Supermarket Income REIT (SUPR) delivered strong growth in H120 driven by acquisitions, rental uplifts and valuation growth, and remains on track to deliver increased annualised DPS of 5.8p per share for the year (+3%). The EPRA NAV total return during H120 was 3.8% (an annualised 7.7%) and the shareholder total return (share price movement plus DPS paid) was 7%, taking the total shareholder return since IPO to 24%.
All key financial metrics increased strongly during H120, driven by acquisitions and underlying income and valuation growth. Two assets were acquired in the period, taking the total to nine, externally valued at £490.4m with a net initial yield of 5.0%. A tenth asset has since been acquired for £34m reflected in a net initial yield of 5.5%. All are on let on long leases (a weighted average unexpired lease term of 18 years) with upwards only RPI-linked rent reviews. The four rent reviews completed in the period generated an average 2.7% uplift, driving like-for-like revaluation gains across the portfolio of 1.6%. Including the impact of acquisitions, net rental income grew 44% year on year to £11.9m and EPRA earnings by 53% to £7.2m. Despite lower leverage (LTV 32.4%) and an increased number of shares in issue, EPRA EPS was flat at c 2.5p and EPRA NAV per share was 97p.
SUPR is building a diversified portfolio of UK supermarket assets, with long leases and upwards only RPI-linked rents, let to quality tenant covenants. It predominantly targets omnichannel stores (combining in-store and online fulfilment) that can benefit from both the expected growth of grocery sales and the increasing popularity of online, in strong locations, with asset management potential. RPIlinked rent uplifts, strong tenant covenants and long lease lengths provide secure income growth prospects and good potential for capital growth. A newly formed strategic partnership with EVO Energy promises to improve the environmental sustainability of the portfolio while also generating incremental income and enhancing long-term valuations. With moderate gearing and £25m of undrawn borrowing facilities, the company is well placed for further accretive acquisitions.
Despite an increasing share price, the prospective yield remains attractive at 5.4% with visible potential for growth. Compared with a group of other long incomefocused REITs, SUPR offers an above-average yield with a lower than average P/NAV.