Solid Returns - (SUPR)
Here we are again, with Supermarket Income REIT (SUPR) doing what is becoming the customary share price dance – two steps forward, one step back as it raises a chunk of new capital to do what it does – buying supermarket properties and leasing them straight back to the store operator.
Since launched at 100p in July 2017, SUPR shares have edged to a peak of 112.5p and were sitting comfortably close to 111p until this week’s news of a monster fund-raising at 104p. That has taken them back to 109p.
It is frustrating for holders looking for something more exciting. Every time the shares begin to edge upwards nicely, the board hits them with a fresh fund-raising so that they can buy more supermarket properties. While that process ought to ensure future growth for investors, it does make it a painfully slow process.
Despite that, SUPR shares continue to be recommended here as a super-solid long term income play. At 109p, the yield is just over 5.3% on the predicted 5.86p dividend for the current June 30 year, and that is attractive given the company’s intention to carry on raising it year by year, as it has done from a base of 5.5p.
It is a formula with a growing fan club among the institutions who will be happily taking part in the current placing of 150m shares at 104p. The company is also seeking approval for a further placing programme which could see the issue of up to 450m shares in a placing programme based on asset value. The net asset value as at June 30 was 101p (at last getting above the original issue price) but new shares under the placing programme would bear certain other costs.
SUPR already has targets enough to use whatever it can get. Acquisitions worth £135m are already under discussion, and a further potential pipeline of £270m has been identified. All are with major supermarket groups or other well-known retailers.
Delve deep into the bumper prospectus to support all of this lot (at 235 pages, it is a monstrous wasteful enterprise) and you find that the board of SUPR are actually very bullish about the business, despite the slow burn out front. They see their supermarket customers (especially Tesco) prospering in the years ahead, with operators seeking to buy back supermarket properties, assets protected against inflation, attractive to overseas investors, with a reduced supply and growing demand all helping to push yields on such properties lower (and hence capital values higher).
The prospectus points to a return of 24% bundling capital growth with income on SUPR shares since flotation. That may be a touch flattering, but the target (not guaranteed) return of 7% to 10% a year total return looks sensible and attractive.
Attractive, that is, to those seeking relatively secure income bolstered by modest capital growth. If you have some SUPR already, its looks worth taking up new shares (minimum application 1,000) at 104p. Even at 109p, the 5.3% yield looks worth having for a source of decent, low-risk income at a time when the overall market looks uncertain.
There are property-based real estate investment trusts with much higher returns, but few with such a solid look and good return, suitable as a long term play to see out any storms.
Sadly, some brokers are reluctant to deal in SUPR because of a misplaced concern over risk. It is hard to find a way round this, daft though it might be.