Supermarket Income REIT (SUPR) has acquired a 25.5% stake in a portfolio of Sainsbury’s supermarkets in a joint venture (JV) with British Airways Pension Fund.
The JV has acquired the stake in the 26 stores from British Land for £102m.
SUPR’s contribution to the JV is £51m, excluding costs, which will be satisfied from its existing cash balances and credit facilities.
The portfolio is spread across the UK with a London and South East bias. It was created through two sale and leaseback transactions by Sainsbury’s in 2000. Following this transaction, the freeholds of the properties are now owned by Sainsbury’s (49%), Aviva (25.5%) and the JV (25.5%).
The portfolio is funded by bonds, which mature in 2023. The rental income received from the portfolio pays down the outstanding balance of the bonds to a final amount which will be repayable in 2023 by way of a refinancing or sale of the portfolio.
The supermarkets are predominantly omnichannel, meaning they serve online sales as well as traditional shopping, and SUPR said it was targeting annualised NAV growth from the investment in excess of its targeted annualised total shareholder return of between 7% and 10%.
SUPR added that the investment provides it with the opportunity to increase its holding in the portfolio “at the appropriate time”.
The Portfolio
Out of the 26 stores in the portfolio, 23 are omnichannel, offering physical shopping, click and collect and online home delivery. The majority of stores incorporate an Argos. The average store net sales area is approximately 61,000 sq ft. The average site size for each store is 7.3 acres. Around 60% of the portfolio is located in London and the South East.
The Sainsbury’s stores generate an annual rental income of £53m, with the lease rent subject to fixed annual uplifts of 1% per annum. They expire conterminously with the maturity of the bonds in 2023.
The income from the occupational leases services the interest and principal repayments of the bonds. The bonds amortise out of the rental income to a remaining outstanding debt amount of £315m on expiry in 2023. The debt due on expiry is expected to be funded by way of a re-financing or sale of the portfolio.
At lease expiry in 2023, Sainsbury’s has the option to extend the leases for a further term of 20 years at the higher of passing rent or open market rent, subject to upward-only, five yearly market rent reviews or to vacate the properties.
SUPR : Supermarket Income REIT buys stake in Sainsbury’s store portfolio