Back in March 2011, there was a blogpost here on what Jack Fagan at the Irish Times called “by far the most valuable asset under NAMA’s control”, the Dundrum Town Centre shopping centre which was seemingly valued at around €600m. The view on here was that the Battersea Power Station was more valuable even if it was in the same valuation ballpark, but as it turns out we were both proved wrong when NAMA announced a €800m sale of loans in the Maybourne group two weeks ago. The March 2011 blogpost was prompted by reporting of imminent rent reviews in the Dundrum Town Centre and today Jack Fagan writing in the Irish Times provides some results which make for very interesting reading, and the view on here is that Dundrum might only be worth half the valuations being bandied about previously.
To recap, Dundrum Town Centre (pictured here) claims to be the largest shopping centre in the State with 79,000 sq meters. Built by NAMA Top-10 developer, Joe O’Reilly and the late Liam Maye, it is understood that loans underpinning the development are now in NAMA. Back in 2005, tenants were enticed with teaser introductory rents and it is these rents that have now been coming up for review. As was normal back in 2005, the lease agreements in Dundrum have Upward Only Rent Review (UORR) terms which mean that the reviews now can either increase the rent or keep the rent at existing contract levels, there is no right yet for tenants to have the rent set at levels below the existing rent, though as reported here last week this is set to change in the coming weeks.
The expectation in Dundrum was that the current rent reviews would result in substantially higher rents than the so-called teaser rents. That is not turning out to be the case according to today’s Irish Times article. Rents for the anchor tenants, House of Fraser and Marks and Spencer remain the same; indeed were it not for the presence of UORR lease terms, M&S’s rent would actually fall. Penneys has been asked to pay €50,000 per annum more on the existing rent of €1.8m (a measly increase of 2.8%). The smaller units will, however, be paying more – between 20% and 55% more according to Jack Fagan. There is no mention whatsoever of the 85% increases reportedly being sought at the start of this year. There is also no update to the estimated rent roll of €55m, but will that headline total have been reduced as a result of the anchors keeping their rents flat? And will the €55m be affected by the forthcoming changes to UORR lease terms?
Of course this won’t be scientific because smaller units are likely to be paying higher rents per square foot but I note that House of Fraser, Marks and Spencer and Penneys which together hold 30,000 sq metres (325,000 sq ft) will be paying €7.75m per annum, and this may fall after the UORR changes are made into law. I believe Dundrum has 80,00 sq metres of rentable space which on a pro-rata basis would put the rent roll at about €20m per annum. At an 8% yield that indicates a capital valuation of €250m. According to Jack Fagan’s article today there’s a queue of retailers waiting to rent space at Dundrum which indicates the centre is 100% rented, and it may be that the smaller units generate higher rents which might result in an overall capital value well over €250m.
In April 2011, NAMA was reported to have sold a shopping centre in Blackpool in northernEngland, half the size of Dundrum with 82% of the footfall for €112m. My money is still on Battersea being more valuable than Dundrum.