Editing Supermarket Income REIT (section)

== Consistently strong returns ==

SUPR’s targeted 7–10% pa return is the product of rental growth, supporting dividend growth and, to the extent that property valuation yields do not change, is capitalised into asset value and NAV growth. Targeted returns also assume a benefit from gearing, which the company expects to be 30–40% over the medium term on a fully invested basis.

The accounting total return (change in NAV adjusted for dividends paid) has been consistently positive since the company listed in July 2017, averaging 8.1% pa and within the target range. Dividends per share have increased each year and represent c 60% of the total return. Annualised returns have steadily increased over the period (the 7.8% return in H122 represents an annualised rate of more than 16%), benefiting from swift deployment of capital resources, acquiring well-performing assets, and increased scale and diversification. Returns would be higher if adjusted for the c 7p per share of aggregate acquisition costs incurred in building the portfolio since IPO. Shareholder total return of 48% since IPO (the change in the share price adjusted for dividends paid) has been higher than the accounting total return, reflecting the premium to NAV at which the shares trade.

Our forecasts indicate an 8.9% average annual total return during FY22 to FY25, despite a drag on returns in FY24 resulting from our assumed reinvestment of the cash distributions from its JV (see details below). We have not assumed yield compression, for which there are positive indicators, and this would have a positive impact on our forecast returns.