Supermarket Income REIT has entered a strategic JV with funds managed by Blue Owl Capital, a leading US alternative asset manger with over $250 billion of assets under management.

The JV has been seeded with eight high yielding, omnichannel supermarket assets from the REIT’s existing portfolio which have been transferred into the JV at a 3% premium to book value as at 31^st December 2024. The seed portfolio has a combined value of £403 million, an average net yield of 6.6% (cap rate of 7.1%) and a Weighted Average Unexpired Lease Term (WAULT) of 11 years.

The Company will retain a 50% stake in the JV and 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 and potentially a performance fee if the JV meets certain financial targets.

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

The proceeds from the JV will be used to reduce debt in the near term and to invest in other supermarkets either directly for the REIT 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% loan-to-value (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 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 £1 billion 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,” comments Robert Abraham, CEO of Supermarket Income REIT.

“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.”

Supermarket stores in the seed portfolio: Morrisons in Sheffield, Sainsbury’s in Cheltenham and Huddersfield; and Tesco in Cumbernauld, Llanelli, Sheffield, Stoke-on-Trent, Worcester.