Ireland's largest building, the Tesco distribution centre in Donabate, Co Dublin, has been sold to a South Korean investor for about €160 million.
The off-market acquisition of the 73,207sq m (788,000sq ft) warehouse by KTB Investments & Securities and KTB Asset Management represents the largest single-asset logistics transaction to have taken place in the Irish market.
The vendor, a South African property fund, is set to secure a significant return on the €129 million it paid to secure ownership of the property in 2014.
The uplift in the facility’s value in the intervening period reflects both the strength of the tenant covenant offered by Tesco, and the current strength of the Irish economy.
Following its original development by Tesco in 2007, the Donabate distribution centre was sold immediately in a sale-and-leaseback deal to Abatewood, a consortium assembled by the professional services group KPMG. Abatewood took out loans of about €125 million from Bank of Ireland at the height of the then economic boom to finance its purchase of the property.
Lease guarantee
Notwithstanding the challenges presented by Brexit now, KTB’s acquisition of the facility should prove to be more lucrative given the essential role it plays in providing dry-goods distribution to Tesco’s growing network of Irish stores. The warehouse benefits from a lease guaranteed by Tesco Plc until 2032 with annual upwards-only rent reviews in line with the consumer price index (CPI).
KTB acquired the Donabate facility through DTZ Investors and were advised on the transaction by Cushman & Wakefield's capital markets and debt and structured finance teams.
Commenting on the deal, David Peacock of DTZ Investors said: “This off-market acquisition is an exceptional example of identifying a suitable investment opportunity that meets our client’s investment objectives and executing successfully on what is the largest single-asset logistics transaction in Ireland. The income profile, in terms of length and escalation, and strength of the Tesco plc credit provides for very attractive income investment characteristics.
“The transaction profile is further enhanced when considered against the backdrop of the very restricted supply of logistics assets of scale in Ireland and the building’s importance to Tesco’s Irish operations.”
Clive Roche of Cushman & Wakefield added: “Cushman & Wakefield are delighted to have sourced and advised on this landmark off-market acquisition. With steady occupier demand and ongoing supply constraints, particularly for larger units, the sector is expected to witness strong rental growth, and with investor appetite for the sector at an all-time high, additional yield compression is also likely.”
KTB was also advised by Ashurst LLP, Walkers Global and KPMG.
