.
This particular leaseback arrangement is suitable for this situation for the following reasons:
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For the original property owner:
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The debt is repaid and the probability of losing the property to foreclosure is reduced;
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The lessee can continue to use the property, as in the past;
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All revenues derived from the property continue to be earned by the lessee;
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The lessee is free to build on or expand their business;
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The lessee has the right to buy back their property at the end of their lease at market value; and,
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They have the potential to benefit from stock appreciation.
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For the financial institution:
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Debt is repaid, as agreed, between the parties;
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They no longer have to deal with future repayments; and,
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The debt obligation is removed from their books.
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For Moralltach:
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The company has property assets on its books valued at market value;
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Annual returns are earned on the payment made;
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The company’s asset value will continue to rise as the property market recovers;
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The company benefits from the added value of the expanding business projects over the lifetime of the lease as agreed between the parties;
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The company envisions utilising a similar structure for other real estate development projects in Ireland, though there will be instances where standard financing (and leveraging) arrangements will be pursued.
Business Plan
The company intends to focus its efforts on three areas:
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Property Development
This is primarily to take advantage of the prospects in the property market in Ireland. Housing (and land) stock has been growing at a slow pace over the last 5 years. There is also upward pressure on rents and a need for more hotels and vacation accommodations in the country. Moralltach is well-positioned to take advantage of this opportunity over the next 3 to 5 years.
The initial focus will be in Ireland, where the Company has considerable capability and knowledge of the local property market, along with excellent industry contacts throughout the value chain. Moralltach will be pursuing profitable investment projects in both residential and commercial, with the latter including hotels and office buildings.
Outside of Ireland, Moralltach will be exploring opportunities throughout parts of Europe, The United Kingdom and North America.
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Restructured Properties
This segment of the property market is attractive and an area that Moralltach intends to focus on over the next 2 to 3 years. Most transactions will be based on a lease-back arrangement as shown above.
However, there are likely fewer opportunities in this segment as incomes grow and the property market strengthens. The company will focus on Ireland, mainly in the commercial and residential areas.
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Green/Alternative Energy
As previously noted, there is a significant market potential for green energy. This is an area that Moralltach will be focusing on over the next 3 to 5 years. Ireland will initially be the geographic focus but the company plans to expand into other jurisdictions such as the United Kingdom and selected countries in Europe.
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