Supermarket Income Reit Plc · LSE:SUPR
Supermarket Income Reit — FY2019 Earnings Presentation
40 slides from Supermarket Income Reit's earnings presentation, September 2019
Slide 1: Results Presentation: Investing in the Future of UK Grocery
INVESTING IN THE FUTURE OF UK GROCERY RESULTS PRESENTATION FOR THE YEAR FROM 1 JULY 2018 TO 30 JUNE 2019
Slide 2: Agenda
Agenda Section Page 1 Financial highlights 3 Atrato senior management team 2 Business highlights 4 3 Investment strategy 5 4 Financial results 6 5 Portfolio 11 6 Our market 16 Ben Green Steve Windsor Principal Principal 7 Outlook 26 8 Appendices 28 Contact Supermarket Income REIT plc Natalie Markham
Slide 3: Financial highlights for the year ended 30 June 2019
Financial highlights for the year ended 30 June 2019 30 June 2019 30 June 2018 Change EPRA EPS (1) 5.0 pence 3.8 pence 31.6% Quarterly dividend per share (1) 1.419 pence 1.375 pence 3.2% EPRA NAV per share (2) 97 pence 96 pence 1.0% Total net assets (2) £230.5m £176.7m 30.4% Annualised passing r
Slide 4: Business highlights for the year ended 30 June 2019
Business highlights for the year ended 30 June 2019 Acquisition of £96.7m of accretive omnichannel assets (1) Justin King, • 5.1% average NIY vs Portfolio average of 4.9% former CEO of • 21-year WAULT vs Portfolio 18-year WAULT Sainsbury’s, joined Atrato as • All RPI linked rent reviews a senior adv
Slide 5: Highly specific investment strategy
Highly specific investment strategy Last mile grocery RPI linked Large flexible fulfilment in the UK rents sites Future proof omnichannel stores Long leases with no breaks Strong trading track record 5
Slide 6: Financial results
Financial results • Income statement • Statement of financial position • Debt financing overview • Strong and Improving financial covenants • Portfolio • RPI rent reviews • Movement in EPRA NAV per share • Post balance sheet events • Asset management Image – Bristol Limes Trees store 6
Slide 7: Income statement
Income statement 1 July 2018 to 1 July 2017 to 30 June 2019 30 June 2018 £, millions £, millions Rental income 17.2 8.9 Administrative and other expenses (3.1) (2.2) Finance costs (4.2) (1.9) EPRA earnings 9.9 4.8 Dividend paid 10.9 4.7 Adjusted EPRA cost ratio (1) 17.9% 20.0% On going cost ratio (2
Slide 8: Statement of financial position
Statement of financial position As at As at 30 June 2019 30 June 2018 £, Millions £, Millions Investment property 368.2 264.9 Cash and cash equivalents 9.9 2.2 Other assets 3.4 1.1 Gross assets 381.5 268.2 Borrowings (143.7) (88.0) Prepaid rents and other liabilities (7.3) (3.5) EPRA net assets 230.
Slide 9: Debt financing overview
Debt financing overview Cost of borrowing reduced plus new banking relationships • £100m of new debt facilities agreed - interest cost fixed for 5 years at 2.2% • Credit margin on new debt down from 1.6% to 1.3% 36.3% • Two new banking relationships - Bayerische Landesbank & Dekabank Net loan to val
Slide 10: Strong and improving tenant covenants
Strong and improving tenant covenants Balance sheet lease adjusted debt (£bns) (1) 24.0 21.7 10.0 Improving covenant strength (1) 7.7 7.6 7.6 7.6 7.5 3.5 3.1 16.7 8.0 2.7 15.5 3.0 2.5 • £11bn debt reduction since 2015 16.0 12.3 12.2 6.0 2.5 2.2 2.1 £bn 2.0 • Tesco and Morrisons investment grade rati
Slide 11: Portfolio
Portfolio Portfolio Summary (1) Including post balance sheet events Valuation £423 million Valuation yield 4.9% WAULT 19 Yrs Rent reviews RPI linked Valuation increase over acquisition price 4.5% Average rent increase (2) 3.2% Portfolio tenant mix by annualised passing rent Morrisons, 11% 7 Tesco, S
Slide 12: RPI rent reviews
RPI rent reviews Like for like rent reviews for the year (£ millions) (1) + 3.2% average rent review 3.3% 19.2 3.3% £94k £19.2 3.0% £96k 3.2% £115k 3.3% £49k 18.8 £85k £18.8 18.4 18.0 Annualised rent July Thetford Bristol Ashford Cumbernauld Scunthorpe Annualised rent June 2018 2019 (1) Annualised r
Slide 13: Movement in EPRA NAV per share
Movement in EPRA NAV per share Components of EPRA NAV per share FY 2018 to FY 2019 100 4.2 (4.6 ) 2.6 1.0 (2.3 ) 97 96 95 90 85 EPRA NAV 01 July Equity issue - Acquisition costs Property valuation EPRA Earnings Dividend paid EPRA NAV 30 June 2018 premium to NAV 2019 less issue costs 13
Slide 14: Post balance sheet events
Post balance sheet events Sainsbury’s superstore, Preston, PR1 6PJ In August 2019, we completed the acquisition of a Sainsbury’s store in Preston, Lancashire • £54.4 million (excluding acquisition costs) • 5.1% net initial yield • 23 Years unexpired lease term • Annual, upward-only, RPI-linked rent
Slide 15: Asset management update
Asset management update Sustainability Indicative Thetford scheme visuals • Comprehensive rooftop solar photovoltaic power system investment plan developed across all sites • 70% of Portfolio in advance planning approval stage • Energy supplied to store via long term power purchase agreement • Over
Slide 16: Our market
Our market • Investing in the future model of UK grocery • Last mile grocery fulfilment • The shift to omnichannel • Big 4 operators' key themes • Supermarket valuations and bonds • Supermarket leases offer cheap RPI • Credit strength vs CVA use • Lease re-gear evidence • Valuations supported by evi
Slide 17: Investing in the future model of UK grocery
Investing in the future model of UK grocery Omnichannel stores combine supermarkets (the most dominant channel) with online (the fastest growing channel) IGD Channel forecasts 2019 - 2024 (1) 120 109 74% of online grocery 106 orders are fulfilled in supermarkets (2) 100 26% 74% 80 In-store fulfilmen
Slide 18: Last mile grocery fulfilment in the UK
Last mile grocery fulfilment in the UK Tesco’s online distribution network (1) Sainsbury’s online distribution network (1) Omnichannel stores have optimal characteristics for last mile fulfilment • Larger full range stores - urban warehouse • Situated in population centres – key for last mile Online
Slide 19: The shift to omnichannel retailing
The shift to omnichannel retailing 2007 2011 2012 2017 Amazon launch Fresh, selling and Walmart commences testing on Alibaba launches TMALL Marks and Spencer trial online food delivering grocery through its home delivery service, not until Supermarket selling grocery via delivery service in London a
Slide 20: Big 4 operators key themes
Big 4 operators key themes £2.2bn Combined capital expenditure allocated by Big 4 to supermarkets in 2020 Illustrations – 2020 operator investment initiatives (1) Instore automated picking – Urban Fulfilment Centres (UFC) New self-serve bakery and meat counters Cashless stores Repurposing space 20%
Slide 21: Supermarket valuations have decoupled from bonds
Supermarket valuations have decoupled from bonds Historical performance of supermarket yields and Tesco corporate bonds (2029) (1) 6.0 5.2 4.5 Yield (%) 2.7% Spread 3.0 2.5 1.5 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Supermarket NIY Tesco Corporate Bond - Dec
Slide 22: Supermarket leases offer one of the cheapest sources of RPI
Supermarket leases offer one of the cheapest sources of RPI Historical performance of supermarket yields and UK index linked gilts (2035) (1) 6.0 5.2 4.3 3.0 Yield (%) 2.9% 7.8% spread spread 1.4 0.0 (2.6) (3.0) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Supermar
Slide 23: Credit strength vs CVA use
Credit strength vs CVA use Retailers using company voluntary agreements (1) Investment grade grocery retailers Predominantly private equity backed with very Public companies with investment grade balance weak balance sheets sheets • Predominantly private equity ownership • Publicly traded FTSE 100 o
Slide 24: Lease re-gear evidence
Lease re-gear evidence Supermarket lease and re-gears rates per sq ft (1) 30 Arbitration review Cambridgeshire, £29.75 Buckinghamshire, £28.75 28 West Midlands, £26.65 Leicestershire, £27.27 26 Leicestershire, £24.75 24 Rent £ Sq.Ft. West Midlands, £21.50 Somerset, £21.30 22 Suffolk, £22.00 County D
Slide 25: Valuations supported by transaction evidence
Valuations supported by transaction evidence Purchasers of supermarkets since SUPR IPO in July 2017 (1) £ Millions Realty Income Corporation 429 Supermarket Income REIT 406 Tesco Plc 206 Blackrock 119 Legal & General Property 52 Rosette Merchant Bank 48 Invesco 43 Altum Capital 41 St James’s Place 3
Slide 26: Outlook
Outlook • Sector outlook • Appendices ₋ Share performance ₋ Outline returns profile ₋ Portfolio metrics ₋ Rapid deployment of capital ₋ Contracted RPI uplifts ₋ EPRA metrics ₋ Debt portfolio details ₋ Key terms ₋ IGD channel forecasts ₋ Discounters in the UK ₋ UK grocery credit strength ₋ Supermarke
Slide 27: Sector outlook
Sector outlook The fundamentals of the UK grocery market remain favourable • UK grocery spending to increase 12.5% in the next 5 years • Continued strengthening of operators’ balance sheets • Investment in new in-store technologies to improve margins Growth narrative, credit strength and bond yields
Slide 28: Appendix 1: Share performance
Appendix 1: Share performance Relative share price performance for the year Trading volume – 4 week rolling daily average since IPO 8.0% Total Shareholder Return 300% increase in traded volume 108 500 105 425k 400 Share price (rebased 100) 100 Number of Shares 000s 300 95 200 95 100 90k 85 Jul-18 Se
Slide 29: Appendix 2: Outline returns profile
Appendix 2: Outline returns profile Illustrative IRR profile from contracted rents plus different ERV assumptions (1) Sell at ERV of £15 psft = 6.0% IRR £9 psft real rent Sell at ERV of Rent + RPI uplifts + £27 psft (2) = 7.5% IRR £15 psft real rent Sell at ERV of £45 psft = 10.0% IRR £26 psft real
Slide 30: Appendix 3: Portfolio metrics
Appendix 3: Portfolio metrics Valuation Store Size Store Size Valuation Passing Rent WAULT Rent Rent Review Site Size Property Tenant yield GIA 000, NSA 000, (£m) (£m) (Yrs) Review Floor – Cap (acres) (%) (Sqft) (Sqft) Scunthorpe Tesco 55.7 3.0 5.0 22 Annual RPI 0% - 5% 98 65 8.3 Cumbernauld Tesco 5
Slide 31: Appendix 4: Rapid deployment of capital
Appendix 4: Rapid deployment of capital Property acquisition profile (£ millions) Mar 19: £45m equity raise. 450 £54.4 400 May 18: £65m equity raise £45.0 350 £51.7 300 Portfolio Value £m’s Nov 17: £20m equity raise £53.0 250 £50.0 July 17 £100m IPO 200 £80.0 150 100 £28.5 £43.2 50 0 Tesco Thetford
Slide 32: Appendix 5: Contracted RPI uplifts drive rental growth
Appendix 5: Contracted RPI uplifts drive rental growth Estimated future annualised rent receipts and future yield on purchase price (1) 30.0 5.8% 6.0% 28.0 5.6% 5.5% 5.3% 5.2% 26.0 4.9% 25.9 (1) 5.0% 25.2 Yield on purchase price% 24.0 Annualised rent £m’s 24.5 23.9 23.2 22.0 4.0% 20.0 19.2 18.0 3.0%
Slide 33: Appendix 6: EPRA metrics
Appendix 6: EPRA metrics As at As at 30 June 2019 30 June 2018 EPRA NAV Per Share 97 pence 96 pence EPRA Triple Net Asset Value (NNNAV) Per Share 96 pence 96 pence For the period ending For the period ending 30 June 2019 30 June 2018 EPRA EPS 5.0 pence 3.8 pence EPRA Net Initial Yield 4.9% 4.9% EPRA
Slide 34: Appendix 7: Debt portfolio details
Appendix 7: Debt portfolio details Borrowing facilities summary (1) Current Interest Maturity Date Bank Gross Debt £m LTV Covenant DSCR Covenant Hedging (1) Rate 63.5% capped – HSBC 2.4% 100.0 60% 200 1.75% Strike Aug-2022 rate Bayerische 2.5% 52.1 60% 200 Fixed Jul-2023 Landesbank Dekabank 1.9% 47.
Slide 35: Appendix 8: Key terms
Appendix 8: Key terms • UK listed REIT The Company • London Stock Exchange Main Market, Specialist Fund Segment • Target assets with long unexpired lease terms (typically over 15 years to first break) with index-linked or fixed rental uplifts Investment policy • No individual property will represent
Slide 36: Appendix 9: UK food and grocery sales forecast
Appendix 9: UK food and grocery sales forecast IGD forecasts 2019 -2024 (1) +12.5% forecast growth 220 218 210 212 209 Sales (£bn) 200 202 198 194 190 180 2019 2020 2021 2022 2023 2024 Actual Forecast (1) Source IGD 2019 36
Slide 37: Appendix 10: Discounters in the UK
Appendix 10: Discounters in the UK UK Discounters market share (1990-2018) 12% average discounters’ market share 25% 20% Peak discounter market share Discounter % Marker Share 16% 15% 15% 15% 14% 13% 12% 12% 12% 12% 12% 11% 10% 10% 10% 9% 9% 5% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 20
Slide 38: Appendix 11: UK Grocery Sector credit strength analysis
Appendix 11: UK Grocery Sector credit strength analysis Balance Sheet analysis (1) Net Debt/ Lease Operating Net Debt/ Market EBITDAR EBITDAR Credit Revenue EBITDAR Adjusted Cash Flow EBITDAR £bn Cap.(2) Margin (2022) Rating Net Debt (2019) (2019) Target Tesco 21.0 51.6 4.3 6.5% 12.2 2.0 3.7x 2x - 3
Slide 39: Appendix 12: Supermarket yields offer value
Appendix 12: Supermarket yields offer value MSCI Yields 2004 -2019 (1) 9.0 MSCI Net Initial Yields June 2019 Supermarkets 5.2% Distribution warehouses 4.7% UK Commercial property 4.6% 8.0 Net initial yield (%) 7.0 6.0 5.0 4.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Slide 40: Important Notice
IMPORTANT NOTICE The information provided in this Presentation is for background purposes only and may be materially updated, completed, revised or amended without notice. Neither the Company nor anyone else is under any obligation to update or keep current the information contained in this Presenta
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