Atrato Capital on Supermarket Income REIT’s growth strategy; benefits of internalisation

Hello, you're watching Proactive. I'm joined by Rob Abraham and Michael Perkins from Atrato Capital investments advisor to Supermarket Income REIT. Rob, Mike, very good to speak with you today. Rob, I'll start with you; Supermarket Income REIT reported its interim results for the six months to the end of December 2024. Could you talk us through some of the highlights?

Yes, thanks Stephen. Good to be back again. I think for us, the messages from this set of results really is all around the progress against the strategic initiatives we announced in November last year. So the key areas there were cost reductions and with the recently announced proposed internalisation, there are significant savings to the company there. We've also been recycling proceeds of a recent disposal. Some of that has been used to fund the internalisation. But what we're talking to there is disposing of an asset back to Tesco. So demonstrating exactly how important these assets are to Tesco, at a price that 7% above where the assets are marked in our books. The next real item of progress has been on lease renewals, and we've extended our 3 shortest leases back to 15 years, at rents that are materially above the MSCI supermarkets benchmark for rent, so 35% above that level. So really again, demonstrating the importance of the assets and the benefit of owning top performing stores. And in that you get higher rents. And then lastly, we are working continuing to work towards delivering a strategic joint venture. So that will bring us to a close on the various strategic initiatives.

Rob, you mentioned internalisation. Can you tell us what the key benefits are for the company?

Yes. So look, I mentioned the financial benefit there. So there's £4 million of savings per year. So that ultimately flows to earnings and supports dividend cover. But also there are various strategic benefits as well. So we're able to transition the entirety of the team, the platform, the processes in a very efficient and collaborative process. And it also allows us to have greater access to capital, whether on the debt side, but also in terms of broadening the investor appeal. So we're able to explore a change of listing for the company. And it also should appeal more to overseas investors. So really this is about a kind of simplified proposition with a lower cost base, a net per cost ratio which would be amongst the sector leaders at below 9%. And ultimately we hope will drive interest in the company.

Thanks, Rob. Mike, could you tell us how these updates are translating into the financial results you've announced today?

Thanks, Mike. Rob, what can we expect from Supermarket REIT in the coming months, and what are your key objectives?

Yeah, so our focus is on ultimately growing earnings, enhancing dividend cover certainly on the long term and these initiatives are ultimately designed to close the current discount to Nav. So in the near term, the areas of focus will be delivering the internalization that's been proposed that goes to a shareholder vote on the 20th of March. But we would aim to complete that before the end of the month. Will then be looking to change the explore the change of listing thereafter. We're also looking to progress the strategic joint venture discussions. And finally, also looking to the debt stack. We will be refinancing those, and exploring options around longer dated bonds to more closely match the long dated lease profile. So, look, it's been a busy period already and plenty more to come. But yeah, we're feeling pretty positive about the opportunities.

And I hope you'll keep us updated on any progress. Thank you very much for speaking with us today.

Thank you very much, Stephen.

That's Rob Abraham and Michael Perkins from Atrato Capital Investments advisor to Supermarket Income REIT.