TIDMSUPR
RNS Number : 9915M
Supermarket Income REIT PLC
20 September 2023
SUPERMARKET INCOME REIT PLC
(the "Group" or the "Company")
AUDITED RESULTS FOR THE YEARED 30 JUNE 2023
GROCERY SECTOR STRENGTH UNDERPINS DEMAND FOR MISSION CRITICAL
SUPERMARKETS
Supermarket Income REIT plc (LSE: SUPR), the UK supermarket real
estate investment trust providing secure, inflation-linked, long
income from grocery property in the UK, reports its audited
consolidated results for the Group for the year ended 30 June 2023
(the "Year").
FINANCIAL HIGHLIGHTS
12 months 12 months
to to Change in
30-June-23 30-June-22 Year
-------------------------------------- ------------- ------------- -------------
Annualised passing rent(1) GBP100.6m GBP77.6m +30%
Operating profit(2) GBP79.8m GBP58.2m +37%
Adjusted earnings(1,3,4) GBP72.4m GBP57.4m +26%
Changes in fair value of investment (GBP256.1m) GBP21.8m n/a
properties
Dividend per share declared 6.00 pence 5.94 pence +1%
Adjusted EPS(1,3) 5.8 pence 5.9 pence -2%
Dividend cover(1,5) 0.97x(5) 1.08x n/a
-------------------------------------- ------------- ------------- -------------
Change in
30-June-23 30-June-22 Year
-------------------------------------- ------------- ------------- -------------
IFRS net assets GBP1,218m GBP1,432m -15%
EPRA NTA (1) GBP1,156m GBP1,427m -19%
EPRA NTA per share (1) 93 pence 115 pence -19%
EPRA LTV (1) 35.2% 22.2% n/a
Direct Portfolio net initial
yield (1) 5.6% 4.6% n/a
-------------------------------------- ------------- ------------- -------------
Resilient financial performance with strong income growth
-- 30% increase in annualised passing rent to GBP100.6 million
o 100% occupancy
o 100% of rent collected
o 4.1% average rental uplift
-- 26% increase in adjusted earnings to GBP72.4 million
-- FY 2023 dividend of 6 pence per share, target dividend of 6.06 pence per share for FY 2024
Grocery sector strength and resilience driving elevated property
investment volumes
-- UK grocery market grew 11% during the period(6)
-- 30% increase in UK grocery market since IPO to GBP242 billion(7)
-- Supermarket store revenues growing much faster than rents,
improving affordability and rental values
-- UK supermarket property investment volumes exceeded GBP1.7 billion during the year(8)
Active portfolio management - accretive asset sales and capital
recycling
-- Sale of interest in 21 supermarket properties held in the SRP at a NIY of 4.3%(9) and a total consideration of GBP430.9 million(10) , delivering a:
o 30% IRR
o 1.9x money-on-money multiple
-- Purchase of eleven supermarket properties at a NIY of
5.5%(11) for a total consideration of GBP399.0 million
High-quality portfolio of mission critical supermarkets(12)
-- Future-proofed portfolio of omnichannel stores
-- Capturing elevated online grocery demand, which is up +80% since 2019(13)
-- 14 years weighted average unexpired lease term ("WAULT")
-- Strong performing tenant covenants; 77% of income from Sainsbury's and Tesco
-- 78% of rental income is inflation-linked, subject to caps of 4% per annum on average
Lower supermarket property valuations reflect higher interest
rates with encouraging indications that valuations are
stabilising
-- Direct Portfolio independently valued at GBP1.69 billion (30
June 2022: GBP1.56 billion), reflecting a NIY of 5.6% as at 30 June
2023 (30 June 2022: 4.6%)
-- Direct Portfolio value stable versus last reported valuation
(31 December 2022: GBP1.63 billion reflecting a NIY of 5.5%)
Strong balance sheet with 100% of drawn debt hedged
-- Fitch Ratings Limited ("Fitch") investment grade credit
rating of BBB+ reaffirmed in February 2023
-- Total debt further reduced post balance sheet with current LTV of 34%
-- Refinancing of facilities during the year and post balance
sheet extending weighted average debt maturity by 12 months to four
years(14) (30 June 2022: four years)
-- Unsecured debt increased to 61% of debt commitments (30 June 2022: Nil)
-- 100% of drawn debt hedged and interest rate hedging extended by 12 months:
o Weighted average finance cost fixed at 3.1% (30 June 2022:
2.6%)
o Existing in-the-money hedges restructured to extend hedge term
at zero net upfront cost
Continued progress on sustainability and governance
programme
-- Supported the responsible investment commitments made by our
Investment Adviser as a signatory of the Net Zero Asset Managers
Initiative and United Nations Principles for Responsible
Investment
-- Published our first voluntary, fully TCFD compliant annual
report, consistent with all 11 of the TCFD recommendations and
recommended disclosures
-- Committed to submit a target to the Science Based Target Initiative by Q4 2023
Nick Hewson, Chair of Supermarket Income REIT plc,
commented:
"The UK grocery sector has again demonstrated resilience despite
the challenging macroeconomic environment we have experienced
during the year. We remain focused on our investment strategy of
acquiring and managing a high-quality portfolio of omnichannel
supermarkets. These give us exposure to the fastest growing segment
of the UK grocery market which itself is experiencing strong
growth.
During the year, Sainsbury's purchased our interest in the
Sainsbury's Reversion Portfolio joint venture for GBP430.9 million
which we redeployed into higher-yielding supermarkets that met our
strict investment criteria alongside reducing our debt, materially
strengthening our balance sheet.
This purchase by one of our own tenants of 21 of its own stores
highlights the attractiveness of UK supermarket property, which is
further illustrated by the fact that the year has seen in excess of
GBP1.7 billion of investment volume in our property sub-sector,
driven by the positive long-term outlook for UK grocery. This
activity has contributed to stabilising property valuations in the
UK supermarket property sub-sector.
As we look forward, the quality of our unique omnichannel
supermarket portfolio and the increasing affordability of grocery
rents, together with our robust balance sheet means we are well
positioned to continue delivering long-term value for our
shareholders."
For further information:
FOR FURTHER INFORMATION
Atrato Capital Limited +44 (0)20 3790 8087
Steven Noble / Rob Abraham / Chris ir@atratocapital.com
McMahon
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Mark Young / Matt Blawat / Rajpal
Padam
Goldman Sachs International
Jimmy Bastock / Tom Hartley +44 (0)20 7774 1000
FTI Consulting +44 (0)20 3727 1000
Dido Laurimore / Eve Kirmatzis SupermarketIncomeREIT@fticonsulting.com
/ Andrew Davis
The Company will be holding an in-person presentation for
analysts at 08.30am today at FTI Consulting's offices, 200
Aldersgate, Aldersgate Street, London, EC1A 4HD. To register to
attend in-person, please contact FTI Consulting:
SupermarketIncomeREIT@fticonsulting.com. There will also be a
webcast available. To join the presentation via the webcast, please
register using the following link:
https://brrmedia.news/SUPR_FY23
NOTES TO EDITORS:
Supermarket Income REIT plc (LSE: SUPR) is a real estate
investment trust dedicated to investing in grocery properties which
are an essential part of the UK's feed the nation infrastructure.
The Company focuses on grocery stores which are omnichannel,
fulfilling online and in-person sales. All of the Company's
supermarkets are let to leading UK supermarket operators,
diversified by both tenant and geography.
The Company provides investors with attractive, long-dated,
secure, inflation-linked, growing income with the potential for
capital appreciation over the longer term (1) .
The Company is listed on the premium segment of the Official
List of the UK Financial Conduct Authority and its Ordinary Shares
are traded on the Main Market of the London Stock Exchange, having
listed initially on the Specialist Fund Segment of the Main Market
on 21 July 2017.
Atrato Capital Limited is the Company's Investment Adviser.
Further information is available on the Company's website
www.supermarketincomereit.com
LEI: 2138007FOINJKAM7L537
1. There is no certainty that these illustrative projections will be achieved
Stifel Nicolaus Europe Limited, which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority,
is acting exclusively for Supermarket Income REIT plc and no one
else in connection with this announcement and will not be
responsible to anyone other than the Company for providing the
protections afforded to clients of Stifel Nicolaus Europe Limited
nor for providing advice in connection with the matters referred to
in this announcement.
Goldman Sachs International, which is authorised by the
Prudential Regulation Authority and regulated by the Financial
Conduct Authority and the Prudential Regulation Authority in the
United Kingdom, is acting exclusively for Supermarket Income REIT
plc and no one else in connection with this announcement and will
not be responsible to anyone other than the Company for providing
the protections afforded to clients of Goldman Sachs International
nor for providing advice in connection with the matters referred to
in this announcement.
CHAIR'S STATEMENT
Dear Shareholder,
I am pleased to report a resilient operational performance for
the Company, in what has been a challenging year for the broader
economy and the real estate investment market.
Despite the economic volatility, the UK grocery market has grown
by 11% during the year and 30% since our IPO to a GBP242 billion
market today. This highlights the strength and resilience of
grocery spending through the peaks and troughs of the economic
cycle.
Throughout the year, we have focused on our investment strategy
of building and managing a unique high-quality portfolio of
omnichannel supermarkets, which gives us exposure to the fastest
growing segment of the expanding UK grocery market. Growth in the
grocery market is enhancing the strength of our tenants and the
affordability of our rents, providing positive tailwinds for future
rental growth across the portfolio.
The robust performance of the supermarket operators is in stark
contrast to the valuation declines experienced by the broader
property investment market. The scale and pace of interest rate
hikes since September 2022 has triggered a rapid decline in
property values, with the MSCI UK All Property Capital Values Index
declining by over 19% for the year to 30 June 2023. Supermarket
property has been less volatile, but not immune, with a 14%
like-for-like decline in our portfolio value resulting in a net
initial yield of 5.6% as at 30 June 2023 (30 June 2022: 4.6%, 31
December 2022: 5.5%).
The property market experienced an initial rapid repricing to
December 2022. We have since observed a stabilisation of pricing in
recent transactions and our 30 June 2023 valuations are essentially
flat to our last reported valuation as at 31 December 2022. It is
also noteworthy that we have seen significant investment volumes in
UK supermarket property which have exceeded GBP1.7 billion(15) .
This total includes GBP483 million of leasehold store buybacks by
operators; a unique feature of the grocery real estate market. This
elevated interest in grocery property highlights the positive
long-term outlook for the sector. We are cautiously optimistic on
the outlook for supermarket property valuations, though we
recognise the general correlation of these values to Bank of
England policy and interest rate movements.
The Company owns and manages a unique and high-quality portfolio
of mission critical omnichannel supermarkets. Our sector specialism
and information advantage allow us to identify and deliver value
through actively managing the portfolio. During the year, our
tenant Sainsbury's purchased our interest in the Sainsbury's
Reversion Portfolio ("SRP") Joint Venture ("JV"), buying back 21
stores at a 4.3% Net Initial Yield ("NIY"), for which the Company
received proceeds of GBP430.9 million. The proceeds from these
disposals, received during the year and post balance sheet, were
recycled into higher-yielding acquisitions(16) that met our strict
investment criteria, and utilised to pay down debt. As a result,
drawn debt has reduced from GBP672.2 million in June 2023, to
GBP584.8 million today. During the year we acquired nine stores and
a further two shortly after year end for a combined total
consideration of GBP399.0 million at an average NIY of 5.5%.
We continue to focus on maintaining balance sheet strength and
at year end our European Public Real Estate ("EPRA") Loan to Value
("LTV") was 35%, which has further reduced post year end, following
the further receipt of monies from the sale of the SRP interest.
Our debt is provided by a well diversified group of relationship
banks. Post the year end, we have expanded our banking group and
extended the term of our debt facilities to in excess of four
years(17) . We also took the prudent decision to fix the cost of
100% of our drawn debt. All our borrowings are either fixed rate or
hedged to a fixed rate via interest rate derivatives with an
average cost of debt of 3.1%.
During the year, we strengthened our governance credentials with
the appointment of Sapna Shah to the Board. Sapna brings extensive
corporate finance and governance experience having advised listed
REITs and investment companies as a senior investment banker. Sapna
has agreed to chair the new Management Engagement Committee which
is tasked with the job of ensuring that we receive best value from
our key service providers.
Sustainability continues to be a key focus of both the Board and
the Investment Adviser. Having established an ESG committee,
chaired by Frances Davies, we have this year voluntarily published
a Task Force on Climate-related Financial Disclosures ("TCFD")
compliant Annual Report and Accounts, significantly enhancing the
Company's sustainability reporting and environmental commitments.
We are pleased to present this report in full in this year's Annual
Report and Accounts and the accompanying Sustainability Report. In
addition, the Company has also made a commitment to submit a
greenhouse gas emissions reduction target to the Science Based
Target Initiative ("SBTi") by Q4 2023. The Company supports the
Investment Adviser's signatory status of the Net Zero Asset
Managers Initiative ("NZAM") and the United Nations Principles for
Responsible Investment ("UNPRI"). At the asset level we are working
with our tenants on initiatives such as the installation of solar
photovoltaic ("PV") panels and electric vehicle charging to further
enhance the Company's sustainability performance.
Outlook
While economic conditions look set to remain challenging in the
near term, our unique high-quality portfolio of omnichannel
supermarkets, let on long-term, predominantly inflation-linked
leases, with strong tenant covenants, in the non-discretionary
spend sector of grocery, continues to offer a compelling investment
case.
The stabilisation of valuations in the short term and strong
sector dynamics in the medium to long-term mean that the Board is
confident of the growth prospects for the Company. However, we
remain cautious given the uncertain economic backdrop and
accordingly, the Company is targeting a conservative dividend
increase to 6.06 pence per share for the next financial year.
Nick Hewson
Chair
19 September 2023
A conversation with Justin King about the future of the UK
grocery sector
Justin King is a senior adviser to Atrato Partners. Justin is
recognised as one of the UK's most successful grocery sector
leaders, having served as CEO of Sainsbury's for over a decade and
previously held senior roles at Marks & Spencer, Asda, PepsiCo
and Mars.
Justin is currently a Non-Executive Director of Marks &
Spencer and Chair of Allwyn Entertainment, leading its transition
to operating the National Lottery licence. Justin also advises a
series of high-profile consumer-focused companies including Itsu
Grocery, where he chairs the grocery business, and is the Chair of
Dexters Real Estate. Justin is an advocate for responsible business
and has been instrumental in launching several charitable concerns
including the charity Made by Sport, which champions the power of
sport to change young lives. Justin brings an unrivalled wealth of
grocery sector experience and a deep understanding of grocery
property strategy.
Q: How have the supermarket operators been reacting to
unprecedented increases in the cost of living faced by many
consumers, especially given the impact from recent grocery price
inflation?
Clearly the high rate of food price inflation is having a major
impact on consumers' budgets, although it has started to decline
from its peak of 19% with many analysts expecting it to fall to
around 8-10% by the end of 2023. While the rate of increase is
likely to slow, I expect actual food prices to continue to rise at
least until mid-2024.
Several factors are contributing to this high food price
inflation, mainly significant rises in the cost of food
commodities, increased energy costs and the depreciation of
Sterling, all of which have raised the domestic price of inputs
into the food supply chain and for the most part are outside the
control of operators. Perhaps the most persistent pressure will be
labour costs, which makes up in excess of 20% of the cost of the
average basket of groceries if you take a full supply chain
view.
We are seeing clear evidence that the operators have not 'passed
through' to consumers all the cost increases that they have
incurred as evidenced from falling operating margins from 3.2% to
around 1.8% on average(18) . It is worth noting that a grocer's
power to implement price rises is less than many people think, as
the sector's intense competitiveness drives low margins and high
operational efficiencies.
However, I believe that the most impactful contribution
operators are making is the change to their product lines and
promotional strategies on the shelves to help their customers
switch from expensive calories to less expensive calories. Think of
it as giving the customer the ability to achieve a cut in their
pence per calorie consumed or 'dial out' inflation. In previous
recessions we have seen the effectiveness of supporting the
customer through value alternatives. That's why the traditional
supermarkets carry an extensive range of products to ensure their
mix can cater for the changing needs of the customers' shopping
basket.
Q: You mention the reduction in profit margins for operators.
Does that give you any concerns about the sector and by extension
supermarket property values?
If you take the longer-term view, historical net profit margins
of the incumbent operators range between 3% and 5% and that will
typically wax and wane depending on how much pressure there is from
competition and costs. Over time, changes in productivity,
operational efficiencies and pricing eventually restores margins to
a more normal long-run level of around 4%.
The supermarkets have clearly taken a view that squeezing net
profit margins today is the right thing to do to help their
customers in this current environment. In time that will of course
correct, though not necessarily result in an increased cost to the
customer. Part of that correction will naturally come from running
the business as efficiently as possible and there will also be some
challenging cost of goods conversations with suppliers who have
perhaps over-inflated. So, in time, I believe we will see profit
margins coming back to a more normal level.
I don't believe this current cycle of lower net margins will
impact supermarket property values. Supermarket rents represent a
very small proportion of total costs - this is in significant
contrast to other sectors. Short-term changes in profitability will
not affect an operator's ability to pay rent, especially on their
best sites, demonstrating the resilience of these large scale, well
positioned, supermarkets. In fact, with the top line inflating and
rent increases lagging, rent as a percentage of sales (which is the
key metric for operators) is actually reducing.
Of course, supermarket property has not been immune to the
outward yield shift experienced across all property investment
markets. However, these declines in values are reflecting the
outward shift in property yields applied by valuers because of
higher interest rates and the overall macroeconomic
environment.
Q: Why have transaction volumes in supermarket real estate
remained high relative to other real estate sectors, especially
against the backdrop of higher interest rates?
It is worth noting that when you examine performance trends over
the last 15 years, the supermarket property investment market has
been less volatile than the broader UK property market. In fact,
the sector has been a stand-out positive performer in contrast to
others, illustrating the long-term strength and stability of this
somewhat unique asset class.
Investors looking for property assets that offer consistent
income are increasingly targeting the supermarket property sector.
Research from Atrato on property investment volumes clearly shows
that this trend continues with transaction liquidity in supermarket
property investments remaining high relative to the declines seen
in other property markets.
In the next phase of the cycle, I think we will start to see
market rents inflating above passing rents on most existing stores
given the high levels of inflation driving store turnovers above
rental cap levels. In addition, rising construction costs on
developing new stores are making supermarket store leases look
increasingly good value. This is one of the drivers of the store
buyback activity that we are seeing from Tesco and Sainsbury's.
Given the current high yield on offer as a function of higher
rates, it is not surprising to see increased investment interest in
the asset class. Having said that, not all supermarket property is
equal and specialists like the Atrato team are critical to ensure
the right asset selection for the long-term.
Q: Digitalisation of business models and the opportunities from
artificial intelligence are generating significant headlines. Do
you believe supermarket operators have embraced this and how do you
see its application to the UK grocery market?
The digitalisation of the economy has generated turbulent change
across many industries. We saw this first in the media sector,
followed by retail and then moving rapidly into all other sectors.
Digitalisation is an ever-changing force that many businesses
understandably struggle to keep up with.
However, the idea that incumbent grocers have not embraced
digitalisation is a false one. In fact, the reality is very
different. The incumbent grocers transitioned from an analogue to
digital business model around the early 2000's following the
introduction of Clubcard by Tesco and Nectar by Sainsbury's. The
data from these loyalty card systems meant that we could see what
people were buying and, for the first time, who was buying it. This
was coupled with an ability to process that data in close to real
time. It is staggering to think that the Clubcard today is held by
over 20 million households in the UK.
These loyalty programmes provide powerful insights for operators
looking to tailor the range, mix and price of products to meet the
needs of the consumer, as well as an appreciation of how to serve
customers better in the future. Additionally, operators are able to
understand the differences between when customers shop, what they
buy and through which channel. The insights gained from these
systems were key factors behind UK grocers becoming early adopters
of omnichannel strategies. Operators recognised the value of
seamless integration between online and offline fulfilment,
empowering them to become truly blind to channel. Of course, today,
this is fashionably characterised as big data technology, however
it's been operating for over 20 years in UK grocery.
I'm a firm believer that the potential of this information will
grow, especially when overlaid with the processing power of
artificial intelligence. However, grocery will always remain a
people-facing sector and in the new omnichannel environment,
digital technology will continue to provide a valuable
complementary tool in serving the customer better through a network
of physical stores.
Q: Valuations within pure play online and ultra-convenience
platforms such as Ocado and Getir have declined over the last 24
months. What do you think is behind that and do you think the
market is less convinced on the potential of online grocery post
the pandemic highs?
In the last five years we have seen a dramatic change in the
online grocery landscape, including a step change in demand. Online
accounted for 8% market share in 2018, a figure which subsequently
peaked at 15% in 2021 at the height of the pandemic, and which is
around 12% today. Online grocery is set to remain the fastest
growth channel proportionately, but still behind the volumes seen
in the physical supermarket and convenience channels.
I think pure play online operators had been considered by some
as a route to overcome the barriers to entry into the wider GBP242
billion UK grocery market and an opportunity to capture much of the
online growth in the space. However, technology in the form of very
large, centralised warehouses with automated picking operations
have failed to provide any substantive cost or flexibility
advantage. In fact, a better understanding of the true economics
points to the global convergence of an omnichannel model with
stores acting as last mile fulfilment centres. Automated picking
technology is increasingly being deployed inside the physical store
via micro-fulfilment solutions as a more productive alternative to
manual store pick.
What the pandemic period has shown is the importance,
flexibility and resilience of the omnichannel store pick model.
This has allowed the incumbents to take a leading market share in
online grocery, with the large multi-channel grocers now
controlling over 80%(19) of the online market in the UK. This is in
contrast to the market belief that new technology players would
capture that online market. I have always believed that we should
"think customer, not channel". In a post-pandemic era, the customer
requires seamless integration between online and offline channels
offered by omnichannel supermarkets.
In addition, rapid grocery delivery platforms such as Deliveroo
and Just-Eat have increasingly been partnering with supermarkets
including Sainsbury's, Waitrose and Aldi as a more effective way of
addressing the ultra-convenience grocery market than the dark store
model of Getir and others.
Of course, centralised, online-only distribution units or
warehouses will still have a role to play in providing a solution
to store capacity constraints in metropolitan areas or as a
solution to operators with limited store networks. However, I think
this will be a smaller role than the market would have previously
perceived.
Q: Environmental sustainability is in the spotlight, given the
impact of climate change seen across multiple countries this year.
What role do you think supermarkets as retailers have to play in
this area?
Supermarkets have generally been ahead of other sectors in
understanding the full supply chain and management of farm-to-fork
strategies. A key role of the supermarket is to represent the
consumer in the supply chain and given the heightened consumer
concern around environmental sustainability when shopping for
groceries, supermarket operators are becoming a driving force for a
more sustainable supply chain.
According to a recent report from Cushman & Wakefield, 26%
of global green-house gas emissions are attributable to the food
supply chain with around 83% derived from production(20) . The
supermarket operators are therefore naturally placed to centralise
and coordinate this drive towards the decarbonisation of the wider
food supply chain.
When we launched the 20 by 20 Sustainability Plan at Sainsbury's
in 2011, we set ambitious goals for a more sustainable footprint,
which today has developed even further to reduce scope 1 & 2
emissions to Net Zero by 2035 and reduce Scope 3 emissions to Net
Zero by 2050.
In fact, Sainsbury's has now reduced its absolute greenhouse gas
("GHG") emissions within its operations to 461,692 tCO(2) e, a
reduction of 38% year-on-year and 51% per cent from its 2019
baseline, keeping it on course to achieve its 2035 Net Zero
target(21) . It's also encouraging to see the grocery industry
taking a lead in implementing substantive governance frameworks
around reporting progress against these vitally important
sustainability objectives too.
Many problems however can also be opportunities in disguise. A
route to being transparent on environmental sustainability provides
a platform for the grocers to build another conversation with the
customer, in marketing terms, around assessing the environmental
impact of their basket of groceries in a way which can
differentiate brand and add value to consumers.
All together, these are important building blocks that are
compounding at an increasing rate. Over time, I believe we will
look back and see grocers as an industry leader in improving how to
measure, report and reduce the carbon footprint of the food that we
consume.
KEY PERFORMANCE INDICATORS
Our objective is to provide secure, inflation-linked, long
income from grocery property in the UK. Set out below are the key
performance indicators we use to track our progress.
KPI Definition Performance(22)
1. Total Shareholder Total shareholder return ("TSR") (34%) for the year
Return is one of the Group's principal to 30 June 2023
measures of performance. (31 December 2022:
TSR is measured by reference (11.7%), 30 June
to the growth in the Company's 2022: 7%)
share price over a period, plus
dividends declared for that period.
------------------------------------------ ----------------------
2. WAULT WAULT measures the average unexpired 14 years WAULT
lease term of the Direct Portfolio, as at 30 June 2023
weighted by the Direct Portfolio (31 December 2022:
valuations. 14 years, 30 June
2022: 15 years)
------------------------------------------ ----------------------
3. EPRA NTA per The value of our assets (based 93 pence per share
share on an independent valuation) as at 30 June 2023
less the book value of our liabilities, (31 December 2022:
attributable to shareholders 92p, 30 June 2022:
and calculated in accordance 115p)
with EPRA guidelines. EPRA provides
three recommended measures of
NAV, of which the Group deem
EPRA NTA as the most meaningful
measure. See Note 26 for more
information.
------------------------------------------ ----------------------
4. Net Loan to The proportion of our investment 37% as at 30 June
Value property portfolio gross asset 2023 (31 December
value that is funded by borrowings 2022: 40%, 30 June
calculated as balance sheet borrowings 2022: 19%)
less cash balances divided by
total investment properties valuation.
------------------------------------------ ----------------------
5. Adjusted EPS* EPRA earnings adjusted for company 5.8 pence per share
specific items to reflect the for the year ended
underlying profitability of the 30 June 2023 (31
business. December 2022:
2.9p, 30 June 2022:
5.9p)
------------------------------------------ ----------------------
*New measure reported during the period, with prior year
comparative stated in line with new methodology.
Adjusted earnings(23) is a performance measure used by the Board
to assess the Group's financial performance and dividend payments.
The metric adjusts EPRA earnings by deducting one-off items such as
debt restructuring costs and the Joint Venture acquisition loan
arrangement fee which are non-recurring in nature and adding back
finance income on derivatives held at fair value through profit and
loss. Adjusted Earnings is considered a better reflection of the
measure over which the Board assesses the Group's trading
performance and dividend cover.
Finance income received from derivatives held at fair value
through profit and loss are added back to EPRA earnings as this
reflects the cash received from the derivatives in the period and
therefore gives a better reflection of the Group's net finance
costs.
Debt restructuring costs relate to the acceleration of
unamortised arrangement fees following the partial transition of
the Group's debt structure from secured to unsecured.
The Joint Venture acquisition loan arrangement fee relates to
the upfront amount payable to J.P. Morgan in respect of the
short-term facility taken out in January 2023 to fund the Group's
purchase of BAPTL's 50% interest in the Joint Venture. This was
specific debt taken out to finance the transaction to acquire and
then dispose of the joint venture, whilst protecting the Group from
any recourse on unwind of the Joint Venture's financial asset. This
adjustment reflects the arrangement fee only, as the Group largely
had other committed undrawn facilities that it could have
utilised.
Adjusted EPS reflects the adjusted earnings defined above
attributable to each shareholder.
The Group uses alternative performance measures, as disclosed
above and including the EPRA Best Practice Recommendations ("BPR")
to supplement its IFRS measures as the Board considers that these
measures give users of the Annual Report and financial information
the best understanding of the underlying performance of the Group's
property portfolio.
The EPRA measures are widely recognised and used by public real
estate companies and investors and seek to improve transparency,
comparability and relevance of published results in the sector.
The key EPRA performance measures used by the Group are
disclosed on the following page.
Reconciliations between EPRA measures and the IFRS financial
statements can be found in Notes 10 and 27 to the financial
information.
EPRA PERFORMANCE INDICATORS
The table below shows additional performance measures,
calculated in accordance with the Best Practices Recommendations of
the European Public Real Estate Association (EPRA). We provide
these measures to aid comparison with other European real estate
businesses.
For a full reconciliation of all EPRA performance indicators,
please see the Notes to EPRA measures within the supplementary
section of the annual report.
Measure Definition Performance(24)
1. EPRA EPS A measure of EPS designed by 4.6 pence per share
EPRA to present underlying for the year ended
earnings from core operating 30 June 2023 (31
activities. December 2022: 2.6p,
30 June 2022: 5.9p)
----------------------------------------- --------------------------
2. EPRA Net Reinstatement An EPRA NAV per share metric 103 pence per share
Value (NRV) per which assumes that entities as at 30 June 2023
share never sell assets and aims (31 December 2022:
to represent the value required 102p, June 2022:
to rebuild the entity. 124p)
----------------------------------------- --------------------------
3. EPRA Net Tangible An EPRA NAV per share metric 93 pence per share
Assets (NTA) per which assumes entities buy as at 30 June 2023
share and sell assets, thereby crystallising (31 December 2022:
certain levels of unavoidable 92p, 30 June 2022:
deferred tax. 115p)
----------------------------------------- --------------------------
4. EPRA Net Disposal An EPRA NAV per share metric 98 pence per share
Value (NDV) per which represents the shareholders' as at 30 June 2023
share value under a disposal scenario, (31 December 2022:
where deferred tax, financial 97p, 30 June 2022:
instruments and certain other 116p)
adjustments are calculated
to the full extent of their
liability, net of any resulting
tax.
----------------------------------------- --------------------------
5. EPRA Net Initial Annualised rental income based 5.5% as at 30 June
Yield (NIY) & EPRA on the cash rents passing at 2023 (31 December
"Topped-Up" Net the balance sheet date, less 2022: 5.3%, 30 June
Initial Yield non-recoverable property operating 2022: 4.6%)
expenses, divided by the market
value of the property, increased
with (estimated) purchasers'
costs. The "topped-up" yield
is the same as the standard
measure as we do not have material
adjustments for any rent-free
periods or other lease incentives.
----------------------------------------- --------------------------
6. EPRA Vacancy Estimated Market Rental Value 0.4% as at 30 June
Rate (ERV) of vacant space divided 2023 (31 December
by ERV of the whole portfolio. 2022: 0.5%, 30 June
2022: 0.2%)
----------------------------------------- --------------------------
7. EPRA Cost Ratio Administrative & operating 15.5% for the year
(Including direct costs (including costs of direct ended 30 June 2023
vacancy costs) vacancy) divided by gross rental (31 December 2022:
income. 16.7%, 30 June 2022:
16.5%)
----------------------------------------- --------------------------
8. EPRA Cost Ratio Administrative & operating 15.2% for the year
(Excluding direct costs (excluding costs of direct ended 30 June 2023
vacancy costs) vacancy) divided by gross rental (31 December 2022:
income. 16.5%, 30 June 2022:
16.4%)
----------------------------------------- --------------------------
9. EPRA LTV Net debt divided by total property 35.2% as at 30 June
portfolio and other eligible 2023 (31 December
assets. 2022: 40.2%, 30
June 2022: 22.2%)
----------------------------------------- --------------------------
10. EPRA Like-for-like Changes in net rental income Rental increase
rental growth* for those properties held for of 2.7% for the
the duration of both the current year ended 30 June
and comparative reporting period. 2023
----------------------------------------- --------------------------
11. EPRA Capital Amounts spent for the purchase GBP377.3 million
Expenditure* of investment properties (including for the year ended
any capitalised transaction 30 June 2023 (31
costs). There has been no other December 2022: GBP310.2
capital expenditure incurred million, 30 June
in relation to the investment 2022: GBP388.7 million)
property portfolio.
----------------------------------------- --------------------------
*New measure reported during the year, with prior year
comparative stated in line with new methodology
INVESTMENT ADVISER'S INTERVIEW
Atrato is the Company's Investment Adviser. Ben Green
(Principal) and Robert Abraham (Managing Director, Fund Management)
discuss SUPR's performance and the long-term outlook for the
business.
FUND REPORT
Q: In a year of significant macroeconomic headwinds, how has
SUPR fared?
Commercial property is a cyclical asset class that typically
underperforms during the interest rate hike phase of an economic
cycle. What has been different during the current cycle was the
pace and magnitude of interest rate rises which triggered a rapid
repricing of the cost of capital and therefore the yields demanded
by commercial property investors. This property yield repricing was
reflected by valuers quickly and arguably more efficiently than in
previous cycles.
During an economic downtown, the key concern for most property
companies is the ability of their tenants to pay their rent. This
is not a concern for SUPR given the strength of the underlying
tenants and is evidenced by the Company's 100% rent collection. The
supermarket assets that SUPR owns are mission critical to its
tenants and that essentiality ensures 100% occupancy.
On a relative basis, markets generally expect supermarket
property to be less volatile than broader property markets given
the defensive nature of the underlying grocery sector. This has
again played out during this cycle with SUPR's high-quality asset
valuation down 13.7% during the year compared to broader UK
commercial property valuations which are down 19%(25) .
SUPR has understandably been impacted by the challenging equity
markets for real estate companies, which whilst disappointing, does
now present an interesting value proposition for investors. UK
grocery sales have experienced strong growth over the past 12
months, and our key tenants Tesco and Sainsbury's have reported
strong free cashflow growth in the period, underlining their
positive performance the current economic climate. The disconnect
between the recent fortunes of grocery operators compared with real
estate companies is highlighted by the share price performance of
Tesco and Sainsbury's during the period compared with that of Real
Estate Investment Trusts and owners of grocery property such as
SUPR.
The Company's share price performance vs Tesco & Sainsbury's
(indexed)
Our key tenants, Tesco and Sainsbury's, have reported sales
growth of around 10% in their latest figures(26) . This growth has
been generated on a like-for-like basis given there has been no net
new floor space for large multi-channel operators. This sales
growth is running ahead of contractual rental increases, meaning
that rents are becoming even more affordable for operators.
Q: What has been the key commercial focus of the Investment
Adviser during the year?
Our focus has been on taking a more active approach to asset
management within the portfolio; rotating capital, strengthening
the balance sheet and delivering progress on our sustainability
goals.
A key milestone was the sale of the joint venture interest in
the SRP our tenant Sainsbury's purchased 21 supermarkets held in
the joint venture at a net initial yield of 4.3%, with the Company
receiving proceeds of GBP430.9 million. This followed on from the
NTA accretive acquisition of the interest of our original joint
venture partner British Airways Pension Trustees Limited ("BAPTL")
in January for GBP188.8 million (excluding acquisition costs),
which was fully funded by a debt facility provided by J.P.
Morgan.
We utilised these proceeds to pay down debt reducing EPRA LTV
from 40.2% to 35.2%. The Company's LTV was further reduced post
balance sheet and currently stands at 34.0%. The Company has also
been opportunistically deploying into new acquisitions at
attractive net initial yields. In total we have deployed GBP399
million during the year including two properties since the year end
at an accretive net initial yield of 5.5%(27) . This included four
omnichannel stores from the Sainsbury's Reversion Portfolio. This
recycling of capital into higher-yielding assets that met our
strict investment criteria has helped offset some of the increase
financing costs incurred as a result of higher interest rates.
Q: How has SUPR's financing strategy changed in response to
these macroeconomic challenges?
We and the Board considered it prudent to repay debt to reduce
the Company's LTV post balance sheet to 34.0%, utilising the second
tranche of the SRP proceeds and taking a number of actions to
manage debt maturities and hedging post year end. We also extended
the term of our debt by 12 months, maintaining a weighted average
debt maturity of over 4 years(28) , whilst also broadened our
banking group. Further, we conducted a 'blend and extend' hedge
restructure, utilising the significant profit on the pre-existing
hedge arrangements to extend the term of the hedges by 12
months(28) . As a result of this treasury management exercise,
SUPR's cost of debt is now fixed at an average rate of 3.1%.
A testament to the strength of the investment proposition is
SUPR's continued access to liquidity, despite concerns in other
commercial real estate sectors. During the year the Company
refinanced its term loan with BLB. This was achieved during the
period following the collapse of Silicon Valley Bank and Credit
Suisse, calling into question the availability for financing for
commercial real estate. We also added Sumitomo Mitsui Banking
Corporation ("SMBC") as a new relationship bank, highlighting
lender appetite for supermarkets. Fitch also reaffirmed SUPR's BBB+
investment grade credit rating in February 2023.
The debt maturity profile below, which includes uncommitted
extension options, highlights the spread of maturities and diverse
relationship lenders which support the Company.
The Company's debt maturity profile
SUPR has covenant headroom across its debt facilities along with
over GBP100 million of undrawn debt capacity. The Company is well
positioned and importantly, retains additional capital capacity to
be acquisitive if compelling opportunistic investment propositions
arise(29) .
Q: What has been the impact on SUPR's portfolio/valuation?
The total net initial yield moved out on the portfolio by 100bps
from 4.6% to 5.6% during the year; a fall in valuation of 14% on a
like-for-like basis. This compares to the MSCI UK All Property
Capital Values Index which fell 19% in the same period, reflecting
the high quality of the Company's assets and defensive nature of
supermarkets. The portfolio's inflation-linked rent reviews also
provide an element of natural hedge to the higher inflation and
interest rates environment, partially offsetting the portfolio
yield shift.
The decline in property values occurred quickly during autumn
2022 and the impact on SUPR's EPRA NTA was reflected in the
Company's interim results for the period to 31 December 2022.
During the second half of SUPR's financial year valuations
stabilised and therefore the reported June 2023 valuations are
essentially flat compared to those reported as at December 2022.
This is supported by good transactional evidence from a
particularly liquid investment market relative to the UK property
market as a whole. The elevated liquidity observed in the UK
supermarket property market is a result of investors being
attracted to the attractive risk/return profile of grocery assets
following the repricing that has taken place.
Recent transactional evidence would imply that peak cycle yields
in supermarket property may well be behind us, and further, that
yields on high-quality omnichannel stores are actually starting to
tighten. However, we remain acutely aware that a long-term yield
tightening trend can only occur once the market is convinced that
UK base rates have reached the top of this cycle.
INVESTMENT MARKET
Q: What impact has the high inflation environment had on the
supermarket investment market?
Higher interest rates as a policy response to inflation have
driven a rapid repricing of commercial real estate assets and
supermarkets have not been immune. However, this now means that
supermarkets are in our view one of the most attractive asset
classes in commercial real estate.
Investment Property Databank ("IPD") net initial yields
2006-2023 (YTD)(30)
Total market volume during the year was GBP1.7 billion. As shown
below, Tesco and Sainsbury's store buybacks represent a substantial
share of this volume, alongside which we see purchasers active in
two broad strategies.
Supermarket investment volumes FY 2019 - 2023(31)
Firstly, value oriented, levered purchasers are targeting higher
yielding opportunities at c. 7% NIY. These value players are
opportunistically targeting Asda and Morrisons stores, buying at
historically wide yields due to weaker levered covenants and in
some cases weak store trading. Secondly there are buyers of
high-quality supermarkets at yields of c. 5%, which is more closely
aligned with the type of assets in the SUPR portfolio. These assets
are typically let to the strong covenants of Sainsbury's and Tesco
on long leases. Buyers are looking to the attractive returns that
can be achieved, with current valuations representing a significant
value opportunity in our view. This is particularly the case as
higher inflation arguably supports higher market rental growth.
Significant institutional demand for grocery real estate is
particularly evidenced by the success of the recently announced
Asda sale and leaseback, which is reported to have achieved a
GBP650 million transaction price despite challenging market
conditions.
Q: Should we expect to see more sale and leaseback ("SLB")
activity by the operators?
Not necessarily, as it depends on the operators' funding
requirements and strategic objectives.
The more highly levered operators, Asda and Morrisons, have
demonstrated appetite for SLBs. This is likely to continue as an
attractive source of finance compared to the prospective cost of
leveraged finance in the current environment, given peak leverage
for Asda of c. 7x and for Morrisons c. 9x(32) . Asda is expected to
use the GBP650 million proceeds of its SLB at a 6.4% NIY to fund
part of the cost of acquiring EG Group. The cost of the SLB
compared favourably to the debt leverage for the acquisition
provided by Apollo which was priced at c. 11%.
It is worth noting that these operators have historically
preferred to own their stores, with only c. 15% of their stores
being leasehold. That gives both significant capacity for SLB
activity while maintaining a proportion of freehold stores in line
with Tesco and Sainsbury's.
On the other hand, we have seen Tesco and Sainsbury's utilising
free cashflow generation for store buybacks, alongside bond
repurchases to de-lever their balance sheets. They have balanced
this with returning cash to shareholders through share buybacks.
Since SUPR's IPO in 2017, Tesco has increased the proportion of its
store ownership from 52% to 58%(33) . The most notable recent
example of operator store buybacks was the sale to Sainsbury's of
SUPR's interest in the Sainsbury's Reversion Portfolio, with the
portfolio of 21 stores acquired by Sainsbury's valued at over GBP1
billion.
Operator buybacks and SLBs on long leases highlight the mission
critical nature of supermarket real estate. Operators seek to own
or secure decades of occupation of their best performing stores,
which are also the stores targeted by SUPR.
PORTFOLIO
Q: What makes supermarket property 'mission critical' to the
operators?
Stores are vital to grocers' operations. Whether sales are
achieved through traditional in-store shopping or online, the store
network and associated supply chain infrastructure is critical to
generating revenue.
The flexibility of omnichannel stores, such as those in SUPR's
portfolio, has been clearly demonstrated in the last few years, as
operators are able to reposition resources to fulfil orders through
consumers' chosen channel. Pure play operators, whether solely
online or physical, are not able to flex between channels in the
same way.
While online market share is significantly higher than pre
pandemic levels, as expected, it has come off the peak of 15%,
settling at c. 12%. Whilst we expect growth to revert to the modest
long-term trend from here, the ability of the grocers to rapidly
respond to changing consumer habits is a key barrier to entry to
the market.
Tesco's latest results highlight how valuable large format
stores are for operators. These stores are Tesco's largest growth
channel with sales up 9.9%. An element of this growth is a result
of cost-conscious consumers seeking to achieve better value through
the lower price point and greater promotional activity. However,
another attraction is also the broader product range at large
format stores, providing greater opportunity to shop across product
ranges including premium and value options.
Q: Given the majority of SUPR's assets are occupied under full
repairing and insuring ("FRI") leases, what action is being taken
to demonstrate the Company's commitment to sustainability?
At the asset level, at sites which are not fully demised to the
tenants under FRI leases, we are looking to enhance sustainability
wherever possible. That starts with electric vehicle charging
points, which we are targeting for eight sites so far, while at the
time of writing construction has begun at two sites.
We have also worked with Tesco and Atrato Onsite Energy (LSE:
ROOF) to support the installation of a rooftop solar array at our
Tesco store in Thetford. This solar array energised in September
2023. We are looking to roll out solar installations across as many
stores as possible in the portfolio.
Our grocery tenants have formal Net Zero commitments, resulting
in very good engagement with SUPR on sustainability initiatives as
these are beneficial for both landlord and tenant alike. We are now
receiving energy consumption data from c. 85% of tenants and are
looking to increase this further. We are delighted to have produced
our first annual report which includes voluntary reporting in-line
with the recommendations of the TCFD.
A benefit of the supermarket operator sustainability commitments
coupled with long-dated, FRI leases is that tenants therefore
invest in modernising and decarbonising stores within our portfolio
at their own expense.
In all new leases we do our utmost to negotiate 'green' lease
provisions, which permit the Company to access greater
sustainability data from tenants, further aligning the interests of
SUPR and its tenants.
OUTLOOK
Q: What will be the key areas of focus for the fund in FY
2024?
Strategically we have positioned the Company to have a very
robust balance sheet thus protecting it from any further
macroeconomic surprises, whilst maintaining sufficient capital
capacity to enable the Company to invest opportunistically into
compelling investment opportunities that may arise as a result of
the challenging broader market backdrop.
In the near term we will continue to actively manage the
portfolio, seeking to generate value for shareholders.
We have progressed plans to develop complementary retail units
at a number of our larger sites(34) . We are negotiating terms to
develop discount food stores of c. 20,000 sq.ft. alongside our
strong performing existing supermarkets. Such development can drive
additional footfall, making a more appealing grocery destination to
consumers and increasing total grocery spend at the site.
Whilst we invest in stores with a long-term hold objective, the
Company regularly receives approaches on individual assets from
potential buyers. As demonstrated by the sale of the SRP during the
year, there may be an opportunity to selectively dispose of assets.
Proceeds can then be reinvested opportunistically in the current
market environment, which can be value accretive whilst fully
utilising our sector specialism.
THE COMPANY'S PORTFOLIO
The Company has built a handpicked portfolio of strong trading,
'mission critical' omnichannel supermarkets backed by the UK's
leading grocery operators.
A key pillar of the Company's investment policy is to acquire
omnichannel supermarkets that form a key part of the UK grocery
network. These stores offer both an online provision and in-store
shopping, helping to capture a greater share of the UK grocery
market. Currently 93% of our supermarket assets are omnichannel, by
value.
The leases on our stores benefit from long, unexpired lease
terms with predominately upwards only, index linked rent reviews,
helping to provide long-term income with contractual rental growth.
The portfolio benefits from affordable rents. Our Direct Portfolio
average rent to turnover ("RTO") is 3.8%(35) compared to a sector
benchmark RTO of 4.0%. We have high security of income with 100%
rent collection during the year.
The Company's assets are predominantly let to the leading UK
grocery tenants with Tesco and Sainsbury's accounting for 77% of
the Company's rent roll.
As part of the Company's investment strategy to acquire
high-quality, strong trading supermarkets, it is sometimes
necessary to acquire complementary non-grocery units that are
co-located with the store. These units often form a retail
destination helping to drive further footfall into the supermarket.
Non-grocery assets represent 6.2% of the Direct Portfolio by
value.
The Company disposed of its joint venture interest in the SRP
for a combined total of GBP430.9(36) million. The consideration was
based on a blended net initial yield of 4.3% for the underlying
stores. There is further information on the SRP investment on page
29.
During the year, the Company selectively strengthened its Direct
Portfolio with the addition of nine supermarkets for a combined
total of GBP362.6 million(37) at eleven different locations,
including a further two after the year end.
-- July 2022: A Tesco superstore and M&S Foodhall in
Chineham, Basingstoke, including non-grocery units for GBP71.9
million(37) . The Tesco superstore had a 12-year unexpired lease
term and is subject to 5-yearly, upwards only open market rent
reviews.
-- August 2022: A Sainsbury's supermarket and M&S Foodhall
in Glasgow with non-grocery units for GBP34.5 million(37) . The
unexpired lease terms of the two stores were 10 and 15 years
respectively and both are subject to 5-yearly upwards only, open
market rent reviews.
-- August 2022: A Tesco supermarket in Newton-le-Willows,
Merseyside, for GBP16.6 million(37) . The store had a 12-year
unexpired lease term and is subject to annual, upwards only
RPI-linked rent reviews.
-- August 2022: A Tesco in Bishops Cleeve, Cheltenham, for
GBP25.4 million(37) . The store had a 12-year unexpired lease term
and is subject to annual, upwards only RPI-linked rent reviews.
-- eptember 2022: A Tesco supermarket in Llanelli, South Wales,
for GBP66.8 million(37) . The store had a 12-year unexpired lease
term and is subject to annual, upwards only RPI-linked rent
reviews.
-- September 2022: A Tesco supermarket, Iceland Food Warehouse
and complementary non-grocery units in Bradley Stoke, Bristol, for
GBP84.0 million(37) . The Tesco store had a 14-year unexpired lease
term and is subject to annual, upwards only RPI-linked rent
reviews.
-- April 2023: A Tesco in Worcester, for GBP38.3 million(37) .
The store had a 12-year unexpired lease term and is subject to
annual, upwards only RPI-linked rent reviews.
-- May 2023: A Sainsbury's in Kettering, for GBP12.0 million(37)
. The store has a 10-year unexpired lease term and is subject to
5-yearly upwards only, open market rent reviews.
-- May 2023: A Sainsbury's in Denton, for GBP13.2 million(37) .
The store has a 10-year unexpired lease term and is subject to
5-yearly upwards only, open market rent reviews.
Post balance sheet, following the receipt of the second tranche
of SRP disposal proceeds the Company announced that it had acquired
a further two supermarkets from Sainsbury's that were previously
held within the SRP for a purchase price of GBP36.4 million(38)
.
-- July 2023: A Sainsbury's in Gloucester, for GBP17.4
million(38) . The store has a 10-year unexpired lease term and is
subject to 5-yearly upwards only, open market rent reviews.
-- July 2023: A Sainsbury's in Derby, for GBP19.0 million(38) .
The store has a 10-year unexpired lease term and is subject to
5-yearly upwards only, open market rent reviews.
Acquisitions during the year were financed using proceeds
received from the unwind of the SRP, existing headroom within
unsecured debt facilities and the proceeds from the equity raise in
April 2022. For more information on financing arrangements refer to
note 20 of the financial information.
A table summarising the properties in the Direct Portfolio can
be found in the Portfolio section on the Group's website:
www.supermarketincomereit.com
Tenant exposure:
Tenant Exposure by Exposure by
rent roll Valuation
-------------- ------------- -------------
Tesco 48.2% 48.9%
-------------- ------------- -------------
Sainsbury's 28.7% 30.4%
-------------- ------------- -------------
Morrisons 6.2% 5.6%
-------------- ------------- -------------
Waitrose 4.7% 5.2%
-------------- ------------- -------------
Asda 2.1% 2.0%
-------------- ------------- -------------
Aldi 0.8% 0.8%
-------------- ------------- -------------
M&S 0.8% 0.9%
-------------- ------------- -------------
Non-food 8.5% 6.2%
-------------- ------------- -------------
Total 100.0% 100.0%
-------------- ------------- -------------
*Including post balance sheet events
The strength of the Direct Portfolio is underpinned by
long-term, secure income with a weighted average unexpired lease
term of 13 years(39) . In addition, our portfolio is heavily
weighted towards upwards only inflation-linked rent reviews which
provide protection in the current inflationary environment and help
to reduce the impact of rising debt costs. The Direct Portfolio's
weighting towards upwards only, inflation-linked rent reviews is
78% with 54% reviewing annually (including post balance sheet
acquisitions).
Indexation Income mix by
rent review type
------------- -------------------
RPI 71.2%
------------- -------------------
CPI 6.7%
------------- -------------------
Fixed 2.1%
------------- -------------------
OMV 20.0%
------------- -------------------
Total 100.0%
------------- -------------------
*Including post balance sheet
events
WAULT
Supermarket WAULT
breakdown
-------------- ---------------------
0-5 years 0.2%
-------------- ---------------------
5-10 years 19.3%
-------------- ---------------------
10-15 years 45.8%
-------------- ---------------------
15-20 years 29.6%
-------------- ---------------------
20+ years 5.2%
-------------- ---------------------
Total 100.0%
-------------- ---------------------
*Including post balance sheet
events
The environmental efficiency of our stores continues to be a key
priority through asset management initiatives, selective
acquisitions and is supported by the ongoing investment by grocery
tenants into respective store estates. A breakdown of supermarket
EPC ratings can be seen below:
Supermarket EPC breakdown
% of supermarket
EPC rating Portfolio
---------------------------- ------------------
A 4.2%
---------------------------- ------------------
B 46.2%
---------------------------- ------------------
C 33.7%
---------------------------- ------------------
D 15.8%
---------------------------- ------------------
Total 100.0%
---------------------------- ------------------
*Including post balance
sheet events
Portfolio case studies:
1) Tesco, Bishop's Cleeve
The standalone Tesco Supermarket was acquired in August 2022 in
an off-market transaction. The 44k sq.ft. store was constructed in
1998 and is situated on a 4-acre site within the town centre. At
acquisition, the store had an unexpired lease term of 12 years,
subject to annual RPI linked reviews (0% floor and 5% cap).
Post-acquisition, Tesco introduced a two bay Click & Collect
operation within the car park, which demonstrates the ease of
omnichannel expansion within strong, pre-existing grocery
locations.
2) Tesco, Llanelli
This Tesco supermarket was acquired by the Company in September
2022 in an off-market transaction. The large format 120k sq.ft.
store was built in the late 1980s and was extended in 2006. Its
strategic location provides omnichannel capacity for Tesco in South
Wales, operating ten delivery vans and a dedicated three bay Click
& Collect facility in the car park. There is only one
alternative Tesco store operating home delivery within a 25 minute
drive time radius.
At acquisition, the store had an unexpired lease term of 12
years, subject to annual RPI linked reviews (0% floor and 5%
cap).
The store adds to the Group's weighting to inflation-linked
leases within the portfolio and emphasises the Company's strategy
of acquiring strong trading, omnichannel hubs in geographically
diverse locations.
3) Tesco, Worcester
In April 2023, the Company acquired a strong performing 65k
sq.ft. Tesco supermarket in Worcester in an off-market transaction.
Tesco has a long trading history at the store, having operated at
the site since the early 1990s which was subsequently expanded in
2008. The store is an online hub for Tesco, operating nine delivery
vans and a Click & Collect facility helping to supply the
predominantly residential local catchment. There is only one
alternative Tesco store operating home delivery within a 25 minute
drive time radius.
At acquisition, the store had an unexpired lease term of 12
years, subject to annual RPI linked rent reviews (0% floor and 4%
cap).
The store further increases rental indexation within the
portfolio and increases the Company's exposure to the UK's
strongest grocery tenants.
Sainsbury's Reversion Portfolio
Between May 2020 and January 2023, the Company built a c. 51%
stake in the Sainsbury's Reversion Portfolio firstly through a
joint venture with BAPTL and then through buying out BAPTL's stake.
The SRP consisted of the freehold interest in 26 geographically
diverse high-quality Sainsbury's supermarkets, with a London and
southeast location bias.
Sainsbury's occupied the stores in the SRP under leases due to
expire during 2023. The investment case for acquiring the stakes in
the SRP was based on the Company's conviction that Sainsbury's
would remain in occupation of a large majority of the stores.
This proved to be correct with Sainsbury's exercising options to
acquire 21 stores within the SRP (the Option Stores) for GBP1,040
million from the SRP and entering into new 15-year leases on four
of the five remaining stores within the SRP (the Non-Option
Stores).
In January 2023, the Company acquired BAPTL's interest in the
SRP for GBP188.8 million (excluding acquisition costs). This
acquisition was wholly funded by a receivables loan from J.P.
Morgan secured against the Company's share of proceeds from the
sale of the 21 Option Stores.
In March 2023, the Company sold its 51.0% beneficial interest in
the SRP to Sainsbury's for a gross consideration of GBP430.9
million (excluding costs) payable in tranches.
The first tranche of GBP279.3 million was received on 17 March
2023 and the second of GBP116.9 million on 10 July 2023.
The Company received the third tranche when it acquired the four
Non-Option Stores for a total consideration of GBP61.6 million. The
remaining store will be sold at vacant possession value and the
Company will receive 51.0% of the net proceeds, which are expected
to be approximately GBP1.5 million.
The net proceeds from the sale of the Company's interest in the
SRP have been used to reduce the Company's existing debt
facilities, providing the Company with balance sheet flexibility
and the ability to take advantage of opportunistic value add
transactions.
Portfolio valuation
Cushman & Wakefield valued the Direct Portfolio as at 30
June 2023, in accordance with the RICS Valuation - Global Standards
which incorporate the International Valuation Standards and the
RICS UK Valuation Standards edition current at the valuation
date.
The properties were valued individually without any
premium/discount applying to the Direct Portfolio as a whole. The
Direct Portfolio market value was GBP1,685.7 million, an increase
of GBP124.1 million reflecting a valuation decline of GBP253.2
million offset by new acquisitions of GBP377.3 million. This
valuation reflects a net initial yield of 5.6% and a like-for-like
valuation decline of 13.7% since 30 June 2022. The benchmark MSCI
All Property Capital Index during the same period was down 19%.
The decline in valuation reflects the outward shift in property
yields applied by valuers across the real estate sector as a result
of higher interest rates and the macroeconomic environment. This
was largely recognised in the first half of the year, with a
like-for-like valuation decline of 13.4% reported in the Company's
valuation as at 31 December 2022. Valuations remained broadly flat
in the second half of the year.
The valuation decline in the year has however been partially
mitigated by our contractual inflation-linked rental uplifts. The
average annualised increase in rent from rent reviews performed
during the year was 4.1%. 80% of the Company's leases benefit from
contractual rental uplifts, with 78% linked to inflation and 2%
with fixed uplifts.
THE UK GROCERY MARKET
Atrato Capital Limited is the Investment Adviser to the Company.
Steven Noble (Chief Investment Officer of Atrato Capital) discusses
the UK grocery market and the outlook for real estate investment in
the sector.
Q: How has the grocery sector performed over the last few years
given the turbulent market macroeconomic backdrop?
The grocery market has demonstrated its defensive
characteristics yet again over the last few years. Total UK grocery
market sales are up 11% in the year, with the total UK grocery
market now expected to generate over GBP240 billion in annual sales
in 2023(40) .
In fact, since IPO, the grocery market will have increased by
over GBP50 billion from GBP185 billion in 2017 to an estimated
GBP242 billion in 2023 representing a compound growth rate of 5%
which exceeds both CPIH inflation and GDP growth over the same
period.
IGD UK Grocery Market Value 2018 - 2028 (forecast)
Grocery is non-discretionary expenditure which accounts for
14%(41) of household spending. The change in consumer behaviour
towards a greater proportion of time spent working from home and
the increased market penetration of online grocery has resulted in
a long-term structural shift in grocery demand. This has been
achieved against a very turbulent five-year period for the wider UK
economy which includes Covid lockdowns, supply disruptions, the
Ukraine war, inflation and a sharp increase in interest rates.
This long-term growth has been driving record flows of
investment into the sector from a broad range of institutional
investors, including the GBP14 billion of net investment from the
sale of Asda in 2021 and Morrisons in 2022. This year there has
also been GBP1.7 billion(42) of capital investment into the
supermarket property sector from investors looking for assets that
offer consistent returns, underpinned by solid corporate covenants
and low rent to turnover ratios.
The outlook for the sector remains positive, with structural
long-term growth drivers, which in turn support property rental
growth over the medium to long-term.
Q: What operators have been capturing this growth and who are
the largest operators in the UK grocery market?
Six major supermarket operators fulfil over 83% of UK grocery
demand with the majority fulfilled via a combined network of over
4,500 stores across the UK.
Kantar Worldpanel June 2023 - UK grocery market share by
operator
Tesco, Sainsbury's, Asda and Morrisons are the larger
multi-channel grocers who boast a combined market share of
approximately 65%. Each of these businesses has multi-billion-pound
revenues, an established consumer brand and core supermarket
locations across the UK. These operators play an integral role in
the UK market, successfully operating a strategy of price and
assortment management through a multi-channel brand focused
strategy. Their combined market share is largely unchanged since
2019, meeting demand of the enlarged market through their existing
network of stores and deep-rooted "farm to fork" supply chains
which provide a significant barrier to entry to the UK market.
We are seeing some short-term pressure on margins, as the
grocers seek to shield consumers from price rises. However, these
well-established multi-channel operators have been generating
consistent profitability and free cashflows with net profit margins
that typically averaged around 4% over the long-term.
The second largest group of operators is the lower-price grocery
operators ("Discounters") such as Aldi and Lidl. They have grown
through ambitious new store opening programmes which have captured
a combined market share of 18%. However recent significant
increases in construction costs are expected to result in a decline
in the number of new stores in the coming years. The Discounters'
lower cost, low-margin business model requires simplicity and
standardisation of range which is attractive to price sensitive
customers.
This discount market remains highly competitive and the sector
typically operates a lower net profit margins of between 1% to 2%.
These fine margins mean that the Discounters are inflating prices
quicker than other operators, having peaked at 26% compared to 15%
for Tesco and Sainsbury's(43) . Therefore, we see an element of
market share gain coming simply through higher prices.
Q: What changes have you seen in the various grocery formats
over the last 5 years?
As illustrated below, over the last five years the supermarket
channel has remained the dominant sales channel in the UK grocery
market, while online grocery has been the fastest growing, despite
paring back from pandemic peaks over the last year.
Institute of Grocery Distribution ("IGD") UK Grocery Channel
forecasts
In the last 5 years we have seen a dramatic change in the online
grocery channel. In 2018 online accounted for 8% of market share.
The channel's market share rapidly increased, peaking at 15% in
2021 at the height of the pandemic and it has since fallen to
around 12% today. Online grocery is, however, set to remain one of
the fastest growth channels in the grocery sector according to
IGD's forecasts.
The larger multi-channel operators have responded rapidly and
effectively to capture this growth, increasing home delivery and
Click & Collect capacity from a network of stores acting as
last mile fulfilment centres. This agility has pioneered the new
omnichannel store model that combines the largest channel with the
fastest growing.
Larger supermarkets with in-store pick capacity have been well
positioned to fulfil this growth with over 80%(44) of online
grocery sales estimated to now be fulfilled from these omnichannel
stores. At the extreme, our research has shown that the turnover of
some individual omnichannel grocery stores is now 50% online and
50% physical shopping, and a 25%:75% split is not uncommon.
The UK's large multi-channel grocers pioneered the development
of the omnichannel business model towards which we are seeing a
global convergence. The seamless integration between online and
offline is a very significant development within the grocery
industry empowering the operator to be truly blind to channel.
Future grocery strategy can therefore be focussed purely on the
customer and be agnostic to where the sale takes place - in-store,
or online via delivery or Click & Collect.
Our investment strategy is aligned with this future model of
grocery. A key pillar of the Company's strategy is investing in
omnichannel supermarkets to capitalise on the long-term structural
trend towards growing omnichannel operations. We believe that our
high-quality portfolio of omnichannel supermarket properties will
deliver sustainable income and capital growth over the
long-term.
Q: What is a typical supermarket lease structure?
Supermarket lease agreements are often long-dated and
inflation-linked. Original lease tenures range from 15 to 30 years
without break options. Rent reviews often link the growth in rents
to an inflation index such as RPI, RPIX or CPI (with typically 4%
caps and 0% floors), or, alternatively, may have fixed annual
growth rates or open market rent reviews.
An open market review means that the rent is adjusted (usually
upwards only) to reflect the rent the landlord could achieve on a
letting in the open market. Such rent reviews take place either
annually or every five years, with the rent review delivering an
increase in the rent at the growth rate, compounded over the
period.
Landlords usually benefit from "full repairing and insuring
leases". These are lease agreements whereby the tenant is obligated
to pay all taxes, building insurance, other outgoings and repair
and maintenance costs of the property, in addition to the rent and
service charge.
Operators often have the option to acquire the leased property
at the lease maturity date at market value. Furthermore, to ensure
that the operator does not transfer its lease obligation to other
parties, assignment of the lease by the tenant is restricted.
Q: How has supply and demand for supermarket property
performed?
The supermarket sector is a highly attractive asset class within
real estate investment. The financial performance by the UK's major
grocery operators against a backdrop of growing UK grocery market
and inflation has attracted increasing numbers of domestic and
international institutional investors to invest in UK supermarket
property.
Supermarkets have been less volatile than the broader UK
property market when you examine investment performance trends over
the last 15 years, illustrating the long-term strength and
stability of this asset class, and underlining its ability to
provide highly attractive and resilient income.
The significant level of grocery market growth and current high
levels of inflation have driven the increase in store turnovers
materially above rental caps making supermarket store leases look
increasingly good value.
In addition, the combination of yields offered by supermarket
properties and the rental review structures from which our market
benefits mean they offer highly attractive long-term returns. As
such, it is not surprising to see over GBP1.7 billion level of
investment in this asset class over the 12-month period ending 30
June 2023.
There has been some supply of new grocery investment property
opportunities due to the growth in the store network of the
Discounters and the recent sale and leaseback activity from Asda
and Morrisons, however, the buyback of supermarket property by
Tesco and Sainsbury's over the last five years has resulted in a
net overall contraction of leasehold supply. We believe this will
be favourable to long-term yield compression in our sector.
The defensive characteristics displayed by supermarket property
coupled with ongoing demand for long-term secure income is expected
to continue to generate strong investor demand in this asset class
for the foreseeable future.
FINANCIAL OVERVIEW
Atrato Capital Limited, the Investment Adviser to the Group, is
pleased to report the financial results of the Group for the 12
months ended 30 June 2023.
IFRS net rental income for the year to 30 June 2023 increased by
32% to GBP95.2 million, up from GBP72.1 million in the prior year.
Contracted inflation rent reviews in the year resulted in average
passing rent increases in the Portfolio of 4.1% compared to 3.7% in
the prior year, with the majority of reviews hitting their maximum
rental caps. The like-for-like rental growth for properties held
for a full year was 2.7%. A further GBP15.2 million of rental
income was also recognised from new acquisitions during the year,
which were purchased at an average NIY of 5.4%.
Administrative and other expenses, including management and
advisory fees and other costs of running the Group, were GBP15.4
million (30 June 2022: GBP13.9 million) generating an EPRA cost
ratio (including direct vacancy costs) for the year of 15.5% (30
June 2022: 16.5%).
Net financing costs for the year were GBP24.7 million (30 June
2022: GBP13.0 million). The increase in net financing costs
reflects higher leverage in the period, with the weighted average
debt for the year being GBP672.3 million (30 June 2022: GBP491.4
million). The Company fixed 100% of its drawn debt during the year
which provided security during a time of significant interest rate
volatility (see financing and hedging section below). Subsequent to
the year end, the Company completed a debt refinancing exercise,
maintaining its weighted average maturity of debt to just over four
years(45) . At the same time the Company extended the term of its
hedging by 12 months, fixing 100% of the Company's drawn debt at a
weighted average cost of debt of 3.1%.
Net financing costs reflect a one-off non-recurring finance
charge of GBP1.5 million, resulting from the acceleration of
unamortised arrangement fees as a result of the Company
restructuring 50% of its debt from a secured to an unsecured debt
structure. Financing costs were further impacted by the upfront
amount payable to J.P. Morgan in respect of the short-term facility
taken out in January 2023 to fund the Group's purchase of BAPTL's
50% interest in the Joint Venture.
The Group's operating profit, before changes in fair value of
investment properties and share of income from the joint venture,
as reported under IFRS, increased by 37.2% to GBP79.8 million (30
June 2022: GBP58.2 million).
The net decrease in fair value of the Direct Portfolio
investment properties in the year was GBP256.1 million (30 June
2022: GBP21.8 million increase), which comprised of a GBP253.2
million valuation reduction in addition to GBP2.9 million of rent
smoothing, lease incentive and rental guarantee adjustments. As
noted above, the decline in valuation reflects the outward shift in
property valuation yields due to rising interest rates and the
macroeconomic environment. As at 30 June 2023, the Group's EPRA NTA
per share was 93 pence (31 December 2022: 92 pence, 30 June 2022:
115 pence).
In January 2023, the Group increased its interest in the joint
venture relating to the SRP, with the acquisition of an additional
25% stake for GBP188.8 million (excluding transaction costs). This
was fully funded by a short-term loan from J.P. Morgan, which was
repaid in full on receipt of the first tranche of proceeds received
in March 2023 (see financing and hedging section below).
The Company subsequently sold its stake in the SRP to
Sainsbury's in March 2023. The share of income from the joint
venture prior to disposal was GBP23.2 million (30 June 2022:
GBP43.3 million). However, the share of income (excluding fair
value movements) in the year was GBP11.7 million (30 June 2022:
GBP12.2 million).
Following the sale of the Company's interest in the SRP, the
Group generated gross proceeds of GBP430.9 million, resulting in a
profit on disposal of GBP19.9 million. The proceeds were structured
in three tranches, where a receivable of GBP136.4 million was
recognised as at 30 June 2023.
The first tranche of GBP279.3 million was received on 17 March
2023 and the second tranche of GBP116.9 million was received on 10
July 2023. The timing of the third tranche of GBP34.7 million was
conditional on the sale of the remaining five stores in the
SRP.
Four of the five stores were purchased by the Group for GBP61.6
million in March 2023 and July 2023, utilising GBP33.3 million of
the outstanding receivable.
The Group is a qualifying UK Real Estate Investment Trust
("REIT") which exempts the Group's property rental business from UK
Corporation Tax(46) .
Financing and hedging
During the year, the Group extended and broadened its banking
relationships as follows.
-- In July 2022, the Group secured a new GBP412.1 million
unsecured credit facility with a bank syndicate comprising
Barclays, Royal Bank of Canada, Wells Fargo and Royal Bank of
Scotland International. This was priced at 1.5% above SONIA with a
weighted average term of six years (inclusive of uncommitted
extension options).
-- In September 2022, the Group agreed a further two-year
extension (inclusive of a one-year accordion option at the lender's
discretion) of its GBP150.0 million Revolving Credit Facility with
HSBC. All other terms of the facility remained unchanged.
-- In January 2023, the Group secured a new GBP202.8 million
secured debt facility provided by J.P. Morgan. The Facility had an
interest rate of 5.3% and was fully repaid in March 2023 following
receipt of GBP279.3 million in respect of the first tranche of
proceeds from the sale of the Group's interest in the SRP to
Sainsbury's.
-- In March 2023, the Group refinanced its existing loan
facilities with Bayerische Landesbank, with a new three-year
GBP86.9 million term loan fixed at an all-in rate of 4.29%.
-- Post year end, the Group completed a comprehensive debt
refinancing exercise securing a new GBP67.0 million facility with
Sumitomo Mitsui Banking Corporation ("SMBC") priced at 1.4% above
SONIA, whilst reducing its HSBC facility from GBP150.0 million to
GBP50.0 million and cancelling its Barclays/RBC facility of GBP77.5
million. The average maturity of the Group's facilities (including
extension options) is now over 4 years.
During the year, the Group made the decision to fix 100% of its
floating rate debt exposure. This was achieved by entering into
three interest rate swaps. This hedged GBP381.0 million of drawn
floating unsecured debt for a weighted average term of four years.
The cost of acquiring the hedges was GBP35.5 million.
The Group also purchased an interest rate cap to fix the
variable rate of interest on GBP96.5 million of its Revolving
Credit Facility with HSBC until August 2024 for GBP6.0 million.
In March 2023, in line with the refinanced Bayerische Landesbank
loan facilities, the Group settled early its existing in-the-money
hedges for this facility for a profit of GBP2.9 million. The
proceeds were used to enter into new interest rate swaps that
matched the terms of the new refinanced loan facility of GBP86.9
million maturing in May 2026. The cost of acquiring the new hedges
was GBP2.8 million.
The interest rate derivatives entered into during the year had a
weighted average fixed rate on the associated debt of 3.1%
(including margin). The cost of acquiring these interest rate
derivatives was GBP44.3 million and were valued at year end at
GBP54.3 million. The effect on the income statement for the new
derivatives for the period are a profit on fair value of the
derivatives of GBP10.0 million and finance income received from the
quarterly settlement of the derivatives of GBP9.7 million.
Post year end, the Group used the value of its existing
in-the-money interest rate hedges to extend the term of its hedging
arrangements to match the maturity of its extended debt facilities
at no additional cost to the Company. 100% of the Company's drawn
debt is now either fixed rate or hedged to a fixed rate,
representing a weighted average all-in cost of debt of 3.1%.
A summary of the Group's credit facilities as at the year end
and after the balance sheet date is provided below:
Lender Facility Maturity Extended Margin Sonia/swap Loan Amount drawn
Maturity* rate** commitment (30-June-23)
(30-June-23) GBPm
GBPm
Revolving
Barclays Credit
and RBC Facility Jan-24 Jan-26 1.50% SONIA 77.5 -
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Bayerische
Landesbank Term Loan Mar-26 Mar-26 1.65% 2.64% 86.9 86.9
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Deka
Bank Term loan Aug-24 Aug-26 1.35% 0.54% 47.6 47.6
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Deka
Bank Term loan Aug-24 Aug-26 1.35% 0.70% 28.9 28.9
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Deka
Bank Term loan Aug-24 Aug-26 1.40% 0.32% 20.0 20.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Credit
HSBC Facility Aug-24 Aug-25 1.65% 1.12% 96.5 78.1
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Credit
HSBC Facility Aug-24 Aug-25 1.65% SONIA 3.5 -
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Credit
HSBC Facility Aug-24 Aug-25 1.75% SONIA 50.0 -
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Wells Credit
Fargo Facility Jul-25 Jul-27 2.00% 0.19% 30.0 30.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Wells Credit
Fargo Facility Jul-25 Jul-27 2.00% SONIA 9.0 0.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Unsecured Credit
Syndicate Facility Jul-27 Jul-29 1.50% 1.34% 250.0 218.5
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Unsecured
Syndicate Term Loan Jul-25 Jul-27 1.50% 1.34% 100.0 100.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Unsecured
Syndicate Term Loan Jan-24 Jan-25 1.50% 1.34% 62.1 62.1
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Total 862.1 672.1
Lender Facility Maturity Extended Margin Sonia/swap Loan Amount drawn
Maturity* rate** commitment (Post balance
(Post balance sheet)
sheet) GBPm
GBPm
Bayerische
Landesbank Term Loan Mar-26 Mar-26 1.65% 2.64% 86.9 86.9
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Deka
Bank Term loan Aug-24 Aug-26 1.35% 0.54% 47.6 47.6
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Deka
Bank Term loan Aug-24 Aug-26 1.35% 0.70% 28.9 28.9
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Deka
Bank Term loan Aug-24 Aug-26 1.40% 0.32% 20.0 20.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Credit
HSBC Facility Sept-26 Sept-28 1.70% SONIA 50.0 -
---------------- ----------- ------------- -------- ------------ --------------- ---------------
SMBC Term Loan Sept-26 Sept-28 1.40% 1.57% 67.0 67.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Unsecured Credit
Syndicate Facility Jul-27 Jul-29 1.50% 1.76% 250.0 204.3
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Unsecured
Syndicate Term Loan Jul-25 Jul-27 1.50% 1.21% 50.0 50.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Unsecured
Syndicate Term Loan Jul-26 Jul-27 1.50% 1.48% 50.0 50.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Wells Credit
Fargo Facility Jul-25 Jul-27 2.00% 1.21% 30.0 30.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Revolving
Wells Credit
Fargo Facility Jul-25 Jul-27 2.00% SONIA 9.0 0.0
---------------- ----------- ------------- -------- ------------ --------------- ---------------
Total 689.4 584.8
* Inclusive of uncommitted extension options
**Interest cost is inclusive of hedging arrangements where
applicable. Amounts stated do not include unamortised arrangement
fees.
The overall facilities and hedging arrangements (including post
balance sheet events) have a weighted average debt maturity of 4
years (including extension options) (30 June 2022: 4 years) and a
cost of borrowing of 3.1% (30 June 2022: 2.8%).
The Group continues to have a conservative leverage policy, with
a medium-term LTV target of 30%-40%. At the year end, total net
debt was GBP630.0 million, resulting in a net loan to value (LTV)
ratio of 37.4% (30 June 2022: 19.0%). Including post balance sheet
events, the Group's Gross LTV currently stands at 34.0%. The Group
has further balance sheet capacity to utilise for opportunities
which may come to market.
Each of the loans under the secured credit facilities requires
interest payments only until maturity and are secured against both
the subject properties and the shares of the property-owning
entities. Each property-owning entity is either directly or
ultimately owned by the Group.
Each of the loans under the unsecured credit facilities requires
interest payments only until maturity.
The Group continues to maintain significant headroom on its LTV
covenants which contain a maximum 60% LTV threshold and a minimum
190% interest cover ratio for each asset in the Portfolio. As at 30
June 2023, the Group could afford to suffer a fall in secured
property values of 48% before being in breach of its LTV covenants.
With current hedging arrangements in place the Group has
significant interest cover headroom.
Further analysis on the Group's liquidity and banking covenant
compliance strength is set out in note 1 to the financial
information. Details of the Group's debt and interest rate hedging
can be found in Notes 20 and 21 to the financial information.
Dividends
The Company has declared four interim dividends for the year as
follows.
-- On 21 September 2022, a first interim dividend of 1.5 pence
per share, which was paid on 16 November 2022.
-- On 12 January 2023, a second interim dividend of 1.5 pence
per share, which was paid on 23 February 2023.
-- On 11 April 2023, a third interim dividend of 1.5 pence per
share, which was paid on 26 May 2023.
-- On 6 July 2023, a fourth interim dividend of 1.5 pence per
share, which was paid on 4 August 2023.
The Group's adjusted dividend cover ratio was 0.97x for the year
(30 June 2022: 1.08x). The decrease is reflective of the increased
debt levels of the Group for the year, interest rate increases and
the timing of the receipt of the SRP proceeds to reinvest into
increasing the earnings of the Group.
The Company is targeting to increase the dividend for the year
to 30 June 2024 to 6.06 pence per share, which will be the sixth
consecutive year of annual dividend increases.
Atrato Capital Limited
Investment Adviser
19 September 2023
TCFD COMPLIANT REPORT
ESG Statement
The UK is targeting Net Zero emissions by 2050. Achieving this
will require the full commitment of the real estate sector, among
many others. Supermarket Income REIT plc acknowledges that it has a
role to play within that commitment and therefore must identify and
manage its sustainability risks accordingly. The Company believes
that this approach aligns with the interests of its key
stakeholders.
Enhanced collaboration between landlords and tenants is
necessary if zero carbon initiatives are to be successful and the
Company is especially focused on this, given the (full repairing
and insuring) nature of the majority of its leases. The Company's
sector has proved itself to be agile in times of hardship through
the "feed the nation" enterprises; now is the time to deliver on
zero carbon initiatives throughout its operations.
In addition to the Company's disclosures in line with the Task
Force on Climate-related Financial Disclosures (TCFD) recommended
disclosures, the Company will publish its first Sustainability
Report in 2023. The Sustainability Report contains disclosures on
other environmental, social and governance (ESG) topics, including
outlining the Company's work to consolidate its approach, by
integrating sustainability into all levels of the fund and its
investment process.
Highlights from the Sustainability Report, beyond the Company's
climate-related activities and commitments, will include
environmental asset management initiatives to benefit occupiers and
communities, further improvements to its ESG Governance following
the establishment of the ESG Committee during FY 2022, and
community engagement through charitable giving and community
partnerships.
The Company's approach to ESG is underpinned by the Board's
commitment to good stewardship and long-term value creation for our
stakeholders. Our aim is to continue to enhance and refine our
sustainability strategy and reporting moving forward.
Streamlined Energy and Carbon Reporting ("SECR")
The below table and supporting narrative summarise the
Streamlined Energy and Carbon Reporting (SECR) disclosure. As a
listed entity, the Company is required to comply with the
Streamlined Energy and Carbon Reporting (SECR) regulations under
the Companies (Directors' Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018. Only data
for the year ended 30 June 2023 is included as this is the
Company's first year of SECR.
Reporting year Current reporting year:
1(st) July 2022 - 30(th)
June 2023
Location UK
---------------------------
Emissions from the combustion of fuel
and operation of facilities (tCO(2)
e) (Scope 1) 10
---------------------------
Emissions from purchase of electricity
(location-based) (tCO(2) e) (Scope
2) 101
---------------------------
Emissions from business travel in rental N/A
cars or employee-owned vehicles where
company is responsible for purchasing
the fuel (tCO(2) e) (Scope 3)(47)
---------------------------
Voluntary: Emissions from Fuel and
Energy related activity (tCO(2) e)
(Scope 3) 37
---------------------------
Voluntary: Emissions from Purchased
Goods and Services (tCO(2) e) (Scope
3) 3,132
---------------------------
Voluntary: Emissions from Capital Goods
(tCO(2) e) (Scope 3) 463
---------------------------
Voluntary: Emissions from Downstream
Leased Assets (tCO(2) e) (Scope 3) 77,274
---------------------------
Total gross emissions based on the
above (tCO(2) e)(48) 81,017
---------------------------
Energy consumption used to calculate
Scope 1 emissions (kWh) 606,629
---------------------------
Energy consumption used to calculate
Scope 2 emissions (kWh) 521,321
---------------------------
Energy consumption used to calculate
Scope 3 emissions (kWh)(49) 186,704,059
---------------------------
Total energy consumption based on above
(kWh) 187,832,009
---------------------------
Intensity ratio: tCO(2) e (gross Scope
1 + 2) per m(2) of floor area 0.00045
---------------------------
Intensity ratio: tCO(2) e (gross Scope
1, 2 + 3) per m(2) of floor area 0.13
---------------------------
Methodology
The 2022/23 SECR footprint is equivalent to 81,017 tCO(2) e,
with the largest portion being made up of emissions from downstream
leased assets at 77,273 tCO(2) e.
The Company has calculated the above greenhouse gas (GHG)
emissions to cover all material sources of emissions for which the
Company is responsible. The methodology used was that of the
Greenhouse Gas Protocol: A Corporate Accounting and Reporting
Standard (revised edition, 2015). Responsibility for emissions
sources was determined using the operational control approach. All
emissions sources required under The Companies (Directors' Report)
and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 are included.
Raw data captured in spreadsheets including energy spend and
consumption data has been collected from the Company. Where actual
consumption data was available for natural gas and electricity use,
this was used. To address data gaps, the most appropriate proxy was
applied by using either previous year's data, actual data to
calculate average monthly consumption, or by applying the average
floor area intensity from sites with actual data. Fuel oil was
estimated by applying the average 2022 UK fuel oil price to the
budgeted spend for fuel oil. Energy was then converted to GHG
emissions using the UK Government's GHG Conversion Factors for
Company Reporting 2022.
Scope 3 emissions have been calculated for relevant material
categories using consumption data, spend data, floor area and EPC
data. Fuel and Energy related activities includes well-to-tank
("WTT") and transmission and distribution ("T&D") upstream
emissions from Scope 1&2. For Purchased Goods and Services,
Environmentally Extended Input Output ("EEIO") has been used. Spend
data was provided per supplier by the Company's Finance team and
mapped to 2022 DEFRA Input/Output ("IO") categories. Embodied
emissions from two newly built sites were estimated for Capital
Goods, based on LETI factors. Where actual data was not available
for Downstream Leased Assets, a combination of CIBSE benchmarks
were used against EPC data on energy use and heating type. Publicly
available air conditioning ("AC") certificates were used to
determine the type and amount of refrigerants, where this was not
available other similar sites were used as proxies. As per EPA
data, the size of the air conditioning equipment used was dependent
on the amount of refrigerant used and the floor area. Supermarket
refrigeration and non-food air conditioning was estimated using an
intensity estimate from EPA data as no activity data was available.
Refrigerant loss rate for refrigeration was taken from Direct
Emissions from Use of Refrigeration, Air Conditioning Equipment and
Heat Pumps from DEFRA.
Energy Efficiency Action
The Company has made efforts to improve energy efficiency across
landlord-controlled areas between 1 July 2022 and 30 June 2023. The
car park and communal lighting has been upgraded to LED at
Winchester, West End Retail Park (50% complete), Willow Brook
Centre (99% complete) and Wisbech sites. Further upgrades to LED
lighting are planned for other sites. The Company is also in the
process of replacing the Air Handling Unit at the Beaumont Leys
site and implementing a sustainable heating solution for the mall.
A Battery Management System upgrade, PIR controls and monitoring
and education has also been put in place at the Willow Brook
Centre.
Taskforce on Climate-Related Financial Disclosures (TCFD)
Introduction
The effects of climate change are impacting countries,
businesses and society in many ways. Such impacts will continue to
increase if significant mitigation measures are not taken by all
contributors. The UK commercial real estate industry is not immune
from these effects and faces numerous risks associated with climate
change that could impact the industry in the near and long-term.
These risks include, but are not limited to, flooding and heat
waves, impacting tenant operations and supply chains, as well as
regulatory actions requiring emissions reductions and energy
efficiency improvements. Along with these risks also come
opportunities for improving the industry's readiness, which could
offer valuable contributions to mitigation of climate change's
impacts and associated risks.
Supermarket Income REIT plc is dedicated to mitigating
climate-related risks, reducing its environmental impact and
managing its climate-related risk exposure. In anticipation of, and
in response to, the impacts that these risks pose to the Company,
its tenants and stakeholders, the Company continues to build out an
effective governance structure and put measures in place to enhance
its climate risk management strategy. The Company is supported by
Atrato Capital Limited (the "Investment Adviser") which, as a
signatory of the United Nations' Principles for Responsible
Investment (UNPRI) and the Net Zero Asset Managers (NZAM)
Initiative, is committed to assisting the Company achieve its
sustainability and climate goals to combat the climate crisis.
The Company continues to build on its voluntary reporting in
line with the taskforce on Climate-related Financial Disclosure
(TCFD) recommendations and enhance its climate-related strategy to
advance the development and implementation of a comprehensive risk
management framework. This strategy, developed by the Investment
Adviser, in conjunction with the Board of the Company, will include
a roadmap derived from climate risk identification, scenario
analysis and a financial impact assessment of material risks. This
collaboration between the Investment Adviser and the Board helps to
ensure that the Company's investments will continue to be guided by
a comprehensive risk management strategy that incorporates climate
risks.
In 2022, the Company reported against the four TCFD pillars in
its TCFD-aligned report. In 2023 the Company is voluntarily
disclosing for the first time on a basis consistent with all 11 of
the TCFD recommendations and recommended disclosures.
Table 1 summarises the 2023 disclosures and areas identified for
improvement in future years.
Table 1: The Company's TCFD Statement of the Extent of
Consistency with the TCFD Framework
TCFD Category TCFD Recommendation 2023 TCFD compliance Future planned improvements
Governance Describe how the board Consistent N/A
exercises oversight - see Governance
of climate-related section
risks and opportunities.
-------------------------------- ---------------------- -----------------------------
Describe management's Consistent N/A
role in assessing - see Governance
and managing climate-related section
risks and opportunities.
-------------------------------- ---------------------- -----------------------------
Strategy Describe the climate-related Consistent Expand upon risk
risks and opportunities - see Strategy and opportunity
the organisation has section identification processes
identified over the to include engagement
short-, medium-, and with tenants.
long-term. Ongoing process
2024
-------------------------------- ---------------------- -----------------------------
Describe the impact Consistent Refine and publish
of climate-related - see Table quantitative, financial
risks and opportunities 2 impacts.
on the organisation's To be completed
businesses, strategy, by Q1 2024
and financial planning.
-------------------------------- ---------------------- -----------------------------
Describe the resilience Consistent Build upon the Science
of the organisation's - see Strategy Based Target (SBT)
strategy, taking into section road map into a
consideration different more detailed Climate
climate-related scenarios, Transition Plan.
including a 2degC Q2 2024
or lower scenario.
-------------------------------- ---------------------- -----------------------------
Risk Management Describe the organisation's Consistent Expand on climate
processes for identifying - see Risk risk and opportunity
and assessing climate-related Management identification.
risks. section Q2 2024
-------------------------------- ---------------------- -----------------------------
Describe the organisation's Consistent Formalise climate-related
processes for managing - see Risk communication channels
climate-related risks. Management with tenants.
section Q2 2024
-------------------------------- ---------------------- -----------------------------
Describe how processes Consistent N/A
for identifying, assessing, - see Risk
and managing climate- Management
related risks are section
integrated into the
organisation's overall
risk management.
-------------------------------- ---------------------- -----------------------------
Metrics and Disclose the metrics Consistent N/A
Targets used by the organisation - see Metrics
to assess climate-related and Targets
risks and opportunities - Table 3
in line with its strategy
and risk management
process.
-------------------------------- ---------------------- -----------------------------
Disclose Scope 1, Consistent- N/A
Scope 2 and, if appropriate see Greenhouse
Scope 3 greenhouse Gas Emissions
gas (GHG) emissions section
and the related risks.
-------------------------------- ---------------------- -----------------------------
Describe the targets Consistent- Work is currently
used by the organisation see Metrics ongoing to model
to manage climate-related and Targets emissions reductions,
risks and opportunities section develop a roadmap
and performance against to reduce those
targets. emissions and submit
a target to the
Science Based Targets
initiative (SBTi).
Q4 2023
-------------------------------- ---------------------- -----------------------------
Governance
Describe how the board exercises oversight of climate-related
risks and opportunities:
The Board and the Alternative Investment Fund Manager ("AIFM")
are responsible for the investment decisions of the Company and
directing the delivery of services by the Investment Adviser to
ensure that climate-related priorities are incorporated into the
execution of the investment strategy. In support of this objective,
the Board established the ESG Committee in May 2022 to ensure that
the Company's climate related issues are integrated into its
business plan and corporate performance objectives. Following the
2023 reporting process, the Board will consider the annual budget
implications of the inaugural climate scenario analysis results and
will also consider updating risk management policies as is deemed
appropriate.
The Board appoints the members of the Committee, which has the
delegated authority of the Board to monitor the integrity and
quality of the Company's climate risk strategies, as well as to
track progress against climate-related goals and targets, which
will be presented to the Board on a quarterly basis. Many of these
goals and targets are new to 2023 (documented within Table 3 below)
and are in the process of being embedded within Board
presentations.
The Investment Adviser is responsible for advising the Board and
ESG Committee in matters related to climate risk and the Investment
Adviser's Head of Sustainability is responsible for delivery of
these services on behalf of the Investment Adviser. The Board also
engages with third party advisers to develop its understanding of
climate-related risks and how they apply to the Company.
Figure 1: Governance structure related to climate-related risks
and opportunities
Describe management's role in assessing and managing
climate-related risks and opportunities:
Investment Adviser
The Investment Adviser is responsible for the delivery of the
climate risk strategy on behalf of the Company. Steve Windsor,
Principal and Sustainability Champion at the Investment Adviser, is
responsible for oversight, monitoring and management of
climate-related risks and opportunities. The Investment Adviser's
Head of Sustainability is responsible for the operational delivery
of climate-related risks and opportunities measures within the
Investment Adviser's operations and leads the provision of climate
risk advice to the Company.
The Head of Sustainability is a standing attendee at the
Investment Adviser's Investment Committee, assuming responsibility
for implementation and alignment with the Investment Adviser's
sustainability systems and controls, co-ordination of third-party
service providers, and delivery of the Company's sustainability
strategy.
Where the Company has appointed a specialist service provider,
the Investment Adviser will require and hold regular project
progress meetings with the service provider, where delivery is
tracked against an agreed project timeline. The results of the
progress will be communicated to the ESG Committee by the
Investment Adviser in the context of its progress against the
agreed sustainability strategy.
Reporting - The Investment Adviser has reviewed its reporting
obligations to the Company over the year. With the introduction of
the ESG Committee, key topics such as strategic developments,
occupational health and safety events, and potentially material
adverse impacts will be reported under a more consistent
framework.
Certain topics will be included as standing items in the
quarterly information pack provided to the ESG Committee. These are
designed to:
1. Provide Committee members with the ability to directly
monitor management of the identified climate related risks and
opportunities. This will include Energy Performance Certificate
("EPC") ratings and progress against the delivery of the
sustainability plans for the higher risk assets, flood risk
assessments and updates on and feedback from the tenant engagement
plan;
2. Oversee the Investment Adviser's performance against the
agreed deliverables under the sustainability strategy as well as
holding it to account for non-performance.
The Investment Adviser has also sought to expand its external
reporting, having become a signatory to both UNPRI and NZAM. It
will be making the necessary reports required under these
commitments over the next reporting period. Finally, the Investment
Adviser has improved its data collection in relation to its own
activities to support the public disclosures of the Company, in
particular the social and governance aspects.
Sustainability Strategy and Benchmarking - The sustainability
activities of the Investment Adviser are supplemented by services
from third party providers. During the financial year, the Company
has sought advice from CEN-ESG on improvements it can make to its
sustainability strategy and framework, as well as undertaking a
benchmarking exercise to assess the Company's sustainability
strategy delivery against its peer group.
The outcome of this exercise has been the development of a gap
analysis for more holistic, ESG disclosures against best practices
and against the Company's peer group. The consultants provided
advice on climate and other ESG disclosure expectations of the
independent sustainability rating agencies, and the consequential
improvements required by the Company and Investment Adviser in this
regard. These recommendations have been reflected in the Company's
sustainability strategy, against which the ESG Committee tracks the
Investment Adviser's progress against the agreed deliverables.
These additions have also been included in the review of the
Company's Sustainable Investment Management System (SIMS) which was
developed concurrently.
Systems and controls - The Investment Adviser has appointed
specialist sustainability systems experts, Quarter Penny Consulting
Ltd to expand its sustainability systems and controls to ensure
they are effective in delivering the Company's sustainability
strategy. Identification of climate-related risks already forms
part of the Investment Adviser's investment process. However, this
has been expanded to ensure more accurate data collection and asset
level risk analysis. These changes which the Company is in the
process of implementing include:
- Expansion of the existing asset level sustainability
improvement tracking to include asset level plans and the
introduction of greater oversight of their delivery;
- Active analysis and monitoring of flood risk on a location
specific basis under different climate scenarios;
- Formalising a tenant engagement policy with standardised information request templates;
- Formalising use of the legal risk register to monitor
applicable regulatory and legal changes.
Such systems and controls will continue to be reviewed and
improved in response to the climate scenario analysis performed in
Q2 2023.
Strategy
Describe the climate-related risks and opportunities the
organisation has identified over the short-, medium-, and
long-term:
During the reporting period, the ESG Committee approved an
updated climate risk strategy for the Company in line with its
continual improvement ethos. In addition to the review and revision
of the Company's previous sustainability commitments, the strategy
identified three key aims for the 2022/23 reporting period.
- Expansion of reporting in-line with TCFD application guidance.
- Introduction of climate-related performance targets for the Investment Adviser.
- Further review and development of the Investment Adviser's systems and controls.
The Board and ESG Committee recognise that to ensure successful
implementation of the Company's sustainability strategy, and
specifically the integration of sustainability factors into the
investment process, appropriate training and communication of
sustainability considerations must be provided to the Investment
Adviser's employees. The Investment Adviser will therefore expand
its training programs over the course of the year to more fully
incorporate climate risk topics, which it will continue to develop
in line with stakeholder expectations and sector developments.
For this reporting period, a first stage risk screening was
conducted to identify and assess the impact of the Company's
climate-related transition and physical risks, as well as
corresponding opportunities. Relevant and potentially material
risks and opportunities were identified through a review of
existing risk assessments and consultation with the Investment
Adviser. These risks were given a 'First Stage Rating', based on
the judgement of the Investment Advisers, to enable the higher
priority risks to be taken forward for a more detailed review.
The short-, medium-, and long-term time horizons were chosen to
align with specific climate risks and risk management strategies.
The short-term time horizon (2023-2030) aligns to the anticipated
compliance deadline for Minimum Energy Efficiency Standards
("MEES"). The Investment Adviser anticipates 2030 as the target
year for a minimum B-rating across qualifying sites. Due to the
14-year WAULT of its portfolio, the Company expects few changes to
the existing leases arrangements during this time period. The
medium time horizon (2030-2040) aligns with a period of current
lease renewals for the majority of Company's tenants, during which
physical and transition risks associated with the Company's
portfolio may have greater influence on lease agreements with
existing and new tenants. Finally, the long-term horizon
(2040-2050) coincides with a potential increase in the likelihood
and severity of physical climate risks impacting the Company's
portfolio and allows for the creation of long-term strategies and
planning regarding portfolio management in response to these risks.
The Company expects that the short-, medium-, and long-term
horizons will align with those of the Company's forthcoming climate
targets, which will be set in the next reporting period.
Table 2 | Scenario analysis results for the Company's climate
risks and opportunities and First Stage risk rating
Risk description Scenario Impact(b) Likelihood(I) Overall Rating(d) by
(a) Time Horizon
Short Medium Long
(2023-2030) (2030-2039) (2040-2050)
-------------- -------------- --------------
Physical Risk First Higher Higher Moderate Higher Higher
- Flooding (Acute Stage
& Chronic): Increased Rating
insurance premiums
and increased capital
expenditure required
on adaptative or
remediation measures.
------------ ----------- --------------- -------------- -------------- --------------
Below Moderate Higher Moderate Moderate Moderate
2(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Above Moderate Higher Moderate Moderate Moderate
4(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Physical Risk First Moderate Higher Moderate Higher Higher
- Extreme Heat Stage
(Acute): Increasing Rating
operating costs
for tenants through
increased energy
demand required
for cooling; supply
chain disruption,
stock damage and
write off. This
may increase capital
expenditure, repairs
and maintenance,
and reduced tenant
demand and/or rent
premiums for less
energy efficient
buildings.
------------ ----------- --------------- -------------- -------------- --------------
Below Moderate Lower Lower Lower Lower
2(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Above Moderate Lower Lower Lower Moderate
4(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Transition Risk First Moderate Higher Higher Higher Moderate
- Policy and Legal Stage
Risk: Currently Rating(d)
represented by
Minimum Energy
Efficiency Standards
(MEES), but could
also include, new,
future, additional
regulations. Any
properties not
compliant with
MEES could reduce
tenant demand,
reduce rent premiums
or result in fines.
------------ ----------- --------------- -------------- -------------- --------------
Below Higher Moderate Moderate Moderate Moderate
2(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Above Higher Lower Lower Lower Lower
4(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Transition Risk First Moderate Moderate Moderate Moderate Moderate
- Market: Energy Stage
Costs may increase Rating
for tenants, shifting
preferences for
more energy efficient
buildings and
renewables.
------------ ----------- --------------- -------------- -------------- --------------
Below n/a - scenario analysis not performed
2(o) C for this risk type
Scenario
------------ ----------------------------------------------------------------------------
Above
4(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Transition Risk First Moderate Moderate Moderate Moderate Lower
- Reputation: Tenants Stage
demand preferences Rating
may shift to lower
carbon, highly
energy efficient
buildings, due
to Net Zero commitments
and their customer
demands, reducing
tenant demand and/or
rent premiums.
------------ ----------- --------------- -------------- -------------- --------------
Below n/a - scenario analysis not performed
2(o) C for this risk type
Scenario
------------ ----------------------------------------------------------------------------
Above
4(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Opportunity - First Moderate Moderate Moderate Moderate Lower
Market: By accelerating Stage
deployment of energy Rating
efficient measures,
setting a Science
Based Target (SBT)
and better aligning
with tenant preferences,
the Company could
gain a competitive
advantage relative
to other commercial
landlords who are
not as progressive
on in their climate
and sustainability
related ambitions.
This could enable
increased tenant
demand and rent
premiums.
------------ ----------- --------------- -------------- -------------- --------------
Below n/a - scenario analysis not performed
2(o) C for this risk type
Scenario
------------ ----------------------------------------------------------------------------
Above
4(o) C
Scenario
------------ ----------- --------------- -------------- -------------- --------------
Notes:
(a) The IPPC Atlas' RCP2.6 scenario and the NGFS's Net Zero 2050
scenario are assumed to represent "Below 2degC scenarios" for
physical and transition risks respectively. Above 4(o) C scenarios
were included voluntarily for prudent, comparative purposes, and
are based on the IPPC Atlas' RCP8.5 scenario and the NGFS's Current
Policies scenarios for physical and transition risks
respectively.
(b) Impact represents assumed, inherent financial exposure and/or vulnerability of the Company.
(c) Likelihood represents the probability and/or frequency of
occurrence. (d) Overall Rating represents the product of Impact and
Likelihood.
(d) First Stage ratings were based on initial internal
discussions and comparison with peer organisations. The top three
risk types with relatively higher ratings for impact and likelihood
were then taken forward for more detailed scenario analysis in
2023.
Please see Appendix A for further details on the
methodology.
(e) Subsidence was not selected to be included in scenario
analysis this year, but it was identified as a climate risk
alongside Flooding and Extreme Heat.
The three climate risks and/or opportunities judged to be the
most material and assigned the highest overall risk or opportunity
rating in the initial risk screening were evaluated using climate
scenario analysis. The results of this analysis are shown in Table
2. The scope of this detailed analysis will be expanded in future
years to evaluate more risk and opportunity types and to better
quantify the financial impacts associated with these risks.
Additional risks to be evaluated include energy costs and customer
and tenant demand for lower carbon buildings, while opportunities
include gaining a competitive advantage over peers by offering
assets with higher energy efficiency ratings. Quantitative
financial values at risk have not been published this year, as the
corresponding costs of managing the risks require further research
and greater access to and engagement with tenants. This research
and engagement will be performed over the next 12 months. This is
considered to be a transitional challenge as the Company's scenario
analysis methodology is developed and embedded .
Describe the impact of climate-related risks and opportunities
on the organisation's businesses, strategy, and financial
planning:
The Company's ability to evolve its commercial strategies to
reflect the relevant climate-related risks and opportunities
identified, will be fundamental to its continued success. This will
include considering the risks and opportunities within specific
activities, such as:
Acquisitions - The Investment Adviser has already adapted its
asset sourcing criteria and approach to acquiring new assets.
- No asset with an EPC below C can be acquired unless a
demonstrable EPC improvement plan is developed, the cost of which
is reflected in the investment case for the asset acquisition.
- Consideration is given to the costs required to improve all
assets to EPC B, based on current anticipated legislative
changes.
- A sustainability review is completed for all assets.
- Opportunities for the installation of energy efficiency and
renewables technology in support of the Net Zero transition are
considered as part of the investment case.
- The credit standing of the Company's tenants is assessed in
the context of their ability to manage climate related risks and
opportunities.
As the Investment Adviser continues to embed the SIMS it will
also undertake additional due diligence including future flood risk
assessments under alternative climate scenarios.
Asset Management - The Investment Adviser already maintains
records relating to the delivery of sustainability initiatives
across the Company's portfolio. Priority initiatives will be
defined through this risk and opportunity identification process
and combined with initiatives previously identified through to the
Company's engagement with tenants, the acquisition due diligence
process. Current example initiatives include feasibility
assessments for installation of renewable energy solutions or
electric charging points. The Investment Adviser's progress against
these plans is reviewed monthly with the Head of Sustainability and
at asset management planning meetings with site managers.
Financial planning - The majority of the Company's assets are on
long-term full repairing and insuring (FRI) leases. The maintenance
and operation of the assets, including improvements necessary to
achieve the required EPC improvements and the tenant's own Net Zero
targets are therefore the responsibility of the tenant during the
term of the lease. The Company's approach to financial planning is
reflective of this and includes the following activities.
- Assessment of the costs of improving all assets to an EPC B.
This is currently underway and has not yet been formally reflected
in the Company's financial planning as it is likely that the asset
improvement costs may be shared, at least in part, with its
tenants, which requires further engagement.
- On-going monitoring of the likelihood of potential asset level
risks. This may prompt a future change to asset values, provisions
for increased insurance premiums and/or increased future
rectification costs.
- Updates to the future budgeting process to incorporate the
costs of appointing suitable advisers to support its risk
assessment and reporting requirements.
- Updates to the future budgeting process to incorporate
additional acquisitions costs to support the more detailed due
diligence around climate related risks and opportunities.
Access to Capital - Access to both debt and equity capital will
increasingly require the Company to align with the financial
community's requirements for robust climate risk and opportunity
management and activities relating to Net Zero. The Company's
sustainability strategy is designed to address this through:
- Regular engagement via the Investment adviser with
Shareholders to understand their requirements and to ensure timely
responses to their own sustainability due diligence.
- Increased transparency over risks and opportunities and how
they are being managed; which includes this TCFD report.
- Independent review and support in the preparation of climate
related disclosures by third party advisers.
- Horizon scanning for sustainability initiatives to be implemented by relevant regulators.
- Ongoing dialogue with debt funders around their sustainability
policies including relevant lending exclusions and funding
incentives linked to green lending criteria.
Describe the resilience of the organisation's strategy, taking
into consideration different climate-related scenarios, including a
2degC or lower scenario:
Each risk type with Moderate-Higher First Stage Ratings have
been considered under two future scenarios. The future scenarios
are the IPCC's Representative Concentration Pathway (RCP) 2.6 IPCC
RCP8.5. The RCP2.6 scenario describes a scenario where global
temperature increases remain below 2degC as a result of sharp
decreases in emissions, whilst the RCP8.5 scenario describes a
scenario commensurate with much higher emissions and subsequent
temperature increases (around 4degC of warming). These scenarios
have been included in analysis on the basis that they represent a
low-emissions future scenario as well as a high-emissions future
scenario.
Policy and Legal
The Company's current, key regulatory risk is associated with
the MEES. MEES impacts the Company's portfolio of assets by
requiring that each asset achieves minimum EPC ratings in order to
be leased. It is acknowledged that within the RCP2.6 scenario,
other policy and legal changes may be introduced in addition to, or
in-place of the current MEES regulation. Therefore, this risk is
intended to represent a broader suite of future climate Policy and
Legal interventions. Current MEES readiness and EPC ratings serve
as only one indicator for how vulnerable the Company is to the
broader risk of climate-related Policy and Legal changes. Other
vulnerability indicators include tenant lease term. The likelihood
rating is based on the proxy of global carbon price data, on the
rationale that in future scenarios with higher carbon prices, there
is an increased likelihood of policies, such as MEES, that
discourage emissions. In the RCP2.6 scenario, carbon prices
increase more rapidly in the short-term than under the RCP8.5
scenario. Further details of this approach have been included in
Appendix A.
Currently, the MEES regulation sees compliance as a landlord
responsibility, is applied to all commercial leases (subject to
some exemptions) and dictates that a property with an EPC lower
than an 'E' cannot be let to new tenants or renewed with existing
tenants. Revisions to the legislation are currently under
consultation, but it is widely anticipated that landlords,
including the Company, will be required to ensure their properties
are rated at C or better by 2028 and B or better by 2030 to
continue to lease the properties to tenants. Although, as
aforementioned, these regulations are subject to exclusions.
The Company's leased supermarket assets in England currently
achieve an average rating of C, with 8 of 50 (16%) rated at D or
worse. The Company has undertaken an exercise to understand the
capital expenditure required to bring the portfolio up to a
lettable standard, should the legislation progress as is
anticipated (i.e. B by 2030). Based on the Investment Adviser's
initial analysis of the upgrade costs, these are not expected to be
material for the Company. However, the Company is actively engaging
with tenants to improve asset energy efficiency, where possible,
since an asset with a lower rating could invite lower demand and
rental income relative to an asset with a comparatively higher
rating. This is likely to be of greater concern to the Company over
the medium term when the majority of its leases will be due for
renewal. While the landlord is not able to make change without
consent from the tenants, the landlord may register an exemption
should the tenant not permit access and alterations to facilitate
improvement.
As a result of this analysis, the Company will be evaluating the
capital refurbishment plans on those sites with lower EPC ratings
and ensuring that robust plans are in place to comply with, if not
exceed, future MEES regulations. The financial impact of this risk
will be assessed in future analysis.
Extreme Heat
Heat waves have increasingly impacted businesses in the UK and
across Europe, with average impacts estimated as high as 0.5% of
GDP in the last decade (link). The heat wave in July 2022 saw UK
temperatures rise above 40degC in some areas, impacting grocery
store refrigeration capability, energy supply, supply chains and
operations. Such events impact store profitability as they lead to
increased energy consumption and associated costs to facilitate
greater levels of cooling. Other impacts include stock loss and the
cost of newer, more efficient refrigeration technology. If this
were to disproportionately impact the Company's stores this could
reduce their attractiveness to the operators, leading to impacts on
rental income.
The results of the scenario analysis show that heat waves are
generally a low risk for the Company's portfolio in the RCP2.6
scenario, with temperatures rising above 35degC fewer than one day
per year on the short-, medium-, and long-term horizon. In the
RCP8.5 scenario, this risk increases but remains low compared to
global risk levels, with the number of days with temperatures of
35degC or greater increasing to over three days per year on
average. Higher risk sites were mainly located in the South West,
with the remaining located in the Midlands and the South East of
England.
Informed by this analysis, the Company will engage with tenants
of higher risk sites through site visits and engagement to better
understand the operational impacts as a result of extreme heat, if
and how it has affected asset operations at these locations in the
past, and the extent to which it may influence a tenant's decision
to renew its lease. Tenants are continuing to advance their own
refrigeration and supply chain technology alongside the changing
environment, with refrigeration upgrades at stores where the
equipment is aged, reducing any stock loss associated with
inadequate refrigeration.
Flooding
While there have been no instances of flooding across the
Company's portfolio during its period of ownership, flooding has in
some locations impacted other supermarket properties across the UK.
This impact is expected to increase over time due to climate change
(see WWF Water Risk Filter). Scenario analysis results for the
Company's portfolio show flood risk to be moderate on the short and
medium-term time horizons in the RCP8.5 scenario. This risk level
is reflective of the higher risk level that the UK faces relative
to many other countries. The scenario analysis highlighted regional
differences in risk levels within the Company's portfolio, with
higher risk sites distributed equally across the South East, South
West and Midlands, with Wales, the North East and North West
comparatively lower risk.
These results will inform tenant engagement across the portfolio
regarding flood risk, including enhanced communication for any
higher risk sites identified. Furthermore, the Company has
undertaken a closer review of past flood risk assessments to
understand what adaptation measures are available and the capital
investment required for such measures. Detailed financial impacts
of this risk will be quantified over the next 12 months. The
Investment Adviser will be reviewing its investment due diligence
and exploring if more detailed analysis of acute and chronic flood
risk impacts can be embedded into its investment strategy and
decisions.
Risk Management
Describe the organisation's processes for identifying and
assessing climate-related risks:
The Company's approach to risk assessment is as set out in the
Our Principal Risks Section on pages 71 to 84.
The Board and JTC Global AIFM Solutions Limited, the Company's
Alternative Investment Fund Manager (the AIFM), together have joint
overall responsibility for the Company's risk management and
internal controls, with the Audit and Risk Committee reviewing the
effectiveness of the Board's risk management processes on its
behalf. The ESG Committee is responsible under the delegated
authority of the Board for the identification and monitoring of
climate related risks which are incorporated into the risk
management process.
The ESG Committee will consider both physical risk factors such
a flood risk as well as existing and future, emerging regulatory
risks, including the implications of the introduction of MEES.
Additionally, the Investment Adviser seeks to ensure climate
related risks are a standing item when engaging with the Company's
tenants. Such engagement occurs multiple times per year and more
frequently with larger site tenants. Where relevant to do so, it
will formally incorporate any risks identified through that
engagement channel into the Company's risk register over the next
12 months.
Materiality of climate related risks and opportunities is
determined based on their relative likelihood and potential
financial impact. This is a process that has been reviewed and will
continue to be enhanced over the course of 2023. At present, the
Company's finance team have fed into a 'First Stage Rating', which
has enabled the process of financial quantification to commence via
the scenario analysis for selected risks. Once the risk
quantification is complete, it will allow a more robust assessment
of materiality to be made.
Describe the organisation's processes for managing
climate-related risks:
The Investment Adviser undertakes an assessment of each asset
against a set of sustainability criteria, incorporating metrics
such as a flood risk assessment into each transaction review. The
Company will not recommend the acquisition of assets with an Energy
Performance Certificate (EPC) of D or below unless a deliverable
EPC improvement plan is in place, prior to acquisition, to improve
an asset to an EPC rating of C or better. The cost of delivering
the EPC Improvement plan forms part of the acquisition investment
case.
Materiality and prioritisation determinations are made through
impact, likelihood, and risk scoring as a part of the risk
register. Inherent and residual probabilities are assigned to each
risk, from which a risk score is derived. Mitigating actions are
described in detail in the risk register, laying out governance
structure and processes in place aimed at mitigating each risk.
Finally, actions taken to mitigate risks are tracked and recorded
in the register.
Regulatory transition risks associated with the Company's
portfolio are assessed and included in the risk register. EPC
ratings and scoring are updated on a rolling basis when there are
known sustainable improvements to assets, on expiry or following a
change to EPC calculation methodology. These ratings, as the
Company's responsibility, are undertaken by the Company's
consultants when required. The Company strives to acquire assets
with higher EPC ratings in order to mitigate exposure to this risk.
This is reflected in the Investment Adviser's systems and
controls.
Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation's
overall risk management:
The Company's approach to risk assessment is as set out in the
Our Principal Risks Section on pages 71 to 84.
The Company manages its risk related to emissions regulations by
monitoring, measuring, and disclosing its Scope 1, 2, and 3 GHG
emissions. Emissions mitigation strategies, including specific
emissions targets, are being developed to reduce the Company's
emissions and to reduce exposure to this regulatory risk.
Rising energy costs are a key transition risk, as tenants facing
rising energy, or other, costs would put downward pressure on rent
revenue. To manage this risk, the Investment Adviser prioritises
energy efficiency and alternative energy sources, such as renewable
energy, in communications with tenants. Energy efficiency and
energy sources are tracked as part of the EPC assessments and this
information is used to inform risk exposure related to rising
energy costs.
The Company's identified physical climate risks include
flooding, heat waves, and subsidence. Flood risk across the UK has
historically been high and this risk is expected to increase, per
the UK's Third Climate Change Risk Assessment. Should there be an
incidence of flood, it is anticipated that a flooding report would
be submitted by the tenants to the Investment Adviser. These can be
consulted to inform the Company's risk and investment strategy.
The Company's tenants maintain their own risk registers related
to their site's facilities and property. As part of building on its
risk management processes, the Investment Adviser plans to link the
material site-specific risks of the Company's tenants to the
Company's own risk register. In addition, as part of their Scope 3
emissions initiatives, the Investment Adviser plans to engage
tenants through this process in order to enhance dialogue related
to emissions reductions strategies.
Metrics and Targets
Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with its strategy
and risk management process. Describe the targets used by the
organization to manage climate-related risks and opportunities and
performance against targets:
The Company uses EPC ratings of its properties to assess its
progress towards meeting and exceeding the MEES. In line with
anticipated legislation, the Company targets an EPC rating of C or
better on all owned properties by 2028 and a rating of B or better
by 2030.
The Company has defined 9 metrics, including asset EPC ratings,
against which it can measure progress towards its climate targets.
These metrics, their associated targets, and progress to date are
shown in Table 3.
Table 3 | Climate-related metrics and targets
Target Metric Progress (as of June
2023)(50)
1 All supermarkets(51) B EPC rating 25 of 50 (50%)
or above by 2030
------------------------------------- --------------------- ----------------------------
2 All supermarkets(51) C EPC rating 42 of 50 (84%)
or above by 2028
------------------------------------- --------------------- ----------------------------
3 All ancillary units(52) EPC rating 37 of 107 (35%)
B or above by 2030
------------------------------------- --------------------- ----------------------------
4 All ancillary units(52) EPC rating 99 of 107 (93%)
C or above by 2028
------------------------------------- --------------------- ----------------------------
5 Five sites with Company-owned Number of vehicle 0 of 5 (0%)
and managed car parks charging stations
with electronic vehicle
charging
------------------------------------- --------------------- ----------------------------
6 100% of Investment Adviser Percentage In progress. Training
staff received training of staff trained for staff due in Q3 2023.
on climate risks and opportunities
by end of 2023
------------------------------------- --------------------- ----------------------------
7 Reduction in the Company's Absolute emissions Science-based target
Scope 1 & 2 GHG emissions (SBT) currently being
developed. SBT to be
submitted by the end
of 2023.
------------------------------------- --------------------- ----------------------------
8 Reduction in the Company's Emissions intensity Science-based target
Scope 1 & 2 energy emissions (SBT) currently being
(kgCO(2) e/m(2) ) developed. SBT to be
submitted by the end
of 2023.
------------------------------------- --------------------- ----------------------------
9 Reduction in tenant energy Emissions intensity Science-based target
emissions (kgCO(2) e/m(2) (SBT) currently being
) developed.
------------------------------------- --------------------- ----------------------------
Metrics and targets are not currently linked to remuneration
policies for the Investment Adviser or other personnel. This will
be considered by the Company over the next 12 months.
Disclose Scope 1, Scope 2 and, if appropriate, Scope 3
greenhouse gas (GHG) emissions and the related risks:
The Company completed its first full Scope 1, 2 & 3 GHG
inventory in 2023 based on FY 2023 (July 2022 - June 2023) data.
The GHG inventory was calculated following the GHG Protocol
Guidance and all relevant scopes and categories have been included.
The Company defines its organisational boundary using the
operational control approach. This means that consumption relating
to areas where the Company has operational control, such as the
communal areas of certain sites, are included in its direct Scope 1
& 2 emissions. Meanwhile, consumption relating to areas where
the Company has limited operational control, such as sites
controlled by its tenants, are included in its indirect Scope 3
emissions. Given that most of the Company's portfolio is let on
full repairing and insuring leases, Scope 3 forms the largest
proportion of its emissions at 99.7% of total Scope 1, 2 & 3
emissions, largely due to tenants' energy use.
FY 2023 represented a normal year of business for the Company.
FY 2023 is the reporting period that will be used as the baseline
year for the Company's Science-based Target (SBT), which is
currently in development. A target is due to be submitted to the
Science Based Targets initiative (SBTi) by the end of 2023.
Data Improvements
The FY 2023 GHG inventory improved upon the Company's initial
measure of tenant emissions in 2022, which were estimated due to a
lack of activity data. In 2023, the Investment Adviser worked with
the Company's tenants to source activity data to improve the
accuracy of the emissions. This resulted in the percentage of
tenant emissions that were estimated reducing from 100% in 2022 to
86% in 2023. In 2023, the Company was also able to provide more
data for its direct emissions, such as the energy use in the
communal areas of its sites where the Company has operational
control, and its operational Scope 3 emissions, which enabled the
Company to compile a complete GHG inventory. The details of this
GHG inventory are provided in Table 4 (see Appendix B for details
of the methodology).
Table 4 | Greenhouse Gas Emissions
Scope and Description FY23 Emissions FY22 Emissions
Category (tCO(2) e) (tCO(2) e)
Scope 1 Fuels used in the communal 10 N/A
areas of sites where the Company
as the landlord is responsible
for procuring the energy on
behalf of the tenants.
======================================== ================ ================
Scope 2 (location-based) Electricity use in the communal 101 N/A
areas of sites where the Company
as the landlord is responsible
for procuring the energy on
behalf of the tenants.
======================================== ================ ================
Scope 2 (market-based) 184 N/A
======================================== ================ ================
Total Scope 1 & 2 Emissions (market-based) 194 N/A
================ ================
Scope 3 (1. The Company's purchased goods 3,131 N/A
Purchased and services, including emissions
Goods & Services) relating to the Investment
Adviser, Atrato Capital.
======================================== ================ ================
Scope 3 (2. Embodied emissions of newly 463 N/A
Capital Goods) built properties added to
the portfolio in the reporting
period.
======================================== ================ ================
Scope 3 (3. Upstream emissions of energy 61 N/A
Fuel-and Energy-Related use included in Scope 1 &
Activities) 2.
======================================== ================ ================
Scope 1 & 2 energy use of
tenants, including fugitive
emissions arising from refrigeration
and air conditioning.
Scope 1 & 2 energy use of
communal areas where the Company
Scope 3 (13. is not responsible for procuring
Downstream the energy (included in FY23
Leased Assets) only). 77,273 87,715
======================================== ================ ================
Total Scope 3 Emissions 80,929 87,715
================ ================
Total Scope 1, 2 & 3 Emissions (market-based) 81,123 87,715
================ ================
Tenant emissions relating
to biomass used to heat some
Out-of-scope tenant sites. 22 1,376
======================================== ================ ================
Table 5 | Energy Consumption
Energy FY23 FY22
Consumption
Scope 1 & 2 Company (landlord) Energy 574,047 N/A
Consumption (electricity and fuels) (kWh)
============= =============
Scope 3 Tenant Energy Consumption (electricity
and fuels) (kWh) 186,704,059 224,504,601
============= =============
Scope 3 Tenant Energy Consumption (refrigerant
losses) (kg) 11,381 10,719
============= =============
Table 6 | Intensity Metrics
Intensity FY23 FY22
Metric
Scope 0.78 N/A
1
&
2
Company
(landlord)
Emissions
Intensity
(kgCO(2)
e/
m(2)
)
======== ======
Scope 3 Tenant Energy Emissions Intensity
(tCO(2) e/m(2) ) 117.99 284
======== ======
Scope 1 & 2 Company (landlord) Energy 2.30 N/A
Intensity (kWh/m(2) )
======== ======
Scope 3 Tenant Energy Intensity (electricity
and fuels) (kWh/ m(2) ) 473.86 715
======== ======
Appendix A: Methodology notes for scenario analysis
Overview
The scenario analysis described in this report is underpinned by
a standard, recognised formula for risk:
Likelihood x Impact = Risk
This taxonomy is considered best practice and is informed by
approaches taken in major financial risk, climate risk and
transitional planning frameworks.
This approach goes beyond many generic climate models which
focus more on the likelihood scores and ratings, by considering
company specific inputs, as part of impact scoring.
First Stage ratings are based on the Investment Adviser's
initial judgement. This considered previously performed risk
assessment activities and secondary research (including peer
review). More formally defined materiality thresholds will be
defined in the next 12 months as a result of this inaugural 2023
scenario analysis process.
For scenario analysis ratings, the likelihood and impact are
each scored on a scale of 1-5 and are multiplied together to give a
risk score between 1-25 for each time horizon. An overall risk
score (Overall Rating) is calculated for all scenarios and time
periods. Moderate-higher risk scores rate between 15-20, whilst
higher risk scores rate between 21 and 25. The Overall Rating and
Impact gradings in Table 2 are based on the average across all
sites within the portfolio. The Likelihood grading in Table 2 is
based on the average across all time horizons under a given
scenario and risk type. Consideration is still made for
moderate-higher and higher risk sites that are outliers relative to
the average value as explored in the accompanying text. Inherent
risks and the Company response will continue to be refined and
understood following this assessment.
A quantitative, value at risk or value of opportunity figure can
be subsequently assigned to the overall risk score in GBP (GBP),
however this has not been undertaken for the FY 2023 reporting. The
corresponding costs of managing the risks require further research
and greater access to and engagement with tenants. To publish only
the value of inherent risks without the associated costs of
managing the risks, in the reasonable opinion of the Company, was
felt to present a reporting risk of misleading users of this
information, at this point in time. Therefore, research and
engagement will be performed over the next 12 months to progress
this area of subsequent analysis. This is considered to be a
transitional challenge as the Company's scenario analysis
methodology is developed and embedded.
Likelihood
A 1-5 likelihood score is assigned to each location for each
risk type. This score represents the probability of the risk
occurring in a given location and is based on generic climate
scenario data. Here likelihood scores are calculated based on the
IPPC Atlas and Network for Greening the Financial System (NGFS)
transition variables available in the NGFS Scenarios Database. A
specific 'sub-data set' is assigned to each risk type to act as a
proxy for the likelihood of that risk occurring. The 'raw unit'
values are converted to a continuous score between 1-5 as described
below.
Risk IPPC Raw Unit Justification
Type or NGFS
sub-data
set
Policy Carbon US$/tCO(2) The NGFS presents the shadow carbon
and Legal Price price as a proxy for government policy
(NGFS) intensity. In reality, governments
are pursuing a range of fiscal and
regulatory policies which have varying
costs and benefits. Carbon price is
considered a good proxy to emerging
regulation and is sensitive to the
country's level of ambition to mitigate
climate change, timing of policy implementation
and distribution of policy measures
across sectors.
Scores are relative to policy across
other countries internationally.
-------------- --------------- --------------------------------------------------
Extreme CMIP6 C Days above 35 C are judged to be extreme.
heat - Days While thresholds for Met Office warnings
above and ' heat wave' definitions are variable
35 C ( across the UK, over 35 degrees Celsius
IPCC Atlas appears to meet the historical thresholds
) required for a Met Office ' heat wave'
classification and amber or red weather
warning being issued.
Sites are scored relative to all other
UK locations, with a 5 representing
the highest 20% of frequencies (over
3.2 or more days per year), and a
1 representing the lowest 20% of frequencies
(fewer than 0.8 days per year).
-------------- --------------- --------------------------------------------------
Flooding WWF's Bespoke This database specifically considers
Water WWF risk the physical flood risk indicator
Risk Filter score number within the tool. Scores are relative
(1-6.6) to all countries internationally.
'Optimistic case' scores selected
for RCP 2.6, 'Pessimistic case' for
RCP 8.5 scenario.
-------------- --------------- --------------------------------------------------
Impact
Impact assesses the Company's current sensitivity or
vulnerability to specific risks and opportunities, based on current
or historic company insight. Similar to likelihood, a 1-5 score is
assigned to each indicator, by a relevant location (e.g. activity,
customer, supplier etc.), for each Risk Type. There are a number of
considerations here.
-- Impact Pathway: An 'impact pathway' is defined for each risk
type. An impact pathway is a financial statement line item (FSLI)
that we would expect to be materially affected by a risk type e.g.
revenue, cost of sales, operating costs, fixed assets, cash etc. A
risk type may have multiple impact pathways; however, the scope of
this assessment considers only one impact pathway. The impact
pathway that is judged to be most significantly impacted is
selected. The impact pathways in focus were selected following
consultation with the Investment Adviser's finance team.
-- Impact indicator: Multiple impact indicators can combine to
give an overall impact score and can be a combination of the
Company's own data points and secondary sources. There are no
limits on the nature and extent of indicators used; we have used
one per risk type for the current year reporting, however two,
three or 10 could be used as the risk screening evolves.
-- Weighting: Each indicator used is combined to give an overall
impact score. The 'weight' each impact indicator carries is
judgmental. At present, because only one indicator has been used
per risk, they all carry a weighting of 100%, but should more
indicators be added over time, the Company will reflect on the
weighting these carry and can adjust these within the Excel model
as they see fit.
-- Financial materiality alignment: Where possible; we have
aligned the upper impact score (a '5 rating') with a financially
material impact.
The below table details the impact scores and justifications for
the Company's impact ratings:
Risk Impact Impact Raw unit Justification
Type Indicator banding
Policy EPC Certificate 5 EPC E As of June 2023, it is anticipated
and Legal ratings that Minimum Energy Efficiency
per site Standards (MEES) will require
- 100% weighting asset EPC ratings to be raised
to C by 2028 and to B by 2030.
This means that the landlord
of any properties not meeting
these requirements could incur
a fine (exemptions do apply
- for example where there
is a tenant in situ who will
not allow the landlord to
make changes to improve building
energy performance). EPC ratings
are an indicator of energy
efficiency, so as the UK transitions
to Net Zero, higher energy
intensity will indicate a
greater risk exposure.
The landlord of any asset
currently at a E or below
is more vulnerable to incurring
fines as a result of current
regulation, as they are not
compliant. Given the direction
of change, D or below would
also be most vulnerable to
any other future regulation
changes that may arise. Moderate-Higher
and Higher impact (bandings
4 & 5 respectively) assets
may also harm the Company's
reputation and reduce the
marketability of the individual
asset.
While it is anticipated that
an EPC C will not be judged
as compliant in 2030, the
Company has judged this impact
remains as a moderate risk
due to the following factors:
there is felt to be sufficient
time to upgrade to EPC B by
2030 and plans are already
underway to achieve this,
many of the Company's tenants
are on long-term leases, and
so are less able and/or likely
to terminate or not renew
lease if there were any MEES
compliance issues. In addition,
the majority of the grocery
tenants have clear plans they
are actioning in order to
improve the energy performance
of their store as this leads
to cost savings, as well as
contributing towards their
own sustainability and Net
Zero targets.
-------------------- ---------- ---------------- ------------------------------------------
4 EPC D
-------------------- ---------- ---------------- ------------------------------------------
3 EPC C
---------- ----------------
2 EPC B
---------- ----------------
1 EPC A
-------------------- ---------- ---------------- ------------------------------------------
This is a more specific indicator
of energy use and is not related
to regulation like in the
case of EPCs. In instances
of extreme heat, it is assumed
that properties will consume
more energy for cooling. Therefore,
less efficient or more energy
intense assets are deemed
more vulnerable as they are
likely already incurring higher
than average energy costs.
The higher energy consumption
will also be putting pressure
on the specific tenant's Net
Zero targets and could indicate
assets that are more vulnerable
to that tenant not renewing
/ applying pressure for the
Company to improve these buildings.
The highest impact banding
(5) represents the highest
energy intensity 20% of the
range. The range is (859-92
= 767kWh/ m(2) ), therefore
anything over 705 kWh/m(2)
is assigned a 5.
This scores each site relative
to each other - we cannot
yet validate whether the increase
Energy Intensity in cooling requirements at
per site a more energy intense site
(kWh/m (2) is material for the tenant;
Extreme per year) however, this will be explored
heat - 100% weighting 5 859-706 in the future years SA.
-------------------- ---------- ---------------- ------------------------------------------
4 705-552
---------------------------------- ---------- ---------------- ------------------------------------------
3 551-399
---------- ----------------
2 398-245
---------- ----------------
1 244-92
---------------------------------- ---------- ---------------- ------------------------------------------
Flooding Revenue 5 >5% (>GBP4.4m) Annual rent collected (revenue)
per site was used as an indicator for
- 100% weighting impact. The rationale being
that the greater the rent,
the more material the impact
if a site was damaged by a
flood, which resulted in a
tenant defaulting/deferring
on lease payment.
Bandings are based on a %
of total supermarket revenue
where an individual site generating
over 5% of revenue is deemed
financially material. Bandings
are not linear but logarithmic
(50% of the banding above),
in order to align with the
approach commonly applied
in financial auditing.
-------------------- ---------- ---------------- ------------------------------------------
4 >2.5%
(>GBP2.2m)
---------------------------------- ---------- ---------------- ------------------------------------------
3 >1.25%
(>GBP1.1m)
---------- ----------------
2 >0.6%
(>GBP0.5m)
---------- ----------------
1 <0.6%
(<GBP0.5m)
---------------------------------- ---------- ---------------- ------------------------------------------
Limitations of this analysis
- EPCs are only one means of assessing the overall energy
efficiency of a site and it may be the case that dynamic standards
are introduced in the near future.
- Two sites (Sainsbury's Denton & Sainsbury's Kettering)
were missing from the data and were assigned an impact value of 3
by default.
- Non-food assets were not screened in this analysis due to
limited data availability but will look to be included in next
year's reporting following a data remediation exercise.
Appendix B: Methodology notes for greenhouse gas inventory
Methodology and Assumptions
The 2022 Conversion Factors published by the UK Department for
Energy Security and Net Zero (DESNZ) and Department for Business,
Energy, and Industrial Strategy (BEIS) was the main source used for
emission factors. All relevant categories have been included and
any exclusions are described below.
Scope 1 & 2
For electricity and natural gas, some actual consumption data
was provided. Where there were gaps, estimations were made using
previous year data or floor area intensities (based on similar
sites within the portfolio) as proxies. For fuel oil, spend was
used as a proxy due to a lack of activity data.
Scope 3 (1. Purchased Goods & Services)
This category was estimated using spend as a proxy and applying
Department for Environment, Food & Rural Affairs (DEFRA)
input-output factors kgCO(2) /GBP) to expenditure.
Scope 3 (2. Capital Goods)
There were two sites where development was completed in the
reporting period. For these sites, embodied carbon emissions were
estimated by applying a benchmark intensity (kgCO(2) e/m(2) ) to
the floor area.
Scope 3 (13. Downstream Leased Assets)
The majority of emissions relate to tenant energy use. Some
tenants provided actual consumption data for electricity and
heating. Where there were gaps, estimations were made using
benchmark intensity data based on floor area. Refrigerants were
estimated for all sites. One small non-food site was excluded from
the calculations due to a lack of activity data or floor area
required for estimations.
A smaller amount of emissions arise from the communal areas of
sites where the Company owns the land but is not responsible for
paying for the energy. These emissions were estimated using the
floor area intensities of similar sites with actual data.
OUR PRINCIPAL RISKS
The Board and JTC Global AIFM Solutions Limited, the Company's
Alternative Investment Fund Manager (the AIFM), together have joint
overall responsibility for the Company's risk management and
internal controls, with the Audit Committee reviewing the
effectiveness of the Board's risk management processes on its
behalf.
To ensure that risks are recognised and appropriately managed,
the Board has agreed a formal risk management framework. This
framework sets out the mechanisms through which the Board
identifies, evaluates and monitors its principal risks and the
effectiveness of the controls in place to mitigate them.
The Board aims to operate in a low-risk environment, focusing
substantially on a single sector of the UK real estate market. The
Board and the AIFM therefore recognise that effective risk
management is key to the Group's success. Risk management ensures a
defined approach to decision making that seeks to decrease the
uncertainty surrounding anticipated outcomes, balanced against the
objective of creating value for shareholders.
The Board determines the level of risk it will accept in
achieving its business objectives, and this has not changed during
the year. We have no appetite for risk in relation to regulatory
compliance or the health, safety and welfare of our tenants,
service providers and the wider community in which we work. We
continue to have a moderate appetite for risk in relation to
activities which drive revenues and increase financial returns for
our investors.
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
forthcoming financial year and could cause actual results to differ
materially from expected and historical results.
The risk management process includes the Board's identification,
consideration and assessment of those emerging risks which may
impact the Group.
Emerging risks are specifically covered in the risk framework,
with assessments made both during the regular quarterly risk review
and as potentially significant risks arise. The quarterly
assessment includes input from the Investment Adviser and review of
information by the AIFM, prior to consideration by the Audit
Committee.
The matrix below illustrates our assessment of the impact and
the probability of the principal risks identified. The rationale
for the perceived increases and decreases in the risks identified
is contained in the commentary for each risk category.
The following risks have been added in the current year and are
discussed in detail below:
-- The default of one of the supermarket operators would create
an excess supply of supermarket real estate.
-- Changes in regulatory policy could lead to our assets becoming unlettable.
The Board considers these risks
have increased since last year
1 The lower-than-expected performance
of the Portfolio could reduce
property valuations and/or revenue,
thereby affecting our ability
to pay dividends or lead to a
breach of our banking covenants.
3 The default of one or more of
our lessees would reduce revenue
and may affect our ability to
pay dividends.
5 Our use of floating rate debt
will expose the business to underlying
interest rate movements.
6 A lack of debt funding at appropriate
rates may restrict our ability
to grow.
8 There can be no guarantee that
we will achieve our investment
objectives.
11 The assets within the Group's
portfolio that are less energy
efficient may be exposed to downward
pressure on valuation or increased
pressure to invest in the improvement
of individual assets.
13 Volatile changes in the weather
systems may deem the Group's properties
no longer viable to tenants.
15 Shareholders may not be able
to realise their shares at a price
above or the same as they paid
for the shares or at all.
16 Inflationary pressures on the
valuation of the portfolio.
The Board considers these risks
to be broadly unchanged since
last year
2 Our ability to source assets
may be affected by competition
for investment properties in the
supermarket sector.
4 The default of one of the supermarket
operators would create an excess
supply of supermarket real estate,
thereby putting pressure on ERVs
leading to a breach in our banking
covenants.
7 We must be able to operate within
our banking covenants.
9 We are reliant on the continuance
of the Investment Adviser.
10 We operate as a UK REIT and
have a tax-efficient corporate
structure, with advantageous consequences
for UK shareholders.
12 Changes in regulatory policy
could lead to our assets becoming
unlettable.
14 The rise in attempted cyber
crime and more recently cyber
risks arising from recent geopolitical
tensions has increased the risk
for listed companies being targets
for market manipulation and/or
insider trading.
17. Impact of war in Ukraine.
The Board considers these risks
have decreased since last year
Property Risk
-------------------------------------------------------------------------------------------------
1. The lower-than-expected performance of the Portfolio could reduce
property valuations and/or revenue, thereby affecting our ability
to pay dividends or lead to a breach of our banking covenants
-------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Moderate High (from Moderate) Our Portfolio is 99.6% let (100%
(from Low) An adverse change in our of supermarket assets are let) with
property valuations may long weighted average unexpired lease
lead to breach of our terms and an institutional-grade
banking covenants. Market tenant base.
conditions may also reduce All the leases contain upward-only
the revenues we earn from rent reviews, 80% are inflation-linked,
our property assets, which 18% are open market value and the
may affect our ability rest contain fixed uplifts. These
to pay dividends to shareholders. factors help maintain our asset values.
A severe fall in values We manage our activities to operate
may result in us selling within our banking covenants and
assets to repay our loan constantly monitor our covenant headroom
commitments, resulting on loan to value and interest cover.
in a fall in our net asset We are reviewing alternative financing
value. arrangements to lessen any dependence
on the banking sector.
2. Our ability to source assets may be affected by competition for
investment properties in the supermarket sector
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Low Moderate The Investment Adviser has
The Company faces competition extensive
from other property investors. contacts in the sector and we often
Competitors may have greater benefit from off-market
financial resources than transactions.
the Company and a greater They also maintain close
ability to borrow funds relationships
to acquire properties. with a number of investors and
The supermarket investment agents
market continues to be in the sector, giving us the best
considered a safe asset possible opportunity to secure
class for investors seeking future
long-term secure cash flows acquisitions for the Group.
which is maintaining competition The Company has acquired assets
for quality assets. This which
has led to increased demand are anchored by supermarket
for supermarket assets properties
without a comparable increase but which also have ancillary
in supply, which could retail
potentially increase prices on site, and these acquisitions
and make it more difficult allow
to deploy capital. the Company to access quality
supermarket
assets whilst providing additional
asset management opportunities.
We are not exclusively reliant on
acquisitions to grow the Portfolio.
Our leases contain upward-only rent
review clauses, which mean we can
generate additional income and
value
from the current Portfolio. We also
have the potential to add value
through
active asset management and we are
actively exploring opportunities
for all our sites.
We maintain a disciplined approach
to appraising and acquiring assets,
engaging in detailed due diligence
and do not engage in bidding wars
which drive up prices in excess of
underwriting.
3. The default of one or more of our lessees would reduce revenue and
may affect our ability to pay dividends
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Moderate High Our investment policy requires the
(from Low) Our focus on supermarket Group to derive at least 60% of its
property means we directly rental income from a Portfolio let
rely on the performance to the largest four supermarket
of UK supermarket operators. operators
Insolvencies could affect in the UK by market share. Focusing
our revenues earned and our investments on assets let to
property valuations. tenants with strong financial
covenants
and limiting exposure to smaller
operators in the sector decreases
the probability of a tenant
default.
As at 30 June 2023, 76% of SUPR's
income is from assets let to
Sainsbury's
and Tesco who are deemed investment
grade credit quality, with 2% of
rental exposure to Asda and 1% for
Aldi. The portfolio however
continues
to be geographically diversified
with no individual tenant operating
within more than 10-15 minutes of
one of the Group's assets in any
single geographical area.
Before investing, we undertake a
thorough due diligence process with
emphasis on the strength of the
underlying
covenant and receive a
recommendation
on any proposed investment from the
AIFM.
Our investment strategy is to
acquire
strong trading grocery locations,
which in many cases have been
supermarkets
for between 30 and 50 years.
Our investment underwriting targets
strong tenants with strong property
fundamentals (good location, large
sites with low site cover) and
which
should be attractive to other
occupiers
or have strong alternative use
value
should the current occupier fail.
4. The default of one of the supermarket operators would create an
excess supply of supermarket real estate, thereby putting pressure
on ERVs leading to a breach in our banking covenants
--------------------------------------------------------------------------------------------------------------------
Probability Impact Mitigation
High High The failure of a single operator
A severe fall in values in any given town would place
may result in us selling strain
assets to repay our on the immediate surrounding
loan commitments, resulting retailers
in a fall in our net as demand previously supplied by
asset value the failed operator would be taken
up by existing retailers.
The potential demise of a major
supermarket operator would
therefore
result in the real estate being
potentially acquired by another
operator and would continue to be
used as a supermarket.
Our investment strategy is to
acquire
strong trading grocery locations,
which in many cases have been
supermarkets
for between 30 and 50 years.
Our investment underwriting targets
strong property fundamentals (good
location, large sites with low site
cover) and which should be
attractive
to other occupiers or have strong
alternative use value should the
current occupier fail.
----------------------------------- ---------------------------------- ------------------------------------- --------
Financial Risk
--------------------------------------------------------------------------------------------------------------------
5. Our use of floating rate debt will expose the business to underlying
interest rate movements as interest rates continue to rise
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
High (from High (from Moderate) We have entered into interest rate
Moderate) Interest on the majority swaps to partially mitigate our direct
of our debt facilities exposure to movements in SONIA, by
is payable based on a margin capping our exposure to SONIA
over SONIA. Any adverse increases.
movements in SONIA could We aim to hedge prudently our SONIA
significantly impair our exposure, keeping the hedging strategy
profitability and ability under constant review in order to
to pay dividends to shareholders. balance the risk of exposure to rate
movements against the cost of
implementing
hedging instruments.
We selectively utilise hedging
instruments
with a view to keeping the overall
exposure at an acceptable level.
As at the year end 100% of SUPR's
drawn debt is fixed.
6. A lack of debt funding at appropriate rates may restrict our ability
to grow
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Moderate Moderate (from Low) The Board reviews the Group's financing
(from Low) Impacts of both macroeconomic arrangements and considers options
events and banks' exposure for refinancing well ahead of maturity.
to offices in the US has The Board keeps our liquidity and
resulted in many lenders gearing levels under review. We have
reducing their exposure recently broadened our capital
to real estate globally. structure
Without sufficient debt by starting to transition our balance
funding we may be unable sheet to an unsecured structure,
to pursue suitable investment reducing
opportunities in line with our reliance on a single source of
our investment objectives. funding.
Supermarket property continues to
remain popular with lenders, owing
to long leases and letting to single
tenants with strong financial covenants
and being seen as a safe asset class
in times of market uncertainty. We
continue to see appetite from both
new and existing lenders to provide
financing to SUPR which has been
demonstrated
by the new facilities entered during
and after the year end.
The Company has had a cash liquidity
event from the sale of the SRP which
has provided increased liquidity.
We believe that this indicates that
the Company is not reliant in the
short to medium-term on bank funding,
however note the recent refinancing
events after the year end shows
appetite
from banks to lend to SUPR.
7. We must be able to operate within our banking covenants
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Low Moderate We and the AIFM continually monitor
The Group's borrowing facilities our banking covenant compliance to
contain certain financial ensure we have sufficient headroom
covenants relating to Loan and to give us early warning of any
to Value ratio and Interest issues that may arise.
Cover ratio, a breach of We will enter into interest rate caps
which would lead to a default and swaps to mitigate the risk of
on the loan. The Group interest rate rises and also invest
must continue to operate in assets let to institutional grade
within these financial covenants.
covenants to avoid default.
Corporate Risk
--------------------------------------------------------------------------------------------------------------------
8. There can be no guarantee that we will achieve our investment objectives
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Moderate Low The Board uses its expertise and
(from Low) Our investment objectives experience
include achieving the dividend to set our investment strategy and
and total returns targets. it seeks external advice to underpin
The amount of any dividends its decisions, for example independent
paid or total return we asset valuations. There are complex
achieve will depend, among controls and detailed due diligence
other things, on successfully arrangements in place around the
pursuing our investment acquisition
policy and the performance of assets, designed to ensure that
of our assets. investments will produce the expected
Future dividends are subject results.
to the Board's discretion Significant changes to the Portfolio,
and will depend, on our both acquisitions and disposals,
earnings, financial position, require
cash requirements, level specific Board approval.
and rate of borrowings, The Investment Adviser's significant
and available distributable experience in the sector should
reserves. continue
to provide us with access to assets
that meet our investment criteria
going forward.
Rental income from our current
Portfolio,
coupled with our hedging policy,
supports
the current dividend target. Movement
in capital value is subject to market
yield movements and the ability of
the Investment Adviser to execute
asset management strategies
9. We are reliant on the continuance of the Investment Adviser.
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Low Moderate A new Investment Advisory Agreement
We rely on the Investment was entered into on 14 July 2021;
Adviser's services and this revised agreement provides that
reputation to execute our unless there is a default, either
investment strategy. Our party may terminate by giving not
performance will depend less than two years written notice.
to some extent on the Investment This provides additional certainty
Adviser's ability and the for the Company. The Board keeps the
retention of its key staff. performance of the Investment Adviser
under continual review and undertakes
a formal review at least annually.
The interests of the Company and the
Investment Adviser are aligned due
to (a) key staff of the Investment
Adviser having personal equity
investments
in the Company and (b) any fees paid
to the Investment Adviser in shares
of the Company are to be held for
a minimum period of 12 months. The
Board can pay up to 25% of the
Investment
Adviser fee in shares of the Company.
In addition, the Board has set up
a management engagement committee
to assess the performance of the
Investment
Adviser and ensure we maintain a
positive
working relationship.
The AIFM receives and reviews regular
reporting from the Investment Adviser
and reports to the Board on the
Investment
Adviser's performance. The AIFM also
reviews and makes recommendations
to the Board on any investments or
significant asset management
initiatives
proposed by the Investment Adviser.
Taxation Risk
--------------------------------------------------------------------------------------------------------------------
10. We operate as a UK REIT and have a tax-efficient corporate structure,
with advantageous consequences for UK shareholders. Any change to our
tax status or in UK tax legislation could affect our ability to achieve
our investment objectives and provide favourable returns to shareholders
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Low Moderate The Board takes direct responsibility
If the Company fails to for ensuring we adhere to the UK REIT
remain a REIT for UK tax regime by monitoring the REIT
purposes, our profits and compliance.
gains will be subject to The Board has also engaged third-party
UK corporation tax. tax advisers to help monitor REIT
compliance requirements and the AIFM
also monitors compliance by the Company
with the REIT regime.
Climate Risks
-----------------------------------------------------------------------------------------------
11. The assets within the Group's portfolio that are less energy
efficient may be exposed to downward pressure on valuation or increased
pressure to invest in the improvement of individual assets
-----------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Moderate Moderate An ESG committee has been created
(from Low) As investors increase their to develop a road map for an energy
focus on climate risk, efficient property portfolio
there is likely to become including
a larger pool of capital an appropriate policy for minimum
looking to invest in energy energy performance across the
efficient assets. Group's
Although this represents assets.
an opportunity for those Many of the supermarket operators
best-in-class assets to have published targets to achieve
achieve a 'green premium', Net Zero and are actively upgrading
there is likely to be an stores to make them more energy
impact on yield demanded, efficient.
and therefore valuation The Company continues to work with
on assets within the portfolio its tenants to help them meet this
which are less energy efficient. target and has entered into a
Given the unexpired lease framework
terms across the portfolio, agreement with Atrato Onsite Energy
this trend may impact the plc to install rooftop solar panels
residual values implicit across SUPR's portfolio.
in valuations and reduce We are conducting ongoing work
tenant demand for these to update our physical risk
properties assessments
on an annual basis and integrate
the outcomes of the analysis into
our asset and property management
activities. Further detail has
been included within the TCFD report
on pages 48 to 70.
Climate Risks
----------------------------------------------------------------------------------------
12. Changes in regulatory policy could lead to our assets becoming unlettable
----------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Moderate Moderate The ESG committee stays
Changes in regulations informed
(currently represented by about changes in legislation
Minimum Energy Efficiency by
Standards (MEES) could lead working closely with the
to the possibility of our Investment
assets becoming Adviser and seeks input from
unlettable. Any properties specialist
not compliant with MEES could ESG experts where necessary.
attract reduced Proposed updates to MEES,
tenant demand, reduced rental together
income and/or be subject to with updates on businesses to
fines. develop Net Zero transition
plans
are being closely monitored.
Further detail has been
included
within the TCFD report on
pages
48 to 70.
Climate Risks
----------------------------------------------------------------------------------------
13. Volatile changes in the weather systems may deem the Group's properties
no longer viable to tenants.
----------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Moderate (from Low) Moderate The Company obtains
Given the impact of global environmental
warming, there is likely to surveys on all acquisitions,
be an increased which
risk of floods and natural address the short-term risk of
disasters which could result climate related damage to
in physical damage group
to the Group's properties. properties.
Rising temperatures may also A specialist ESG consultant
result in increased energy was
demand required engaged during the year to
for cooling, reducing tenant understand
demand for less energy the impacts of climate change
efficient buildings on the portfolio, using
scenario
analysis. Work is ongoing in
this
area, where further detail has
been included within the TCFD
report on pages 48 to 70.
The Investment Adviser's asset
management team continue to
monitor
the changing physical risk as
it develops through regular
site
visits to the
Group's assets.
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Cyber Risks
----------------------------------------------------------------------------------------
14. The rise in attempted cyber crime and more recently cyber risks
arising from recent geopolitical tensions has increased the risk
for listed companies being targets for market manipulation and/or
insider trading
----------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Low Moderate The Company's main service provider
Given the increase in is the Investment Adviser. The
remote and hybrid working, Investment adviser's Cyber Security
this greater reliance Policy reflects the NCSC's 10
on technology has resulted steps to Cyber Security guidance.
in organisations becoming Robust network security measures
more vulnerable to cyber have been implemented, including
threats and online hacking. real time system oversight,
As an externally managed combined
REIT, all services are with offsite data back-up and
contracted with external access controls based on the
third party service providers. principle
A cyber attack on any of least privilege. The Investment
of the Group's third party Adviser frequently reviews its
service providers could cyber security arrangements,
lead to wider business alongside
disruption or loss of business continuity plans to
market sensitive information. address
a major disruption to the
organisation.
Members of the Investment Adviser
team receive regular training
on cyber security issues.
When onboarding other service
providers, the Investment Adviser
undertakes detailed background
checks including a review of data
security when relevant. Additional
due diligence is undertaken where
access to the Investment Adviser's
systems is required, with enhanced
controls implemented, again based
on the principle of least
privilege.
--------------------------------------------------------------------------------------------------------------------
Market Price Risk
--------------------------------------------------------------------------------------------------------------------
15. Shareholders may not be able to realise their shares at a price
above or the same as they paid for the shares or at all
--------------------------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
High Moderate The Company may seek to address any
(from Moderate) The Company's ordinary significant discount to NTA at which
shares have this year traded its ordinary shares may be trading
in a wider range to the by purchasing its own ordinary shares
price at which they were in the market on an ad hoc basis.
issued than they have in The Directors have the authority to
previous years. This is make market purchases of up to 14.99
largely a function of supply per cent of the ordinary shares in
and demand for the ordinary issue as at IPO; being 1.20% of the
shares in the market and total shares in issue as at 30 June
cannot therefore be controlled 2023.
by the Board. The Company's Ordinary shares will be repurchased
move to the premium list only at prices below the prevailing
of the London Stock Exchange NAV per ordinary share, which should
increased liquidity in have the effect of increasing the
shares, thereby reducing NAV per ordinary share for remaining
the risk that shareholders shareholders. It is intended that
will not be able to sell a renewal of the authority to make
their shares at all. market purchases will be sought from
shareholders at each Annual General
Meeting of the Company.
Purchases of Ordinary Shares will
be made within guidelines established
from time to time by the Board.
Investors should note that the
repurchase
of ordinary shares is entirely at
the discretion of the Board and no
expectation or reliance should be
placed on such discretion being
exercised
on any one or more occasions or as
to the proportion of ordinary shares
that may be repurchased.
The recent sale proceeds from the
SRP investment has optionality to
be used for this purpose.
Macroeconomic Risks
------------------------------------------------------------------------------------------------
16. Inflationary pressures on the valuation of the portfolio
------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
High (from Moderate Inflation is monitored closely
Low) The UK is experiencing by the Investment Adviser. The
historic price rises with Group's portfolio rent reviews
the highest inflation include a mixture of fixed, upward
rate in 40 years, and only capped as well as open market
a slowing economy. The rent reviews, to hedge against
Bank of England has responded a variety of inflationary outcomes.
by successive interest
rate increases which could
lead to a sharp decline
in economic activity,
stock markets and possibly
stagflation. A recessionary
environment could impact
real estate valuations.
Continued high inflation
may cause rents to exceed
market levels and result
in the softening of valuation
yields. Where leases have
capped rental uplifts,
high inflation may cause
rent reviews to cap out
at maximum values, causing
rental uplifts to fall
behind inflation.
Macroeconomic Risks
------------------------------------------------------------------------------------------------
17. Impact on the war in Ukraine
------------------------------------------------------------------------------------------------
Probability: Impact: Mitigation
Low Moderate Supermarket operators have historically
Russia's invasion of the been able to successfully pass
Ukraine in February 2022 on inflationary increases through
has led to a surge in increasing price increases to the
global energy and food end consumer.
prices. The extent and Whilst sales volumes may fall in
impact of military action, a recessionary environment, the
resulting sanctions and nature of food means that demand
further market disruptions is relatively inelastic, where
is difficult to predict the end consumer may decide to
which increases the uncertainty, substitute luxury brands for supermarket
and challenges of tenant own-branded products.
operators as well as consumer Our tenants have strong balance
confidence and financial sheets with robust and diversified
markets. supply chains. The tenants are
This could lead to a recession therefore well positioned to deal
should the conflict move with any disruption that may occur.
towards a global one. As a result, we believe any adverse
impact for the Group would be minimal.
The Group invests solely in UK
properties.
-------------- ----------------------------------- -------------------------------------------
Going concern
In light of the current macroeconomic backdrop, the Directors
have placed a particular focus on the appropriateness of adopting
the going concern basis in preparing the Group's and Company's
financial statements for the year ended 30 June 2023. In assessing
the going concern basis of accounting the Directors have had regard
to the guidance issued by the Financial Reporting Council.
Liquidity
At 30 June 2023, the Group generated net cash flow from
operating activities of GBP84.3 million, held cash of GBP37.5
million and undrawn committed facilities totalling GBP189.9 million
with no capital commitments or contingent liabilities.
From the sale of its interest in the Sainsburys Reversion
Portfolio (SRP), the Group received proceeds of GBP135.1 million
post year end. GBP97.1 million of this was used for working capital
and debt repayment and GBP38.0 million towards acquiring two stores
(including acquisition costs). As at the date of signing the annual
report the Gross LTV of the group was 34.0%. The remainder of the
receivable of GBP1.5 million is conditional on the sale of the
remaining store in the SRP.
After the year end, the Group also reduced its debt capacity
from GBP862.1 million to GBP689.5 million (see Note 20 for more
information), leaving undrawn committed facilities of over GBP100
million available.
The Directors are of the belief that the Group continues to be
well funded during the going concern period with no concerns over
its liquidity.
Refinancing events
At the date of signing the financial statements, the Deka
facility falls due for repayment during the going concern period
(August 2024). It is intended that the facility will be refinanced
prior to maturity, or if required, it will be paid down in full
using the Group's available undrawn committed facilities of over
GBP100 million. All lenders have been supportive during the year
and have expressed commitment to the long-term relationship they
wish to build with the Company.
Covenants
The Group's debt facilities include covenants in respect of LTV
and interest cover, both projected and historic. All debt
facilities, except for the unsecured facilities, are ring-fenced
with each specific lender.
The Directors have evaluated a number of scenarios as part of
the Group's going concern assessment and considered the impact of
these scenarios on the Group's continued compliance with secured
debt covenants. The key assumptions that have been sensitised
within these scenarios are falls in rental income and increases in
administrative cost inflation.
As at the date of this consolidated financial information, 100%
of contractual rent for the period has been collected. The Group
benefits from a secure income stream from its property assets that
are let to tenants with excellent covenant strength under long
leases that are subject to upward only rent reviews.
The list of scenarios are below and are all on top of the base
case model which includes prudent assumptions on valuations and
cost inflation. No sensitivity for movements in interest rates have
been modelled as the Group has fixed its interest cost through the
use of interest rate derivatives throughout the going concern
assessment period.
Scenario Rental Income Costs
Base case scenario 100% contractual rent Investment adviser
(Scenario 1) received when due fee based on terms
and rent reviews based of the signed agreement
on forward looking (percentage of NAV
inflation curve, capped as per note 27), other
at the contractual costs 0.35% of NAV.
rate of the individual
leases.
-------------------------- --------------------------
Scenario 2 Rental income to fall Costs expected to
by 25% remain the same as
the base case.
-------------------------- --------------------------
Scenario 3 Rental Income expected 10% increases on base
to remain the same case costs to all
as the base case. administrative expenses
-------------------------- --------------------------
The Group continues to maintain covenant compliance for its LTV
and ICR thresholds throughout the going concern assessment period
under each of the scenarios modelled. One of the secured facilities
in the Group has a debt yield covenant, which is calculated as the
passing rent divided by the loan balance for the properties secured
against the lender. The debt yield covenant only would be breached
for this facility if rental income is reduced by 6% during the
going concern assessment period. The Board considers this scenario
highly unlikely given the underlying covenant strength of the
tenants. Furthermore, there are remedies available at the Group's
disposal which includes reducing a portion of the outstanding debt
from available undrawn facilities or providing additional security
over properties that are currently unencumbered. The lowest amount
of ICR headroom experienced in the worst-case stress scenarios was
22%. Based on the latest bank commissioned valuations, Property
values would have to fall by more than 21% before LTV covenants are
breached, and 10% against 30 June 2023 Company valuations.
Similarly, the strictest interest cover covenant within each of the
ring-fenced banking groups is 225%, where the portfolio is forecast
to have an average interest cover ratio of 572% during the going
concern period.
Having reviewed and considered three modelled scenarios, the
Directors consider that the Group has adequate resources in place
for at least 12 months from the date of these results and have
therefore adopted the going concern basis of accounting in
preparing the Annual Report.
Assessment of viability
The period over which the Directors consider it feasible and
appropriate to report on the Group's viability is the five-year
period to 30 June 2028. This period has been selected because it is
the period that is used for the Group's medium-term business plans
and individual asset performance forecasts. The assumptions
underpinning these forecast cash flows and covenant compliance
forecasts were sensitised to explore the resilience of the Group to
the potential impact of the Group's significant risks, or a
combination of those risks. The principal risks on pages 71 to 84
summarise those matters that could prevent the Group from
delivering on its strategy. A number of these principal risks,
because of their nature or potential impact, could also threaten
the Group's ability to continue in business in its current form if
they were to occur. The Directors paid particular attention to the
risk of a deterioration in economic outlook which could impact
property fundamentals, including investor and occupier demand which
would have a negative impact on valuations, and give rise to a
reduction in the availability of finance.
The sensitivities performed were designed to be severe but
plausible; and to take full account of the availability of
mitigating actions that could be taken to avoid or reduce the
impact or occurrence of the underlying risks.
Viability Statement
The Board has assessed the prospects of the Group over the five
years from the balance sheet date to 30 June 2028, which is the
period covered by the Group's longer-term financial projections.
The Board considers five years to be an appropriate forecast period
since, although the Group's contractual income extends beyond five
years, the availability of most finance and market uncertainty
reduces the overall reliability of forecast performance over a
longer period.
The Board considers the resilience of projected liquidity, as
well as compliance with secured debt covenants and UK REIT rules,
under a range of RPI and property valuation assumptions.
The principal risks and the key assumptions that were relevant
to this assessment are as follows:
Risk Assumption
Borrowing The Group continues to comply with all relevant loan
risk covenants. The Group is able to refinance all debt
falling due within the viability assessment period
on acceptable terms.
---------------------------------------------------------
Interest Rate The increase in variable interest rates are managed
Risk by reduction of variable debt from cash inflows and
utilising interest rate derivatives to limit the
exposure to variable debt.
---------------------------------------------------------
Liquidity The Group continues to generate sufficient cash to
risk cover its costs while retaining the ability to make
distributions.
---------------------------------------------------------
Tenant risk Tenants (or guarantors where relevant) comply with
their rental obligations over the term of their leases
and no key tenant suffers an insolvency event over
the term of the review.
---------------------------------------------------------
Based on the work performed, the Board has a reasonable
expectation that the Group will be able to continue in business
over the five-year period of its assessment.
Other disclosures
Disclosures in relation to the Company's business model and
strategy have been included within the Investment Adviser's
Interview on pages 18 to 29. Disclosures in relation to the main
industry trends and factors that are likely to affect the future
performance and position of the business have been included within
The UK Grocery Market on pages 34 to 38. Disclosures in relation to
environmental and social issues have been included within the TCFD
Report on pages 48 to 70. Employee diversity disclosures have not
been included as the Directors do not consider these to be relevant
to the Company.
Key Performance Indicators (KPIs)
The KPIs and EPRA performance measures used by the Group in
assessing its strategic progress have been included on pages 39 to
42.
Nick Hewson
Chair
19 September 2023
SECTION 172(1) STATEMENT
The Directors consider that in conducting the business of the
Company over the course of the year ended 30 June 2023, they have
acted to promote the long-term success of the Company for the
benefit of shareholders, whilst having regard to the matters set
out in section 172(1)(a-f) of the Companies Act 2006 (the
"Act").
Details of our key stakeholders and how the Board engages with
them can be found on pages 87 to 91. Further details of the Board
activities and principal decisions are set out on pages 105 to 107
providing insight into how the Board makes decisions and their link
to strategy.
Other disclosures relating to our consideration of the matters
set out in s172(1)(a-f) of the Act have been noted as follows:
s.172 Factor Our approach Relevant disclosures
A. The likely The Board has regard to its Key decisions of the
consequences wider obligations under Section Board during the year
of any decision 172 of the Act. As such strategic on page 107.
in the long-term discussions involve careful Our Key Stakeholder
considerations of the longer-term Relationships on pages
consequences of any decisions 87 to 91.
and their implications on shareholders Board Activities during
and other stakeholders and the the year on pages 105
risk to the longer-term success and 106.
of the business. Any recommendation
is supported by detailed cash
flow projections based on various
scenarios, which include: availability
of funding; borrowing; as well
as the wider economic conditions
and market performance.
----------------------------------------- -----------------------------
B. The interests The Group does not have any Our Key Stakeholder
of the Company's employees as a result of its Relationships on pages
employees external management structure. 87 to 91.
The Board's main working relationship Culture on page 102.
is with the Investment Adviser.
Consequently, the Directors
have regard to the interests
of the individuals who are responsible
for delivery of the investment
advisory services to the Company
to the extent that they are
able to do so.
----------------------------------------- -----------------------------
C. The need The Company's key service providers Our Key Stakeholder
to foster the and customers include the Investment Relationships on pages
Company's business Adviser, professional firms 87 to 92.
relationships such as lenders, property agents,
with suppliers, accounting and law firms, tenants
customers and with which we have longstanding
others relationships and transaction
counterparties which are generally
large and sophisticated businesses
or institutions.
----------------------------------------- -----------------------------
D. The impact As an owner of assets located Our Key Stakeholder
of the Company's in communities across the UK, Relationships on pages
operations we aim to ensure that our buildings 87 to 92.
on the community and their surroundings provide Details of the ESG policy
and the environment safe and comfortable environments and strategy are included
for all users. on pages 48 to 70.
The Board and the Investment The Board's approach
Adviser have committed to limiting to sustainability is
the impact of the business on also explained in the
the environment where possible Company's first standalone
and engage with tenants to seek sustainability report
to improve the ESG credentials available on the Company
of the properties owned by the website.
Company.
----------------------------------------- -----------------------------
E. The desirability The Board is mindful that the Chair's Letter on Corporate
of the Company ability of the Company to continue Governance on pages
maintaining to conduct its investment business 92 and 93.
a reputation and to finance its activities Our Principal Risks
for high standards depends in part on the reputation and Uncertainties on
of business of the Board, the Investment pages 71 to 84.
conduct Adviser and Investment Advisory Our Culture on page
Team. 102.
The risk of falling short of
the high standards expected
and thereby risking business
reputation is included in the
Audit and Risk Committee's review
of the Company's risk register,
which is conducted at least
annually.
----------------------------------------- -----------------------------
F. The need The Board recognises the importance Chair's Letter on Corporate
to act fairly of treating all members fairly Governance on pages
as between and oversees investor relations 92 and 93.
members of initiatives to ensure that views Our Key Stakeholder
the Company and opinions of shareholders Relationships on pages
can be considered when setting 87 to 91.
strategy.
----------------------------------------- -----------------------------
DIRECTORS' REPORT
The Directors present their report together with the audited
financial information for the year ended 30 June 2023. The
Corporate Governance Statement pages 108 to 112 forms part of this
report.
Principal activities and status
The Company is registered as a UK public limited company under
the Companies Act 2006. It is an Investment Company as defined by
Section 833 of the Companies Act 2006 and has been established as a
closed-ended investment company with an indefinite life. The
Company has a single class of shares in issue which were traded
during the year on the Premium List of the London Stock Exchange's
Main Market. The Group has entered the Real Estate Investment Trust
regime for the purposes of UK taxation.
The Company is a member of the Association of Investment
Companies (the AIC).
Results and dividends
The results for the year are set out in the attached financial
information. It is the policy of the Board to declare and pay
dividends as quarterly interim dividends.
In respect of the 30 June 2023 financial year, the Company has
declared the following interim dividends amounting to 6.00 pence
per share (2022: 5.94 pence per share).
Dividend per Ex-dividend
Relevant Period share (pence) date Record date Date paid
----------------- ---------------- ---------------- ---------------- ---------------
Quarter ended
30 September 16 November
2022 1.50 6 October 2022 7 October 2022 2022
----------------- ---------------- ---------------- ---------------- ---------------
Quarter ended
31 December 19 January 20 January 23 February
2022 1.50 2023 2023 2023
----------------- ---------------- ---------------- ---------------- ---------------
Quarter ended
31 March 2023 1.50 20 April 2023 21 April 2023 26 May 2023
----------------- ---------------- ---------------- ---------------- ---------------
Quarter ended
30 June 2023 1.50 13 July 2023 14 July 2023 4 August 2023
Dividend policy
Subject to market conditions and performance, financial position
and outlook, it is the Directors' intention to pay an attractive
level of dividend income to shareholders on a quarterly basis. The
Company intends to grow the dividend progressively through
investment in supermarket properties with upward-only,
predominantly inflation-protected, long-term lease agreements.
Directors
The names of the Directors who served from in the year ended 30
June 2023 are set out in the Board of Directors section on pages 94
to 96 together with their biographical details and principal
external appointments.
Powers of Directors
The Board will manage the Company's business and may exercise
all the Company's powers, subject to the Articles, the Companies
Act and in certain circumstances, are subject to the authority
being given to the Directors by shareholders in general
meeting.
The Board's role is to provide entrepreneurial leadership of the
Company within a framework of prudent and effective controls which
enables risk to be assessed and managed. It also sets up the
Group's strategic aims, ensuring that the necessary resources are
in place for the Group to meet its objectives and review investment
performance. The Board also sets the Group's values, standards and
culture. Further details on the Board's role can be found in the
Corporate Governance Report on pages 100 to 104.
Appointment and replacement of Directors
All Directors were elected or re-elected at the AGM on 17
November 2022, with the exception of Sapna Shah who was appointed
to the Board on 1 March 2023. In accordance with the AIC Corporate
Governance Code, all the Directors will retire and those who wish
to continue to serve will offer themselves for election or
re-election at the forthcoming Annual General Meeting.
Directors' indemnity
The Company maintains GBP30 million of Directors' and Officers'
Liability Insurance cover for the benefit of the Directors, which
was in place throughout the year. The level of cover was increased
to GBP35 million on 17 July 2023 and continues in effect at the
date of this report.
Significant shareholdings
The table below shows the interests in shares notified to the
Company in accordance with Chapter 5 of the Disclosure Guidance and
Transparency Rules issued by the Financial Conduct Authority who
have a disclosable interest of 3% or more in the ordinary shares of
the Company as at 30 June 2023.
Percentage
of issued share
Number of shares capital
Blackrock Inc. 68,196,517 5.46%
Schroders Plc 63,131,941 5.08%
Quilter Plc 62,058,617 4.99%
Ameriprise Financial, Inc. 61,728,272 4.98%
Waverton Investment Management Limited 46,422,935 3.79%
Since the year end, and up to 19 September 2023, the Company has
not received any further notifications of changes of interest in
its ordinary shares in accordance with DTR 5. The information
provided is correct as at the date of notification.
Donations and contributions
The Group made no political or charitable donations during the
year (2022: none).
Branches outside the UK
The Company has no branches outside the UK.
Financial risk management
The Group's exposure to, and management of, capital risk, market
risk and liquidity risk is set out in note 21 to the Group's
financial information.
Amendments to the Articles
The Articles may only be amended with shareholders' approval in
accordance with the relevant legislation.
Employees
The Group has no employees and therefore no employee share
scheme or policies for the employment of disabled persons or
employee engagement.
Anti-bribery policy
The Company has a zero-tolerance policy towards bribery and is
committed to carrying out its business fairly, honestly and openly.
The anti-bribery policies and procedures apply to all its Directors
and to those who represent the Company.
Human Rights
The Company has a zero-tolerance approach to modern slavery and
human trafficking and is committed to ensuring its organisation and
business partners operate with the same values. The Company's
modern slavery and human trafficking statement can be found on the
Company's website.
Research and development
No expenditure on research and development was made during the
period.
Related party transactions
Related party transactions for the year ended 30 June 2023 can
be found in note 27 of the financial information.
Annual General Meeting
The Annual General Meeting of the Company will be held on 7
December 2023.
Greenhouse gas emissions
As a listed entity, the Company is required to comply with the
Streamlined Energy and Carbon Reporting (SECR) regulations under
the Companies (Directors' Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018.
Information regarding emissions arising from the Group's activities
are included within the TCFD aligned report on pages 48 to 70.
Disclosure of information to auditor
All of the Directors have taken all the steps that they ought to
have taken to make themselves aware of any information needed by
the auditor for the purposes of their audit and to establish that
the auditor is aware of that information. The Directors are not
aware of any relevant audit information of which the auditor is
unaware.
Significant agreements
The Company entered into a new unsecured borrowing facility on 1
July 2022 provided by a syndicate of lenders. The facility includes
provisions that may require any outstanding borrowings to be repaid
or the alteration or termination of the facilities in the event of
a change of control at the ultimate parent company level.
There are no agreements with the Company or a subsidiary in
which a Director is or was materially interest or to which a
controlling shareholder was party.
Share capital structure
As at 30 June 2023, the Company's issued share capital consisted
of 1,246,239,185 ordinary shares of one penny each, all fully paid
and listed on the Premium List of the London Stock Exchange's Main
Market. Further details of the share capital, including changes
throughout the year are summarised in note 22 of the financial
information.
Subject to authorisation by Shareholder resolution, the Company
may purchase its own shares in accordance with the Companies Act
2006. At the Annual General Meeting held in 2022, shareholders
authorised the Company to make market purchases of up to
186,140,810 Ordinary Shares. The Company has not repurchased any of
its ordinary shares under this authority, which is due to expire at
the AGM in 2023 and appropriate renewals will be sought.
There are no restrictions on transfer or limitations on the
holding of the ordinary shares. None of the shares carry any
special rights with regard to the control of the Company. There are
no known arrangements under which financial rights are held by a
person other than the holder of the shares and no known agreements
on restrictions on share transfers and voting rights.
Post balance sheet events
For details of events since the year end date, please refer to
note 28 of the consolidated information.
Corporate Governance
The Company's statement on corporate governance can be found in
the Corporate Governance Report on pages 108 to 112 of this Annual
Report. The Corporate Governance Report forms part of this
directors' report and is incorporated into it by
cross-reference.
Information included in the strategic report
The information that fulfils the reporting requirements relating
to the following matters can be found on the pages identified.
Subject matter Page reference
Likely future developments 18 to 29
Signed by order of the Board on 19 September 2023
Nick Hewson
Chair
19 September 2023
ALTERNATIVE INVESTMENT FUND MANAGER'S REPORT
Background
The Alternative Investment Fund Managers Directive (the AIFMD)
came into force on 22 July 2013. The objective of the AIFMD was to
ensure a common regulatory regime for funds marketed in or into the
EU which are not regulated under the UCITS regime. This was
primarily for investors' protection and also to enable European
regulators to obtain adequate information in relation to funds
being marketed in or into the EU to assist their monitoring and
control of systemic risk issues.
The AIFM is a non-EU Alternative Investment Fund Manager (a
"Non-EU AIFM"), the Company is a non-EU Alternative Investment Fund
(a "Non-EU AIF") and the Company is marketed primarily into the UK,
but also into the EEA. Although the AIFM is a non-EU AIFM, so the
depositary rules in Article 21 of the AIFMD do not apply, the
transparency requirements of Articles 22 (Annual report) and 23
(Disclosure to investors) of the AIFMD do apply to the AIFM and
therefore to the Company. In compliance with those articles, the
following information is provided to the Company's shareholders by
the AIFM.
1. Material Changes in the Disclosures to Investors
During the financial year under review, there were no material
changes to the information required to be made available to
investors before they invest in the Company under Article 23 of the
AIFMD from that information set out in the Company's prospectus
dated 1 October, 2021, save as updated in the supplementary
prospectus dated 7 April, 2022, as disclosed below and in certain
sections of the Strategic Report, those being the Chair's
Statement, Investment Adviser's Interview, The UK Grocery Market,
TCFD Compliant Report, Our Principal Risks and the Section 172(1)
Statement, together with the Corporate Governance Reports in this
annual financial report.
2. Risks and Risk Management Policy
The current principal risks facing the Company and the main
features of the risk management systems employed by AIFM and the
Company to manage those risks are set out in the Strategic Report
(Our Principal Risks), the Audit and Risk Committee Report and in
the Directors' Report.
3. Leverage and borrowing
The Company is entitled to employ leverage in accordance with
its investment policy and as described in the Chair's Statement,
the sections entitled "Financial Highlights" and "Financial
Overview" in the Strategic Report and in the notes to the financial
information. Other than as disclosed therein, there were no changes
in the Company's borrowing powers and policies.
4. Environmental, Social and Governance (ESG) Issues and
Regulation (EU) 2019/2099 on Sustainability-Related Disclosures in
the Financial Services Sector (the "SFDR")
As a member of the JTC group of Companies, the AIFM's ultimate
beneficial owner and controlling party is JTC Plc, a
Jersey-incorporated company whose shares have been admitted to the
Official List of the UK's Financial Conduct Authority and to
trading on the London Stock Exchange's Main Market for Listed
Securities (mnemonic JTC LN, LEI 213800DVUG4KLF2ASK33). In the
conduct of its own affairs, the AIFM is committed to best practice
in relation to ESG matters and has therefore adopted JTC Plc's ESG
framework, which can be viewed online at
https://www.jtcgroup.com/esg/. JTC Plc's sustainability report can
also be viewed online at https://www
.jtcgroup.com/investor-relations/annual-review/ .
As at the date of this report, JTC Plc is a signatory of the
U.N. Principles for Responsible Investment. The JTC group is also
carbon neutral and works to support the achievement of ten of the
U.N.'s Sustainable Development Goals. JTC Plc reports under TCFD
and under the SASB framework.
From the perspective of the SFDR, although the AIFM is a non-EU
AIFM, the Company is marketed into the EEA, so that the AIFM is
required to comply with the SFDR in so far as it applies to the
Company and the AIFM's management of the Company, which the Company
has classified as being within the scope of Article 6 of the
SFDR.
The AIFM and Atrato Capital Limited ("Atrato") as the Company's
Alternative Investment Fund Manager and Investment Adviser
respectively do consider ESG matters in their respective
capacities, as explained in SUPR's prospectus dated 1 October,
2021, as updated by SUPR's supplementary prospectus dated 7 April,
2022. Copies of both of those documents can be viewed on the AIFM's
website at
https://jtcglobalaifmsolutions.com/clients/supermarket-income-reit-plc/
.
Since the publication of those documents, the AIFM, Atrato and
the Company have continued to enhance their collective approach to
ESG matters and detailed reporting on (a) enhancements made to each
party's policies, procedures and operational practices and (b) our
collective future intentions and aspirations is included in the
TCFD Compliant Report included in the Strategic Report and the ESG
Committee Report in this annual financial report. The Company is
also publishing a separate Sustainability Report on its
website.
The AIFM also has a comprehensive risk matrix (the "Matrix"),
which is used to identify, monitor and manage material risks to
which the Company is exposed, including ESG and sustainability
risks, the latter being an environmental, social or governance
event or condition that, if it occurred, could cause an actual or a
potential material negative impact on the value of an investment.
We also consider sustainability factors, those being environmental,
social and employee matters, respect for human rights,
anti-corruption and anti-bribery matters.
The AIFM is cognisant of the announcement published by H.M.
Treasury in the UK of its intention to make mandatory by 2025
disclosures aligned with the recommendations of the Task Force on
Climate-related Financial Disclosures, with a significant
proportion of disclosures mandatory by 2023. The AIFM also notes
the roadmap and interim report of the UK's Joint
Government-Regulator TCFD Taskforce published by H.M. Treasury on 9
November, 2020. The AIFM continues to monitor developments and
intends to comply with the UK's regime to the extent either
mandatory or desirable as a matter of best practice.
5. Remuneration of the AIFM's Directors and Employees
During the financial year under review, no separate remuneration
was paid by the AIFM to two of its executive directors, Graham
Taylor and Kobus Cronje, because they were both employees of the
JTC group of companies, of which the AIFM forms part. The third
executive director, Matthew Tostevin, is paid a fixed fee of
GBP10,000 for acting as a director. Mr Tostevin is paid additional
remuneration on a time spent basis for services rendered to the
AIFM and its clients. Other than the directors, the AIFM has no
employees. The Company has no agreement to pay any carried interest
to the AIFM. During the year under review, the AIFM paid GBP10,000
in fixed fees and GBP43,478.75 in variable remuneration to Mr
Tostevin.
6. Remuneration of the AIFM Payable by the Company
The AIFM was during the year under review paid a fee of 0.04%
per annum of the net asset value of the Company up to GBP1 billion
and 0.03% of the Company's net asset value in excess of GBP1
billion, subject to a minimum of GBP50,000 per annum, such fee
being payable quarterly in arrears. The total fees paid to the AIFM
during the year under review were GBP480,763.62.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
19 September 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2023
Year to Year to
30 June 30 June 2022
Notes 2023 GBP'000 GBP'000
----------------------------------------------------- ------- --------------- ---------------
Gross rental income 3 95,823 72,363
Service charge income 3 5,939 2,086
Service charge expense 4 (6,518) (2,338)
----------------------------------------------------- ------- --------------- ---------------
Net Rental Income 95,244 72,111
Administrative and other expenses 5 (15,429) (13,937)
----------------------------------------------------- ------- --------------- ---------------
Operating profit before changes in fair
value of investment properties and share
of income and profit on disposal from joint
venture 79,815 58,174
Changes in fair value of investment properties 12 (256,066) 21,820
----------------------------------------------------- ------- --------------- ---------------
Total changes in fair value of investment
properties (256,066) 21,820
Share of income from joint venture 14 23,232 43,301
Profit on disposal of joint venture 14 19,940 -
----------------------------------------------------- ------- --------------- ---------------
Operating (loss)/profit (133,079) 123,295
Finance income 8 14,626 -
Finance expense 8 (39,315) (12,992)
Changes in fair value on interest rate derivatives 19 10,024 -
Profit on disposal of interest rate derivatives 2,878 -
----------------------------------------------------- ------- --------------- ---------------
(Loss)/Profit before taxation (144,866) 110,303
----------------------------------------------------- ------- --------------- ---------------
Tax charge for the year 9 - -
----------------------------------------------------- ------- --------------- ---------------
(Loss)/Profit for the year (144,866) 110,303
----------------------------------------------------- ------- --------------- ---------------
Items to be reclassified to profit or loss
in
subsequent periods
Fair value movements in interest rate derivatives 19 1,068 5,566
Total comprehensive (loss)/income for the
year (143,798) 115,869
----------------------------------------------------- ------- --------------- ---------------
Total comprehensive (loss)/income for the
year attributable
to ordinary Shareholders (143,798) 115,869
----------------------------------------------------- ------- --------------- ---------------
Earnings per share - basic and diluted 10 (11.7) pence 11.3 pence
----------------------------------------------------- ------- --------------- ---------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2023
As at As at
30 June 2023 30 June 2022
Notes GBP'000 GBP'000
---------------------------------------------- ------- --------------- -----------------
Non-current assets
---------------------------------------------- ------- --------------- -----------------
Property, plant and equipment - 129
Investment properties 12 1,685,690 1,561,590
Investment in joint ventures 14 - 177,140
Contract fulfilment asset - 93
Financial asset at amortised cost 16 10,819 10,626
Interest rate derivatives 19 37,198 5,114
---------------------------------------------- ------- --------------- -----------------
Total non-current assets 1,733,707 1,754,692
---------------------------------------------- ------- --------------- -----------------
Current assets
Interest rate derivatives 19 20,384 -
Financial assets held at fair value through
profit and loss 15 - 283
Trade and other receivables 17 142,155 1,863
Cash and cash equivalents 37,481 51,200
---------------------------------------------- ------- --------------- -----------------
Total current assets 200,020 53,346
---------------------------------------------- ------- --------------- -----------------
Total assets 1,933,727 1,808,038
---------------------------------------------- ------- --------------- -----------------
Non-current liabilities
Bank borrowings 20 605,609 348,546
Total non-current liabilities 605,609 348,546
---------------------------------------------- ------- --------------- -----------------
Current liabilities
Bank borrowings due within one year 20 61,856 -
Deferred rental income 21,557 16,360
Trade and other payables 18 26,979 10,677
---------------------------------------------- ------- --------------- -----------------
Total current liabilities 110,392 27,037
---------------------------------------------- ------- --------------- -----------------
Total liabilities 716,001 375,583
---------------------------------------------- ------- --------------- -----------------
Net assets 1,217,726 1,432,455
---------------------------------------------- ------- --------------- -----------------
Equity
Share capital 22 12,462 12,399
Share premium reserve 22 500,386 494,174
Capital reduction reserve 22 704,531 778,859
Retained earnings (2,957) 141,909
Cash flow hedge reserve 3,304 5,114
---------------------------------------------- ------- --------------- ---------------
Total equity 1,217,726 1,432,455
---------------------------------------------- ------- --------------- -----------------
Net asset value per share - basic and
diluted 26 98 pence 116 pence
---------------------------------------------- ------- --------------- -----------------
EPRA NTA per share 26 93 pence 115 pence
---------------------------------------------- ------- --------------- -----------------
The consolidated financial information was approved and
authorised for issue by the Board of Directors on 19 September 2023
and were signed on its behalf by
Nick Hewson
Chair
19 September 2023
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2023
Capital
Share premium Cash flow reduction Retained
Share capital reserve hedge reserve reserve earnings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Total GBP'000
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
As at 1 July 2022 12,399 494,174 5,114 778,859 141,909 1,432,455
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Comprehensive income
for
the year
Loss for the year - - - - (144,866) (144,866)
Cash flow hedge
reserve
to profit for the
year on disposal of
interest rate
derivatives - - (2,878) - - (2,878)
Other comprehensive
income - - 1,068 - - 1,068
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Total comprehensive
loss for the year - - (1,810) - (144,866) (146,676)
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Transactions with
owners
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Ordinary shares
issued
at a premium during
the year 63 6,301 - - - 6,364
Share issue costs - (89) - - - (89)
Interim dividends
paid - - - (74,328) - (74,328)
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
As at 30 June 2023 12,462 500,386 3,304 704,531 (2,957) 1,217,726
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Capital
Share premium Cash flow reduction Retained
Share capital reserve hedge reserve reserve earnings
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Total GBP'000
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
As at 1 July 2021 8,107 778,859 (452) - 84,796 871,310
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Comprehensive income
for
the year
Profit for the year - - - - 110,303 110,303
Other comprehensive
income - - 5,566 - - 5,566
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Total comprehensive
income for the year - - 5,566 - 110,303 115,869
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Transactions with
owners
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
Ordinary shares
issued
at a premium during
the year 4,292 504,539 - - - 508,831
Share premium
cancellation
to capital
reduction
reserve - (778,859) - 778,859 - -
Share issue costs - (10,365) - - - (10,365)
Interim dividends
paid - - - - (53,190) (53,190)
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
As at 30 June 2022 12,399 494,174 5,114 778,859 141,909 1,432,455
---------------------- --------------- --------------- ---------------- ------------ ----------- ---------------
CONSOLIDATED CASH FLOW statement
For the year ended 30 June 2023
Year to Year to
30 June 30 June
Notes 2023 GBP'000 2022 GBP'000
------------------------------------------- ------- --------------- ---------------
Operating activities
(Loss)/Profit for the year (attributable
to ordinary Shareholders) (144,866) 110,303
Adjustments for:
Changes in fair value of interest
rate derivatives measured at fair
value through profit and loss 19 (10,024) -
Changes in fair value of investment
properties and associated rent
guarantees 12 256,066 (21,820)
Movement in rent smoothing and
lease incentive adjustments 3 (2,763) (2,654)
Finance income 8 (14,626) -
Finance expense 8 39,281 12,992
Share of income from joint venture 14 (23,232) (43,301)
Profit on disposal of interest
rate derivative 19 (2,878) -
Profit on disposal of Joint Venture 14 (19,941) -
Cash flows from operating activities
before changes
in working capital 77,017 55,520
(Increase) / decrease in trade
and other receivables (548) 1,277
Decrease/(increase) in rent guarantee
receivables 191 (87)
Increase in deferred rental income 5,198 4,299
Increase in trade and other payables 2,461 2,004
Net cash flows from operating activities 84,319 63,013
------------------------------------------- ------- --------------- ---------------
Investing activities
Acquisition of contract fulfilment
assets - (8)
Disposal of Property, Plant & Equipment 222 -
Acquisition of investment properties 12 (362,630) (371,093)
Capitalised acquisition costs (14,681) (17,603)
Decrease/(Increase) in other financial
assets 16 - (10,626)
Receipts from other financial assets 16 290 -
Investment in joint venture 14 (189,528) (3,518)
Proceeds from disposal of Joint
Venture 14 292,636 -
Net cash flows used in investing
activities (273,691) (402,848)
------------------------------------------- ------- --------------- ---------------
Year to Year to
30 June 30 June
Notes 2023 GBP'000 2022 GBP'000
-------------------------------------------- ------- --------------- ---------------
Financing activities
Proceeds from issue of Ordinary
Share Capital 22 - 506,727
Costs of share issues 22 (89) (10,366)
Bank borrowings drawn 20 912,114 402,922
Bank borrowings repaid 20 (598,486) (464,029)
Loan arrangement fees paid (5,010) (2,187)
Bank interest paid (22,408) (9,846)
Settlement of interest rate derivatives 8,646 -
Settlement of Joint Venture Carried
Interest (8,066) -
Sale of interest rate derivatives 19 2,878 -
Purchase of interest rate derivative 19 (44,255) -
Bank commitment fees paid (1,708) (681)
Dividends paid to equity holders (67,963) (51,084)
-------------------------------------------- ------- --------------- ---------------
Net cash flows from financing activities 175,653 371,456
Net movement in cash and cash equivalents
in the year (13,719) 31,621
-------------------------------------------- ------- --------------- ---------------
Cash and cash equivalents at the
beginning of the year 51,200 19,579
-------------------------------------------- ------- --------------- ---------------
Cash and cash equivalents at the
end of the year 37,481 51,200
-------------------------------------------- ------- --------------- ---------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
General information
Supermarket Income REIT plc (the Company) is a company
registered in England and Wales with its registered office at 1
King William Street, London, United Kingdom, EC4N 7AF. The
principal activity of the Company and its subsidiaries (the Group)
is to provide its Shareholders with an attractive level of income
together with the potential for capital growth by investing in a
diversified portfolio of supermarket real estate assets in the
UK.
At 30 June 2023 the Group comprised the Company and its wholly
owned subsidiaries as set out in Note 13.
Basis of preparation
The consolidated financial information set out in this
preliminary announcement covers the year to 30 June 2023, with
comparative figures relating to the year to 30 June 2022, and
includes the results and net assets of the Group. The financial
information has been prepared on the basis of the accounting
policies set out in the financial statements for the year ended 30
June 2023. Whilst the financial information included in this
announcement has been computed in accordance with the recognition
and measurement requirements of UK adopted international accounting
standards this announcement does not itself contain sufficient
information to comply with IFRS.
The financial information does not constitute the Group's
financial statements for the years ended 30 June 2023 or 30 June
2022, but is derived from those financial statements. Those
financial statements give a true and fair view of the assets,
liabilities, financial position and results of the Group. Financial
statements for the year ended 30 June 2022 have been delivered to
the Registrar of Companies and those for the year ended 30 June
2023 will be delivered following the Company's AGM. The auditors'
reports on both the 30 June 2023 and 30 June 2022 financial
statements were unqualified; did not draw attention to any matters
by way of emphasis; and did not contain statements under section
498 (2) or (3) of the Companies Act 2006.
The principal accounting policies applied in the preparation of
the consolidated financial statements are set out below. These
policies have been consistently applied to all years presented,
other than where new policies have been adopted.
Going concern
In light of the current Macroeconomic backdrop, the Directors
have placed a particular focus on the appropriateness of adopting
the going concern basis in preparing the Group's and Company's
financial statements for the year ended 30 June 2023. In assessing
the going concern basis of accounting the Directors have had regard
to the guidance issued by the Financial Reporting Council.
Liquidity
At 30 June 2023, the Group generated net cash flow from
operating activities of GBP84.3 million, held cash of GBP37.5
million and undrawn committed facilities totalling GBP189.9 million
with no capital commitments or contingent liabilities.
From the sale of its interest in the Sainsburys Reversion
Portfolio (SRP), the Group received proceeds of GBP135.1 million
post year end. GBP97.1 million of this was used for working capital
and debt repayment and GBP38.0 million towards acquiring two stores
(including acquisition costs). As at the date of signing the annual
report the Gross LTV of the group was 34.0%. The remainder of the
receivable of GBP1.5 million is conditional on the sale of the
remaining store in the SRP.
After the year end, the Group also reduced its debt capacity
from GBP862.1 million to GBP680.5 million (see Note 20 for more
information), leaving undrawn committed facilities of over GBP100
million available.
The Directors are of the belief that the Group continues to be
well funded during the going concern period with no concerns over
its liquidity.
Refinancing events
At the date of signing the financial statements, the Deka
facility falls due for repayment during the going concern period
(August 2024). It is intended that the facility will be refinanced
prior to maturity, or if required, it will be paid down in full the
Group's available undrawn committed facilities of over GBP100
million. All lenders have been supportive during the year and have
expressed commitment to the long-term relationship they wish to
build with the Company.
Covenants
The Group's debt facilities include covenants in respect of LTV
and interest cover, both projected and historic. All debt
facilities, except for the unsecured facilities, are ring-fenced
with each specific lender.
The Directors have evaluated a number of scenarios as part of
the Group's going concern assessment and considered the impact of
these scenarios on the Group's continued compliance with secured
debt covenants. The key assumptions that have been sensitised
within these scenarios are falls in rental income and increases in
administrative cost inflation.
As at the date of issuance of this Annual report 100% of
contractual rent for the period has been collected. The Group
benefits from a secure income stream from its property assets that
are let to tenants with excellent covenant strength under long
leases that are subject to upward only rent reviews.
The list of scenarios are below and are all on top of the base
case model which includes prudent assumptions on valuations and
cost inflation. No sensitivity for movements in interest rates have
been modelled as the Group is fully hedged during the going concern
assessment period.
Scenario Rental Income Costs
Base case scenario 100% contractual rent Investment adviser
(Scenario 1) received when due fee based on terms
and rent reviews based of the signed agreement
on forward looking (percentage of NAV
inflation curve, capped as per note 27), other
at the contractual costs 0.35% of NAV
rate of the individual
leases.
-------------------------- --------------------------
Scenario 2 Rental income to fall Costs expected to
by 25% remain the same as
the base case.
-------------------------- --------------------------
Scenario 3 Rental Income expected 10% increases on base
to remain the same case costs to all
as the base case. administrative expenses
-------------------------- --------------------------
The Group continues to maintain covenant compliance for its LTV
and ICR thresholds throughout the going concern assessment period
under each of the scenarios modelled. One of the secured facilities
in the Group has a debt yield covenant, which is calculated as the
passing rent divided by the loan balance for the properties secured
against the lender. The debt yield covenant only would be breached
for this facility if rental income is reduced by 6% during the
going concern assessment period. The Board considers this scenario
highly unlikely given the underlying covenant strength of the
tenants. Furthermore, there are remedies available at the Group's
disposal which includes reducing a portion of the outstanding debt
from available undrawn facilities or providing additional security
over properties that are currently unencumbered. The lowest amount
of ICR headroom experienced in the worst-case stress scenarios was
22%. Based on the latest bank commissioned valuations, Property
values would have to fall by more than 21% before LTV covenants are
breached, and 10% against 30 June 2023 Company valuations.
Similarly, the strictest interest cover covenant within each of the
ring-fenced banking groups is 225%, where the
portfolio is forecast to have an average interest cover ratio of
572% during the going concern period.
Having reviewed and considered three modelled scenarios, the
Directors consider that the Group has adequate resources in place
for at least 12 months from the date of these results and have
therefore adopted the going concern basis of accounting in
preparing the Annual Report.
Assessment of viability
The period over which the Directors consider it feasible and
appropriate to report on the Group's viability is the five-year
period to 30 June 2028. This period has been selected because it is
the period that is used for the Group's medium-term business plans
and individual asset performance forecasts. The assumptions
underpinning these forecast cash flows and covenant compliance
forecasts were sensitised to explore the resilience of the Group to
the potential impact of the Group's significant risks, or a
combination of those risks. The principal risks on pages 71 to 84
summarise those matters that could prevent the Group from
delivering on its strategy. A number of these principal risks,
because of their nature or potential impact, could also threaten
the Group's ability to continue in business in its current form if
they were to occur. The Directors paid particular attention to the
risk of a deterioration in economic outlook which could impact
property fundamentals, including investor and occupier demand which
would have a negative impact on valuations, and give rise to a
reduction in the availability of finance.
The sensitivities performed were designed to be severe but
plausible; and to take full account of the availability of
mitigating actions that could be taken to avoid or reduce the
impact or occurrence of the underlying risks.
Viability Statement
The Board has assessed the prospects of the Group over the five
years from the balance sheet date to 30 June 2028, which is the
period covered by the Group's longer-term financial projections.
The Board considers five years to be an appropriate forecast period
since, although the Group's contractual income extends beyond five
years, the availability of most finance and market uncertainty
reduces the overall reliability of forecast performance over a
longer period.
The Board considers the resilience of projected liquidity, as
well as compliance with secured debt covenants and UK REIT rules,
under a range of RPI and property valuation assumptions.
The principal risks and the key assumptions that were relevant
to this assessment are as follows:
Risk Assumption
Borrowing The Group continues to comply with all relevant loan
risk covenants. The Group is able to refinance all debt
falling due within the viability assessment period
on acceptable terms.
---------------------------------------------------------
Interest Rate The increase in variable interest rates are managed
Risk by reduction of variable debt from cash inflows and
utilising interest rate derivatives to limit the
exposure to variable debt.
---------------------------------------------------------
Liquidity The Group continues to generate sufficient cash to
risk cover its costs while retaining the ability to make
distributions.
---------------------------------------------------------
Tenant risk Tenants (or guarantors where relevant) comply with
their rental obligations over the term of their leases
and no key tenant suffers an insolvency event over
the term of the review.
---------------------------------------------------------
Based on the work performed, the Board has a reasonable
expectation that the Group will be able to continue in business
over the five-year period of its assessment.
Accounting convention and currency
The consolidated financial information (the "financial
information") has been prepared on a historical cost basis, except
that investment properties, rental guarantees and interest rate
derivatives measured at fair value.
The financial information is presented in Pounds Sterling and
all values are rounded to the nearest thousand (GBP'000), except
where otherwise indicated. Pounds Sterling is the functional
currency of the Company and the presentation currency of the
Group.
Adoption of new and revised standards
In the current financial year, the Group has adopted a number of
minor amendments to standards effective in the year issued by the
IASB as adopted by the UK Endorsement Board, none of which have had
a material impact on the Group.
There was no material effect from the adoption of other
amendments to IFRS effective in the year. They have no significant
impact on the Group as they are either not relevant to the Group's
activities or require accounting which is consistent with the
Group's current accounting policies.
Standards and interpretations in issue not yet adopted
The following are new standards, interpretations and amendments,
which are not yet effective, and have not been early adopted in
this financial information, that will or may have an effect on the
Group's future financial statements:
-- Amendments to IAS 1 which are intended to clarify the
requirements that an entity applies in determining whether a
liability is classified as current or non-current. The amendments
are intended to be narrow-scope in nature and are meant to clarify
the requirements in IAS 1 rather than modify the underlying
principles (effective for periods beginning on or after 1 January
2024).
The amendments include clarifications relating to:
- How events after the end of the reporting period affect liability classification
- What the rights of an entity must be in order to classify a liability as non-current
- How an entity assesses compliance with conditions of a liability (e.g. bank covenants)
- How conversion features in liabilities affect their classification
The amendment is not expected to have an impact on the
presentation or classification of the liabilities in the Group
based on rights that are in existence at the end of the reporting
period.
-- IFRS S1 General Requirements for Disclosure of
Sustainability-related Financial Information. IFRS S1 sets out
general requirements for the disclosure of material information
about sustainability-related financial risks and opportunities and
other general reporting requirements (periods beginning after 1
January 2024).
-- IFRS S2 Climate-related Disclosures. IFRS S2 sets out
disclosure requirements that are specific to climate-related
matters (periods beginning after 1 January 2024).
The Group acknowledges the issue of these new standards by the
International Sustainability Standards Board's (ISSB) will monitor
the consultation and decision process being undertaken by the UK
Government and FCA in determining how these standards are
implemented by UK companies.
There are other new standards and amendments to standards and
interpretations which have been issued that are effective in future
accounting periods, and which the Group has decided not to adopt
early. None of these are expected to have a material impact on the
condensed consolidated financial statements of the Group.
Significant accounting judgements, estimates and assumptions
The preparation of this financial information in accordance with
IFRS requires the Directors of the Company to make judgements,
estimates and assumptions that affect the reported amounts
recognised in the financial information.
Key estimate: Fair value of investment properties
The fair value of the Group's investment properties is
determined by the Group's independent valuer on the basis of market
value in accordance with the RICS Valuation - Global Standards (the
'Red Book'). Recognised valuation techniques are used by the
independent valuer which are in accordance with those recommended
by the International Valuation Standard Committee and compliant
with IFRS 13 "Fair Value Measurement."
The independent valuer did not include any material valuation
uncertainty clause in relation to the valuation of the Group's
investment property for 30 June 2023 or 30 June 2022.
The independent valuer is considered to have sufficient current
local and national knowledge of the supermarket property market and
the requisite skills and understanding to undertake the valuation
competently.
In forming an opinion as to fair value, the independent valuer
makes a series of assumptions, which are typically market-related,
such as those in relation to net initial yields and expected rental
values. These are based on the independent valuer's professional
judgement. Other factors taken into account by the independent
valuer in arriving at the valuation of the Group's investment
properties include the length of property leases, the location of
the properties and the strength of tenant covenants.
The fair value of the Group's investment properties as
determined by the independent valuer, along with the significant
methods and assumptions used in estimating this fair value, are set
out in note 12.
Key estimate: Fair value of interest rate derivatives
Derivatives are valued in accordance with IFRS 13 "Fair Value
Measurement" by reference to interbank bid market rates as at the
close of business on the last working day prior to each reporting
date. The fair values are calculated using the present values of
future cash flows, based on market forecasts of interest rates and
adjusted for the credit risk of the counterparties. The amounts and
timing of future cash flows are projected on the basis of the
contractual terms.
The fair value of the Group's interest rate derivatives, along
with further details of the valuation methods used, are detailed in
note 19.
Key judgement: Joint ventures - joint control
In prior years, the Group entered into a 50:50 joint venture
with the British Airways Pension Trustees Limited to acquire 100%
of the issued share capital in Horndrift Limited for a combined
total consideration of GBP102 million plus costs. The joint venture
also acquired 100% of the issued share capital in Cornerford
Limited for a combined total consideration of GBP115 million plus
costs (together "the Joint Venture Interest").
Horndrift Limited and Cornerford Limited each hold a 25.2%
beneficial interest in a property trust arrangement / bond
securitisation structure (the "Structure") which previously held a
portfolio of 26 Sainsbury's supermarket properties funded by bonds
which mature in 2023. During the year, Sainsbury's exercised
options to acquire 21 of these stores within the Structure and it
has been determined that the exercise of the purchase options by
Sainsbury's resulted in the performance obligation being satisfied
for a sale of the properties in accordance with IFRS 15. The JV is
deemed to hold a contractual receivable from Sainsbury's plc in
respect of these 21 properties.
During the year, the Group acquired the British Airways Pension
Trustees Limited stake in the joint venture, meaning the Group had
a beneficial interest in over 50% of the underlying property pool,
via its 100% ownership in Horndrift and Cornerford.
The classification and accounting treatment of the Joint Venture
Interest in the property trust arrangement in the Group's
consolidated financial information is subject to significant
judgement. By reference to the contractual arrangements and deeds
that regulate the Structure, it was necessary to determine whether
the Joint Venture Interest, together with the other key parties of
the Structure had the ability to jointly control the Structure
through their respective rights as defined by the contractual
arrangements and deeds of the Structure. The review of the Joint
Venture Interest and the other key parties' rights required
significant judgement in assessing whether the rights identified
were substantive as defined by IFRS 10 Consolidated Financial
Statements, principally in respect of whether there were any
economic barriers that prevent the joint venture investment or the
other key parties from exercising their rights. Through assessing
the expected possible outcomes either before or upon maturity of
the Structure it was determined that there were no significant
economic barriers that would prevent Horndrift Limited, Cornerford
Limited or the other key parties from exercising their rights under
the contractual arrangements and deeds of the Structure.
The Directors therefore concluded that through its Joint Venture
Interest, the Group indirectly has joint control of the Structure
as defined by IFRS 10 Consolidated Financial Statements. As such
the Group's interest in the Structure is accounted for using the
equity method of accounting under IAS 28.
Following the additional Joint Venture interest acquired during
the year, the Group was deemed to still jointly control the
Structure as any change to the contractual arrangements and deeds
that regulate the Structure, requires unanimous consent from all
beneficial holders. Therefore, the equity method of accounting
continued to be used until the disposal of the investment in joint
venture which occurred during the year (see Note 14).
Key judgement: Acquisition of Joint Venture stake
During the year the Group acquired an additional 50% interest in
the Group's existing joint venture, Horner (Jersey) LP, from
British Airways Pension Trustees Limited for total consideration of
GBP188.8 million. At the time of the purchase the Directors assess
whether the acquisition represents the acquisition of an asset or
the acquisition of a business.
Under the Definition of a Business (Amendments to IFRS 3
"Business Combinations"), to be considered as a business, an
acquired set of activities and assets must include, at a minimum,
an input and a substantive process that together significantly
contribute to the ability to create outputs. The optional
'concentration test' is also applied, where if substantially all of
the fair value of gross assets acquired is concentrated in a single
asset (or a group of similar assets), the assets acquired would not
represent a business.
The concentration test was applied confirming that substantially
all of the fair value of the assets acquired were concentrated in
an investment in joint venture, being the Structure and was
therefore accounted as an asset purchase.
Key judgement: Acquisition of investment properties
The Group has acquired and intends to acquire further investment
properties. At the time of each purchase the Directors assess
whether an acquisition represents the acquisition of an asset or
the acquisition of a business.
Under the Definition of a Business (Amendments to IFRS 3
"Business Combinations"), to be considered as a business, an
acquired set of activities and assets must include, at a minimum,
an input and a substantive process that together significantly
contribute to the ability to create outputs. The optional
'concentration test' is also applied, where if substantially all of
the fair value of gross assets acquired is concentrated in a single
asset (or a group of similar assets), the assets acquired would not
represent a business.
During the year, the group completed nine acquisitions. In nine
cases the concentration test was applied and met, resulting in the
acquisitions being accounted for as asset purchases.
All GBP362.6 million of acquisitions during the year were
accounted for as asset purchases.
Key judgement: Acquisition of financial assets at amortised
cost
The Group acquires properties under a sale and leaseback
arrangements. At the time of the purchase the Directors assess
whether the acquisition represents the acquisition of an investment
property or a financial asset.
Under IFRS 15, for the transfer of an asset to be accounted for
as a true sale, satisfying a performance obligation of transferring
control of an asset must be met for this to be deemed a property
transaction and accounted for under IFRS 16. If not, it is
accounted for as an asset under IFRS 9.
The Group acquired a property in the prior under a sale and
leaseback arrangement with a larger multi-channel supermarket
operator. In this case, it was deemed that as the lease was for a
significant part of the asset's useful economic life, control was
not passed and the asset was therefore accounted for under IFRS 9
as an amortised cost asset.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
the consolidated financial information are set out below.
2.1. Basis of consolidation
The consolidated financial information comprises the financial
information of the Company and all of its subsidiaries drawn up to
30 June 2023.
Subsidiaries are those entities including special purpose
entities, directly or indirectly controlled
by the Company. Control exists when the Company is exposed or
has rights to variable returns from
its investment with the investee and has the ability to affect
those returns through its power over
the investee. In assessing control, potential voting rights that
presently are exercisable are taken
into account.
The financial information of subsidiaries is included in the
consolidated financial information from
the date that control commences until the date that control
ceases.
In preparing the consolidated financial information, intra group
balances, transactions and unrealised gains or losses are
eliminated in full.
Uniform accounting policies are adopted for all entities within
the Group.
2.2. Segmental information
The Directors are of the opinion that the Group is currently
engaged in a single segment business, being investment in United
Kingdom in supermarket property assets; the non-supermarket
properties are ancillary in nature to the supermarket property
assets and are therefore not segmented.
2.3. Rental income
Rental income arising on investment properties is accounted for
in profit or loss on a straight-line basis over the lease term, as
adjusted for the following:
-- Any rental income from fixed and minimum guaranteed rent review uplifts is recognised on
a straight-line basis over the lease term, variable lease uplift
calculations are not rebased when a rent review occurs and the
variable payment becomes fixed;
-- Lease incentives are spread evenly over the lease term, even
if payments are not made on such a basis. The lease term is the
non-cancellable period of the lease together with any further term
for which the tenant has the option to continue the lease, where,
at the inception of the lease, the Directors are reasonably certain
that the tenant will exercise that option.
Contingent rents, such as those arising from indexed-linked rent
uplifts or market based rent reviews, are recognised in the period
in which they are earned.
Where income is recognised in advance of the related cash flows
due to fixed and minimum guaranteed rent review uplifts or lease
incentives, an adjustment is made to ensure that the carrying value
of the relevant property, including the accrued rent relating to
such uplifts or lease incentives, does not exceed the external
valuation.
Rental income is invoiced in advance with that element of
invoiced rental income that relates to a future period being
included within deferred rental income in the consolidated
statement of financial position.
Leases classified under IFRS 9 as financial assets recognise
income received from the tenant between finance income and a
reduction of the asset value, based on the interest rate implicit
in the lease.
2.4. Service charge income
Service charge income represents amounts billed to tenants for
services provided in conjunction with leased properties based on
budgeted service charge expenditure for a given property over a
given service charge year. The Company recognises service charge
income on a straight-line basis over the service charge term.
2.5. Service charge expense
Service charge expense represents a wide range of costs related
to the operation and upkeep of the leased properties. These costs
are allocated and charged to tenants based on agreed terms and
calculations as outlined in the lease agreements with a portion
being borne by the landlord where agreed.
2.6. Finance income
Finance income consists principally of interest receivable from
interest rate derivatives and income from financial assets held at
amortised cost. An adjustment is applied to reclassify amounts
received upon periodic settlement of interest rate derivatives
assets from change in fair value to interest income.
2.7. Finance expense
Finance expenses consist principally of interest payable and the
amortisation of loan arrangement fees.
Loan arrangement fees are expensed using the effective interest
method over the term of the relevant loan. Interest payable and
other finance costs, including commitment fees, which the Group
incurs in connection with bank borrowings, are expensed in the
period to which they relate.
2.8. Administrative and other expenses
Administrative and other expenses, including the investment
advisory fees payable to the Investment Adviser, are recognised as
a profit or loss on an accruals basis.
2.9. Dividends payable to Shareholders
Dividends to the Company's Shareholders are recognised when they
become legally payable, as a reduction in equity in the financial
information. Interim equity dividends are recognised when paid.
Final equity dividends will be recognised when approved by
Shareholders at an AGM.
2.10. Taxation
Non-REIT taxable income
Taxation on the Group's profit or loss for the year that is not
exempt from tax under the UK-REIT regulations comprises current and
deferred tax, as applicable. Tax is recognised in profit or loss
except to the extent that it relates to items recognised as direct
movements in equity, in which case it is similarly recognised as a
direct movement in equity.
Non-REIT taxable income continued
Current tax is tax payable on any non-REIT taxable income for
the year, using tax rates enacted or substantively enacted at the
end of the relevant period.
Entry to the UK-REIT regime
The Group obtained its UK-REIT status effective from 21 December
2017. Entry to the regime results in, subject to continuing
relevant UK-REIT criteria being met, the profits of the Group's
property rental business, comprising both income and capital gains,
being exempt from UK taxation.
The Group intends to ensure that it complies with the UK-REIT
regulations on an on-going basis and regularly monitors the
conditions required to maintain REIT status.
2.11. Investment properties
Investment properties consist of land and buildings which are
held to earn income together with the potential for capital
growth.
Investment properties are recognised when the risks and rewards
of ownership have been transferred and are measured initially at
cost, being the fair value of the consideration given, including
transaction costs. Where the purchase price (or proportion thereof)
of an investment property is settled through the issue of new
ordinary shares in the Company, the number of shares issued is such
that the fair value of the share consideration is equal to the fair
value of the asset being acquired. Transaction costs include
transfer taxes and professional fees for legal services. Any
subsequent capital expenditure incurred in improving investment
properties is capitalised in the period incurred and included
within the book cost of the property. All other property
expenditure is written off in profit or loss as incurred.
After initial recognition, investment properties are measured at
fair value, with gains and losses recognised in profit or loss in
the period in which they arise.
Gains and losses on disposals of investment properties will be
determined as the difference between the net disposal proceeds and
the carrying value of the relevant asset. These will be recognised
in profit or loss in the period in which they arise.
Initially, rental guarantees are recognised at their fair value
and separated from the purchase price on initial recognition of the
property being purchased. They are subsequently measured at their
fair value at each reporting date with any movements recognised in
the profit or loss.
2.12. Joint ventures
Interests in joint ventures, including the additional interest
acquired during the year, are accounted for using the equity method
of accounting as per IAS 28. The Group's joint ventures are
arrangements in which the partners have joint control and rights to
the net assets of the arrangement. Investments in joint ventures
are carried in the statement of financial position at cost
as adjusted by post-acquisition changes in the Group's share of
the net assets of the joint venture, less any impairment or share
of income adjusted for dividends. In assessing whether a particular
entity
is controlled, the Group considers the same principles as
control over subsidiaries as described in
note 2.1.
2.13. Property, plant and equipment
Property, plant and equipment comprises of rooftop solar panels.
Rooftop solar panels are stated at cost less accumulated
depreciation and any recognised impairment loss. Depreciation is
recognised over the useful lives of the equipment, using the
straight-line method at a rate of between 25- 30 years depending on
the useful economic life.
Residual value is reviewed at least at each financial year and
there is no depreciable amount if
residual value is the same as, or exceeds, book value. Any gain
or loss arising on the disposal of the rooftop solar panels are
determined as the difference between the sales proceeds and the
carrying amount of the asset.
2.14. Financial assets and liabilities
Financial assets and liabilities are recognised when the
relevant Group entity becomes a party to the unconditional
contractual terms of an instrument. Unless otherwise indicated, the
carrying amounts
of financial assets and liabilities are considered by the
Directors to be reasonable estimates of their
fair values.
Financial assets
Financial assets are recognised initially at their fair value.
All of the Group's financial assets, except interest rate
derivatives, are held at amortised cost using the effective
interest method, less any impairment.
For assets where changes in cash flows are linked to changes in
an inflation index, the Group updates the effective interest rate
at the end of each reporting period and this is reflected in the
carrying amount of the asset each reporting period until the asset
is derecognised.
Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and short-term
deposits in banks with an original maturity of three months or
less.
Trade and other receivables
Trade and other receivables, including rents receivable, are
recognised and carried at the lower of their original invoiced
value and recoverable amount. Provisions for impairment are
calculated using an expected credit loss model. Balances will be
written-off in profit or loss in circumstances where the
probability of recovery is assessed as being remote.
Trade and other payables
Trade and other payables are recognised initially at their fair
value and subsequently at amortised cost.
Bank borrowings
Bank borrowings are initially recognised at fair value net of
attributable transaction costs. After initial recognition, bank
borrowings are subsequently measured at amortised cost, using the
effective interest method. The effective interest rate is
calculated to include all associated transaction costs.
In the event of a modification to the terms of a loan agreement,
the Group considers both the quantitative and qualitative impact of
the changes. Where a modification is considered substantial, the
existing facility is treated as settled and the new facility is
recognised. Where the modification is not considered substantial,
the carrying value of the liability is restated to the present
value of the cash flows of the modified arrangement, discounted
using the effective interest rate of the original arrangement. The
difference is recognised as a gain or loss on refinancing through
the statement of comprehensive income.
Derivative financial instruments and hedge accounting
The Group's derivative financial instruments currently comprise
of interest rate swaps/caps. Derivatives designated as hedging
instruments utilise hedge accounting under IAS 39. Derivatives not
designated under hedge accounting are accounted for under IFRS
9.
These instruments are used to manage the Group's cash flow
interest rate risk.
The instruments are initially recognised at fair value on the
date that the derivative contract is entered into, being the cost
of any premium paid at inception, and are subsequently re-measured
at their fair value at each reporting date.
Fair value measurement of derivative financial instruments
The fair value of derivative financial instruments is the
estimated amount that the Group would receive or pay to terminate
the agreement at the period end date, taking into account current
interest rate expectations and the current credit rating of the
relevant group entity and its counterparties.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs significant to the fair
value measurement as a whole.
A number of assumptions are used in determining the fair values
including estimations over future interest rates and therefore
future cash flows. The fair value represents the net present value
of the difference between the cash flows produced by the contract
rate and the valuation rate.
Hedge accounting
At the inception of a hedging transaction, the Group documents
the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking
the hedging transaction.
The Group also documents its assessment, both at hedge inception
and on an ongoing basis, of whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items.
Assuming the criteria for applying hedge accounting continue to
be met the effective portion of gains and losses on the revaluation
of such instruments are recognised in other comprehensive income
and accumulated in the cash flow hedging reserve. Any ineffective
portion of such gains and losses will be recognised in profit or
loss within finance income or expense as appropriate. The
cumulative gain or loss recognised in other comprehensive income is
reclassified from the cash flow hedge reserve to profit or loss
(finance expense) at the same time as the related hedged interest
expense is recognised.
Interest rate derivatives that do not qualify under hedge
accounting are carried in the Group Statement of Financial Position
at fair value, with changes in fair value recognised in the Group
Statement of Comprehensive Income, net of interest
receivable/payable from the derivatives shown in the finance income
or expense line.
2.15. Equity instruments
Equity instruments issued by the Company are recorded at the
amount of the proceeds received, net of directly attributable issue
costs. Costs not directly attributable to the issue are immediately
expensed in profit or loss.
Further details of the accounting for the proceeds from the
issue of shares in the period are disclosed in note 22.
2.16. Fair value measurements and hierarchy
Fair value is the price that would be received on the sale of an
asset, or paid to transfer a liability,
in an orderly transaction between market participants at the
measurement date. The fair value measurement is based on the
presumption that the transaction takes place either in the
principal market for the asset or liability, or in the absence of a
principal market, in the most advantageous market. It is based on
the assumptions that market participants would use when pricing the
asset
or liability, assuming they act in their economic best interest.
A fair value measurement of a non-financial asset takes into
account the best and highest value use for that asset.
The fair value hierarchy to be applied under IFRS 13 is as
follows:
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are carried at fair value and
which will be recorded in the financial information on a recurring
basis, the Group will determine whether transfers have occurred
between levels in the hierarchy by reassessing categorisation at
the end of each reporting period.
3. Gross rental income
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
---------------------------------------------- --------------- ---------------
Rental income - freehold property 53,119 44,332
Rental income - long leasehold property 42,669 28,031
Lease surrender income 35 -
---------------------------------------------- --------------- ---------------
Gross rental income 95,823 72,363
---------------------------------------------- --------------- ---------------
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
---------------------------------------------- --------------- ---------------
Property insurance recoverable 585 449
Service charge recoverable 5,354 1,637
---------------------------------------------- --------------- ---------------
Total property insurance and service charge
income 5,939 2,086
---------------------------------------------- --------------- ---------------
Total property income 101,762 74,449
---------------------------------------------- --------------- ---------------
Included within rental income is a GBP2,512,000 (2022:
GBP2,654,000) rent smoothing adjustment that arises as a result of
IFRS 16 'Leases' requiring that rental income in respect of leases
with rents increasing by a fixed percentage be accounted for on
straight-line basis over the lease term. During the year this
resulted in an increase in rental income and an offsetting entry
being recognised in profit or loss as an adjustment to the
investment property revaluation.
On an annualised basis, rental income comprises GBP49,620,000
(2022: GBP34,420,000) relating to the Group's largest tenant and
GBP27,194,000 (2022: GBP24,265,000) relating to the Group's second
largest tenant. There were no further tenants representing more
than 10% of annualised gross rental income during either year.
4. Service charge expense
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
---------------------------------------------- --------------- ---------------
Property insurance expenses 715 639
Service charge expenses 5,803 1,699
---------------------------------------------- --------------- ---------------
Total property insurance and service charge
expense 6,518 2,338
---------------------------------------------- --------------- ---------------
5. Administrative and other expenses
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------------ --------------- ---------------
Investment Adviser fees (Note 27) 10,292 9,405
Directors' remuneration (Note 7) 364 269
Corporate administration fees 1,108 893
Legal and professional fees 1,626 2,249
Other administrative expenses 2,039 1,121
------------------------------------------ --------------- ---------------
Total administrative and other expenses 15,429 13,937
------------------------------------------ --------------- ---------------
The fees relating to the issue of shares in the year have been
treated as share issue expenses and offset against the share
premium reserve.
6. Operating (loss)/profit
Operating (loss)/profit is stated after charging fees for:
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
----------------------------------------------------- --------------- ---------------
Audit of the Company's consolidated and individual
financial statements 260 190
Audit of subsidiaries, pursuant to legislation 95 64
----------------------------------------------------- --------------- ---------------
Total audit services 355 254
----------------------------------------------------- --------------- ---------------
Audit related services: interim review 38 32
----------------------------------------------------- --------------- ---------------
Total audit and audit related services 393 286
----------------------------------------------------- --------------- ---------------
The Group's auditor also provided the following services in
relation to corporate finance services:
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------------------- --------------- ---------------
Other non-audit services: corporate finance
services in connection
with the October 2021 and April 2022 placings - 78
Other non-audit services: corporate finance
services in connection with the transition
to premium segment of LSE - 45
Other non-audit services: corporate finance 65 -
services
------------------------------------------------- --------------- ---------------
Total other non-audit services 65 123
------------------------------------------------- --------------- ---------------
Total fees charged by the Group's auditor 458 409
------------------------------------------------- --------------- ---------------
7. Directors' remuneration
The Group had no employees in the current or prior year. The
Directors, who are the key management personnel of the Company, are
appointed under letters of appointment for services. Directors'
remuneration, all of which represents fees for services provided,
was as follows:
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
--------------------------------------------- --------------- ---------------
Directors' fees 330 245
Employer's National Insurance Contribution 34 24
--------------------------------------------- --------------- ---------------
Total Directors' remuneration 364 269
--------------------------------------------- --------------- ---------------
The highest paid Director received GBP75,000 (2022: GBP70,000)
for services during the year.
8. Finance income and expense
Year to Year to
30 June 2023 30 June 2022
Finance income GBP'000 GBP'000
------------------------------------------------ --------------- ---------------
Interest received on bank deposits 53 -
Income from financial assets held at amortised 483 -
cost (note 16)
Finance income on unwinding of discounted 2,376 -
receivable (note 17)
Finance income on settlement of interest 11,714 -
rate derivatives (note 19)
Total finance income 14,626 -
------------------------------------------------ --------------- ---------------
Year to Year to
30 June 2023 30 June 2022
Finance expense GBP'000 GBP'000
-------------------------------------------------- --------------- ---------------
Interest payable on bank borrowings and hedging
arrangements 29,707 9,565
Finance expense on settlement of interest
rate derivatives (note 19) - 296
Commitment fees payable on bank borrowings 1,571 969
Amortisation of loan arrangement fees* 8,037 2,157
Amortisation of interest rate derivative
premium (Note 19) - 5
-------------------------------------------------- --------------- ---------------
Total finance expense 39,315 12,992
-------------------------------------------------- --------------- ---------------
*This includes a one-off exceptional charge in the year to 30
June 2023 of GBP1.52 million, relating to the acceleration of
unamortised arrangement fees in respect of the modification of the
Wells Fargo and Barclays/RBC facilities under IFRS 9. It also
includes a one-off loan arrangement fee for the short-term J.P.
Morgan loan of GBP4.0 million.
The above finance expense includes the following in respect of
liabilities not classified as fair value through profit and
loss:
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
---------------------------------------------------- --------------- ---------------
Total interest expense on financial liabilities
held at amortised cost 37,744 11,723
Fee expense not part of effective interest
rate for financial liabilities held at amortised
cost 1,571 969
---------------------------------------------------- --------------- ---------------
Total finance expense 39,315 12,692
---------------------------------------------------- --------------- ---------------
9. Taxation
Tax charge in profit or loss
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------------- --------------- ---------------
Corporation tax - -
------------------------------------------- --------------- ---------------
B) Total tax expense
------------------------------------------- --------------- ---------------
Tax charge in profit and loss as per the - -
above
Share of tax expense of equity accounted
joint ventures (400) 987
------------------------------------------- --------------- ---------------
Total tax (credit)/expense (400) 987
------------------------------------------- --------------- ---------------
The Company and its subsidiaries operate as a UK Group REIT.
Subject to continuing compliance with certain rules, the UK REIT
regime exempts the profits of the Group's property rental business
from UK corporation tax. To operate as a UK Group REIT a number of
conditions had to be satisfied in respect of the Company, the
Group's qualifying activity and the Group's balance of business.
Since the 21 December 2017 the Group has met all such applicable
conditions.
The reconciliation of the (Loss)/profit before tax multiplied by
the blended rate of corporation tax for the year of 20.4% (2022:
19%) to the total tax charge is as follows:
Year to Year to
C) Reconciliation of the total tax charge 30 June 2023 30 June 2022
for the year GBP'000 GBP'000
------------------------------------------------- --------------- ---------------
(Loss)/Profit on ordinary activities before
taxation (144,866) 110,303
Theoretical tax at UK standard corporation
tax rate of 20.4% (2022: 19%) (29,553) 20,958
Effects of:
Investment property and derivative revaluation
not taxable 49,680 (4,146)
Disposal of interest rate derivative (587) -
Residual business losses 4,428 -
Other non-taxable items (8,807) -
REIT exempt income (15,161) (16,812)
Share of tax expense of equity accounted
joint ventures (400) 987
------------------------------------------------- --------------- ---------------
Total tax (credit)/expense for the year (400) 987
------------------------------------------------- --------------- ---------------
UK REIT exempt income includes property rental income that is
exempt from UK corporation tax in accordance with Part 12 of CTA
2010.
No deferred tax asset has been recognised in respect of the
Group's residual carried forward tax losses of GBP36.2 million as,
given the Group's REIT status, it is considered unlikely that these
losses will be utilised.
10. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing the
profit or loss for the period attributable to ordinary equity
holders of the Company by the weighted average number of ordinary
shares in issue during the period. As there are no dilutive
instruments outstanding, basic and diluted earnings per share are
identical.
The European Public Real Estate Association (EPRA) publishes
guidelines for calculating adjusted earnings on a comparable basis.
EPRA EPS is a measure of EPS designed by EPRA to enable entities to
present underlying earnings from core operating activities, which
excludes fair value movements on investment properties.
The Company has also included an additional earnings measure
called "Adjusted Earnings" and "Adjusted EPS." Adjusted
earnings(53) is a performance measure used by the Board to assess
the Group's financial performance and dividend payments. The metric
adjusts EPRA earnings by deducting one-off items such as debt
restructuring costs and the Joint Venture acquisition loan
arrangement fee which are non-recurring in nature and adding back
finance income on derivatives held at fair value through profit and
loss. Adjusted Earnings is considered a better reflection of the
measure over which the Board assesses the Group's trading
performance and dividend cover.
Finance income received from derivatives held at fair value
through profit and loss are added back to EPRA earnings as this
reflects the cash received from the derivatives in the period and
therefore gives a better reflection of the Group's net finance
costs.
Debt restructuring costs relate to the acceleration of
unamortised arrangement fees following the partial transition of
the Group's debt structure from secured to unsecured.
The Joint Venture acquisition loan arrangement fee relates to
the upfront amount payable to J.P. Morgan in respect of the
short-term facility taken out in January 2023 to fund the Group's
purchase of BAPTL's 50% interest in the joint venture. This was
specific debt taken out to finance the transaction to acquire and
then dispose of the joint venture, whilst protecting the Group from
any recourse on unwind of the joint venture's financial asset. This
adjustment reflects the arrangement fee only, as the Group largely
had other committed undrawn facilities that it could have
utilised.
The reconciliation of IFRS Earnings, EPRA Earnings and Adjusted
Earnings is shown below:
Year to Year to
30 June 30 June
2023 2022
GBP' 000 GBP' 000
------------------------------------------------------- --------------- -------------
Net (loss) / profit attributable to ordinary
shareholders (144,866) 110,303
EPRA adjustments:
Changes in fair value of investment properties
and rental guarantees 256,066 (21,820)
Changes in fair value of interest rate derivatives
measured at fair value through profit and loss (10,024) -
Profit on disposal of interest rate derivatives (2,878) -
Group share of changes in fair value of joint
venture investment properties (11,486) 6,021
Group share of gain on disposal of joint venture
investment properties - (37,102)
Gain on disposal of investments in joint venture (19,940) -
Finance income received on interest rate derivatives
held at fair value through profit and loss (9,671) -
------------------------------------------------------- --------------- -------------
EPRA earnings 57,201 57,402
------------------------------------------------------- --------------- -------------
Adjustments for:
Finance income received on interest rate derivatives
held at fair value through profit and loss 9,671 -
One-off restructuring costs in relation to the
acceleration of unamortised arrangement fees 1,518 -
Joint Venture acquisition loan arrangement fee 4,009 -
------------------------------------------------------- --------------- -------------
Adjusted Earnings 72,399 57,402
------------------------------------------------------- --------------- -------------
Number(1) Number(1)
------------------------------------------------------- --------------- -------------
Weighted average number of ordinary shares 1,242,574,505 975,233,858
------------------------------------------------------- --------------- -------------
(1) Based on the weighted average number of ordinary shares in
issue
Year to
Year to 30 June
30 June 2023 2022
Pence per share Pence per
('p') share ('p')
----------------------------------------------------- ----------------- --------------
Basic and Diluted EPS (11.7) 11.3
EPRA adjustments:
Changes in fair value of interest rate derivatives
measured at FVTPL (0.8) -
Changes in fair value of investment properties
and rent guarantees 20.6 (2.2)
Group share of changes in fair value of joint
venture investment properties (0.9) 0.6
Profit on disposal of interest rate derivatives (0.2) -
Group share of gain on disposal of joint
venture investment properties (1.6) (3.8)
Finance income received on interest rate
derivatives held at fair value through profit
and loss (0.8) -
EPRA EPS 4.6 5.9
----------------------------------------------------- ----------------- --------------
Adjustments for:
Finance income received on interest rate
derivatives held at fair value through profit
and loss 0.8 -
One-off restructuring costs in relation to
the acceleration of unamortised arrangement
fees 0.1 -
Joint Venture acquisition loan arrangement
fee 0.3 -
----------------------------------------------------- ----------------- --------------
Adjusted EPRA EPS 5.8 5.9
----------------------------------------------------- ----------------- --------------
11. Dividends
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
--------------------------------------------------- --------------- ---------------
Amounts recognised as a distribution to ordinary
Shareholders
in the year:
Dividends paid 74,328 53,190
--------------------------------------------------- --------------- ---------------
On 8 July 2022, the Board declared a fourth interim dividend for
the year ended 30 June 2022 of 1.485 pence per share, which was
paid on 22 August 2022 to Shareholders on the register on 15 July
2022.
On 21 September 2022 the Board declared a first interim dividend
for the year ending 30 June 2023 of 1.5 pence per share, which was
paid on 16 November 2022 to shareholders on the register on 7
October 2022.
On 12 January 2023, the Board declared a second interim dividend
for the year ending 30 June 2023 of 1.5 pence per share, which was
paid on 23 February 2023 to shareholders on the register on 20
January 2023.
On 11 April 2023, the Board declared a third interim dividend
for the year ending 30 June 2023 of 1.5 pence per share, which was
paid on 26 May 2023 to shareholders on the register on 21 April
2023.
On 6 July 2023, the Board declared a fourth interim dividend for
the year ending 30 June 2023 of 1.5 pence per share, which was paid
on 4 August 2023 to shareholders on the register on 13 July 2023.
This has not been included as a liability as at 30 June 2023.
12. Investment properties
In accordance with IAS 40 "Investment Property", the Group's
investment properties have been independently valued at fair value
by Cushman & Wakefield, an accredited independent valuer
with
a recognised and relevant professional qualification and with
recent experience in the locations and categories of the investment
properties being valued. The valuations have been prepared in
accordance with the RICS Valuation - Global Standards (the "Red
Book") and incorporate the recommendations
of the International Valuation Standards Committee which are
consistent with the principles set out
in IFRS 13.
The independent valuer in forming its opinion on valuation makes
a series of assumptions. As explained in note 2, all the valuations
of the Group's investment property at 30 June 2023 are classified
as 'level 3' in the fair value hierarchy defined in IFRS 13.
The valuations are ultimately the responsibility of the
Directors. Accordingly, the critical assumptions used in
establishing the independent valuation are reviewed by the
Board.
Freehold Long Leasehold
GBP'000 GBP'000 Total GBP'000
-------------------------------- ----------- ---------------- ---------------
At 1 July 2022 903,850 657,740 1,561,590
Property additions 131,600 231,030 362,630
Capitalised acquisition costs 4,132 10,549 14,681
Revaluation movement (140,142) (113,069) (253,211)
-------------------------------- ----------- ---------------- ---------------
Valuation at 30 June 2023 899,440 786,250 1,685,690
-------------------------------- ----------- ---------------- ---------------
At 1 July 2021 723,540 424,840 1,148,380
Property additions 150,363 220,447 370,810
Capitalised acquisition costs 7,825 9,778 17,603
Revaluation movement 22,122 2,675 24,797
-------------------------------- ----------- ---------------- ---------------
Valuation at 30 June 2022 903,850 657,740 1,561,590
-------------------------------- ----------- ---------------- ---------------
Year to Year to
Reconciliation of Investment Property to 30 June 2023 30 June 2022
Independent Property Valuation GBP'000 GBP'000
--------------------------------------------------- --------------- ---------------
Investment Property at fair value per Group
Statement of Financial Position 1,685,690 1,561,590
Market Value of Property classified as Financial
Assets held at amortised cost (Note 16) 7,210 9,960
Total Independent Property Valuation 1,692,900 1,571,550
--------------------------------------------------- --------------- ---------------
There were nine property acquisitions during the year, of which
two were purchased through the acquisition of a corporate
structure, rather than acquiring the asset directly. All corporate
acquisitions during the year have been treated as asset purchases
rather than business combinations because they are considered to be
acquisitions of properties rather than businesses.
Included within the carrying value of investment properties at
30 June 2023 is GBP8,724,000 (2022: GBP6,212,000) in respect of the
smoothing of fixed contractual rent uplifts as described in note 3.
The difference between rents on a straight-line basis and rents
actually receivable is included within the carrying value of the
investment properties but does not increase that carrying value
over fair value. The effect of this adjustment on the revaluation
movement during the year is as follows:
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
---------------------------------------------- --------------- ---------------
Revaluation movement per above (253,211) 24,797
Rent smoothing adjustment (note 3) (2,512) (2,654)
Movements in associated rent guarantees and
lease incentives (343) (323)
---------------------------------------------- --------------- ---------------
Change in fair value recognised in profit
or loss (256,066) 21,820
---------------------------------------------- --------------- ---------------
Valuation techniques and key unobservable inputs
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of market value
which is defined in the RICS Valuation Standards as 'the estimated
amount for which an asset or liability should exchange on the date
of
the valuation between a willing buyer and a willing seller in an
arm's length transaction after proper marketing wherein the parties
had each acted knowledgeably, prudently and without compulsion'.
Market value as defined in the RICS Valuation Standards is the
equivalent of fair value under IFRS.
The yield methodology approach is used when valuing the Group's
properties which uses market rental values capitalised with a
market capitalisation rate. This is sense-checked against the
market comparable method (or market comparable approach) where a
property's fair value is estimated based on comparable transactions
in the market.
Unobservable inputs
Significant unobservable inputs include: the estimated rental
value ("ERV") based on market conditions prevailing at the
valuation date and net initial yield. Other unobservable inputs
include but are not limited to the future rental growth - the
estimated average increase in rent based on both market estimations
and contractual situations, and the physical condition of the
individual properties determined by inspection.
A decrease in ERV would decrease the fair value. A decrease in
net initial yield would increase the
fair value.
Sensitivity of measurement of significant valuation inputs
As described in note 2 the determination of the valuation of the
Group's investment property portfolio is open to judgement and is
inherently subjective by nature.
Sensitivity analysis - impact of changes in net initial yields
and rental values
Year to Year to
30 June 2023 30 June 2022
--------------------------------------------- ------------------- -------------------
Range of Net Initial Yields 4.7% - 7.4% 3.8% - 6.6%
Range of Rental values (passing rents GBP0.3m - GBP5.1m GBP0.3m - GBP4.2m
or ERV as relevant) of Group's Investment
Properties
Weighted average of Net Initial Yields 5.6% 4.6%
Weighted average of Rental values (passing GBP2.8m GBP2.6m
rents or ERV as relevant) of Group's
Investment Properties
The table below analyses the sensitivity on the fair value of
investment properties for changes in rental values and net initial
yields:
+2% -2% +0.5% Net -0.5%
Rental Rental Initial Net Initial
value value Yield Yield
GBPm GBPm GBPm GBPm
---------------------------------- --------- --------- ----------- --------------
(Decrease)/increase in the fair
value of investment properties
as at 30 June 2023 33.7 (33.7) (139.9) 168.1
---------------------------------- --------- --------- ----------- --------------
(Decrease)/increase in the fair
value of investment properties
as at 30 June 2022 31.2 (31.2) (81.1) 90.7
13. Subsidiaries
The entities listed in the following table were the subsidiary
undertakings of the Company at 30 June 2023 all of which are wholly
owned. All but those noted as Jersey entities below are subsidiary
undertakings incorporated in England.
Holding
Company name type Nature of business
---------------------------------------------- ---------- --------------------------
Supermarket Income Investments UK Limited(+) Direct Intermediate parent
company
Supermarket Income Investments (Midco2) Direct Intermediate parent
UK Limited(+) company
Supermarket Income Investments (Midco3) Direct Intermediate parent
UK Limited(+) company
Supermarket Income Investments (Midco4) Direct Intermediate parent
UK Limited(+) company
SII UK Halliwell (MIDCO) LTD(+) Direct Intermediate parent
company
Supermarket Income Investments UK (Midco6) Direct Intermediate parent
Limited(+) company
Supermarket Income Investments UK (Midco7) Direct Intermediate parent
Limited(+) company
SUPR Green Energy Limited(+) Direct Energy provision company
SUPR Finco Limited(+) Direct Holding company
Supermarket Income Investments UK (NO1) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO2) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO3) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO4) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO5) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO6) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO7) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO8) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO9) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO10) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO11) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO12) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO16) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO16a) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO16b) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO16c) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO17) Indirect Property investment
Limited(+)
TPP Investments Limited(+) Indirect Property investment
T (Partnership) Limited(+) Indirect Property investment
The TBL Property Partnership Indirect Property investment
Supermarket Income Investments UK (NO19) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO20) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO21) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO22) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO23) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO24) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO25) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO26) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO27) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO28) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO29) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO30) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO31) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO32) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO33) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO34) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO35) Indirect Property investment
Limited^(-)
Supermarket Income Investments UK (NO36) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO37) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO38) Indirect Property investment
Limited(+)
Supermarket Income Investments UK (NO39) Indirect Property investment
Limited**^(-)
Supermarket Income Investments UK (NO40) Indirect Property investment
Limited*(+)
Supermarket Income Investments UK (NO41) Indirect Property investment
Limited*(+)
Supermarket Income Investments UK (NO42) Indirect Property investment
Limited*(+)
Supermarket Income Investments UK (NO43) Indirect Property investment
Limited*(+)
Supermarket Income Investments UK (NO44) Indirect Property investment
Limited*(+)
Supermarket Income Investments UK (NO45) Indirect Property investment
Limited*(+)
The Brookmaker Unit Trust**^(-) Indirect Property investment
Brookmaker Limited Partnership**(#) Indirect Property investment
Brookmaker (GP) Limited**(#) Indirect Property investment
Brookmaker (Nominee) Limited**(#) Indirect Property investment
Supermarket Income Investments UK (NO47) Indirect Property investment
Limited*(+)
Horner (GP) Limited**^- Indirect Property investment
Horner (Jersey) Limited Partnership**^- Indirect Property investment
Horner REIT**^- Indirect Property investment
SII UK Halliwell (No1) LTD(+) Indirect Investment in Joint
venture
SII UK Halliwell (No2) LTD(+) Indirect Investment in Joint
venture
SII UK Halliwell (No3) LTD(+) Indirect Investment in Joint
venture
SII UK Halliwell (No4) LTD(+) Indirect Investment in Joint
venture
SII UK Halliwell (No5) LTD(+) Indirect Investment in Joint
venture
SII UK Halliwell (No6) LTD(+) Indirect Investment in Joint
venture
---------------------------------------------- ---------- --------------------------
* New subsidiaries incorporated during the year ended 30 June
2023
** Subsidiaries acquired during the year ended 30 June 2023
^ Jersey registered entity
+ Registered office: 1 King William Street, London, United
Kingdom, EC4N 7AF
- Registered office: 3rd Floor, Gaspe House, 66-72 Esplanade, St
Helier, Jersey, JE1 2LH
# Registered office: 8th Floor 1 Fleet Place, London, United
Kingdom, EC4M 7RA
The following subsidiaries will be exempt from the requirements
of the Companies Act 2006 relating to the audit of individual
accounts by virtue of Section 479A of that Act.
Companies House
Company name Registration Number
------------------------------- ----------------------
SII UK Halliwell (MIDCO) LTD 12473355
SUPR Green Energy Limited 12890276
SII UK Halliwell (No1) LTD 12475261
SII UK Halliwell (No2) LTD 12475599
SII UK Halliwell (No3) LTD 12478141
SII UK Halliwell (No4) LTD 12604032
SII UK Halliwell (No5) LTD 12605175
SII UK Halliwell (No6) LTD 12606144
SUPR Finco Limited 14292760
------------------------------- ----------------------
14. Investment in joint ventures
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------ --------------- ---------------
Opening balance 177,140 130,321
Additions* 206,656 3,518
Group's share of profit after tax 23,232 43,301
Disposal (407,028) -
Closing balance - 177,140
------------------------------------ --------------- ---------------
*Included within additions are GBP190.7 million of further
investments made in the joint venture during the year and GBP15.9
million of net liabilities acquired on acquisition of Horner
(Jersey) LP
In May 2020, the Group and British Airways Pension Trustees
Limited (BAPTL) formed a 50:50 joint venture (the "joint venture"),
Horner (Jersey) LP. Horner (Jersey) LP owns of 100% of the shares
in Horner REIT, which acquired 100% of the issued share capital in
Horndrift Limited for a combined total consideration of GBP102m
plus costs on this date.
In February 2021, Horner REIT acquired 100% of the issued share
capital in Cornerford Limited for a combined total consideration of
GBP115m plus costs. Further amounts have been advanced since this
date to fund operating costs and taxation liabilities on a pro-rata
basis with the other parties.
Horndrift and Cornerford Limited each hold a 25.2% share of
certain beneficial interests in a property trust arrangement that
holds a portfolio of 26 Sainsbury's supermarket properties funded
by bonds which matured in 2023 (the "Structure"). Rental surpluses
generated by the Structure are required to be applied in the
repayment of the bonds and not therefore capable of being
transferred to the joint venture or Group until those bonds have
been repaid.
On 12 January 2023, the Group purchased British Airways Pension
Trustees Limited's (BAPTL) 50% interest in the joint venture for
GBP188.8 million which resulted in the Group consolidating the
following entities:
Address and principal
Entity place of business Ownership
--------------------- ----------------------------------- -----------------------
Jersey Third Floor, Liberation 100%
Horner (Jersey) House, Castle Street, St Helier, owned by the Group
LP Jersey,
JE1 2LH
--------------------- ----------------------------------- -----------------------
Horner GP Third Floor, Liberation 100%
House, Castle Street, St Helier, owned by the Group
Jersey,
JE1 2LH
--------------------- ----------------------------------- -----------------------
Horner REIT Limited Third Floor, Liberation 100%
House, Castle Street, St Helier, owned by Horner
Jersey, (Jersey) LP
JE1 2LH
--------------------- ----------------------------------- -----------------------
United Kingdom Langham Hall UK LLP, Previously owned
Horndrift Limited 1 Fleet Street, London, E4M 100% by Horner REIT
7RA Limited and disposed
in March-23
--------------------- ----------------------------------- -----------------------
Cornerford Limited Langham Hall UK LLP, Previously owned
1 Fleet Street, London, E4M 100% by Horner REIT
7RA Limited and disposed
in March-23
--------------------- ----------------------------------- -----------------------
The assets and liabilities recognised on acquisition were as
follows:
Fair value
12 Jan 2023
Current assets GBP'000
----------------------------------- --------------
Investment in joint venture 200,887
Cash and cash equivalents 565
Trade and other receivables 19
------------------------------------ --------------
Total current assets 201,471
Total assets 201,471
------------------------------------ --------------
Current liabilities
----------------------------------- --------------
Trade and other payables (9,078)
------------------------------------ --------------
Total current liabilities (9,078)
------------------------------------ --------------
Total liabilities (9,078)
------------------------------------ --------------
Net assets 192,393
------------------------------------ --------------
Negative goodwill on acquisition (3,565)
------------------------------------ --------------
Purchase consideration 188,828
------------------------------------ --------------
Transaction related costs of GBP451,000 were incurred in respect
of the above acquisition and were capitalised as part of the
Group's carrying amount in the joint venture.
Horner (Jersey) LP's share of the aggregate amounts recognised
in the statement of financial position of the Structure are as
follows:
Fair value
12 Jan 2023
Non-current assets GBP'000
Investment properties -
-------------------------------------- --------------
Total non-current assets -
-------------------------------------- --------------
Current assets
-------------------------------------- --------------
Contractual receivable 277,379
Trade and other receivables 1,683
Investment properties held for sale 16,888
Cash and cash equivalents -
-------------------------------------- --------------
Total current assets 295,950
Total assets 295,950
--------------------------------------- --------------
Current liabilities
-------------------------------------- --------------
Debt securities in issue (85,349)
Interest rate derivative (351)
Deferred tax (139)
Trade and other payables (4,097)
Other liabilities (5,127)
--------------------------------------- --------------
Total current liabilities (95,063)
--------------------------------------- --------------
Total liabilities (95,063)
--------------------------------------- --------------
Net assets 200,887
--------------------------------------- --------------
The acquisition of BAPTL's 50% interest in the joint venture,
increased the Group's beneficial interest in the structure to 51%.
Following the additional joint venture interest acquired during the
year, the Group was deemed to control the Structure jointly, as any
change to the contractual arrangements and deeds that regulate the
Structure, required unanimous consent from all beneficial holders.
Therefore, the equity method of accounting continued to be used
until the disposal of the investment in joint venture which
occurred during the year. Further detail is included in Note 2 of
the financial information.
Atrato Halliwell Limited, affiliate of the Investment Adviser,
has a carried interest entitlement over the investment returns from
the Group's investment in the joint venture. Under the terms of the
Limited Partnership Agreement, ("LPA"), once the Group and BAPTL
received a return equal to their total investment in the joint
venture plus an amount equivalent to a 10% per annum preferred
return on that investment, Atrato Halliwell is entitled to share in
any further cash returns to be distributed by the joint venture.
Atrato Halliwell's entitlement to share in cash returns in excess
of the preferred return increases depending on the extent of those
cash returns, up to a maximum entitlement of GBP15,000,000.
Following the acquisition of BAPTL's 50% interest in the joint
venture, BAPTL's GBP7.5 million share of carried interest to Atrato
Halliwell crystalised and was paid at the point of acquisition,
together with other deferred arrangement fees payable by BAPTL
amounting to GBP0.6 million. The remaining GBP7.5 million is
included within trade and other payables within Note 18 and was
paid after the year end.
On 13 March 2023, the Group sold its interests in Horndrift and
Cornerford Limited to Sainsbury's for gross proceeds of GBP430.8
million. which was structured in three separate tranches:
- The first tranche of GBP279.3 million was paid in cash on 17 March 2023
- The second tranche of GBP116.9 million was paid in cash after
the balance sheet date on 10 July 2023
- The third tranche of GBP34.7 million was conditional on the
sale of the remaining five stores in the portfolio.
During the year, the Group purchased two of the five stores for
a gross purchase price of GBP25.2 million and received total
proceeds from Sainsbury's of GBP15.0 million.
After the year end, the Group purchased two of the remaining
three stores in the portfolio for a gross purchase price of GBP36.4
million and received proceeds from Sainsbury's of GBP18.2 million.
It is expected that the one remaining store will be sold at vacant
possession value.
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------------------- --------------- ---------------
Total disposal consideration 430,797 -
Fair value adjustment to contractual receivable (2,579) -
Carrying amount of net assets sold (407,029) -
Transaction related costs (1,249) -
Profit on disposal of joint venture interest 19,940 -
------------------------------------------------- --------------- ---------------
Horndrift and Cornerford Limited's share of the aggregate
amounts recognised in the consolidated statement of comprehensive
income and statement of financial position for the period ending 13
March 2023 are as follows:
Period to Year to
13 March 30 June
2023 2022
GBP'000 GBP'000
--------------------------------------- ----------- ----------
Rental income 3,904 12,878
Finance income 18,142 15,988
Administrative and other expenses (1,844) (190)
Change in fair value of investment
properties (4,256) (11,336)
Gain on disposal of investment
properties 27,228 84,095
---------------------------------------- ----------- ----------
Operating profit 43,174 101,435
Finance expense (1,585) (1,996)
---------------------------------------- ----------- ----------
Profit before taxation 41,589 99,439
Tax charge for the period 833 (1,974)
---------------------------------------- ----------- ----------
Profit for the period/year 42,422 97,465
---------------------------------------- ----------- ----------
Group share of profit for the period
/ year 23,232 43,301
---------------------------------------- ----------- ----------
As at As at
13 March 2023 30 June 2022
Non-current assets GBP'000 GBP'000
Investment properties - 37,005
------------------------------------ ---------------- ---------------
Total non-current assets - 37,005
------------------------------------ ---------------- ---------------
Current assets
----------------------------------- ---------------- ---------------
Contractual receivable 559,268 530,481
Trade and other receivables 8,743 2,897
Investment properties held for 33,794 -
sale
Cash and cash equivalents - -
----------------------------------- ---------------- ---------------
Total current assets 601,805 533,378
Total assets 601,805 570,383
------------------------------------ ---------------- ---------------
Current liabilities
----------------------------------- ---------------- ---------------
Debt securities in issue 169,901 176,243
Interest rate derivative 467 3,451
Deferred tax 353 4,196
Other liabilities 10,259 9,883
Trade and other payables 10,231 7,329
------------------------------------ ---------------- ---------------
Total current liabilities 191,211 201,102
------------------------------------ ---------------- ---------------
Total liabilities 191,211 201,102
------------------------------------ ---------------- ---------------
Net assets 410,594 369,281
------------------------------------ ---------------- ---------------
Negative goodwill on acquisition (3,565) -
----------------------------------- ---------------- ---------------
Carrying amount of net assets
at disposal 407,029 369,281
------------------------------------ ---------------- ---------------
15. Financial assets held at fair value through profit or
loss
Rental guarantees provided by the seller of an investment
property are recognised as a financial asset when there is a valid
expectation that the Group will utilise the guarantee over the
contractual term. Rental guarantees are classified as financial
assets at fair value through profit and loss in accordance with
IFRS 9.
In determining the fair value of the rental guarantee, the Group
makes an assessment of the expected future cash flows to be derived
over the term of the rental guarantee and discounts these at the
market rate. A review is performed on a periodic basis based on
payments received and changes in the estimation of future cash
flows.
The fair value of rental guarantees held by the Group are as
follows:
Year to 30 Year to
June 2023 30 June 2022
GBP'000 GBP'000
-------------------------------------------- ------------ ---------------
At start of year 283 237
Additions 1,000 283
Fair value changes (including changes in
estimated cash flows) 92 (326)
Collected during the year (1,375) 89
-------------------------------------------- ------------ ---------------
Total financial assets held at fair value
through profit and loss
at end of year - 283
-------------------------------------------- ------------ ---------------
16. Financial assets held at amortised cost
Year to 30 Year to
June 2023 30 June 2022
GBP'000 GBP'000
-------------------------------------------- ------------ ---------------
At start of year 10,626 -
Additions - 10,626
Interest income recognised in profit and
loss (note 8) 483 -
Lease payments received during the period (290) -
-------------------------------------------- ------------ ---------------
At end of period 10,819 10,626
-------------------------------------------- ------------ ---------------
On 8 June 2022, the Group acquired an Asda store in Carcroft,
via a sale and leaseback transaction for GBP10.6 million, this has
been recognised in the Statement of Financial Position as a
Financial asset in accordance with IFRS 9. The financial asset is
measured using the amortised cost model, which recognises the
rental payments as financial income and reductions of the asset
value based on the implicit interest rate in the lease. As at 30
June 2023 the market value of the property was estimated at GBP7.2
million.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses
on a collective basis, trade receivables are grouped based on
similar credit risk and ageing. The expected loss rates are based
on the Group's historical credit losses experienced over the period
from incorporation to 30 June 2023. The historical loss rates are
then adjusted for current and forward-looking information on
macro-economic factors affecting the Group's customers. Both the
expected credit loss provision and the incurred loss provision in
the current year is immaterial. No reasonable possible changes in
the assumptions underpinning the expected credit loss provision
would give rise to a material expected credit loss.
17. Trade and other receivables
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
----------------------------------------- --------------- ---------------
Other receivables 4,723 1,430
Receivable from joint venture disposal 136,582 -
Prepayments and accrued income 850 433
----------------------------------------- --------------- ---------------
Total trade and other receivables 142,155 1,863
----------------------------------------- --------------- ---------------
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses
on a collective basis, trade receivables are grouped based on
similar credit risk and ageing. The expected loss rates are based
on the Group's historical credit losses experienced over the period
from incorporation to 30 June 2023. The historical loss rates are
then adjusted for current and forward-looking information on
macro-economic factors affecting the Group's customers. Both the
expected credit loss provision and the incurred loss provision in
the current and prior year are immaterial. No reasonable possible
changes in the assumptions underpinning the expected credit loss
provision would give rise to a material expected credit loss.
The receivable following the disposal of the Joint venture
receivable has been initially recognised at fair value which
resulted in a discount of GBP2.6 million to the gross amounts to be
received of GBP136.6 million and which is being amortised and
recognised within finance income over the period to the receipt of
cash from Sainsbury's. GBP135.1 million was received post year end
and the remainder of the consideration is expected to be received
on sale of the final property.
18. Trade and other payables
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
--------------------------------- --------------- ---------------
Corporate accruals 22,469 8,958
VAT payable 4,510 1,719
--------------------------------- --------------- ---------------
Total trade and other payables 26,979 10,677
--------------------------------- --------------- ---------------
19. Interest rate derivatives
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
----------------------------------------- --------------- ---------------
Non-current asset: Interest rate swaps 35,601 5,114
Non-current asset: Interest rate cap 1,597 -
Current Asset: Interest rate swaps 16,800 -
Current Asset: Interest rate cap 3,584 -
----------------------------------------- --------------- ---------------
The rate swaps are remeasured to fair value by the counterparty
bank on a quarterly basis.
Year to 30 Year to
June 2023 30 June 2022
The fair value at the end of year comprises: GBP'000 GBP'000
---------------------------------------------------- ------------ ---------------
At start of year (net) 5,114 (447)
Interest rate derivative premium paid on 44,255 -
inception
Amortisation of cap premium in the period
(note 8) - (5)
Disposal of interest rate derivatives (2,878) -
Changes in fair value of interest rate derivative
in the year (P&L) 19,695 5,270
Changes in fair value of interest rate derivative 3,111 -
in the year (OCI)
(Credit)/Charge to the income statement (P&L) (9,671) -
(note 8)
(Credit)/Charge to the income statement (OCI)
(note 8) (2,043) 296
---------------------------------------------------- ------------ ---------------
Fair value at end of year (net) 57,583 5,114
---------------------------------------------------- ------------ ---------------
To partially mitigate the interest rate risk that arises as a
result of entering into the floating rate debt facilities referred
to in note 21, the Group has entered into derivative interest rate
swaps in relation to the drawn Unsecured bank syndicate facilities
('the Unsecured swaps') and loan facilities with Bayerische
Landesbank ('the BLB swaps') and Wells Fargo Bank ('the Wells
swaps'). The Group has also entered into a derivative interest rate
cap in relation to the drawn HSBC loan facility ('the HSBC
cap').
A summary of these derivatives as at 30 June 2023 are shown in
the table below:
Mark to
Market
Notional Premium 30 June Maturity
Issuer Derivative Type amount GBPm Paid GBPm 2023 Swap Rate Date
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP250.0 GBP26.7 GBP33.5 1.34% Jul-27
Barclays Swap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP100.0 GBP7.6 GBP8.5 1.34% Jul-25
Barclays Swap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP30.6 GBP1.2 GBP0.7 1.34% Dec-23
Barclays Swap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP96.5 GBP6.0 GBP5.2 1.12% Aug-24
HSBC Cap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP37.3 GBP1.2 GBP2.7 2.64% Mar-26
BLB Swap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP22.2 GBP0.7 GBP1.6 2.64% Mar-26
BLB Swap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP27.4 GBP0.9 GBP2.0 2.64% Mar-26
BLB Swap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Interest Rate GBP30.0 - GBP3.3 0.19% Jul-25
Wells Fargo Swap
------------- ----------------- -------------- ------------- ---------- ----------- ----------
Total GBP594.0 GBP44.3 GBP57.5 - -
------------- ----------------- -------------- ------------- ---------- ----------- ----------
On 21 March 2023, the Group announced the refinancing of the
existing loan facilities with Bayerische Landesbank with a new
three-year GBP86.9 million term loan replacing the existing
tranches of the same amount. The Group closed out swaps on the same
date as these coincided with the previous facility. The Group made
a profit on disposal of GBP2.9 million on the swaps.
100% of the Group's outstanding debt as at 30 June 2023 was
hedged through the use of fixed rate debt or financial instruments
as at 30 June 2023 (2022: 61%). It is the Group's target to hedge
at least 50% of the Group's total debt at any time using fixed rate
loans or interest rate derivatives.
The derivatives have been valued in accordance with IFRS 13 by
reference to interbank bid market rates as at the close of business
on the last working day prior to each reporting date. The fair
values
are calculated using the present values of future cash flows,
based on market forecasts of interest rates and adjusted for the
credit risk of the counterparties. The amounts and timing of future
cash flows are projected on the basis of the contractual terms.
All interest rate derivatives are classified as level 2 in the
fair value hierarchy as defined under IFRS 13 and there were no
transfers to or from other levels of the fair value hierarchy
during the year.
In accordance with the Group's treasury risk policy, the Group
applies cash flow hedge accounting in partially hedging the
interest rate risks arising on its Wells Fargo variable rate linked
facility. Since the refinancing of the Bayerische Landesbank loan
facility the Group no longer applies hedge accounting to the newly
acquired swaps. Changes in the fair values of derivatives that are
designated as cash flow hedges and are effective are recognised
directly in the cash flow hedge reserve and included in other
comprehensive income. Any ineffectiveness that may arise in this
hedge relationship will be included in profit or loss.
All floating rate loans and interest rate derivatives are
contractually linked to the Sterling Overnight Index Average
("SONIA").
Post year end, the Group extended the maturity of the interest
rate derivatives by 12 months. The weighted average interest rate
following the derivative changes is 3.1% inclusive of the margin.
The Group also entered into a forward starting cap starting in
August 2024 and terminating in July 2025 with a strike rate of
1.4%.
20. Bank borrowings
As at As at
30 June 2023 30 June 2022
Amounts falling due within one year: GBP'000 GBP'000
-------------------------------------------------- --------------- ---------------
Secured debt - -
Unsecured debt 62,090 -
Less: Unamortised finance costs (234) -
-------------------------------------------------- --------------- ---------------
Bank borrowings per the consolidated statement 61,856 -
of financial position
-------------------------------------------------- --------------- ---------------
Amounts falling due after more than one year:
-------------------------------------------------- --------------- ---------------
Secured debt 291,551 352,213
Unsecured debt 318,508 -
Less: Unamortised finance costs (4,450) (3,667)
-------------------------------------------------- --------------- ---------------
Bank borrowings per the consolidated statement
of financial position 605,609 348,546
-------------------------------------------------- --------------- ---------------
Total bank borrowings 667,465 348,546
-------------------------------------------------- --------------- ---------------
A summary of the Group's borrowing facilities as at 30 June 2023
are shown below:
Amount
Loan drawn
Credit commitment 30 June
Lender Facility Expiry Expiry* margin Variable/hedged GBPm 2023 GBPm
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Revolving Cap - 1.12%
credit
HSBC facility Aug 2024 Aug 2025 1.65% GBP96.5 GBP78.1
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Revolving SONIA
credit
HSBC facility Aug 2024 Aug 2025 1.65% GBP3.5 NIL
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Revolving SONIA
credit
HSBC facility Aug 2024 Aug 2025 1.75% GBP50.0 NIL
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Deka Term Loan Aug 2024 Aug 2026 1.35% 0.54% GBP47.6 GBP47.6
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Deka Term Loan Aug 2024 Aug 2026 1.35% 0.70% GBP28.9 GBP28.9
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Deka Term Loan Aug 2024 Aug 2026 1.40% 0.32% GBP20.0 GBP20.0
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
BLB Term Loan Mar 2026 Mar 2026 1.65% SWAP - 2.64% GBP86.9 GBP86.9
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Revolving SWAP - 0.18%
credit
Wells Fargo facility Jul 2025 Jul 2027 2.00% GBP30.0 GBP30.0
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Revolving SONIA
credit
Wells Fargo facility Jul 2025 Jul 2027 2.00% GBP9.0 NIL
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Revolving SONIA
credit
Barclays facility Jan 2024 Jan 2026 1.50% GBP77.5 NIL
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Syndicate Unsecured RCF Jul 2027 Jul 2029 1.50% SWAP - 1.34% GBP250.0 GBP218.5
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Unsecured SWAP - 1.34%
Term
Syndicate Loan Jul 2025 Jul 2027 1.50% GBP100.0 GBP100.0
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Unsecured SWAP - 1.34%
Term
Syndicate Loan Jan 2024 Jan 2025 1.50% GBP30.6 GBP30.6
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Unsecured SONIA
Term
Syndicate Loan Jan 2024 Jan 2025 1.50% GBP31.5 GBP31.5
-------------- --------------- ----------- ------------ --------- ----------------- -------------- ------------
Total GBP862.0 GBP672.1
---------------------------------------------------------- --------- ----------------- -------------- ------------
*Includes extension options that can be utilised following
approval from all parties
In July 2022, the Group announced the arrangement of a new
GBP412.1 million unsecured credit facility with a bank syndicate
comprising Barclays, Royal Bank of Canada, Wells Fargo and Royal
Bank of Scotland International as summarised above. This was
partially used to reduce the Wells Fargo and and Barclays/RBC
facilities. This led to loan modifications under IFRS 9 resulting
in an acceleration of loan arrangement fees of GBP1.52 million.
In January 2023, the Group entered into a short-term debt
facility provided by J.P. Morgan of GBP196.5 million to fund the
acquisition of the additional interest in the Joint Venture. The
Facility had a margin of 1.5% over SONIA and an arrangement fee of
2.0%. This facility was repaid in March 2023.
The Group has been in compliance with all of the financial
covenants across the Group's bank facilities as applicable
throughout the periods covered by this financial information.
Any associated fees in arranging the bank borrowings that are
unamortised as at the end of the year are offset against amounts
drawn under the facility as shown in the table above. The debt is
secured
by charges over the Group's investment properties and by charges
over the shares of certain Group undertakings, not including the
Company itself. There have been no defaults of breaches of any loan
covenants during the current year or any prior period.
The Group's borrowings carried at amortised cost are considered
to be approximate to their fair value.
Post year end, the Group reduced the HSBC facility to GBP50.0
million from GBP150.0 million, cancelled the Barclays/RBC facility
and Unsecured term loan of GBP77.5 million and GBP62.1 million
respectively and entered into a new GBP67.0 million facility with
SMBC Bank International PLC, for more information see note 28.
21. Categories of financial instruments
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------------- --------------- ---------------
Financial assets
Financial assets at amortised cost:
Lease Receivables 10,819 10,626
Cash and cash equivalents 37,481 51,200
Trade and other receivables 141,305 1,430
Financial assets at fair value:
Rent guarantees - 283
Interest rate derivative 54,278 -
Derivatives in effective hedges:
Interest rate derivative 3,304 5,114
------------------------------------------- --------------- ---------------
Total financial assets 247,187 68,653
------------------------------------------- --------------- ---------------
Financial liabilities
------------------------------------------- --------------- ---------------
Financial liabilities at amortised cost:
Secured debt 289,736 348,546
Unsecured debt 377,729 -
Trade and other payables 22,469 8,958
Total financial liabilities 689,934 357,504
------------------------------------------- --------------- ---------------
At the year end, all financial assets and liabilities were
measured at amortised cost except for the interest rate derivatives
which are measured at fair value. The interest rate derivative
valuation is classified as 'level 2' in the fair value hierarchy as
defined in IFRS 13 and its fair value was calculated using the
present values of future cash flows, based on market forecasts of
interest rates and adjusted for the credit risk of the
counterparties.
Financial risk management
Through the Group's operations and use of debt financing it is
exposed to certain risks. The Group's financial risk management
objective is to minimise the effect of these risks, for example by
using interest rate cap and interest rate swap derivatives to
partially mitigate exposure to fluctuations in interest rates, as
described in note 19.
The exposure to each financial risk considered potentially
material to the Group, how it arises and the policy for managing it
is summarised below.
Market risk
Market risk is defined as the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market prices. The Group's market risk arises from open
positions in interest bearing assets and liabilities, to the extent
that these are exposed to general and specific market
movements.
The Group's interest-bearing financial instruments comprise cash
and cash equivalents and bank borrowings. Changes in market
interest rates therefore affect the Group's finance income and
costs, although the Group has purchased interest rate derivatives
as described in note 19 in order to partially mitigate the risk in
respect of finance costs. The Group's sensitivity to changes in
interest rates, calculated on the basis of a ten-basis point
increase in the three-month SONIA daily rate, was as follows:
Year to Year to
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------------- --------------- ---------------
Effect on profit (Increase)/decrease (1,383) 413
------------------------------------------- --------------- ---------------
Effect on other comprehensive income and
equity (increase) (58) (223)
------------------------------------------- --------------- ---------------
Trade and other receivables and payables are interest free as
long as they are paid in accordance with their terms, and have
payment terms of less than one year, so it is assumed that there is
no material interest rate risk associated with these financial
instruments.
The Group prepares its financial information in Sterling and all
of its current operations are Sterling denominated. It therefore
has no exposure to foreign currency and does not have any direct
sensitivity to changes in foreign currency exchange rates.
Inflation risk arises from the impact of inflation on the
Group's income and expenditure. The majority of the Group's passing
rent at 30 June 2023 is subject to inflation-linked rent reviews.
Consequently, the Group is exposed to movements in the Retail
Prices Index ("RPI"), which is the relevant inflation benchmark.
However, all RPI-linked rent review provisions provide those rents
will only be subject to upwards review and never downwards. As a
result, the Group is not exposed to a fall in rent in deflationary
conditions.
The Group does not expect inflation risk to have a material
effect on the Group's administrative expenses, with the exception
of the investment advisory fee which is determined as a function of
the reported net asset value of the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a
counterparty fails to meet its contractual obligations. The
principal counterparties are the Group's tenants (in respect of
rent receivables arising under operating leases) and banks (as
holders of the Group's cash deposits).
The credit risk of rent receivables is considered low because
the counterparties to the operating leases are considered by the
Board to be high quality tenants and any lease guarantors are of
appropriate financial strength. Rent collection dates and
statistics are monitored to identify any problems at an early
stage, and if necessary rigorous credit control procedures will be
applied to facilitate the recovery of rent receivables. The credit
risk on cash deposits is limited because the counterparties are
banks with credit ratings which are acceptable to the Board and are
kept under review each quarter.
The credit risk of the receivable from the disposal of the Joint
Venture is considered low and this is supported by the fact that
the majority of this was received shortly after the year end.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance costs and principal repayments on its
secured debt. It is the risk that the Group will not be able to
meet its financial obligations as they fall due.
The Group seeks to manage its liquidity risk by ensuring that
sufficient cash is available to meet its foreseeable needs. These
liquidity needs are relatively modest and are capable of being
satisfied by the surplus available after rental receipts have been
applied in payment of interest as required by the credit agreement
relating to the Group's secured debt.
Before entering into any financing arrangements, the Board
assesses the resources that are expected to be available to the
Group to meet its liabilities when they fall due. These assessments
are made on the basis of both base case and downside scenarios. The
Group prepares detailed management accounts which are reviewed by
the Board at least quarterly to assess ongoing liquidity
requirements and compliance with loan covenants. The Board also
keeps under review the maturity profile of the Group's cash
deposits in order to have reasonable assurance that cash will be
available for the settlement of liabilities when they fall due.
The following table shows the maturity analysis for financial
assets and liabilities. The table has been drawn up based on the
undiscounted cash flows of non-derivative financial instruments,
including future interest payments, based on the earliest date on
which the Group can be required to pay and assuming that the SONIA
daily rate remains at the 30 June 2023 rate. Interest rate
derivatives are shown at fair value and not at their gross
undiscounted amounts.
Less than One to Two to More than
one year two years five years five years Total
As at 30 June 2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------ ------------- ------------- ----------
Financial assets:
Cash and cash equivalents 37,481 - - - 37,481
Trade and other receivables 141,305 - - - 141,305
Amortised cost asset 290 290 908 74,930 76,418
Interest rate derivatives 20,384 20,564 16,635 - 57,583
------------------------------ ----------- ------------ ------------- ------------- ----------
Total financial assets 199,460 20,854 17,543 74,930 312,787
------------------------------ ----------- ------------ ------------- ------------- ----------
Financial liabilities:
Bank borrowings 81,545 94,080 549,575 - 725,200
Trade payables and other
payables 22,469 - - - 22,469
Total financial liabilities 104,014 94,080 549,575 - 747,669
------------------------------ ----------- ------------ ------------- ------------- ----------
As at 30 June 2022 Less than One to Two to More than
one year two years five years five years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----------- ------------ ------------- ------------- ----------
Financial assets:
Cash and cash equivalents 51,200 - - - 51,200
Trade and other receivables 1,430 - - - 1,430
Amortised cost asset 290 290 870 76,415 77,865
Rent guarantees 283 - - - 283
Interest rate derivatives - 843 4,271 - 5,114
------------------------------ ----------- ------------ ------------- ------------- ----------
Total financial assets 53,203 1,133 5,141 76,415 135,892
------------------------------ ----------- ------------ ------------- ------------- ----------
Financial liabilities:
Bank borrowings 9,335 205,679 156,510 - 371,524
Trade payables and other
payables 8,958 - - - 8,958
Interest rate derivatives - - - - -
------------------------------ ----------- ------------ ------------- ------------- ----------
Total financial liabilities 18,293 205,679 156,510 - 380,482
------------------------------ ----------- ------------ ------------- ------------- ----------
Capital risk management
The Board's primary objective when monitoring capital is to
preserve the Group's ability to continue as a going concern, while
ensuring it remains within its debt covenants so as to safeguard
secured assets and avoid financial penalties.
Bank borrowings on secured facilities are secured on the Group's
property portfolio by way of fixed charges over property assets and
over the shares in the property-owning subsidiaries and any
intermediary holding companies of those subsidiaries.
At 30 June 2023, the capital structure of the Group consisted of
bank borrowings (note 20), cash and cash equivalents, and equity
attributable to the Shareholders of the Company (comprising share
capital, retained earnings and the other reserves referred to in
notes 22 and 23).
In managing the Group's capital structure, the Board considers
the Group's cost of capital. In order to maintain or adjust the
capital structure, the Group keeps under review the amount of any
dividends or other returns to Shareholders and monitors the extent
to which the issue of new shares or the realisation of assets may
be required.
Reconciliation of financial liabilities relating to financing
activities
Interest
Total bank and commitment Interest
borrowings fees payable rate derivatives Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ------------- ----------------- ------------------- -----------
As at 1 July 2022 348,546 1,939 (5,114) 345,371
--------------------------------- ------------- ----------------- ------------------- -----------
Cash flows:
Debt drawdowns in the year 912,114 - - 912,114
Debt repayments in the year (598,486) - - (598,486)
Interest and commitment fees
paid - (24,116) - (24,116)
Loan arrangement fees paid (5,010) - - (5,010)
Interest rate premium paid - - (44,255) (44,255)
Interest rate derivative
disposal - - 2,878 2,878
Non-cash movements:
Finance costs in the statement
of comprehensive income 10,301 29,014 (22,806) 16,509
Fair value changes - - 11,714 11,714
--------------------------------- ------------- ----------------- ------------------- -----------
As at 30 June 2023 667,465 6,837 (57,583) 616,719
--------------------------------- ------------- ----------------- ------------------- -----------
As at 1 July 2021 409,684 1,634 447 411,765
--------------------------------- ------------- ----------------- ------------------- -----------
Cash flows:
Debt drawdowns in the year 402,922 - - 402,922
Debt repayments in the year (464,029) - - (464,029)
Interest and commitment fees
paid - (10,527) - (10,527)
Loan arrangement fees paid (2,188) - - (2,188)
Non-cash movements:
Finance costs in the statement
of comprehensive income 2,157 10,832 5 12,994
Fair value changes - - (5,566) (5,566)
--------------------------------- ------------- ----------------- ------------------- -----------
At 30 June 2022 348,546 1,939 (5,114) 345,371
--------------------------------- ------------- ----------------- ------------------- -----------
Movements in respect to share capital are disclosed in note 22
below.
The interest and commitment fees payable are included within the
corporate accruals balance in note 18. Cash flow movements are
included in the consolidated statement of cash flows and the
non-cash movements are included in note 8. The movements in the
interest rate derivative financial liabilities can be found in note
19.
22. Share capital
Ordinary Capital
Shares Share premium reduction
of 1 pence Share capital reserve reserve Total
Number GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------------- --------------- --------------- ------------ -----------
As at 1 July 2022 1,239,868,420 12,399 494,174 778,859 1,285,432
-------------------------------- --------------- --------------- --------------- ------------ -----------
Scrip Dividends issued
and fully paid - 22 August
2022 1,898,161 19 2,316 - 2,335
Scrip Dividends issued
and fully paid - 16 November
2022 866,474 9 869 - 878
Scrip Dividends issued
and fully paid - 23 February
2023 729,198 7 721 - 728
Scrip Dividends issued
and fully paid - 26 May
2023 2,876,932 28 2,395 - 2,423
Share issue costs - - (89) - (89)
-------------------------------- --------------- --------------- --------------- ------------ -----------
Dividend paid in the
period (note 11) - - - (74,328) (74,328)
-------------------------------- --------------- --------------- --------------- ------------ -----------
As at 30 June 2023 1,246,239,185 12,462 500,386 704,531 1,217,379
-------------------------------- --------------- --------------- --------------- ------------ -----------
As at 1 July 2021 810,720,168 8,107 778,859 - 786,966
-------------------------------- --------------- --------------- --------------- ------------ -----------
Scrip Dividends issued
and fully paid - 20 August
2021 300,468 3 348 - 351
Ordinary shares issued
and fully paid - 22 October
2021 173,913,043 1,740 198,261 - 200,001
Scrip dividends issued
and fully paid - 16 November
2021 500,750 5 578 - 583
Share premium cancelled
during
the year and transferred
to
capital reduction reserve - - (778,859) 778,859 -
Scrip dividends issued
and fully paid - 25 February
2022 111,233 1 136 - 137
Ordinary shares issued
and fully paid - 29 April
2022 253,492,160 2,535 304,191 - 306,726
Scrip dividends issued
and fully paid - 27 May
2022 830,598 8 1,026 - 1,034
-------------------------------- --------------- --------------- --------------- ------------ -----------
Share issue costs - - (10,366) - (10,366)
-------------------------------- --------------- --------------- --------------- ------------ -----------
As at 30 June 2022 1,239,868,420 12,399 494,174 778,859 1,285,432
-------------------------------- --------------- --------------- --------------- ------------ -----------
Share allotments and other movements in relation to the capital
of the Company in the year:
Scrip dividends were issued on 22 August 2022, 16 November 2022,
23 February 2023 and 26 May 2023 at a reference price of GBP1.23,
GBP1.01, GBP1.00 and GBP0.84 per share respectively. The Company
issued a combined total of 6,370,765 shares under the scrip
dividend programme during the year. The consideration received (net
of share issue costs) in excess of the par value of the ordinary
shares issued of GBP6.3 million was credited to the share premium
reserve.
Ordinary Shareholders are entitled to all dividends declared by
the Company and to all of the Company's assets after repayment of
its borrowings and ordinary creditors. Ordinary Shareholders have
the right to vote at meetings of the Company. All ordinary shares
carry equal voting rights. The aggregate ordinary shares in issue
at 30 June 2023 total was 1.25 billion.
23. Reserves
The nature and purpose of each of the reserves included within
equity at 30 June 2023 are as follows:
-- Share premium reserve: represents the surplus of the gross
proceeds of share issues over the nominal value of the shares, net
of the direct costs of equity issues
-- Cash flow hedge reserve: represents cumulative gains or
losses, net of tax, on effective cash flow hedging instruments
-- Capital reduction reserve: represents a distributable reserve
created following a Court approved reduction in capital less
dividends paid
-- Retained earnings represent cumulative net gains and losses recognised in the statement
of comprehensive income.
The only movements in these reserves during the year are
disclosed in the consolidated statement of changes in equity.
24. Capital commitments
The Group had no capital commitments outstanding as at 30 June
2023 and 30 June 2022.
25. Operating leases
The Group's principal assets are investment properties which are
leased to third parties under non-cancellable operating leases. The
weighted average remaining lease term at 30 June 2023 is 13.6 years
(2022: 15.1 years). The leases contain predominately fixed or
inflation-linked uplifts.
The future minimum lease payments receivable under the Group's
leases, are as follows:
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
--------------------- --------------- ---------------
Year 1 100,156 77,438
Year 2 98,941 77,831
Year 3 98,614 77,088
Year 4 97,552 76,861
Year 5 97,177 75,994
Year 6-10 452,219 375,951
Year 11-15 310,150 290,613
Year 16-20 94,875 127,574
Year 21-25 23,358 25,144
More than 25 years 12,743 14,846
Total 1,385,785 1,219,340
--------------------- --------------- ---------------
26. Net asset value per share
NAV per share is calculated by dividing the Group's net assets
as shown in the consolidated statement of financial position, by
the number of ordinary shares outstanding at the end of the year.
As there are no dilutive instruments outstanding, basic and diluted
NAV per share are identical.
The European Public Real Estate Association (EPRA) publishes
guidelines for the calculation of three measures of NAV to enable
consistent comparisons between property companies, which were
updated in the prior year and took effect from 1 January 2020. The
Group uses EPRA Net Tangible Assets ("EPRA NTA") as the most
meaningful measure of long-term performance and the measure which
is being adopted by the majority of UK REITs, establishing it as
the industry standard benchmark. It excludes items that are
considered to have no impact in the long-term, such as the fair
value of derivatives.
NAV and EPRA NTA per share calculation are as follows:
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
---------------------------------------------- --------------- ---------------
Net assets per the consolidated statement
of financial position 1,217,726 1,432,455
Contractual fulfilment intangible assets - (93)
Fair value of financial assets at amortised
cost (3,609) (666)
Fair value of interest rate derivatives (57,583) (5,114)
---------------------------------------------- --------------- ---------------
EPRA NTA 1,156,534 1,426,582
---------------------------------------------- --------------- ---------------
Ordinary shares in issue at 30 June 1,246,239,185 1,239,868,420
NAV per share - Basic and diluted (pence) 98p 116p
EPRA NTA per share (pence) 93p 115p
---------------------------------------------- --------------- ---------------
27. Transactions with related parties
Details of the related parties to the Group in the year and the
transactions with these related parties were as follows:
a. Directors
Directors' fees
Nick Hewson, Chair of the Board of Directors of the Company, is
paid fees of GBP75,000 per annum, with the other Directors each
being paid fees of GBP52,500 per annum. Jon Austen is paid an
additional GBP9,000 per annum for his role as chair of the
Company's Audit Committee, Vince Prior is paid an additional
GBP4,000 per annum for his role as chair of the Company's
Nomination Committee and GBP5,000 for his role as Senior
Independent Director. Cathryn Vanderspar is paid an additional
GBP5,000 for her role as Chair of the Remuneration Committee.
Frances Davies is paid an additional GBP5,000 for her role as Chair
of the ESG Committee.
The total remuneration payable to the Directors in respect of
the current year and previous year are disclosed in note 7.
Directors' interests
Details of the direct and indirect interests of the Directors
and their close families in the ordinary shares of one pence each
in the Company at 30 June 2023 were as follows:
-- Nick Hewson: 1,263,309 shares (0.11% of issued share capital)
-- Jon Austen: 305,339 shares (0.02% of issued share capital)
-- Vince Prior: 213,432 shares (0.02% of issued share capital)
-- Cathryn Vanderspar: 125,802 (0.01% of issued share capital)
-- Frances Davies: 24,774 (0.00% of issued share capital)
-- Sapna Shah: 28,951 (0.00% of issued share capital)
Details of the direct and indirect interest of the Directors and
their close families in the ordinary shares of one pence each in
the Company at the date of signing the accounts were as
follows:
-- Nick Hewson: 1,263,309 shares (0.11% of issued share capital)
-- Jon Austen: 305,339 shares (0.02% of issued share capital)
-- Vince Prior: 213,432 shares (0.02% of issued share capital)
-- Cathryn Vanderspar: 125,802 (0.01% of issued share capital)
-- Frances Davies: 36,774 (0.00% of issued share capital)
-- Sapna Shah: 28,951 (0.00% of issued share capital)
b. Investment Adviser
Investment advisory and accounting fees
The investment adviser to the Group, Atrato Capital Limited (the
Investment Adviser), is entitled to certain advisory fees under the
terms of the Investment Advisory Agreement (the 'Agreement') dated
14 July 2021.
The entitlement of the Investment Adviser to advisory fees is by
way of what are termed 'Monthly Management Fees' and 'Semi-Annual
Management Fees' both of which are calculated by reference to the
net asset value of the Group at particular dates, as adjusted for
the financial impact of certain investment events and after
deducting any uninvested proceeds from share issues up to the date
of the calculation of the relevant fee (these adjusted amounts are
referred to as 'Adjusted Net Asset Value' for the purpose of
calculation of the fees in accordance with the Agreement).
Until the Adjusted Net Value of the Group exceeds GBP1,500
million, the entitlements to advisory fees can be summarised as
follows:
-- Monthly Management Fee payable monthly in arrears: 1/12th of
0.7125% per calendar month of Adjusted Net Asset Value up to or
equal to GBP500 million, 1/12th of 0.5625% per calendar month of
Adjusted Net Asset Value above GBP500 million and up to or equal to
GBP1,000 million and 1/12(th) of 0.4875% per calendar month of
Adjusted Net Asset Value above GBP1,000 and up to or equal to
GBP1,500 million.
-- Semi-Annual Management Fee payable semi-annually in arrears:
0.11875% of Adjusted Net Asset Value up to or equal to GBP500
million, 0.09375% of Adjusted Net Asset Value above GBP500 million
and up to or equal to GBP1,000 million and 0.08125% of Adjusted Net
Asset Value above GBP1,000 million and up to or equal to GBP1,500
million.
For the year to 30 June 2023 the total advisory fees payable to
the Investment Adviser were GBP10,292,302 (2022: GBP9,404,938) of
which GBP1,845,144 (2022: GBP1,446,246) is included in trade and
other payables in the consolidated statement of financial
position.
The Investment Adviser is also entitled to an annual accounting
and administration service fee equal to: GBP52,788; plus (i)
GBP4,279 for any indirect subsidiary of the Company and (ii)
GBP1,661 for each direct subsidiary of the Company. A full list of
the Company and its direct and indirect subsidiary undertakings is
listed in Note 13 of this financial information.
For the year to 30 June 2023 the total accounting and
administration service fee payable to the Investment Adviser was
GBP297,475 (2022: GBP237,559) of which GBP83,614 (2022: GBP81,833)
is included in trade and other payables in the consolidated
statement of financial position.
Introducer Services
Atrato Partners, an affiliate of the Investment Adviser, is
entitled to fees in relation to the successful introduction of
prospective investors in connection with subscriptions for ordinary
share capital in
the Company.
The entitlement of the Investment Adviser to introducer fees is
by fees and/or commission which can be summarised as follows:
-- Commission basis: 1% of total subscription in respect of ordinary shares subscribed for
by any prospective investor introduced by Atrato Partners.
For the year to 30 June 2023 the total introducer fees payable
to the affiliate of the Investment Adviser were GBPnil (2022:
GBP271,239).
Interest in shares of the Company
Details of the direct and indirect interests of the Directors of
the Investment Adviser and their close families in the ordinary
shares of one pence each in the Company at 30 June 2023 were as
follows:
-- Ben Green: 1,876,376 shares (0.15% of issued share capital)
-- Steve Windsor: 1,698,928 shares (0.14% of issued share capital)
-- Steven Noble: 232,255 shares (0.02% of issued share capital)
-- Natalie Markham: 62,679 shares (0.01% of issued share capital)
Carried interest held in the Group's joint venture
Under the terms of the Horner (Jersey) LP (the "JV") Limited
Partnership Agreement ("LPA"), an affiliate of the Investment
Adviser, Atrato Halliwell Limited (the "Carry Partner"), had a
carried interest entitlement over the investment returns from the
JV's investment in the Structure. Further details regarding the
estimated value of the Carry Partner's interest in the JV are
included in note 14.
Carried interest payments are only payable to the extent that
distributions are made from the JV to the Group. On the acquisition
of the additional Joint Venture interest during the year, the
carried interest was considered to have crystalised and became
payable. GBP7.5 million was paid in relation to the settlement of
the carry interest of the additional joint venture interest
acquired during the year and was recognised as a financing cashflow
within the cashflow statement. The existing interest of GBP7.5
million payable is included in corporate accruals within Note 18
and was settled subsequent to the year end.
c. Other related parties
During the year, SUPR Green Energy Limited received a credit
note from Evo Energy Limited for solar panels purchased in June
2021 of GBP155,142.52. These panels that were being held by Evo
Energy Limited were sold to Sonne Solar Limited, a subsidiary of
Atrato Onsite Energy PLC, a company is advised by an affiliate of
the Investment Adviser. As 30 June 2023, the balance was still
outstanding, and was received in cash after the year end.
28. Subsequent events
Debt financing
-- In July 2023, the Group cancelled its 62.1 million unsecured
term loan with the unsecured banking syndicate.
-- In September 2023, the Group announced that its GBP150.0
million revolving credit facility with HSBC was refinanced with a
new GBP50.0 million, secured three-year RCF with a GBP75 million
accordion option. The new facility has two one-year extension
options and a margin of 170 bps over SONIA.
-- In September 2023, the Group announced the cancellation of
the Barclays/RBC facility of GBP77.5 million.
-- In September 2023, the Group announced the arrangement of a
new GBP67.0 million unsecured term loan facility with SMBC Bank
International PLC at a margin of 1.4% over SONIA. The term of the
loan is for three-years with two further one-year extension
options.
-- In September 2023, the Group extended GBP50.0 million of its
GBP100.0 million unsecured term loan with the unsecured banking
syndicate by one year to July 2026.
Hedging
-- I n September 2023, the Group adjusted its interest rate
derivatives held at the year end to extend the maturity of the
derivatives by 12 months. The Group's drawn debt is fully hedged at
an interest rate of 3.1% (including margin) with a weighted average
term of 4 years (including extension options).
Acquisitions
-- I n July 2023, the Group announced the acquisition of two
Sainsbury's stores from the SRP for GBP36.4 million (excluding
acquisition costs). Sainsbury's entered into new 15-year leases on
these stores with five yearly open market rent reviews and a tenant
break option at year ten.
UNAUDITED SUPPLEMENTARY INFORMATION
Notes to EPRA and other Key Performance Indicators
1. EPRA Earnings and Adjusted Earnings per Share
Net profit
attributable Weighted average
to ordinary number of Earnings/
For the period from 1 July 2022 Shareholders ordinary shares(1) per share
to 30 June 2023 GBP'000 Number Pence
--------------------------------------------- --------------- --------------------- ------------
Net (loss)/profit attributable to
ordinary Shareholders (144,866) 1,242,574,505 (11.7)
Adjustments to remove:
Changes in fair value of investment
properties and associated rent guarantees 256,066 - 20.6
Changes in fair value of interest
rate derivatives measured at FVTPL (10,024) - (0.8)
Profit on disposal of interest rate
derivatives (2,878) - (0.2)
Group share of changes in fair value
of joint venture investment properties (11,486) - (0.9)
Profit on disposal of groups interest
in joint venture (19,940) - (1.6)
Finance income received on interest
rate derivatives held at fair value
through profit and loss (9,671) - (0.8)
EPRA earnings 57,201 1,242,574,505 4.6
--------------------------------------------- --------------- --------------------- ------------
Add finance income received on interest
rate derivatives held at fair value
through profit and loss 9,671 - 0.8
Add accelerated finance costs 1,518 - 0.1
Add Joint Venture acquisition loan
arrangement fee 4,009 - 0.3
--------------------------------------------- --------------- --------------------- ------------
Adjusted EPRA earnings 72,399 1,242,574,505 5.8
--------------------------------------------- --------------- --------------------- ------------
1 Based on the weighted average number of ordinary shares in
issue in the year ended 30 June 2023.
Net profit
attributable Weighted average
to ordinary number of ordinary Earnings/
For the period from 1 July 2021 Shareholders shares(1) per share
to 30 June 2022 GBP'000 Number Pence
--------------------------------------------- ---------------- --------------------- ------------
Net profit attributable to ordinary
Shareholders 115,869 975,233,858 11.9p
Adjustments to remove:
Changes in fair value of interest
rate derivatives (5,566) - (0.6p)
Changes in fair value of investment
properties and associated rent guarantees (21,820) - (2.2p)
Group share of changes in fair value
of joint venture investment properties 6,021 - 0.6p
Group share of negative goodwill
from joint venture investment (37,102) - (3.8p)
--------------------------------------------- ---------------- --------------------- ------------
EPRA EPS 57,402 975,233,858 5.9p
--------------------------------------------- ---------------- --------------------- ------------
2 Based on the weighted average number of ordinary shares in
issue in the year ended 30 June 2022.
2. EPRA NTA per share
EPRA NTA is considered to be the most relevant measure for the
Group and is now the primary measure of net assets, replacing the
previously reported EPRA Net Asset Value metric. For the current
period EPRA NTA is calculated as net assets per the consolidated
statement of financial position excluding the fair value of
interest rate derivatives.
EPRA NTA EPRA NRV EPRA NDV
30 June 2023 GBP'000 GBP'000 GBP'000
------------------------------------------------- ------------ ----------- -----------
IFRS NAV attributable to ordinary Shareholders 1,217,726 1,217,726 1,217,726
Fair value of Financial asset held
at amortised cost (3,609) (3,609) (3,609)
Fair value of interest rate derivatives (57,583) (57,583) -
Intangibles - - -
Purchasers' costs - 122,990 -
Fair value of debt - - 4,876
EPRA metric 1,156,534 1,279,524 1,218,993
-------------------------------------------------- ----------- ----------- -----------
EPRA metric per share 93p 103p 98p
-------------------------------------------------- ----------- ----------- -----------
EPRA NTA EPRA NRV EPRA NDV
30 June 2022 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ----------- ----------- -----------
IFRS NAV attributable to ordinary Shareholders 1,432,455 1,432,455 1,432,455
Fair value of interest rate derivatives (5,114) (5,114) -
Fair value of Financial asset held
at amortised cost (666) (666) (666)
Intangibles (93) - -
Purchasers' costs - 113,935 -
Fair value of debt - - 4,320
-------------------------------------------------- ----------- ----------- -----------
EPRA metric 1,426,582 1,540,610 1,436,109
-------------------------------------------------- ----------- ----------- -----------
EPRA metric per share 115p 124p 116p
3. EPRA Net Initial Yield (NIY) and EPRA "topped up" NIY
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
---------------------------------------------------- --------------- ---------------
Investment Property - wholly owned (note
12) 1,685,690 1,561,590
Investment Property - share of joint ventures - 266,500
---------------------------------------------------- --------------- ---------------
Completed Property Portfolio 1,685,690 1,828,090
---------------------------------------------------- --------------- ---------------
Allowance for estimated purchasers' costs 122,990 133,380
---------------------------------------------------- --------------- ---------------
Grossed up completed property portfolio valuation
(B) 1,808,680 1,961,470
---------------------------------------------------- --------------- ---------------
Annualised passing rental income - wholly
owned 99,910 77,230
Annualised passing rental income - share
of joint venture - 13,372
Annualised non-recoverable property outgoings (1,117) (400)
Less: contracted rent under rent free periods - -
---------------------------------------------------- --------------- ---------------
Annualised net rents (A) 98,793 90,202
---------------------------------------------------- --------------- ---------------
Rent expiration of rent-free periods and
fixed uplifts 447 56
---------------------------------------------------- --------------- ---------------
Topped up annualised net rents (C) 99,240 90,258
---------------------------------------------------- --------------- ---------------
EPRA NIY (A/B) 5.46% 4.60%
---------------------------------------------------- --------------- ---------------
EPRA "topped up" NIY (C/B) 5.49% 4.60%
---------------------------------------------------- --------------- ---------------
All rent free periods expire within the year to 30 June 2024
4. EPRA Vacancy Rate
As at As at
30 June 2023 30 June 2022
EPRA Vacancy Rate GBP'000 GBP'000
------------------------------------------------ --------------- ---------------
Estimated rental value of vacant space 439 188
Estimated rental value of the whole portfolio 100,797 77,237
------------------------------------------------ --------------- ---------------
EPRA Vacancy Rate 0.4% 0.2%
------------------------------------------------ --------------- ---------------
The EPRA vacancy rate is calculated as the ERV of the unrented,
lettable space as a proportion of the total rental value of the
direct Investment Property portfolio. This is expected to continue
to be a highly immaterial percentage as the majority of the
portfolio is let to the largest supermarket operators in the
UK.
5. EPRA Cost Ratio
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
------------------------------------------------ --------------- ---------------
Administration expenses per IFRS 15,429 13,937
Service charge income (5,939) (2,086)
Service charge costs 6,518 2,338
------------------------------------------------ --------------- ---------------
Net Service charge costs 579 252
------------------------------------------------ --------------- ---------------
Share of joint venture expenses 938 95
------------------------------------------------ --------------- ---------------
Total costs (including direct vacant property
costs) (A) 16,946 14,284
------------------------------------------------ --------------- ---------------
Vacant property costs (328) (99)
------------------------------------------------ --------------- ---------------
Total costs (excluding direct vacant property
costs) (B) 16,618 14,185
------------------------------------------------ --------------- ---------------
Gross rental income per IFRS 95,823 72,363
Less: service charge components of gross
rental income - -
Add: Share of Gross rental income from Joint
Ventures 13,529 14,423
------------------------------------------------ --------------- ---------------
Gross rental income (C) 109,352 86,786
------------------------------------------------ --------------- ---------------
EPRA Cost ratio (including direct vacant
property costs) (A/C) 15.50% 16.46%
------------------------------------------------ --------------- ---------------
EPRA Cost ratio (excluding vacant property
costs) (B/C) 15.20% 16.34%
------------------------------------------------ --------------- ---------------
1. The Company does not have any overhead costs capitalised as
it has no assets under development.
6. EPRA LTV
The Group voluntarily adopted the EPRA issued new best practice
reporting guidelines in the year ending 30 June 2023, incorporating
the new measure of loan to value: EPRA Loan-to-Value (EPRA LTV) and
is defined as net debt divided by total property market value.
The table below illustrates the reconciliation of the numbers
under the new measures, where prior year comparative figures have
also been restated in line with the new EPRA methodology.
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
----------------------------------------- -------------- --------------
Group Net Debt
Borrowings from financial institutions 667,465 348,546
Net payables - 24,893
Less: Cash and cash equivalents (37,481) (51,200)
Group Net Debt Total (A) 629,984 322,239
----------------------------------------- -------------- --------------
Group Property Value
Investment properties at fair value 1,685,690 1,561,590
Intangibles - 93
Net receivables 93,620 -
Financial assets 10,819 10,626
Total Group Property Value (B) 1,790,129 1,572,309
----------------------------------------- -------------- --------------
Group LTV (A-B) 35.19% 20.49%
Share of Joint Ventures Debt
Bond loans - 88,121
Net payables - 822
JV Net Debt Total (A) - 88,943
----------------------------------------- -------------- --------------
Group Property Value
Owner-occupied property
Investment properties at fair value - 277,407
Total JV Property Value (B) - 277,407
----------------------------------------- -------------- --------------
JV LTV (A-B) 0.00% 32.06%
Combined Net Debt (A) 629,984 411,182
Combined Property Value (B) 1,790,129 1,849,717
----------------------------------------- -------------- --------------
Combined LTV (A-B) 35.19% 22.23%
----------------------------------------- -------------- --------------
7. EPRA Like-for-Like Rental Growth
Year ended Year ended Like-for-Like
30 June 2023 30 June 2022 rental growth
Sector GBP'000 GBP'000 %
--------- --------------- --------------- ----------------
UK 62,688 61,059 2.7%
--------- --------------- --------------- ----------------
The like-for-like rental growth is based on changes in net
rental income for those properties which have been held for the
duration of both the current and comparative reporting. This
represents a portfolio valuation, as assessed by the valuer of GBP
1.03 billion (30 June 2022: GBP1.19 billion).
8. EPRA Property Related Capital Expenditure
As at As at
30 June 2023 30 June 2022
GBP'000 GBP'000
Group
------------------------ -------------- --------------
Acquisitions 377,311 388,696
Development
Investment properties
------------------------ -------------- --------------
Group Total CapEx 377,311 388,696
Joint Venture
Acquisitions - -
Development - -
Investment properties - -
------------------------ -------------- --------------
Joint Venture CapEx - -
Total CapEx 377,311 388,696
------------------------ -------------- --------------
Acquisitions relate to purchase of investment properties in the
year and includes capitalised acquisition costs. There has been no
capital expenditure on the investment properties within the
portfolio and no capitalised development expenditure has been
incurred in the year or prior year.
9. Total Shareholder Return
Year to Year to
30 June 2023 30 June 2022
Pence per Pence per
Total Shareholder Return share ('p') share ('p')
----------------------------------------- --------------- ---------------
Share price at start of the year 119.50 117.50
Share price at the end of the year 73.00 119.50
----------------------------------------- --------------- ---------------
Increase in share price (46.50) 2.00
Dividends declared for the year 6.00 5.94
----------------------------------------- --------------- ---------------
Increase in share price plus dividends (40.50) 7.94
----------------------------------------- --------------- ---------------
Share price at start of year 119.50 117.50
----------------------------------------- --------------- ---------------
Total Shareholder Return (34%) 7%
----------------------------------------- --------------- ---------------
10. Net loan to value ratio
The proportion of our gross asset value that is funded by
borrowings calculated as statement of financial position borrowings
less cash balances divided by total investment properties
valuation.
As at As at
30 June 2023 30 June 2022
Net loan to value GBP'000 GBP'000
---------------------------------- --------------- ---------------
Bank borrowings 667,465 348,546
Less cash and cash equivalents (37,481) (51,200)
---------------------------------- --------------- ---------------
Net borrowings 629,984 297,346
Investment properties valuation 1,685,690 1,561,590
---------------------------------- --------------- ---------------
Net loan to value ratio 37% 19%
11. Annualised passing rent
Annualised passing rent is the annualised cash rental income
being received as at the stated date.
GLOSSARY
AGM Annual General Meeting
AIFMD Alternative Investment Fund Managers Directive
Direct Portfolio Wholly Owned Properties held by the Group
EPRA European Public Real Estate Association
EPS Earnings per share, calculated as the profit
for the period after tax attributable to members
of the parent company divided by the weighted
average number of shares in issue in the period
FRI A lease granted on an FRI basis means that all
repairing and insuring obligations are imposed
on the tenant, relieving the landlord from all
liability for the cost of insurance and repairs
IFRS UK adopted accounting standards in conformity
with the requirements
of the Companies Act 2006
IPO An initial public offering (IPO) refers to the
process of offering shares of
a corporation to the public in a new stock issuance
LTV Loan to Value: the outstanding amount of a loan
as a percentage of property value
NAV Net Asset Value
Net Initial Yield Annualised net rents on investment properties
as a percentage of the investment property valuation,
less assumed purchaser's costs of 6.8%
Net Loan to Value LTV calculated on the gross loan amount less
or Net LTV cash balances
Omnichannel Stores offering both instore picking and online
fulfilment
REIT Real Estate Investment Trust
Running yield The anticipated Net Initial Yield at a future
date, taking account of any rent reviews in
the intervening period
Sainsbury's A portfolio consisting of the freehold interest
Reversion Portfolio in 26 geographically diverse high quality Sainsbury's
(SRP) supermarkets
Total Shareholder The movement in share price over a period plus
Return (TSR) dividends declared for
the same period expressed as a percentage of
the share price at the start
of the Period
WAULT Weighted Average Unexpired Lease Term. It is
used by property companies as an indicator of
the average remaining life of the leases within
their portfolios
CONTACT INFORMATION
Directors Nick Hewson (Non-Executive Chair)
Vince Prior (Chair of Nomination Committee &
Senior Independent Director)
Jon Austen (Chair of Audit Committee)
Cathryn Vanderspar (Chair of Remuneration Committee)
Frances Davies (Chair of ESG Committee)
Sapna Shah (Chair of Management Engagement Committee)
Company Secretary Hanway Advisory
1 King William Street, London, EC4N 7AF
Registrar Link Asset Services
The Registry, 34 Beckenham Road, Beckenham,
Kent, BR3 4TU
AIFM JTC Global AIFM Solutions Limited
Ground floor, Dorey Court, Admiral Park, St
Peter Port, Guernsey, Channel Islands, GY1 2HT
Investment Adviser Atrato Capital Limited
36 Queen Street, London, EC4R 1BN
Financial adviser, Stifel Nicolaus Europe Limited
Joint Corporate 150 Cheapside, London, EC2V 6ET
Broker and Placing
Agent
Joint Corporate Goldman Sachs International
Broker Plumtree Court, 25 Shoe Lane, London, EC4A 4AU
Auditors BDO LLP
55 Baker Street, London, W1U 7EU
Property Valuers Cushman & Wakefield
125 Old Broad Street, London, EC2N 1AR
Financial PR Advisers FTI
200 Aldersgate Street, London, EC1A 4HD
Website www.supermarketincomereit.com
Registered Office 1 King William Street, London, United Kingdom,
EC4N 7AF
Stock exchange SUPR
ticker ISIN GB00BF345X11
This report will be available on the Company's website.
[1] The alternative performance measures used by the Group have
been defined and reconciled to the IFRS financial statements within
the unaudited supplementary information
[2] Operating profit before changes in fair value of properties
and share of income and profit on disposal from joint venture
[3] Adjusted Earnings and Adjusted EPS are calculated as EPRA
Earnings and EPRA EPS adjusted for finance income from derivatives
held at fair value through profit and loss, loan arrangement fee
for Joint Venture acquisition and non-recurring debt restructuring
costs. For further information please see the Key Performance
Indicators and EPRA Performance Indicators sections on pages 39 and
41
[4] New financial highlight for the year, expected to be
included in future financials as they provide a more comprehensive
understanding of core business performance
[5] Calculated as Adjusted EPRA earnings divided by dividends
paid during the year
[6] IGD growth from 2022 to 2023 (forecast), June 2023
[7] IGD channel data 2018 to 2022 actuals, 2023 forecast
[8] Knight Frank, Savills, MSCI and Atrato Capital research.
Year ending 30 June 2023
[9] Blended NIY across the 21 properties
[10] SRP investment: the Sainsbury's Reversion Portfolio held in
a joint venture arrangement. See Note 14 to the financial
information for further information
[11] Average weighted NIY for the stores at acquisition,
including post balance sheet acquisitions of GBP36.4m (excluding
acquisition costs)
[12] Portfolio statistics include Post balance sheet
acquisitions
[13] Kantar grocery channel report June 2023
[14] Inclusive of uncommitted extension options
[15] Knight Frank, Savills, MSCI and Atrato Capital research.
Year ending 30 June 2023
[16] Average weighted NIY for the stores at acquisition,
including post balance sheet acquisitions of GBP36.4m (excluding
acquisition costs)
[17] Including uncommitted extension options
[18] Competition and Markets Authority, "Competition and Markets
Authority updates on action to contain cost of living pressures in
groceries sector", 20 July 2023
[19] Kantar grocery update, June 2023
[20] Cushman & Wakefield, Future of Food Chains, 2023
[21] Sainsbury's Plan for Better Report, 2022/23 Sustainability
Update
[22] 31 December 2022 figures are extracted from the Group's
Interim Report for the six months ended 31 December 2022
[23] The Directors have identified certain measures that they
believe will assist the understanding of the performance of the
business. The measures are not defined under IFRS and they may not
be directly comparable with other companies' adjusted measures. The
non-GAAP measures are not intended to be a substitute for, or
superior to, any IFRS measures of performance, but they have been
included as the Directors consider them to be important comparable
and key measures used within the business for assessing
performance. The key non-GAAP measures identified by the Group have
been defined in the supplementary information and, where
appropriate, reconciliation to the nearest IFRS measure has been
given.
[24] 31 December 2022 figures are extracted from the Group's
Interim Report for the six months ended 31 December 2022
[25] MSCI UK Quarterly Property Index (June 2022 - June
2023)
[26] Tesco & Sainsbury's Q1 trading updates
[27] Including post-balance sheet events
[28] Including post-balance sheet events
[29] Including uncommitted accordions and indications of
appetite from lenders
[30] Property yields sourced from MSCI for the period March 2006
to June 2023
[31] Knight Frank, Savills, MSCI, Atrato Capital research. Years
ending 30 June.
[32] Net Debt/EBITDA
[33] Tesco Annual Reports 2017 and 2023, % of net selling space
owned
[34] Stores include Sainsbury's - Newcastle, Tesco - Chineham,
Tesco - Bradley Stoke and Sainsbury's - Bangor
[35] Turnover: Atrato research based on communication with
operators and store managers, combined with demographic and local
competitor analysis. Store turnover has been inflated based on the
time since last store visit
[36] Gross consideration, excluding costs
[37] Excluding acquisition costs
[38] Excluding costs
[39] As at 20 September 2023
[40] IGD UK grocery market retail forecast 2023-2028
[41] Office for National Statistics 2023
[42] Knight Frank, Savills, MSCI and Atrato Capital research.
Year ending 30 June 2023
[43] Which? supermarket food price inflation tracker
15/08/2023
[44] Atrato research
[45] Including uncommitted extension options
[46] Profits which are not derived from property rental business
would be subject to corporation tax
[47] Emissions not calculated due to lack of data and
immateriality (<1% of total emissions). SUPR does not have an
office or employees. The only travel is quarterly travel by
non-exec directors, the majority of which is local travel in
London
[48] Values have been rounded
[49] Tenant energy consumption only
[50] 2023 is the first year of reporting the majority of
metrics, so no prior year comparisons have not been included in
this table. The 2024 Annual report will allow for trend analysis
and compare metrics disclosed in 2023
[51] Excludes three supermarkets and seven ancillary units
located in Scotland, due to differing EPC calculation methodology
used, making the sites non-comparable
[52] "Ancillary units" are units not used as a supermarket
[53] The Directors have identified certain measures that they
believe will assist the understanding of the performance of the
business. The measures are not defined under IFRS and they may not
be directly comparable with other companies' adjusted measures. The
non-GAAP measures are not intended to be a substitute for, or
superior to, any IFRS measures of performance, but they have been
included as the Directors consider them to be important comparable
and key measures used within the business for assessing
performance. The key non-GAAP measures identified by the Group have
been defined in the supplementary information and, where
appropriate, reconciliation to the nearest IFRS measure has been
given.
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END
FR GPUMUBUPWPWB
(END) Dow Jones Newswires
September 20, 2023 02:00 ET (06:00 GMT)
Supermarket Income Reit (LSE:SUPR)
過去 株価チャート
から 5 2024 まで 6 2024
Supermarket Income Reit (LSE:SUPR)
過去 株価チャート
から 6 2023 まで 6 2024
