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Unlocking value in the JV

Supermarket Income REIT 11 January 2022 Update
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Supermarket Income REIT

Unlocking value in the JV

Company update

Real estate

11 January 2022

Price

124p

Market cap

£1,222m

Net debt (£m) at 30 June 2021

390.1

Net LTV as at 30 June 2021

34.0%

Shares in issue

985.4m

Free float

99.5%

Code

SUPR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.2

6.0

14.2

Rel (local)

(0.5)

0.8

4.0

52-week high/low

125p

107p

Business description

Supermarket Income REIT, listed on the special funds segment of the London Stock Exchange, invests in supermarket property, primarily let to leading UK supermarket operators, on long, inflation-linked leases. The investment objective is to provide an attractive level of income, with the potential for capital growth, with a 7–10% pa total shareholder return target over the medium term.

Next events

H122 results

Expected March 2022

Analyst

Martyn King

+44 (0)20 3077 5745

Supermarket Income REIT is a research client of Edison Investment Research Limited

The decision by Sainsbury’s to exercise its purchase option over additional stores in the ‘indirect portfolio’ will trigger additional capital growth for Supermarket Income REIT (SUPR) within its JV, further underlining the attractiveness of this investment. Meanwhile, SUPR continues to make good progress with capital deployment, supported by a continuing strong acquisition pipeline and recently enhanced debt capital resources.

Year end

Net rental income (£m)

EPRA earnings (£m)

EPRA EPS*
(p)

EPRA NTA**/ share (p)

DPS
(p)

P/NTA
(x)

Yield
(%)

06/20

26.4

16.8

5.0

101

5.80

1.23

4.7

06/21

47.9

36.8

5.6

108

5.86

1.15

4.7

06/22e

70.7

57.5

6.2

113

5.94

1.10

4.8

06/23e

81.8

64.8

6.6

118

6.10

1.06

4.9

Note: *EPRA EPS is normalised, excluding gains on revaluation. **EPRA net tangible assets.

The JV investment has proved highly attractive

Sainsbury’s has exercised its second purchase option (of two) to acquire eight stores in the Sainsbury’s Reversion Portfolio, in which SUPR has a 25.5% beneficial interest through its 50:50 joint venture with British Airways Pension Fund. Including the first purchase option, Sainsbury’s has elected to purchase a total of 21 of the portfolio stores, to be completed in July 2023 when the current occupational leases expire. The purchase price under the option will be determined based on the assumption of a new 20-year lease to Sainsbury's and, given the quality of the stores, we expect the purchase price to be materially ahead of the current carried value and forecast an uplift in the value of SUPR’s JV investment, during FY22, equivalent to c 4% of FY21 EPRA NTA. Revaluation gains are additional to the c 11% pa recurring returns on the equity invested.

Portfolio growth prospects remain strong

We estimate that completion of the two options during 2023 will release c £180m of cash to support an additional c £300m of acquisitions on a geared basis. SUPR continues to identify acquisition opportunities that meet its strict investment criteria and, since completing its £200m (gross) equity raise in late October, it has acquired six additional stores for an aggregate c £277m (before costs), at an accretive blended average net initial yield of c 4.5%, adding scale and further tenant diversification. The number of directly owned stores is now 41, with a focus on omnichannel formats (combining in-store and online fulfilment) that can benefit from both the forecast long-term growth of grocery sales and the increasing popularity of online shopping. The acquisition pipeline remains strong and the recent £136m increase in SUPR’s revolving credit facilities provides additional funding flexibility.

Valuation: Secure income with capital potential

Our forecasts are unchanged. The FY22 target DPS of 5.94p represents a prospective yield of 4.8% with good visibility of continuing growth in DPS. Along with strong potential for further capital growth, from the JV and from the wholly owned portfolio, this supports the c 15% premium to end-FY21 EPRA NTA.

Additional details

The Sainsbury’s Reversion Portfolio JV

We reviewed the JV in detail in our December update and provide only a brief recap below.

SUPR’s 50:50 joint venture with British Airways Pension Fund has a 51% beneficial interest in a portfolio of 26 high-quality supermarket stores (‘the Sainsbury’s Reversion Portfolio’), let to Sainsbury’s, and valued at £932.5m at 30 June 2021. The reversion portfolio was created through two sale and leaseback transactions (Highbury Finance and Dragon Finance) in 2000 by Sainsbury’s, which has a 49% beneficial interest in the portfolio, occupies the stores and pays all the rents under the current occupational leases, which expire in March 2023 and June 2023. Ahead of the lease expiry, Sainsbury’s had the option to repurchase stores from each of the sale and leaseback transactions and it exercised its first purchase option in September 2021, electing to acquire 13 of the 16 Highbury Finance stores. The exercise of its purchase option over eight of the 10 Dragon Finance stores takes the total to 21 (of the 26). The transactions will be completed in March and June 2023 respectively on the expiry of the current occupational leases. Until that time, Sainsbury’s will continue to pay rent until completion, and SUPR’s beneficial interest will continue to generate recurring returns (of c 11% pa). The five stores where Sainsbury’s has not exercised its repurchase option will be sold or refinanced and may provide acquisition opportunities for SUPR.

Exhibit 1: Schedule of option terms

Two securitisations

Highbury Finance

Dragon Finance

Current lease expiry date

Mar-23

Jun-23

Sainsbury's option to purchase or regear

Aug 21 to Sept 21

Dec 21 to Jan 22

Total number of stores

16

10

Purchase options exercised

13

8

Option price setting date

Mar-22

Jun-22

Option completion date

Mar-23

Jun-23

Source: Supermarket Income REIT

The price that Sainsbury’s will pay to acquire the stores will be based on the market value of an assumed new 20-year lease to Sainsbury's with the initial rent set at the higher of passing or open market, subject to upward-only, five-yearly market rent reviews. Reflecting the quality of the stores,1 we expect the purchase price will be set well above the 30 June valuation, generating an uplift in the value of SUPR’s investment and its NAV.

The quality and trading performance of the portfolio is indicated by the fact that SUPR estimates to represent c 4% of the total Sainsbury’s estate (by floor space) but generates c 7% of annual sales.

At 30 June 2021, the valuation of the stores, with modest remaining lease length, reflected a net initial yield of 5.3%, whereas the option pricing terms and current market transaction activity suggests a level of c 4.5% for the stores purchased by Sainsbury’s. This is our central assumption and, perhaps conservatively, we attach a higher 6.0% yield to the other (five) assets. This implies an increase in the overall reversion portfolio property assets from the 30 June value of £932.5m to £1,045.5m, or 12%, reflecting a blended net initial yield for all 26 assets of 4.7%. This represents a c 4% uplift to SUPR’s end-FY21 EPRA NTA and is reflected in our forecasts. Exhibit 2 shows the sensitivity to alternative assumptions for the net initial yield of the assets where Sainsbury’s has exercised its purchase option. The first option exercise is likely to be reflected in the H122 (December 2021) valuation and the second in H222 (June 2022). Including recurring income up to mid-2023, which is not received in cash by SUPR but is recognised in the value of its investment, we forecast the value of the JV investment will reach c £180m before distributions back to SUPR. This compares with a value of c £130m at 30 June 2021 (end-FY21) and the £108.5m initial investment. The cash proceeds arising from arising from the options exercising will be received by SUPR in March 2023 (option 1) and July 2023 (option 2), providing an opportunity for reinvestment.

Exhibit 2: Sensitivity to the net initial yield assumption applied only to those assets where the purchase option is exercised

£m unless stated otherwise

30 June 2021 (end-FY21)

4.0% NIY

4.5% NIY

5.0% NIY

Total portfolio valuation

932.5

1,156.4

1,045.5

956.8

Total portfolio blended net initial yield

5.3%

4.3%

4.7%

5.2%

Rent receivable

29.6

29.6

29.6

29.6

Bonds notional value

(372.6)

(372.6)

(372.6)

(372.6)

Interest accruals & other liabilities

(71.8)

(71.8)

(71.8)

(71.8)

Book value

517.7

741.6

630.7

542.0

SUPR share of net assets

130.3

189.1

160.8

138.2

Uplift in JV interest

58.8

30.5

7.9

SUPR EPRA NTA

871.8

930.6

902.3

879.7

Uplift in SUPR EPRA NTA

7%

4%

1%

Source: Edison Investment Research

Continuing track record of swift capital deployment

Since closing its most recent £200m (gross) equity raise on 20 October 2021, SUPR has completed six acquisitions (the most recent in early January 2022) amounting to c £277m (before costs) at an accretive blended net initial yield of c 4.5%. This comprises:

Sainsbury’s Swansea and Tesco, Maidstone, announced jointly on 16 November 2021, for a combined £73.0m (before costs). The combined passing rents of c £3.4m pa are reflected in a net initial yield of 4.6% based on standard purchasers’ costs.2 The Sainsbury's store opened in 1989 and was refurbished in 2016. The seven-acre city centre site comprises a 65,000 sq ft net sales area supermarket, an 18-pump petrol filling station and more than 500 car parking spaces. The store has a purpose-built online fulfilment centre which operates 16 vans, supporting Sainsbury's online grocery network across the region. It was acquired with an unexpired lease term of 27 years, with five-yearly, upward-only, open market rent reviews.

EPRA acquisition yields assume standard purchasers’ costs of 6.8%, although the actual costs incurred can vary considerably from this, particularly in the case of corporate acquisitions with considerably lower Stamp Duty Land Tax payable compared with an individual property acquisition. For SUPR, acquisition costs have averaged c 5%.

The Tesco site in Maidstone, Kent, was purpose built for Tesco in 1990 and extensively refurbished in 2007. This seven-acre site comprises a 39,000 sq ft net sales area supermarket, a 12-pump petrol filling station, 369 car parking spaces and a small parade of adjoining units. It was acquired with an unexpired lease term of 13 years, with five-yearly, upward-only, open market rent reviews.

Sainsbury’s in Cannock (announced on 1 December 2021) for £75.8m (before costs) with passing rent of £3.2m pa reflected in a net initial yield of 4.0% based on standard purchasers’ costs. The store opened in 1997 and was extensively refurbished in 2011. It covers a large 9.1-acre site comprising a 73,000 sq ft net sales area supermarket, a 12-pump petrol filling station and 490 car parking spaces. The store has a purpose-built online fulfilment centre which operates 12 vans, forming a key part of Sainsbury's online grocery network across the region. The unexpired lease term was 15 years at acquisition, with five-yearly, upward-only, RPI-linked rent reviews (subject to a 4.0% cap and 1.0% floor).

Tesco in Sheffield (announced on 20 December 2021) for £73.2m (before costs) with passing rent of £3.5m reflected in a net initial yield of 4.5% based on standard purchasers’ costs. The store was developed for Tesco in 2011 and occupies a 7.0-acre site comprising an 88,000 sq ft net sales area supermarket, a 12-pump petrol filling station and 640 car parking spaces. The store serves as a hub for omnichannel fulfilment in the region, operating 14 home delivery vans and click & collect functionality. The unexpired lease term was 17 years at acquisition, with annual, upward-only, RPI-linked rent reviews (subject to a 4.0% cap and 0.0% floor).

Sainsbury’s Washington, Tyne and Wear, and Asda in Cwmbran, South Wales announced jointly on 5 January 2022, for a combined £55.1m (before costs). The combined passing rents of c £2.9m pa are reflected in a net initial yield of 5.3% based on standard purchasers’ costs. The Washington store was originally developed in 1977 and extensively refurbished by Sainsbury's in 2011. It comprises an 83,800 sq ft net sales area omnichannel supermarket, a 24-pump petrol filling station, and purpose-built online fulfilment docks. The store forms a key part of Sainsbury's online fulfilment operations across the region. The 11.7-acre site has provision for 800 car parking spaces and is prominently located in the town centre directly adjacent to the Galleries Shopping Centre. It was acquired with an unexpired lease term of 34 years, with seven-yearly, upward-only, RPI-linked rent reviews (subject to a 4.0% cap and 1.0% floor). The acquisition also includes two standalone quick service restaurant units operated by KFC and Tim Hortons co-located on the same site. The Cwmbran store, SUPR's first Asda acquisition, comprises an 81,600 sq ft net sales area omnichannel supermarket located on a prominent 4.4-acre site adjacent to Cwmbran Shopping Centre with access to more than 740 car parking spaces. Asda has been trading on the site since the 1970s, with the current store developed in 2015 to form a modern supermarket, which is currently undergoing further expansion to incorporate new purpose-built online fulfilment docks. The store will form a key part of Asda's online fulfilment operations across the region. It was acquired with an unexpired lease term of 10 years, with five-yearly, upward-only, open market rent reviews.

Financing flexibility for further acquisitions

Our forecasts only include an additional c £22m of capital deployment by end-FY22 (plus c £300m on a geared basis in FY24 as the JV unwinds), but SUPR has the financial flexibility to exceed this, while the acquisition pipeline remains strong. It recently announced a £136m extension of its revolving credit facility (RCF) with Barclays and Royal Bank of Canada, which is now at £300m including £49.8m of uncommitted accordion option, exercisable at any time over the term of the facility. The company has grown to a scale where, combined with stable, predominantly index-linked rental income and strong tenant covenants, access to the unsecured sterling bond market is a real possibility. In current market conditions, we would expect the bond market to provide longer maturity debt at a similar overall cost. Moreover, an unsecured bond funding platform should provide increased funding flexibility than is the case with secured debt.

Valuation

We have made no changes to our forecasts, discussed in detail in our December update.

These imply that EPRA NTA total return will continue to be towards the to of the 7–10% NAV total return targeted by SUPR.

Exhibit 3: EPRA NTA total return (accounting total return)

FY18*

FY19

FY20

FY21

IPO to end-FY21

FY22e

FY23e

FY24e

FY25e

Opening NAV per share (p)

97

96

97

101

97

108

113

118

120

Closing NAV per share (p)

96

97

101

108

108

113

118

120

126

DPS paid (p)

4.1

5.6

5.8

5.9

21.3

5.9

6.1

6.2

6.4

NAV total return

3.4%

6.6%

10.7%

12.1%

33.0%

10.8%

9.2%

7.8%

9.8%

Average annual compound return

3.4%

6.6%

10.7%

12.1%

7.5%

Source: Supermarket Income REIT data, Edison Investment Research. Note: *Adjusted for IPO issuance costs.

Based on the company’s FY22 target aggregate DPS of 5.94p, the prospective yield is 4.8%. The share price/end-FY21 EPRA NTA per share is 1.15x.

Compared with a selected group of other REITs focused on income returns derived from long leases, SUPR has a slightly higher yield and slightly higher P/NAV ratio. Its predominantly RPI-linked rent growth provides investors with considerable visibility of income and protection against inflation, while the strength of its tenant covenant has been successfully tested and even enhanced during the pandemic, suggesting the potential for further supermarket property yield tightening and NAV growth above our forecasts.

Exhibit 4: Valuation and performance summary of long-lease REITS

Price
(p)

Market cap (£m)

P/NAV*
(x)

Trailing yield** (%)

Target yield ***

Share price performance

1 month

3 months

12 months

From 12M high

Assura

69

2,038

1.18

4.2

4.2

0%

-4%

-13%

-14%

Impact Healthcare

117

410

1.05

5.5

5.5

-2%

4%

8%

-4%

Civitas Social Housing

97

598

0.90

5.6

5.7

0%

10%

-9%

-20%

LXi REIT

143

1,055

1.03

4.1

0.0

-2%

2%

19%

-8%

Primary Health Properties

150

2,002

1.30

4.1

4.3

-1%

-1%

-5%

-12%

Secure Income

423

1,371

1.08

3.6

N/A

7%

4%

36%

-2%

Target Healthcare

117

724

1.05

5.8

5.8

0%

2%

2%

-7%

Triple Point Social Housing

97

389

0.91

5.3

5.3

-1%

3%

-11%

-15%

Tritax Big Box

230

4,303

1.22

2.8

N/A

-1%

14%

40%

-6%

Average

1.08

4.6

4.4

0%

4%

8%

-10%

Supermarket Income

124

1,222

1.14

4.8

4.8

2%

6%

14%

-2%

UK property sector index

1,962

0%

9%

22%

-3%

UK equity market index

4,249

2%

5%

10%

-1%

Source: Company data, Refinitiv. Note: Priced at 10 January 2022. *Based on last reported EPRA NAV/NTA. **Based on last 12 months DPS declared. ***Based on current financial year company DPS target.

Exhibit 5: Financial summary

Year ended 30 June

2018

2019

2020

2021

2022e

2023e

2024e

2025e

£000's

 

 

 

 

INCOME STATEMENT

 

 

 

 

Rent receivable

8.5

16.9

25.5

46.2

68.6

79.8

93.7

98.3

Rent smoothing adjustment

0.5

0.4

0.9

2.0

2.1

2.0

2.0

2.0

Net service charge expense

0.0

0.0

0.0

(0.2)

0.0

0.0

0.0

0.0

Total rental income

8.9

17.2

26.4

47.9

70.7

81.8

95.7

100.3

Administrative & other expenses

(2.1)

(3.1)

(5.2)

(9.3)

(13.7)

(14.5)

(14.8)

(15.3)

Operating profit before investment property change in fair value

6.8

14.1

21.2

38.7

57.0

67.3

80.8

84.9

Change in fair value of investment properties

(4.1)

0.6

13.1

36.3

16.4

37.8

24.5

47.4

Share of profit of JV

0.0

0.0

0.5

15.5

39.4

10.6

0.0

0.0

Negative goodwill

0.0

0.0

3.0

0.0

0.0

0.0

0.0

0.0

Operating profit/(loss)

2.8

14.8

37.7

90.5

112.8

115.6

105.3

132.4

Net finance expense

(1.9)

(4.2)

(4.9)

(8.5)

(12.0)

(13.1)

(14.8)

(15.6)

Profit/(loss) before tax

0.8

10.6

32.8

82.0

100.8

102.5

90.5

116.8

Tax

(0.2)

(0.0)

0.0

0.0

0.0

0.0

0.0

0.0

Profit/(loss) for the period

0.6

10.6

32.8

82.0

100.8

102.5

90.5

116.8

Adjust for:

 

 

 

 

Changes in fair value of investment property

4.1

(0.6)

(13.1)

(36.3)

(16.4)

(37.8)

(24.5)

(47.4)

Share of changes in fair value of JV investment property

(5.6)

(26.9)

0.0

0.0

0.0

Negative goodwill

0.0

0.0

(3.0)

(3.3)

0.0

0.0

0.0

0.0

EPRA earnings

4.7

9.9

16.8

36.8

57.5

64.8

66.0

69.4

Share of profit of JV*

0.0

0.0

(0.5)

(6.6)

(12.5)

(10.6)

0.0

0.0

Adjusted earnings

4.7

9.9

16.3

30.2

45.0

54.2

66.0

69.4

EPRA cost ratio inc. direct vacancy costs

23.5%

17.9%

19.2%

16.9%

17.3%

16.1%

15.5%

15.3%

Closing number of shares (m)

184.4

239.8

473.6

810.7

985.4

985.4

985.4

985.4

Average number of shares in issue (m)

124.2

198.1

334.2

652.8

931.3

985.4

985.4

985.4

IFRS EPS (p)

0.5

5.3

9.8

12.6

10.8

10.4

9.2

11.9

EPRA EPS (p)

3.8

5.0

5.0

5.6

6.2

6.6

6.7

7.0

Adjusted EPS (p)

3.8

5.0

4.9

4.6

4.8

5.5

6.7

7.0

DPS declared (p)

5.50

5.63

5.80

5.86

5.94

6.10

6.25

6.41

EPRA earnings/dividends paid

103%

92%

84%

104%

110%

108%

108%

111%

Adj. earnings/dividends paid

103%

92%

81%

85.0%

86%

91%

108%

111%

EPRA NTA total return

6.6%

10.7%

12.1%

10.8%

9.2%

7.8%

9.8%

BALANCE SHEET

 

 

 

 

Investment property

264.9

368.2

539.4

1,148.4

1,580.2

1,620.0

1,964.5

2,013.9

Associate

0.0

0.0

56.1

130.3

169.7

0.0

0.0

0.0

Other non-current assets

0.0

0.0

56.1

131.3

169.9

0.2

0.2

0.2

Total non-current assets

264.9

368.2

595.5

1,279.7

1,750.2

1,620.2

1,964.7

2,014.1

Trade & other receivables

1.0

3.5

1.7

3.1

3.8

4.1

4.9

5.0

Cash & equivalents

2.2

9.9

20.4

19.6

22.9

197.2

9.1

14.9

Other current assets

0.0

0.0

(0.0)

0.2

0.2

0.2

0.2

0.2

Total current assets

3.3

13.4

22.1

23.0

27.0

201.5

14.3

20.2

Deferred rental income

(1.7)

(3.5)

(5.2)

(12.1)

(12.1)

(12.1)

(12.1)

(12.1)

Current tax liabilities

(0.2)

(0.2)

0.0

0.0

0.0

0.0

0.0

0.0

Trade &other payables

(1.5)

(2.6)

(6.4)

(8.4)

(9.1)

(9.9)

(11.8)

(12.1)

Total current liabilities

(3.4)

(6.4)

(11.6)

(20.4)

(21.1)

(21.9)

(23.9)

(24.2)

Bank borrowings

(88.1)

(143.7)

(126.8)

(409.7)

(640.7)

(641.7)

(767.7)

(768.7)

Interest rate derivatives

0.0

(1.1)

(2.0)

(1.2)

(0.5)

(0.5)

(0.5)

(0.6)

Total non-current liabilities

(88.1)

(144.8)

(128.8)

(410.9)

(641.2)

(642.2)

(768.2)

(769.2)

Net assets

176.7

230.5

477.2

871.3

1,114.8

1,157.6

1,186.9

1,240.9

IFRS NAV per share (p)

96

96

101

107

113

117

120

126

EPRA NTA per share (p)

96

97

101

108

113

118

120

126

CASH FLOW

 

 

 

 

Net cash from operations

8.1

13.9

26.9

42.8

55.0

65.7

80.0

83.1

Acquisition & investment in investment property

(268.7)

(91.1)

(157.3)

(570.0)

(413.4)

0.0

(318.0)

0.0

Investment in associate

0.0

0.0

(52.6)

(58.7)

0.0

180.3

0.0

0.0

Other investing activity

0.0

0.0

0.0

(0.9)

0.0

0.0

0.0

0.0

Net cash from investing activity

(268.7)

(91.1)

(209.9)

(629.5)

(413.4)

180.3

(318.0)

0.0

Share issuance (net of costs)

180.9

43.9

234.8

345.6

195.0

0.0

0.0

0.0

Debt drawn/(repaid)

88.8

56.1

(16.2)

284.7

230.0

0.0

125.0

0.0

Interest paid and other financing costs

(2.3)

(4.3)

(5.6)

(9.3)

(11.0)

(12.0)

(13.8)

(14.5)

Dividends paid

(4.6)

(10.9)

(19.6)

(34.9)

(52.3)

(59.7)

(61.2)

(62.8)

Net cash from financing activity

262.8

84.8

193.4

586.0

361.8

(71.8)

50.0

(77.3)

Change in cash

2.2

7.7

10.5

(0.8)

3.4

174.2

(188.1)

5.8

Opening cash

0.0

2.2

9.9

20.4

19.6

22.9

197.2

9.1

Closing cash

2.2

9.9

20.4

19.6

22.9

197.2

9.1

14.9

Debt as per balance sheet

(88.1)

(143.7)

(126.8)

(409.7)

(640.7)

(641.7)

(767.7)

(768.7)

Net debt

(85.9)

(133.8)

(106.4)

(390.1)

(617.7)

(444.5)

(758.5)

(753.7)

LTV**

32.4%

36.3%

19.7%

34.0%

39.1%

27.4%

38.6%

37.4%

Source: Supermarket Income REIT historical data, Edison Investment Research forecasts. Note: *Retained within JV and not received by SUPR in cash. **Based on balance sheet debt adjusted for cash.

General disclaimer and copyright

This report has been commissioned by Supermarket Income REIT and prepared and issued by Edison, in consideration of a fee payable by Supermarket Income REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Supermarket Income REIT and prepared and issued by Edison, in consideration of a fee payable by Supermarket Income REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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