Supermarket Income REIT deals get broker thumbs up

Supermarket Income REIT (SUPR) has deployed £40.9 million into new acquisitions, securing a Tesco superstore in Craigavon and 10 Sainsbury's convenience stores at an average net initial yield of 6.4%. These transactions are part of the REIT's strategy to redeploy capital from its Blue Owl joint venture, with £99.8 million now invested and an additional £230 million earmarked for future purchases. Stifel reiterated its 'buy' rating and 95p target price, viewing these deals as evidence of earnings growth, while the company maintains a pro-forma loan-to-value of 36% and offers an attractive 7.7% dividend yield, fully covered by rents.

Analysis

Supermarket Income REIT (SUPR) has strategically deployed £40.9 million into two key acquisitions: a 130,000 sq ft Tesco superstore in Craigavon and a portfolio of ten Sainsbury's convenience stores. These transactions achieved an average net initial yield (NIY) of 6.4%, with the Tesco asset yielding 6.5% and the Sainsbury's bundle 6.1%. The leases for both acquisitions are long-term (15 years) and feature CPI-linked rent reviews, providing inflation protection.

These acquisitions represent a significant step in SUPR's capital redeployment strategy following the Blue Owl joint venture, with £99.8 million now invested and a further £230 million planned. Stifel reiterated its 'buy' rating and 95p target price, interpreting these deals as concrete evidence of earnings growth feeding through. The broker's positive outlook underscores confidence in the REIT's ability to execute its strategy and enhance shareholder value.

SUPR maintains a robust balance sheet, with a pro-forma loan-to-value (LTV) of 36%, projected to peak around 42% next year, and a weighted average unexpired lease term (WAULT) of 11 years. The company offers an attractive 7.7% dividend yield, based on Stifel's 6.2p payout forecast, which is fully covered by rental income. This strong income profile, coupled with inflation-linked leases, positions SUPR favorably in the current market environment.

Key Decisions for Investors

• Investors seeking stable income should evaluate Supermarket Income REIT's attractive 7.7% dividend yield, which is well-covered by inflation-linked rental income.
• Monitor the deployment of the remaining £230 million in capital for future acquisitions, as these will further shape the portfolio's growth and yield profile.
• Consider the strategic diversification into convenience stores and the inflation-hedging characteristics of the long-term leases as key drivers for long-term value.