Tesco ‘keen to buy stores’ as it pays 7% over the odds to buy back site

Tesco bought back a supermarket for 7% more than its valuation, in an indication of the retailer’s appetite to take back stores, according to Supermarket Income REIT.

The investment fund, which owns 74 omnichannel supermarkets, said the £63.5m Tesco paid for its Newmarket store was 7.4% more than its valuation in June 2024.

“I think Tesco spending £60m to buy back a store tells you something about how they see the long-term strategic role of these types of assets,” said Supermarket Income REIT fund manager Rob Abraham. “That came at a 7% premium to where we have the asset marked in our books.

“Ultimately, the grocers want to own their best-performing stores. Our portfolio is top-performing omnichannel food stores. So, we know they have appetite to buy assets back. We wouldn’t necessarily want to sell them lots of them, but having them buy one of our stores at a level which is well above the valuation, well, that’s just a really positive message for us externally.

“It supports the investment strategy.

“Tesco are keen to buy stores at the moment,” he added. “You see them buying back stores in the wider market as well.”

Abraham said some of the proceeds from the transaction had been allocated to funding a management internalisation process, in which Supermarket Income REIT is terminating its agreement with investment advisor Atrato Capital.

“The motivation for us was that £63m is a strong price but then we’re also able to take that capital and put it into opportunities which generate a higher return,” said Abraham.

The internalisation of management would save around £4m a year, according to Supermarket Income REIT.

The fund’s operating profits were up 12% to £50.3m in the six months to 31 December, thanks to an average 3% rental hike during the period.

It meant total rental income was up 13% to £118.5m, boosted by of the acquisition of more sites.

CEO Nick Hewson said: “I am pleased with the progress we have made on the strategic initiatives announced in November 2024.

“We have already delivered on a number of these objectives with the sale of Tesco Newmarket above book value, the renewals of our three shortest lease assets at rental levels materially ahead of our valuer’s [estimated rental value], and the acquisition of earnings-enhancing assets in the UK and France.”