LONDON, UK: Supermarket Income REIT (LSE: SUPR) has acquired British Airways Pension Trustees Limited (BAPTL) 25.5 beneficial interest in the Sainsbury’s Reversion Portfolio (SRP Portfolio) for £196 million resulting in the Company’s beneficial interest in the SRP Portfolio increasing to 51.0%.

The remaining 49.0% beneficial interest in the SRP Portfolio is held by Sainsbury’s plc. The ownership structure of the SRP Portfolio will contractually unwind in March 2023 and July 2023 as detailed below.

The SRP Portfolio comprises the freeholds to 26 Sainsbury’s supermarkets of which 21 properties (the “Option Stores”) will be acquired by Sainsbury’s for £1,040 million in two tranches in March 2023 and July 2023.

Beneficial ownership of the five remaining stores is held between the Company and Sainsbury’s in the same proportions as the beneficial interests. Sainsbury’s has entered into new 15-year leases on four of these stores with five yearly open market rent reviews and a tenant break option at year 10. It is expected that the one store that has not been re-geared will be sold at vacant possession value.

As a result of Sainsbury’s purchasing the Option Stores, the Company will receive a minimum of £380 million in cash from Sainsbury’s in two tranches, £264 million in March 2023 and £116 million in July 2023.

The Company’s investment in the SRP Portfolio has generated high returns for shareholders. To date, it has produced an estimated money-on-money multiple of 1.9x and an IRR of 26%, representing 8 pence per share in NTA growth.

The acquisition is expected to be attractive versus SUPR’s target property returns and accretive to the Company’s expected return from the SRP Portfolio.

The acquisition of British Airways Pension Trustees Limited (BAPTL) beneficial interest also gives the Company a 51.0% stake in this strategically important transaction with Sainsbury’s.

The acquisition has been funded entirely by a new debt facility (the “Facility”) provided by JPMorgan Chase Bank. The Facility has no recourse to any of SUPR’s assets other than its interest in the SRP Portfolio. The Facility has a margin of 1.5% over SONIA and an arrangement fee of 2.0%.

The Facility will be repaid in full following receipt of the first payment from Sainsbury’s in March 2023.

Based on the Company’s last published property portfolio valuation as at 30 June 2022, the pro forma loan-to-value ratio (LTV) following the acquisition is 39% (from 36% pre-transaction). The LTV is expected to decline to 31% following the repayment of the Facility in March 2023 and to 26% in July 2023 following receipt of the second tranche of proceeds from Sainsbury’s.