Supermarket Income REIT Buys 2 U.K. Supermarkets

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Supermarket Income REIT (LON: SUPR), the real estate investment trust providing secure, inflation-protected and long-term income from groceries in the U.K., announced Wednesday it has acquired two supermarkets, one Sainsbury’s in Washington, Tyne and Wear, and an Asda in Cwmbran, South Wales.

The company also announced an increase in its debt facility with Barclays (NYSE: BCS) and the Royal Bank of Canada (TSE: RY).

The total purchase price of the acquisitions is £55.1 million (excluding acquisition costs), reflecting a combined net initial yield of 5.3%.

The Washington supermarket includes an omnichannel supermarket with 83,800 square feet of net sales area, a 24-pump gas station and purpose-built online fulfilment docks.

The acquisition also includes two standalone quick-service restaurant units operated by KFC and Tim Hortons, co-located on the same site. Sainsbury’s store is being acquired with an unexpired lease term of 34 years, with seven-yearly, upwards only, RPI-linked rent reviews.

The Asda store in Cwmbran, which represents SUPR’s first Asda acquisition, includes an omnichannel supermarket with 81,600 square feet of net sales area located on a major 4.4-acre site adjacent to the Cwmbran Mall.

The store will be a key part of Asda’s online order fulfillment operations in the region. It is acquired with an unexpired lease term of 10 years, with five-yearly, upwards only, open market rent reviews.

Debt Financing Update 

Supermarket Income REIT has arranged a £136.5 million increase to its revolving credit facility with Barclays and the Royal Bank of Canada. As a result of this increase, the total size of the facility is £250.2 million with an uncommitted accordion option of £49.8 million, which may be exercised at any time during the term of the facility.

This secured, interest-only revolving credit facility has a residual term of two years and two additional one-year extension options, with a margin of 1.5% above SONIA.

Management Commentary 

Ben Green, director of Atrato Capital Limited, the investment adviser to Supermarket Income REIT plc, said, “These acquisitions are strong additions to Supermarket Income REIT’s growing portfolio of omnichannel stores and in combination are accretive to both the weighted average unexpired lease term and net initial yield of the Company’s portfolio.

“In addition, the Asda acquisition provides further tenant diversification for the portfolio. We are also pleased to further strengthen our relationships with Barclays and Royal Bank of Canada, who continue to be key funding partners for Supermarket Income REIT. The increased facility provides us with additional capacity as we deploy the proceeds of our recent equity raise.”

Wall Street’s Take

On December 13, Goldman Sachs analyst Oliver Carruthers downgraded SUPR from Buy to Hold with a price target of 142p. This implies 16.3% upside potential.

Overall, consensus among financial analysts is that SUPR is a Strong Buy based on four Buys and one Hold. The average Supermarket Income REIT price target of 136.80p implies 12% upside potential to current levels.

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