The information contained in this announcement is restricted and is not for publication, release or distribution, directly or indirectly, in or into, the United States of America, Canada, Australia, Japan or the Republic of South Africa or any other jurisdiction where to do so might constitute a violation of the relevant laws or regulations of such jurisdiction.
This announcement is not an offer to sell, or a solicitation of an offer to acquire, securities in the United States or in any other jurisdiction, including in or into Australia, Canada, Japan or the United States.
20 June 2017
Supermarket Income REIT plc
Intention to Float
Supermarket Income REIT plc (the "Company" or "Supermarket Income REIT") today announces its intention to launch an initial public offering of its shares on the specialist fund segment of the main market of the London Stock Exchange.
The Company is seeking to raise up to £200 million by way of a placing and offer for subscription (the "Issue"). The IPO proceeds will be used to acquire a diversified portfolio of supermarket real estate assets in the UK, providing long-term RPI-linked income, from institutional grade tenants of significant size and the potential for capital growth through active asset management opportunities. The Company intends to become a real estate investment trust ("REIT"), once it has completed the acquisition of an initial portfolio of target assets.
Supermarket Income REIT will be managed by JTC Global AIFM Solutions Limited and advised by Atrato Capital Limited (the "Investment Adviser").
Stifel Nicolaus Europe Limited ("Stifel") is acting as Sole Bookrunner, Placing Agent and Financial Adviser to the Company.
Identified £263 million pipeline of supermarket assets
· The Investment Adviser has entered into exclusivity arrangements with the owners of two assets and is in advanced discussions with the owners of a further three assets with a total value of approximately £263 million (together the "Target Assets").
· The Target Assets benefit from an average weighted unexpired lease term of 17 years, are currently let to Sainsbury's and Tesco and have a net initial yield of 4.9%.(1)
· The Investment Adviser believes the Target Assets can be acquired within three months of admission, which would ensure the IPO proceeds were invested efficiently and rapidly.
Attractive sector outlook
· 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 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.
Asset-backed, long-term growing income
· The Company will look to acquire assets with long, annual RPI-linked leases (typically more than 15 years to expiry or first break), and intends to provide investors with a long-term and secure income stream which will grow with inflation.
· The attractive income profile of the assets allows the Company to target an initial dividend yield of 5.5 per cent(2), which will then grow progressively. The Company intends to declare its first quarterly dividend in October 2017.
Focus on high quality tenants
· The Company is intending that the majority of its tenants will be the four largest UK supermarket operators by market share, which are currently Tesco, Sainsbury's, Asda and Morrisons.
· These institutional-grade tenants are attractive, international, multi-billion pound businesses which have performed well over many years. The tenants are household-name brands and are of a financial size and strength that provides investors with considerable security regarding their long-term dividend income.
Asset management opportunities
· 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.
· The Company will also target assets which offer near-term asset management opportunities, such as the installation of green energy improvements and / or the use of capital to improve asset configuration and design in areas such as car parks to create additional income opportunities.
Highly-experienced Investment Adviser
· The team employed by the Investment Adviser has structured and executed more than £3.5 billion of supermarket sale and leasebacks over the last 10 years.
· Utilising their long-established industry contacts and extensive knowledge of the sector, in addition to the Target Assets, the Investment Adviser has assembled a further pipeline of 6 assets with an expected value of approximately £251 million assets. The Investment Adviser has entered initial discussions with the vendors of these assets and could look to acquire them off-market over the short to medium term.
Management alignment with shareholders
· The Directors and the Investment Adviser intend to invest an aggregate amount of £1.3 million in the Issue.
· The Investment Adviser will be paid an initial annual management fee of 0.95% of Net Asset Value less any uninvested cash ("Adjusted NAV"), which will reduce on a tiered basis to 0.45% of incremental Adjusted NAV as the Company grows in size. In order to ensure alignment of interests, approximately 25% of the management fees will be paid to the Investment Adviser in shares.
Fully independent Board
· The Company has a fully independent Board with a diverse range of skills including extensive experience in property management and the supermarket real estate sector.
Nick Hewson, Chairman of Supermarket Income REIT plc 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".
It is expected that a prospectus in respect of the Issue (the "Prospectus") will be published shortly and will subsequently be available to view at the Company's website www.supermarketincomereit.com.
Terms used in this announcement shall, unless the context otherwise requires, bear the meanings given to them in the Prospectus.
Latest time and date for receipt of completed Application Forms in respect of the Offer for Subscription
11a.m. on 18 July 2017
Latest time and date for commitments under the Placing
1.00p.m. on 18 July 2017
Publication of the results of the Issue
19 July 2017
Admission and commencement of dealings
8.00 am on 21 July 2017
The timetable is subject to change at the discretion of the Investment Adviser and Stifel.
For further information please contact:
Atrato Capital Limited
+44 20 3790 8087
Stifel Nicolaus Europe Limited
+44 (0)20 7710 7600
+44 (0)20 7920 3150
The Investment Adviser has identified 11 initial assets with an aggregate value of approximately £514 million which meet the Investment Policy criteria. The Investment Adviser has undertaken its own due diligence and negotiations in connection with these potential assets. Following Admission, the Directors may or may not accept these or other assets as being suitable for the Company and may or may not pursue any such opportunities.
As at the date of this document, the Investment Adviser has entered into exclusivity arrangements with the owners of two assets and is in advanced discussions with the owners of a further three assets (together the "Target Assets"). If all the Target Assets are acquired, the total expected purchase price would be approximately £263 million. No contractually binding obligations for the sale and purchase of the Target Assets have been entered into by the Investment Adviser or the Company. Pursuant to the Investment Advisory Agreement, the Investment Adviser is obliged to offer to the Company all opportunities available to the Investment Adviser which fall within the Investment Policy, and accordingly it is the Investment Adviser's intention for the Company to benefit from these discussions.
The Investment Adviser and the Board believe that, with the Investment Adviser's experience and the preparatory work undertaken by it to date, suitable assets will be identified which could potentially be acquired by the Company shortly following Admission. Further, the Directors are confident that sufficient suitable assets will be identified, assessed and acquired, so as to substantially invest or commit the Net Issue Proceeds within three months of Admission.
The Company intends to pay dividends on a quarterly basis, with the first interim dividend expected to be declared in October 2017. The Company will target an initial dividend yield of 5.5 per cent(2), which will grow progressively through the Company's upward-only inflation-protected long-term lease agreements.
The targeted net total shareholder return will be 7 to 10 per cent. per annum over the medium term with the potential for increased returns, if the assets are converted into value accretive alternative use at the end of the respective lease terms.(2)
In order to obtain and comply with REIT status the Company will be required to meet a minimum distribution test for each year that it is a REIT. This minimum distribution test requires the Company to distribute 90 per cent. of the income profits of the property rental business for each accounting period, as adjusted for tax purposes.
Nick Hewson (Chairman), age 59
Nick Hewson qualified as a chartered accountant in 1984. He serves as a non-executive director and chair of the audit committee of Redrow plc, a FTSE 250 company and one of the UK's leading housebuilders and construction companies. Prior to this, Nick was chair of the executive committee of Pradera AM plc, a European retail property fund management business. He was a founding partner of City Centre Partners LP for 10 years until 2013. Nick was also the co-founder, CEO and chairman of Grantchester Holdings plc, a listed developer and investor in the UK retail warehouse industry, where he worked between 1990 and 2012.
Vincent Prior, age 60
Vincent Prior is currently a director of VP Real Estate and advises corporate clients and investors on investment opportunities and how best to manage their existing property portfolios. Vincent joined Sainsbury's Property Investment team in 2008 and was subsequently appointed as Head of Property Investment. Over a five year period to 2014, the value of Sainsbury's property portfolio grew from £7.5 billion to £12 billion. Prior to this, Vincent was the head of Retail Advisory Services at Jones Lang LaSalle (''JLL'') and provided strategic advice to a range of high profile supermarket and retail operators. Vincent started his career working for Tesco Stores plc where he helped to set up the store locations team.
Jon Austen, age 61
Jon Austen is a fellow of the Institute of Chartered Accountants of England and Wales and is currently chief financial officer at Audley Court Limited, which develops up-market retirement villages in the UK. Jon is also a non-executive director of McKay Securities plc, a company which specialises in office and industrial security in London and the South East of England. Prior to this, Jon was group finance director of Terrace Hill plc, before it merged with Urban&Civic and continued as group finance director following the merger. Jon has also held senior finance roles at London and Edinburgh Trust plc, Pricoa Property plc and Goodman Limited.
The Company's investment objective is to provide its shareholders with an attractive level of income together with the potential for capital growth by investing in a diversified portfolio of supermarket real estate assets in the UK.
The Company is focused on investing in a diversified portfolio of principally freehold and long leasehold operational properties let to UK supermarket operators which benefit from long term growing income streams with high quality tenant covenants.
The Company will predominantly target assets with long unexpired lease terms (typically more than 15 years to first break) with index-linked or fixed rental uplifts in order to provide investors with income security and considerable inflation protection.
The Company expects its assets to be leased to institutional grade tenants, with multi-billion pound revenues and strong consumer brands. The Company expects the majority of its tenants to consist of the four largest UK supermarket operators by market share, which are currently Tesco, Sainsbury's, Asda and Morrisons. The Company may also invest in assets let to other supermarket operators and retailers, such as Lidl, Marks & Spencer, Aldi or Waitrose, where it believes the underlying asset covenant is consistent with the overarching objective of providing shareholders with regular and sustainable dividends as well as the potential for some capital value uplift over the longer term.
The Company will seek to diversify its exposure to individual cities, towns and regions. The Company will also seek to acquire different sized assets appealing to different consumer types with typical assets ranging from larger convenience based store formats through to the larger superstores.
The Company will target assets that it believes may benefit from future asset management opportunities. In addition, the Company will target assets which it believes offer good potential for alternative use over the longer term. This includes targeting assets in highly populated residential areas with strong transportation links.
The Company will primarily seek to acquire properties which are already operationally complete and fully let. The Company may invest, from time to time, in asset management or development opportunities, which, when complete, would fall within the Company's Investment Policy to invest in operational properties let to UK supermarket operators. In addition, the Company may seek to maximise alternative use values of existing operational assets by engaging with planning authorities and development partners. Any asset management or development opportunities will be conducted in such a way that the project will have no recourse to the other assets of the Company (outside the funds committed to the development). The expected gross development cost to the Group of any such developments will be limited to an amount representing 20 per cent. of the Group's gross assets, measured at the commencement of the relevant development.
The Directors currently intend, at all times, to conduct the affairs of the Company so as to enable it to qualify as a REIT for the purposes of Part 12 of the CTA 2010 (and the regulations made thereunder).
The Company will invest and manage its assets with the objective of spreading risk and, in doing so, will maintain the following investment restrictions (all of which are reviewed by the Board semi-annually following semi-annual valuations produced in accordance with the Company's valuation policy):
• the Company will invest, directly or indirectly, at least 80 per cent. of its Gross Asset Value in properties let to UK supermarket operators;
• the Company may invest up to 20 per cent. of its Gross Asset Value in assets let to non-supermarket operators, when these assets are located on the same site, or are complimentary to, an existing asset;
• the Company will derive at least 60 per cent. of its rental income from a portfolio let to the largest four supermarket operators in the UK by market share;
• the expected gross development costs to the Group of development opportunities will not exceed 20 per cent. of the Group's gross assets at the commencement of the relevant development;
• the Group may acquire property interests either directly or through corporate structures (whether onshore UK or offshore) and also through joint venture or other shared ownership or co-investment arrangements;
• the Company will not invest in other closed-ended investment companies; and
• neither the Company, nor any of its subsidiaries will conduct any trading activities which are significant in the context of the Group as a whole.
In addition to the above investment restrictions, following the Company becoming fully invested (assuming new equity totalling more than £150 million) and geared, no individual property will represent more than 40 per cent. of the prevailing Gross Asset Value at the time of investment.
In the event of a breach of the investment guidelines and restrictions set out above, the AIFM shall inform the Directors upon becoming aware of the same and if the Directors consider the breach to be material, notification will be made to a Regulatory Information Service. Any material change to the Investment Policy may only be made by shareholders' ordinary resolution.
The Directors intend that the Company will follow a prudent approach for the asset class with its gearing and maintain a conservative level of aggregate borrowings.
The Board intends that gearing, calculated as borrowings as a percentage of the Group's gross assets, will be approximately 30 to 40 per cent. over the medium term (calculated at the time of drawdown). However, the Group will have the ability to exceed this level from time to time as borrowings are incurred to finance the growth of the Group's portfolio. The Group will have a maximum level of aggregate borrowing of 60 per cent. of the Group's Gross Asset Value at the time of drawdown of the relevant borrowings.
Borrowings will over the longer term be diversified by covenant, lender, type and maturity profile and will primarily be secured at the asset or special purpose vehicle level and will therefore be non-recourse to the other assets of the Group.
The Company will be permitted to invest cash, held by it for working capital purposes and awaiting investment, in cash deposits and gilts. The Company may enter into interest rate derivatives, from time to time, for the purposes of efficient portfolio management.
Under the terms of the Investment Advisory Agreement, the Investment Adviser will be paid an annual fee of 0.95 per cent. of NAV (less uninvested proceeds from equity issues). This will reduce to 0.75 per cent. on additional amounts above £500 million, 0.65 per cent. above £1 billion and 0.45 per cent. above £1.5 billion. The Company may satisfy some or all (after making an allowance for tax payable by the Investment Adviser) of its obligation to pay 25 per cent. of such fees to the Investment Adviser by the allotment and/or sale of Ordinary Shares. No performance fee will be payable to the Investment Adviser.
(1) Based on an indicative aggregate purchase price of £263 million for the Target Assets and expected passing rents as at 30 September 2017. There can be no guarantee that any of the assets will be purchased at all or purchased at their respective indicative prices.
(2) Calculated on the IPO price of £1.00 a share. The dividend and return targets stated within this document are targets only and not profit forecasts. There can be no assurance that these targets will be met and they should not be taken as an indication of the Company's expected future results. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company and should decide for themselves whether or not the target dividend yield and target net total Shareholder return are reasonable or achievable.
This is a financial promotion and is not intended to be investment advice. This announcement, which has been prepared by, and is the sole responsibility of, the Directors of the Company, has been approved solely for the purposes of section 21 of the Financial Services and Markets Act 2000 (as amended) by Stifel, which is authorised and regulated by the Financial Conduct Authority. The information in this announcement has not been approved by the Financial Conduct Authority of the United Kingdom.
This announcement is an advertisement and does not constitute a prospectus relating to the Company and does not constitute, or form part of, any offer or invitation to sell or issue, or an invitation to purchase investments of any description, or any solicitation of any offer to subscribe for, any securities in the Company in any jurisdiction nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract therefor. Copies of the prospectus published by the Company will shortly be available from www.supermarketincomereit.com.
Recipients of this announcement who are considering acquiring Ordinary Shares are reminded that any such acquisition must be made only on the basis of the information contained in the Prospectus (or any supplementary prospectus) which may be different from the information contained in this announcement and must not be made in reliance on this announcement. The Subscription for Ordinary Shares is subject to specific legal or regulatory restrictions in certain jurisdictions. Persons distributing this announcement must satisfy themselves that it is lawful to do so. The Company assumes no responsibility in the event that there is a violation by any person of such restrictions.
This announcement does not constitute and may not constitute and may not be construed as a recommendation regarding the issue or the provision of investment advice by any party. No information set out in this announcement is intended to form the basis of any contract of sale, investment decision or any decision to purchase securities. Potential investors should consult a professional advisor as to the suitability of an investment in the securities for the person concerned.
The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. Figures refer to past performance and past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations. Capital is at risk and investors need to understand the risks of investing. Please refer to the Prospectus for further information, in particular the risk section.
This announcement may not be published, distributed, released or transmitted by any means or media, directly or indirectly, in whole or in part, in or into the United States. This announcement does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States. The securities mentioned herein have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "US Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States and will not be offered, sold, exercised, resold, transferred or delivered, directly or indirectly, in or into the United States or to, or for the account or benefit of, any US person (as defined under Regulation S under the US Securities Act) unless registered under the US Securities Act or offered in a transaction exempt from, or not subject to, the registration requirements of the US Securities Act. There will be no public offer of the shares in the United States. The Company has not been, and will not be, registered under the U.S. Investment Company Act of 1940, as amended.
Neither this announcement nor any copy of it may be: (i) taken or transmitted into or distributed in Canada, Australia, Japan or the Republic of South Africa or to any resident thereof, or (ii) taken or transmitted into or distributed in Japan or to any resident thereof, or (iii) any other jurisdiction where to do so might constitute a violation of the relevant laws or regulations of such jurisdiction. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this announcement in other jurisdictions may be restricted by law and the persons into whose possession this announcement comes should inform themselves about, and observe, any such restrictions.
This announcement may include "forward-looking statements". All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's investment strategy, plans, objectives and target returns are forward-looking statements. Forward-looking statements are subject to risks and uncertainties and accordingly the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These factors include but are not limited to those described in the formal prospectus. These forward-looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the Financial Services and Markets Act 2000, the Prospectus Rules of the Financial Conduct Authority or other applicable laws, regulations or rules.
Stifel is acting only for the Company as financial adviser, sole bookrunner and placing agent in connection with the matters described in this announcement and is not acting for or advising any other person, or treating any other person as its client in relation thereto and will not be responsible for providing the regulatory protection afforded to the duties of Stifel or advice to any other person in relation to the matters contained herein. Such persons should seek their own independent legal, investment and tax advice as they see fit.
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