Supermarket Income REIT’s balance sheet is in stronger shape following the sale in 2023 of the company’s interest in the 26-store Sainsbury’s Reversion Portfolio (SRP), notes Shore Capital
“SUPR used that sale to de-lever its balance sheet and conduct a debt refinancing exercise that involved the cancellation of two shorter-dated debt facilities, the reduction and extension of an existing debt facility, and the completion of a new unsecured debt facility with a new lender.”
Now, SUPR has an undemanding LTV of 33%, 3.1% average cost of debt and £100m of undrawn debt - leaving it well placed to evaluate strategic acquisitions given the current attractive margins between new debt at c.5.5% and selected acquisitions currently yielding c.6.5%.
Grocery markets continue to deliver robust growth with Tesco and Sainsbury gaining share and the investment case now looks more resilient with the benefit of balance sheet restructuring, a reduction in LTV and an expected stabilisation of asset values helping boost confidence.
A 2024 target dividend of 6.06p per share looks deliverable and should be recovered by earnings in the current financial year offering an appealing 8% yield.
The current price-to-NTA discount of 14% looks fair relative to the sector although a possible acquisition spree could well reinvigorate the earnings profile and spice up the investment case.
Hold concludes the broker.