Friday, July 28, 2006

Bank of Ireland Seeking €250 million in Sale Leaseback of 36 Branches

Irish Times - July 26, 2006

Bank of Ireland is to launch a marketing campaign in September for the sale and leaseback of 36 of its branches in Dublin and other cities and towns. The initiative is expected to bring in between €230 million and €250 million.

AIB is also set to unload much of its branch network to free-up substantial capital for its banking operations. CB Richard Ellis, which is advising Bank of Ireland, said it expected that the investments would be sold at yields of around 3 per cent but, inevitably, some of the higher profile buildings were likely to show lower returns for the purchasers.

The 36 branches to be offered for sale are among the best owned by the Bank of Ireland and include several Dublin offices. All the branches will be offered for sale on 25-year leases but 17 will have break options after year 15 while another, at Leeson Street in Dublin 2, will have break options in years five and 10 because of development potential. The rent roll for the entire portfolio will be over €9 million.

In all cases the sale and leaseback terms will provide for a 15 per cent fixed uplift in the rent after five years. Subsequent reviews will be based on open market valuations.

The potential for rent increases will largely depend on the areas designated as retail use as opposed to offices. Consequently, buildings with two floors in retail use - such as O'Connell Street in Dublin and Eyre Square in Galway - will inevitably show the best return once open market valuations are the norm.

The move by the banks to embark on sale and leaseback programmes will be welcomed by the investment industry - from the pension funds and insurance companies to the investment syndicates and private investors.

Commercial investments have been in particularly short supply in the Republic in recent years, with many investors forced to look abroad for investment opportunities. The shortage means that investments on even secondary streets in Dublin have been selling for record yields of 1.5-3 per cent. More recently, a retail investment on Grafton Street changed hands at a yield of 1 per cent.

For the banks, the sale and leaseback exercise will free-up substantial funds which are effectively dormant. Once the sales have been completed, the banks will be in a position to produce a better return on their assets. Sphere: Related Content

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