Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF) results were “resilient” and while the grocery market is currently under pressure from squeeze on the UK consumer, the “long-term fundamentals look appealing”, broker Shore Capital said.
Interim results from the real estate investment trust showed EPRA earnings of 2.9p per share, which Shore Cap noted was a shade below its 3.0p forecast.
The dividend was maintained at 3.0p per share, which was in-line with estimates.
SUPR had already reported that the direct portfolio valuation declined by 13.3% to £1.625bn over the half-year period, representing a net initial yield of 5.5% and translated into an EPRA net tangible assets of 92p per share, down 20% from 115p reported from last June.
“This fall in valuation is consistent with the trend across the sector (to a greater or lesser extent) and is a direct consequence of the outward movement in bond yields and re-pricing of real estate risk in response to the autumn mini-budget,” said Shore Cap analyst Andrew Saunders.
A partial consequence of the fall in valuation and increase in drawn debt, saw the loan-to-value ratio increase to 40% from 19%, although this will reduce to below 30% in the second half following receipts of proceeds from agreed disposals.
“The UK grocery market remains structurally robust with a constrained supply of high-quality superstore assets. While the trading environment is currently challenging due to compressed volume demand from a squeezed mass-market consumer and operating cost inflation, the long-term fundamentals look appealing in our view,” Saunders said.
“We like the investment proposition with SUPR and believe there are appealing long-term attractions with the scaled ownership of UK grocery assets.”
He plans to trim his full year NTA forecast closer to 90p, suggesting the stock is trading on around a 4% discount, “which looks fair in our opinion”.
Analysts at Liberum noted the outlook statement remains optimistic, citing strong operator performance, and that supermarket yields now fully reflect current economic conditions, though supermarket property values have declined at sharper rate than the MSCI All Property Index during 2023.