Supermarket Income REIT (SUPR) 76p

Market cap: £950 million

Along with healthcare REITs (real estate investment trusts), Supermarket Income REIT (SUPR) must have one of the most secure revenue streams of any property company.

It owns and leases 55 supermarkets up and down the country, with the two leading operators Tesco (TSCO) and Sainsbury’s (SBRY) accounting for over three quarters of its rental income and a track record of 100% rent collection.

While Tesco and Sainsbury’s have been in the headlines for the wrong reasons of late due to technical problems both remain strong, established players.

All but four of its sites are ‘omni-channel’ meaning they operate online fulfilment through home delivery and/or click and collect, so they are well-placed to capture future growth in online ordering.

At the end of last year the portfolio was independently valued at £1.68 billion, but given valuations were based on deals struck in the third quarter, which was the low point for the sector, that figure is already out of date.

Added to that, marginal decline in value in the six months to December was more than outweighed by the 3.6% average rental uplift on rent reviews during the period.

Altogether, rental income for the half to December was up 10%, against an 8% increase in UK grocery sales, while operating profit rose by 18% thanks to a lower cost ratio.

NAV (net asset value) per share was 88p, although that is a low-ball number, and earnings were flat at 2.9p per share, while the firm maintained its interim dividend of 3p per share and is on track for a fully-covered total dividend of 6.06p giving a yield of exactly 8% at today’s price.

The beauty of buying Supermarket Income rather than the supermarkets themselves is as well as the dividend there is upside potential in terms of valuation as the shares are currently trading at around a 14% discount.

We have no doubt the company will be able to continue generating income and earnings growth given the overall grocery market is expanding at a healthy clip again and importantly both Tesco and Sainsbury’s are taking market share.

Thanks to a combination of loyalty schemes, offers and price-matching to Aldi, both supermarkets have not only grown their sales faster than the market over the last three months but they have clawed back some ground against the discounters in the process.

In March 2023, Tesco’s market share was 26.9% and Sainsbury’s was 14.8% while the discounters accounted for 17.3% of sales according to Kantar – the latest figures show Tesco with a share of 27.6%, Sainsbury with a share of 15.6% and Aldi and Lidl with a combined share of 16.9%. 

‹ Previous2024-03-21Next ›