The capital raises among the JSE’s 40-odd property stocks continue to come thick and fast. In recent months, investors have aggressively taken up shares offered by the likes of Fortress Real Estate Investments, Vukile Property Fund, Hyprop Investments, Fairvest, Spear Reit and Sirius Real Estate, all of which are looking to bulk up their portfolios.
Last week, Supermarket Income Reit (SUPR), the UK-focused grocery store owner, joined the fray and raised a quick £100m (R2.2bn) among UK and local shareholders, increasing the number of shares in issue by 10%. It was the first time new shares in the business were offered to South African investors since the FTSE 250 company made its JSE debut in December 2024.
SUPR focuses exclusively on grocery-tenanted real estate, mostly standalone big-box supermarket stores. It owns a £2bn portfolio of 131 properties across the UK and France that are let to major food retailers such as Tesco, Sainsbury’s, Asda and Carrefour.
At the time of its JSE secondary listing, SUPR didn’t issue new shares, which made it difficult to buy and sell the stock in sizeable volumes on the JSE. Despite being no minnow, with a market cap of more than R23bn, the real estate investment trust (Reit) isn’t included in any of the JSE’s property indices, as its investable South African float is simply too small. As a result, it hasn’t really appeared on the radars of bigger fund managers.
The company hasn’t disclosed what percentage of the £100m was raised locally. But SUPR CEO Rob Abraham tells the FM that several South African institutions participated, which he says should raise the company’s profile among JSE investors.
He adds that the success of last week’s equity raise should reinforce the Reit’s investment case, as the proceeds will be used to fund a £216m pipeline of deals comprising nine UK-based grocery assets. “That will enhance returns for shareholders and support the company’s ambition of doubling its portfolio from £2bn to £4bn.”
In the six months to December last year, management already increased the portfolio value by 20% by clinching deals worth nearly £400m. Those included 20 Carrefour stores that were acquired on a sale-and-leaseback basis, taking SUPR’s portfolio of Carrefour-tenanted assets in France to 46.
While UK grocery-tenanted assets will likely remain the core of the portfolio, at about 85%, Abraham would like to grow the European footprint from 10% to about 15%, potentially branching out to other countries besides France, “but only if they meet the company’s stringent investment criteria”, he says.
The question for South African investors who don’t yet own the stock is: why SUPR, and why now?
The Reit isn’t necessarily one of the sexiest real estate counters on the JSE, but it offers a highly secure and predictable hard currency income stream in its food store niche. That’s because grocery tenants tend to sign much longer leases than other retailers. SUPR’s average lease expiry term is 12 years.
The grocery sector is regarded as highly defensive, as it is needs-based and less affected by economic cycles and interest rate movements than other retail categories. Grocery sales in the UK, for example, haven’t dipped in the past 10 years. Last year, grocery sales turnover reached £256bn, up 23% over five years.
Analysts say another attraction is that SUPR’s business model is simple and easy to understand. “We think it’s a neat little company,” says Ninety One portfolio manager Luqman Hamid. He compares SUPR’s business model with US triple-net leases, where tenants pay most of the property’s operating costs, making for predictable cash flows.
Hamid says the stock is at a fairly attractive starting yield of close to 7%, with income growth typically linked to inflation.
Though SUPR is trading roughly in line with its NAV, there’s also potential for capital uplift as the portfolio continues to grow. Hamid says the stock offers attractive total returns “if management can continue to consolidate the grocery space in the UK and continue to diversify in the EU”.
Luke Dawson, research analyst at High Street Asset Management, shares this view: “SUPR’s portfolio, with its long leases to leading UK grocers such as Tesco and Sainsbury’s, near-full occupancy and largely inflation-linked rentals, generates resilient hard currency cash flows, making it an ideal fit for the rand hedge strategy of our local balanced fund.”
Referring to SUPR’s sterling-based dividend yield of close to 7%, Dawson notes that it is among the highest and most secure in the UK listed property sector. “Dividends are supported by resilient grocery rental income rather than more cyclical retail property,” he says.
He adds that the earnings-accretive acquisitions funded by the equity raise should lift earnings from the first full year and help to reduce an already sector-low cost ratio, while underpinning management’s target of raising annual dividend growth to at least 2% from FY2027 (the 12 months to June 2027). Dividend payouts were up 1% for the six months to December 2025.
Dawson says: “We see a business that should keep compounding a secure and growing income stream, underpinning our long-term conviction about the stock.”