Supermarket Income Reit Share Discussion Threads

[jonwig] 27/1/2021 08:25

Yes, they started talking about that as I left.

There's another company (SEIT) which instals and owns rooftop solar on buildings including sms.

[noiseboy] 27/1/2021 08:04

It was a great presentation, I thought a nice little side hustle was installing solar panels on the supermarket roofs as well!

[jonwig] 27/1/2021 07:40

I saw just half of the Sharesoc SUPR webcast last evening. Pretty detailed, here are some bullet points:

• they target 'omnichannel' stores - ie. physical, online delivery and click-and-collect. (13% of spend is now online, 25% of that is c&c.)

• they select stores with large property assets (opps for development) and strong trading growth record.

• WFH is main contributor to sm spending growth (since March, Tesco has seen 150% increase in online delivery spend.)

• Attractive sector: real sm property yields 5% > sm corp bonds 2% > index-lkd govt bonds -3%.

• SM yields 5% > sheds, all property 4%.

• LTV 20%, target 30-40%.

• SUPR second-lowest borrowing costs of all UK REITs at 2%. (SGRO lowest, unsurprising.)

[williamcooper104] 26/1/2021 23:13

Last valuation was (from memory) 5 percent I put a 5 bid in a few weeks ago for 10 year income from strong (but not supermarket) covenants - it went under offer at 4.4 percent (which was c20 percent over asking price) There's no way SUPR with 16-17 isn't at 4 something now A lot of SUPRs leases have annual RPI rental increases such that there's a c10 percent cash rent reversion in next 4-5 years

[chucko1] 26/1/2021 23:07

I was on the Sharesoc presentation this evening. They talked about reasons why the market was not yet revaluing the assets higher (to reflect the "excessive" yield differential to index-linked corporate securities [there are few, but Gilts will do]). The upshot was that there is still decent supply from forced selling out of those idiotic open-ended structures, but met with increasingly keen buying from those with capital. It was suggested that the prices would reflect this changing ratio soon.

Overall, very impressive thought process behind the investment thesis, driven by the experience of the principals in inflation-linked securities analysis (among other things). They are looking to grow and its pretty obvious there will be further equity raises by the response to a particular question. But whether or not they wait for higher NAV via revaluation, I have little idea.

[williamcooper104] 26/1/2021 21:48

Yep - 30-40 wouldn't increase equity cost/frighten the market and would give us a good yield boost which might help push the share price further above NAV Personally I'd go all out and lever up in that the outcome is pretty binary, either the omni-channel is the future in which case the assets can support an Infrastucture style level of debt or else it's not in which case its a 50 percent odd haircut to alternative use value (crude and not the case for all of their properties) in which case makes no odds if you are at 50 or 70 leverage - actually better to be higher in terms of making lenders less key hungry

[chucko1] 26/1/2021 15:06

WC, very fair summary. But for this asset mix, 20% is very defensive. 30% certainly moves the needle in this respect, but it would still be far from the red zone, let alone bending.

[williamcooper104] 26/1/2021 11:31

Long income reits having much more defensive assets than the likes of BL/LAND/HMSO which not only have risker properties but usually a fair amount of development risk too

[williamcooper104] 26/1/2021 11:30

They could raise senior debt at up to 60 percent LTV at c2-2.5 percentMost reits are at 30 something LTV, but long income reits sometimes have higher leverage - I don't think 40-50 would scare equity marketsNeed to check the investment managers fees - if there's no carry/promote fee then there's less incentive to leverage up If they just get a management fee on NAV then if they levered up they'd generate less return from management fees - that's the problem with external management - there's always a conflict

[pdt] 26/1/2021 10:54

Thanks for the replies.

At this point it looks like they can achieve something around 10% per annum total return for shareholders (Dividend plus Capital Gain).

This one is in my relatively "safe" group of investments and compared to the 0.1% interest I am getting on my "High Interest" savings account it should do well!

[perfect choice] 26/1/2021 10:18

Would concur with the D:E up to 30% approach but don't want that to get too high i.e. you comment about 50%+ in the past.

SUPR have recently announced a £80M new revolving credit facility, while equity based fund raising occurred in April and October last year (fortunately I could buy into both). So a good few months yet to go before an equity based fund raise again, if it is even required for some time yet if they want to increase debt?

[jonwig] 26/1/2021 09:33

They last issued equity at a 3% premium to their then NAV. Such opportunities don't come along very often. True, debt:equity is only 20% or so, so there is scope to increase debt if they want.

D:E ratios were scary (50% plus) ten years ago and caused a lot of grief.

Personally, I'd agree up to a point. A D:E around 30% at a fixed low rate would give them a higher dividend without much increased risk.

[pdt] 26/1/2021 08:55

I am a beginner here so perhaps someone could answer the following please?

Their cost of Borrowing Debt is between 1.5% and 2% so why are they raising more Equity at a cost of capital of 5% (dividend). The latest Supermarket addition is yielding 5%. Therefore, the company makes more money if they buy their supermarkets using debt.

I guess it is the fact that lenders are looking for a certain proportion of Debt to Equity financing?

[williamcooper104] 26/1/2021 08:25

I would have thought another raising this year They've shown they can spend the money so won't have a problem raising more equity It will depend on their pipeline and how much they can buy by when They will want to buy as much as possible ahead of further yield compression We will benefit if we get equity raised at a premium to NAV/returns on assets that the equity it used to buy

[williamcooper104] 26/1/2021 08:02

130 looks like a reasonable target given yield compression This ought to be trading at a mid to low 4 divi yield (IMO)

[cwa1] 26/1/2021 07:56

What's everyone's thoughts of further fundraising? Sooner, or later? What kind of size do they consider to be optimal/satisfactory?

[pdt] 26/1/2021 07:51

Another good add to the portfolio.

And thanks for posting the link above;

"Supermarket Income REIT PLC (LON:SUPR) shares are the “top pick” for income for the real estate sector, said Berenberg as its started coverage of the investment trust with a ‘buy’ rating.

The bank’s initial share price target was 130p in a note published on Monday"

[frazboy] 25/1/2021 12:46

Do they not have a target for AUM/NAV? I forget what that number is tho.

[williamcooper104] 25/1/2021 12:30

Doubt they'll pause for too long The investment manager is incentivised to grow the asset base I'm happy with that - bigger = more liquid which will drive down cost of capital Just wish they'd get out of the special funds section of the FTSE

[bscuit] 25/1/2021 12:10

One hopes for a period of consolidation before more fundraising.

[williamcooper104] 25/1/2021 11:02

Yep - didn't take long

[return_of_the_apeman] 25/1/2021 09:04

I make that 190.4m now deployed of the 200m raised :-)

[williamcooper104] 25/1/2021 07:36

£65m

[williamcooper104] 25/1/2021 07:36

Another two stores bought - 4.4 yield - c20 years term certain income Inflation Caps at 3.3 and 4 percent