AIB has been quietly trying to offload three more branches at prices up to 40 per cent below peak values

WITH NO immediate end in sight to the crisis in the banking sector, AIB has been discreetly trying to offload three bank branches for €11.8 million in a sale and leaseback arrangement.

The largest investment property at Upper Baggot Street in Dublin has a price tag of €5.75 million while a large branch in the centre of Naas has a guide price of €3.4 million and another one in Mullingar is for sale at €2.66m.

All three branches would have made between 30 and 40 per cent more than their current values had they been sold at the peak of the property market in 2006 and 2007 when 47 other branches were disposed of.

Michael Clarke of agent Savills said yesterday that the planned sale of the branches at Upper Baggot Street, Naas and Mullingar was a continuation of the programme of disposals which began in early 2006. “The response to the latest proposed sales has been very encouraging,” he said.

Savills has been offering the bank branches for sale off-market in what their brochures describe as a “confidential investment opportunity”. It is understood that several offers have already been made for them.

If the bank succeeds in securing the asking prices for all three banks, the Upper Baggot Street building would show a yield of 6 per cent while Naas and Mullingar would each provide a return of 6.75 per cent.

Savills also handled the sale of AIB’s first tranche of 12 branches in the autumn of 2006 when they were bought in one lot by the wealthy property developer Gerry Gannon for around €100 million. The branches were easily the most valuable and best located in Dublin and, as a result, showed an initial return of only 2.8 per cent.

Towards the end of 2006, DTZ Sherry FitzGerald put 25 further branches on the market and, when they were eventually disposed of in the early part of 2007 at an overall price of almost €100 million, the average yield worked out at 3.15 per cent.

The branches were sold in individual lots to private investors and in some instances – such as the branches in Lower Baggot Street and Rathgar – the yields were just under 3 per cent.

A third block of 12 branch buildings in Munster, first offered for sale through Savills in the autumn of 2007, are currently under offer to a group of investors at around €30 million. At that price, the yield will be around 5.8 per cent.

Bank of Ireland also availed of the strong investment market in 2006 to sell 66 branches in two tranches through CB Richard Ellis for €331 million. The overall yields were 3.25 per cent in the first instance and 3.9 per cent in the second sale.

The investment market has changed drastically since the boom years of 2006 and 2007 because of the fall in capital values and the scarcity of debt financing by most of the banks. However, investors lucky enough to be able to come up with about 30 per cent of the cash and with access to borrowings to buy any one of the three banks now on the market, could expect them to be roughly self-financing over a 15-year period. All three branches will inevitably be retained by the bank on a long term basis because of their superb condition and prime locations.

The landmark bank branch at the junction of Upper Baggot Street and Eastmoreland Place will be leased back by the bank for a period of 20 years with a break option in year 15. The initial rent of €375,000 provides for five yearly upwards-only rent reviews.

The four-storey building extends to 704sq m (7,578sq ft) and includes a banking hall on the ground floor.

The Naas branch in the town centre at South Main Street extends to two exceptionally fine buildings with a floor area of 693sq m (7,459sq ft). One of the buildings is used as a regional office. The bank plans to pay an overall rent of €250,000 under a similar 20-year lease with a break option in year 15. There is a valuable 28-space car-park at the rear.

AIB expects to secure in the region of €2.66m for the three-storey Mullingar branch which will be leased back under similar rental terms at €195,000 per annum. It has 10 car-parking spaces at the rear.