Supermarket Income Reit Share Discussion Threads

[spectoacc] 28/2/2023 13:43

All highly relevant to SUPR's fortunes, I agree.

Now 5 ticks.

[williamcooper104] 28/2/2023 13:41

What's SUPR but supermarkets, real rates, and capital structure You can't divorce the macro - much as it be nice to

[petersinthemarket] 28/2/2023 13:40

No, only the one. The BoE and the Chancellors moves can be freely discussed elsewhere. This thread is for SUPR's fortunes. But, as you got 4 pts and I only got 2, I assume you have some support, presumably from the guys you are chatting with. If you want some more threads you can clutter up with o/t stuff I can suggest at least another 10 popular Real Estate epics for you to look at.

[chucko1] 27/2/2023 15:47

Yes, but this is even better because of how it relates to the fortunes of SUPR.

Any other issues?

[petersinthemarket] 27/2/2023 14:04

Is there another thread where you could discuss national finances?

[chucko1] 24/2/2023 15:33

Long term UK inflation swaps at 4% for 5 years and 3.75% for 10 years. If I were Atrato, I would be examining whether they could be employed to some extent. Inflation derivatives are difficult/expensive to deliver, generally.

[chucko1] 24/2/2023 15:29

More like Weimar did not know how to prevent it, until they (Chancellor Stresemann) reissued the currency in 1923. "Corrected" some other things in parallel and enjoyed stability until 1929.

[spectoacc] 24/2/2023 14:59

"VAT is up, income tax is up, corporation tax is up etc. etc. - somewhat in line with inflation."

Indeed, the nominal GDP/matching argument.

But - doesn't the IL issuance mean we've enjoyed excessive spending previously, and are now set to pay for that in the next few years? The forecast debt service costs are eye-watering. Yes, the flipside of having enjoyed issuing at -2% real-terms, but that's flattered our solvency for say 5-10 years, and is about to hammer it now.

(@Jonwig - not sure Weimar ultimately welcomed it! "When Money Dies" is a great read if you've not read it.)

[jonwig] 24/2/2023 14:13

Spec - but most governments with high (fixed rate) debt welcome a spot of inflation. Weimar even generated it.

[spectoacc] 24/2/2023 14:07

Would be remiss not to point out that Linkers "arguably" don't cost anything at all. They pay back the depreciation of money equivalent, ie nominal GDP rises at same level as inflation, as do Linkers payouts.

Add in @nickrl's point about premium issuance, and perhaps HM Govnt should have issued more Linkers, not less.

This, of course, ignores the policy of trying to inflate away excessive govnt borrowing/spending.

(@nickrl - glad you're on top of the debt - remind me RESI's, if you have it to hand?).

[nickrl] 24/2/2023 12:53

The DMO didn't heavily resort to the linkers during the covid spending splurge so as % of the total they've dropped back slightly. The advantage of the linkers is they don't create immediate cash demands being issued with low interest rates and they often sell at premia in auctions although of course with inflation at these levels hardly surprising. Of course downside is at redemption the amounts i getting pretty large and growing fast at these inflation levels. The 22linker redeemed late last year turned 15.7B into 22.3B in 15yrs plus they got 1.875% on their money. Mind you with the DMO needing to redeem on avg 120B pa for next 3yrs before govt borrowing they easily rehome the money if rates are attractive enough and not forgetting BoE has these in the APF as well although im not entirely sure what they do with the cash they get back.

Onto SUPR they will lose the income from the JV (although but will end up with a stash of cash (c380m) as the JV is closed out. Some of which they will have to use to pay off the 196m they've borrowed, on pretty heinous terms SON+1.5% plus 2% arrangement fee, to buy out BAs share of the JV. They also have a couple of loans due in Jul 23 of c60m. They raised c412m in a RCF and term loans all on SON+1.5% and may have ditched all the unused RCFs although not clear. They also took out a 2.6% swap on 381m of it for 4 years mind you that cost 35m. They've bought another 260m of assets plus 196m on the JV so reckon debt is c800m but im not clear so have to wait on FY results. Going forward they will have the owned assets plus they will also get 51% ownership of 4 of the 5 assets in teh JV that JS didn't want which i reckon is c95m NRI. They are saying a divi of 6p or around 72m so my take is with admin/mgst fees + interest charges it wont be covered but as is ay quite a lot going on here.
As i say alot of guestimates here so i will wait out FY23 to make a judgement but as >6% yield its on my watchlist.

[williamcooper104] 24/2/2023 11:58

Seems it was only 6 percent of total debt until 2000 So most of the damage was done by issuing what seemed like cheap debt, and of course pension funds screaming for it

[williamcooper104] 24/2/2023 11:56

Putting a price on Britain's linker addiction https://on.ft.com/3kx0cdj

[cc2014] 24/2/2023 09:02

It's my guess that the DMO has issued so many linkers recently and continue to do so because that's what the "institutions" want to buy. i.e. it's a demand and supply thing.

i.e. they could issue more fixed interest gilts but then the "institutions" would demand more coupon and the level of coupon they want the DMO felt unpalatable.

So, issue more and more linkers and continue kicking the can down the road.


With 25% of all issuance now linkers the idea that you can inflate your way out of a debt problem becomes less and less true, which puts the UK in a bigger and bigger fix, but that's the problem with not facing reality, not taking difficult decisions and constant can kicking. Eventually you have no options left and your ability to borrow at a sensible coupon disappears.


Which is partially why I think gilt yields are going to be higher for longer. The level of debt is just too high and the plan to bring it down is totally dependent on fairly optimistic views about where the economy is going.

[jg231] 24/2/2023 08:42

OT on linkers, but as I remember it, the BoE strategy of issuing so many linkers was driven by Mervyn King wanting to underpin the BoE inflation targeting mandate with real economic consequences. He didn't want Governments to use the get of jail of inflating their way out of excessive debt. The crazy thing is that many of the pension funds who buy linkers actually want 0-5% inflation not un-capped (because their liabilities are structured that way). Treasury has always refused to issue these for some reason. Probably regretting that now.

[jonwig] 24/2/2023 08:31

I've bought another few, but judging by the trading (heavy) the share price isn't low enough yet.

[scruff1] 24/2/2023 08:29

Chuck
Im 70 - I guess Im not in that particular loop :-(

[williamcooper104] 24/2/2023 08:14

OT again But add the average effective maturity of our debt via QE being c4 years - prior to QE it was usually about 15 years - to our huge linkers burden and we've got a national balance sheet that's a lot more sensitive to inflation/rates - we can't do a real terms default as easily as were able to in past

[williamcooper104] 24/2/2023 08:12

Sorry - material amount of our linked to inflation forcing us to be more responsible

[williamcooper104] 24/2/2023 08:10

I've been wondering about that too 25 percent of our national debt fixed to the artificially high measure of inflation (especially as everywhere else gov usually tries to receive RPI and pay CPI) Seems that the linker market came about in the early 80s, instigated by credit investors soar about being legged real terms royally in the 70s and thus insisting on lending with inflation protection - the theory was that if we had a natural amount of our debt linked to inflation then we wouldn't be more responsible in managing it as we could afford it Thereafter I think we borrowed RPI though because it looked cheap

[jonwig] 24/2/2023 07:55

Spec - it's an interesting history. 1981 (Geoffrey Howe) for pension funds:



The Thatcherite era was an ideal fit, demonstrating that 1970s high inflation was over and gone.

[spectoacc] 24/2/2023 07:24

Wandering OT, but I'd still like to know who was responsible for so much UK debt being index-linked:


" .... UK interest payments will rise to 3.2 per cent of GDP this year, 1.3 percentage points more than in 2020, while the figure is broadly unchanged for the eurozone. UK debt costs rose to 3.8 per cent of GDP in 2022 up nearly 2 percentage points compared to 2020....."


"For the rating agency Fitch, UK interest payments amounted to over 10 per cent of government revenues in both 2022 and 2023. This is nearly double its 2016-2020 average and by far the highest figure for any other country with rated at least double AA. It’s only 3.5 per cent for France."


" Declining inflation is certainly good news, but Fitch estimates that UK interest payments will still amount to 8.7 per cent of revenues in 2024, compared with 2.3 per cent for AA-rated peers."


Rock & a hard place for BoE, but more evidence for rates staying higher for longer.

I struggle to see any REIT with caps as being like a Linker - inflation can spike anytime, particularly now.

[chucko1] 24/2/2023 01:47

Scruff1, nickrl, yes - 2068 index linked Gilt. Large benchmark issue which adequately defines the long dated market for real yields.

Was -250bps a few months back, and is now +25bps or so. Far from impossible that it goes a fair amount more positive, given that it was as high as +400bs thirty years ago. That would be a headwind for SUPR (and many others).

And yet, with future inflation at around 3%, the inflation caps cease to be in play, in which case SUPR is not dissimilar to an inflation linked bond where the yield should reflect a risk premium to Gilt linkers. How much premium? The current level of around 6.6% is excessive, in my opinion. This is partly fuelled by valuers - who are notoriously conservative in rapidly changing markets. It is difficult to blame them, but that does not mean you have to slavishly follow their analysis.

WC - the matter of derivative uplifts is somewhat quiet in most recent NAV updates and other statements. In most cases, this would amount to circa 2-4pps. Perhaps too small to mention compared with 16-18pps property portfolio losses!?