HATFIELD PHILIPS INTERNATIONAL TITAN EUROPE 2006-3 P.L.C. Investor Call 4 September 2014 Hatfield Philips International 25 Canada Square 34 th Floor London E14 5LB
Disclaimer This report has been compiled by Hatfield Philips International Limited ("Hatfield Philips") in its capacity as Special Servicer of the loans which are discussed in this report. Hatfield Philips makes no representation as to the reliability of the information provided to it by third parties in order to compile this report. Information in this presentation should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments. This presentation may contain forward looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Hatfield Philips s control. Neither the whole nor any part of this report may be reproduced in any published document, circular or statement, nor is it to be relied upon by any party, without the prior written permission of Hatfield Philips. Hatfield Philips disclaims any duty, responsibility or liability of any nature whatsoever to any party in respect of this report other than to its contractual partners. 1
TITAN EUROPE 2006-3 P.L.C. DEAL SUMMARY Asset Profile Current Balance ( millions) Whole Loan (Borrower No. Property Transfer Loan balance) A-Note B-Note(s) Properties Type Maturity Loan Status Date Workout Target Portfolio 237.8 237.8-15 France Office/Light Jul-2013 In Special Apr-2013 Safeguard Industrial Quelle Nürnberg 102.6 92.9 9.5 1 Germany Mixed Use Jan-2013 In Special Sep-2009 Insolvency Sale Monnet Portfolio 67.3 67.3-8 Belgium/Germany Office Apr-2012 In Special Sep-2009 Enforcement Sale Kurhaus Hotel 47.8 47.8-1 Netherlands Hotel Jan-2013 In Special Sep-2012 Consensual Sale Syrdall Business Park 34.5 34.5-1 Luxembourg Office Apr-2011 In Special Apr-2011 Enforcement Sale Twin Squares (Prater) 12.4 12.4-1 Belgium Office Jan-2011 In Special May-2011 Consensual Sale Total 502.4 492.7 9.5 27 Value Valuation Loan ( million) Date Current Senior LTV Current Occupancy Current Target Portfolio 206.7 Apr-2013 115.1% 93.0% 1.1 Years Quelle Nürnberg 12.5 Jan-2010 745.2% 5.0% 2.0 Years Monnet Portfolio 25.2 Aug-2012 267.2% 52.1% 1.1 Years Kurhaus Hotel 24.0 Dec-2012 199.3% 100.0% 0.6 Years Syrdall Business Park 29.7 Dec-2013 116.3% 84.9% 5.7 Years Twin Squares (Prater) 3.1 Jun-2014 402.5% 0.0 % n/a Total 301.2 2
TARGET PORTFOLIO LOAN UPB at Origination EUR 240,000,000 Current UPB EUR 237,838,388 Initial Whole Loan LTV 80.0% Current Whole Loan LTV 115.1% Special Servicing Transfer Date 5 April 2013 Estimated Final Resolution Date Q2 IPD 2016 271,597 sqm No. of assets 15 Office/Light Industrial Valuation/Date EUR 206,710,000 / 30 April 2013 France NRI EUR 26,017,417 ERV EUR 23,620,904 Vacancy 7.0 % 1.1 years Loan defaulted on 29 March 2013 when the borrower opened safeguard proceedings. On 5 April 2013 the Servicer formally rejected a 55% DPO and transferred the loan to Special Servicing after evaluating: a) latent tax liabilities; b) various legal workout options; and c) related NPV analysis. The Special Servicer received draft borrower safeguard plan 17 July 2013 containing two proposals: a) 9 year repayment plan or b) 55% DPO over 18 months subject to availability of refinancing. Special Servicer submitted a counterproposal including a minimum priority gross repayment of EUR 206.71m. The shareholders rejected this. In November 2013 the Special Servicer also suggested a) EUR 4m for the equity, to terminate the safeguard and, if desired: b) preferred return for any injection of capex by shareholder. These were rejected. The Special Servicer successfully contested the borrower s claims it should revert to a floating rate, thus confirming the rate of 3.425% plus 1.45% margin. On 29 March 2014, the administrator extended the observation period for a final 6 months. Formal safeguard plans received late July/early August 2014 acknowledge impracticality of overall group safeguard plan without the lender s cooperation. As at July 2014 IPD, the unpaid interest is EUR 15.0m and unpaid default interest is EUR 5.0m. The total cash available in the rent accounts is EUR 21.6m. Unpaid interest from the April and July 2013 IPDs has been capitalised. Therefore, the outstanding principal has increased from EUR 232.1m to EUR 237.8m. Thales is the largest tenant and occupies 7 of 15 buildings, representing 74% of portfolio rental income with of 1.25 years. This tenant vacated the entire Colombes property in August 2012 and the EUR 6.5m lease expires in December 2014. (Colombes represents 16% of portfolio market value and 23% of the debt). Following the election of a new mayor in Colombes, the borrower is open to revising its plans to convert the 48k sqm office accommodation into 102k sqm office space subject to discussions between both parties. A sizeable latent capital gains tax liability of c. EUR 35m exists in the borrower structure due to significant difference between the net book value and fair market value. The Special Servicer is rejecting the safeguard plans as currently formulated. Following much prevarication, a dialogue on a comprehensive restructuring has been opened with borrower management. It is unlikely that the proposed 9 year safeguard plan proposed by the borrower will be sanctioned by the court without support from the main creditors. Therefore, the Special Servicer is trying to engage with the borrower to agree a consensual disposal programme and terminate the safeguard process. If the borrower does not agree, then it is likely the court will instruct the liquidation of the companies. The Special Servicer is developing a plan to retain a meaningful degree of control if this happens. 3
QUELLE NÜRNBERG LOAN UPB at Origination EUR 110,000,000 Current UPB EUR 102,620,833 Initial Whole Loan LTV 81.4% Current Whole Loan LTV 822.9% Special Servicing Transfer Date 7 September 2009 Estimated Final Resolution Date Q4 IPD 2014 232,023 sqm No. of assets 1 Mixed Use Valuation/Date EUR 12,470,000 / 6 January 2010 Nuremberg, Germany NRI EUR 2,286,781 ERV (orig.) ca. EUR 7,000,000 Vacancy 95.0% 2.0 years Loan transferred to Special Servicing on 7 September 2009 due to payment default. On 9 September 2009 insolvency proceedings of the single tenant Quelle were opened and the insolvency administrator terminated the lease. The property was put under forced administration on 19 September 2011. In parallel, forced auction proceedings were initiated. The loan was accelerated on 28 October 2011. Insolvency proceedings over the borrower were opened in the Netherlands on 9 November 2011. A memorandum of understanding with the insolvency administrator according to which the Special Servicer is in the lead of negotiating a potential sale of the property had been concluded. After several offers for the purchase of the property were received in 2012 and following a due diligence phase, an SPA was signed on 11 September 2013 with Sonae Sierra subject to several conditions with the aim to close the sale until mid-2014. The buyer requested more time to fulfil the conditions. An addendum to the SPA was signed on 31 July 2014 by which an extension was granted until end of September 2014. In exchange, a part of the sale (former parking spaces) will be closed early. The purchase price for this part is expected in September 2014. HPI, on behalf of the Issuer, filed a professional negligence claim against the original valuer, claiming damages of EUR 53,900,000 (capped by the relevant case law). The court hearing took place in July 2014. A court decision is expected for October 2014. As per previous reporting, sufficient funds were placed in reserve to cover litigation expenses. Any costs arising from a costs order following an adverse judgment would be payable by the ATE insurance policy taken out by the Special Servicer on behalf of the Issuer. Payment of partial purchase price expected for September 2014. It will be used to pay accrued unpaid ground taxes for the last years. The remaining amount will be retained to cover potential property costs, as the existing funds and rental income are not expected to be sufficient for the coming winter period. Closing of the remaining part of the sale is estimated for January IPD 2015. If closing of the sale regarding the former mail order business building is not successful, forced auction sale could be progressed. 4
MONNET PORTFOLIO LOAN UPB at Origination EUR 73,042,950 Current UPB EUR 67,299,328 Initial Whole Loan LTV 86.6% Current Whole Loan LTV 267.2% Special Servicing Transfer Date 30 September 2009 Estimated Final Resolution Date Q1 IPD 2016 72,575 sqm No. of assets 8 Office Valuation/Date EUR 25,184,000/ 30 August 2012 Belgium & Germany NRI EUR 2,910,705 ERV EUR 4,984,424 Vacancy 47.9% 1.1 years Various deficiencies in security documentation were uncovered. Following first unsuccessful attempt to consensually restructure via ownership transfer, the Special Servicer accelerated the loan and prepared for enforcement proceedings in Germany in 2011. In absence of control over the fixtures and fittings in the German properties, the Special Servicer reopened a dialogue with the sponsor to explore consensual workout in 2012. As part of the proposed restructuring, the sponsor was expected to transfer the fixture and fittings to the German borrowers and assist with removal of the second ranking tax mortgage registered on the Belgian properties. Due to insufficient transparency over group s outstanding tax liabilities and seizure of intercompany receivables by tax authorities, negotiations were terminated. In September 2013 the Special Servicer initiated enforcement proceedings in Belgium (enforceable title is being contested) with the final court hearing scheduled for October 2014. Meanwhile, the Special Servicer recently obtained enforceable titles for the German properties, enabling the lenders to enforce mortgages. DPO offer of EUR 9.75m was rejected by the Special Servicer in April 2014. Transferred to Special Servicing on 30 September 2009. The property NOI (NRI less non-recoverable costs) is insufficient to cover ongoing property repair and maintenance costs. The six Belgian properties and the two German properties suffer from high vacancy (vacancy rate in Germany is 41% and in Belgium is 64%) and deteriorating property conditions. The sponsor is uncooperative. Nevertheless, the Special Servicer recently procured that the borrowers signed recently negotiated leases. The Special Servicer is continuing to work with the incumbent asset manager on new leases to improve occupancy. Two new leases were signed in Belgium in the last quarter: EUR 92k p.a. for a 777 sqm unit on the first floor effective from 1 July 2014 (3-6-9 year lease); EUR 427k for a 1,430 sqm unit on ground level, effective from 1 July 2014 (3-6-9 year lease); EUR 222k representing 35% reduction for first 6 years. Progress dialogue with the directors of the German and Belgian PropCos to perfect security and obtain remaining enforcement documents. Resolve uncertainties around consensual transfer followed by solvent liquidation (quantify potential liabilities) as far as possible without sponsor input. At the same time limit interference from sponsor unless improved DPO offer is forthcoming. Plan B: Belgian enforcement proceedings with the final hearing on issuing enforceable title scheduled for October 2014. Continue to work with the property manager on transacting new leases/ongoing maintenance of the properties in order to improve the occupancy profile of the assets. Once solvent liquidation or mortgage enforcement has been implemented, the Special Servicer will market the properties/ loan for sale. 5
KURHAUS HOTEL LOAN UPB at Origination EUR 53,000,000 Current UPB EUR 47,832,500 Initial Whole Loan LTV 75.7% Current Whole Loan LTV 199.3% Special Servicing Transfer Date 19 September 2012 Estimated Final Resolution Date Q1 IPD 2015 39,541 sqm No. of assets 1 Hotel Valuation/Date EUR 24,000,000/31 December 2012 The Hague, Netherlands NRI EUR 4,610,335* ERV EUR 3,200,000 Vacancy 0.0% 0.6 years * Note: EUR 4.6m is the contracted rent (including hotel operations); actual received rent: EUR 785k p.a. Loan transferred to special servicing on 19 September 2012 (60 days after occurrence of a major loan default). The Special Servicer instructed a TDD and valuation revealing significant capex backlog and operational difficulties. After exploring several workout routes the Special Servicer and the borrower signed a consensual sales agreement in August 2013, providing flexibility in the potential deal structure (share deal (tax benefits)/asset deal). External broker was mandated in September 2013. Marketing commenced end of 2013, approximately 90 investors were approached. First round bids received in Q1 2014. Bids showed large spreads, resulting in a very diligent investigation of the bids. Process moved on with top two bidders in April 2014 to negotiate a heads of terms agreement. LOI with preferred bidder was signed end of July 2014. Currently confirmatory due diligence is ongoing. Borrower stopped interest payments on Q2 2012 IPD as the main tenant (Hotel OpCo) had ceased to pay rent for the hotel premises. This is due to operational difficulties which are ongoing. The ongoing expenses of the borrowers are covered by the rents received from the retail tenants in the building. The loan was consequently not repaid at final maturity (January 2013). The value of the asset decreased significantly due to a large capex backlog, poor operating performance and wider yield assumptions for this property. Continue the initiated sales process. Finalize due diligence phase with exclusive bidder and enter into a sale agreement in the near term with the aim to close the sale in time for April IPD 2015. 6
SYRDALL BUSINESS PARK LOAN UPB at Origination EUR 39,825,000 Current UPB EUR 34,500,000 Initial Whole Loan LTV 79.7% Current Whole Loan LTV 116.3% Special Servicing Transfer Date 19 April 2011 Estimated Final Resolution Date Q1 IPD 2015 No. of assets 11,532 sqm 1 (5 buildings interconnected) Office Valuation/Date EUR 29,670,000/31 December 2013 Luxembourg NRI EUR 2,800,896 ERV EUR 2,982,508 Vacancy 15.1% 5.7 years The loan matured on 15 April 2011. October 2011: Voting rights on the borrower s shares were enforced and directors were replaced. October 2011: Borrower proposed DPO of EUR 29.5m; this was rejected due to: 1) limited market exposure and sizeable discount 2) BoVs were between EUR 30-35m. First half 2012: Termination of borrower-related asset manager and selling agent. A new asset manager selected by thr Special Servicer was appointed. Second half 2012: The property was transitioned to the new asset manager and cash reconciliation audit was conducted (rent, service charges, tenant deposits, cash movement). The loan agreement was amended to fund capex to fix the heating/air conditioning system. January 2013: Borrower proposed DPO of EUR 22.5m; this was rejected again due to: 1) deep discount and limited market exposure, 2) BoVs were ranging between EUR 28-31m. September 2013: Capex works on the heating, ventilation and air conditioning system (HVAC) were completed. 2012: The loan agreement was amended: 1) waiver of the reserve account payment provisions and 2) change of the interest rate from fixed to floating. Default interest of 2% has applied since loan maturity. On Q2 2014 IPD the loan was repaid in the amount of EUR 300,000. In Q3 2014 a cash settlement agreement has been reached with an historical former tenant for rent and service charge arrears accrued during 2010/2011. A cash payment of EUR 350,000 has been received and funds will be applied toward repayment of the loan. In November 2013 the third anchor tenant representing 15% of the lettable area (1,747 sqm) and 16.6% of the contracted rental income served notice to vacate in September 2014 (break date). The vacancy rate is forecasted to increase to circa 30% in September 2014. During Q3 2014 the second largest tenant occupying 2,536 sqm and 30 parking spaces has re-geared their lease with a 6/9 year contract from 1 June 2014 until 31 May 2023 with a break option after 6 years (2020) at an annual rent of EUR 610,000, thus increasing the from 4.2 years to 5.7 years. Enhance the marketability and liquidity of the asset while preparing for formal sales marketing to commence at the end of 2014. The Special Servicer s aim is to reduce vacancy/re-gear leases and stabilize the occupancy at a vacancy level of circa 20%. A further lease for of 691 sqm and 15 parking is expected to be signed during Q4 2014. Preparations for the sale marketing campaign have already started. The exit is estimated for April IPD 2015. 7
TWIN SQUARES (PRATER) LOAN UPB at Origination EUR 15,000,000 Current UPB EUR 12,438,669 Initial Whole Loan LTV 78.2% Current Whole Loan LTV 402.5% Special Servicing Transfer Date 18 May 2011 Estimated Final Resolution Date Q4 IPD 2014 8,304 sqm No. of assets 1 Office Valuation/Date EUR 3,090,000/ 1 June 2014 Belgium NRI n/a ERV EUR 816,300 Vacancy 100.0 % n/a The loan transferred to Special Servicing on 18 May 2011 due to maturity payment default. Previous directors walked away from the transaction shortly after the loan was transferred. The Special Servicer has accomplished the below: Replaced the outgoing directors; Appointed the Special Servicer s preferred asset manager (effective April 2013); Perfected the security so that the full loan balance is now secured (converted in November 12 subject to 6 months hardening period); The Special Servicer has managed to secure the funds (EUR 1.5m+) in an unpledged account (ING) of the borrower in Q4 2013. Those funds are now currently fenced in the rent account (BNP) which is controlled by the Special Servicer. The Special Servicer s preferred sale agent has been appointed in Q4 2013 to pursue the sale strategy. Following a competitive marketing process, the highest bidder with the most credibility has been selected as the preferred bidder in line with the recommendation of the appointed asset manager. The lender has issued a standstill to the borrower to accomplish the consensual sale and solvent liquidation after reaching a consensus with the ultimate shareholder after lengthy negotiations. The only tenant representing 100% of the rental income exercised its break option in 2012 but requested a one year lease extension until 31 December 2013. The Special Servicer consented to the extension at the existing rent which was almost 2 x ERV. Furthermore, the newly appointed asset manager successfully negotiated with the tenant a surrender premium of EUR 300k for the dilapidations. The tenant paid the premium upon leaving the premises in December 2013. Following the departure of the sole tenant and in the light of the weak letting prospects of the asset despite the rigorous efforts of the letting agents, the Special Servicer started focusing on an appropriate sale strategy, to avoid holding costs and a distress sale taking into account the limited source of funds available. A competitive marketing process has been carried out and a bid in line with the most recent valuation has been secured. An SPA was signed in August 2014 and the sale is expected to complete in Q4 2014. Following the signing of the SPA, the notary has 2 months to finalize its searches and execute the notarial deed in relation to the sale upon receipt of the relevant soil certification which is required by Belgian law for all real estate transactions. The borrower in line with the terms of the standstill, has agreed to provide its wind-up costs within 2 weeks post completion of the sale at the latest and proceed with solvent liquidation after converting the shareholder loan into equity. Upon receipt of the net sale funds and income in rental account net of wind-up costs, the Special Servicer will be able to make a final recovery determination. 8