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Fund to get over €50m for retail and office investments

{con_title} September 12 2007

The Irish Property Trust is to sell three top class retail investments in Cork and Limerick as part of a rebalancing of its property fund. It is also to offload a substantial office investment, Aviation House, at Burgh Quay, Dublin 2.

The sales mark the opening of the autumn selling season which is expected to be considerably busier than the first half of the year. Agents are adamant that prices for well located commercial investments are holding up even though there are fewer buyers around because of the credit crunch that has shocked financial markets in recent weeks.

The general optimism does not, however, extend to the market for residential sites where values have slipped by at least 15-20 per cent because of the slow down in the housing market and tighter lending guidelines by the banks.

IPUT’s move to sell the three retail investments has been prompted by its decision to take a 35 per cent stake with O’Callaghan Properties in the Opera Avenue retail project in Patrick’s Street/Academy Street area of Cork for around €80 million.

Chartered surveyors HWBC is guiding €18 million for one of the best located retail stores in Cork, the HMV outlet at 80/82 St Patrick’s Street, which is producing a rent of €580,911 per annum. The next review is in three years but, according to the agent, the current rent would review to €650,000. Based on the guide price, the investment will produce a return of 2.9 per cent and a reversionary yield of 3.24 per cent in 2010.

HMV trades out of the former Pavilion Cinema, redeveloped in 1990 but still retaining its architectural distinction and generous floor-to-ceiling heights. The building extends to 426.87sq m (4,595sq ft), including 209.86sq m (2,259sq ft) at ground floor level and 139.62sq m(1,503sq ft) of retailing on the first floor. The lease has another 18 years to run.

The Patrick’s Street area is set to benefit from a number of large retail developments,
including the new flagship Dunnes Stores, Opera Avenue and Cornmarket Centre. A planning application has also been submitted for a mainly retail development virtually opposite the HMV store.

Andrew Cunningham of HWBC describes the HMV store as a “trophy retail investment on Cork’s premier retailing street”.

Niall Gaffney, the incoming chief executive officer of IPUT, says they are continuing to reposition their portfolio in favour of modern retail holdings that offer the fund, the scale and scope to grow performance over the longer term. They had invested over €200 million in the retail sector over the last 12 months with the Pavilions in Swords and now Opera Avenue in Cork.

The investment in Cork also affords them the opportunity to rebalance the portfolio as they already had a considerable level of investment in provincial retail with six retail properties in St Patrick’s Street alone.

In Limerick, IPUT is to sell two adjacent retail investments on William Street, close to the Brown Thomas department store. Numbers 67 and 68 William Street comprise a modern end-of-terrace two-storey building with a combined 828.23sq m (8,915sq ft) of floor space and a service yard to the rear. The ground floor shops have 218.51sq m (2,352sq ft) and 212.56sq m (2,288sq ft) and are occupied by Dixons and Sasha.

Dixons is paying a rent of €180,938 but HWBC points out that, while the October 2006 rent review is outstanding, it should rise to €220,000. A sale at the guide of €5.5 million would show an immediate yield of 3.15 per cent and eventually this could be expected to rise to 3.55 per cent after allowance for normal acquisition costs. Dixons has a break option in nine years time.

HWBC is guiding €5.4 million for the Sasha shop which is rented at €191,500 per annum. Though the next rent review is not due till 2010, the agent estimates that the current rental value is €215,000. A purchaser will get an immediate return of 3.18 per cent and, when the nest review is completed, the yield should rise to 3.57 per cent.

Jones Lang LaSalle is quoting a selling price of €22 million for Aviation House which has a gilt-edged tenant and long term development potential. It has been owned by IPUT for the past 27 years.

The 2,990sq m (32,184sq ft) building is fully occupied by the Irish Aviation Authority, the Government agency which controls air traffic and safety, under a lease which has another nine years to run. The authority is paying an annual rent of €1.05 million, equating to €339 per sq m (€31.50 per sq ft) - low by comparison to other city centre offices. The asking price would give a net yield of 4.28 per cent.

The six-storey building has basement car-parking for 21 cars and is on a site of 0.223 of an acre. Its central location provides exceptional transport links: it is close to both the Dart and Luas services.

John Moran of Jones Lang LaSalle says that while the building is an excellent investment in its own right, it also has development potential further down the road because of its location in the very centre of the city, overlooking the River Liffey and in an area that is expected to see major changes in the coming years.

The Opera Avenue scheme in Cork is being developed on the site of the old Examiner print works and, when completed in two years time will have 19 multi-storey shops with overhead apartments. The overall retail area of 12,077sq m (130,000sq ft) will be aimed at British and European retail multiples.

IPUT expects to get a return of 4 per cent once the shops are let.

Opera Avenue will also adjoin a department store of 13,935sq m (150,000sq ft) for Dunnes which is under constructions.