INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2023

RESILIENT FINANCIAL PERFORMANCE – STRONG BALANCE SHEET PROVIDING OPPORTUNITY FOR FUTURE GROWTH

The Board of Directors of Supermarket Income REIT plc (LSE: SUPR), the real estate investment trust providing secure, inflation-linked, long income from grocery property in the UK, reports its interim results for the Group for the six months ended 31 December 2023 (the “Period”).

Resilient financial performance

• 18% growth in operating profit2 to £45.0 million, reflecting:
  • 10% increase in annualised passing rent to £104.7 million through acquisitions and contractual rental uplifts
  • Continuing 100% rent collection
  • Lower EPRA cost ratio 15.1% (six months to 31 December 2022: 16.7%)
  • Sainsbury’s Reversion Portfolio (“SRP”) JV earnings replaced via higher yielding acquisitions
• Adjusted EPS stable at 2.9 pence reflecting lower leverage
• On track to deliver full-year 2024 dividend target of 6.06p
• Significant debt capacity for future earnings growth, well positioned to capitalise on current yields

Performance underpinned by continued, structural growth in the grocery sector

• UK grocery market sales up 8%5 in the Period, forecast to be £250 billion in 20246
• Record £2.1 billion of investment activity in UK grocery real estate in 20237
• Our largest tenants Tesco & Sainsbury’s gaining market share8
  • Combined market share up by 2% to 44%
  • 10% growth in sales from large format stores9
• Store sales growth continues to outpace rental growth – increasing affordability of rental values

Unique portfolio of 55 mission critical supermarkets

• Future-proofed portfolio of omnichannel stores
• 13 years weighted average unexpired lease term (“WAULT”)
• 78% of rental income inflation-linked
• Strong performing tenant covenants with 77% of income from Sainsbury’s and Tesco
• 93% of portfolio stores operate online fulfilment via home delivery and/or click and collect, capturing current and future growth in online sales

Supermarket property valuations reflect broader property market values

• Portfolio independently valued at £1.68 billion, inclusive of acquisitions of £36.4 million, reflecting Net initial yield (“NIY”) of 5.8% (30 June 2023: 5.6%)
• Like-for-like valuation decline of 3.2% compares favourably versus MSCI All Property Capital Index decline of 4.0%
• The impact of higher yields has been partly mitigated by a 3.6% average rental uplift on rent reviews during the period

Strong balance sheet with 100% of drawn debt hedged to fixed rate

• LTV of 33% as at 31 December 2023 (30 June 2023: 37%)
• 100% of drawn debt fixed or hedged at a weighted average finance cost of 3.1% (30 June 2023: 3.1%)
  • Interest rate hedging extended by 12 months in September 2023
  • Existing in-the-money hedging restructured to extend hedge term at zero upfront cost
• Fitch Ratings Limited (“Fitch”) reaffirmed the Company’s Investment Grade Credit Rating of BBB+

Accretive acquisitions and active portfolio management

• Purchased two supermarket properties at a NIY of 6.5% for a total consideration of £36.4 million
• Given reduced LTV, the Company has capacity available for opportunistic acquisitions
• EV charging installations now operational at five stores
• Rooftop solar:
  • Operational across 20% of the portfolio
  • New solar installation at Tesco, Thetford generated an EPC upgrade from C to B

Continued progress on sustainability reporting

• Science Based Targets initiative (“SBTi”) net zero targets submitted for validation
• Adopted a charitable giving policy focused on alleviating poverty and hunger as well as having a positive impact on biodiversity at and near our sites
• Post Period end, Atrato Group became an endorser of Spring – a new PRI stewardship initiative for nature

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

“The UK grocery sector continues to demonstrate strong resilience to the challenging macroeconomic environment. Our tenants continue to grow, strengthening their financial and operational performance by putting omnichannel supermarkets at the heart of their operations.

We remain focused on our investment strategy of acquiring and managing a high-quality portfolio of omnichannel supermarkets, which are critical to our tenants, giving us exposure to the largest and fastest growing segment of the grocery market.

A record £2.1 billion was invested into UK supermarket property in 2023, highlighting the strong appeal of the asset class and the attractiveness of current asset values. UK property valuations continue to be impacted by the uncertain economic backdrop, however as interest rates normalise and with the limited supply of omnichannel supermarkets, we remain highly optimistic for the valuation outlook for the year.

Looking forward, the quality of our unique supermarket portfolio and the increasing affordability of grocery rents, together with our strong balance sheet means we are well positioned to deliver long-term value for our shareholders.”

 

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