Supermarket Income REIT to raise equity for UK grocery expansion

Supermarket Income REIT is launching a £75 mln placing to buy two more supermarkets for £115 mln.

The placing price of 103p is a small discount of 5.7% to the UK REIT’s last close price of 109p and a 6.2% premium to the last reported NAV of 97p.

The company which invests only in long-income grocery property achieved 44% growth last year in its second half to December 2019, adding 43% net rental income growth and a 1.6% valuation rise.

Since then, the group’s tenants are performing strongly in the current crisis which has seen UK food retailers’ turnover rocket. The company’s broker, Goodbody, said this security of income means that ‘a significant yield premium now exists between supermarket property, and the yield on the operators’ corporate bonds, despite the historical trend of close correlation.’

Goodbody added: ‘The availability of long dated, inflation linked, secure income from supermarket properties set it apart from the wider sector in a retail market that is becoming increasingly difficult to navigate.’

Supermarket Income REIT  has a further pipeline of circa £180 mln. If it were to acquire all these assets, it would triple portfolio value and income its broker said.

On 8 April, the UK financial regulator announced a series of measures designed to help listed companies hit by the coronavirus crisis attempt to raise equity, by simplifying the process and relaxing disclosure rules. The FCA also confirmed that decisions to issue shares can be made without a shareholders meeting needing to take place, and said, in some cases, companies could make clear the need for fresh cash was related to the coronavirus pandemic rather than inherent weakness in their businesses.

Nick Hewson, Supermarket Income REIT’s chairman, said:  "The ability of omnichannel supermarkets to supply the local communities they serve has never been more important than it is now in response to Covid-19.

‘As a board, we are fortunate during these difficult times to be able to raise capital to offer liquidity to vendors of supermarkets who may need the proceeds for other purposes.’