Supermarket Income REIT PLC * (1K) | Hold (vs Not Rated) | Solid prospects in store

Research evidence excerpt

Supermarket Income REIT PLC * (1K) | Hold (vs Not Rated) | Solid prospects in store

Supermarket Income REIT PLC Hold | Target Price: 93p

Much has changed, but the focus on groceries remains

Supermarket Income REIT (Super) has changed materially over the past 18 months; it has

diversified by tenant, region, and property type, switched to internal management, and

introduced new funding sources. However, its core focus remains unchanged: owning

grocery-related property let on long leases with inflation-linked rent increases. What

stands out to us is how often Super screens at one end of the spectrum versus our UK REIT

coverage across many key characteristics. Overall, we view this positively.

The first five years: a focus on big stores, strong credit

Following its IPO in July 2017, Super had acquired, on a one-by-one basis, eight large UK

supermarket stores by September 2019. These stores were let on long, inflation-linked leases

with a c. 19-year WAULT, with c. 90% of rents paid by the two largest UK grocers. The leases were

RPI-linked, typically with caps and floors, so LFL rent growth was well placed to broadly track

UK inflation, unless inflation was particularly high. The buildings covered only c. 23% of their

sites.

The defensive income profile was evident during Covid, when Super maintained 100% rent

collection, unlike other UK REITs. With an external manager, the cost base was relatively

predictable, in the absence of major property valuation swings. Investor focus was therefore

primarily on UK inflation and the pace, terms, and funding of acquisitions.

Chart 2:Indexation on each LFL store drove all Super's LFL rent growth

Chart 1:Super's particularly concentrated tenant mix at September 2019 (GBPm)

Source: Company, Kepler Cheuvreux