Heartland New Zealand has announced a NZ$18 million write-down of bad real estate loans inherited from its formation, in 2011, when property financier Marac merged with two building societies and a rural lender.Heartland originally carved off $139 million worth of the loans, in early 2011, into a type of "bad bank" to be managed by Pyne Gould Corp's (PGC) Torchlight Fund. This would be done by means of a vehicle called Real Estate Credit Ltd (RECL). Under the 2011 deal, RECL would manage down the portfolio over five years and agreed to compensate Heartland for up to $30 million of losses.The strategy was controversial, given it tied the bank to former major shareholder and PGC managing director George Kerr, who was criticised by the Financial Markets Authority last year over related party transactions involving PGC's subsidiary, Perpetual Trust.Earlier this year, Heartland said it was reviewing the relationship with RECL over the bad loans.  Announcing the results of the review, Heartland said it was taking the management of the loans back in-house and would bring forward the compensation payment from RECL. This payment included a Westpac bond worth $11 million and loans and real estate assets worth a further $15.75 million. Even after that payment, Heartland booked an $18 million loss on the loans."Dismantling the RECL management agreement removes a legacy arrangement that does not fit with Heartland's banking strategy," Heartland said."Although the change of strategy gives rise to a risk buffer, via a write-down in assets, it should also mitigate the current negative market sentiment concerning the property overhang," Heartland said.Excluding the $18 million write-down, Heartland forecasts a net profit, for the current year to June 30, of around $25 million. This is slightly above its previous guidance of NZ$20 to 24 million. It also forecasts net profit for the coming 2013/14 year of $33 to 37 million and said it still expects to pay a dividend and to buy back shares.Heartland's shares closed up five cents, or 6.3 per cent, at a record high of 84 cents.