Supermarket Income Reit Plc · LSE:SUPR
Supermarket Income Reit — H1 FY2023 Earnings Presentation
61 slides from Supermarket Income Reit's earnings presentation, Mar 30, 2023
Slide 1: Interim Results Presentation
INTERIM RESULTS PRESENTATION SUPR Primary 1 #405268 FOR THE SIX MONTHS FROM 1 JULY 2022 TO 31 DECEMBER 2022 30 MARCH 2023 INVESTING IN THE FUTURE OF UK GROCERY Photo: Sainsbury’s Preston
Slide 2: Agenda and Presenting Team
Agenda and Presenting Team Welcome and introduction 2 Financial results 4 Ben Green Haffiz Kala Grocery market 18 SUPR Primary 1 Principal Finance Director #405268 Portfolio 28 Appendix: Financial 38 Appendix: General 47 Steven Noble Robert Abraham CIO Managing Director 2
Slide 3: Grocery growth, robust income, attractive levered returns
Grocery Supermarket Attractive SUPR Primary 1 growth 8.8% property #405268 levered returns = valuations not Robust immune from Balance sheet income macro flexibility Photo: Tesco, Colchester 3
Slide 4: Financial Results
Financial Results Financial highlights Income statement Growth in rental income Debt financing SUPR Primary 1 #405268 Statement of financial position Portfolio valuation Movement in EPRA NTA per share Image: Tesco, Leicester 4
Slide 5: Financial highlights to 31 December 2022
Financial highlights to 31 December 2022 £1.8bn 92p 5.5% Total EPRA NTA Valuation net assets(1) per share initial yield SUPR Primary 1 #405268 2.9% 36% 3p Fixed cost Growth in Dividend paid of debt(2) rent roll(3) per share(4) Photo: Sainsbury’s, Hessle Past performance is not indicative of future r
Slide 6: Income statement – rental income
Income statement – rental income Six months to Six months to % change 31-Dec-22 31-Dec-21 YoY £m £m Net rental income 45.9 32.6 +41% Net income from joint venture (undistributed) 7.4 6.2 Administrative & other expenses (7.9) (6.2) Finance expense (9.0) (5.7) SUPR Primary 1 #405268 Adjusted earnings
Slide 7: Growth in passing rent
Growth in passing rent 120 3.7% LFL growth 1.2 100 16.6 80 Value (£m) 60 SUPR Primary 1 #405268 98.1 40 80.2 20 - Annualised IFRS Acquisition Rental uplift Annualised IFRS rent for year rent rent for year to June 22 to December 22 Past performance is not indicative of future results. Growth in passi
Slide 8: Income statement – joint venture
Income statement – joint venture Six months to Six months to % change 31-Dec-22 31-Dec-21 YoY £m £m Net rental income 45.9 32.6 Net income from joint venture (undistributed) 7.4 6.2 +20% Administrative & other expenses (7.9) (6.2) Finance expense (9.0) (5.7) SUPR Primary 1 #405268 Adjusted earnings
Slide 9: Income statement – EPRA cost ratio
Income statement – EPRA cost ratio Six months to Six months to % change 31-Dec-22 31-Dec-21 YoY £m £m Net rental income 45.9 32.6 Net income from joint venture (undistributed) 7.4 6.2 Administrative & other expenses (7.9) (6.2) +27% Finance expense (9.0) (5.7) SUPR Primary 1 #405268 Adjusted earning
Slide 10: Income statement – finance expense
Income statement – finance expense Six months to Six months to % change 31-Dec-22 31-Dec-21 YoY £m £m Net rental income 45.9 32.6 Net income from joint venture (undistributed) 7.4 6.2 Administrative & other expenses (7.9) (6.2) Finance expense(1) (9.0) (5.7) +59% SUPR Primary 1 #405268 Adjusted earn
Slide 11: Shift to unsecured debt structure
Shift to unsecured debt structure Strong appetite for SUPR’s credit Unsecured £862m facility Total committed debt Facility SUPR Primary 1 extension #405268 Refinancing(1) 35% Loan to value(2) BBB+ rating reaffirmed(1) (1) Including post balance sheet events 11 (2) LTV as at 30 March 2023 based on dr
Slide 12: Diversified lenders with substantial liquidity
Diversified lenders with substantial liquidity 300 250 £172m 97 Undrawn debt 200 liquidity(1) Debt amount (£m) 150 SUPR Primary 1 #405268 87 250 100 Due to be 100 repaid 150 4yrs 50 78 Debt 62 maturity(2) 39 - 2023 2024 2025 2026 2027 2028 2029 Debt maturity Unsecured club facilities HSBC Barclays/R
Slide 13: Hedging strategy designed to protect dividend
Hedging strategy designed to protect dividend Earnings protected from SONIA curve 5.0% volatility to 2026 Executed interest rate hedge to fix 100% of floating debt 4.0% SONIA 3.0% SUPR Primary 1 #405268 £41m upfront cost Hedges roll off 2.0% 2.9% fixed cost of debt 1.0% 2023 2024 2025 2026 2027 2028
Slide 14: Income statement – adjusted earnings
Income statement – adjusted earnings Six months to Six months to % change 31-Dec-22 31-Dec-21 YoY £m £m Net rental income 45.9 32.6 Net income from joint venture (undistributed) 7.4 6.2 Administrative & other expenses (7.9) (6.2) Finance expense (9.0) (5.7) SUPR Primary 1 #405268 Adjusted earnings 3
Slide 15: Statement of financial position
Statement of financial position As at As at % change 31-Dec-22 31-Dec-21 YoY £m £m Investment properties 1,625.1 1,413.5 Financial asset held at amortised cost 10.7 0.0 Investment in joint venture 197.8 167.5 Cash and cash equivalents 35.4 23.6 SUPR Primary 1 Other assets #405268 55.0 16.0 Gross ass
Slide 16: Impact of market yield shift on valuation
Impact of market yield shift on valuation 5.5% NIY 2,000 (18) 29 (258) 1,800 1,600 Value (£m) SUPR Primary 1 1,883 1,400 #405268 1,636 1,200 1,000 FY 22 Direct Acquisition Valuation change - Valuation change - HY 23 Direct Portfolio valuation costs(2) rental uplifts market yield shift Portfolio valu
Slide 17: Movement in EPRA NTA per share
Movement in EPRA NTA per share 120 2.9 (3.0) (18.3) 100 Pence per share 80 SUPR Primary 1 115 #405268 111 92 60 40 EPRA NTA 30 EPRA NTA EPRA earnings Dividend paid Property EPRA NTA 31 (1) June 2022 September 2022 revaluation(2) December 2022 Past performance is not indicative of future results. (1)
Slide 18: Grocery Market
Grocery Market Strong grocery market Tenant strength Omnichannel growth SUPR Primary 1 Vendors and purchasers #405268 Transaction volumes Supermarket property yields Supermarket property returns Photo: Tesco, Sheffield 18
Slide 19: Grocery market goes from strength to strength
Grocery market goes from strength to strength… 8.8% SUPR Primary 1 Grocery market #405268 growth(1) (1) Kantar data 4 weeks to 19 February 2023 vs 4 weeks to 20 February 2022 19
Slide 20: Enhancing tenant financial strength
…enhancing tenant financial strength Free cash flow guidance SUPR Primary 1 Free cash flow guidance up 29% to £1.8bn(1) #405268 up 20% to £0.6bn(2) 78% of our portfolio(3) 1) Financial Times and Tesco Q3 and Christmas Trading Statement 2022/23 – retail free cash flow of at least £1.8bn 2) Financial
Slide 21: Long term growth drivers in UK grocery
Long term growth drivers in UK grocery £33bn Growth over last 5 years(1) SUPR Primary 1 #405268 44% 17% 3% Projected Working from Grocery price population home(2) inflation(3) growth(4) Photo: Tesco, Mansfield (1) IGD channel data 2018 to 2023 (2) ONS workforce data: 44% working from home in the fou
Slide 22: Omnichannel - largest growth channel
Omnichannel - largest growth channel 230 5 year sales growth by format (£bn) 2 220 2 9 35% 210 of growth Grocery sales (£bn) 9 200 11 SUPR Primary 1 222 #405268 190 180 189 170 2018 Omnichannel Discount Convenience Online only Physical only 2023 stores grocery and other >80% of online grocery is ful
Slide 23: Tesco & Sainsbury's largest buyers of grocery property
Tesco & Sainsbury’s largest buyers of grocery property Transaction Transaction Vendors(1) Purchasers(3) value £m value £m British Land Plc 1,028 SUPR 1,830 SUPR & BA(2) JV 520 Tesco Plc 1,612 Legal & General Property 397 Realty Income 1,099 USS SUPR333 Primary 1 Sainsbury’s 520 #405268 Aberdeen Stan
Slide 24: Operator buybacks significant in 2022
Operator buybacks significant in 2022 2,400 2,003 2,000 1,903 1,878 1,833 467 98 379 Transaction volume (£m) 1,600 520 1,200 SUPR Primary 1 1,207 509 #405268 1,124 1,377 800 413 400 529 400 436 160 - 2019 2020 2021 2022 Years SUPR Other investors Tesco buyback Sainsbury’s buyback Source: Colliers tr
Slide 25: Supermarket property not immune to yield drift
Supermarket property not immune to yield drift 10.0% Supermarkets All UK property 8.4% Logistics 8.0% 7.6% Net initial yield 6.3% 6.0% SUPR Primary 1 #405268 5.7% 4.8% 4.6% 4.0% 3.9% 3.2% 2.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Years Past performance
Slide 26: Atrato supermarket property yield series
Atrato supermarket property yield series 8.0% 6.0% 5.6% 5.3% 5.2% 5.0% 4.8% 4.7% 4.6% 4.5% 4.0% SUPR Primary 1 #405268 2.0% 0.0% 2016 2017 2018 2019 2020 2021 2022 2023 (YTD) Atrato supermarket property yield series Past performance is not indicative of future results. Property yields sourced from A
Slide 27: Attractive returns in a high inflation environment
Attractive returns in a high inflation environment 9-10% Levered 7-8% Levered SUPR Primary 1 IRR #405268 ~8% Unlevered ~5% Unlevered Previous returns Current returns Forecasts are based on assumptions, estimates, opinions and hypothetical performance analysis, therefore actual results may vary, perh
Slide 28: Current Portfolio
Current Portfolio Unique portfolio Diversified income Non-grocery Omnichannel store SUPR Primary 1 #405268 Sustainability SRP investment Outlook Image: Sainsbury’s, Hessle 28
Slide 29: Unique portfolio of handpicked supermarkets
Unique portfolio of handpicked supermarkets Map key and exposure by value(1) 50 Supermarkets Tesco 50% Sainsbury’s 28% Morrisons 6% SUPR Primary 1 93% Waitrose 5% #405268 Omnichannel stores(1) Asda 2% Aldi 1% M&S 1% 4% Iceland(2) <1% Average rent to turnover(3) The portfolio shown is as at 31 Decemb
Slide 30: Growth and diversification of income
Growth and diversification of income 120 100% Rent collection 100 since inception 80 Passing rent (£m) 14yrs 60 SUPR Primary 1 Portfolio #405268 WAULT(1) 95.5 40 77.6 57.8 20 80% 28.7 Inflation-linked 19.2 13.7 rent(2) 0 Jun-18 Jun-19 Jun-20 Jun-21 Jun-22 Dec-22 1) Direct Portfolio as at 31 December
Slide 31: Complementary non-grocery portfolio assets
Complementary non-grocery portfolio assets Image: Costa and Superdrug, Chineham 8.2% 4yrs 7% Net initial WAULT(1) of Direct yield(1) Portfolio(1) Image: Glasgow Image: Bradley Stoke Image: Pets at Home, Leicester Exposure by value(1) Image: Glasgow % of Direct Units Value Portfolio DIY 4 £19m 1.2% S
Slide 32: Omnichannel stores as revenue centres
Omnichannel stores as revenue centres Tesco Thetford D Total site revenue: £65-75m pa(1) Instore sales: Home delivery: A c.£49m B c.£12m SUPR Primary 1 #405268 A C&C sales: Petrol station sales C c.£4m D c.£7m Solar under development C B This graphic is for illustrative purposes only. 1) Estimated a
Slide 33: Further developing the sustainability strategy
Further developing the sustainability strategy Asset level Working towards net zero A 3% D 16% Signatory of the Targeting full 84% UNPRI associated compliance ahead of rated C pledge 2025 deadline or above SUPR Primary 1 B 45% C 36% #405268 Appointed specialists Direct Portfolio EPC(1) Science based
Slide 34: SRP: investment timeline
SRP: investment timeline May 2020 January 2023 July 2023 JV formed Acquired BA stake Final proceeds SUPR: 12.75% SUPR: 51% due from Sainsbury’s SUPR Primary 1 #405268 1.9x money multiple February 2021 March 2023 IRR 30% Additional JV stake Sale of interest SUPR: 25.5% to Sainsbury’s This graphic is
Slide 35: SRP: Sector specialism unlocking value
SRP: Sector specialism unlocking value Invested £217m via JV into 26 Sainsbury’s stores on short leases(1) 7% Of Sainsbury’s UK turnover(3) Value created via underwriting Sainsbury’s ongoing occupation Sainsbury’s purchased Sainsbury’s leased Vacant possession Sainsbury’s purchase 21 stores for £1,0
Slide 36: SRP: Balance sheet flexibility
SRP: Balance sheet flexibility SRP average annualised income £12m(1) Net sales proceeds on disposal £228m(2) SUPR Primary 1 Deployment #405268 options Store acquisitions(3) Repay debt(4) Share buyback £13m income £11m saved Under review + inflation There is no certainty that these hypothetical circu
Slide 37: The outlook for Supermarket Income REIT
The outlook for Supermarket Income REIT STRUCTURALLY HIGHLY BALANCE SHEET ATTRACTIVE SUPPORTED CONTRACTED, FLEXIBILITY AND LEVERED GROWTH SECTOR INFLATION- SUSTAINABLE RETURNS FROM SUPR Primary 1 #405268 LINKED RENTAL DIVIDEND VALUE ADD GROWTH TRANSACTIONS Image: Tesco, Colchester 37
Slide 38: Appendix: Financial
Appendix: Financial EPRA metrics Adjusted earnings reconciliation IFRS income statement SUPR Primary 1 IFRS balance sheet #405268 Joint venture income statement Joint venture balance sheet Debt metrics Appendix: Photo: Financial Morrisons, Dalton Park 38
Slide 39: EPRA metrics
EPRA metrics As at As at 31-Dec-22 31-Dec-21 EPRA NTA per share 92 pence 113 pence EPRA NRV per share 102 pence 123 pence EPRA NDV per share 97 pence 113 pence Six months to Six months to SUPR Primary 1 31-Dec-22 31-Dec-21 #405268 EPRA EPS 2.6 pence 3.1 pence EPRA NIY 5.3% 4.6% EPRA cost ratio 16.7%
Slide 40: Adjusted earnings reconciliation
Adjusted earnings reconciliation Six months to Six months to 31-Dec-22 31-Dec-21 £m £m Adjusted earnings 36.4 26.9 Less: Swap income on hedging instruments (2.1) - Non-recurring debt restructuringSUPR costs Primary 1 (1.5) - #405268 EPRA earnings 32.8 26.9 EPRA earnings per share 2.6 pence 3.1 pence
Slide 41: IFRS income statement
IFRS income statement Six months to Six months to 31-Dec-22 31-Dec-21 £m £m Net rental income 45.9 32.6 Administrative and other expenses (7.9) (6.2) Change in fair value of properties (248.1) 11.0 Change in fair value of interest rate derivatives(1) (1.0) - Share of income from joint venture SUPR P
Slide 42: IFRS balance sheet
IFRS balance sheet As at 31-Dec-22 As at 30-Jun-22 £m £m Investment property 1,625.1 1,561.6 Financial assets held at amortised cost 10.7 10.6 Investment in joint venture 197.8 177.1 Other non-current assets 32.0 5.3 Cash and cash equivalents 35.4 51.2 Trade and other receivables 7.5 1.9 Other curre
Slide 43: Joint Venture – income statement
Joint Venture – income statement Six months to Six months to 31-Dec-22 31-Dec-21 £m £m Rental income 26.9 26.6 Expenses (0.2) (0.2) Finance cost (6.8) (7.7) Taxation (1.8) (1.7) Joint venture earnings (undistributed) SUPR Primary 1 18.1 17.0 #405268 Change in fair value of investment properties 38.0
Slide 44: Joint Venture income reconciliation
Joint Venture income reconciliation Six months to Six months to 31-Dec-22 31-Dec-21 £m £m EPRA net income from joint venture (undistributed) 7.4 6.2 Share of fair value gain on investment properties 11.5 31.0 IFRS net income from joint venture (undistributed) 18.9 37.2 SUPR Primary 1 #405268 44
Slide 45: Joint Venture – balance sheet
Joint Venture – balance sheet As at As at 31-Dec-22 30-Jun-22 £m £m Portfolio valuation (1) 1,104.1 1,066.0 Rent receivable 35.1 29.9 Bonds notional value (2) (324.0) (338.6) Interest accruals & other liabilities(3) (57.2) (61.3) Book value SUPR Primary 1 758.0 696.0 #405268 SUPR share of net assets
Slide 46: Debt metrics
Debt metrics Group As at 31-Dec-22 As at 30-Jun-22 Loan to value (LTV) 40% 19% Interest cover 3.6x 4.5x Weighted average cost of debt 2.97% 2.64% % of debt fixed or hedged 100% 61% Cash and undrawn facilities (£’000) 206,909 492,400 SUPR Primary 1 Weighted average maturity of debt(1) 4 years 4 years
Slide 47: Appendix: General
Appendix: General Investment strategy Board and Investment Adviser Key terms Share price performance Portfolio breakdown SUPR Primary 1 Inflation #405268 UK grocery sector Grocery locations Returns and comparables Addressable market Image: Tesco, Sheffield 47
Slide 48: Pillars of our investment strategy
Pillars of our investment strategy SUPR Primary 1 #405268 LONG INFLATION-LINKED FUTURE PROOFED REAL ASSET BACKING INCOME STORES LARGE FLEXIBLE SITES Images: Sainsbury’s Melksham, Tesco Bracknell, Tesco Bradley Stoke 48
Slide 49: Board of Directors and Investment Adviser
Board of Directors and Investment Adviser Supermarket Income REIT Board of Directors New Board appointment Sapna Shah Independent Director Nick Hewson Vince Prior Jon Austen Cathryn Vanderspar Frances Davies Sapna Shah was Chairman Senior Independent Chair of Audit Independent Independent Director C
Slide 50: SUPR key terms
SUPR key terms • UK listed REIT The Company • London Stock Exchange Main Market, Premium Segment Gearing • Targeted average leverage of 30-40% through the cycle IRR • Target IRR of 7 to 10%(1)(1) Governance • An independent board of directors; compliant with the AIC Corporate Governance Code • Atrat
Slide 51: Share price performance
Share price performance Relative share price performance since IPO (£p)(1) Trading volume since IPO (£p)(2) 160.0 20.0 Thousands 140.0 16.0 120.0 12.0 SUPR Primary 1 #405268 100.0 8.0 80.0 4.0 60.0 0.0 May-21 Nov-22 May-20 Feb-22 Aug-19 Jan-21 Sep-20 Mar-18 Apr-19 Jun-22 Jul-18 Jul-17 Dec-19 Oct-21
Slide 52: SUPR portfolio breakdown
SUPR portfolio breakdown Direct Portfolio – Direct Portfolio – supermarkets non-grocery Portfolio valuation £1526m £106m Passing rent(1) £86.2m £9.3m Net initial yield SUPR Primary 1 5.3% 8.2% #405268 WAULT 15 yrs 4 yrs Vacant units 0 7 Average rent per sq.ft £25 £17 Portfolio breakdown as at 31 Dec
Slide 53: 80% inflation-linked rent reviews
80% inflation-linked rent reviews 2% 18% 80% RPI 7% SUPR Primary 1 CPI #405268 OMV Fixed 73% 80% inflation-linked rent reviews relates to the Direct Portfolio only, as at 31 December 2022. Weightings based on percentage of rent roll. Rent reviews based on current lease terms. 53
Slide 54: UK grocery market - years of resilient growth
UK grocery market - 20 years of resilient growth 8.8% Kantar 250 4% growth rate(2) 222 Annualised 20yr growth 200 192 rate 178 157 150 139 Sales (£bn)(1) SUPR Primary 1 120 #405268 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (1) IGD ch
Slide 55: Discounters inflating quicker to preserve fine margins
Discounters inflating quicker to preserve fine margins 25.0% 20.0% Supermarket food inflation 15.0% SUPR Primary 1 10.0% #405268 5.0% 0.0% May-22 Jun-22 Jul-22 Aug-22 Sept-22 Oct-22 Nov-22 Dec-22 Jan-23 3 months ending Tesco Sainsbury’s Asda Morrisons Aldi Lidl Which? Supermarket Inflation Tracker.
Slide 56: UK grocery: national operators of significant scale
UK grocery: national operators of significant scale 78% of SUPR portfolio No. of stores(1) 905 597 497 263 582 990 950 Market share(2) 27.3% 15.2% 9.0% 4.7% 14.3% 9.4% 7.1% Est revenue 51.5 25.2 15.6 7.2 21.4 12.7 8.7 (£bn)(3) Margin(4) 7.7% 7.3%SUPR Primary 4.8% 1 5.7% 5.6% <1% 1% #405268 Credit ra
Slide 57: Targeting strong trading grocery locations
Targeting strong trading grocery locations 2019 Wolverhampton: sold to Tesco in 2020 Grocery location since 1980’s with Safeway until Morrisons required to sell SUPR Primary 1 #405268 Shortage of suitable alternative 2022 locations for Tesco Alternative occupier demand key for weaker tenant covenant
Slide 58: Strong relative value
Strong relative value Potential upside from yield compression Comparable Spread to SUPR Inflation-linked GILTs c.790bps 10 year GILTs c.450bps Tesco 2042 bond c.190bps YTM/IRR SUPR Primary 1 #405268 ~8% 6.1% 3.5% 0.1% Inflation-linked GILTs 10 year GILTs Tesco 2042 bond Unlevered IRR Unsecured IRR a
Slide 59: SUPR's addressable market
SUPR’s addressable market Total UK grocery property asset value c. £85bn(1) SUPR Primary 1 #405268 Leasehold asset SUPR’s addressable value c. £30bn(1) market today today(2) £1.6bn These figures are based on assumptions, estimates, opinions and hypothetical performance analysis, therefore actual res
Slide 60: 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 61: 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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