Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF) received a reiterated 'buy' rating from analysts at Stifel, who raised their price target to 90p from 80p.
This followed a number of strategic changes over the past year, including the internalisation of its management function, which was completed this week.
Stifel said this move and associated reduction in costs "is unequivocally positive for the shares"
It will generate annual cost savings of £6 million, reducing the EPRA cost ratio to below 9%, and supporting the company’s ability to deliver a fully covered and progressive dividend.
The EPRA cost ratio is expected to be amongst the very lowest in the sector.
The broker noted that shares have risen 8.5% since the internalisation was announced, outperforming the EPRA UK REIT Index by seven percentage points.
Earnings per share forecasts remained unchanged for Stifel, which it acknowledged "may seem counterintuitive" given the cost savings.
But the analysts explain this was for three key reasons, including that it is currently making no assumption of further acquisitions in the forecasts, having removed a previously assumption of £75 million of acquisitions in the second half of the year on the basis now "that the company does not need to deploy capital, which would be largely debt-financed, in order to generate rental income".
As such, Stifel expects the LTV to remain comfortably below the 40% threshold, reaching 36% by 2027, compared to previous forecasts that it would peak at 41%.
Second, the company sold a Tesco store in order to finance the internalisation break costs, and re-geared three leases, estimated to reduce rental income by £5 million.
Third, interest rate expectations have risen such that future debt refinancing when existing hedges mature means the marginal cost of borrowing is around 40 basis points higher than at the time of previous forecasts.
Stifel expects dividends to remain fully covered over its three-year forecast horizon, and projecting out a further five years the analysts expect the company to deliver a fully-covered progressive dividend.