Tesco seeking more than €40m for Athlone centre

Golden Island shopping centre produces €3.1m rental with 7.42% yield

 

The highly successful Golden Island shopping centre in Athlone is to be sold by its UK owners Tesco.

The surprise announcement comes after the beleaguered supermarket giant announced the closure of a large number of unprofitable stores in the UK and the loss of thousands of jobs in an attempt to reverse a slump in sales and profits.

Seán O’Neill of agents TWM is quoting in excess of €40 million for the centre which is producing a rental income of €3.1 million and will provide the new owner with an attractive initial yield of 7.42 per cent.

Tesco’s decision to proceed with the sale may also have been prompted by the continuing demand for such investments by overseas funds amid signs that a recovery is well under way. Retail capital values have risen for the past seven quarters in line with the steadily improving business sentiment.

Funds interested in Golden Island will not have to look far for some comparison on capital values. Golden Island happens to adjoin another shopping complex, Athlone Town Centre, with a slightly larger floor area and a rental income of €4.9 million.

This investment is believed to have made close to its guide price of €61 million when it was sold earlier this year at a 7 per cent yield as part of the Cornerstone Portfolio.

Golden Island’s success is largely based on its food and convenience offering, with Tesco and Penneys as the main anchors. The principal attractions in the second centre are Marks & Spencer, H&M, Zara and Next.

The marketing campaign, due to get underway later this week, will have an interesting twist to it. While the sale of the shopping centre does not include Tesco’s 3,809sq m (41,000sq ft) store, the company is willing to consider a sale and a long leaseback arrangement of the anchor unit.

Mr O’Neill says investors will be invited to bid for the centre with the Tesco store included and also excluded.

Funds who would like the supermarket included in the sale could expect to rent it at €215 to €269 per sq m (€20/€25 per sq ft) or roughly €800,000 to €1 million per annum on a long-term basis.

Single-mall format

Golden Island’s traditional single-mall format was developed in 1996 by Owen O’Callaghan, Michael Tiernan and Tom Diskin with the benefit of tax breaks.

The centre has a retail floor area of 14,306sq m (154,000 sq ft) which is shared by 45 retailers. The centre is surrounded by a remarkable 1,000-space car park. Golden Island was sold to Tesco 10 years ago for about €52 million.

It has consistently traded well with a current pedestrian footfall of about 65,000 a week, peaking at about 100,000 in the run-up to Christmas.

The centre greatly benefits from its tenant line up and occupier mix. It has only three vacant units and with letting terms agreed on one of these shops, the vacancy rate will shortly fall to 1.28 per cent.

The Penneys and Lifestyle units as well as the cinema are owner-occupied.

The main tenants are Argos, which pays a rent of €270,000 for 799sq m/68,600sq ft; Elverys, €210,000 for 582 sq m/ 6,300sq ft; Boots, €200,000 for 557sq m/6,000sq ft; Burger King, €125,000 for 297sq m/ 3,200sq ft; Specsavers, €115,000 for 185sq m/2,000sq ft; AIB, €92,000 for 148sq m/1,600sq ft; Wallace Clothing, €165,000 for 185sq m/ 2,000sq ft.

Expansion opportunities

Mr O’Neill says that following a review of the expansion opportunities which the centre could provide, Tesco had decided to sell the centre and allow a third-party specialist investor to expand, upgrade and improve an already fundamentally sound centre.

Such an investment in the shopping centre would allow Tesco to focus on its core business while benefiting from the boost in trade that generally results from further investment.

He adds that while the shopping centre provides an extremely strong and secure income base, it also offers plenty of asset management opportunities to enhance it and investment returns.

The centre stands on a site of just under 18 acres.