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Real Estate Investors Rush To The Supermarket


The recession-beating potential of supermarket real estate has never been so obvious. Or so a potential portfolio sale, another set of options to buy, and an upbeat set of REIT annual results, seem to show.

UK supermarket chain Sainsbury's is close to selling a portfolio of 18 stores to LXi REIT for £500M. The sale-leaseback deal has been 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 concludes a deal to sell its 49% stake in another 21-store portfolio, held in two investment vehicles.

Which is where Supermarket Income REIT enters the picture. The REIT reported this week that it had agreed a £1.04B sale price on the 21 store options, along with new 15-year leases on four more. 

The value of investment in its Sainsbury’s Reversion Portfolio increased by £47M to £177M, predominantly due the exercise of purchase options by Sainsbury's. 

Results from Supermarket Income REIT, the largest landlord of supermarkets in the UK, suggested the growing appeal of supermarket real estate.

The specialist REIT delivered a 7% total shareholder return for the year, with like-for-like rental growth of 3.7%. Portfolio value was up £423M over the year at £1.57B.

The REIT said that 81% of leases are inflation-linked. Meanwhile, debt is low (19% loan-to-value ratio) and 100% of all rents due were collected.

“At a time of considerable unpredictability and uncertainty especially for our economy, we believe our portfolio of targeted, sector-specific real estate assets will continue to deliver stable, long term and growing income to our shareholders,” Supermarket Income REIT Chairman Nick Hewson said.