GROCERY SECTOR STRENGTH UNDERPINS DEMAND FOR MISSION CRITICAL SUPERMARKETS

Supermarket Income REIT plc (LSE: SUPR), the UK supermarket real estate investment trust providing secure, inflation-linked, long income from grocery property in the UK, reports its audited consolidated results for the Group for the year ended 30 June 2023 (the “Year”).

Resilient financial performance with strong income growth

• 30% increase in annualised passing rent to £100.6 million
  • 100% occupancy
  • 100% of rent collected
  • 4.1% average rental uplift
• 26% increase in adjusted earnings to £72.4 million
• FY 2023 dividend of 6 pence per share, target dividend of 6.06 pence per share for FY 2024

Grocery sector strength and resilience driving elevated property investment volumes

• UK grocery market grew 11% during the period6
• 30% increase in UK grocery market since IPO to £242 billion7
• Supermarket store revenues growing much faster than rents, improving affordability and rental values
• UK supermarket property investment volumes exceeded £1.7 billion during the year8

Active portfolio management – accretive asset sales and capital recycling

• Sale of interest in 21 supermarket properties held in the SRP at a NIY of 4.3%9 and a total consideration of £430.9 million10, delivering a:
  • 30% IRR
• 1.9x money-on-money multiple
  • Purchase of eleven supermarket properties at a NIY of 5.5%11 for a total consideration of £399.0 million

High-quality portfolio of mission critical supermarkets

• Future-proofed portfolio of omnichannel stores
• Capturing elevated online grocery demand, which is up +80% since 201913
• 14 years weighted average unexpired lease term (“WAULT”)
• Strong performing tenant covenants; 77% of income from Sainsbury’s and Tesco
• 78% of rental income is inflation-linked, subject to caps of 4% per annum on average

Lower supermarket property valuations reflect higher interest rates with encouraging indications that valuations are stabilising

• Direct Portfolio independently valued at £1.69 billion (30 June 2022: £1.56 billion), reflecting a NIY of 5.6% as at 30 June 2023 (30 June 2022: 4.6%)
• Direct Portfolio value stable versus last reported valuation (31 December 2022: £1.63 billion reflecting a NIY of 5.5%)

Strong balance sheet with 100% of drawn debt hedged

• Fitch Ratings Limited (“Fitch”) investment grade credit rating of BBB+ reaffirmed in February 2023
• Total debt further reduced post balance sheet with current LTV of 34%
• Refinancing of facilities during the year and post balance sheet extending weighted average debt maturity by 12 months to four years14 (30 June 2022: four years)
• Unsecured debt increased to 61% of debt commitments (30 June 2022: Nil)
• 100% of drawn debt hedged and interest rate hedging extended by 12 months:
  • Weighted average finance cost fixed at 3.1% (30 June 2022: 2.6%)
  • Existing in-the-money hedges restructured to extend hedge term at zero net upfront cost

Continued progress on sustainability and governance programme

• Supported the responsible investment commitments made by our Investment Adviser as a signatory of the Net Zero Asset Managers Initiative and United Nations Principles for Responsible Investment
• Published our first voluntary, fully TCFD compliant annual report, consistent with all 11 of the TCFD recommendations and recommended disclosures
• Committed to submit a target to the Science Based Target Initiative by Q4 2023

Nick Hewson, Chair of Supermarket Income REIT plc, commented:

“The UK grocery sector has again demonstrated resilience despite the challenging macroeconomic environment we have experienced during the year. We remain focused on our investment strategy of acquiring and managing a high-quality portfolio of omnichannel supermarkets. These give us exposure to the fastest growing segment of the UK grocery market which itself is experiencing strong growth.

During the year, Sainsbury’s purchased our interest in the Sainsbury’s Reversion Portfolio joint venture for £430.9 million which we redeployed into higher-yielding supermarkets that met our strict investment criteria alongside reducing our debt, materially strengthening our balance sheet.

This purchase by one of our own tenants of 21 of its own stores highlights the attractiveness of UK supermarket property, which is further illustrated by the fact that the year has seen in excess of £1.7 billion of investment volume in our property sub-sector, driven by the positive long-term outlook for UK grocery. This activity has contributed to stabilising property valuations in the UK supermarket property sub-sector.

As we look forward, the quality of our unique omnichannel supermarket portfolio and the increasing affordability of grocery rents, together with our robust balance sheet means we are well positioned to continue delivering long-term value for our shareholders.”

News in full

Below is a video, shot with the investment team of Atrato Group, the advisors behind SUPR, highlighting the Group’s investment strategy