REG - Supermarket Inc REIT - SALE OF SAINSBURY’S REVERSION PORTFOLIO INTEREST

Supermarket Income REITAnnouncement

14/03/2023 07:15

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RNS Number : 8233S  Supermarket Income REIT PLC  14 March 2023

14 March 2023

 

SUPERMARKET INCOME REIT PLC 

(the "Company") 

LEI: 2138007FOINJKAM7L537 

 

sale OF Sainsbury's Reversion Portfolio Interest

 

Supermarket Income REIT plc (LSE: SUPR), the real estate investment trust
providing secure, inflation-linked, long income from grocery property in the
UK, announces the exchange of contracts for the sale of its interest in the
Sainsbury's Reversion Portfolio (the "SRP Portfolio") to Sainsbury's for a
total gross consideration of £430.9 million (excluding costs).

 

The sale completes the previously announced acquisition by Sainsbury's of 21
of the 26 SRP Portfolio properties and concludes the contractual unwind of the
SRP Portfolio structure (see further information below).

 

The transaction is expected to close on 17 March 2023 with the £430.9 million
consideration received in three tranches. £279.3 million will be received on
17 March 2023 and £116.9 million on 10 July 2023. The third tranche of £34.7
million is conditional on the sale of the remaining five stores in the SRP
Portfolio.

 

Sainsbury's has entered into new 15-year leases on four of the five remaining
stores, with five yearly open market rent reviews and a tenant break option in
year ten. Following completion of the transaction, SUPR has an option to
acquire these four stores benefitting from the new Sainsbury's 15-year leases
for a net consideration of £28.3 million (net of SUPR's existing interest and
excluding acquisition costs). It is expected that the one remaining store will
be sold at vacant possession value.

 

SUPR's investment in the SRP Portfolio has generated a highly attractive
return for shareholders and following this transaction, it is estimated that
the investment will have provided a money-on-money multiple of 1.9x and an IRR
of 30%(1).

 

Use of proceeds

 

The net proceeds are expected to be used to reduce the Company's existing debt
facilities, further strengthening the Company's balance sheet. Based on the
Company's last published portfolio valuation as at 31 December 2022, the
Company's LTV is expected to decline to c.34.4% in March 2023 and c.29.7% in
July 2023 following receipt of the first two tranches of the consideration(2).

 

Ben Green, Director of Atrato Capital Limited, the Investment Adviser to
Supermarket Income REIT plc, said:  

 

"This investment has been highly accretive for our shareholders and is further
evidence of the long-term strength and value of UK grocery property."

 

Patrick Dunne, Director of Group Property, FM & Procurement at
Sainsbury's, commented:

 

"We are pleased to have reached a positive outcome to conclude our joint
venture and look forward to continuing to work with Supermarket Income REIT in
the future."

 

 

Further information:

 

Background to the transaction

 

In May 2020, the Company formed a 50:50 joint venture ("the JV") with British
Airways Pension Trustees Limited ("BAPTL") to acquire from British Land Plc a
25.5% stake in the SRP Portfolio, one of the UK's largest portfolios of
supermarket properties, for £102 million (excluding acquisition costs).
Subsequently, in February 2021 the JV acquired a further 25.5% stake in this
portfolio from Aviva for £115 million (excluding acquisition costs).

 

On 12 January 2023 the Company announced that it had acquired BAPTL's 25.5%
beneficial interest in the SRP Portfolio for £196 million (excluding
acquisition costs), resulting in the Company's beneficial interest in the SRP
Portfolio increasing to 51.0%.

 

The SRP Portfolio was created in 2000 through two sale and leaseback
transactions which were funded by bonds issued under two securitisations,
Highbury Finance B.V. ("Highbury") and Dragon Finance B.V. ("Dragon").
Highbury and Dragon comprise 16 and 10 Sainsbury's supermarkets respectively.

 

The Occupational Leases and Sainsbury's Purchase Option

 

Sainsbury's occupies the stores under the current occupational leases (the
"Occupational Leases") and pays 100% of the rents. The Occupational Leases
expire coterminously with the maturity of the bonds in March 2023 (in relation
to Highbury) and July 2023 (in relation to Dragon).

 

The income from the Occupational Leases services the interest and principal
repayments of the bonds. The bonds amortise out of the rental income, with a
remaining debt balance of £300.5 million on expiry.

 

In September 2021 and in January 2022, Sainsbury's exercised options to
acquire 21 stores within the SRP Portfolio (the "Option Stores"). The purchase
price on the 21 Option Stores is contractually agreed at £1,040 million.

 

Joint Venture Investment Adviser fees

 

Under the terms of the Joint Venture Limited Partnership Agreement ("LPA")
established in May 2020, an affiliate of the Investment Adviser to the
Company, Atrato Halliwell Limited ("Atrato Halliwell"), has a carried interest
promote entitlement (the "Promote") over the investment returns from the SRP
Portfolio. The value of Atrato Halliwell's Promote entitlement remains
unchanged as a result of this transaction.

 

Further details regarding the value of the Promote relating to the Company's
investment in the SRP Portfolio are included in note 14 to the 30 June 2022
Annual Report and Accounts.

 

Having significantly exceeded the IRR hurdle rate under the original terms of
the LPA, £7.5 million is expected to be paid to Atrato Halliwell. This
represents the Company's share of the Promote following this transaction and
is expected to be paid following receipt of proceeds in July.

 

There are no additional investment management fees payable by the Company in
respect of this investment.

 

 

 FOR FURTHER INFORMATION                                                                           
 Atrato Capital Limited                                                                           +44 (0)20 3790 8087 
                                  
 Steve Noble / Rob Abraham / Chris McMahon                                                        ir@atratocapital.com (mailto:ir@atratocapital.com)   

 Stifel Nicolaus Europe Limited                                                                   +44 (0)20 7710 7600 
 Mark Young / Matt Blawat / Rajpal Padam                                                           
                                                                                                   
 Goldman Sachs International                                                                      +44 (0)20 7774 1000

 Jimmy Bastock / Tom Hartley

 FTI Consulting                                                                                   +44 (0)20 3727 1000 

  
 Dido Laurimore / Eve Kirmatzis / Andrew Davis                                                    SupermarketIncomeREIT@fticonsulting.com
                                                                                                  (mailto:SupermarketIncomeREIT@fticonsulting.com)   

NOTES TO EDITORS: 

Supermarket Income REIT plc (LSE: SUPR) is a real estate investment trust
dedicated to investing in grocery properties which are an essential part of
the UK's feed the nation infrastructure. The Company focuses on grocery stores
which are omnichannel, fulfilling online and in-person sales. All of the
Company's supermarkets are let to leading UK supermarket operators,
diversified by both tenant and geography. 

 

The Company provides investors with attractive, long-dated, secure,
inflation-linked, growing income with the potential for capital appreciation
over the longer term and targets a 7% to 10% p.a. total shareholder return
over the medium term((1)). The Company has increased its dividend every year
since IPO. 

 

The Company is listed on the premium segment of the Official List of the UK
Financial Conduct Authority and its Ordinary Shares are traded on the Main
Market of the London Stock Exchange, having listed initially on the Specialist
Fund Segment of the Main Market on 21 July 2017.

 

 

Atrato Capital Limited is the Company's Investment Adviser. 

 

Further information is available on the Company's website
www.supermarketincomereit.com (http://www.supermarketincomereit.com/)

 

1.       There is no certainty that these illustrative projections will be
achieved. IRR and money-on-money multiple based on gross returns excluding 12
January 2023 BAPTL stake acquisition.

2.      Based on drawn debt of £691m as at 13 March 2023. Excludes cash
and unamortised arrangement fees. Excludes Cash and cash equivalents, Interest
rate derivatives and Unamortised arrangement fee assets.

 

 

Stifel Nicolaus Europe Limited, which is authorised and regulated in the
United Kingdom by the Financial Conduct Authority, is acting exclusively for
Supermarket Income REIT plc and no one else in connection with this
announcement and will not be responsible to anyone other than the Company for
providing the protections afforded to clients of Stifel Nicolaus Europe
Limited nor for providing advice in connection with the matters referred to in
this announcement.

Goldman Sachs International, which is authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the Prudential
Regulation Authority in the United Kingdom, is acting exclusively for
Supermarket Income REIT plc and no one else in connection with this
announcement and will not be responsible to anyone other than the Company for
providing the protections afforded to clients of Goldman Sachs International
nor for providing advice in connection with the matters referred to in this
announcement.

 

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