Two baskets, one till: Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF) has put £40.9 million to work in one sweep, adding a big-box Tesco in Craigavon and its first bundle of 10 Sainsbury’s convenience stores at an average net initial yield of 6.4%.
Net initial yield (NIY) is the rental income on day one as a percentage of the price paid, after costs, a quick read on cash return.
Stifel likes what it sees, keeping a 'buy' rating and a 95p target price.
The broker says today’s deal provides proof that the revamp after the Blue Owl joint venture, which freed roughly £200 million, is feeding through to earnings, with £99.8 million now redeployed and a further £230 million of purchases pencilled in over the next few quarters.
Tesco Craigavon is classic 'omni-channel' grocery: a 130,000 square foot shed with Click & Collect, capacity for a dozen home-delivery vans and a petrol station.
The £25.6 million ticket equates to a 6.5% net initial yield and the lease has 15 years left, with rent linked to the consumer prices index (CPI) and capped and floored between zero and 4% at five-year reviews (the inflation link compounds annually).
The £15.3 million Sainsbury’s bundle marks a first toe-dip into convenience.
These 15-year leases also track CPI, but between 1% and 3%, yielding 6.1% at purchase. Expect the portfolio to stay dominated by large supermarkets, with selective growth in convenience and non-Big Four names.
Balance-sheet signals are tidy: pro-forma loan-to-value (LTV) sits at 36% (LTV is borrowings as a share of property value), and Stifel sees a peak around 42% next year, with a weighted average unexpired lease term (WAULT) of 11 years.
On income, the shares offer about a 7.7% dividend yield on Stifel’s 6.2p payout forecast for next year, covered by rents. For a real estate investment trust (REIT), that is the core attraction.
The shares were up 1.1% at 81.49p.