Supermarket Income’s growing size and 6% dividend yield makes shares attractive, says RBC Capital

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Supermarket Income REIT PLC (LSE:SUPR)’s fundraising and acquisition pipeline are further steps on a growth plan that RBC Capital Markets expects to make the dividend yield on its shares more attractive.


Based on the combination of a lower cost of capital from being a larger more diversified business and rolling forward forecasts, the investment bank increased its price target 7% to 145p.


And with a 30% implied total return potential and 6% forecast yield, analysts also reiterated their ‘outperform’ rating.


RBC issued a note to clients after the real estate investment trust announced a GBP100mln placing and a retail offer of up to a further GBP10mln.


SUPR’s investment adviser, Atrato Capital, has identified a pipeline of seven assets with a total value of GBP420mln that meet the group’s acquisition criteria, including three currently under exclusivity and an additional asset in advanced due diligence.


RBC said factoring in the disposal of properties in a joint venture should boost the trust’s potential for net investment.


The analysts said pro forma annual EPRA earnings per share (EPS) run-rate at the time of first-half results was 7.0p, 25% above the 5.6p reported for the year to June 2021.


While the planned equity raise “may lead to a cash drag” on its 2021 and 2022 underlying earnings, they said the 7.0p in the first half “illustrates an attractive base from which earnings should grow, both organically and through acquisitions, in our view”.


Organic rent growth is also expected to pick up with inflation, with 85% of the trust’s rents index-linked and 78% to UK RPI, which is currently running at 4.8%.


“We estimate Supermarket Income’s current portfolio benefiting from an attractive 4.4% increase in rents in the year to June 2022 and 3.4% the following year,” the analysts said.

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