Supermarket Income Reit Share Discussion Threads

[oiltakeyouhomeagaincaitlin] 05/4/2023 12:25

And there we have it: the three top money-losing trolls on ADVFN, jonwig, chucko and spectoacc. They have no idea what's going on around them. Too arrogant!

Reminds me of Belshazzar's feast. "Mene, mene, tekel, upharsin".

Chucko will possibly know what that means. Jonwig and specto won't, though. They're too thick. LOL

[spectoacc] 05/4/2023 12:10

Can surely only be on valuation grounds, but NAV really isn't that relevant a metric atm.

[jonwig] 05/4/2023 12:05

I'm stumped - the words suggest "Hold", he hasn't nailed the sell reasoning, unless he's suggested a switch to some of the others.

[chucko1] 05/4/2023 11:55

What is below was written by the analyst at Shore Capital on or about March 30th. This morning, Shore Capital published a SELL notice on SUPR.

Anyone care to join the dots??

It cannot be interest risks alone as the same analyst has BUY notices on the warehouses and actually on RGL and AGR.




Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF) results were “resilientR21; and while the grocery market is currently under pressure from squeeze on the UK consumer, the “long-term fundamentals look appealing”, broker Shore Capital said.

Interim results from the real estate investment trust showed EPRA earnings of 2.9p per share, which Shore Cap noted was a shade below its 3.0p forecast.

The dividend was maintained at 3.0p per share, which was in-line with estimates.

SUPR had already reported that the direct portfolio valuation declined by 13.3% to £1.625bn over the half-year period, representing a net initial yield of 5.5% and translated into an EPRA net tangible assets of 92p per share, down 20% from 115p reported from last June.

“This fall in valuation is consistent with the trend across the sector (to a greater or lesser extent) and is a direct consequence of the outward movement in bond yields and re-pricing of real estate risk in response to the autumn mini-budget,” said Shore Cap analyst Andrew Saunders.

A partial consequence of the fall in valuation and increase in drawn debt, saw the loan-to-value ratio increase to 40% from 19%, although this will reduce to below 30% in the second half following receipts of proceeds from agreed disposals.

“The UK grocery market remains structurally robust with a constrained supply of high-quality superstore assets. While the trading environment is currently challenging due to compressed volume demand from a squeezed mass-market consumer and operating cost inflation, the long-term fundamentals look appealing in our view,” Saunders said.

“We like the investment proposition with SUPR and believe there are appealing long-term attractions with the scaled ownership of UK grocery assets.”

He plans to trim his full year NTA forecast closer to 90p, suggesting the stock is trading on around a 4% discount, “which looks fair in our opinion”.

Analysts at Liberum noted the outlook statement remains optimistic, citing strong operator performance, and that supermarket yields now fully reflect current economic conditions, though supermarket property values have declined at sharper rate than the MSCI All Property Index during 2023.

[chucko1] 30/3/2023 17:25

"Discount to Ruperts post-lunch red book valuation - just not that a relevant metric"

I am not too sure how many more times this needs saying, but the fact that alleged "professionals" still keep trotting out this nonsense is what leads to decent opportunities.

There was nothing new in the just finished Investor Call, suffice to say that they are entirely comfortable with the balance sheet and the hedging just completed. They made specific mention of the 3-4 year hedging, referencing the shape of the GBP YC. They also made mention of inflation swaps, somewhat en passant, but this indicates they may be thinking along the lines of a calculation I presented here a couple of weeks back (not that I am surprised given their alma mater - the GS FICC group).

One graph they updated - the yield history of supermarkets relative to that of other property classes suggests that the yield shift on supermarkets was particularly savage. But as I say, this is what you want when you have a suitable time frame - now longer than it was!

I added, as, it turns out, did two insiders.

[williamcooper104] 30/3/2023 15:53

It's useful in that if the share price is trading ahead of NAV (and NAV is broadly right) then possible to get external growth from raising equity - eg positive cost of capital arbitrage between private and public markets

[williamcooper104] 30/3/2023 15:46

Eg - what's Alton Towers worth in the current market Only way to know is put it on the market Otherwise easy to be wrong by 20-30 percent

[spectoacc] 30/3/2023 15:46

Agreed. NAV relevant for debt covenants, but otherwise an entirely moveable figure.

[riverman77] 30/3/2023 15:42

Yes the NAV is really not a particularly relevant metric - to a large extent an arbitrary figure that the valuers come up with, but not necessarily reflective of what the properties would actually sell for. The key metric is the EPRA earnings yield (i believe around 7%) which looks attractive given that it's inflation linked and about as secure as you can get.

[williamcooper104] 30/3/2023 14:47

Discount to Ruperts post-lunch red book valuation - just not that a relevant metric I'd want a considerable discount for Alvarium; it's much easier to push the valuers on a more esoteric collection of assets than on a relatively homogenous portfolio

[spectoacc] 30/3/2023 14:42

CityWire:




"This is the bottom"

"Pell Hunt...believed their was better value elsewhere as they marked the stock to..Reduce..85p target".


Makes the point that LXI is on a 25% discount to SUPR's token one, but LXI's a different beast. Still - opportunity cost, albeit I prefer SUPR.

[williamcooper104] 30/3/2023 11:06

My last estimate of NAV was about 94p - implied yield at current share price should be just above 6

[williamcooper104] 30/3/2023 11:04

Doubt they'll buy back shares - get the attraction of buying your divi yield at c7 percent - but effectively that comes at the cost of increasing leverage so mightn't help as much as going to with the sp

[nickrl] 30/3/2023 10:04

@frazboy i don't believe the cash in the JV actually comes over to SUPR it was kept within the JV to pay off the bonds. So if ive interpreted that right then the divi has been funded from SUPR directly owned asset lease income.

@WC only skimmed the presentation so far and on slide 42 they have 228m surplus from JS JV after paying of the short term debt they used to acquire BAs stake. Options on the table repay debt, acquire more stores or do a share buyback haven't had time to listen to webcast yet to see whether they gave any more of an indicator on preference or timescale which i guess will be July when the next instalment is due.

Now the standout reit on my s/sht as only a few percent discount to NAV.

[scruff1] 30/3/2023 09:59

It looks like the mkt's had a quick change of opinion !

[williamcooper104] 30/3/2023 08:45

It depends more on what they do with the proceeds Re-invest at high NIY and it's accretive Pay down debt and clearly less so; but in this market hardly a bad thing

[frazboy] 30/3/2023 08:30

Only comment on those results is that we need to know what the impact of the loss of the Sainsbury's stores will be on dividend cover. Probably negative but no guidance given.

[williamcooper104] 22/3/2023 15:17

Indeed - even at the worst of the credit crunch you'd struggle to pick up a prime/long leased food store at much over 6 - and certainly nowhere near a 7

[chucko1] 22/3/2023 14:15

Historically, very cheap indeed.

[williamcooper104] 22/3/2023 14:06

There's no question that there's a risk to the divi when the 2.5 percent facility expires; it's not like some REITs were it's an almost certainty that the divi will be cut (eg VNA/GYA who've already cut and say EBOX who probably will cut ), but high enough swaps and margins and clearly even with rental growth the divi will be cut - but even then it's likely to be more of a trim than a massive cut And I wouldn't hold breath waiting for an increase But then you get down to the property fundamentals - and 6-6.5 yields with 10-11 unlevered prospective IRRs on prime supermarkets is cheap

[williamcooper104] 22/3/2023 14:00

One other point The 165bps was secured from a bank For unsecured corporate debt rated BBB+ (and an easy/robust credit story) there's every chance they'll be able to borrow at 100-130bps I'm personally bullish on credit spreads coming in as the weight of capital seeking low risk 5-7 returns is much greater than the available lending opportunities as investors/sponsors are frequently buying with all equity as there's little point borrowing unless you get a material uplift in potential return

[chucko1] 22/3/2023 13:47

Nickrl, it is worth noting, concerning updates, that the investors presentation due in early Feb was cancelled at the last minute. Consequently, any update will be eagerly read.

[nickrl] 22/3/2023 13:25

@chucko thanks for taking the trouble to set out how the debt could work. Im interested at this level but with the amount of shares they've issued over the last year they've built up a big cost of paying the current dividend which im not convinced will be covered by cash earnings which is potentially fine as they inbuilt earnings increase and wont end off any worse than last 12mths until CPI/RPI sub 5%. Mind you with all the moving parts here im waiting for next weeks HY results to see the state of the nation and here what they have to say about the future.

[chucko1] 22/3/2023 12:59

SUPR have long leases. They can, should they wish, look at longer-dated borrowings and consequent fixes on this debt. Currently, they have decided to focus on the 3-4 year area, and I have little reason to doubt their ability to make the correct call in this respect.

But this is what it could look like, ceteris paribus should they use market levels as follows:

10 year swaps - 3.5% (including today's rise)
10 year inflation swaps - 3.8%
LTV - 30%
Current average borrowing rate - 2.9%

In 10 years, let's assume they raise rents by that average 3.8% and therefore around 45% by the end of the period. So that approximates to an average increase of 20% over the period.

Let's further assume they borrow for 10 years as their current borrowing mature over the next 3 years. And also that they will borrow at the current 165bps over the swap rate. So new borrowings will be at 5.2% in 3 years (ignoring the negative expected movement of forward swaps), meaning that the average borrowing rate over the next 10 years is 3/10 x (2.9% + 5.2%)/2 + 7/10 x 5.2% = 4.85%

So they are paying, on average, (4.85% - 2.9%)/2.9% = 67% more in interest. On an LTV of 30%, this amounts to just about 20% if allocated over the entire value of the assets. Funnily enough, exactly the same as the rise in income.

Of course, the increase in interest payments is likely to come before the rise in rental increases, although this is not certain - and so the near term may be a matter of precise timings of debt rolling and lease renewals/increases.

Absent of that specific detail, there is no nibbling away of capital owing to overly demanding dividends. Currently, the dividend yield is 7% and itself somewhat inflation-linked. So the value of SUPR is really related to the perceived value of this 7% annuity and that is much a function of risk appetite.

It is worth recalling that the guys running the show here are not, first and foremost, property experts. Rather, they are expert on the financial side, although they have certainly brought in notable property expertise. I am sure they have excellent reasons for managing the debt as they do, and will have thought through the sorts of figures (and rejected the idea) I have briefly described above.

The capital markets numbers (rates and inflation) are hedgable. For that matter, so are the credit spreads on the UK supermarkets, but they do not do this. Nevertheless, when I have asked on conference calls whether they engage in this or not, I got the overwhelming impression that they did not (they ought to listen to me(!!), but I am sure they have far more complex modelling going on that I, owing to the specifics of the intentions of the leaseholders and various development plans).

But it's food for thought, and indicates to me that I should own more at this level than I currently do. So I probably will, despite the headwinds the entire sector is facing (especially in terms of risk appetite).