Irish Life and British Land are to swop shareholdings in two of Dublin's largest shopping centres, St Stephen's Green and the ILAC centre. In one of the most unusual property deals in recent years, Irish Life is set to acquire an equity stake of more than 70 per cent in St Stephen's Green and in return, will be handing over 40 per cent of the ILAC centre to British Land.
As part of the transaction, which is still under intense negotiation, Irish Life will pay more than £50 million (€63.5m) to the British company. British Land's decision to surrender control of St Stephen's Green will come as a surprise, given that the well-located centre has a book value of about £150 million (€190.5m) and is producing a rent roll of £8 million (€10m).
However, with no scope to provide additional shopping space there, the company will be switching its attention to the ILAC in the expectation that its value will rise significantly once it is enlarged over the next few years. An Bord Pleanala has endorsed a plan to increase the retail space by 40 per cent. This will increase the size from 220,000 to 320,000 sq ft, making it bigger than the Jervis Centre.
A revised planning application is due to be lodged in the coming months to allow Dunnes Store to link its Henry Street store, currently being redeveloped, into the ILAC centre, where Dunnes is due to trade out of a new flagship store of 120,000 sq ft on three levels.
British Land's move to acquire a 40 per cent holding in the ILAC centre will not be the only change of ownership. Irish Life looks set to end up with the same 40 per cent shareholding as British Land if there is a successful outcome to negotiations to sell the remaining 20 per cent equity stake to the ESB Superannuation Fund. The selling price is likely to be in the general region of £20 million (€25.4m).
The ILAC's valuation of just under £100 million (€127m) is based on a rent roll of £3 million (€3.8m) and the development potential in Dublin's busiest shopping area. Much of the additional retail space to be provided will be on a first-floor gallery, which will run along the central mall. The entire Moore Street mall is to be redeveloped to include the new Dunnes store. The Central Library will be relocated to the corner of Moore Street and Parnell Street. If the deal proceeds with the ESB fund, the £20 million (€25.4m) it pays will go a long way to cover the cost of upgrading and enlarging the 20-year-old centre.
Apart from the additional rental income that will come from the new retail space created in the ILAC centre, the owners can expect a significant growth in rents when the next review takes place. Zone A rents in the ILAC are currently around £115 (€146) per sq ft, a long way behind the general rate of £250 (€317) per sq ft which applies to much of Henry Street.
The joint owners can also expect a sizeable growth in rents in the 300,000 sq ft St Stephen's Green centre where Zone A rents are still only around £130 (€165) per sq ft - about half the rate for Grafton Street. Irish Life's final round of negotiations with British Land is the fulfilment of a long term plan by the assurance company to exchange equity stakes in the two city centre shopping centres.
The idea was first floated almost eight years ago by Irish Life because the ILAC accounted for too large a proportion of its property portfolio. However, British Land refused to budge because of the opportunities to add some additional space on the Green and possibly because it believed it might enlarge on an adjoining vacant site owned by the Doyle family. That site is finally to be developed for offices and retail by the Doyles.
Like other property companies on the stock market, British Land has suffered because its shares have been trading at a substantial discount to net assets. Last autumn the company reduced its gearing in London and in Ireland, where it recently sold the BT2 store on Grafton Street for £17 million (€21.6m), and two buildings on Patrick Street in Cork for £6 million (€7.6m), all to Irish Life.
