UK REIT Supermarket Income has joined forces with the British Airways pension fund to buy a 25.5% stake in one of the UK’s largest portfolios of supermarket properties for £102 mln (€114 mln).
The new 50:50 joint venture is buying the stake from British Land and will hold the assets together with existing shareholders Sainsbury’s (49%) and Aviva (25.5%).
The portfolio consists of 26 Sainsbury’s supermarkets spread across the UK, with a majority located in London and the south east. It was created through two sale-and-leaseback transactions by Sainsbury’s in 2000.
The portfolio is funded by bonds, which mature in 2023 and were issued under two securitisations, Highbury Finance BV and Dragon Finance BV. 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.
Nick Hewson, chairman of Supermarket Income REIT, said: ‘Our investment in this Sainsbury’s property portfolio gives us an interest which we believe will be highly NAV-accretive over the next three years. We will work closely with the co-owners, Sainsbury’s and Aviva, to extend the leases and find a solution to the longer term ownership of the properties.’
Highbury and Dragon comprise 16 and 10 Sainsbury’s supermarkets respectively. Out of the 26 stores in the portfolio, 23 are omnichannel, offering physical shopping, click and collect and online home delivery. They generate an annual rental income of £53 mln, with the lease rent subject to fixed annual uplifts of 1% per annum. The income reflects a net initial yield of approximately 6.4% - considerably above market yields in the supermarket segment (~5.0%),
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.
