Supermarket Income REIT (SUPR) has entered into a strategic joint venture (JV) with funds managed by Blue Owl Capital, a leading US alternative asset manager.
The JV has been seeded with eight high yielding, omnichannel supermarket assets from SUPR’s existing portfolio, which have been transferred into the JV at a 3% premium to book value (at 31 December 2024).
The seed portfolio (made up of five Tesco stores, two Sainsbury’s and one Morrison let supermarket) has a combined value of £403m, an average net initial yield of 6.6% and a WAULT of 11 years.
SUPR will retain a 50% stake in the JV, and therefore will receive a net cash consideration of around £200m. It will also receive a management fee of 0.6% per annum of the gross asset value for the ongoing management of Blue Owl’s interest in the JV and potentially a performance fee if the JV meets certain financial targets.
The JV will seek to acquire additional high yielding supermarket assets, with a view to grow the assets of the JV up to £1bn over the coming years. The intention of the JV partners is to scale the vehicle, whereby the JV will have a right of first refusal over pipeline assets which meet specific investment criteria.
SUPR said that it would benefit from earnings accretion through redeployment of capital, ongoing management fees and a potential performance fee.
Use of proceeds
The proceeds from the JV will be used to reduce debt in the near term and to invest in other supermarkets either directly for SUPR or indirectly through the JV, based on the investment profile of assets. Following receipt of proceeds from the JV, which is expected to be financed at 55% LTV shortly after completion, SUPR will have an LTV of 31%.
Through redeployment of capital the company said that it expects to operate at the upper end of its target LTV range of 30-40%, which will include its share of assets and net debt in the JV.
Robert Abraham, chief executive of SUPR, commented:
“The JV with Blue Owl’s managed funds brings a high quality, strategic capital partner that shares our conviction in the value of high yielding UK supermarkets. With the potential to grow to £1bn over the coming years the JV partnership represents Blue Owl’s managed funds’ first major investment in the UK grocery space and is a strong endorsement of the expertise and track record SUPR has established in this market.
“For our shareholders, the JV is another important milestone in our strategy to recycle capital and grow earnings, and provides a platform for growth with specialist third party capital. This follows a period of significant progress on a number of key strategic initiatives set out in November 2024, including renewing the three shortest leases in the portfolio, material cost reductions culminating in the internalisation of the management of the Company and other capital recycling activity.”
