Sainsbury’s takes back control of freeholds for £431m

Sainsbury’s has paid Supermarket Income REIT £431m to take back control of 26 stores. The move will contractually unwind the Sainsbury’s Reversionary Portfolio, which has held the freeholds since 2000. Under the terms of the jv, the supermarket held a 49% interest in the portfolio, with the remaining 51% owned by Supermarket Income REIT. The transaction is expected to close on 17 March 2023 with £279.3m paid, followed by £116.9m on 10 July 2023. A third tranche of £34.7m is conditional on the sale of five stores in the portfolio. The SRP was created in 2000 through two sale-and-leaseback transactions – the Highbury portfolio, with 16 stores, and Dragon, with 10 – to British Land and Aviva. In September 2021 and in January 2022, Sainsbury’s exercised options to acquire 21 stores within the SRP, the purchase price for which was contractually agreed at £1.04bn. Sainsbury’s currently occupies the stores and pays 100% of the rents. The occupational leases expire alongside the maturity of the Highbury bonds in March 2023 and Dragon’s in July 2023. There will be a remaining debt balance of £300.5m on expiry. 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 10. Following completion of the transaction, Supermarket Income REIT has an option to acquire these four stores for a net consideration of £28.3m. It is expected that the one remaining store will be sold at vacant possession value. Supermarket Income REIT’s investment in the SRP has provided a money-on-money multiple of 1.9x and an IRR of 30%. In May 2020, Supermarket Income REIT formed a 50:50 joint venture with British Airways Pension Trustees to buy a 25.5% stake in the SRP from British Land for £102m. In February 2021, the jv acquired a further 25.5% stake in this portfolio from Aviva for £115m. On 12 January 2023, the company announced that it had acquired British Airways Pension Trustees’ share in the SRP for £196m, resulting in the REIT’s beneficial interest rising to 51%. Supermarket Income REIT said the net proceeds would be used to reduce the REIT’s existing debt facilities, with LTV expected to fall to 34.4% in March 2023 and 29.7% in July 2023. Ben Green, director of Supermarket Income REIT’s investment adviser, Atrato Capital, 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.” Atrato Halliwell earned £7.5m from the deal. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo © Shutterstock