AIB may sell and lease back bank branches

Sale and leaseback deals for its branch network would release around €421 million of equity for the AIB, writes Jack Fagan

AIB has been considering the sale and leaseback of its branch network as a means of freeing up substantial capital for its banking operation.

The bank has 280 branches on both sides of the Border, as well as the UK. Freehold properties on its books have a net value of €421 million.

Senior officials in the bank are aware of the potential windfall from a sale and leaseback strategy but, so far, there has been no definitive decision to sell the various branch buildings.

A spokeswoman for AIB said they keep their property portfolio under review "and have no firm plans" in relation to any possible sale and leaseback of its branches. However, senior sources in the bank believe that the option to free-up significant resources may be revisited when the bank completes the current sale and leaseback of its headquarters in Ballsbridge.

The guide price of €275 million for the Dublin 4 property would provide a return of 4 per cent but, given the shortage of gilt-edged property investments in the Irish market, it will be no surprise if it makes considerably more when it is sold by John Moran of Jones Lang LaSalle. Last year, a syndicate of wealthy people and companies bought the planned new extension to the Bankcentre for €367 million in a similar deal which will show a yield of 4.25 per cent.

If the branch network comes on the market on a sale and leaseback basis, it seems likely that many of the provincial buildings will be sold in packages while the larger branches in cities and towns will be disposed of as stand-alone investments.

A sale and leaseback exercise could have considerable appeal for a bank because, by freeing-up substantial funds which are effectively dormant, the bank would then be in a position to show a better return on its assets.

The bottom line is that it could help boost overall profits.

A sale and leaseback of branch buildings would have enormous appeal to the investment community who increasingly have to look to the UK and Europe for commercial properties because of the few opportunities available at home.

The values of well-let commercial properties in good areas have soared in recent years as investors settle for ever lower returns.

The bank branches would have particular appeal because not only are they among the finest buildings in most towns, they are invariably located along prime trading pitches.

Even more importantly, the bank would be seen as the best possible commercial covenant.