The branches on the market may have made around twice their current values had they been offered for sale in 2006 when 37 other branches were sold, writes JACK FAGAN.
WITH THE banking crisis still overshadowing the property industry, Allied Irish Banks is planning to raise further capital by selling another tranche of provincial bank branches.
The seven properties going on the market today, on a sale-and-leaseback basis, will give purchasers a return of between 6.5 and 7 per cent.
After almost a year of watching and waiting as capital values plunged, cash-rich investors will have to decide whether now is the time to acquire long term investments with good covenants.
The branches now being put on the market through CB Richard Ellis would possibly have made around twice their current values had they been offered for sale near the peak of the property market in 2006 when 37 other branches were disposed of.
AIB describes the current sale as “part of an ongoing strategy by the bank which has been successfully unlocking shareholder equity for its core business activities since the sale of the AIB Bankcentre in Ballsbridge in 2005 and 2006”. All seven branches now for sale by private treaty will be secured by long term leases for a period of 20 years with a break option in year 15. The leases will also be subject to five yearly upwards-only rent reviews.
The highest value branch for sale is in Navan, a relatively modern building along the main entrance to the local shopping centre where the asking price is €5 million. The bank will pay an initial rent of €335,000, reflecting a yield of 6.5 per cent. The property includes a small but valuable car-park which could be developed at some future date.
CBRE has put a valuation of €3.4 million on each of the branches in Swords and Dundalk.
Swords will produce a rent of €248,000 and a return of over 6.5 per cent. The building in Dundalk is expected to show the same return on a rent of €239,000.
There is likely to be considerable interest in the Maynooth branch which is ideally located in the centre of the university town. It is for sale at €3.33 million and, with the rent fixed at €235,000, it will show a yield of 6.5 per cent.
In Co Monaghan AIB plans to sell two branches – one in Monaghan town and the other in Castleblaney. The Monaghan building has a guide price of over €2.7 million and, with the initial rent fixed at €200,000, it will provide a return of over 6.5 per cent for the purchaser. The Castleblaney branch will produce a rental income of €86,000 and is expected to make over €1 million, showing a yield of over 7 per cent.
The Kells branch will give a similar yield with a rent of €84,000 and a selling price in the order of €1 million.
The planned disposal of the seven branches comes shortly after Savills wrapped up the sale of three more, one at Upper Baggot Street in Dublin 2 and others in Naas and Mullingar. The Upper Baggot Street branch will show a yield of just over 6 per cent while Naas will provide a return of 6.5 per cent and Mullingar one of 6.75 per cent.
Yields on bank investments have been rapidly creeping up since AIB started offloading branches in the autumn of 2006. The first 12 branches were sold by Savills and bought in one lot by property developer Gerry Gannon for around €100 million. The high quality buildings were by far the most valuable and best located in Dublin and showed an initial yield of only 2.8 per cent.
Towards the end of 2006, DTZ Sherry FitzGerald put 35 branches on the market and, when the legal contracts were finalised early in 2007, the overall price of almost €100 million reflected an average yield of 3.15 per cent. The branches were sold in individual lots to private investors and in some instances, such as the branches in Baggot Street and Rathgar, the yields were 3 per cent.
Colm Luddy of CBRE, who is handling the sale of the seven branches now going for sale, says that even in a difficult market discerning investors will find these properties attractive given the tenant covenant strength, the long lease commitment the bank is offering, the prominent high street locations and the affordable lot sizes involved.
However, for AIB clients who want the kudos of owning their local branch, it is understood that as a matter of policy the bank does not help finance the purchase of any part of its network of branches. And it’s not exactly a great time to try and forge a relationship with a new bank manager.
