Supermarket Income Reit Share Discussion Threads

[m_kerr] 22/3/2024 12:31

If they are able to acquire at 7.5% NIY, is their portfolio correctly valued at 5.5% or so? Remember the blended portfolio yield is inflated by the complementary units held at approx 8%.

TO be clear I like SUPR at this price on a cash flow basis, but this acquisition does add further weight to my 'mark to market' valuation reservation.

[chucko1] 22/3/2024 10:42

WC, precisely. So much localised long term value destruction in these take overs/wind downs. I do not want to see it in my locality! (though I will cheer it on in other localities!).

[williamcooper104] 22/3/2024 09:30

Probably that plus board wanting to ensure that there's clarity if something happens; especially given all the grief over SONG Don't think there will be a takeover The multiples it's trading at would be enticing, but not super attractive, to the US net lease REITs - but add in a premium and that becomes much less enticing Hard to see how PE would get to their target IRRs also after paying a premium given that while they could add extra debt it wouldn't be cheap debt Shareholders would be mad not to insist on a ransom level premium given that they won't be able to replace the investment

[chucko1] 22/3/2024 09:18

rimau1, I never really considered it a bear point, as new stores that fit the pretty exacting criteria do not appear all the time. Additionally, you would prefer to find a circumstance where a seller is happy to/needs to accept quite a high yield. 7.5% in this case may represent a pretty decent deal in the long run for SUPR.

FWIW, I now have the largest position I have ever had. In nominal terms if not value! The dip to around 74.5p with gilt yields falling, repeated director buying and decent update and presentation is not something I let pass by silently.

[nickrl] 22/3/2024 08:25

Have they felt the need to change IAA given the current environment of takeover/mergers in the sector?

[rimau1] 22/3/2024 07:30

This is great news given one of the bear points was how to grow the dividend. Looks like a nice opportunistic bolt-on at their target yield 750bps i think this adds to the buy case here. Interesting that the IM mandate is changed incase of a takeover/wind-down event.

[igoe104] 22/3/2024 07:12

Acquisition of Tesco store.

[speedsgh] 22/3/2024 07:11

Acquisition of a Tesco store and amendments to IAA -

Supermarket Income REIT plc (LSE: SUPR), the real estate investment trust providing secure, inflation-linked, long income from grocery property in the UK, announces the acquisition of a Tesco omnichannel supermarket in Stoke-on-Trent, Staffordshire, for a total purchase price of £34.7 million (excluding acquisition costs), reflecting a net initial yield of 7.5%.

The acquisition comprises a 54,451 sq ft net sales area omnichannel supermarket and petrol filling station which sits on an 8.7 acre site. The store was built in 1994 and supports Tesco's online fulfilment operation via both home delivery vans and customer Click & Collect. The store is being acquired with an unexpired lease term of 11 years and is subject to annual RPI-linked rent reviews (subject to a 4% cap and a 0% floor).

The acquisition has been funded through the drawdown of the Company's existing revolving credit facility.

Investment Advisory Agreement (the "IAA")

The Company also announces that it has entered into an amended and restated investment advisory agreement (the "Revised IAA") with its investment adviser, Atrato Capital Limited (the "Investment Adviser"), and its alternative investment fund manager, JTC Global AIFM Solutions Limited.

The principal amendments to the existing IAA relate to the termination provisions of the agreement and seek to reflect the original commercial intentions of the Board and Investment Adviser. The Board has agreed to make these amendments to provide clarification for all parties in the event of a takeover, delisting or liquidation (a "Relevant Event"). As described below, the Revised IAA allows for a payment in lieu of written notice to the Investment Adviser following a Relevant Event, limited to the equivalent of the fees that would have been due over the existing rolling two-year written notice period. The two-year written notice period was agreed in July 2021 (RNS Number: 2849F), in conjunction with a reduction in the investment advisory fees.

In particular, the Revised IAA:
· clarifies that fees relating to the period following a Relevant Event are calculated on the basis of the last available net asset value prior to the Relevant Event;
· gives the Company the right, in addition to its existing right to terminate on two years' written notice (where notice would be required to be worked), to terminate the agreement following the announcement of a takeover, a possible takeover or a delisting. Such termination would take effect upon the Relevant Event becoming effective and the Investment Adviser would, on that date, receive a payment in lieu of written notice (such that notice would not be required to be worked) equal to fees for a period of two years less the time since the notice was given or (if earlier) since the date on which any earlier termination notice was given; and
· clarifies that if there is a liquidation or similar event in relation to the Company, and the Investment Adviser terminates the agreement with immediate effect (as it has always been entitled to do), the Investment Adviser would immediately receive a payment in lieu of written notice (such that notice would not be required to be worked) equal to fees for a period of two years less (if applicable) the time since any earlier termination notice was given.

For the purposes of Chapter 11 of the FCA's Listing Rules, the Investment Adviser is a related party of the Company. Pursuant to Listing Rule 11.1.10R, the entry into the amended and restated investment advisory agreement constitutes a smaller related party transaction and this announcement is made in accordance with Listing Rule 11.1.10R(2)(c).

[igoe104] 21/3/2024 18:01

Supr tipped in the shares Magazine, good positive wrire-up...

[rimau1] 18/3/2024 12:08

It was a toss up Spec, no strong view!

[spectoacc] 18/3/2024 11:00

No AGR, @rimau1? Think I'd prefer it to PHP, albeit not much in it.

[joey52] 18/3/2024 10:58

Interesting rimau1

[rimau1] 18/3/2024 10:44

Great discussion here. Personally i have been rotating out of prefs into these equity fixed income hybrids. I have recently been buying Supr, Gabi, GCP, HICL, PHP and Reci to replace stab, gaca and gacb as in my view i can return a better weighted average yield with a chance of a decent 10% capital gain over the next 12 months as the rate cycle turns.

[spectoacc] 18/3/2024 08:25

Welcome :)

SUPR's good IMO, my main point is just that it has stiff competition in the "cheap" category.

[pdt] 18/3/2024 08:07

Thanks for the discussions. I hold SUPR and it is about 8% of my portfolio so I would not want to hold anymore but at the same time like to keep an eye on it. I am retired and it feels relatively safe.

However, I also appreciate other ideas and I am constantly running my slide rule (yes I am that old for those who remember them!) over other things.

I was not aware of GABI and now hold a small amount. Thanks for the mention!

[spectoacc] 18/3/2024 07:57

Or buy GABI, then buy SUPR ;) And/or buy SUPR with the ongoing proceeds from GABI.

But GABI was just an example - are many others on high returns out there.

I still largely reject the inflation/Linkers point ;) Future inflation might be 2%, it might be 20%, but only Linkers protect against that.

[chucko1] 18/3/2024 07:52

PDMR purchases yet again.

Nickrl, it was hardly "subtly" mentioned. It is and was pretty clear, and they indicated, rightly, that long term inflation was just under 4% if looking at inflation swaps of medium tenors. What was even clearer was that the longer term reversionary values were what led to their 12% IRR thing with feathers, and that was in the context of comparing with the TSCO bond - again instruments of medium and long tenors (2029 and 2039).

In the longer term, the idea of this being inflation linked remains a reasonable statement, other things being equal. That said, they had not expected a spike in inflation, and it is notable that they are increasingly using the term "inflation correlation". But one must think longer term to achieve this, as the average lease length is long. This is perhaps why:

A 13% peak inflation rate implies an average of about 9.5% over the two years surrounding that individual print. Specifically with SUPR, with a cited WAULT of 13 years, then the 55 leases suffer a lower rent by some 11.0%, and for an average period of roughly 6 years. That is a heck of a lot of foregone rent, as it is a cumulative opportunity loss. OUCH!

BUT, and this is such a huge BUT, they are 100% fixed, and likely will be between 50% and 100% fixed over the long term. When they refinance, they refinance at, say, 4.5%, a one off expense increase of (50% x LTV) in the refi costs (versus 3.1% currently). Is the rent (50% x LTV = 16.5%) higher? At an average 3% (for 13 years) increase, quite clearly (being 47%). During that 13 years, the average increase is 23.5%. But after 13 years, the reversion is likely to be uncapped inflation or thereabouts. Including the experienced spike, this would average 4.5% to give a rent uplift over this longer term of 77%. So, in the short term, there will be deficits followed by medium term catch ups, depending on the from time-to-time refinancings. In the longer term, when average inflation is greater than the average refi rate increase (adjusted for LTV), the company is able to increase its dividend, and likely pretty substantially. In fact, it is still better for inflation to bust the cap, so long as you have a decent proportion of rates fixed. Further, having 100% fixed as they currently do is pretty aggressive given the nature of the underlying revenue. In theory, and over a very long time horizon, they should have close to zero fixed. But with such low rates as was the case upon starting this off, that would cause considerable short term deficits, if not long term value.

All we see are projections from analysts of no more than 3 years hence, and showing divi cover of 0.98x to 1.00x etc., and still a cohort of investors who see an NAV of whatever, and therefore a discount relative to market of some other whatever. This is such a small part of a much more interesting story, and whose relevance is much overstated. The problem with a 13+ year view of things is that in general, there are so many potential confounding parameters. In the case of SUPR, these parameters are less likely to be influential - e.g. regulation and changing market trends.

Another significant problem is that the success or otherwise depends on the cashflows over 13+ years, and modelling these depends on many inputs which can only be estimated, not knowing the granularity of the relettings timetable (though an average likely suffices) and making certain assumptions using the forward rates curves and inflation swaps.

Concerning IRRs and other better opportunities, a 12% IRR for 13 years is equivalent to a 20% IRR for 2 years followed by a 10.6% IRR for 11 years. So if you buy GABI, you need to still be able to reinvest the proceeds at 10.6%, which may or may not be available upon realisation. Hence a portfolio with at least these two!

[nickrl] 16/3/2024 09:51

@Specto indeed although they did subtlety mention in the presentation it was capped at c4% but it doesn't exactly jump out the page. FCA and AIC ought to be reminding IT's that they shouldn't use this sort of language and be clearer about exactly what they are delivering.

Anyhow im happy if they can increase the divi by 3-4%/annum although another one where the inv mgr has done its work and now needs to be downsized to reflect a steady as she goes vehicle.

[spectoacc] 16/3/2024 07:04

I think there's better options elsewhere than SUPR atm, particularly since the notion of them being like a Linker is wrong (as it is for all the "inflation-protected" REITs).

RPI hit what - 17%? - and almost all made rental gains in the single digit percents, sometimes low single digits.

[m_kerr] 15/3/2024 18:11

I think the market got a little unsettled by the admission that yields will move outwards as leases run down, as i alluded to a while back.

But as interest rates fall back and rents here tick up the forward return here is very good IMV. I don't see much downside as realty income would gladly take it as it is.

[nickrl] 15/3/2024 17:57

They were selective about what questions they wanted to answer though so have emailed them lets see if they respond. Happy holder though.

[chucko1] 15/3/2024 16:21

Why not do both? Or all? Efficient polio theory and all that. Could always buy TSLA and switch into NVDA - very simple when written like that, and I really cannot see why I didn't think of that before, rather than reading, listening, thinking and modelling.

Oh, and BTC.

[spectoacc] 15/3/2024 13:15

Perhaps SUPR is suffering from nothing other than Opportunity Cost - why pay for the likely SUPR return when there's eg the GABI return, or ADIG, or for more perpetual - AGR (hold your nose for the debt level tho).

[chucko1] 15/3/2024 12:49

SUPR just did 45 minutes on an Investor Meets call. They explained why they could buy sites at 7% NIY although their own portfolio is valued at 5.8% - which in itself, appears historically anomalous, relative to other property classes.

Additionally, they explained why they were becomingly increasingly bullish on future rent levels for omni-channel supermarkets - in particular of SBRY and TSCO. Dividend increases in the medium term are a function of this, of course.

But they are also a function of leverage, and with significant debt headroom with 7% NIYs available, it is not tricky to see a pathway to a higher dividend. They hinted strongly at moving in this direction.

Once again, they mentioned TSCO bonds yielding 6% or so, whereas their own expectations of their own long term IRR at current prices was closer to 12%. Not surprisingly, Atrato folk have been buying the stock PA.

As for the analysts, think of it this way: do you prefer to listen to them, or to GS alumni who own a seven figure amount of stock and are adding? Additionally, fund managers who are buying/selling are little better, if at all, than the analysts.

There are risks - being higher interest rates from here and for an extended period, say 10 years. Additionally, as previously mentioned, the idea that SBRY or TSCO goes wild on leverage via PE. But even then, the quality of the sites they have would survive that. That said, where will rents be in 10 years? A lot higher, so it is not a grave danger - it would just suppress the share price for a long time.

[igoe104] 14/3/2024 17:29

Buy rating from Jefferies.