Supermarket Income REIT plc (SUPR) Earnings Call Transcript & Summary

Good morning. My name is Nick Hewson, Chairman of the Supermarket Income REIT, and welcome to our Results Presentation covering the Year to June 30, 2021. It's particularly nice to be able to be hosting one of these in-person again, first time since 2019. Welcome also to those following this presentation from our webcast. I'm very pleased to report to you another year of solid performance by the Group. During the year, we generated a total return of 11% for our shareholders and grew our portfolio of supermarket assets to an excess of GBP 1.3 billion. This performance is a consequence of both our high quality property portfolio, for which thank you very much Atrato and the team, as well as the increasing strength of the investment market we operate within. The financial year has been one of continued disruption caused by the COVID-19 pandemic, but the supermarkets have continued to show their agility in responding to the increased level of demand and continue to demonstrate the pivotal role as feed the nation infrastructure. Omnichannel supermarkets have performed particularly strongly and now fulfilled 80% of all online grocery orders. They have clearly emerged as the winning model for last-mile grocery fulfillment. As the country emerges from the pandemic, forecasts are for a sustained period of economic growth and increased inflationary pressures. With the inflation-linked nature of our leases, combined with the financial and commercial strength of our tenants, we believe we are well positioned to continue to provide investors with secure long-lasting inflation-linked income. I'd now like to hand you over to Ben Green and the rest of the Atrato team to run you through our presentation. Thank you very much.

Good morning, everyone. We continue to benefit from strong sector tailwinds. There is persistent growth in grocery sales as the grocers have proved agile at navigating the COVID crisis and the channel shift to online. Grocery sales remain 9% above pre-crisis levels. That's leading to a record level of investment in the grocery sector, both in the operators and the real estate. As a result, we're seeing a strong property market backdrop with yield compression, but we're still seeing plenty of accretive opportunities for Supermarket Income REIT. Speaking of those opportunities, it's been an incredibly busy period for us, with GBP 600 million deployed and more post balance sheet. We had GBP 1.3 billion of assets at 30th June and 8.5% like-for-like valuation increase. Our NTA is up GBP 0.07 per share to GBP 1.08 per share for the financial year, and we've delivered a 10.9% total shareholder return. We've also announced our fourth consecutive annual inflation uplift in the dividend to GBP 0.0594 per share. I'll hand you over to Nat to take you through the details of the financials.

Good morning. Today, I'm going to talk you through the financials for the year ended June 30, 2021 as included within the annual report and accounts. As part of our continuing commitment to maximum transparency, we are once more going to present 2 sets of figures; the EPRA numbers for the year and a pro forma based upon EPRA principles. Here, we have the income statement overview focusing on rental income. Once more, I find myself in a position where the growth of the company means that it becomes hard to compare income for the year to June 30, 2021 and June 30, 2020. In fact, rental income was 82% higher, once more demonstrating the rapid growth of the fund. And on a pro forma basis, this increases by a further 35% to GBP 64.9 million. The impact of each of the new acquisitions on total rent are set out in detail on the next slide. Here is where we can clearly see that the growth in the year has been driven by acquisitions, rather than rent reviews, with the former accounting for 96% of the total growth. During the period, we have experienced relatively lower inflation due to the impact of COVID on the economy. Now we are seeing higher levels, which will come through in the next rent reviews. The unprecedented level of acquisition activity is shown very clearly here, with 20 supermarket assets added to the portfolio in the 12-month period. And we didn't stop there, a number of additional stores have been acquired post balance sheet date, which has added GBP 4.9 million to the total rent roll, bringing the total annualized rent for all assets held today shown in the final column to GBP 64.9 million. Coming back to the income statement. I just wanted to pause on the joint income from joint ventures line. Here, we show the EPRA income figure of GBP 6.6 million. This excludes any valuation uplift in the underlying portfolio and any impact of negative goodwill. We doubled our stake in the underlying structure in February this year, and so the GBP 6.6 million shown here does not show the impact of a full year income for the total stake held. That's why it's helpful to look at the pro forma number of GBP 12.3 million, which represents the ongoing, albeit undistributed income for the total super stake, demonstrating the positive impact from this investment even without taking into account any valuation uplift. Returning back to the income statement overview, this time to focus on earnings. EPRA earnings for the year were GBP 36.8 million as compared to GBP 16.8 million for the same period in 2020. This represents an uplift in earnings per share from GBP 0.05 to GBP 0.056. And whilst that is a pleasing increase, on a pro forma basis taking into account the full year effect of all acquisitions in the period and those acquired post year-end, this goes up to GBP 0.07 per share. Now turning to dividend cover. This has increased from 0.84 times to 1.04 times for the year ended June 30, 2021, and on a pro forma basis, this goes up to 1.2 times, once more showing the positive impact of the new acquisitions on earnings. Finally, we move to the EPRA cost ratio, which has fallen from 19.2% to 16.8% between the year to June 2021 and the year to June 2020. On a pro forma basis, this was further 14.4%. As we've done previously, we have provided an adjusted version of the EPRA earnings number, which eliminates the undistributed profit from joint venture being the underlying income from our investment in the Sainsbury's Reversion Portfolio. Removing this income reduces EPRA earnings to GBP 30.2 million for the year to June 30, 2021 and to GBP 44.7 million on a pro forma basis. The other key figure to highlight here is dividend cover, which as with the unadjusted number has increased from year-to-year from 0.82 times to 0.85 times, and to 0.94 times for the pro forma, which reflects the full year effect of all acquisitions in the period and those acquired post year-end. Moving away from the income statement, on to the statement of financial position. Again, the first thing that stands out on this page is the growth that the fund has gone through in the past year. Gross assets have more than doubled from GBP 617.5 million at June 30, 2020 to over GBP 1.3 billion, resulting from a combination of acquisitions and like-for-like valuation growth of 8.5%, which I will take you through in a moment. We also want to highlight the upward movement in EPRA NTA per share. This has increased by GBP 0.07 per share from GBP 1.01 as at June 30, 2020 to GBP 1.08 at the year-end. We have also prepared a pro forma statement of financial position, which includes the impact of all post balance sheet acquisitions and shows the current LTV of 39.4%. Here, we separated out the key components in the GBP 0.07 movement in EPRA NTA. The key point to highlight here is the positive valuation contribution from both the direct portfolio and within the investment in joint venture, which has more than doubled the impact of rising back acquisition costs on new purchases. Also worth noting is the positive impact of GBP 0.014 per share from equity issues at a premium to net NTA. Returning to the valuation uplift in the direct portfolio, you can clearly see the components of the 8.5% like-for-like growth, primarily driven by yield shift rather than rental uplifts. However, given the inflationary environment, we expect a rebalancing between these elements going forward. We also want to highlight the accretive nature of acquisitions made during the year, where we are also showing a valuation increase, demonstrating that we've been able to buy well. Pleasingly, we have further reduced our combined cost of debt post year-end to an average of 1.8% from an already low 1.9% for the year to June 30, 2021. As of today, we have GBP 515.1 million drawn, a full year average debt maturity and have comfortable headroom on all our banking covenants. As we reported at the half year, we further diversified our banking group, adding new revolving credit facilities with Barclays, RBC and Wells Fargo. Since the period-end, we've upsized a number of our existing facilities and have a total debt capacity of GBP 644 million. And as of today, we have GBP 128.4 million undrawn. That was the financial results. On this slide, we wanted to pause to reflect on the growth since IPO by setting out a number of KPIs, which demonstrate how we've delivered growth for shareholders and consistently high returns. I've already talked about the increase in rental growth, but this chart really shows the scale of that growth over the period. We've continued to grow the dividend per share, delivering an inflation-linked annual uplift and you would have seen announced this morning that we are once more increasing the dividend target in line with inflation. Coming back to the theme of the accretive impact of acquisitions, we have grown the balance sheet from GBP 100 million at IPO to almost GBP 900 million, while still growing NTA per share to GBP 1.08. Finally, we have consistently hit above the targeted level of shareholder returns. Lastly, I wanted to take you through the progress that we've made during the year in respect of key ESG initiatives. Taking each column from left to right, we have undertaken a materiality assessment setting out the key ESG topics for both management and other key stakeholders. In order to complete this, we reached out to investors and tenants as well as employees of the advisor to understand the issues that are most important to them in terms of ESG. The output from this process was a materiality matrix, which is shown here. This highlights the top 8 ESG topics of both stakeholders and company leadership. As you can see, the matrix showed a high correlation in terms of what was considered important for leadership and for other stakeholders. Now, to the second column, we've increased engagement with our tenants in the year, both on asset management and ESG-specific issues. And as you can see here, 70% of our portfolio is rated EPC and above, and we only have one property with an E rating down from 3 at the start of the year. Finally, moving on to governance. The company has been awarded an EPRA Gold Governance award 2 years in a row. We have continued to work with the Board to enhance the government framework of the company, which has included updating the terms of reference to the Audit Committee to include ESG oversight and conducting a skills assessment for the Board. As part of our ongoing ESG strategy, whilst we recognize that we cannot contribute to all UN Sustainable Development Goals, we have formally adopted 3 of these goals against which to align our sustainability efforts. These are decent work and economic growth, sustainable cities and communities and climate action. I will now pass you over to Steven.

In the following pages, I'll take you through our current portfolio and provide an update on our joint venture investment vehicle. It's been an unprecedented year of activity for us, in which we've increased our direct portfolio by GBP 609 million or over 130% via 20 new supermarket acquisitions at an accretive yield of 5%. And since the June balance sheet date, we've acquired a further 5 supermarkets, investing GBP 95 million, generating a total direct portfolio of just under GBP 1.3 billion. As you can see from our portfolio maps, the full impact of these additional 25 acquisitions increasing both our tenants and geographical diversification. Now, we've handpicked a high quality portfolio, which is weighted towards long index-linked income. Top left, you can see we now have a portfolio of 35 stores, generating a net initial yield of 4.7%. As shown bottom left, our income is weighted towards the UK's leading and largest grocery tenants, secured on top trading omnichannel stores. All our investments are underwritten by rigorous financial and property due diligence. As shown in top right, our portfolio is underpinned by long-term leases with a weighted average lease length of 15 years. And as show bottom right, our portfolio benefits from highly visible rental growth, being substantially weighted towards index-linked rent reviews providing an attractive blend of compounding income growth over the next 15 years. Now, taking all these factors together, you can see how we are delivering on our strategy of building a platform of high quality supermarkets, providing a strong foundation towards long-term income growth. Now turning to the joint venture portfolio. Our joint venture investment in the Sainsbury's Reversion Portfolio seeing us acquire a 51% stake in 26 Sainsbury's stores jointly with our investment partner, British Airways Pension scheme. SUPR's investment in the joint venture was GBP 108.5 million. As summarized bottom left, the portfolio was subject to 2 securitization transactions; the hybrid securitization consisting of 16 stores and the Dragon securitization consisting of 10 stores, both of those structures expire in 2023. Sainsbury's holds purchase options on each store in both structure, which you can exercise at various states expiring September 21 for the Highbury structure and January 22 for the Dragon structure. Completion and settlement of both those purchase options takes place in March and June 2023, respectively. Now, our insight into this portfolio was the high quality nature of those stores and their underlying importance to Sainsbury's operations. We announced earlier this month that Sainsbury's exercised its option to buy back 13 of the stores in the Highbury securitization and we will receive those sales proceeds in 2023. Sainsbury's has options to purchase a further 10 stores in the Dragon securitization, which it can exercise between December and January 2022. The option price assumes a fresh 20-year lease to Sainsbury's. And given yields on 20-year Supermarket leases have tightened materially, this will be positive to the NTA of SUPR. Now the current leases will continue on all stores until expiry, so SUPR will continue to earn its running joint venture return until mid-2023. And as Nat previously outlined, the running return from our joint venture investment is GBP 12 million per annum or 11% annual return on SUPR's equity investment. This will continue to be accretive to both NTA and our EPRA dividend cover, which on a pro forma basis currently stands at 1.2 times. And just to note, the Sainsbury's purchase option was a post-balance sheet event, so it's not reflected in the June valuations. In this section, I'll explain some of the features around the strengthening UK grocery market and how our investment strategy is aligned with that to drive both income and value growth. Now to understand the trends in the grocery sector, it's important to compare 2021 to 2019, which was the last full pre-COVID year and smooths out all the spikes we've seen during the lockdown. Firstly, you can see that UK grocery market is up 9% over 2019. This growth representing the lasting effect from structural change in working habits towards greater levels of home working. Second, you can see the grocery sector is generating record levels of online demand with the online channel growing at 85%. And third, the grocers continue to expand in-store fulfillment capacity with delivery slots up 110% relative to 2019 levels, with omnichannel stores now fulfilling over 80% of all UK online grocery orders. Now if we exclude Ocado from those numbers as the UK's only centralized fulfillment operator, that jumps to over 90%. Omnichannel stores are capturing the lion's share of this growth, underpinning our view on further value and income growth from this segment of the market, and hence our focus on omnichannel stores. Now it's frustrating for us not to have a representative transactional yield series in the market. So we've been tracking individual transactions since 2016 that represent our investment market. In the graph, we've highlighted all those transactions, which are representative of our market. Each of those blue dots being individual supermarket investment transactions, which have over 10 years unexpired lease terms and benefit from index-linked or fixed rental uplifts. And please note, this is the whole market, not just our transactions. This allows us to produce a rules-based transactional yield series, which you see in this green line with investment yields tightening from 5.3% in 2016 to 4.5% in 2021, illustrating the impact on property values from increased investment demand. Now we can also show the differential between supermarket property yields and bond yields. When adding the Tesco's corporate bonds shown here in blue, you can see that despite the yield shift on supermarket property, the relative value from supermarket real estate has significantly improved. On a risk-adjusted basis, our investment strategy has never looked more compelling than it is today. Now in many ways, 2021 has been an exceptional period for UK grocery. Private equity players in this market have been attracted by buyouts in the sector. That's given the mission-critical nature of grocery assets, their significant real estate backing, their highly cash generative and agile business model, and, of course, their dominant online market share. So how do we think about all this M&A activity? Firstly, grocery real estate is core UK food infrastructure, and asset selection is critical. And we use our information and relationship advantage in acquiring high quality stores with growing sales both in-store as well as online. That provides a strong foundation to our long-term income growth. In addition, we don't expect to see significant sale and leaseback volumes, given the low cost of debt finance in the sector. As you've seen previously, debt is considerably cheaper than property yields. For example, Asda, which is now owned by EG and TDR, their bonds are currently trading in the market at 3.1%, which is well below property yields. I'll now hand back to Ben who will take you through our outlook.

Thank you. I hope you'll agree that this has been a solid set of results. Looking forward, we think the outlook for Supermarket Income REIT is stronger than at any time since the IPO. It's clear that the sustained growth in grocery sales and the realization that omnichannel real estate is key to the grocery operators will be supportive of yields, and that's not to mention the relative values of bonds that Steven just mentioned. We see plenty of upside from our Sainsbury's JV with more clarity to come in January. And meanwhile, we'll see the impact of the current high levels of inflation coming through in the coming quarters through rent reviews. That's going to drive EPRA earnings growth and it makes us feel very confident about our progressive dividend strategy. Now normally, and we would have offered you all a physical site tour by now, obviously COVID has made that quite tricky to organize. We do hope we can do that at some point in the near future. The next best thing is a virtual site tour. So what I'm just going to show you now is an abbreviated version of the one that's on our website. [Presentation]

Okay. Well, thank you, everyone. [Operator Instructions]

John Cahill from Stifel. A very clear presentation. Just wanted to ask you about your view on the investment market and how that might be changing. Obviously, we can see yields are coming down, which are obviously very helpful for your NAV, but what's the competitive landscape like now, in that the big 3 buyers are probably yourselves, the operators and maybe Realty in the US? You all got very low cost of capital, at least 2 of those 3 know these assets inside out. How do you think that's going to play out over the next year or 2, and in particular trying to get hold of more assets?

Yes. Can you hear me okay on this one? Yes. I mean, I guess, we've been dealing with that situation for the last couple of years already since Realty Income came into the market. Average investment volumes are sort of around GBP 2 billion. And so, we don't have to have an enormous market share to be able to do what we want to do. So we still see plenty of accretive opportunities. Most of what we do is arrange it off market and most of the time we've been speaking to those vendors for -- actually, by now, several years about their assets. And then in terms of the yield shift, I mean, again, we -- as you've seen from the slides, in an environment where yields have been tightening throughout our existence, we've continued to be able to deliver accretive acquisitions throughout. And I think actually, it's interesting if you look at where our share price is at the moment. I think our kind of breakeven acquisition yield has probably fallen to more like 4.3% versus probably 4.7% at the beginning of the year. So we are able to be more competitive alongside those others.

It's James from Peel Hunt. Maybe just a quick question on the Sainsbury's option that they've exercised to buy, I think it's 13 of the 16 in Highbury. I was wondering, what the plan is for the other 3 and would I be right in thinking that maybe the slightly -- I appreciate that portfolio is very good quality across the board, but, I mean, are they possibly 3 of the slightly weaker stores given Sainsbury's haven't acquired them? And do you know what might happen there in terms of the lease when that comes to expiry?

Yes. I can take that. So look, we're still in discussions with Sainsbury's on this, it's still a work in progress. I mean, regarding the 3 stores that they haven't exercised the options back, we're in discussions with them. I mean, that's on one level good for us because it should translate into continued lease opportunities. So they're not as part of the buyback, but it doesn't mean Sainsbury's doesn't want the stores going forward into the future.

It's Julian Livingston-Booth from RBC. Just a couple of questions. I think 6 months ago, you talked a little bit about a slight greater willingness to buy things on slightly shorter leases. Is that still in your thinking, is that something we can maybe expect? And then just in terms of your LTV levels, at what stage will you start factoring in the sales to Sainsbury's when you're thinking about where your LTV is and how much equity you need?

Yes. Good questions. So on the shorter leases, I mean, obviously, we are looking to maintain that portfolio of weighted average lease term, but we do see opportunities on shorter leases because we've got a massive information advantage usually over the vendor, so we're in a much better position to underwrite the lease re-gear. And then we can either do that at point of acquisition and agree a deal with the operator, so we've done that in a couple of cases where you won't have seen a shorter lease acquisition because we did the re-gear on the way through on the acquisition, but we've also bought a couple where they've had shorter leases where we just got a very strong conviction over the re-gear. And we think that can deliver significant value for shareholders, but it's still got a very keen eye on the overall weighted term of the leases for the portfolio. And on LTV, yes, I mean, we obviously don't receive the proceeds until 2023. So I think that's probably a sort of a back-end of next year kind of question. And, I guess, it's going to be a question of what we've got to deploy into, so maybe we can deploy those proceeds straight away. If there isn't something accretive to do with, then maybe that's an opportunity to return cash to shareholders.

So I might as well ask one follow-up to one of Julian's first questions, only similar, but slightly different. But you're obviously looking at some of the shorter leases, what about -- today the focus being very much on the inflation-linked leases, what about kind of open market rent review leases? In particular, I guess, if the inflation plays out the way that's expected, those inflation-linked yield would presumably come in quite sharply. Are we close to a point at which the open market once starts to look better value potentially?

Yes. I mean, we have selectively bought a very -- a small number of open market rent review assets and we'll continue to do that, where we think the relative value is right. I think obviously what's pleasing is we've got a lot of growth in the grocery sector right now. If you've got a long inflation-linked lease, you don't sort of benefit from that until you get to the end of the lease, whereas actually there's an opportunity to buy some open market rent reviewed assets where we might see some significant rental growth in the near-term. But again, as with the shorter-dated leases, it's going to remain a relatively small part of the portfolio. So we're still 90% index-linked or fixed, we don't want to stray too far away from that.

James, rents in the sector have always been dominated by this kind of 4% rent to turnover ratio. So as sales and growth is coming through on the grocery sector, especially on omnichannel stores, we are looking at the OMV as a source of growth going forward.

Hi, guys. Tom Horne from Berenberg. I just wanted to get a sense of sort of scale -- wider scale opportunities, maybe sort of looking away from direct acquisitions, whether there is potential to sort of partner with third-party capital providers or any other sort of JVs, anything to that extent?

Yes. I mean, it -- I guess, the interesting thing about this space is that there aren't very many portfolios around. So actually, the Sainsbury's Reversion Portfolio was probably one of the last significant portfolios out there. So that was why we were obviously very keen to do that transaction. So I think it's probably going to be a game of still picking them up in ones and twos. That has value in itself because actually we are effectively the only supermarket platform in the UK. So we think about what potential endgames might be here. And actually, at some point, we could be very attractive to one of those large capital providers as a supermarket platform in the UK. So potentially, there is a great outcome for shareholders there.

We'll take that one and go to the webcast questions. Yes.

Tom Musson at Liberum. Just on the acquisitions post year-end, I think 4.8% blended yield you quoted. Is there a bit of a wide range around that? Was that quite tight around that yield? And also just a comment on adding M&S as an operator, interesting to hear your thoughts on that as well.

Yes. I can take that one. So on the post balance sheet acquisitions, yes, there's a bit of a spread there, I think the tightest one was 4.25% their initial yield, that's the 15-year lease to Tesco's. And sorry, the second question?

Just on adding a new operator to your tenant base.

Yes. We're continuing to expand our tenant base. So we acquired post balance sheet 2 Aldi stores, which are in that kind of discount segment of the market, which is growing quite progressively. We're delighted to take our first M&S Foodhall into the fund, that's adjacent next to the Aldi. Both of those work really well together in terms of trading because they got a nice complementary mix of premium and discounting brands. So we're going to continue to look to diversify the tenant base going forward.

Thank you.

Okay. Quite a few questions coming through on the webcast. I'll go through in turn. So the first one comes from Colm Lauder at Goodbody. He says, 2 questions, please. I actually think it's more like 16 questions. So I'll ask them one at a time, in good Colm style. So first question is, with inflation ticking upwards, can we be more bullish on the rent reviews for the next year?

It's easy answer, yes.

Okay. Easy answer, yes, Colm. What is the average rent review cap and floor across the portfolio now, please?

I can take that one. On our RPI-linked leases, it's around 4%. And on our CPI leases, it's around 3%.

The higher rate of inflation should support similar level of capital growth on yields. I think you achieved a compression of approximately 30 basis points. Where is the market at today? And is this growing investor demand for secure income the main driver?

Yes. I mean, I think you would expect our 30th June valuation to sort of reflect where the market is at now. I think -- we think there is still significant upside in yields in our space. When you look at the relative value to bonds, it seems kind of screamingly obvious that if you've got a choice of owning as the high-yield bonds at 3.1% or supermarkets at 4.5% plus inflation, if you can do that trade, then you should own the supermarket assets. So it seems like there's a lot of support for tighter yields over-time. But actually, I think it's easier to -- yields will be whatever yields end up being, but we know that we're going to realize some much higher rental uplifts over the coming quarters because they refer to inflation that's happening now. So we definitely expect to see some capital growth coming through on that side.

Final one of Colm's questions is, have you seen a differentiation of omnichannel assets versus normal supermarkets?

I can take that one. No, not yet. I mean, that's one of our insights into the sector. We do a lot of underwriting around what the nature of the trade is on each of the stores within our pipeline. And as of yet, the rest of the market doesn't seem to be differentiating that. That's the value opportunity we see in omnichannel supermarkets. That may change in the future as the market begins to understand how the grocers are integrating online fulfillment into their store network. But at the moment, it's not driving a differential in yields.

Okay. Next one has come from Miranda at Panmure. So firstly, you have a growing percentage of non-food income, albeit still small. Can you see this growing further? Is there a maximum percentage you'd be comfortable with?

Yes. I mean, I think the first thing to say is, we never target buying non-food units, we're targeting buying the best supermarkets and then sometimes those come with adjacent non-food units. If we can get ourselves comfortable with those either because we're buying them extremely cheaply or because they create opportunities, then we will acquire them. So I don't think we will look to expand that percentage materially. We've got the flexibility in the investment policy to have 20% of non-food, and I don't think we'd get near that number.

Yes. It's in the appendix to the presentation, our non-food on value is around 3% of our portfolio right now, so it's quite small.

Next question from Miranda is, basically, when can we expect to see the valuation uplifts from the Sainsbury's Reversion Portfolio coming through, next half year or in 2023?

I can take that one. So as we've explained, only one of the 2 options has been exercised and we have no control over when the second option will be exercised. If that happens prior to the half year, then we would expect to see the full portfolio uplift being reflected. But if that happens post 31 December, it will just be only option that has been exercised to-date because the valuation will reflect the situation that is in place as at 31 December and it's not an adjusting event from an accounting perspective.

Okay. Couple more of Sainsbury's Reversion Portfolio questions that I've put together. So do we anticipate Sainsbury's exercising their option to purchase the remaining balance held in the portfolio because that option becomes available in the next few months? So that's the first question.

I can take that one. I mean, we don't know. But as we've highlighted the relative value play in the market at the moment and what they've already done on the first securitization, I think it's a reasonable probability that they will exercise some or all of the stores.

I'll follow up with a similar question. Can you give more color on the impact of NAV of the sale of the JV assets to Sainsbury's?

Yes. As Nat said, it's still a work in progress, so we're not guiding towards any specific numbers. The valuation of their buyback option, that needs to be agreed by around June 2022. Overall, we think it will be accretive to our NTA. But at the moment, it's still a work in progress to agree value of those purchase options.

And, I guess, a similar topic, but can you give us an idea of the yields if SUPR purchase assets out of the Reversion portfolio? Will it be in line with recent transactions, if you do?

Yes. Again, I mean, it's still a work in progress. We did the yield series out there so you can see where yields are trading at the market. I think in an attempt to answer that question, the buyback option that they have assumes a 20-year lease at passing rent. So it should be accretive to overall NAV. And as you know, 20-year supermarket leases are trading quite high in the market at the moment.

Okay. Change of topic away from Sainsbury's Reversion Portfolio, supermarket sector generally. So supermarkets have had a lot of cost increases of late. Do you think this will have an impact on the rentals you can negotiate going forward?

I'd probably say that one again. I mean look, the weighted average lease length on our portfolio is 15 years. So we've got a long duration between before we're exposed to that. I think overall costs what we're hearing from the operators is that you've seen the elevated sales. But of course a lot of the costs in the model around complying with social distancing measures is gone and hence, you're seeing some increased forecast from the analysts in the grocery sector on both profitability and cash flow. So I think as we go into the next 12 months, we'll see a lot of those elevated costs coming out of the model.

Further question again and probably for you Steve or Ben. But you haven't sold any assets yet, at what yield would you be tempted to sell a site?

Yes. I mean I think we still think there's upside in yields and so we don't as a strategy sort of foresee selling anything in the near term. I think the most likely timing of us selling something would be if we can effectively buy a better asset near to one of our existing assets. So from time to time, you get to -- we obviously don't want to have stores that are adjacent to each other and compete against each other. And so from time to time, we see things where we think we'll actually like to buy that, but that might make us think about selling one of the other ones. So that's probably the kind of circumstance where we take the opportunity to sell something to get kind of better portfolio balance. If we think the end's come on the yield run, then we would absolutely consider selling assets.

Next question comes from Simon Smith. I noticed LXI have been adding coffee outlets to their sites and my local Tesco has added a McDonald's. Do you see opportunities to add value in a similar way?

Yes, we do. We've explored that a number of times, but generally where we are in the moment is the relative value through deploying capital into new supermarket acquisitions is generally higher than pursuing kind of asset enhancement strategies. Our focus around asset management at the moment is sustainability. The deployment of solar and green energy across the real estate. In time, we may look at things such as drive through restaurants. We've got one particular scheme progressing up in Newcastle. At the moment, the focus is on capturing the relative value through supermarket acquisitions.

Our sites have been so busy, they're actually persuading the operators to give up car parking spaces has become increasingly difficult because we're seeing trade transfer into our sites. So that's kind of limiting the opportunity somewhat.

Okay. 3 more questions I think. So firstly, given all the recent announcements, does this now mean you're fully deployed?

Yes. I think you'll see from the announcement this morning, we've still got GBP 128 million of debt capacity available to deploy and so we've got lots of flexibility to buy several more assets. Clearly, if we see a pipeline of assets that's big enough to justify needing to raise equity and that's an accretive thing to do for shareholders, then that's something we'd consider. But we've got plenty of debt facility firepower for the time being.

Next question from Simon Smith. Are you looking at ways to move on to the main market away from the specialist fund sector or is that not a possibility?

So I will take that one. Yes, we are looking at that. We would love to be on the premium list. It's a discussion with the UKLA. We haven't got a timetable around it and can't guarantee that it will happen, but it's something that we're actively working on.

Final question. Whilst the growth has been impressive, when should we worry that it's growth for growth sake and not accretive to shareholders?

It's slide 19, which is that we've always been focused on only growing at where we can deliver benefits for shareholders and so we've grown very rapidly. But we've delivered 4 consecutive years of I think really impressive returns for shareholders. So I think you can be kind of satisfied that we'll only grow where we think that that's something that's going to be accretive to shareholders. And if we can't find accretive opportunities to do that, then we'll stop and work the current portfolio very hard.

Great. That's all the questions from the webcast and there's no further questions from the room. We'll just say thank you very much for coming and your continued interest. As always, team here is at your disposal if you've got any follow-up questions or anybody on the webcast who wants to email us directly, feel free to do so. And have a great morning, everyone. Thank you.

Thank you.

Thank you.