Supermarket Income REIT Share Price Fell 2.9% on Its H1 Results

The Supermarket Income REIT PLC (LON: SUPR) share price fell 2.88% after the company released its interim results for the six months ended 31 December 2023. The company showcased a resilient financial performance, marked by an 18% increase in operating profit to £45.0 million.

The growth was driven by a 10% rise in annualised passing rent, reaching £104.7 million, bolstered by strategic acquisitions and contractual rental uplifts. A steadfast 100% rent collection rate and a reduced EPRA cost ratio from 16.7% to 15.1% further underscored this robust performance.  

Sainsbury's Reversion Portfolio joint venture earnings were effectively replaced with higher-yielding acquisitions, contributing to the overall financial health. Adjusted earnings per share remained stable at 2.9 pence, reflecting the company's reduced leverage.

The firm is well on its way to achieving its full-year 2024 dividend target of 6.06p, buoyed by significant debt capacity that primes it for future earnings growth and an ability to capitalise on current yields.

The performance is significantly anchored in the structural growth of the grocery sector. The UK grocery market has seen an 8% increase in sales, with projections pointing to a £250 billion valuation by 2024. The sector witnessed a record £2.1 billion in investment activity in UK grocery real estate in 2023, with the company's major tenants, Tesco and Sainsbury's, expanding their market share by 2% to a combined 44%. 

The growth is particularly notable in large-format stores, which reported a 10% increase in sales. This indicates that store sales growth continues to outstrip rental growth, thus enhancing the affordability of rental values.

The company boasts a unique portfolio of 55 mission-critical supermarkets, characterised by a future-proofed selection of omnichannel stores, a 13-year weighted average unexpired lease term, and 78% of rental income being inflation-linked.

A significant portion of the income, 77%, is secured by strong-performing tenant covenants from Sainsbury's and Tesco. Additionally, 93% of the portfolio's stores offer online fulfilment capabilities, ensuring the company is well-placed to capture current and future growth in online sales.

Regarding property valuations, the portfolio was independently valued at £1.68 billion, including recent acquisitions amounting to £36.4 million, reflecting a net initial yield of 5.8%. This valuation is favourable compared to the broader property market, with a like-for-like valuation decline of 3.2% versus a 4.0% decline in the MSCI All Property Capital Index.

Supermarket Income REIT share price. 

The Supermarket Income REIT share price fell 2.88% to trade at 74.64p from Tuesday’s closing price of 76.85p.