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Supermarket Income REIT
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== Active debt management in tandem with equity raising == With recurring earnings distributed in dividends, the strong growth in SUPR’s portfolio since IPO has been financed by a blend of new equity and debt, while targeting a medium-term loan to value ratio (LTV) of 30–40%. We expect it to operate towards the top of this range, reflecting the increased scale and diversification of the portfolio and the improving financial position of tenants. It can also anticipate with some confidence the significant cash proceeds from the JV in mid-2023. SUPR’s most recent equity raise closed on 20 October 2021 with 173.9m new shares issued at 115p per share to raise £200m (gross). The issue was very well received by investors with a scaling back of subscriptions despite an increase in the target issue size from up to £100m to up to £200m. SUPR’s debt facilities have increased from c £477m (including an undrawn £100m accordion option with Wells Fargo) at end-FY21 to currently c £793m (including undrawn accordion options of £38.7m with Wells Fargo and £49.8m with Barclays/RBS). Recent financing measures include: * In August 2021, the DekaBank facility was increased by £20m to c £97m. * In September 2021, the HSBC facility was increased by £10m to £150m and extended by 12 months. * In September 2021, £61.3m of the accordion option with Wells Fargo was exercised. * In January 2022, the Barclays/RBC facility was increased by £136.5m to c £250m with a remaining undrawn accordion option of c £50m. Including amortisation of loan arrangement fees, the weighted average finance cost was c 2.5% at end-H122 compared with the running interest cost of c 1.9% SUPR operates a hedging strategy designed to mitigate the impact of any significant rise in interest rates that would affect debt costs and targets to fix/hedge at least 60% of annualised debt costs. At end-H122, 44% of drawn debt was fixed/hedged14 with a further 13% capped at 3.35%. Of the expanded total debt facilities c 30% are currently fixed/hedged and we would expect SUPR to seek to use its increased borrowing flexibility arising from the credit rating to increase this towards its target. One likely possibility for achieving this would be to leverage the new Investment Grade credit rating to access fixed rate, long-term, unsecured bond funding, perhaps refinancing some of the shorter-term current facilities. Our acquisition assumptions do not fully use the current debt facilities until FY24, at which point we allow for the cash reimbursements from the JV to be redeployed on a geared basis (£184m of cash reimbursement plus £116m of debt). There is scope for SUPR to exceed our near-term acquisition assumption (£22m by end-FY22) by drawing more quickly on available debt resources while remaining within or around its target LTV range. An additional c £50m of acquisitions (in addition to the £22m we assume) would take FY22e LTV to a little over 40%.
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