Supermarket Income REIT Plc launches £403m JV with Blue Owl

Supermarket Income REIT plc (LON:SUPR), has announced that it has entered into a strategic joint venture with funds managed by Blue Owl Capital, a leading US alternative asset manager with over $250 billion of assets under management. This is part of the Company’s ongoing strategy to recycle capital at attractive valuations and grow earnings.

JV transaction

The JV has been seeded with eight high yielding, omnichannel supermarket assets from Supermarket Income REIT’s existing portfolio), which have been transferred into the JV at a 3% premium to book value, as at 31 December 2024. The Seed Portfolio has a combined value of £403 million, an average net initial yield of 6.6%^[1] (Cap Rate of 7.1%) and a WAULT of 11 years.

The Company will retain a 50% stake in the JV, and therefore will receive a net cash consideration of c.£200 million in respect of the sale of the assets.  It will also receive a management fee of 0.6% per annum of the gross asset value for the ongoing management of Blue Owl’s interest in the JV and potentially a performance fee if the JV meets certain financial targets.

The JV provides a platform for further growth, seeking to acquire additional high yielding supermarket assets, with a view to grow the assets of the JV up to £1 billion over the coming years. The intention of the JV partners is to scale the vehicle, whereby the JV will have a right of first refusal over pipeline assets which meet specific investment criteria.

The Company believes that the principal benefits of the JV for shareholders are as follows:

·    Earnings accretion to SUPR through redeployment of capital, ongoing management fees and a potential performance fee

·     Leveraging the expertise of the Company’s management team of sector specialists, increasing AUM and, as the JV’s assets grow, SUPR will further benefit from capturing the management fees on an enlarged portfolio

·      SUPR will retain an ongoing interest in a longer-term potential pipeline of assets that will remain in the JV structure

·      Bringing on board a strategic capital partner with ambitions to grow its exposure in the UK grocery sector

Use of proceeds

The proceeds from the JV will be used to reduce debt in the near term and to invest in other supermarkets either directly for SUPR or indirectly through the JV, based on the investment profile of assets. Following receipt of proceeds from the JV, which is expected to be financed at c.55% LTV shortly after completion, the Company will have an LTV of c.31%. Through redeployment of capital the Company expects to operate at the upper end of its target LTV range of 30-40%, which will include its share of assets and net debt in the JV. The Company will continue to keep all capital allocation options under review.

Robert Abraham, CEO of Supermarket Income REIT, commented:

“The JV with Blue Owl’s managed funds brings a high quality, strategic capital partner that shares our conviction in the value of high yielding UK supermarkets. With the potential to grow to £1bn over the coming years the JV partnership represents Blue Owl’s managed funds’ first major investment in the UK grocery space and is a strong endorsement of the expertise and track record SUPR has established in this market.

For our shareholders, the JV is another important milestone in our strategy to recycle capital and grow earnings, and provides a platform for growth with specialist third party capital. This follows a period of significant progress on a number of key strategic initiatives set out in November 2024, including renewing the three shortest leases in the portfolio, material cost reductions culminating in the internalisation of the management of the Company and other capital recycling activity.”

Marc Zahr, Co-President and Global Head of Real Assets at Blue Owl, said:  

“SUPR is the leading UK grocery real estate investor, and we view them as the right counterparty as we execute on our first major transaction in the UK grocery sector. We see an opportunity to generate attractive returns from these assets, which are underpinned by the growing and highly resilient UK grocery sector. We look forward to working with SUPR to grow the JV, as we execute on an attractive pipeline of UK assets.”

Supermarket stores in the Seed Portfolio