Supermarket Income REIT: The clever salmon!

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Swimming upstream can be a hazardous occupation especially when you see every other creature travelling in the other direction, and fast. Nowhere is this analogy more relevant than the current predicament in the UK retail real estate market. The news has been awash with alarming rates of high street retrenchment and major retailers using the now commonly known “CVA” or (Company Voluntary Arrangement) to reduce the rents they’re paying or worse quitting premises altogether. One would, therefore, naturally surmise that this isn’t the most fertile environment for making acquisitions in the commercial property space. So where is the opportunity? Step in Supermarket Income REIT (LSE: SUPR) the upstream swimming salmon, which has carved itself a niche in the UK real estate market with a business proposition that can be repeated time and again for the benefit of professional investors. Targeting out of town supermarkets SUPR appears to have hit on something of a hidden gem in terms of commercially de-risked assets which are in high demand. It is a combination of long leases, upward only RPI linked rent reviews, the scope for development around the premises and the rising requirement for “last mile” distribution centres that distinguishes SUPR’s acquisition criteria. The average lease length of the company’s portfolio is 19 years, but this hasn’t turned them into lazy landlords. Using a proactive approach, opportunities have been identified to develop the assets by adding retail space into quieter car parks and even installing clean electricity generation capability. So how have they performed so far? Since the £100M IPO in July of 2017 the company has paid out an average dividend of 5.5% with an 8% total shareholder return for the period. As rent reviews begin to kick in this may well stand to increase. As the company continues to make strategic acquisitions (of which the latest was July 2018) it may become appropriate to switch the old adage of “safe as houses” to “safe as supermarkets”.

Tim Sohal Corporate Broking

Excerpt from Daniel Stewart’s Market Signals


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