Supermarket Income REIT Expands Portfolio with £98 Million Acquisition

Supermarket Income REIT (LON: SUPR) has announced the acquisition of three UK supermarkets for £97.6 million, reflecting an average net initial yield of 5.5%. The move aligns with SUPR's strategy to enhance earnings through well-established stores.

The acquired properties include a Tesco in Aylesbury for £56.3 million (5.2% yield), a Sainsbury's in Sale for £33.8 million (5.9% yield), and a Waitrose in Frimley for £7.6 million (6.2% yield). These acquisitions are characterized by long lease terms and inflation-linked rent reviews.

The Tesco Aylesbury site spans 11.2 acres with an 110,000 sq. ft. supermarket. Tesco has operated there for over 40 years under a triple-net lease with 11 years remaining, featuring annual RPI-linked rent reviews capped at 3% and floored at 1%. The rent stands at £26.9 per sq. ft.

The Sainsbury’s Sale acquisition, an off-market transaction, includes a 60,000 sq. ft. supermarket on a 4.4-acre site. Sainsbury's has been present for over 29 years, with a triple-net lease extending 16 years, annual RPI-linked rent reviews (4% cap, 1.5% floor), and a rent of £35.2 per sq. ft.

The Waitrose Frimley property comprises a 30,000 sq. ft. supermarket on 1.3 acres. Waitrose has operated there for over 25 years, with an 11-year triple-net lease and 5-yearly CPI-linked rent reviews (3% cap, 1% floor). The rent is £15.9 per sq. ft.

The acquisitions were funded through existing debt facilities. Pro-forma loan-to-value (LTV) is projected at 43%, with a weighted average unexpired lease term (WAULT) of 12 years. Investment-grade tenant exposure is expected to rise to 75%, assuming the transfer of five stores to the joint venture.

Driver Breakdown:

• Strategic Alignment: Acquisitions fit SUPR's core business, focusing on established supermarkets.
• Yield Accretion: Average net initial yield of 5.5% expected to boost earnings.
• Inflation Protection: RPI and CPI-linked rent reviews provide a hedge against inflation.

AskTraders Takeaway:

The acquisitions demonstrate SUPR's active portfolio management and commitment to growth. The increased exposure to investment-grade tenants and extended WAULT could enhance the REIT's stability and appeal to income-seeking investors.

Rob Abraham, CEO of Supermarket Income REIT, stated, “The acquisitions come at the end of a transformational year for SUPR, where we delivered on key strategic objectives… We continue to see further opportunities ahead and look forward to continuing to grow the business as we cement our position as the leading landlord to grocery tenants.”