FY2025 in focus: higher income, lower debt, and a platform reset
Supermarket Income REIT (SUPR) has delivered a busy and genuinely transformational year. Net rental income rose to £113.2 million (+6%), IFRS earnings swung to a 4.9 pence profit per share (from a loss), and the balance sheet de‑risked with loan to value (LTV) cut to 31% (from 37%). The dividend was increased to 6.12 pence (+1%), with cover at 0.98x as cash from asset sales is redeployed.
Crucially, SUPR internalised management, launched a £403.3 million joint venture at a premium to book value, and locked in long‑dated debt via an oversubscribed £250 million sterling bond at a 5.125% coupon. All of that positions the company for scale and fuller dividend cover into FY26.
| Metric | FY2025 | FY2024 | Comment |
|---|---|---|---|
| Net rental income | £113.2m | £107.2m | +6% from like‑for‑like growth and acquisitions |
| EPRA EPS | 6.0p | 6.1p | -2% due to temporary cash drag |
| Dividend per share | 6.12p | 6.06p | +1%; FY26 target minimum 6.18p |
| Dividend cover (EPRA basis) | 0.98x | 1.01x | Expected to improve as proceeds are reinvested |
| EPRA cost ratio | 13.0% | 14.7% | Efficiency gains from internalisation |
| EPRA NTA per share | 87.1p | 87.0p | Flat despite a year of recycling |
| Portfolio valuation (incl. JV share) | £1,625m | £1,776m | Lower due to disposals; like‑for‑like +1.9% |
| LTV | 31% | 37% | More headroom for growth |
Why management calls this “transformational”
Internalisation: lower costs, tighter alignment
SUPR brought the management team in‑house in March, targeting at least £4 million of annual savings. The EPRA cost ratio dropped 170 bps to 13.0% and management is aiming for below 9% in FY26 – among the sector’s lowest. Internalisation also aligns the team more closely with shareholders and enables fee income from partnerships.
Public bond and fixed debt costs
Post year‑end, the company issued a £250 million, six‑year sterling bond at 5.125%, extending average debt maturity to 3.9 years (from 2.0 years) and keeping 100% of drawn debt fixed or hedged. Weighted average cost of debt at period end was 4.2%.
Blue Owl joint venture proves values and unlocks capital
Eight high‑yielding stores were transferred into a 50:50 JV with Blue Owl for £403.3 million, 3% above 31 December 2024 book value. SUPR retained a 50% stake, realised c.£200 million net proceeds, and earns a 0.6% management fee (c.£1.2 million annually). That’s a neat combination of valuation proof, liquidity, and incremental earnings.
Lease renewals: affordability of rents confirmed
On the three shortest Tesco leases (Bracknell, Bristol, Thetford), SUPR agreed 15‑year extensions with RPI‑linked annual reviews. Day‑one rents were set at an average 4% rent‑to‑turnover – in line with SUPR’s underwriting – 35% above the MSCI supermarkets average rent per sq.ft. and 13% ahead of the valuer’s ERVs. That is strong evidence tenants can and will pay for mission‑critical locations.
Earnings, dividends and cover
EPRA EPS was 6.0 pence (-2%) due to “cash drag” – the short period between selling into the JV and reinvesting. The board raised the dividend to 6.12 pence and guided to a FY26 minimum of 6.18 pence. Cover at 0.98x is just shy of 1x, but with cost savings annualising, the bond in place, and proceeds being deployed into 7%+ yields, I expect cover to improve through FY26.
Buying well: yields comfortably above debt costs
- Sainsbury’s, Huddersfield – £49.7 million at a 7.6% net initial yield (NIY).
- Nine Carrefour stores (France) – €36.7 million at a 6.8% portfolio NIY.
- Post year‑end: Tesco, Ashford – £54.1 million at a 7.0% NIY; Waitrose, Anglesey – £4.8 million at a 6.1% NIY.
With acquisitions at an average 7.3% yield versus a 4.2% cost of debt at year end, the spread is attractive. In plain English: new buys should be earnings accretive.
Portfolio health: defensive income with inflation linkage
- 100% occupancy and 100% rent collection since IPO.
- WAULT (average unexpired lease length) of 11 years; 77% of rent is inflation‑linked (mostly UK caps at 4%; French leases uncapped).
- EPRA NIY 5.8% (“topped‑up” 5.9%); like‑for‑like valuation +1.9%.
- Tenant mix anchored by Tesco and Sainsbury’s (71% of rent), with Carrefour exposure now established in France.
Sector backdrop remains supportive: UK grocery sales were up 5.4% year on year in July 2025 and online stands at 12% of the market, both underpinning omnichannel stores as last‑mile fulfilment hubs.
Capital recycling that adds value
- Sold Tesco, Newmarket for £63.5 million – a 7.4% premium to June 2024 book value.
- Formed the JV at a 3% premium to December 2024 book value.
Disposals at premiums validate valuations and free capital for higher‑yield reinvestment. That’s the playbook behind the marginal dip in EPRA EPS this year, and the reason cover should normalise as cash is put to work.
Risks to track (and why I’m comfortable)
- Dividend cover below 1x – a short‑term issue linked to cash drag. The pipeline and cost reductions should close the gap.
- Interest rates – largely hedged; 100% of drawn debt fixed/hedged and Fitch’s BBB+ rating was reaffirmed.
- Inflation caps – most UK reviews are capped at 4%, but affordability is strong (4% rent‑to‑turnover benchmark) and like‑for‑like rent grew 2.4%.
What could move the shares next
- Faster redeployment of JV proceeds into 7%+ NIY acquisitions.
- Evidence of cost ratio grinding towards the sub‑9% target through FY26.
- Further lease extensions or regears that demonstrate rent affordability and lift valuations.
- Scaling the Blue Owl JV towards c.£1 billion GAV, boosting fee income and capital flexibility.
My take: set up for earnings growth and better cover
It’s been a year of doing the hard yards. Internalising management, proving values via the JV and a premium disposal, fixing more debt at known costs, and buying assets at yields comfortably ahead of the cost of capital are exactly what I want to see in a specialist REIT at this point in the cycle.
Yes, dividend cover dipped to 0.98x, but the moving parts are positive: like‑for‑like rental growth, sector tailwinds, a cleaner balance sheet (LTV 31%), and c.£450 million of liquidity to deploy. With a target dividend of at least 6.18 pence for FY26, the direction of travel is clear – improve cover, grow earnings, and narrow the residual discount to NAV.
For income investors wanting exposure to essential retail infrastructure, SUPR continues to look well placed. The playbook now is execution – and on that, FY2025 shows a team that can get things done.
