Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF) managing director, Robert Abraham, and finance director, Michael Perkins, talked with Proactive about the company’s interim results for the six months to December 2024.
Abraham highlighted the company’s strategic progress, including cost reductions through internalisation, asset disposals, and lease renewals. He noted that a recent disposal to Tesco demonstrated the value of these assets, selling at a 7% premium to book value. The lease renewals extended three short-term leases to 15 years at significantly higher rental rates, reflecting the strong demand for top-performing supermarket assets.
Discussing financial benefits, Abraham explained that internalisation is expected to save the company £4 million annually, strengthening earnings and dividend cover. He also mentioned plans to explore a potential listing change to attract more investors and enhance capital access.
Perkins outlined the financial performance, noting a 10% increase in net rental income to £58 million and a reduction in the upper cost ratio to 13.6%. Earnings per share rose by 3%, and the portfolio’s like-for-like valuation grew by 0.5% to £1.8 billion. The company’s loan-to-value ratio stands at 38%, ensuring financial flexibility for future strategic initiatives.
Looking ahead, Abraham said Supermarket Income REIT will focus on completing internalisation, exploring a listing change, and advancing strategic joint venture discussions. He also mentioned refinancing plans, considering long-dated bonds to align with the lease profile.
Proactive: Rob, Mike, very good to speak with you today. Rob, I'll start with you. Supermarket Income REIT reported its interim results for the six months to the end of December 2024. Could you talk us through some of the highlights?
Robert Abraham: Yes, thanks, Stephen. Good to be back again. I think the key takeaway from this set of results is the progress we’ve made on our strategic initiatives announced last November. The main areas of focus were cost reductions, and with the recently proposed internalisation, the company will see significant savings.
We've also been recycling proceeds from a recent disposal, which partly funded the internalisation. That asset was sold back to Tesco, highlighting the importance of these assets to Tesco. The sale price was 7% above the asset’s book value.
Another area of progress is lease renewals. We've extended our three shortest leases to 15 years, with rents that are materially above the MSCI supermarkets benchmark—35% higher, in fact. This reinforces the value of these assets and the benefits of owning top-performing stores, which command higher rents.
Finally, we continue to work towards a strategic joint venture, which will mark the completion of our key initiatives.
Proactive: Rob, you mentioned internalisation. Can you tell us what the key benefits are for the company?
Robert Abraham: Yes. As I mentioned, the financial benefit is clear—£4 million in annual savings, which enhances earnings and supports dividend cover. Beyond that, there are strategic benefits. We will transition the full team, platform, and processes efficiently, ensuring business continuity.
Internalisation also gives us better access to capital, both in terms of debt financing and investor appeal. We are exploring a change in listing, which could attract more overseas investors. Ultimately, this move simplifies our structure and lowers our cost base, bringing our net per cost ratio below 9%, which is among the best in the sector. We believe this will generate more interest in the company.
Proactive: Thanks, Rob. Mike, could you tell us how these updates are reflected in the financial results announced today?
Michael Perkins: Absolutely. As Rob mentioned, it's been a very busy period, and our initiatives have been focused on growing earnings. This is evident in our financials.
Net rental income increased by 10% to £58 million, driven by acquisitions and rent reviews. We’ve also improved operational efficiencies, reducing our upper cost ratio to 13.6%, a 150-basis-point improvement.
These efficiencies, combined with revenue growth, have resulted in half-year earnings per share of 3p, up 3% compared to the previous period.
We’ve also maintained a strong balance sheet. Our portfolio is valued at £1.8 billion, with a modest like-for-like increase of 0.5%. This has contributed to an increase in net tangible assets per share, which now stands at 87p as of December.
In terms of leverage, our loan-to-value ratio is 38%, positioning us well to continue executing our strategic initiatives.
Proactive: Thanks, Mike. Rob, what can we expect from Supermarket Income REIT in the coming months, and what are your key objectives?
Robert Abraham: Our main focus is on growing earnings and improving dividend cover in the long term. Our initiatives are ultimately aimed at closing the discount to net asset value (NAV).
In the near term, our key priorities include completing the internalisation process, which will go to a shareholder vote on March 20. We expect to complete this by the end of the month.
Beyond that, we are exploring a potential change in listing, progressing discussions on our strategic joint venture, and reviewing our debt stack. We plan to refinance and consider longer-dated bonds to align with our long-term lease profile.
It’s been a busy period already, and there’s plenty more to come. But we’re feeling positive about the opportunities ahead.
Proactive: And I hope you'll keep us updated on any progress. Thank you very much for speaking with us today.