Supermarket Income REIT’s 6% fall in EPRA net tangible assets is ‘frustration’ for board

While the report said supermarket property valuations have stabilised, the portfolio took a revaluation deficit of 3.2% during the year, reflecting the outward shift in property yields amid higher interest rates.

Supermarket Income REIT chair Nick Hewson said: “The discount to EPRA NTA at which the company’s shares have traded through the year is a frustration for the board and closing this discount is a key focus for the company. We continually review how best to allocate our shareholders’ capital.

“The board believes that over the medium term, earnings growth and sustainability of the dividend will narrow the discount. We are also focused on capital recycling opportunities through the sale of individual stores or larger JV opportunities.”

During the year, the group acquired 20 assets in UK and France for a total £135.8m, which boosted its portfolio value by 5% to £1.78bn.

Annualised passing rent rose 12% to £113m, which reflected a 4% average like-for-like rental uplift and the accretive acquisitions in the year.

Adjusted earnings increased to 6.08p per share, which fully covered dividends for the year of 6.06p. The group has raised its dividend target to 6.12p for the next year.

Meanwhile, it reported 100% occupancy and 100% rent collection since its initial public offering in July 2017, with 75% of its rental income coming from Tesco and Sainsbury’s.

The group said UK grocery market sales are forecast to rise 5.8% to £251.6bn this year, with Tesco and Sainsbury’s increasing sales and market share in the year, with a combined 43% market share.

In the coming months, the group is set to proceed with a secondary listing on the Johannesburg Stock Exchange. Other players in the market, such as PHP, have also listed on the Johannesburg Stock Exchange, helping improve the diversity of the shareholder base.

Hewson added: “We regularly assess the use of share buybacks and at a certain price and in sufficient quantity they make mathematical sense, if one can achieve both at the same time.

“However, the board has given the investment adviser a mandate to achieve growth, on the basis that growing earnings through a selective approach to acquisitions will generate a higher return than that offered by share buybacks over the medium to long term.

“This position has remained under review over the past year and will continue to be debated while our shares trade at a discount to EPRA NTA.”