Just three months after it launched Supermarket Income (SUPR) real estate investment trust (Reit) is seeking to raise £20 million via a share placing to fund its first acquisition in Scotland.
The board plans to issue up to 19.99 million shares at 100 pence per share, equating to 19.99% of the existing share capital. The placing is due to close on 14 November and the shares will be admitted to the London Stock Exchange three days later.
The money raised will go towards the purchase of a supermarket in Scotland for around £50 million, with the remainder coming from the fund’s revolving credit facility. The investment team targets properties that are let to the four largest supermarkets - Tesco (TSCO), Sainsbury’s (SBRY), Asda and Morrisons (MRW). They can also invest in properties let to smaller players, like Lidl, Aldi and Waitrose.
The team was drawn to the property in Scotland because it is a key online fulfilment centre and was available on a 20-year lease with annual inflation-linked rent reviews (linked to the retail price index, RPI) and offering a net initial yield of 5.3%, a measure that takes into account the expenses associated with owning a property. The board was also keen to highlight the diversification it offers within the portfolio.
Back in July, Supermarket Income raised £100 million at its initial public share offer (IPO) – falling short of its £200 million target. The real estate investment trust is managed by Atrato Capital, whose founders Ben Green and Steve Windsor previously worked on £3.5 billion of supermarket sale and leaseback transactions at Goldman Sachs.
The fund targets an initial dividend yield of 5.5% linked to inflation, paid quarterly, alongside annual total returns of between 7% and 10%. It declared its first quarterly interim dividend of 1.375p per share last month.
The attractive yields in supermarket property follow a tough few years for the sector in which valuations have fallen as the country's biggest grocers have grapped with food price deflation and the challenge of online shopping, which threatened to make many larger stores unnecessary.
The investment team said this presents investment opportunities. particularly as supermarket operators appear to be entering a period of recovery, which should improve their covenant strength as tenants.
There are currently three properties in the portfolio, for which the fund paid a total of £151.7 million.