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A property investment firm that is targeting the store assets of the big four supermarkets has announced plans this morning to float on the London Stock Exchange.
Supermarket Income REIT plc plans to launch an IPO of its shares on the specialist fund segment of the main market of the London Stock Exchange to raise up to £200m.
It intends to use the money to buy stores rented on long leases to the likes of Tesco, Sainsbury’s, Morrisons and Asda.
The company has already entered into exclusivity arrangements with the owners of two stores let to Tesco and Sainsbury’s and is in advanced discussions with the owners of a further three assets with a total value of approximately £263m.
Despite supermarkets shedding stores and losing billions of pounds after writing down the value of their estates, Supermarket Income said the sector outlook was “attractive” as the grocers appeared to be entering a “period of recovery”.
“In contrast to many asset prices, including those in the wider UK real estate sector, supermarket property yields have risen over the last few years,” the business said in a statement to the LSE.
“The investment adviser believes that this presents a significant investment opportunity for investors.
“Supermarket operators appear to be entering a period of recovery, which should improve their covenant strength as tenants, at a time when the supermarket investment market also appears to have favourable supply and demand characteristics.”
The company will target assets in suburban locations and with low site cover. “Assets located in highly-populated residential areas, with strong transport links, should offer good potential for alternative use over the longer term, for example through change of use to residential,” it added.
Chairman Nick Hewson, founder and former CEO of retail warehouse developer and investor Grantchester Holding, said: “The supermarket sector currently represents a compelling real estate opportunity. Supermarkets provide secure, long-term income combined with the potential for substantial capital growth.
“The company has a very strong management team, which has executed the majority of the supermarket property sale-and leasebacks in the UK, and a very experienced board of directors. We have targeted an initial portfolio of assets and identified a substantial pipeline of additional acquisitions.”
The team has carried out more than £3.5bn of supermarket sale and leasebacks over the past 10 years.
Supermarket income also has a further pipeline of six assets with an expected value of approximately £251m.
The company intends to become a real estate investment trust once it has completed the acquisition of an initial portfolio of target assets.
Morning update
Ocado (OCDO) shares rallied almost 12% higher on Monday as investors piled into the online grocer amid speculation it had become an acquisition target after Amazon’s surprise takeover bid for Whole Foods. The business had fallen to 264p – lows not seen since April – on Friday afternoon as news hit the market that Jeff Bezos offered $13.7bn (£10.7bn) for the organic food retailer.
Analysts at Exane BNP Paribas hiked their target price for Ocado from 220p to 325p as it conceded US groups may be weighing up a takeover after the Amazon deal. The investment firm also upgraded the grocer from “underperform” to “outperform”. Exane said Ocado’s chances of signing a partnership deal had “increased materially” as retailers without an online platform were forced into “a rapid catch-up”.
Shares in Ocado surged almost higher to 308p, moving back towards its year-to-date highs of 318p – set earlier this month when it finally announced a first international deal. Shareholders have been on a rollercoaster ride this year with prices seesawing for months, but the business is up 17% so far in 2017.
“We remain of the view that Ocado is unlikely to be an acquisition target, but we have to concede that the probability of an outright purchase has now increased,” analysts at Exane said in a note. “More generally, if you are a US grocer and looking at the prospect of Amazon materially pushing on in online food, then, for all its many issues, Ocado is a business potentially ready and able to help you leapfrog the competition.
“Whether or not the eventual solution works for the retailer is still very much a question for us, but desperate times call for desperate measures and for Ocado that desperation could work to its advantage.”
The stock is up a further 1% this morning to 309.3p.
The FTSE 100 made further gains as markets opened, climbing another 0.4% to 7,553.65 points.
Yesterday in the City
Sainsbury’s (SBRY) is another grocer to benefit from M&A speculation, with the stock jumping 2.3% to 258p on press reports that it is about to swoop for Nisa Retail. The supermarket is reportedly poised to sign an exclusivity agreement with the group, which buys and distributes on behalf of more than 2,500 independently owned stores around the UK. An exclusivity agreement would put a temporary bar on Nisa courting other rumoured buyers, with Sainsbury’s understood to be offering £130m for the takeover.
PZ Cussons (PZC) and B&M European Value Retail (BME) also had a strong day, rising 3.9% to 350p and 3.5% to 351.8p respectively.
Most shares ended the day firmly in the black as the FTSE 100 shot up 0.8% to 7,523.81 points, with Marks & Spencer (MKS) up 1.5% to 350.4p, Diageo (DGE) up 1.4% to 2,375p and Unilever (ULVR) up 0.9% to 4,314p.
London’s blue-chip index increased on the back of Sainsbury’s rise and as Brexit talks got underway in Brussels.
TATE & Lyle (TATE), Dairy Crest (DCG) and Tesco (TSCO) closed down by 1.3% to 725.5p, 0.5% to 649p and 0.2% to 170.7p respectively.
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