The grocery property investor has issued new shares at 82p to help fund around £65.2m of acquisitions, weeks after reporting a sharply enlarged portfolio.

Supermarket Income REIT (LSE:SUPR) has raised £60m of fresh capital to support its next round of property purchases. The UK-focused grocery landlord issued 73.2 million new shares at 82p each through a placing and retail offer.

The proceeds, together with additional borrowing, are intended to finance acquisitions worth about £65.2m, which the company expects to enhance earnings. Directors and senior executives also subscribed for shares in the raise.

Chief executive Rob Abraham described the support from existing and new investors as a clear endorsement of the strategy, and said the purchases would further diversify the portfolio by grocery operator, location and asset type.

About the company

Supermarket Income REIT is a real estate Investment trust that invests in grocery stores in the UK and, more recently, in France. Its properties are mainly large supermarkets let to major grocery operators on long leases, and many are also used to fulfil online orders. Because food is a necessity for households, the income from these buildings is regarded as relatively dependable compared with other types of commercial property.

The company earns rental income from its tenants, with leases that typically run for many years and often include rent reviews linked to inflation, sometimes within agreed limits. It pays most of its income to shareholders as dividends, as REIT rules require, and funds growth through a mix of borrowing and new shares. Performance is judged by measures such as EPRA net tangible assets, EPRA Earnings and Dividend cover.

Strategy focuses on acquiring well-located stores, diversifying tenants and geography, and managing Debt prudently. The article reports gross Assets of £2.2bn, up 37%, occupancy and rent collection of 100%, EPRA net tangible assets of 87.5p a share and 6.2p of dividends for the year, and the latest £60m raise is intended to fund around £65.2m of purchases.

Pricing against asset value

The issue price is worth setting against the most recent Balance Sheet figures. At the June year end, the group (LSE:SUPR) reported EPRA net tangible assets of 87.5p per share, up from 87.1p a year earlier. Placing new shares at 82p therefore represented a discount to that last reported value of about 6%, although the fair comparison will depend on how the acquired assets are valued and the earnings they generate.

The decision to raise Capital below net asset value highlights a tension familiar across the listed property sector. Issuing shares at a discount can dilute asset value per share, so the case for doing so rests on the income the new assets deliver relative to the cost of capital. The company's description of the deal as earnings-enhancing addresses this directly, even if the size of that benefit has not been spelled out.

Why REITs raise capital through share issues

Property investment companies cannot retain much profit, so growth normally depends on external capital. When shares trade near or below the value of the assets, issuing new ones can dilute net asset value per share, so managers need to show that acquisitions will lift income by more than enough to compensate. Placings to institutions are quick, while a retail offer lets smaller shareholders take part, which is why both were used here.

Borrowing is the other tool. Loan-to-value ratios give an indication of how much debt supports the portfolio, and lenders and credit-rating bodies pay close attention to them.

Measures that will guide the next update

Several indicators will show how the expansion is working. Dividend cover, which was below 100% in the latest year, is the clearest test of whether earnings from new assets can support the payout. Net tangible assets per share will reflect property valuations, which respond to Interest Rate expectations and to the yields investors demand.

The company's target of growing the dividend by at least 2% a year from the 2027 financial year adds a benchmark. Readers may also look at the level of debt after the acquisitions complete, the profile of Lease expiries and rent reviews, and the extent to which the new stores diversify the tenant base.

The pace at which the new properties are acquired and brought into the income stream will also affect near-term earnings, as capital raised and held before deployment earns little.

Scale, cover and dividend

The fundraising follows a year of rapid expansion. Results reported in September showed gross assets of £2.2bn, up 37% from £1.6bn, with occupancy and rent collection both at 100%. Loan-to-value stood at 45% on a pro forma basis, a level that gives context to the decision to fund the new purchases mainly through new shares.

Earnings were less buoyant. EPRA Earnings Per Share slipped 4% to 5.7p from 6p, and dividend cover was 93%, meaning that the payout was not fully covered by earnings during the year. The company paid 6.2p in dividends over the period, an increase of 2%.

Improving that cover is a central consideration for investors, and the extent to which the latest acquisitions add income will be watched closely. The company (LSE:SUPR) has set a target of growing its dividend by at least 2% a year from the 2027 financial year.

The most recent payment was a quarterly Interim Dividend of 1.575p per share, covering the three months from 1 July to 30 September. The shares went ex-dividend on 29 October and the payment is due on or around 27 November, in cash only, with no scrip alternative. As the new shares were announced after the Record Date of 30 October, the holders of those shares would not ordinarily be expected to participate in that distribution.