Supermarket Income REIT Presentation

I watched a webinar from Supermarket Income REIT (SUPR) yesterday on the Investor Meet Company platform. This is not a company I currently hold but I may consider investing in it even though it is in the currently deeply unfashionable sector of commercial property trusts.

They have a focus on omni-channel supermarket properties and 80% of their leases are indexed to inflation with a WAULT of 15 years. They have hedged 100% of their debt exposure to 2026 at 2.6%. They claim it is a defensive, counter-cyclical company with a low LTV.

80% of their portfolio is leased to Tesco and Sainsburys and they have just established a new ESG committee, but who hasn’t?

Their indexed leases have caps of about 4 to 5% on about 5% of their portfolio.

The presentation was eminently clear with good slides.

There is also a recent report published by Edison on the company.

The current discount to NAV is 10.6% and the dividend yield is 5.8% according to the AIC so it is not as cheap as some REITs at present. But that may be because of the defensive nature of the business (supermarkets are unlikely to be affected much by the recession as people have to eat) and the historic good performance figures over 5 years.

Roger Lawson (Twitter:  )

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Property Trusts and Supermarket Income REIT

Commercial property investment trusts should be a good defence in a market downturn – at least that is what the investment pundits have been saying. As the market heads south I have been selling overvalued tech stocks and retail stocks vulnerable to a recession and reduced consumer spending. Property trusts should be less volatile as although the property market has been changing in some regards, property companies have longer term leases with their customers in general. So long as I avoided the London office market and retail shopping centres I expected to be OK.

I have therefore been holding on to several property REITs but that has not proved to be a great success. For example generalist trust TR Property (TRY) is down 34% since last September. Even companies such as Segro (SGRO) and Urban Logistics (SHED) who have been doing well by providing warehouses for internet delivery operations have fallen back substantially. They also provide buffers to supply chain disruptions which have become a big problem of late. But in a bear market, which we are definitely in, everything is sold off regardless of sector or performance.

Supermarket Income REIT (SUPR) published their final results this morning for the year ending June. Like other property companies their shares have been falling – down about 15% from last summer and I am losing money on a fairly recent purchase.

But the results were positive – EPRA earnings per share up 5%, assets per share up and dividends up – yield now over 5% on the current share price. One particular point to note in the announcement was that 81% of leases are inflation linked. As people have to eat and supermarkets are both retail stores and internet delivery operations now, this company should be a good defence against a prospective recession.

There are some interesting comments from Justin King in the SUPR  announcement – for example in response to a question on what supermarkets should do: “… you need to remember that in a recession the first change the customer will make is a shift away from expensive calories and the most expensive are those consumed out of the home in restaurants and takeaways. Rarely will a customer’s total calorie consumption change through the economic cycle, instead what you observe is a shift in the discretionary additional spend of their calorie consumption from eating out, to eating in. In a recession, that favours the supermarket. So, the net impact of a customer shifting towards perhaps lower margin value range is often offset via an increase in overall volumes across all price ranges”.

It’s worth reading to get an impression of what supermarket retailers are thinking at present. 

SUPR is still expanding by buying more properties but they acknowledge that rising interest rates on debt are having a negative impact. They have hedged their debt at an effective fixed rate of 2.6%

It was noticeable that the shares perked up this morning along with a number of other property trusts I hold. Dividend yields have been rising as share prices have fallen. Perhaps they are coming back into favour?

Roger Lawson (Twitter:  )

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