Supermarket Income Reit Plc · LSE:SUPR
Supermarket Income Reit — H1 FY2024 Earnings Presentation
50 slides from Supermarket Income Reit's earnings presentation, Mar 13, 2024
Slide 1: Interim Results Presentation
INTERIM RESULTS PRESENTATION FOR THE SIX MONTHS FROM 1 JULY 2023 TO SUPR Primary 1 31 DECEMBER #405268 2023 13 MARCH 2024 INVESTING IN THE FUTURE OF UK GROCERY Photo: Tesco, Bradley Stoke
Slide 2: Agenda and Presenting Team
Agenda and Presenting Team Welcome and introduction Financial results Ben Green Michael Perkins Grocery market SUPR Primary 1 Principal Finance Director #405268 Supermarket property Q&A Steven Noble Robert Abraham CIO Managing Director 2
Slide 3: Omnichannel increasing market share
Omnichannel SUPRLow leverage Primary 1 Accretive increasing providing #405268 growth acquisitions market share capacity pipeline • Photo: Tesco, Bishops Cleeve 3
Slide 4: Financial Results
Financial Results Financial highlights Income statement Growth in passing rent Adjusted earnings reconciliation SUPR Primary 1 #405268 Balance sheet Valuation movement EPRA NTA performance Covenant and debt facilities Sustainability Photo: Tesco, Bradley Stoke 4
Slide 5: Financial highlights - months to December 2023
Financial highlights - 6 months to 31 December 2023 £52.6m 2.9p 6.06p Net rental Adjusted FY24 dividend income EPS target £1.7bn 88p 33% Portfolio EPRA NTA Loan to value per share Value Past performance is not indicative of future results. Photo: Tesco, Worcester 5
Slide 6: Income statement – rental income
Income statement – rental income Six months to Six months to 31-Dec-23 31-Dec-22 Change £m £m Net rental income 52.6 45.9 +15% Net income from joint venture (undistributed) - 7.4 Administrative & other expenses (7.6) (7.9) Finance expense SUPR Primary 1 (8.7) (9.0) #405268 Adjusted earnings 36.3 36.
Slide 7: Growth in passing rent
Growth in passing rent 3.6% avg. rental uplift 1.6 2.5 SUPR Primary 1 #405268 104.7 100.6 Jun-23 Acquisition LFL rental Dec-23 rent uplift Past performance is not indicative of future results. Movements based on annualised passing rent. Average rental uplift includes 5-yearly reviews annualised 7
Slide 8: Income statement – EPRA cost ratio
Income statement – EPRA cost ratio Six months to Six months to 31-Dec-23 31-Dec-22 Change £m £m Net rental income 52.6 45.9 Net income from joint venture (undistributed) - 7.4 Administrative & other expenses (7.6) (7.9) -4% Finance expense SUPR Primary 1 (8.7) (9.0) #405268 Adjusted earnings 36.3 36
Slide 9: Income statement – finance expense
Income statement – finance expense Six months to Six months to 31-Dec-23 31-Dec-22 Change £m £m Net rental income 52.6 45.9 Net income from joint venture (undistributed) - 7.4 Administrative & other expenses (7.6) (7.9) Finance expense(1) SUPR Primary 1 (8.7) (9.0) -3% #405268 Adjusted earnings 36.3
Slide 10: JV earnings replaced with accretive acquisitions
JV earnings replaced with accretive acquisitions(1) 36.4 (7.4) 6.7 0.6 36.3 SUPR Primary 1 #405268 31 December 2022 Foregone JV Increase in Admin 31 December 2023 income rental expenses & income finance costs(2) LTV(3) LTV(3) 40% 33% Past performance is not indicative of future results. 1) Joint ven
Slide 11: Income statement – adjusted dividend cover
Income statement – adjusted dividend cover Six months to Six months to 31-Dec-23 31-Dec-22 Change £m £m Net rental income 52.6 45.9 Net income from joint venture (undistributed) - 7.4 Administrative & other expenses (7.6) (7.9) Finance expense SUPR Primary 1 (8.7) (9.0) #405268 Adjusted earnings 36.
Slide 12: Strong balance sheet
Strong balance sheet As at As at 31-Dec-23 30-Jun-23 Change £m £m Portfolio valuation(1) 1,675 1,693 -1.1%(2) Cash and cash equivalents 37 37 Other assets 9 143 Borrowings SUPR Primary 1 (584) (668) #405268 Prepaid rents and other liabilities (43) (49) EPRA net tangible assets (NTA) 1,094 1,156 -5.4
Slide 13: Yield expansion partially offset by rental growth
Yield expansion partially offset by rental growth 29 (83) 36 1,693 1,675 SUPR Primary 1 #405268 30 June Acquisitions(2) Valuation Valuation 31 December 2023(1) change – rental change – market 2023(1) uplifts yield shift 1) Per independent property valuation which includes the market value of propert
Slide 14: EPRA NTA performance
EPRA NTA performance 2.9 (3.0) 93 (4.6) (0.3) 88 SUPR Primary 1 #405268 30 June Adjusted Dividends paid Property Other(2) 31 December 2023 earnings revaluation(1) 2023 Past performance is not indicative of future results. 1) Property revaluation includes acquisition costs 2) Relates to forward start
Slide 15: Low leverage and significant covenant headroom
Low leverage and significant covenant headroom(1) Loan to value reduced to 33% following debt refinancing 40% 6.1x Net debt/ 37% EBITDA 33% Dec-22 SUPR Primary 1 Jun-23 Dec-23 3.1% #405268 Average debt cost Group LTV headroom(2) Group interest cover headroom(2) 5.8x 60% BBB+ 33% 1.8x Fitch rating Cu
Slide 16: Committed debt (£m)
Diversified banking group £177m Secured Undrawn(1) 40% Unsecured 60% Committed debt (£m) 250 SUPR Primary 1 4.1 years #405268 Average maturity(2) 50 67 50 87 97 50 39 100% FY24 FY25 FY26 FY27 FY28 FY29 Fixed/hedged HSBC Deka BLB Wells Fargo SMBC Unsecured club facility 1) Undrawn debt as at 31 Decem
Slide 17: Three Pillars of our Sustainability Strategy
Three Pillars of our Sustainability Strategy Climate and Tenant and Community Responsible Business Environment Engagement Strengthen ESG Achieve a net zero carbon Ensure our assets enhance performance and uphold portfolio, mitigating the the communities in which responsible business environmental im
Slide 18: Our ESG initiatives
Our ESG initiatives Additional sustainability reporting Transition Plan Quantitative TCFD scenario analysis New projects Nature-related strategy Proactive tenant engagement SUPR Primary 1 #405268 EV charging 30% of portfolio installed Three target sites identified Solar installation 20% of portfolio
Slide 19: Grocery market
Grocery market UK grocery sector growth Discounter store openings Omnichannel- sales and market share growth SUPR Primary 1 Value proposition and core #405268 growth platform Last mile logistics Photo: Sainsbury’s, Gloucester 19
Slide 20: UK grocery experiencing strong growth
UK grocery experiencing strong growth(1) +35% Grocery market growth since IPO £185bn SUPR Primary 1 #405268 +£65bn £250bn 2017 2024 Photo: Tesco, Sheffield 1) IGD channel data 2017 actual, 2024 forecast. Forecasts are not indicative of future results 20
Slide 21: Omnichannel stores largest growth channel
Omnichannel stores largest growth channel 250 9 16 230 UK grocery market size (£bn) 14 210 1 net new store 8 SUPR Primary 1 #405268 250 18 +£65bn 190 170 185 150 2017 Omnichannel Physical Convenience Discount Other 2024 supermarkets IGD channel data 2017 actual, 2024 sales forecast. Store numbers as
Slide 22: Omnichannel stores largest growth channel
Omnichannel stores largest growth channel 250 568 net new stores 9 16 230 UK grocery market size (£bn) 14 210 1 net new store 8 SUPR Primary 1 #405268 250 18 +£65bn 190 170 185 +£65bn 150 2017 Omnichannel Physical Convenience Discount Other 2024 supermarkets IGD channel data 2017 actual, 2024 sales
Slide 23: Discounter new store openings are slowing
Discounter new store openings are slowing Discounter new store openings(1) 121 Rising development costs 111 105 91 81 84 SUPR Primary 1 #405268 Lack of available sites 40 Lower ROC profile(2) 2017 2018 2019 2020 2021 2022 2023 Photo: Aldi, Failsworth 1) Source: IGD 2) Return on capital 23
Slide 24: Large format stores driving grocery growth
Large format stores driving grocery growth 6-month sales growth(1) +10.8% +9.4% +9.3% SUPR Primary 1 +8.7% #405268 UK Large format UK Large format stores stores 1) UK total sales - 6 months to December 2023 vs 6 months to December 2022 sourced from Kantar. Large format store sales - Sainsbury’s 2023
Slide 25: Omnichannel strategy generating market share gains
Omnichannel strategy generating market share gains 6-month UK grocery market share change(1) +0.9% +0.6% SUPR Primary 1 #405268 +/-0.0% +/-0.0% (0.1%) 80% of SUPR’s portfolio(2) (0.9%) 1) Kantar - market share change 12 weeks to June 2023 vs 12 weeks to December 2023 2) Based on valuation as at 31 D
Slide 26: Omnichannel stores - core platform for growth
Omnichannel stores - core platform for growth £100m+ Sales revenue(1) Photo: Sainsbury’s, Ashford 1) Estimated annual revenue based on UK average sales per net sales area sourced from IGD. Composed of instore and online revenue; excludes petrol filling station revenue 26
Slide 27: Omnichannel stores - core platform for growth
Omnichannel stores - core platform for growth 60% Value, range In-store and choice sales Photo: Sainsbury’s, Ashford Estimates of revenue breakdown for typical omnichannel stores in SUPR’s portfolio, based on store visits. Revenue from petrol filling stations excluded 27
Slide 28: Omnichannel stores - core platform for growth
Omnichannel stores - core platform for growth 60% Value, range In-store and choice sales Enhanced 10% customer Essentials offer Photo: Sainsbury’s, Ashford Estimates of revenue breakdown for typical omnichannel stores in SUPR’s portfolio, based on store visits. Revenue from petrol filling stations e
Slide 29: Omnichannel stores - core platform for growth
Omnichannel stores - core platform for growth 60% Value, range In-store and choice sales Enhanced 10% customer Essentials offer 30% Strong location for last mile Online sales logistics Photo: Sainsbury’s, Ashford Estimates of revenue breakdown for typical omnichannel stores in SUPR’s portfolio, base
Slide 30: Growing value of the last mile logistics platform
Growing value of the last mile logistics platform +90% +80% of UK population of the £19bn(2) <35 mins from online market omnichannel fulfilled in store stores(1) SUPR Primary 1 #405268 +70% #1 60% sales collected in click and collect of UK population Sainsbury’s platform in UK covered(4) supermarket
Slide 31: Supermarket property
Supermarket property Supermarkets offer attractive relative value Investment property volumes SUPR’s UK investment opportunities SUPR Primary 1 #405268 Unique portfolio of supermarkets Regear evidence Relative value Photo: Tesco, Bracknell 31
Slide 32: Supermarkets offer attractive relative value
Supermarkets offer attractive relative value 10.0% Supermarkets 9.0% All UK property 8.4% Logistics 8.0% 7.6% SUPR portfolio as at 31-Dec-23 7.0% Net Initial Yield 6.3% 6.4% 6.0% SUPR Primary 1 5.8% #405268 5.1% 5.0% 4.7% 4.0% 3.0% 2.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 201
Slide 33: Supermarket property investment remains strong
Supermarket property investment remains strong 2.5 £2.1bn Supermarket property investment volumes £2.0bn 2.0 £1.9bn £1.9bn £1.8bn 1.5 1.0 0.5 0.0 2019 2020 2021 2022 2023 Record year of transactions(1) UK supermarket investment volumes. Years ending 31 December Source: Knight Frank, Savills, MSCI, A
Slide 34: Keen yields on long leased supermarkets
Keen yields on long leased supermarkets Long Regear New sale and Secondary Strategy lease opportunity leaseback market Operators Example Unlevered Operators and sector UK institutions and Opportunistic buyers investors SUPR Primary 1 specialists Investment Trusts investors #405268 Pricing (NIY) 5.25
Slide 35: Long lease, rack rented – Chadwell Heath
Long lease, rack rented – Chadwell Heath Purchase price Net Initial Yield £18m 5.25% SUPR Primary 1 WAULT Rent review #405268 15 years 5 yearly, CPI Vendor Purchaser Pension fund Sources: CoStar, React News, MSCI Real Capital Analytics and discussions with valuers and property agents 35
Slide 36: Shorter lease stores provide attractive yields
Shorter lease stores provide attractive yields Long Regear New sale and Secondary Strategy lease opportunity leaseback market Operators Example Unlevered Operators and sector UK institutions and Opportunistic buyers investors SUPR Primary 1 specialists Investment Trusts investors #405268 Pricing (NI
Slide 37: Regear opportunity – Edinburgh
Regear opportunity – Edinburgh Purchase price Net Initial Yield £44m 7.6% SUPR Primary 1 WAULT Rent review #405268 7 years Annual, RPI Vendor Purchaser Sources: CoStar, React News, MSCI Real Capital Analytics and discussions with valuers and property agents 37
Slide 38: Sale and leasebacks to weaker covenants
Sale and leasebacks to weaker covenants Long Regear New sale and Secondary Strategy lease opportunity leaseback market Operators Unlevered UK and overseas Opportunistic Example Operators and sector institutional buyers investors specialists investors investors Pricing (NIY) 5.25% 7.0%+ 6.5% 8.0%+ So
Slide 39: New sale and leasebacks – Asda portfolio
New sale and leasebacks – Asda portfolio Purchase price Net Initial Yield £650m 6.5% SUPR Primary 1 WAULT Rent review #405268 20 years Annual, RPI Vendor Purchaser Sources: CoStar, React News, MSCI Real Capital Analytics and discussions with valuers and property agents 39
Slide 40: Market requires risk premium on secondary assets
Market requires risk premium on secondary assets Long Regear New sale and Secondary Strategy lease opportunity leaseback market Operators Example Unlevered Operators and sector UK institutions and Opportunistic buyers investors specialists Investment Trusts investors Pricing (NIY) 5.25% 7.0%+ 6.5% 8
Slide 41: Secondary market – Gloucester
Secondary market – Gloucester Purchase price Net Initial Yield £21m 8.8% SUPR Primary 1 WAULT Rent review #405268 15 years 5 yearly, RPI Vendor Purchaser Private investor Sources: CoStar, React News, MSCI Real Capital Analytics and discussions with valuers and property agents 41
Slide 42: SUPR’s UK investment opportunities
SUPR’s UK investment opportunities Long Regear New sale and Secondary Strategy lease opportunity leaseback market Operators Example Unlevered Operators and sector UK institutions and Opportunistic buyers investors SUPR Primary 1 specialists Investment Trusts Investors #405268 Pricing (NIY) 5.25% 7.0
Slide 43: Portfolio weighted towards the strongest covenants
Portfolio weighted towards the strongest covenants Map key and supermarket exposure by value(1) 55 Supermarkets Tesco 49% Sainsbury’s 31% Morrisons 5% Waitrose 5% SUPR Primary 1 93% #405268 Omnichannel stores(1) Asda 2% Aldi 1% M&S 1% 3.8% Iceland <1% Average rent to turnover(2) Map locations are in
Slide 44: Regear evidence
Regear evidence(1) Tesco, Kent Tesco, Norfolk £27 psf £26 psf 4% of 4% of turnover turnover Term - 15 yrs 82k sq.ft. Term - 15 yrs 72k sq.ft. Tesco, Suffolk Sainsbury’s, London SUPR Primary 1 #405268 £26 psf £35 psf 4% of >5% of turnover turnover Term - 15 yrs 85k sq.ft. Term - 20 yrs 67k sq.ft. Psf
Slide 45: Regear evidence
Regear evidence(1) Tesco, Kent Tesco, Norfolk £27 psf £26 psf 4% of 4% of turnover turnover Term - 15 yrs 82k sq.ft. Term - 15 yrs 72k sq.ft. Tesco, Suffolk Sainsbury’s, London SUPR Primary 1 #405268 £26 psf £35 psf 4% of >5% of turnover turnover Term - 15 yrs 85k sq.ft. Term - 20 yrs 67k sq.ft. £23
Slide 46: Supermarkets strong relative value
Supermarkets strong relative value(1) 14% 12.0% 78% 12% Index-linked Leverage Levered rent reviews(2) benefit 10% IRR/Yield to maturity (%) 8% SUPR Primary 1 6.6% 80% #405268 Let to Tesco and 6% Sainsbury’s(3) 4.0% 4% 2% 100% Occupancy and rent collection since IPO 0% UKT 10 year Tesco 2042 Supermar
Slide 47: Investment strategy underpinned by growth sector
1 Investment strategy underpinned by growth sector 2 Strong balance sheet with highly visible cashflows SUPR Primary 1 #405268 3 Accretive acquisitions to deliver earnings growth 4 Secure income, attractive total returns Photo: Tesco, Bristol 47
Slide 48: Questions?
Questions? SUPR Primary 1 #405268 Photo: Sainsbury’s, Washington
Slide 49: Important Information
Important Information THIS PRESENTATION IS STRICTLY CONFIDENTIAL AND IS BEING PROVIDED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, REDISTRIBUTED, COPIED OR PUBLISHED (IN WHOLE OR IN PART) TO ANY OTHER PERSON FOR ANY PURPOSE. ANY RECIPIENT OF THIS PRESENTATION AGREES TO KEEP PERMANE
Slide 50: Important Information
Important Information The information contained in this presentation has not been independently verified by the Company, Atrato or any other person, and some of the information is still in draft form. No representation, warranty or undertaking, express or implied, is made by the Company, Atrato or a
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