Supermarket Income REIT, British Airways Pension Trustees Limited form JV to acquire Sainsbury’s supermarkets

LONDON: UK supermarket real estate investor, Supermarket Income REIT has announced the formation of a 50:50 joint venture (JV) with British Airways Pension Trustees Limited (BAPTL) to acquire from British Land Plc a 25.5% stake in one of the UK’s largest portfolios of supermarket properties for £102 million.

Supermarket Income REIT’s contribution to the JV is £51 million, excluding costs which will be satisfied from its existing cash balances and credit facilities.

The Portfolio consists of 26 Sainsbury’s supermarkets. It is a geographically diverse high quality portfolio of stores 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 directors of the Company believe that the principal benefits of the acquisition to shareholders are as follows:

• High quality portfolio: the JV investment will give the Company an interest in a large freehold high quality portfolio of predominantly omnichannel supermarkets with strong property fundamentals.
• Progressive valuation growth: the Board is targeting annualised NAV growth from the investment in excess of the Company’s targeted annualised total shareholder return of 7-10%(1).
• Optimal capital structuring: the 50% JV investment interest is sized to minimise dividend cover dilution for the Company while maximising the total return to shareholders.
• Attractive future pipeline: the acquisition gives the JV a stake in a significant portfolio and the opportunity to increase that holding at the appropriate time.

Nick Hewson, Chairman of Supermarket Income REIT, said: “We are very pleased to have formed a strategic long term partnership with British Airways Pension Trustees Limited to facilitate this transaction.”

“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.”