European investors are increasingly looking for risk-averse property investments with strong returns to replace the current negative interest rate environment, low investment returns and the expected volatility in the equity markets.
For those reasons alone, estate agent TWM could hardly have chosen a better time to seek a buyer for the Tesco supermarket in Roscrea which is available on a long-term secure income stream at an asking price of €12.5 million. The net initial return at that price will be 7.25 per cent. In addition the rent is linked to the Consumer Price Index with the first uplift – a 10-year annual compounded increase – accruing in July 2021, therefore increasing the annual return.
The supermarket is let to Tesco Ireland on a 35-year FRI lease from July 2011. There is a tenant break option in July 2026. The annual rent is €950,000 per annum and the lease provides for the rent to be adjusted in line with the compounded annual proportionate change in the CPI after year 10, and five-yearly thereafter. The CPI uplifts are subject to an annual cap of 4 per cent and a collar of -1 per cent. It follows that in 2021 a 10-year compounded annual CPI uplift will accrue to the landlord.
The supermarket is located in the centre of Roscrea beside the local shopping centre. It was developed in 2011 and comprises a modern detached 4,333sq m (46,640sq ft) building with supermarket at ground floor level and 224 car parking spaces on a lower floor.
The business is run by a subsidiary of Tesco Ireland Holdings. The accounts for Tesco Ireland are prepared on a consolidated basis in the accounts of Tesco plc. In 2015 Tesco plc reported group sales of £48.4 billion and a group operating profit of £944 million for 2015. UK and Republic of Ireland operating profit before exceptional items was £389 million, with a marginal improvement in the first half of 2015 and 2016.
Tesco had the third-largest share of the Irish grocery retail trade (22.4 per cent) for the 12 weeks up to 1st January last. It has 148 stores in Ireland.
Sean O’Neill of TWM, who is handling the sale, says he is expecting good interest from investors seeking a high income return with little risk, something much in demand but not generally available in the investment markets at present.