Tesco and Sainsbury’s landlord reports profit boom despite declining assets

Supermarket Income REIT, which rents out properties to some of the UK’s biggest supermarkets, saw operating profit jump 18 per cent last year, even as its net assets dropped eight per cent in the same period.

The real estate investment trust focuses on buying up grocery properties and renting them out to supermarkets.

In its interim results published today, the FTSE 250-listed trust revealed that operating profit has climbed to £45m, largely due to a 10 per cent increase in annualised passing rent to £104.7m for the second half of 2023.

Martyn King, director of financials at Edison Group, described the results as “robust”, noting the trust’s “increasingly positive outlook” for future market rental growth and opportunity for acquisitions due to its strong balance sheet.

However, Peel Hunt analysts James Carswell and Matthew Saperia were more pessimistic, describing the trust’s like-for-like rental growth as “muted” at 2.5 per cent anuually.

The trust’s share price has dropped 1.1 per cent today. It is down 12.3 per cent since the start of the year.

The UK supermarket sector has maintained strong growth, growing eight per cent in the period covered by the results, and Supermarket Income REIT’s main tenants, Tesco and Sainsbury’s, have continued to gain market share.

The duo now control 44 per cent of the UK market, up two per cent from the year before.

“Market rents typically follow store turnover but for now are being outpaced, increasing affordability, and setting the scene for future growth,” said King.

In contrast to the broader UK property market, last year was a record year for supermarket real estate investment trading, as institutional investors have shown greater interest in the sector.