The 25.5% beneficial interest in one of the UK's largest portfolios of supermarket properties has been acquired from an Aviva Investors managed fund through Supermarket Income’s 50:50 joint venture with the British Airways Pension Trustees Limited.
The purchase price is £115.0mln (excluding acquisition costs), of which the London-listed real estate investment trust (REIT) will stump up half.
The joint venture (JV) acquired its initial 25.5% beneficial interest from British Land PLC (LON:BLND) in May 2020. Following this second acquisition, the JV's ownership in the portfolio is 51.0%. The remaining 49.0% beneficial interest is held by Sainsbury's PLC (LON:SBRY).
The directors of Supermarket Income REIT said the strategic rationale “remains compelling for this high-quality portfolio of predominantly omnichannel supermarkets”.
The portfolio offers strong property fundamentals and scope for progressive valuation growth in excess of the company's targeted annualised total shareholder return, the REIT said.
"This acquisition increases the size of our investment in this high-quality Sainsbury's property portfolio through our joint venture with British Airways Pension Trustees Limited. We will work closely with our tenant and co-owner, Sainsbury's, to deliver a long term occupational solution for them,” said Nick Hewson, the chairman of Supermarket Income REIT.
Peel Hunt noted that the £115mln paid for the current stake compares to £102mln paid for the original stake, "although the income produced is used to amortise the debt, so these are not directly comparable".
"We estimate today’s acquisition equates to a property valuation of around £228m (or £114m attributable to the REIT). The JV generates an equity income return of around 10%, although income is currently used to pay down debt. Sainsbury’s owns the outstanding 49% and a re-gearing of the leases is expected before the 2023 expiry," the broker said in a note to clients.
"The company continues to deploy capital rapidly and appears to be tracking ahead of our assumptions. The shares trade on an 8% premium and 5.4% dividend yield," it added.
Shares in the REIT were up 0.2% at 109.25p in mid-morning deals.
--- adds broker comment and updates share price ---