If its real estate shopping spree over the last year is anything to go by, Gatehouse Bank is on the up and up. It completed its most recent purchase in May, spending GBP51.7 million (US$83.33 million) for a manufacturing and logistics facility in Scotland leased to Rolls-Royce, bringing the value of its property portfolio to over GBP200 million (US$322.38 million).
After commencing operations in April 2008, the bank barely had time to get on its feet before the financial crisis broke its stride. It then quickly diversified its business plan, which the bank said began showing positive results by the end of 2009. According to its 2009 annual report which provides its latest financial results, its efforts during the year allowed it to forecast operational profitability in 2010.
Busy year
Gatehouse did not respond to questions sent by Islamic Finance news but its activities in the first half of this year alone seem to point to a better outlook for the bank, with its real estate portfolio contributing to better days ahead. Its investment in the Rolls-Royce facility provides the bank with 17 years of certain term income and fixed rental uplifts of 1.5% per year, while the bank’s recently completed GBP32.65 million (US$52.63 million) acquisition of the InterContinental Hotels Group global headquarters in Buckinghamshire in the UK offers it another locked-in income stream until 2022. The lease from the hotel group also provides for minimum fixed rental uplifts of 13% in 2012 and 2017.
In May, Gatehouse announced that it achieved the maximum 5% rental increase for its Watkin Jones portfolio, comprising two student accommodation properties in Loughborough and Liverpool in the UK. Acquired for GBP29.2 million (US$47.07 million) in April 2010, the portfolio provided investors a 9.7% cash yield in its first year.
However, property investments are not the only transactions Gatehouse has been involved in so far this year. In April, it announced that it entered into an MoU with Indonesia’s Bank Syariah Mandiri and Bank Negara Indonesia to strengthen ties with both parties and to agree on Islamic banking initiatives. The agreement forms part of Gatehouse’s move to strengthen its strategic partnerships with companies in Southeast Asia which want to leverage the bank’s experience in international financial markets.
The bank also formed a joint venture with Paul Napier, a London-based Lloyd’s insurance broker, to set up Gatehouse Napier which offers premium Takaful and re-Takaful commercial risk solutions.
In a previous interview with Islamic Finance news in May, Richard Bishop, CEO of Gatehouse Napier, said the firm had already completed its first transaction just a month into its inception. The deal involved the provision of Takaful for a commercial property in the UK. Bishop had also voiced his optimism for the market for Takaful for corporate and institutional clients in the UK, given their wider understanding of Takaful compared to retail customers and pent-up demand. Gatehouse Napier is also expected to provide Takaful and re-Takaful solutions for investors with commercial interest in other parts of Europe and the GCC.
Challenging task
Notwithstanding the positive developments, can the bank achieve its target of reversing two straight years of mounting losses in its books? At the end of 2009, its loss for the year amounted to GBP12.07 million (US$19.46 million), growing from GBP8.5 million (US$13.7 million) in 2008.
Although total operating income was higher at GBP2.33 million (US$3.76 million) in 2009 against GBP1.72 million (US$2.77 million) in the previous year, the bank saw a lower net margin and higher expenses.
Gatehouse was also hit by a GBP3.2 million (US$5.16 million) provision for impairment on a US$10.25 million syndicated Murabahah agreement it provided to a GCC corporate. The provision is the first it has recorded in its short history and as at the end of 2009, it believed it could recover the full value of its exposure to the financing.
Despite the hiccup in its financials, 2009 proved to be a relatively good year for the bank. It completed several transactions, including a US$125 million syndicated Ijarah facility for the Burgan Company for well drilling, trading and maintenance and, a US$115 million syndicated Murabahah for Kuveyt Türk Katilim Bankasi.
In his CEO’s statement in the 2009 annual report, Richard Thomas said notwithstanding the bank’s provision and poor operating conditions during the year, the bank closed the year in a very liquid position. “We believe that we are well placed to bring this liquidity to bear upon the strong pipeline of business originated by the team in the final quarter of 2009, and onto the books during 2010,” he said. At the end of 2009, the bank’s cash and cash equivalents amounted to GBP1.21 million (US$1.95 million).
Good news ahead?
With its 2010 results yet to be released, the market can only speculate how Gatehouse has fared following the financial crisis. While its business revamp in 2009, which included merging with sister company Global Securities House UK, is expected to have borne fruit, its financials in 2009 still showed some vulnerabilities, such as a small balance sheet.
With total assets of GBP48.42 million (US$78.11 million) and total equity of GBP25.15 million (US$40.57 million) in 2009, Gatehouse lagged behind its rival European Islamic Investment Bank, which recorded GBP166.98 million (US$269.38 million) and GBP140.38 million (US$226.47 million) in total assets and total equity, respectively, in the same period. It remains to be seen whether Gatehouse is able to build up its balance sheet since then.
However, as it stands, Gatehouse is moving forward with confidence and its upcoming financial results could just surprise on the upside.