Supermarket Income REIT has announced its intention to launch an initial public offering of its shares on the specialist fund segment of the main market of the London Stock Exchange.
Seeking to raise up £200m
Supermarket Income REIT is seeking to raise up to £200 million by way of a placing and offer for subscription. The IPO proceeds will be used to acquire a diversified portfolio of supermarket real estate assets in the UK, providing long-term RPI-linked income, from institutional grade tenants of significant size and the potential for capital growth through active asset management opportunities. The Company intends to become a real estate investment trust (REIT), once it has completed the acquisition of an initial portfolio of target assets.
Supermarket Income REIT will be managed by JTC Global AIFM Solutions Limited and advised by Atrato Capital Limited.
Supermarket Income REIT has provided the following key highlights:
Identified £263 million pipeline of supermarket assets
- The Investment Adviser has entered into exclusivity arrangements with the owners of two assets and is in advanced discussions with the owners of a further three assets with a total value of approximately £263 million (together the “Target Assets”).
- The Target Assets benefit from an average weighted unexpired lease term of 17 years, are currently let to Sainsbury’s and Tesco and have a net initial yield of 4.9%.(1)
- The Investment Adviser believes the Target Assets can be acquired within three months of admission, which would ensure the IPO proceeds were invested efficiently and rapidly.
Attractive sector outlook
- In contrast to many asset prices, including those in the wider UK real estate sector, supermarket property yields have risen over the last few years. The Investment Adviser believes that this presents a significant investment opportunity for investors.
- Supermarket operators appear to be entering a period of recovery, which should improve their covenant strength as tenants, at a time when the supermarket investment market also appears to have favourable supply and demand characteristics.
Asset-backed, long-term growing income
- The Company will look to acquire assets with long, annual RPI-linked leases (typically more than 15 years to expiry or first break), and intends to provide investors with a long-term and secure income stream which will grow with inflation.
- The attractive income profile of the assets allows the Company to target an initial dividend yield of 5.5 per cent, which will then grow progressively. The Company intends to declare its first quarterly dividend in October 2017.
Focus on high quality tenants
- The Company is intending that the majority of its tenants will be the four largest UK supermarket operators by market share, which are currently Tesco, Sainsbury’s, Asda and Morrisons.
- These institutional-grade tenants are attractive, international, multi-billion pound businesses which have performed well over many years. The tenants are household-name brands and are of a financial size and strength that provides investors with considerable security regarding their long-term dividend income.
Asset management opportunities
- The Company will target assets in suburban locations and with low site cover. Assets located in highly-populated residential areas, with strong transport links, should offer good potential for alternative use over the longer term, for example through change of use to residential.
- The Company will also target assets which offer near-term asset management opportunities, such as the installation of green energy improvements and / or the use of capital to improve asset configuration and design in areas such as car parks to create additional income opportunities.
Highly-experienced Investment Adviser
- The team employed by the Investment Adviser has structured and executed more than £3.5 billion of supermarket sale and leasebacks over the last 10 years.
- Utilising their long-established industry contacts and extensive knowledge of the sector, in addition to the Target Assets, the Investment Adviser has assembled a further pipeline of 6 assets with an expected value of approximately £251 million assets. The Investment Adviser has entered initial discussions with the vendors of these assets and could look to acquire them off-market over the short to medium term.
Management alignment with shareholders
- The Directors and the Investment Adviser intend to invest an aggregate amount of £1.3 million in the Issue.
- The Investment Adviser will be paid an initial annual management fee of 0.95% of Net Asset Value less any uninvested cash (“Adjusted NAV”), which will reduce on a tiered basis to 0.45% of incremental Adjusted NAV as the Company grows in size. In order to ensure alignment of interests, approximately 25% of the management fees will be paid to the Investment Adviser in shares.
Fully independent Board
- The Company has a fully independent Board with a diverse range of skills including extensive experience in property management and the supermarket real estate sector.
A copy of the announcement: 20170620 Supermarket Income REIT – Intention to Float