Supermarket Income Reit Share Discussion Threads

[igoe104] 14/3/2024 15:48

Times writeup.

[m_kerr] 14/3/2024 14:48

Fair points, my 7% figure was drawn from the supr presentation, so their figure not mine. They stated in the same that they can acquire quality assets in that valuation region with relatively short leases.

[chucko1] 14/3/2024 13:28

Which supermarkets are going for 7%+ NIY? That is a very broad statement and an A/B with 10 years remaining would typically only suffer a decline in the event that there was some doubt about the reletability within a couple of years of lease expiration, so seven(ish) years hence. Or if there was something more systemic, but that is not likely with a portfolio of well-sited supermarkets with an omni-channel offering. The valuation will be based upon expectation of likely unbroken tenancy, and that would not likely shift higher the yield used for the majority, if not all, of their portfolio.

The risk of SBRY taking on a heap of debt may well be ignored by some, but it is not ignored by many others! They (management) cite their forecast returns as compared with, for example, the longer TSCO bonds, which themselves compare with the underlying CDS, adjusting for rates and a bit of maths. All of this incorporates the creditworthiness of the underlying obligor, everything considered (at least from a probabilistic POV)! SUPR is fairly cheap to the TSCO bonds right now. Of course, can also do the same analysis using SBRY bonds. As it happens, SBRY CDS is in the region of its all time low, or alternatively, it is around half the level of its 20 year average. Things can change, but that is the current state of play in any event.

[williamcooper104] 14/3/2024 13:23

Same for debt at the operator level The right assets get put into class A on any CVA and don't get their leases altered The bigger risk of over indebted operators is that they cut back on capex

[williamcooper104] 14/3/2024 13:21

It's gets very asset specific when you get to a short lease Constantly higher retail sales through inflation means that the right asset trading well will not only likely see the lease renewed but could actually see it renewed at a higher level than the expiring cash rent

[m_kerr] 14/3/2024 12:17

DECent results - its a steady reliable cash generator.

Did notice they discussed a point I raised a while back on short lease supermarkets going for 7%+ NIY,compared to their own valued around 5.5%, which implies capital value downside of approx 20% as the leases run down to mid single digits. ABout half of that is in the share price already.

I've no doubt the leases would be renewed as they won't ever build any more supermarkets of the sort SUPR own, and as populations increase and cities build out around the edge of towns, that's more customers and business being driven into these assets. So cashflow wouldn't be affected, but it's something to be aware of.

Another big risk often ignored is that Sainsbury's take on a load of debt (PE takeover or return of capital) , and the yield moves 2 percentage points out. At least those buying morrisons aren't paying a premium for a covenant.

[nickrl] 14/3/2024 10:07

@chucko re #1918 good point that entities like this are more than just the bricks & mortar.

[rimau1] 14/3/2024 07:28

Taken a green pill today unastubbs, you sound more positive

[unastubbs] 14/3/2024 07:23

Decent Director buys yesterday. Encouraging.

[williamcooper104] 13/3/2024 13:31

There's £764m of swaps and caps v £583m of gross drawn debt and £689m of drawn and committed The over hedge amount is covered by c£180m of caps so there's no cash cost to keeping them They are in the money so they can be used to extend the maturity profile of the swaps on the drawn debt

[chucko1] 13/3/2024 13:19

On the Bloomberg article, it was published at 7:00:11 by a thing called Bloomberg Automation. Well, it would have to be given the 11 seconds of thinking time.

It consists of (all of) 2 estimates. In the half year, around £37mn of dividends paid on £53mn of rental income. The miss was £0.8mn, so I consider 3pps equity mark down (at worst so far) more a result of heavy-handed sellers (who may indeed have looked for a better half year).

Where those two analysts would need to provide explanation (assuming they are humans?) is if they had made assumptions other than just pure rental income - i.e. the flexibility of SUPR to increase rental income as and when by borrowing further, paying more interest, and hence earning more pure rental income albeit with merely a marginal increase in net profit (assuming the NIY on the marginal properties > average marginal financing cost). In that context, the £0.8mn miss means little, unless there was something specific about the miss on rental - i.e. smaller than expected uplifts on reversion. Given the long-term nature of the leases, this information is irregular, and one has to believe, or not, the more frequent statements from management.

Somehow, I doubt it is as sophisticated as that! I sold a little CSH2 to add to my holding!

[williamcooper104] 13/3/2024 13:05

The relevance of our red book friends is to extent that it impacts on debt capacity But that's not a problem here So can ignore

[williamcooper104] 13/3/2024 13:03

LAND just issued a 7 year bond at a 4.75 yield (that's AA structured finance rating) SUPR would issue a bit wider than that but wouldn't be too far of Flat EPS with less leverage despite falling property values isn't too shabby

[chucko1] 13/3/2024 12:54

EPRA NTA fell from 93pps to 88pps. That will not be well received by some. Of course, this number arises from the relatively make-believe discount yield applied by the valuers. What matters, as I think most people appreciate, is the visibility and extent of cash flows - which in theory should correlate with the valuation, but ....

The trouble with the latter is that it takes time to have ones financial appetite sated, whereas the former causes angst almost immediately. Rather like the experiment with 5 year olds who can have two sweets if they wait 5 minutes, or merely have one sweet immediately.

[wall street trader] 13/3/2024 11:58

added some more

[spectoacc] 13/3/2024 11:51

Again, as per Bloomberg, if looking for a possible reason:

"Supermarket Income 1H Net Rental Income Misses Estimates".

[wall street trader] 13/3/2024 11:48

it can remain irrational longer than you can remain solvent

[adamb1978] 13/3/2024 11:37

I'm not bothered about this class of investments in my PF. Positions bought in the last year or two are all red given where interest rates have gone. Personally I'm not looking at day to day movements, or even week to week, given that one interest rates come down share prices of these things will be considerably higher

[unastubbs] 13/3/2024 11:27

i'm glad everything in the garden is rosy. can anyone explain why the market is reacting negatively?

[chucko1] 13/3/2024 11:23

In any event, were the worst to happen and either Morrisons or ASDA go the the wall, what SUPR own is omni-channel and the (consequently) more desirable of the sites of these two supermarkets. They pick the locations with considerable care, and finding a new tenant would not cause anything other than the smallest of income blips, especially given the size of the rent compares with the total rent roll.

I see rates as more of a risk to total return than individual credit issues.

Doubled up this morning! (though some for a quickish trade)

[speedsgh] 13/3/2024 10:51

Not overly concerned by Morrisons/Asda exposure. As at 30/6/23 8.3% of rent roll came from Morrisons (6.2%)/Asda (2.1%) against 76.9% from Tesco (48.2%)/Sainsbury's (28.7%). As per today's interims, income from Tesco/Sainsbury's is unchanged at 77%.

[nickrl] 13/3/2024 10:05

Dividend not increased though which is the right thing to do but doubt it will go up at full year either as coverage still going to be marginally even with baked in NRI increases. Other thing that works against divi increase is three loans are up in Aug 24 for c97m on avg rate of 1.9% which can be refid by existing facilities but at 2.84% so thats another million on the interest bill. Also one of the part used facilities isn't fully hedged so could be more but maybe the existing hedging arrangement has already provided for full loan amount and its covered. I will try and get an answer at Fridays investor meet and also ask why they haven't used the extensions on the Aug 24 loans. Furthermore the debt slide is a bit disingenuous as it includes the commitments! so shows nothing to be repaid until 2027!!

Other negative factor here has to be the clouds over Morrisons (reported 1B loss yesterday ok its paper but....) and Asda could spring a nasty surprise out the blue may take some of the shine off the longer term potential here.

Anyhow in my top 3 holdings (in part because others have gone South!!) but have added a few more.

[adamb1978] 13/3/2024 09:35

As with most companies in this class of asset-backed, bond-proxy type companies, the interest rate environment is toxic for the share price.

As inflation comes down (we'll get a much lower print next week in the UK) and then interest rates follow, the yield on these things will look compelling vs other low-risk alternatives. So just as prices sank when interest rates rose, the reverse should happen over the coming months.

Therefore unless there is something fundamentally wrong with the company, or their leverage is too high for the remaining high interest rate period, adding these sort of things should look very very smart in a few months

[chucko1] 13/3/2024 09:02

Concerning the 0.97x divi coverage, it is quite clear that the reversionary rents, not to mention the average 3.6% inflation-linked increases, see the coverage at around 1.00x well within the timeframe of the fixed financing rates. Additionally, as was made clear in their own review, the outward pressure on yields that has brought down valuations allows them to add accretive income as and when.

The yield of 7.6%, which has to be one of the safest in the sector (if not the safest?) compares with 4.0% 10 year rates, so the additional 7.2% income over the next two years should give some solace as you wait for the full dividend coverage.

On (long-term) average, the missing 3% coverage is at least compensated by non-EPRA earnings (so asset development etc.). Unless the management are incompetent, which is not indicated here, IMO.