€12.5m Tesco premises is a 'risk-free' investment
In 2010 there were just two investment deals completed in Ireland, one of which was the pre-funding of the new Tesco Supermarket in Roscrea, Co. Tipperary, by the Israeli investor Igal Ahouvi. Following the delivery of the new property in 2011, Tesco moved from its smaller 1,900 sq m (20,000 sq ft) store at Roscrea Shopping Centre to the state-of-the-art, stand-alone 4,300 sq m (46,000 sq ft) store it occupies today.
While the investment was considered to be something of a bold move at the time, given the dire financial circumstances in which the country found itself, today the sale of the property provides prospective purchasers with an opportunity to obtain a risk-free investment with an attractive income return.
The Tesco supermarket in Roscrea is being offered to the market by property investment specialists TWM for €12.5m, a price TWM director Sean O'Neill says will provide a long-term secure income stream with a net initial return of 7.25pc. In addition, the rent is linked to CPI with the first uplift, a 10-year annual compounded increase, accruing in July 2021, therefore increasing the annual return.
The property is situated in the centre of the town beside Roscrea Shopping Centre. Briefly, it comprises a modern detached retail building with the supermarket at ground-floor level and car parking at lower ground-floor level. The property extends to approximately 4,333 sq m (46,640 sq ft) and comes with the benefit of 224 car parking spaces.
The property is let to Tesco Ireland on a 35-year FRI (Full Repairing and Insuring) lease from July 1, 2011. There is a tenant break option in July 2026. The annual passing 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 Consumer Price Index (CPI) after year 10 and at five-yearly intervals thereafter. The CPI uplifts are subject to an annual cap of 4pc and a collar of -1pc. Accordingly, in 2021 a 10-year compounded annual CPI uplift will accrue to the landlord.
Tesco Ireland is a wholly-owned subsidiary of Tesco Ireland Holdings Limited with the ultimate parent company being Tesco Plc. The accounts for Tesco Ireland are prepared on a consolidated basis in the accounts of Tesco plc. Tesco plc reported group sales of Stg£48.4bn and a group operating profit of Stg£944m for 2015. Group sales for the first half of 2016 were Stg£24.4bn, an increase of 3.3pc, with operating profit being Stg£515m, up 38.4pc compared to the first half of 2015. Operating profit before exceptional items for the UK and Republic of Ireland came in at Stg£389m, with a margin improvement of 23 basis points on the first half of 2015/16.
The latest supermarket share figures from Kantar Worldpanel in Ireland, published on January 16 last for the 12 weeks ending January 1 2017, show that shoppers spent an additional €92m during the 2016 Christmas period, or 3.8pc more than last year.
Kantar Worldpanel reported that Tesco continued to improve its performance, with sales growing by 1.3pc over the final quarter - up from the 1.2pc growth the grocer saw in the 12 weeks to December 4, 2016. At 22.4pc, Tesco has the third largest share of the grocery retail market in Ireland for the 12 weeks to January 1, 2017. The company has 148 stores in Ireland and employs approximately 14,500 people. Tesco Ireland reported a total revenue of €2.5bn for 2015, and reported improved a like-for-like sales performance of 0.2pc and revenues of €1.2bn for the first half of 2016/17.
Sean O Neill of TWM said he expects "good interest from those investors seeking a high income return with little risk", a proposition which he remarked is "much in demand but not generally available in the investment markets at present".