Good afternoon, and welcome to the Supermarket Income REIT plc half year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted anytime by the Q&A tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate for you to do so. Before we begin, I'd like to submit the following poll, and I'd now like to hand you over to Rob Abraham, Managing Director, and Steven Noble, Chief Investment Officer. Good afternoon to you both.
Good afternoon, and thank you everyone for attending. My name is Steven Noble. I'm the CIO for Atrato. Atrato is the investment advisor to Supermarket Income REIT, which is the U.K.'s only real estate investment company focused exclusively on supermarket property. I'm joined by Rob Abraham, who's the Managing Director for the Supermarket Income REIT. I just wanted to start by briefly introducing the key personalities behind the fund. I'm aware some people may have heard this before, but for those who are new on the call, the fund's chairman, Nick Hewson, he was Co-founder and CEO of Grantchester Holdings, and currently serves as a Non-Executive Director on Redrow. Of course, the other name to note on our board is Vince Prior.
He was previously head of Sainsbury's property, helping grow their supermarket property portfolio from GBP 7 billion to around GBP 12 billion over a five-year period. On the Atrato team, who are the principals behind the fund, Ben Green is a Co-founder, has 20 years of experience in executing real estate transactions. Ben has executed over GBP 5 billion of supermarket sale and lease backs. We think Ben has done more supermarket sale and lease backs than anybody else in the U.K. Of course, the other notable name on the Atrato team there is Justin King. Justin's a Senior Advisor to Atrato. Many of you will have heard of Justin. He's a business celebrity in the U.K., but of course, he was Chief Executive of Sainsbury's for 10 years until 2014, and he currently sits on the board of Marks & Spencer.
He loved what we were doing in arranging a supermarket-dedicated investment fund, and hence he was keen to join us. Now, why put this team together? Well, essentially what we've built is a coverage model for the sector, and that's key to understanding us. We cover our tenants from the board level, be it the chairman of Tesco, all the way down to the store manager. Now, that gives us a deep understanding of the sector, but it also delivers an information advantage as well as a relationship advantage in this space. That's important when we come onto store selections, which Rob will take you through, as well as important in us being better than our competitors in this investment space. I'm gonna start by just taking you through the three core pillars which define us as an investment fund.
The first of those is lease length and structure. We target leases that provide long, unexpired lease terms with inflation-linked rent uplifts. Our current WALT is around 15 years, and this provides a high degree of certainty over our income, which grows in line with inflation, and we'll take you through the detail in that in a bit later. The second pillar of our investment strategy is omnichannel stores. Now, let me explain that. We target stores that operate not only as traditional supermarkets, but they also operate as last mile fulfillment hubs for online grocery. That's both through home delivery as well as through click and collect. Now, as more grocery sales go online, well, how do real estate investors capture that growth?
Well, we do that through omnichannel stores, and Rob's gonna take you through that strategy in a bit more detail shortly. The third is site size. I mean, one of the unique benefits of investing in this sector is just the size of land we acquire with each acquisition. On average, our site size is around 10 acres, and our store covers around 25% of the site. That gives us a lot of optionality on the real estate to adapt to the changing needs of our tenants. Most recently, the biggest change we're seeing in that respect is enhancing the store's fulfillment capacity through home delivery, through investment in online fulfillment facilities and distribution capabilities at the back of the store. We've got a bit more on that later in the presentation.
Just to start with taking you through some of the key highlights for the funds, 'cause we just announced our half year results, and most of this presentation will take you quickly through the financial result numbers for our half year. We've made GBP 370 million of new acquisitions in this period, and that's come at an average acquisition yield of about 4.6%, which is accretive to our overall dividend cover, and we'll show you that shortly. We've also been assigned in the period an investment grade rating on our balance sheet. On top of that, we've also achieved a premium listing on the London Stock Exchange.
Previously, we were on a specialist fund segment, but the growth in the size and the diversification of our portfolio means we're now on the premium listing, which means we're open to more tracker funds, including the EPRA and the FTSE 250. We continue our track record of accretive investment growth. Overall, our portfolio stands at around GBP 1.6 billion, while at the same time we're growing but maintaining our WALT to 15 years. For the period to the thirty-first of December, we grew our NTA by 5% or 5p to 113p per share. For the six months to date, we've paid a 3p dividend, which is 1.13 times covered.
I'll just quickly take you through our half year financial results to give you a flavor of our performance before we delve a bit more into our strategy and our portfolio. Our net rental income increased by over 60% during the period, which was highlighted here, and this is predominantly through new acquisitions, but it's also as a result of inflation-linked rent reviews on our portfolio. Just turning to the rental growth in a little more detail. Our total pro forma net rental income, which is an approximate for our rental income for the next 12 months, now stands at just under GBP 80 million, which has increased by over 50% from the previous December period, primarily because of our new acquisitions and our rent reviews.
Focusing on rent reviews, seven of our leases during the six-month period were renewed, and our average rental increase was 6.3%. Now, this includes several five-yearly rent reviews, but you can see the inflation link growth coming through on our rent reviews there. Just turning back to the income statement. Our net income from the joint venture you see there at GBP 6.2 million, I mean, that's an increase of 113%. Rob will take you through the joint venture in a bit more detail, but that just reflects that we're now getting a full year's run rate on our joint venture investment, which is a portfolio of 26 Sainsbury's stores. Administrative and other expenses, I mean, that increased in absolute terms.
However, I'll direct your attention to our EPRA cost ratio, which has now fallen and now stands at 15.8% compared to 19.9% in the previous period. Again, that reflects the growth generating a lower cost profile for the overall fund, and we expect that to be broadly consistent over the next few reporting periods. In all, we're pleased that our EPRA earnings per share is 3.1% for the six-month period. Now, that's compared to 2.8% per share for the same six-month comparative period. In other words, that's an 11% growth. We're especially pleased that we can grow the portfolio in a way that is achieving progressive EPS growth as well. Finally, just to reiterate, our EPRA dividend cover currently stands at 1.13x , so we're fully covered on our dividend.
I'll just turn quickly to the balance sheet. The first thing that stands out on that page is just our continued growth. As I mentioned previously, EPRA NTA per share increased by 5p , and our LTV for the period, our loan to value ratio was 32%. Now, as a result of around GBP 130 million of post-balance sheet acquisitions, our LTV today, taking into account post-balance sheet events, is around 39%. As a fund, we aim to keep our leverage in or around between 30%-40% over the long term. It's just worth noting the component parts of our NTA growth during the period.
The key point to highlight on the right-hand side of this slide is the positive contribution the joint venture has generated to our NTA growth, and we're going to take you shortly through the detail on that in the next few pages. Just to pause on our overall debts. During the period, our running interest cost was 2%, with total credit facilities of around GBP 793 million, which gives us around GBP 150 million of credit headroom relative to our drawn debts at the moment. I'll now hand you over to Rob, who's gonna take you through our portfolio in a little more detail and our key milestones for the six-month period.
Thanks, Steve. Hello, everyone. As you've already heard, another really busy period of transactions for the group. Those of you that have dialed in previously will have heard what we've been up to on acquisitions, and it's continued to be the case. Really just showing our ability to continue to grow the portfolio, and that's really through our competitive and information advantage in our position as sector, grocery sector specialists. Since June, we have deployed a total of GBP 372 million. This is as at today, since June, and that's been into 11 high-quality assets. The deployment of our latest GBP 200 million equity raise back in October has been one of our fastest ever.
These acquisitions were completed at a 4.6% net initial yield and an accretive 17-year WALT, which has been helped by the addition of a number of particularly long leased assets. The first being our Sainsbury's store in Washington in the northeast of England. That has a 34-year lease with RPI reviews, so exceptionally long remaining term there. We acquired Sainsbury's in Swansea with 27 years remaining. We've got a number of the longest leased Sainsbury's in our portfolio. As a result, our portfolio now we've established a diversified portfolio of high quality assets. The value now exceeds GBP 1.5 billion, and that consists of 41 supermarket sites valued at a 4.7% net initial yield.
The WALT there, as you can see, again, has been maintained at 15 years through those acquisitions of long-leased assets. As you can see from the map on the right here, the portfolio is well diversified, and that's both by geography and tenant. That's really been enhanced through the addition of our first M&S food hall in Liverpool. Then also in January, we were delighted to introduce our first Asda to the portfolio through the acquisition of a strong trading omnichannel store in Cwmbran, South Wales. Asda's recently expanded that store to support the supermarket's online fulfillment to the local neighborhood.
I'll just say there in respect to that portfolio growth. I mean, one of the benefits of the portfolio as it stands right now is around us transitioning from the specialist fund segments onto the premium segment of the stock exchange. Now, that essentially means we're open to more tracker funds following Supermarket Income REIT. We expect to be eligible for inclusion in those index funds in or around June, but we should see buying through the index funds, adding a lot more liquidity to our overall share volumes during the year, as well as open this up to a more broader and diverse investor base.
One of the important things to note with our portfolio is the group is well-placed in the current inflationary environment. We have 85% of our leases are inflation-linked, predominantly to RPI. Of those leases linked to inflation, 64% benefit from annual reviews, and our average cap across those leases is 4%. We have the ability to capture inflation in the current environment.
It's probably worth pausing on that because I know that's a primary concern of most of the people on this call is how investors source inflation protection. As Rob said, our average cap around the portfolio is 4%. Don't forget, we're a leveraged fund. Even if you take that cap level at 4% and you apply that on an earnings per share basis, given the benefit, given the leverage we have within the portfolio, the levered inflation growth is a lot higher. That's around 5%-6%. We think we are a really good source of inflation protection, both in terms of our income on the basis of our index linked rent reviews, the 85% you see there. Don't forget, the inflation growth in rents is also translating to growth in our valuations and our NTA.
We get double sources of growth, both through income as well as valuation, which compounds into our total shareholder return.
As sector specialists, we're able to identify opportunities where we can really add value for shareholders. A perfect example of this is our Tesco store in Prescot in Merseyside on the outskirts of Liverpool. This is an asset we've been tracking for a number of years and engaging in off-market discussions with the vendor. That's something we benefit from. We've got an extensive network across current property owners and agents. We, as the specialists, we get to see every transaction in this sector. This is a particularly good store, modern top trading omnichannel store that operates 14 home delivery vans for Tesco. Being on the outskirts of Liverpool, that's serving a particularly densely populated catchment.
To the standard purchaser, this store was definitely not without some risk. The remaining lease term was only four years, and the store is relatively oversized at 140,000 sq ft. As a result, included within that 140,000 sq ft is around 20,000 sq ft, which is currently unutilized. Also as a result, the store was over-rented. Through our relationship, and this is where we're really able to add the value, through our relationship with Tesco, we were able to negotiate a new lease during our due diligence process on the acquisition. On the day of acquisition, we entered into a new 15-year annual CPI lease with the rent being rebased to 4% of turnover.
Now, that's the benchmark that we know the operators work to. That ensures the store is affordable, and we're also getting a long-dated commitment from Tesco to the site where for other purchasers, there was that level of uncertainty on the renewal outcome with only four years left remaining. We were also able to capitalize on an opportunity to acquire a vacant plot to the rear of the store. You can see on the satellite image on the right there, the current service yard is quite narrow. That is overcrowded with the number of vans. We acquired 30,000 sq ft of space just to the left of the service yard there, currently vacant, which gives us the opportunity to expand Tesco's home delivery operation and just make the site work even more efficiently for the operator.
Through this regear and this acquisition, we've been able to create material value for shareholders.
I think, Rob, I mean, this is just a great example of that coverage model we put in for the sector, right? This is the benefit of having those relationships, the contacts, the links into the sector is that we can identify these acquisition opportunities and put in place these proposals to unlock the transaction which others probably wouldn't have access to.
Another investment that we've made that's driving value in the Super portfolio and also demonstrates our ability to identify these value add opportunities through both information and relationship advantages has been our joint venture investment in the Sainsbury's reversion portfolio, as we call it. Now, this is a particularly strong portfolio of 26 Sainsbury's stores. There was only a relatively short period left on the lease acquisition, around three years. We just had the conviction in our acquisition that has really allowed us to drive value. Taking you line by line on this slide. First of all, we underwrite acquisition Sainsbury's commitment to the stores long term. We were aware of the turnover of each of these stores and how on a per square foot basis they effectively outperformed their weighting.
That's really been proven out now through Sainsbury's buying back 21 of the 26 stores. That's driven a significant increase in the value of Super's investment of GBP 30 million. We also spotted the opportunity for some yield compression. The leases here are all open market reviews. Historically, there's been a differential between indexing leases and open market reviews. That gap has now narrowed as we thought it might, and that's driven a further 13% gain on the value of the investment of around GBP 14 million. Finally, there's a running yield. Sainsbury's are paying rents throughout the life of this structure. It includes debt within the structure, so the rents are just servicing, reducing down the outstanding balance of the debt.
That does mean that there's a gain of over 10% per annum. That's equivalent to GBP 16 million to date, and there's still more to come until expiry. The total gain as at the 31st of December is GBP 60 million versus an initial investment of GBP 108 million. A very strong return. But just as a reminder there that the proceeds of that investment will not be received until the second half of 2023. Then at that time, we'll work out the most efficient way to deploy that, whether that's and the most accretive way to shareholders, whether that's through further acquisitions or simply returning cash to shareholders.
Yeah, I was just gonna say big picture on all of that, I mean, it's been, as Rob said, a great investment. I mean, if you think about it simplistically, we bought something for GBP 108 million, that's now worth around just over GBP 160 million. So in that respect, it's been great business for us. It will monetize 'cause Sainsbury's are buying back most of the stores, which is natural. They value the real estate as much as we do. So it's inevitable, they wanna buy some of these back as part of their freehold, and that will monetize in 2023. By which time we'll get to decide what we do with the process. Right now, we think that probably gets redeployed quite quickly into other assets. It has been a really good investment for us.
Again, it's just more evidence that the relationship benefit in this sector and really understanding the nature of the stores and how important they are to the operators, is where we can extract value or additional value from this real estate.
Turning to the sustainability agenda, clearly a very hot topic at the moment, and it's really good to be able to report both Super and its tenants are committed to the sustainability agenda. The energy performance of each store is an important consideration in our investment process, and 3/4 of Super's assets now have an EPC rating of C or above, which is an improvement of 5% on our last reported numbers in June 2021. The supermarket operators are continually investing to improve the energy performance of our stores. This includes initiatives such as installing energy efficient lighting and refrigeration, which results in improved energy performance scores across Super's estate at no cost to Super itself. We've also been introducing green provisions to all of our new leases.
On the right of this page, you can see that we're fortunate that the supermarket operators all have a genuine commitment to the sustainability agenda with net zero targets of 2040 or earlier, while all of the grocers have also signed up to the British Retail Consortium's Climate Action Roadmap. We're continuing to develop the sustainability agenda across the entire business, and the Super board is currently conducting a search for additional board members to broaden the, and deepen the sustainability skill set. We're delighted to have recently welcomed Christoph Scaife to the Atrato team as Head of Sustainability. We've also engaged the services of a third party to start work on streamlined energy and carbon reporting for Atrato and its funds. We're on track to become a signatory of the UN Principles for Responsible Investment in the coming weeks.
That's something we'll continue to update you on as we progress.
Next couple of pages I'll take you through just the structurally supported investment strategy. I mean, what is it behind our EPS dividends and NTA growth that is driving our total shareholder return? In terms of the grocery sector, we're benefiting from three big things, what we call our thematics. First of all, greater working from home. Second is inflationary tailwinds, and the third is the digital transformation of the U.K. economy. Now, working from home has generated a step change in grocery sales, and we're gonna take you through those numbers now shortly. The second is inflation. Now, we benefit doubly, as I already previously mentioned. First of all, as grocery in the sector tends to be a net beneficiary of inflation in terms of additional compounding sales growth. That will filter through into long-term market rents, as well as valuations of the real estate.
We'll see that come through in terms of valuation growth in our portfolio. Secondly is through our rental uplifts, which are 85% inflation-linked. That generates the inflation link growth in our rent roll. With the digital transition, greater online penetration benefits us through our focus in and on omnichannel stores, 'cause that's what we take. That's what we target. Rob will take you through that in a bit more detail shortly. Just on the numbers, the grocery sales are up 10% versus pre-COVID levels. Now, what's driving that? Well, that's greater working from home. Even as the economy has fully opened, we're seeing the tendency from home working, generating or keeping those additional sales we saw, during the lockdown. Now, this has been coupled with an enormous growth in online grocery, which is up 88%.
Remember, the vast majority of online grocery is fulfilled from a store, what we call omnichannel stores. That's actually 90% of all Big Four online grocery sales originate or are fulfilled from the supermarket. Now, in contrast, we're also seeing growth in physical sales. That's actually up 4% as the physical sales are also growing, as people shop more in grocery stores than, say, buying their lunch in a Pret and EAT, that they used to. Now, what does that mean for omnichannel stores? Well, we're benefiting in both ways. One, through the growth in physical sales and inflation, but of course, also the online growth, which means omnichannel stores like the ones in our investment portfolio, they're up by 16%.
You can see this provides huge structural support for this segment of the market in which we're invested in. Our rents have never been more affordable than they are now for our tenants because of the sales growth, both physical and online, we're seeing coming through our stores. It's probably worth if we jump to the appendix, if that's okay, 'cause we just wanna take, for those who haven't heard the story, quickly through the dynamics of online grocery in a bit more detail and just why the operators use stores as last mile fulfillment centers in U.K. grocery. I'll hand over to Rob to take you through the growth that we've seen, and then we can take you through the economics in a bit more detail.
Yes. As you can see on this slide here, you've got the slot capacity for each of the major operators, pre and post COVID. What really shows here is the ability of the major operators to flex that capacity in a very, very short space of time. We know from our discussions with some of the operators that they saw seven years of online growth in the space of just two weeks, and were able to effectively introduce additional vans and capacity into their stores in a very short space of time. 1.4 million increase in delivery slots since 2019. Tesco, in their most recently reported figures, have been fulfilling 1.2 million online orders per week over the Christmas period. A staggeringly high number of orders.
Actually, we know that 90% of the Big Four orders are fulfilled through omnichannel stores, as Steven was just talking you through there. What's quite noticeable is even the likes of Waitrose. Waitrose grew their omnichannel capacity significantly, and their growth is almost double the size of the Ocado growth in the same period, which just shows you the limitations of the fixed model where you have distribution warehouses versus having a store network that's been established over a long period of time, which allows you to add vans and store. The store pick model is just that bit more flexible.
Yeah. For those unfamiliar with the sector, you may recall Waitrose used to have an arrangement with Ocado where Ocado effectively fulfilled all their online grocery. Of course, Waitrose ended that relationship. I mean, you can broadly see that's why in the graph, in the store fulfillment model, leaving the economics aside, which we're gonna take you through shortly, is just capacity. With the store network, you can really ramp up your last mile fulfillment capacity, in Waitrose case, up 270%. Now, in hindsight, it's probably a wise decision, because if we think about how quickly Ocado has been able to ramp up capacity, it's lagging. It's up 40%. I mean, we're big fans of Ocado technology. We think it's absolutely fantastic in the right location, i.e., highly densely populated city where store capacity is limited.
In terms of overall distribution network, the store fulfillment is dominating.
Many of you that have listened to us speak before will be familiar with the Tesco distribution map, so the omnichannel networks that we've shown you in the past. We've now done some further analysis of that post-COVID. Here you've got the blue dots on the map. Every blue dot is an omnichannel store that Tesco fulfills home delivery orders from. As you can see, that's the majority of their fulfillment network. There are other solutions in some of the more densely populated areas. You've got the different colored dots here. The red dots clustered around London and the South East are the online-only fulfillment centers. These are more akin to that Ocado type model where it's just online only. You can see there's only six of those.
The last development there, as you can see on the slide, is 2016, and instead all of the growth post-COVID has been through the store networks. We saw Sainsbury's and Asda last year close some of those dark stores to instead focus on the omnichannel solution. You've also got, more recently, some of the manual omnichannel stores and the automated omnichannel UFC solutions that have been expanded. We've got the green dots being the 10 new stores that Tesco have rolled out home delivery to post-COVID. Quite interesting there that Tesco actually didn't increase the number of stores that significantly. What we've instead seen, and we've seen this in our stores, is investment in those well-located stores with additional vans or more efficient fulfillment capacity through building out the service yards of those stores.
It's all about the proximity to consumers, and Tesco have got one of the most established store networks, well, the most established store network of all the operators. Then we've got UFCs, the orange dots. There's only three so far. We know Tesco are expanding that model. These again, though, are omnichannel stores, they just have a bit more of the automated type fulfillment that follows that Ocado type racking, in the back of house for the particularly densely populated areas where they need that extra capacity. By and large, for the majority of the U.K., it's your local store, and it's between eight and 14 vans, perhaps, that they fulfill orders from.
In the vast majority of cases, there isn't the density of demand to require that UFC or a CFC type model.
Remember, we're targeting those blue dots in our investment strategy. That's essentially what we're buying is the omnichannel stores, the blue and the green dots being the new ones. In time, those blue dots will become orange dots as they build in more automation, and those bits of real estate will become more valuable. Look, broadly, the investment market right now is not differentiating between normal supermarkets and omnichannel stores. With the growth in sales from online fulfillment in those omnichannel stores are all the blue and green and orange dots you see, this is the valuable bit of real estate that the property market is still not differentiating.
The biggest impact on economics is drive time to consumers. What we've shown you here is in a very simple illustration is just how that centralized fulfillment center model versus an omnichannel store operates. If you think about this, the same number of trips from a CFC versus a store, you can achieve double the drop density through being in an omnichannel store due to the proximity to consumers, because the drive to the first stop effectively is that bit shorter, and then the drive between each of the stops is also that bit shorter. Whereas if you've got the centralized fulfillment model, you've got a warehouse that typically has to travel much further and achieves a much lower drop density, and therefore, on a per order basis, your costs are much higher.
Yeah, think about it in terms of numbers. I mean, it costs around GBP 17 for a man and van. If that man and van is only doing two drops an hour, I mean, you've got to recover that GBP 17 in two deliveries, which is around GBP 8.50 per order. If you're going into four deliveries or four drops per hour on the graph on the right-hand side there, I mean, you drive that cost down to just over GBP 4 per delivery. That's what you can see on this graph. It's just the economics of using stores as fulfillment centers. The cost in online grocery is not in the picking and packing, it's in the delivery element. The only way you reduce that cost is through proximity.
As online has grown in the U.K., as more and more people switch to online grocery, the scale is delivering economies, which is driving down primarily delivery costs. I mean, the Ocado solution is fantastic at managing the pick and pack element, but the real cost in online grocery is in the delivery, and you only solve delivery through proximity. That is why when you look at the graph earlier that Robert's taking you through, we see this huge growth in store fulfillment capacity from the Big Four, the migration by Waitrose into automated solutions, and this is just gonna continue and continue. Look, if we give you a flavor of, well, what kind of investment then are we seeing at our level? I mean, firstly, I'll say the great thing about investing in this sector is our tenants do this investment.
The nature of our leases are what known as FRI, fully repairing and insuring leases, where the tenants invest in the capital expenditure, not us. We give our consent, but they do the investment. This is one of our Sainsbury's stores within our portfolio. It gives you a feel for where this capacity growth is coming from. You can see here the investment they're making in growing the store's delivery fleet from eight vans to 22. The area in yellow is the back of house investment that's going into automated racking packing, and in green, how they're integrating the home delivery logistics with drive-through click and collect. Of course, that's modern drive-through click and collect. You get number plate recognition, you pull up, someone puts the groceries in your bag. Now, what does that do for the store?
Well, pre-COVID, that store's capacity before this investment would have been around 3,000 orders per week. Post-investment, that drives its fulfillment capacity to around 7,000 orders per week. With the average order of around GBP 100 for an online grocery shop, that can drive an additional GBP 20 million of turnover through that store alone. Now, as a landlord, how do we capture that benefit? Well, rents in this sector have always been a factor of turnover, and that ratio has always been around 4%. The rent on the store is 4% of the store's turnover. As the online sales grow and build in omnichannel stores, you can see how that will translate into higher rental growth just by nature of these stores doing online fulfillment.
Again, as I said earlier, the property market is still not differentiating these omnichannel supermarkets from normal supermarkets, and hence, this is a sweet spot of the sector that we're focused in on and we're capturing by trying to build our platform. I'll turn back quickly to the core presentation and just finish off before we jump into questions. Just to pause on the property market overall. In this yield series, this is a yield series that we produce ourselves. Although there is yield series out there by MSCI and IPD Index, they don't necessarily reflect the segment of the market to which we operate. This yield series is comprised of all market transactions in supermarkets with lease lengths in excess of 10 years.
As you can see, yields continue to compress in this sector, but our portfolio looks conservatively valued at 4.7% in comparison to some of the market-based transaction deals that we're seeing, which are now being done in around 4.4%. That's natural, right? Most valuers always lag the market, as they have to be conservative when they establish their values. Over the last three years, there's been around GBP 5 billion of supermarket property transactions being traded. We've seen an increase in interest within the sector, which has helped contribute to the yield shift that we highlighted in the previous page. However, as a specialist in this sector, we have an information advantage, we have a relationship advantage that enables us to understand the store's trading as well as the strategic importance of the site to the actual operator.
In that, we can select the best stores with the largest volume of available transactions, and hence you can see we're number one on the transaction list currently. Now, we continue to see accretive opportunities in the market, and we have plenty of balance sheet capacity to exploit those in the short-term future. I just want to take you through relative value as well in the sector. There's still room for further yield compression. If we look at Tesco's and Sainsbury's bonds, I mean, they're still trading a lot tighter than property yields. Now, bear in mind, the cash flows on our leases are coming from Tesco's and Sainsbury's. The cash flow on the bonds are also coming from Tesco's and Sainsbury's.
You can get paid 4.5% to own their property-related cash flows, or you can own their bonds and be paid 3% or 2.3% in the case of Sainsbury's. Hence, the relative value still exists on supermarket real estate relative to the bond market. Of course, we also get the benefit of inflation because our rents are inflation-linked. Our true yield is a lot higher than that 4.4% inflation yield. Now, if we look and consider that in terms of, well, how does that impact overall with inflation? I mean, you can see if we were to compare supermarket property yields with inflation-linked bonds, U.K. government linkers, that yield advantage is 6%. The market long term is pricing inflation breakeven at around 4%.
Hence, you can see there's still a 2% relative advantage through acquiring supermarket inflation-linked protection through supermarket leases rather than, say, acquiring through index-linked bonds. Let's sum up before we go into questions. I mean, look, in conclusion, we're really proud of the strong set of results we were able to produce for the first half to December. Once again, we've been scaling the business while delivering NTA as well as EPS growth. Now, we achieved two big strategic milestones during the period. The first of those was our investment-grade credit rating from Fitch Ratings, and the second of those is premium listing on the U.K. stock markets. Both of them have been long-term targets for us.
We have an investment strategy which is structurally supported by inflation, as well as additional work from home, in addition to the digital transformation and the shift to online grocery in particular. We're well positioned for the future. We expect rental growth driven by inflation. We expect further yield compression in this sector, and we also expect some further upside from our JV investment, which Rob took you through earlier. As the macro backdrop becomes even more uncertain, we feel really fortunate to be focused in this sector, which is not only growing, but is also counter-cyclical and defensive, especially in times of economic uncertainty, like we are right now. At that moment, I think we'll pause and open up to questions.
Steven, Robert, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated in the top right-hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed by your investor dashboard. We actually received two pre-submitted questions from investors, and I want to start off the Q&A session with these. The first one reads as follows: With signs of supermarkets reverting from the traditional physical presence to an online sales environment that requires a different logistical requirement, has Supermarket Income REIT plc considered diversifying and acquiring relevant warehousing?
Yes, I guess that's a very appropriate question, and hopefully through the presentation you might have got a bit of a feel for how actually the supermarkets are really using their omnichannel store networks to fulfill orders rather than the warehouses. We have looked at some of these types of assets in the past. There was the Asda logistics portfolio as well, and that, I think, points you to how relative value-wise, those logistic-type assets really are not. Yeah, we see much better relative value in the store networks. The stores are, as we see it, the future model of grocery in the U.K. That's been borne out by Sainsbury's and Asda closing their dark fulfillment centers, as I mentioned earlier.
One of the really interesting points with the grocery market is that the disruptors, say in other areas of retail, you've seen online-only disruptors taking significant market share from the incumbent long-standing operators. The difference in grocery is the Big Four operators have even larger market shares in online than they do in the grocery market as a whole. It just shows you that actually the logistical challenges of fulfilling grocery are that bit more difficult, that you're not able to disrupt in the same way. Actually, the best parties at doing that are the operators themselves. That's why we're focused on the omnichannel stores, which have the proximity and have been a very successful model for the grocers.
Thank you very much. That's great. The second question asks: Could you expand on the dividend growth from here?
Yeah, I can take that one. Look, the overall policy for the fund is to maintain a progressive dividend growth policy. Broadly, that will track the rental growth that we see in our portfolio. That kinda makes sense. As we get rental growth through inflation, we'll pass that to shareholders through index-linked dividend growth. Broadly, it's linked to the overall growth that we're seeing in our rental income, so highly progressive. Bearing in mind, the WALT to our portfolio is 15 years, so we're really easy to model. You can go onto our website, download our entire portfolio, and then based on your view on long-term inflation, you can extrapolate that out. Our dividend growth is linked to overall rental growth.
Thank you very much. That concludes the pre-submitted questions. As you can see, we've received a number of questions throughout today's presentation, and thank you to all the investors for submitting their questions. Could I ask you to read out the questions and give responses where it's appropriate to do so, and I'll pick up from you at the end.
Yeah, wonderful. I'll take the narrative, and I'll put Rob on the spot as much as I can. First question coming in from Phil G. I think we may have covered this one, but we'll confirm it. Please, can you confirm the weighted average rent review cap for the whole portfolio?
Yeah. Thanks. That one's relatively straightforward. That was the 4% I mentioned earlier, average cap. There's some spread across that, but typically, we've got some at 5%, some at 3%. Yeah, our average rent review structure is 0%-4%, and our most common is on annual reviews.
On new acquisitions, Rob, was there much of a difference on cap on the new acquisitions?
Yeah. No, no dramatic changes to the portfolio there, I don't think. We have added some open market reviews to the portfolio more recently. Those are stores, though, that we still see due to the structural drivers Steven mentioned earlier, that actually we still see the opportunity for rental growth, albeit not contractual uplifts. We see a role for some really strong open market rent review stores, particularly when you consider that it is the large omnichannel stores that have seen the biggest growth in sales post-COVID. And then with rents being a function of turnover, actually, you've got a real tailwind for some rental growth in those open market review stores. We've added a couple of those, but nothing that's dramatically changed the exposure among the portfolio.
Another question from Paul G, which I'll take. Can you discuss your returns relative to your cost of capital with some calculations in there? I'll keep this relatively high level, but always happy to pick this up offline. I mean, look, in terms of, you know, the best way to answer this is, well, what's our break-even deployment yield? I mean, if you look at the last raise that we did in October, which was off a raise price of 115 pence per share, relative to our dividend, which is around 6p, that kind of creates a dividend yield of a raise price of around 5%. That's the hurdle rate that we need to recover. Of course, we're levered.
If you assume 30%-40% leverage and finance costs together with the marginal expenses we expect because of that acquisition, which will be a bit of valuation costs, investment advisor fee, et cetera, we then back solve to say, "Well, what's our hurdle rate? What do we need to invest in to recover those costs, interest costs, as well as achieve that dividend target?" Well, on the last raise, that was around 4.3% net initial yield. Our average deployment was 4.6, so we're exceeding that. And hence you see that coming through on our EPS, and hence you're starting to see the EPS growth compounding through. Broadly, it's a long way of answering that we work out what our break-even acquisition yield is, and that was around 4.3%.
Next question, from Bill G again, I think. Please can you provide a breakdown of the lenders and the amounts under the facility? This is a good question because we are doing a lot on our debt side, but I'll hand over Rob to take you through that one. Can I flip to the slide?
Yeah. We have got a slide in here that just sums up each of the facilities. We've got a number of bilateral and club facilities. You can see we've got. If I take you through top to bottom just very quickly. We've got some term loans with the German lenders, so BayernLB. Then we have an RCF with HSBC. We've got another RCF, GBP 300 million with Barclays, RBC, GBP 160 million of RCFs with Wells Fargo, and then a further GBP 97 million with DekaBank. The DekaBank facilities, the term loans, the RCFs provide us with a huge amount of flexibility to draw and repay. When we're following an equity raise, we're able to repay those and reduce any carry cost.
We, of course, deploy quite quickly, so we're able to redraw that debt. At the moment, we've got a supported bank group. We have obtained the credit rating of BBB+. That gives us optionality. It means we're able to move to an unsecured funding platform. Also we have access now, or we have the option of accessing the bond markets. We're currently exploring that. We're working with Rothschild as debt advisors to plan our debt structure going forward. We've kept our options open. I've just seen Paul's followed up with another question about the term to expire is obviously shorter than our leases. Can we extend the maturity? Very timely question. As I was just mentioning, with the credit rating, we now have access to those longer-dated financings.
Historically, it's not something we've wanted to do because when you're in a secured environment, if you have long-dated debt, it's very inflexible. If you ever had an attractive offer to sell one of your assets, you then have to go through substitution. You might have to repay the debt. It can be very penal. Long-dated secured debt is not something, and this has been seen with a number of real estate companies very recently, in fact, that have come unstuck with long-dated secured debt. We never wanted to do that. We have got, as I say, a very supportive bank group, and we've been able to continue to extend our facilities. Now we have that opportunity to add in some longer-dated debt and extend the debt maturity. It's very much something we're looking at at the moment.
It's probably the next evolution for us to go to a partially unsecured, secured debt financing model. It's common for most real estate companies to eventually raise debt in the bond markets, and we're now at that milestone. As Rob said, we're looking at that now. It's the next evolution for us. Otherwise, we've got a great banking group that support us. I'm just gonna take the next question on sustainability. There's two. I'll take the first one because it kind of answers the second one. On sustainability, how do you factor in the sustainability profile of your tenants beyond the building plans, et cetera?
I mean, look, overall for the sector, one of the nice things about our tenants is they all have ambitious plans to become net zero, both in terms of Scope 1, Scope 2 emissions, and shortly on Scope 3 emissions for our sector. We've got a really good visibility of our tenant stack as to how they're gonna get to net zero in terms of their carbon footprint. More widely on ESG in terms of their overall commitments to the U.K. economy, their social programs, the nature of the employment that they provide in each of their local communities, et cetera. I think many of us on this call, including me, would have started our careers working in a supermarket somewhere. In that respect, we do love this sector, from our tenants' engagement on ESG and the implementation of ESG.
How do we support that program? How do we influence that program at our store level? Well, we do that through trying to green our buildings as much as possible as well. Hence, we have an ambitious program to put rooftop solar across all our real estate and supply that power to our tenants and to decarbonize the store's footprint as much as possible. It's completely aligned with the strategic drivers of our tenants, and again, it helps us build our relationship. Now, one of the other questions related to conflict of interest with ROOF. Just for those on the call, we do advise another fund which is Atrato Onsite Energy, which is also a listed fund. It has a ticker, ROOF, that focuses on rooftop solar installation.
Look, broadly, rooftop installation on Super's portfolio, it does involve a level of specialization that we don't have within our fund around engineering, procurement of panels, installations, operation and maintenance over its lifetime. Rather than build out that team within Atrato directly, it does make more sense to outsource into a skill set that can effectively monetize that skill set at much lower cost per unit. That's the relationship with Roof. That is our kind of preferred supplier and design and procurement specialists. Overall, the investment in terms of monetary size is quite small for Supermarket Income REIT. It's around GBP 300,000-GBP half million per site. In terms of the overall financial impact, rooftop solar is gonna be quite small.
In terms of an ESG impact, it's hugely important, especially decarbonizing the footprint of the estate. In that respect, going through a kind of PPA procurement process is a lot more efficient than trying to do everything in-house. Just in specifically on the conflict of interest, I mean, anything we do in that space is approved by the board, and anything we're doing around engaging with ROOF will always be benchmarked to other providers in the space. If I can give a plug to ROOF, it actually has one of the lowest cost of capital in the market, so it may well be a preferred provider for Super. Next one, I'm a bit confused on the question coming in from Paul G. I'm a bit confused on the dividend policy.
Shouldn't it be driven by EPRA earnings increase plus accretion, given your positive acquisition? Does this mean dividend per earnings growth greater than underlying rental growth? Yeah, look, Paul, it's a good question again. Yes, we are more than 100% covered on dividend, as you'll see. Look, we also have to, within the REIT regime, we always have to distribute out a minimum of our earnings, which I believe is 90%, Robert. In effect, yes, you're right. Primarily, dividend growth is linked to our underlying rental growth. I think the policy we're pursuing is that the rental growth in terms of percentage is what you should be seeing coming through on our future dividend growth. Of course, that's levered, but as a broad brush, it should grow at the same percentage.
I think that's broadly it. There's more. I think we're out of time, so I'll hand back. Thank you all for your time.
Thank you. Thank you for that. I think you've addressed those questions you can from investors, and of course, the company will review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Steven, could I ask you for a few closing comments?
Yes, you can do. I mean, look, to sum up, very quickly, we are more positive than we have ever been in this sector, primarily because of those key thematics that drive our investment strategy, aligned with the key thematics which are taking place in the U.K. at the moment. When we look at the economic volatility and the uncertainty, we think supermarkets is a really safe, secure investment play, which will benefit through the high levels of inflation growth we're seeing. In that respect, it's also very protective against any future inflation growth that we're gonna see as well.
Steven, Rob, thank you very much for updating investors today. Could I please ask investors not to close this session, as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few minutes to complete and I'm sure will be greatly valued by the company. On behalf of the management team of Supermarket Income REIT PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.