Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF) looks to have hit a turning point.
Stifel in a note, says the business has “pivoted to accommodate its increased scale”, with management brought in-house, a fresh joint venture set up with Blue Owl and a new bond issue that locks in long-term funding.
Together, these moves position the group for growth, with the shares offering a fully covered 8% yield at a discount to net asset value.
The full-year numbers to June were steady rather than spectacular. Adjusted earnings per share dipped 2% to 6p, reflecting temporary cash drag from assets sold into the new joint venture.
Net tangible assets edged up to 87.1p a share, while the dividend was lifted 1% to 6.12p, with a similar increase pencilled in for next year. Like-for-like property values rose 1.9%, helped by contracted rental uplifts and lease renewals with Tesco.
Costs are moving in the right direction. The internalisation of management late in the year cut the EPRA cost ratio to 13%, down from nearly 15%, with a target of below 9% in the medium term.
Stifel reckons that would be the leanest cost base in the sector bar LondonMetric. Debt levels also improved, with loan-to-value down to 31% and £430 million of liquidity available after the year-end.
The American bank highlights the REIT’s resilience in a choppy property market. The focus on long leases to the “big four” supermarkets means income is secure and largely index-linked, while the new bond issue has smoothed the debt profile out to 2029.
The Blue Owl joint venture also provides a platform for future expansion without overstretching the balance sheet.
Shares have already rallied 15% this year, making Supermarket Income one of the best performers in the UK REIT sector.
Yet they still trade at a 9% discount to net asset value, which Stifel thinks leaves further upside. With income fully covered, debt diversified and management aligned more closely with shareholders, the broker keeps its “buy” rating and 90p target price.