Tesco to sell north Dublin warehouse for over €120m

Tesco Ireland is preparing to sell its newly-opened distribution warehouse in Donabate, north Co Dublin, for more than €120 million. Under the terms of the deal, Tesco would lease back the 46-acre property for 25 years.

It is understood that Tesco Ireland will use the money for the development of its operations here. The British multiple spends more than €100 million a year building new stores in Ireland and revamping existing properties. The distribution centre in Donabate opened in June, having cost Tesco more than €80 million to develop. It employs about 600 staff and handles around 700,000 cases of goods which are delivered to Tesco's 96 stores around the State.

This is the first time Tesco has entered into such an arrangement for one of its properties in Ireland. It is understood that there are no plans to offer any other sites for sale.

Similar sale and leaseback arrangements have been entered into here by our leading banks as a way of releasing value from their property portfolio for investment purposes.

In the UK, Tesco plans to release £5 billion worth of funds from property divestments over a five-year period. This money is being used to buy back shares in Tesco plc.

The Donabate warehouse covers 780,000 sq ft and has 79 loading bays. The site also has 600 car-parking spaces, a fuel island and a vehicle wash and steam cleaner.

A document being circulated to investors states that the initial rent will be €7 million a year, with annual reviews linked to the consumer price index up to a cap of 3.5 per cent.

The initial net yield will be 5.24 per cent for the new owner. This yield is projected to grow to 9.71 per cent if inflation runs at 2.5 per cent a year over the 25 years of the lease.

Tesco, which has a 26 per cent share of the Irish grocery market, has engaged DTZ Sherry Fitzgerald in Dublin and Morgan Williams in London to market the property.

The sale and leaseback arrangement is expected to generate significant interest among investors.

Tesco is a blue-chip tenant and Donabate is the most modern of its three central distribution centres. The grocer also has facilities in Ballymun and Tallaght.

Under the terms of the deal Tesco would be entitled to extend its facilities there or construct new buildings without the requirement for landlord consent.

Tesco Ireland's revenues rose by 8 per cent to €1.29 billion in the six months up to the end of August, according to its latest interim results. Tesco said the Irish operation "saw improved profits and another year of strong sales growth in existing stores".

No profit figure was published for Ireland but the retailer said that its profit growth here would have been "more rapid" but for the commissioning costs of the warehouse at Donabate.

"These costs will not recur in the second half [ of the financial year]," Tesco added.