The recession-fighting potential of supermarket real estate has never been clearer. Or so a potential portfolio sale, another set of call options and an upbeat set of annual REIT results seem to show it.
UK supermarket chain Sainsbury’s is set to sell a portfolio of 18 stores to LXi REIT for £500m. The sale-leaseback deal is part of Sainsbury’s plans to improve its balance sheet and fend off the kind of takeover bids that have consumed rivals Asda and Morrisons, Retail Gazette reported.
The move comes as Sainsbury’s strikes a deal to sell its 49% stake in another portfolio of 21 stores, held in two investment vehicles.
This is where Supermarket Income REIT comes into play. The REIT announced this week that it had agreed a sale price of £1.04billion on the 21 store options, along with new 15-year leases on four others.
The value of the investment in its Sainsbury’s Reversion portfolio increased by £47m to £177m, mainly due to the exercise of call options by Sainsbury’s.
Results from Supermarket Income REIT, the UK’s largest supermarket owner, suggested the growing appeal of supermarket property.
The specialty REIT achieved a total shareholder return of 7% for the year, with like-for-like rental growth of 3.7%. The value of the portfolio increased by £423m over the year to £1.57bn.
The REIT said 81% of leases are indexed to inflation. At the same time, debt is low (loan to value ratio of 19%) and 100% of all rents due have been collected.
“At a time of considerable unpredictability and uncertainty, particularly for our economy, we believe that our portfolio of focused, sector-specific real estate assets will continue to generate stable, long-term and growing returns for our shareholders.” said Supermarket Income REIT President Nick Hewson. .