Investments:Bank of Ireland may get less for its second tranche of sale and leasebacks, says Jack Fagan
Bank of Ireland is today launching a marketing campaign for the sale and leaseback of a second tranche of branches in Dublin and key provincial centres. A total of 29 retail branches are to be sold by private treaty, as well as its call centre building in Kilkenny. AIB is also expected to offload more branches in the coming months.
There are strong indications that prices for the Bank of Ireland buildings will be generally lower than for the first 36 branches sold last autumn. There has been a marked change in sentiment in recent weeks and, with interest rates set to rise again in June, higher financing costs are likely to dissuade small investors from going over-the-top for the satisfaction of owning their local bank branch. Robert Murphy of CBRE, who is handling the sales, is suggesting yields of around 4.25 per cent, though he says that selling prices should equate to about 4 per cent or lower in some instances. Not surprisingly, he describes the investments as "gilt edged" and "prestigious trophy assets" within core retail pitches.
Murphy anticipates that a considerable number of the bank buildings will be bought by investors who have made substantial gains in the residential market in recent years. The initiative is expected to bring in over €90 million which will then be used in banking operations.
The sale includes eight branches in the Dublin area - Killester, Drumcondra, Rathmines, Raheny, Glasnevin, Skerries, Whitehall and Ballyfermot - and others in provincial centres, including Limerick, Cavan, Monaghan, Mallow, Enniscorthy, Fermoy and Arklow.
The entire portfolio will produce rents of €4,101,318 per annum under new 25-year full repairing and insuring leases with five yearly upwards-only rent reviews. The bank will have a break option after 15 years in all cases.
Those who buy branches can elect at the time of purchase for either a fixed 15 per cent uplift in rent after five years or a review to open market rental values. Rents in the portfolio range from €61,372 for a branch in Edenderry to €778,669 for the back-up office in Kilkenny.
Overall, the quality of the portfolio is considerably weaker than the one sold last autumn. That sale attracted the interest of institutions and managers of private equity funds, as well as prominent investors. About half the branches were sold with full 25-year leases as against 15-year leases in the present instance. Friends First paid €60 million for seven branches which are showing a net yield of 3.7 per cent. Quinlan Private bought eight branches for individual clients while Bernard McNamara acquired three branches for his "personal pension fund", including the bank near the Shelbourne Hotel. Galway property developer Frank O'Malley acquired the landmark branch at Eyre Square in Galway.
The Branches
CB Richard Ellis is quoting €16.73m for the Bank of Ireland 365 call centre in Kilkenny Business and Technology Park. The building will be leased back at an initial rent of €778,669, showing a yield of 4.5 per cent. Like the bank branches going for sale, the office will be sold under a 25-year lease with a break option in year 15. The purchaser can also opt at the time of purchase for a rent increase of 15 per cent in year five or a review to open market values.
The highest value branch for sale is in Mallow where €5.42 million is sought for a building which will be leased back at an initial rent of €235,387. The yield will be 3.9 per cent. The branch in O'Connell Street, Limerick is guiding €4.72m. The rent will be €210,504 and yield 4 per cent. A price of €4.56m is sought for the Ballina branch where the rent will be €216,081 and yield 4.25 per cent. In Loughrea, Co Galway, €3.38m is the guide for the local branch where the rent (€169,479) will show a yield of 4.5 per cent.
A branch at Ballyfermot is guiding €3.26m. The rent (€145,202) will show a yield of 4 per cent. In Roscommon town, €3.1m is the guide for a building that will be rented back at €138,358 and show a return of 4 per cent. A price of €3m is being quoted for the Longford branch where the rent (€133,592) will show a yield of 4 per cent. The branch at Whitehall, Dublin, is guiding €2.69m. The rent of €112,542 will give a return of 3.75 per cent.
The Enniscorthy branch is guiding €2.62m and the rent (€124,074) will show a yield of 4.25 per cent. In Arklow, €2.49m is sought for the Main Street branch where the rent (€124,652) will show a yield of 4.5 per cent. The branch at Lower Rathmines Road, Dublin is guiding €2.49m where the rent will be €103,853 and the yield 3.75 per cent. The guide for the Maynooth branch is €2.46m while the rent of €106,880 will show a yield 3.9 per cent. In Ardee, the bank branch is guiding €2.34m on a rent of €113,519 to show a yield of 4.35 per cent. IFermoy, Co Cork, the price of €2.31m on a rent of €100,183 will show a yield of 3.9 per cent. The Mitchelstown branch, guiding €2.27m, will be leased back at €111,420, showing a yield of 4.4 per cent.
A price of €2.27m has been set for the Cavan branch. The rent will be €113,815 and yield 4.5 per cent. In Bandon, Co Cork, the branch is guiding €2.13m. The rent of €97,286 will show a return of 4.1 per cent. IDublin, the Lower Drumcondra Road branch is guiding €1.94m. The rent will be €81,191 and yield 3.75 per cent. The Killester branch is priced at €1.91m while the rent (€79,793) will show a return of 3.75 per cent. The Athy branch is priced at €1.78m while the rent (fixed for the first five years at €79,471) shows a 4 per cent yield.
The Skerries branch is guiding €1.71m. The rent of €73,714 shows a yield of 3.88 per cent. In Co Cork, the Kinsale branch is guiding €1.55m. The rent (€71,000) shows a return of 4.1 per cent. The €1.46m guide for the Monaghan branch - on a rent of €73,408 - shows a yield of 4.5 per cent. The Dunboyne branch is guiding €1.41m. The rent of €70,886 will give a return of 4.5 per cent. In Donegal, €1.31m is the guide for the local branch where a rent of €73,105 will give a return of 5 per cent. The lowest valuation, €1.22m, is for the Edenderry branch. The rent of €61,372 will produce a yield of 4.5 per cent.
