REG - Supermarket Inc REIT - Audited results for the year ended 30 June 2024
18/09/2024 07:00
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RNS Number : 5983E Supermarket Income REIT PLC 18 September 2024
SUPERMARKET INCOME REIT
(the "Group" or the "Company")
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2024
STABLE VALUATIONS AND STRONG BALANCE SHEET UNDERPIN CAPACITY TO PURSUE
ACCRETIVE ACQUISITIONS AND DRIVE EARNINGS GROWTH
The Board of Directors of Supermarket Income REIT plc (LSE: SUPR), the real
estate investment trust with secure, inflation-linked, long-dated income from
grocery property, reports its audited consolidated results for the Group for
the year ended 30 June 2024.
FINANCIAL HIGHLIGHTS
12 months to 12 months to
30-June-24 30-June-23 Change
Annualised passing rent(1) £113.1m £100.6m +12%
Adjusted earnings per share(1) 6.1 pence 5.8 pence +4%
IFRS earnings per share (1.7) pence (11.7) pence +85%
Dividend per share declared 6.1 pence 6.0 pence +1%
Dividend cover(2) 1.01x 0.97x(2) n/a
EPRA cost ratio(1) 14.7% 15.5% n/a
30-June-24 30-June-23 Change
Portfolio valuation £1,776m £1,693m +5%
Portfolio net initial yield(1) 5.9% 5.6% n/a
EPRA NTA per share(1) 87 pence 93 pence -6%
IFRS NAV per share 90 pence 98 pence -8%
Loan to value(1) 37% 37% n/a
Secure and growing income
· 12% increase in annualised passing rent to £113.1 million,
reflecting:
o 4% average like-for-like rental uplift
o Accretive acquisitions in the year
· 100% occupancy and 100% rent collection since IPO
o 75% of rental income from Tesco and Sainsbury's
· 4.4% increase in adjusted EPS to 6.08 pence driven by rental growth
and accretive acquisitions
· Fully covered FY24 dividend
· FY25 target dividend increased to 6.12 pence per share
Earnings accretive acquisitions
· Acquired 20 assets in UK and France for £135.8 million before costs
at an average NIY of 6.7% (UK: 7.0%, France: 6.3%)
· Earnings growth further supported through maintaining tight control
of costs, achieving an EPRA cost ratio of 14.7% with further cost efficiencies
targeted in FY25
Strong grocery sector growth
· UK grocery market sales forecast to increase by 5.8% to £251.6
billion in 2024(3)
o Tesco and Sainsbury's increased sales and market share in the year with a
combined 43% market share(4)
o Online market share at 12% and growing following post pandemic reset(4)
· French grocery market sales forecast to increase by 2.1% to €290
billion in 2024(5)
o Carrefour has a 19.6% market share in France(6)
o Carrefour is targeting 3x online sales growth to €10 billion by 2026
(base year: 2021)(7) with its online grocery channel forecast to grow 8.25% in
2024(8)
o Online market share is currently at 10% and is one of the fastest growing
channels(9)
Strategic transaction with Carrefour
· One of the largest grocery operators in the world
· Investment grade rated (BBB)(10)
· Acquisition of 17 omnichannel Carrefour stores in relationship led
sale and lease back transaction for a consideration of €75.3 million before
costs
· Acquired at a 6.3% NIY versus 4.4% funding cost
· Carrefour's second ever sale and lease back transaction in France and
first in 12 years
· Carrefour now represents 4% of portfolio GAV
· Highly affordable rents with uncapped inflation linked uplifts(11)
Supermarket property valuations stabilised
· Portfolio independently valued at £1.78 billion, inclusive of
acquisitions of £135.8 million
· Net Initial Yield ("NIY") of 5.9% (30 June 2023: 5.6%)
· Following a decline in valuations in 2023, like-for-like valuations
were broadly flat in H2, up 0.1%
· Strong level of transactional activity across the sector with return
of traditional institutional participants to the market
· Operator store buybacks, particularly Tesco, demonstrating mission
critical nature of large format stores
Proactively managing balance sheet
· LTV of 37% as at 30 June 2024 (30 June 2023: 37%)
· Strong debt covenant headroom supporting acquisition led growth
· 100% of drawn debt fixed or hedged at a weighted average finance cost
of 3.8%, including post balance sheet events (30 June 2023: 3.1%)
· Fitch BBB+ investment grade rating reaffirmed providing access to
attractively priced long-dated debt
· New £104.5 million unsecured facility with SMBC at a weighted
average margin of 1.45% with a maturity of three-years and two one-year
extension options
· Post balance sheet:
o New £100 million unsecured facility with ING at a margin of 1.55% over
SONIA with a maturity of three years and two one-year extension options
o Oversubscribed 7-year Euro private placement at 4.4% fixed all-in cost,
providing natural currency hedge for Carrefour portfolio acquisition
Further progress on key sustainability initiatives
· EV charging operational at 30% of sites and solar arrays across 20%
of stores
· Science Based Targets validated and approved by the Science Based
Targets initiative including a commitment to reach net zero by 2050
· Strong tenant net zero commitments driving significant tenant capital
expenditure on stores
· Prepared and submitted EPRA Sustainability Best Practices
Recommendations disclosures for the first time
Nick Hewson, Chair of Supermarket Income REIT plc, commented:
"The Company's operational performance has been resilient with 100% occupancy
and 100% rent collection despite the broader market and macro-economic
challenges of the past years. We have taken a disciplined approach to capital
deployment and have recently begun to see opportunities to add accretive
acquisitions in the UK and France. We continue to monitor opportunities to
recycle capital via asset sales and joint ventures.
Looking ahead, we remain optimistic that the improving interest rate
environment should provide positive tailwinds for the Company. We are pleased
to recommend another increased dividend of 6.12 pence per share for FY25 and
remain focused on delivering a progressive dividend for shareholders."
PRESENTATION FOR ANALYSTS
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:
Supermarket Income REIT - Full Year Results Presentation 2024 | SparkLive |
LSEG
(https://gbr01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fsparklive.lseg.com%2FSupermarketIncomeREIT%2Fevents%2Fea214a2e-a37d-4d58-9510-68b0796f71e7%2Fsupermarket-income-reit-full-year-results-presentation-2024&data=05%7C02%7Ceddie.gilbourne%40atratopartners.com%7C6d37ac0ebbd34b893a2a08dcd238edaf%7C276a47fb3a9c48af8227513355fe311e%7C0%7C0%7C638616389140782159%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=li7ACICkFWQ3Ohh%2FX7Y9Jwsh6fPlqN47a36JhFR0XzE%3D&reserved=0)
The results presentation is available in the Investor Centre section of the
Group's website.
FOR FURTHER INFORMATION
Atrato Capital +44 (0)20 3790 8087
Limited
Rob Abraham / Mike Perkins / Chris McMahon ir@atratocapital.com (mailto:ir@atratocapital.com)
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Mark Young / Rajpal Padam / Madison Kominski
Goldman Sachs International +44 (0)20 7774 1000
Tom Hartley / Hannah Mackey
FTI Consulting +44 (0)20 3727 1000
Dido Laurimore / Eve Kirmatzis / Andrew Davis SupermarketIncomeREIT@fticonsulting.com
(mailto:SupermarketIncomeREIT@fticonsulting.com)
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 feed the nation infrastructure. The Company focuses on grocery stores
which are omnichannel, fulfilling online and in-person sales. The Company's
supermarkets are let to leading supermarket operators in the UK and Europe,
diversified by both tenant and geography.
The Company's assets earn long-dated, secure, inflation-linked, growing
income. The Company targets a progressive dividend and the potential for
capital appreciation over the longer term.
The Company is listed on the Closed-ended investment funds category of the
FCA's Official List and its Ordinary Shares are traded on the LSE's Main
Market.
Atrato Capital Limited is the Company's Investment Adviser.
Further information is available on the Company's website
www.supermarketincomereit.com (http://www.supermarketincomereit.com/)
LEI: 2138007FOINJKAM7L537
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 another resilient year for the Company. Occupancy on
our portfolio of grocery stores was 100%, as was rent collection, and indeed
annualised passing rent grew year on year by 12%, due to accretive
acquisitions and inflation protection in over 80% of our leases. Our vigilance
on our cost base was again notable and we have one of the lowest EPRA cost
ratios of our peers. We expect our cost ratio to reduce over the next 12
months as we focus on further operational efficiencies across the business.
Once again, we are benefitting from our interest rate hedging strategy and we
expect the interest rate backdrop to be more supportive from this point in the
cycle.
All of this is permitting us to recommend a further, if modest, increase to
our dividend for the coming year to 6.12 pence per share (2024: 6.06 pence per
share). This is in the context of our stated aim to deliver sustainable,
long-term, growing income from the grocery real estate industry. The last
three years have seen some challenging macroeconomic headwinds but we have
weathered the storm and increased the dividend every year. We believe we have
now seen the worst of it. Our job is to maximise our earnings and continue to
increase the dividend on a covered basis, and benefit from the inherent
affordability of the rents our grocery tenants pay us.
The background to the challenging nature of the last three years has been the
fact that we have all had to get used to operating in a higher interest rate
environment compared to that in the 2010s. Those higher interest rates seem to
have peaked during the summer of 2023, with 5-year swap rates exceeding 5% in
July 2023. At that time, the Company prudently paid down debt to run at a
lower LTV of 33%. This strategically conservative approach to leverage has,
however, meant that 2024 earnings growth has been modest. On the other hand,
we believe that property valuations reached a floor in December 2023.
Consequently, we have been confident in 2024 to increase leverage, including
through our oversubscribed debut Private Placement debt issuance, to help
drive earnings growth through acquisitions which will benefit future years.
In growing through acquisitions, the Investment Adviser's position as a sector
specialist gives the Company unique access to off-market opportunities to
acquire these assets at yields which are above the cost of our debt financing.
We have been highly selective in our acquisitions and maintain our focus of
investing in top trading omnichannel stores let to the strongest grocery
operators.
While continuing to pursue our core UK strategy, we have also sought to
broaden our investible universe and enhance the diversity and covenant
strength of our tenant base through a highly selective expansion into Europe.
In April, we made our first investment into the €290 billion French grocery
sector with an off-market, direct sale and leaseback of 17 omnichannel stores
with Carrefour. The transaction was the culmination of over 12 months of
discussions, leveraging the Investment Adviser's deep grocery expertise and
long-standing sector relationships. This was Carrefour's first sale and
leaseback in France in 12 years and underlines the Company's credentials as a
trusted and expert counterparty.
The transaction highlights the attractive opportunities to acquire and finance
omnichannel supermarkets let to high-quality covenants with highly affordable
rents in Europe. The acquisition was made at a 6.3% net initial yield and
financed at an accretive 4.4% fixed cost of funding in Euros. However, this
was a tentative exploration into non-UK property assets, representing some 4%
of the portfolio.
We continue to see interesting opportunities such as this and if we decide to
increase further our exposure to continental European grocery assets, we will
first consult with shareholders and seek shareholder approval to revise our
Investment Policy accordingly.
Our thesis at IPO in 2017 was focussed on the mission critical nature of
omnichannel stores as last mile fulfilment hubs and the long-term
attractiveness of owning these infrastructure-like assets. This thesis is as
valid as ever in 2024 in both the UK and France.
The strong performance of the UK and French grocery sectors and our
omnichannel stores within them means our stores benefit from higher sales
densities. This ensures rents remain affordable for our tenants. Rent to
Turnover ("RTO") at store level is the key affordability measure in the
sector. The Company's UK portfolio is at an average 4% RTO which is in-line
with the long-standing industry standard level for high-quality stores.
The discount to EPRA NTA at which the Company's shares have traded through the
year is a frustration for the Board and closing this discount is a key focus
for the Company. We continually review how best to allocate our shareholders'
capital. The Board believes that over the medium term, earnings growth and the
sustainability of the dividend will serve to narrow the discount. We are also
focused on capital recycling opportunities through the sale of individual
stores or larger JV opportunities.
We regularly assess the use of share buybacks and at a certain price and in
sufficient quantity they make mathematical sense if one can achieve both at
the same time. However, the Board has given the Investment Adviser a mandate
to achieve growth, on the basis that growing earnings through a selective
approach to acquisitions will generate a higher return than that offered by
share buybacks over the medium to long term. This position has remained under
continuous review over the past year and will continue to be debated while our
shares trade at a discount to EPRA NTA.
I am particularly pleased this year with the progress being made on the
Company's sustainability activities. A key milestone has been achieved with
the validation and approval of the Company's science-based targets by the
Science Based Target initiative ("SBTi"). We have also seen the continued
addition of EV charging and solar panels at a number of our stores. Our
tenants have also made ambitious net zero commitments and a benefit of owning
mission critical real estate is the continuing capital expenditure our tenants
make into our stores to meet their own commitments particularly in the area of
refrigeration. Our Task Force on Climate-Related Financial Disclosures
("TCFD") compliant annual report is accompanied by our second standalone
sustainability report published today. The Company has prepared EPRA
Sustainability Best Practices Recommendations ("sBPR") disclosures for the
first time and is also currently preparing its first net zero transition plan.
In the coming months we also expect to proceed with a secondary listing on the
Johannesburg Stock Exchange ("JSE"). Based on positive investor feedback
following a non-deal roadshow undertaken in February 2024, we believe that the
secondary listing will help improve trading liquidity and the diversity of our
shareholder base. Such listings require minimal additional reporting and have
relatively low ongoing costs to maintain. I look forward to welcoming South
African investors to the shareholder register and in time we hope that these
investors will grow to represent a strong and supportive addition to the
Company's register.
As part of Board's succession planning, we appointed Sapna Shah as head of the
Nominations Committee and as Senior Independent Director ("SID"). She, along
with the other members of the Nominations Committee, will be determining the
process for identifying and recruiting three new NEDs over the coming two
years including a new Audit Chair and a new Chair. We thank Vince Prior for
his service as Chair of the Nominations Committee and SID.
Outlook
In the context of the recently challenging macro headwinds, we can now begin
to consider the possibility of a more favourable interest rate environment.
Market expectations of modest interest rate cuts over the coming months,
albeit not returning to the levels of the 2010s, provide confidence that we
have now seen the floor in this current cycle. We have a balance sheet and
asset portfolio which will enable us to deliver sustainable, long-term,
earnings growth even at these new 'normal' interest rate levels. I am hopeful
that as the equity markets re-focus on the attractiveness of real estate, the
quality of our assets and the secure nature of our growing income stream will
once again be recognised.
In the meantime, due to our sector specialism, we continue to be able to
selectively add attractive assets to our portfolio to grow earnings and
ultimately dividend. Due to the prudent steps taken to run lower leverage
throughout 2023, the Company has had the balance sheet capacity during 2024 to
take advantage as these opportunities arise. Earnings will also be enhanced
through our programme of even stricter cost control delivering a low EPRA cost
ratio of 14.7% which we expect to reduce further over the next 12 months, in
search of our goal to be the company with the lowest EPRA cost ratio of our
externally managed peers.
Nick Hewson
Chair
17 September 2024
A conversation with Justin King about the future of the UK grocery sector
Justin King is a senior adviser to Atrato Capital, the Group's Investment
Adviser. 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.
He is currently Non-Executive Director of Marks & Spencer and Chairman of
Allwyn Entertainment which operates the National Lottery licence, Ovo Energy
and Dexters, London's leading estate agent. Justin also advises a series of
high-profile consumer-focused companies including Itsu Grocery and Snappy
Shopper. Justin is an advocate for responsible business, has been instrumental
in launching several charitable concerns including the charity Made by Sport,
which championed 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.
Question 1: The Carrefour sale and leaseback provided a unique entry point
into the French grocery market. Do you consider this this market to be very
different to the UK market?
It's less different than many think! It's a significant €290 billion
market(12), with supermarkets being the most dominant channel and the four top
grocers holding over 70% of the market. Just like the UK, this operator
concentration has been achieved through very well-located shops, great
customer service, well-developed supply chains and an increasing focus on
omnichannel business models.
Carrefour is one of the largest grocers in the world, has a 19.6%(13) share of
the French grocery market and provides an excellent addition to SUPR's
portfolio, further diversifying its tenant mix. So, taken all together, the
transaction capitalises on the opportunity to leverage the Company's grocery
specialism in generating attractive investment prospects whilst also being
highly complementary to the existing portfolio and strategy.
Of course, entering any new market comes with risk. I believe an essential
component to managing that risk is through developing strong partnerships with
leading operators. It is noteworthy that Atrato has entered this market via a
direct sale and leaseback with Carrefour, benefiting from the insights derived
from this relationship-based model which has always been a core part of the
Company's strategy.
Question 2: You mention the benefits of leveraging sector specialism. How
important do you think Atrato's deep knowledge of the omnichannel model will
be when considering investing in grocery property markets like France?
Firstly, it's important to remember that the UK's grocers were early pioneers
in online grocery, resulting in one of the highest penetration rates for
online grocery sales globally. This success was driven by an early transition
to multi-channel stores which have been able to provide seamless integration
between online and offline channels. I think it's fair to say that operators
across the world have long looked at the UK as a template and we are seeing a
global convergence to the omnichannel model.
SUPR is the largest landlord of omnichannel grocery stores in the UK. That
makes the Company an attractive property partner for grocers looking to
capitalise on the online opportunity thorough transitioning toward omnichannel
trading strategies. It also provides a valuable pathway to source attractive
future investment opportunities.
Carrefour's objective of growing its omnichannel customer base to 30% and
online sales to €10 billion annually by 2026(14) is a clear recognition of
the additional value to be captured through leveraging its supermarket estate
and I know this was a key consideration in Carrefour selecting SUPR as its
partner in the sale and leaseback transaction.
Question 3: How should the market think about affordability of rent on grocery
property and how that impacts market rents in particular?
For grocery operators, a key metric for determining the affordability of rent
is the ratio of rent to store turnover, with c.4% being the long-standing
industry benchmark in the UK. This equates to roughly two weeks of store sales
and is considered affordable by operators, comparing favourably to other asset
classes such as retail parks at c.12%, hotels at c.20% and shopping centres at
c.25%.
Whilst it's important to note that the grocery sector has lower margins than
some of these comparable retail or leisure sectors, it is also important to
note that typical EBITDAR margins at the store level are around 12%. This
provides approximately 3x cover of rent at the market standard rent to
turnover, which makes rents highly sustainable at that level.
Currently, SUPR's portfolio sits at c.4% rent to turnover and is therefore
considered to be approximately rack rented from a UK grocery property
perspective.
I believe the affordability of rent is one of the reasons that supermarket
property investment performance over the last 15 years has been a stand-out
positive performer relative to other asset classes despite multiple periods of
macro-economic uncertainty. Having said that, not all supermarket property is
equal and specialists like the Atrato Capital team are essential to ensure the
right asset selection for the long term.
Question 4: Like-for-like sales growth in 2024 is lower than 2023 with
staffing costs rising, does this signal margin pressure for the multichannel
grocers?
A key point here is that disinflation rather than deflation is taking effect
across the grocery sector - prices are rising more slowly, rather than
falling. In the four weeks to July 2024, the rate was 1.6%, the lowest rate
since September 2021 and far below the recent peak of 19.0% seen in March last
year. Against that backdrop, like-for-like sales growth will be naturally
subdued verses the inflation-fuelled comparatives.
However, living standards for the average customer are gradually improving,
with wage growth outpacing price inflation for several quarters, which will in
turn feed both enhanced sales volumes and improved product mix for the
grocers. We are clearly seeing the benefits of that in the latest grocery
market share data with Tesco and Sainsbury's capturing a further 100bps
combined market share over their rivals and reaffirming their profit targets.
This is why traditional grocers carry an extensive range and mix in their
supermarkets to cater for the changing needs and buying trends of the
customers' shopping basket and that customer focus has sustained the success
of the grocers for the last 100 years
KEY PERFORMANCE INDICATORS
We set out below our key performance indicators for the Company.
KPI Definition Performance
1. Total Shareholder Return Shareholder return is one of the Group's principal measures of performance. 8% for the year to 30 June 2024
(Six months ended
Total Shareholder Return ("TSR") is measured by reference to the growth in the
31 December 2023: 23.2%, 30 June 2023: -34%)
Group's share price over a period, plus dividends declared for that period.
2. WAULT WAULT measures the average unexpired lease term of the Property Portfolio, 12 years WAULT as at 30 June 2024 (31 December 2023: 13 years, 30 June 2023:
weighted by the Portfolio valuations. 14 years)
3. EPRA NTA per share The value of our assets (based on an independent valuation) less the book 87 pence per share as at 30 June 2024 (31 December 2023: 88p, 30 June 2023:
value of our liabilities, attributable to Shareholders and calculated in 93p)
accordance with EPRA guidelines. EPRA states three measures of NAV to be used;
of which the Group deem EPRA NTA as the most meaningful measure. See Note 27
for more information.
4. Net Loan to Value The proportion of our Portfolio gross asset value that is funded by borrowings 37% as at 30 June 2024 (31 December 2023: 33%, 30 June 2023: 37%)
calculated as balance sheet borrowings less cash balances divided by total
investment properties valuation.
5. Adjusted EPS* EPRA earnings adjusted for company specific items to reflect the underlying 6.1 pence per share for the year ended 30 June 2024 (31 December 2023: 2.9p,
profitability of the business. 30 June 2023: 5.8p)
Adjusted earnings 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
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 derivative hedges 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 refinancing
of the Group's debt facilities during the year.
Adjusted EPS reflects the adjusted earnings defined above attributable to each
shareholder.
The Group uses alternative performance measures including the European Public
Real Estate ("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.
Reconciliations between EPRA measures and the IFRS financial statements can be
found in Notes 11 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. 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 financial
information.
Measure Definition Performance
1. EPRA EPS A measure of EPS designed by EPRA to present underlying earnings from core 4.3 pence per share for the year ended 30 June 2024 (30 June 2023: 4.6p)
operating activities.
2. EPRA Net Reinstatement Value ("NRV") per share An EPRA NAV per share metric which assumes that entities never sell assets and 97 pence per share as at 30 June 2024 (30 June 2023: 103p)
aims to represent the value required to rebuild the entity.
3. EPRA Net Tangible Assets ("NTA") per share An EPRA NAV per share metric which assumes entities buy and sell assets, 87 pence per share as at 30 June 2024 (30 June 2023: 93p)
thereby crystallising certain levels of unavoidable deferred tax.
4. EPRA Net Disposal Value ("NDV") per share An EPRA NAV per share metric which represents the Shareholders' value under a 90 pence per share as at 30 June 2024 (30 June 2023: 98p)
disposal scenario, where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability, net of any
resulting tax.
5. EPRA Net Initial Yield ("NIY") & EPRA "Topped-Up" Net Initial Annualised rental income based on the cash rents passing at the balance sheet 5.9% as at 30 June 2024 (30 June 2023: 5.5%)
Yield date, less non-recoverable property operating expenses, divided by the market
value of the property, increased with (estimated) purchasers' costs.
6. EPRA Vacancy Rate Estimated Market Rental Value ("ERV") of vacant space divided by ERV of the 0.5% as at 30 June 2024 (30 June 2023: 0.4%)
whole portfolio.
7. EPRA Cost Ratio (Including direct vacancy costs) Administrative & operating costs (including costs of direct vacancy) 14.7% for the year ended 30 June 2024 (30 June 2023: 15.5%)
divided by gross rental income.
8. EPRA Cost Ratio (Excluding direct vacancy costs) Administrative & operating costs (excluding costs of direct vacancy) 14.4% for the year ended 30 June 2024 (30 June 2023: 15.2%)
divided by gross rental income.
9. EPRA LTV Net debt divided by total property portfolio and other eligible assets. 38.8% as at 30 June 2024 (30 June 2023: 35.2%)
10. EPRA Like-for-like Rental Growth Changes in net rental income for those properties held for the duration of Rental increase of 2.1% for the year ended 30 June 2024 (30 June 2023: 2.7%)
both the current and comparative reporting period.
11. EPRA Capital Expenditure Amounts spent for the purchase and development of investment properties £146.2 million for the year ended 30 June 2024 (30 June 2023: £377.3
(including any capitalised transaction costs). million)
INVESTMENT ADVISER'S REPORT
Atrato is the Company's Investment Adviser. Ben Green (Principal) and Robert
Abraham (Fund Manager) discuss SUPR's performance and the long-term outlook
for the business.
SUPR's performance remains strong at the operational level
The Company's operational performance remains strong. It has been another year
in which SUPR has achieved 100% rent collection and 100% occupancy from its
tenant base of leading supermarket operators. Coupled with this, the Company
has achieved 4.0% like-for-like rental growth on leases that have been subject
to review in the year, driven by inflation-linked contractual uplifts.
Our key tenants continue to perform strongly with impressive revenue growth.
This is particularly true of the types of the omnichannel stores that SUPR
owns in the UK and France. Sainsbury's and Tesco, which represent 77% of the
portfolio by value have reported like-for-like sales growth of 10.3%(15) and
7.7%(16) respectively in their full year results. They reported even higher
sales growth figures from their large format stores, like those owned by SUPR,
up by 11.0%(15) and 8.2%(16) respectively. Importantly, such revenue growth
remains ahead of rental increases, which ensures that rents remain affordable.
Our newest tenant Carrefour has also performed strongly in its home market in
France with ROI margins up 6.2%(17), underpinned by accelerated price
investments which have been more than offset by cost discipline.
Proactively positioning SUPR for a higher interest rate world
Our strong operational performance has been largely offset by higher financing
costs due to the higher interest rate environment and our decision to reduce
leverage. This has led to lower earnings growth and only a modest increase in
dividend as we and the Board seek to position SUPR with a sustainable,
long-term, progressive dividend.
We took two key steps to position the Company for a higher interest rate
world. First, we fixed SUPR's cost of debt through the period of highest
expected interest rates. Second, we recycled the proceeds from the final
tranche of the Sainsbury's Reversion Portfolio disposal in July 2023 into
reducing debt.
Through the second half of the year, as debt costs reduced, we had the
opportunity to grow earnings through accretive acquisitions. As a result of
the prudent actions taken to protect the balance sheet the Company has been in
a strong position to take advantage of these opportunities.
Taken together with our contracted rental growth and rigorous cost control, we
have positioned SUPR to deliver a sustainable, progressive dividend in the new
higher interest rate environment.
In our view, valuations have bottomed out
We saw a valuation decline as at the December balance sheet date due to the
impact on the grocery property market of higher interest rate expectations.
The sterling 5-year swap rate peaked in July 2023 and this negatively impacted
the investment market in the first half of our financial year.
Valuations held flat over the second half of the year with the market now
having adjusted to expectations of a long-term UK base rate of around 3.5%.
Investment returns at current market yields look attractive, particularly when
considering the defensive characteristics of grocery.
We have observed a similar dynamic in the French market with reducing interest
rate pressure and valuations at the bottom of the cycle.
We are of the view that the next movement in valuations, when it comes, should
be positive.
Supermarket rents, affordability and ERVs
Within the UK supermarket sector, 4% rent to turnover is seen as the
affordable rental level that operators are willing to pay to secure long-term
occupation for strong trading stores.
Increasing store turnover, has improved the affordability of supermarket rents
and has resulted in SUPR's portfolio having a ratio of 4% RTO.
Our view is that the valuers systematically underestimate the rents that UK
grocers are willing to pay to secure trading from a site. This is important
for two reasons. First, it provides us with value opportunities at the point
of acquisition because vendors often underestimate rental potential. Second,
we believe that there is significant embedded value in the Portfolio which is
not reflected in the valuation or the NAV.
A detailed case study on this topic is available on pages 30 to 32.
Valuation yield metrics for the SUPR portfolio
Measure Jun-23 Dec-23 June-24
Portfolio
NIY 5.6% 5.8% 5.9%
UK supermarkets
NIY 5.4% 5.7% 5.8%
NRY 4.6% 5.0% 5.1%
NEY 5.5% 5.7% 5.8%
The Net Reversionary Yield ("NRY") provided by our valuer for our UK
supermarkets applies an average ERV of £22 per square foot ("per sq.ft.") to
SUPR's portfolio which is broadly in-line with the UK average.
In practice we expect our leases to be extended (regeared) prior to expiry and
at a level which would be higher than this average, due to the strong
performing nature of the stores owned by SUPR.
Assuming UK supermarket rents regeared to 4% of turnover it would produce an
NRY closer to the 5.9% current NIY on the portfolio, demonstrating the
potential reversionary upside that can be achieved on the portfolio.
As an off-market sale and leaseback transaction, our Carrefour rents are set
at 2.1% RTO, versus the average of 2.5% in France.
Attractiveness of French grocery market and Carrefour
The Company's entry into the €290 billion French grocery market(18) was the
most strategically significant development of the year.
The European grocery property market provides the Company the opportunity to
benefit from a diversification of the portfolio, an increased exposure to
investment grade tenant covenants and lower cost of financing. Due to the size
of the European market, we can be highly selective in assessing investment
opportunities.
The French market has attractive similarities to the UK. Supermarkets are the
primary grocery sales channel and the French market is dominated by a small
number of operators. France also has Europe's largest online grocery market,
which is primarily serviced by an omnichannel store network and is growing
rapidly.
Carrefour is one of the largest grocery operators in the world with forecast
annual global sales of €100.4 billion in 2024(19). In France, Carrefour
holds a similar position to Sainsbury's in the UK as the second largest
operator with 19.6% of grocery sales(20). As part of its 2026 strategic plan
outlined in 2022, Carrefour has set ambitious online growth targets to
increase online sales to 30% of total sales by 2026, and its online channel is
forecast to grow by 8.25% in 2024(21).
Growing earnings through highly selective, accretive acquisitions
1) First international acquisition via a sale and lease back transaction
with Carrefour
In April 2024, SUPR acquired a sale and leaseback portfolio of 17 strong
trading omnichannel stores in France through a direct transaction with
Carrefour.
The stores were selected based on a detailed analysis including trading
performance, local demographics and competition. The stores have highly
affordable rents and were acquired at an attractive 6.3% NIY.
The transaction was financed through an existing revolving credit facility
with HSBC, and post period end was refinanced via a Euro denominated private
placement at a cost of 4.4%. The positive cash yield is accretive to the
portfolio and supportive of earnings growth through long-term, index-linked
leases. A case study on the transaction is provided on pages 20 to 22.
We were able to leverage our deep sector relationships and reputation as a
trusted counterparty to leading grocery operators, to work with Carrefour on
this off-market transaction. This was only the second ever sale and leaseback
transaction conducted by Carrefour in France, and the first in 12 years.
2) The continued attractiveness of the UK, albeit a reduced addressable
market
With the UK grocery market continuing to perform strongly, we see attractive
opportunities in the UK supermarket space, albeit now focused on Tesco and
Sainsbury's due to comparatively less attractive covenants of the more highly
leveraged multichannel operators, Asda and Morrisons.
In the UK we have focused on shorter lease assets, particularly those which we
view as being mispriced by the market due to an underestimation of affordable
market rent. The target assets are let to strong tenant covenants (i.e., Tesco
or Sainsbury's), with an attractive yield providing an accretive spread to the
current cost of debt. These opportunities are currently more accretive to
earnings than longer lease, rack rented assets, which are currently pricing
more keenly. An example transaction is Tesco Stoke, acquired in March 2024 and
on which there is a case study on pages 16 to 17.
A tale of two halves for the UK investment market, while operator activity
across both sale and leaseback and store buybacks has been prominent
Investment market volumes for the 12 months remained broadly in line with the
£1.7 billion average since the Company's IPO, as liquidity for the asset
class remains strong. Unlike other sectors which have seen volumes fall away
in a higher interest rate environment, through rapid repricing and continued
investor demand, supermarket volumes have remained consistent. Supermarkets
are a defensive asset class with investment appetite from a broad range of
purchasers from institutions through to high net worth individuals.
5 yearly supermarket investment volumes(22)
We are however beginning to see more limited supply - particularly of stock in
the UK which is suitable for SUPR in terms of being accretive to the cost of
debt and therefore to earnings, whilst maintaining tenant quality.
2024 transactions breakdown(22)
Vendors Value (£m) Purchasers Value (£m)
Asda 650 Realty Income Corporation 825
Morrisons 196 Tesco Plc 127
Abrdn 162 M&G 125
Lothbury IM 133 ICG 103
Waitrose 125 MDSR 98
Other 723 Other 711
Total 1,989 Total 1,989
In the UK, the two largest sellers of assets during the year were operators.
Asda (£650 million) and Morrisons (£196 million) both sold stores to Realty
Income, subject to 20-year inflation linked leases. Waitrose also undertook a
£125 million sale & leaseback with M&G. Each of these transactions
attracted a lot of institutional interest. Asda and Morrisons also separately
sold off their petrol forecourts to reduce leverage. We believe that the
capital raised in these processes makes further significant sale and leaseback
activity from these operators unlikely.
Tesco spent £127 million during the year buying back stores, including a
111,000 sq.ft. store in Sutton Coldfield for c.£40 million - a large format
omnichannel store, highlighting the strategic importance of such assets. We
continue to see Tesco selectively participate in the investment market,
depending on capital made available to the property team at any given time.
Our tenants' competing demands for capital dictate their level of activity in
the buyback market - this means that we continue to be able to buy some of
Tesco's best performing stores. However, we do have the risk of a shrinking
opportunity, as each store bought back by an operator is unlikely to return to
the leasehold market in the future.
In addition to M&G, this year has also seen the return of other
traditional institutional supermarket landlords as buyers in L&G (£46
million), Abrdn (£18 million), and DTZ Investors (£56 million).
Investment volumes in France were below average in 2023 totalling €320
million. However, volumes in H1 2024 reached €306 million which is a 135%
increase year-on-year and 13% ahead of average since H1 2014. New retail
development is at a 20 year low, a trend which we think will continue due to
the net artificialisation (ZAN) of land by 2050. We expect a shift towards
redevelopment of existing assets into mixed-use spaces rather than new
developments. This will therefore reduce the amount of retail space making
existing assets more valuable.
Tight control of costs delivering one of the lowest EPRA cost ratios in the
sector
In seeking to drive earnings growth we also maintain a tight control of costs.
The Company's cost base is already one of the lowest across FTSE 350-listed
REITs, with an EPRA cost ratio of 14.7% and is targeting a lower EPRA cost
ratio in the coming year, in line with our goal of having the lowest cost
ratio amongst the externally managed FTSE 350-listed REITs.
EPRA cost ratios (including direct vacancy costs): FTSE 350-listed REITs(23)
Defensive nature of supermarket real estate continues to prove attractive to
debt markets
During the year we agreed new debt facilities with SMBC of £104.5 million.
Post balance sheet we agreed a new £100 million unsecured facility with ING
and a private placement of €83 million loan notes at an all in fixed cost of
4.4% for seven years.
Both of the bank facilities are attractively priced at an average margin of
1.5% over SONIA. We have fully fixed the cost of these financings through
hedging.
The cost of the private placement is fixed at 4.4% and is highly attractive
when compared to the yield on our French supermarket assets. In addition, the
Euro denomination provides a natural hedge for the Company's investment in the
Carrefour portfolio acquisition in France.
These transactions, along with our BBB+ Fitch rating, underscore the Company's
strong balance sheet, high-quality assets and tenants and our ongoing ability
to secure debt from financially strong international lenders.
The ability to raise debt has allowed the Company to cautiously increase
leverage up to 37% to enable it to take advantage of attractive acquisition
opportunities, while maintaining significant headroom in debt covenants.
Including post balance sheet events, the Company has 100% of drawn debt fixed
or hedged at a weighted average finance cost of 3.8% (30 June 2023: 3.1%).
Continued progress on sustainability reporting
Investing responsibly for long-term value creation remains at the heart of the
Company's business model. The Company has continued to refine its approach
this year improving ESG data processes and setting long-term targets for the
Company.
The Company's refreshed sustainability strategy consists of three key pillars:
1. Climate and Environment
2. Tenant and Community Engagement
3. Responsible Business
These pillars are underpinned by the UN Sustainable Development Goals the
Company has identified as most material to the business, and by the Investment
Adviser's ongoing responsible investment commitments including in respect of
the Net Zero Asset Managers initiative, UN Global Compact and UN Principles
for Responsible Investment.
The Company has published its second standalone Sustainability Report which
details its sustainability performance and progress against the three pillars
of the sustainability strategy and plans for the year ahead. Highlights from
the Sustainability Report, beyond the Company's science-based target setting,
include the Company's first donation to the Atrato Foundation, improvements in
ESG data sharing with tenants and further environmental asset management
initiatives to benefit occupiers and communities. For the first time the
Company has also undertaken external assurance over its reported
location-based Scope 1, 2 and 3 GHG figures for FY24. The Assurance Report is
available on the Sustainability section of the Company's website.
In addition to the Company's Sustainability Report, disclosures in line with
the TCFD recommended disclosures and the Company's Streamlined Energy and
Carbon Reporting ("SECR"), have been included within the Annual Report on
pages 39 to 51.
Secondary listing on the Johannesburg Stock Exchange ("JSE")
The Company is in the process of applying for a secondary inward listing on
the Main Board of the Johannesburg Stock Exchange by introduction. The listing
of the Company on the JSE is expected to become effective by the end of the
calendar year, subject to various regulatory approvals in South Africa.
The Company will not place or issue any new shares in connection with its
application for a secondary listing on the JSE and will remain listed on the
Closed-ended investment funds category of the FCA's Official List and traded
on the LSE's Main Market. PSG Capital Proprietary Limited has been appointed
as Corporate Advisor and Sponsor in South Africa.
The Company believes that admission to trading of the shares on the JSE will
be beneficial to the Company and its shareholders. The secondary listing
should contribute to liquidity in the Group's shares through its increased
profile and improved accessibility in the South African market, where a number
of investors have already shown strong interest in investing in the Company,
driven by its high-quality portfolio of omnichannel supermarkets and secure
income providing an attractive dividend.
Outlook
We remain resolutely focused on delivering sustainable earnings growth for the
Company in our role as Investment Adviser. Whilst acknowledging the ongoing
impact of macro factors such as interest rates which are ultimately outside of
our control, we continue to drive strong performance at an operational level.
We believe this will translate into positive momentum for the Company.
In the Company's core UK market we see accretive opportunities that meet our
disciplined approach to capital deployment, albeit in a reduced addressable
market. France offers an extension of this strategy and an attractive
potential further source of earnings growth. Opportunities in geographies
outside of the UK will only be considered where asset quality can be
maintained and where we see attractive relative value. Should we look to
further increase the Company's exposure to this market, we would first consult
with shareholders and revisit the Company's Investment Policy.
Following receipt of the final portion of the Sainsbury's Reversion Portfolio
disposal proceeds received at the beginning of the year, the most prudent
decision was to pay down debt rather than deploy that capital into new assets
and expose the Company to higher leverage and potential valuation decline. As
valuations have stabilised and market sentiment has improved, we are more
comfortable in gradually normalising leverage levels.
We continue to consider all options for the Company to achieve earnings
growth. We are also exploring disposal and JV opportunities which present
capital recycling opportunities, the benefit of which comes both through
proving the portfolio NAV in the open market and through opportunities to
redeploy sales proceeds in the most earnings accretive manner for shareholders
at that time.
We currently consider that the Company's debt finance capacity is best
deployed into accretive acquisitions to grow earnings. However, the option of
share buybacks is continuously under review by the Investment Adviser and the
Board.
In summary, we are focused on delivering earnings accretion through a rigorous
approach to capital allocation. This, combined with tight cost controls in the
business, as evidenced through the Company's continually decreasing EPRA cost
ratio, should deliver efficient earnings growth and increased returns to
shareholders.
THE COMPANY'S PORTFOLIO
The Company has built a portfolio of strong trading, 'mission critical'
omnichannel supermarkets backed by leading grocery operators.
The central pillar of the Company's investment policy is to acquire
omnichannel supermarkets that form a key part of our tenants' last mile
fulfilment networks. These stores offer both an online provision and in-store
shopping, helping to capture a greater share of the grocery market. Currently
93% of our supermarket assets are omnichannel, by value.
The portfolio benefits from long unexpired lease terms with predominantly
upwards only, index linked leases, helping to provide long-term income with
contractional rental growth.
Within the UK, operators typically look at the affordability of rent based on
a benchmark of c.4% rent to turnover, simply seen as two weeks of trade. The
Group's UK supermarkets average rent to turnover is 4%, which equates to £24
per sq.ft. We have highly secure income with 100% rent collection during the
year and Tesco and Sainsbury's accounting for 75% of the Company's rent
roll.
During the year, the Group acquired a hand-picked portfolio of Carrefour
supermarkets in an off market, direct sale and leaseback with the operator.
The assets form a key part of Carrefour's omnichannel operation with 15 stores
operating Drive "Click & Collect". This channel accounts for 80% of online
grocery in France.
The standalone stores are subject to annual, uncapped inflation-linked rent
reviews with 12 year unexpired lease terms (tenant only break at year 10) and
are let on low and affordable rents of €7 per sq.ft. with an average RTO of
2.1%, below the RTO average of 2.5% in France. The rents produce a low capital
value of €110 per sq.ft. The transaction helps to increase the Group's
exposure to strong tenant covenants, further diversifies the portfolio and
promotes further income growth through index-linked rent reviews.
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 create
a retail destination helping to drive further footfall into the supermarket.
Non-grocery assets represent 6% of the Portfolio by value.
During the year, the Company selectively strengthened its Portfolio with the
addition of 20 supermarkets for a combined total of £135.8 million(24).
· July 2023: A Sainsbury's in Gloucester, for £17.4 million(24). The
store has a 15-year unexpired lease term(25) and is subject to 5-yearly
upwards only, open market rent reviews.
· July 2023: A Sainsbury's in Derby, for £19.0 million(24). The store
has a 15-year unexpired lease term(25) and is subject to 5-yearly upwards
only, open market rent reviews.
· March 2024: A Tesco in Stoke-on-Trent, for £34.7 million(24). The
store has a 11-year unexpired lease term and is subject to annual upwards only
RPI-linked rent reviews.
· April 2024: A portfolio of 17 Carrefour supermarkets located in north
and north west France, for £64.7 million(24). The portfolio was a direct sale
and leaseback with Carrefour with 12-year unexpired lease terms(25) and
subject to annual, uncapped inflation-linked, rent review.
The acquisitions during the year were purchased at an average net initial
yield of 6.7% (7.0% UK, 6.3% EUR) providing an attractive spread to the
Group's incremental cost of debt and were immediately accretive to earnings.
The increased exposure to index-linked income also generates further
contractual earnings growth underpinned by strong tenants.
Acquisitions during the year were financed using existing headroom within our
debt facilities and subsequently through the €83 million private placement
which was announced in July 2024.
For more information on financing arrangements refer to note 19 of the
financial information.
Tenant Exposure by Exposure by
rent roll Valuation
Tesco 48% 48%
Sainsbury's 27% 29%
Morrisons 5% 5%
Waitrose 4% 4%
Carrefour 4% 4%
Asda 2% 2%
Aldi 1% 1%
M&S 1% 1%
Non-food 8% 6%
Total 100% 100%
The Portfolio's weighting towards investment grade tenants provides secure
long-term income with a weighted average unexpired lease term of 12 years. In
addition, the portfolio is heavily weighted towards upwards only
inflation-linked rent reviews. The average cap on our inflation-linked leases'
rental uplifts is 4%.
The Portfolio's weighting towards upwards only, inflation-linked rent reviews
is 80% with 58% of the Portfolio being reviewed annually.
Indexation Income mix by
rent review type
RPI 70%
CPI 6%
ILC 4%
Fixed 2%
OMV 18%
Total 100%
Rent review Income mix by
rent review type
Annual 58%
5 yearly 41%
7 yearly 1%
Total 100%
UK rental caps % of UK supermarket index-linked portfolio
0-1 % 0%
1-2 % 1%
2-3 % 13%
3-4 % 64%
4-5 % 22%
Total 100%
The rent profile of the supermarkets is broadly in line with the market at 4%
RTO. The rental maturity profile is well dispersed with the first material
regear in 2029.
WAULT WAULT WAULT WAULT
rental breakdown
count breakdown
breakdown
0-1 yrs 0.0% - 0
1-2 yrs 0.0% - 0
2-3 yrs 0.2% 0.2 1
3-4 yrs 0.0% - 0
4-5 yrs 0.0% - 0
5-6 yrs 3.0% 3.1 1
6-7 yrs 4.4% 4.6 2
7-8 yrs 6.1% 6.4 4
8-9 yrs 4.8% 5.0 5
9-10 yrs 12.1% 12.6 21
10+ yrs 69.4% 72.3 39
Total 100.0% 104.2 73
The environmental efficiency of our stores continues to be a key priority for
our asset management initiatives, selective acquisitions and is supported by
the ongoing investment by grocery tenants into respective store estates. A
breakdown of our supermarket EPC ratings can be seen below:
Supermarket EPC breakdown
EPC rating % of UK supermarket
Portfolio by value
A 4%
B 52%
C 31%
D 13%
Total 100%
Active asset management delivering additional value and improving
sustainability of sites
The Company continues to seek sustainability and value creation initiatives at
our larger sites which are not fully demised to the core supermarket tenants
and therefore benefit from greater landlord control.
Alongside our tenants, we are looking at ways to increase the number of
Electric Vehicle ("EV") charging points at larger sites. We now have 58 EV
charging bays across five sites, all completed at zero capex cost to the
Company. Current EV sites:
· Morrisons, Workington
· Morrisons, Wisbech
· Tesco, Bradley Stoke
· Tesco, Chineham
· Tesco, Beaumont Leys
Works were completed at Tesco, Thetford in partnership with Atrato Onsite
Energy plc where Tesco entered into a 20-year Power Purchase Agreement ("PPA")
for a new solar installation on the rooftop at the store. The EPC rating was
re-assessed post installation and improved from a C to a B.
Opportunities to add complementary discount grocery operators continue to
progress. At Tesco, Chineham, the existing planning consent was successfully
implemented and terms are agreed with a discount grocery retailer. We have had
three additional offers for new discount food stores across the portfolio.
At Tesco, Chineham, McDonald's has commenced fit out works of a unit with a
new 25-year lease. In addition to this, Pets Corner is upsizing into a new
unit. At Tesco, Bradley Stoke, works are currently being undertaken to
amalgamate two units, one of which was vacant at acquisition and the other let
on a concessionary basis, with B&M committing to a new 10-year lease,
rendering the site 100% let.
Other developments are being considered at Sainsbury's, Newcastle, Morrisons,
Workington and Tesco, Bradley Stoke and various negotiations are ongoing with
potential tenants for those sites.
Portfolio valuation
Cushman & Wakefield valued the Portfolio as at 30 June 2024, 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 Portfolio as a whole. The Portfolio market value was £1,775.7 million,
an increase of £82.8 million reflecting a valuation decline of £53.0 million
(including currency exchange movements), which was offset by new acquisitions
of £135.8 million pre acquisition costs. This valuation reflects a net
initial yield of 5.9% and a like-for-like valuation decline of 3.2% since 30
June 2023. The benchmark MSCI All Property Capital Index during the same
period was down 4.5%.
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 3.2% reported in
the Company's valuation as at 31 December 2023. 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 4.0%. 82% of the
Company's leases benefit from contractual rental uplifts, with 80% linked to
inflation and 2% with fixed uplifts.
THE GROCERY MARKET
UK
Non-discretionary grocery market continuing to experience strong growth
The UK grocery market has highlighted its defensive, non-discretionary
characteristics this year with sales growth of 5.8% against a very strong
inflation-led comparator of 9.2% for 2023. Total grocery market sales are
forecast to be £251.6 billion in 2024, an increase of £59.6 billion or 31%
since pre-pandemic levels in 2019.
While the sector growth will continue to ease as inflation moderates in 2025
in year-on-year percentage terms, IGD projects continued healthy absolute
sales growth in the coming years. With forecast annual growth of around 3% to
2029, the UK grocery market is expected to reach £296 billion in the same
year.
The growth from 2019 out to IGD's projected total sales figure would represent
a 4.4% compound annual growth rate. The future projected growth is in line
with long run RPI/CPI projections and underlines the grocers' ability to
efficiently pass through inflation to consumers. The increased sales revenue
at the store level will support higher rents over the medium term.
Institute of Grocery Distribution ("IGD") UK Grocery Market Value 2019-2029
(forecast)
This track record of strong growth in the sector has attracted new
institutional investors into the grocery real estate investment market and has
also seen a continued programme of store buybacks by Tesco with four stores
purchased by the grocery operator in the year.
Online grocery channel returned to growth following a rebase post pandemic
Online grocery now accounts for 12% of the total market. Online market share
has fallen back from the pandemic peak of 15%, but having rebased to 12%, it
is still one of the fastest growing channels according to Kantar. The online
channel was permanently enlarged throughout the pandemic - over 50% of online
grocery shoppers during 2020 were new to the channel(26) and much of this
change in consumer behaviour has been sticky.
Omnichannel stores are optimally placed to benefit from the combined growth of
both in store sales and online. Operators are able to increase online capacity
at low cost and benefit from shorter drive times due to their existing
omnichannel stores' proximity to customers. This results in a greater number
of deliveries per hour and drives greater profitability than the centralised
fulfilment (or 'dark store') model. Tesco recently announced that online sales
participation is stable at 13% of UK sales with basket sizes up 4.2% and
online sales up 10%. The return to growth of the online channel is evident in
the latest IGD forecast which predicts growth of 27% (£6 billion) by 2029.
Online grocery spend (UK) (2017 to 2023 actual, 2024 to 2026 forecasted)
Omnichannel stores capture the largest share of growth
Large format omnichannel stores, such as those which the Company targets, have
captured the largest share of sales growth in the sector since 2019(27). In
that time the total UK grocery sector has increased from £192 billion in 2019
to £252 billion, with omnichannel supermarkets accounting for £20 billion of
that growth.
Importantly, this growth is being generated from existing store estates
meaning this is like-for-like sales growth, resulting in improved sales
densities and enhanced profitability at the store level. From a landlord
perspective, this ensures that rents remain affordable for tenants,
particularly as sales growth has been running ahead of capped rental uplifts.
It also provides a strong backdrop for higher rents in the future.
Large format stores have the scale to offer the full product range giving
customers the widest product choice, whilst also offering the best value to
customers through in-store only and loyalty scheme product offers. In the
current inflationary environment shoppers are looking to achieve best value on
their purchases. Tesco and Sainsbury's loyalty schemes which offer attractive
discounts to members, have been very successful Sainsbury's reporting that
nine out of ten £80+ weekly shopping baskets are sold to customers using
their Nectar loyalty card.
Tesco and Sainsbury's maintained market share whilst discounter growth begins
to slow
The UK grocery market is highly consolidated with the six leading operators
accounting for 83% of the market. These operators can be divided into two
groups: the four multichannel (in-store and online) operators, Tesco,
Sainsbury's, Asda and Morrisons, and two limited range in-store only
discounters, Aldi and Lidl.
5-year operator market share (UK) (June 2019 - June 2024)(28)
Tesco and Sainsbury's, the Company's key tenants, continue to be the leading
players in the UK grocery space with 27.7% and 15.2% market share
respectively. Both operators have increased market share in the last 12 months
and are seeing the benefit of investments in their stores, product ranges and
loyalty schemes. Asda and Morrisons (12.8% and 8.7% market share respectively)
have continued to lose market share following their highly leveraged takeovers
in 2020 and in the face of competition from the limited range discounters.
Discounter portfolio size (UK), 2017-2023
While Aldi and Lidl achieved impressive growth which accelerated in the period
from 2020 to 2023, with Aldi's market share growing from 7.5% to 10.2% and
Lidl's growing from 5.8% to 8.1% in the period, this growth appears to have
slowed. In the case of Aldi, this growth reversed in 2024 with market share
marginally declining to 10.0% while Lidl increased market share at a lower
annual rate to 8.1%. This lower growth can be linked to several factors
including a reduced rate of store openings which had previously been the key
driver of market share growth.
The challenge for the discounters will be achieving further growth whilst
maintaining profitability. 98% of the Company's UK portfolio already has a
discounter present within a 10-minute drivetime. We expect new store opening
by the discounters to cannibalise existing discounter trade and therefore the
marginal profit of new stores will be diluted.
Lower inflation expected to drive grocery profitability
Grocery price inflation has driven significantly higher revenues for
supermarkets in recent years. Whilst the ability for supermarkets to pass
through inflation to consumers highlights the non-discretionary nature of
grocery, there has of course been an impact on consumers' shopping habits.
Cost of living pressures have decreased consumer purchasing power, which has
resulted in a trading down to supermarkets' own brand and value ranges.
Through investment in cost reduction programmes and improved efficiency,
coupled with product price increases, operators have largely been able to
preserve squeezed margins.
As food price inflation begins to moderate, we expect consumers to again
adjust their behaviour, driving volume growth. However, the operators will
continue to benefit from the cost efficiencies the high inflation rates of
recent years have required and therefore we see volume growth in the coming
years being a driver of increased profitability.
The highly competitive and ultra-low margin nature of the Discount market has
meant Aldi and Lidl have had to increase prices faster than other operators in
order to protect thin margins of 1-2%. Whilst the Discount channel has seen
increasing market share, this has primarily been driven by increasing prices
with Lidl and Aldi inflating prices by 25.7% and 23.1% respectively over the
three months to April 2023(29).
ONS: Grocery inflation (Jun 2020 - Jun 2024)
With inflation beginning to moderate, grocery volumes are expected to increase
as household cost pressures reduce, encouraging higher spending and purchasing
a broader range of products, including non-essentials and premium items.
Tesco and Sainsbury's have both recently announced a return to volume growth
with increased basket sizes.
FRANCE
France Grocery Market Value (2019-2023, 2024-2028 (forecast))(30)
The French grocery market, one of the largest in the world by total value, has
shown consistent growth over a prolonged period. The defensive and
non-discretionary sector has experienced YoY sales growth of 2.1% against a
strong average inflation-led comparator of 5.6% for 2023. Total market sales
are forecasted to be €290 billion in 2024, an increase of €44 billion or
18% since 2019. The French grocery sector is expected to reach €321 billion
by 2028 representing an annual increase of c.3%.
Insee: Grocery inflation (Jun 2020 - Jun 2024)
Similar to the UK, France has seen significant inflation pressure in recent
years, helping to drive revenue growth at the expense of volumes as consumers
changed purchasing habits to manage budgets. Grocery inflation increased to an
all-time high of over 15% in 2023, up from 0.8% in 2020. As inflationary
pressures ease, we expect to see volumes increase and consumers return to more
traditional shopping habits.
French grocery market share (July 2024)(31)
The French grocery market is highly consolidated with 60% of total market
share controlled by three grocery operators; E.Leclerc, Carrefour and
Intermarche. Over the last 6 months, Carrefour has increased market share by
0.3% to 19.6%. It has accelerated its price investment programme, the effect
of which has been to increase market share in the face of competition from
cheaper alternative grocers, while preserving profitability. Carrefour's
increase in market share was also driven by volume growth as consumers return
to traditional shopping habits and the effects of inflation subside.
French Online grocery spend (2017 to 2023 actual, 2024 to 2026 forecasted)
Online market share in France has been permanently enlarged due to an increase
in take up throughout the pandemic. The channel has grown by 93% between 2018
and 2024. The channel has been further strengthened by investment programmes
by operators such as Carrefour which, across the group, is planning to invest
€3 billion in the online channel(32) and for omnichannel customers to
represent 30% of all customers by 2026(33).
Due to geographic differences between the UK and France, 80% of online sales
are fulfilled via Click & Collect vs 20% in the UK. Operators will use
large fulfilment centres 'hubs' to pick and pack dry goods which are then
delivered to stores which operate as 'spokes'. These stores are responsible
for picking fresh goods with the combined order collected by the customer in
the car park.
Whilst the French online model is different, it is built around mission
critical omnichannel stores, in strong locations which provide last mile
fulfilment to consumers.
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
2024.
Financial results
30 June 2024 30 June 2023
£'000 £'000
Net rental income 107,232 95,244
Administrative expenses (15,218) (15,429)
Net income from joint ventures - 11,746
Net finance expenses(34) (16,192) (19,162)
Adjusted earnings 75,822 72,399
Net rental income
In the year, the portfolio generated net rental income of £107.2 million (30
June 2023: £95.2 million), representing an increase of £12.0 million or
12.6% compared to the prior year. The growth in net rental income was driven
by a full period of rental income from property acquisitions and the effect of
contracted rent reviews.
On a like-for-like basis, EPRA net rental income increased by 2.1%. During the
year we successfully completed 22 rent reviews increasing annualised passing
rent by £2.9 million, with the reviews being settled on average 4.8% ahead of
previous passing rent (or 4.0% on an annualised basis).
Net service charge expenditure remained broadly flat at £0.6 million (30 June
2023: £0.6 million), however our gross to net margin continues to be among
the highest in the sector at 99.4% (30 June 2023: 99.4%), reflecting the
strength of our core single-let strategy and further highlighting the covenant
quality of our tenant base.
Rent collection rates were 100% for the year to 30 June 2024 (30 June 2023:
100%), as our focus on top trading stores and covenant quality provided
exceptional income security.
Administrative and other expenses and EPRA cost ratio
Administrative and other expenses, which include all operational costs of
running the business, decreased by £0.2 million to £15.2 million (30 June
2023: £15.4 million). We continue to monitor the operational efficiency of
the Group through its EPRA cost ratio, which is among the lowest in the
sector, and improved by 80bps to 14.7%.
30 June 30 June
2024 2023
EPRA cost ratio including direct vacancy costs 14.7% 15.5%
EPRA cost ratio excluding direct vacancy costs 14.4% 15.2%
Net finance expenses(35)
During the year, the Group received £134.9 million following the divestment
of its interest in the Sainsbury's Reversion Portfolio Joint Venture. Part of
the proceeds were utilised to pay down debt, subsequent to which the Group
increased its debt facilities with a new SMBC facility.
Net finance expenses reduced by £3.0 million to £16.2 million compared to
the prior year, primarily due to the short-term loan in relation to the Joint
Venture in the prior year and a lower average debt cost.
Adjusted earnings
The Directors consider adjusted earnings a key measure of the Company's
underlying operating results, and a reference through which the Board measures
dividend cover. Adjusted earnings therefore excludes one-off items which are
non-recurring in nature and includes finance income on derivatives held at
fair value through profit on loss. Adjusted earnings for the year to 30 June
2024 were £75.8 million (30 June 2023: £72.4 million). On a per share basis,
adjusted earnings increased by 0.3 pence per share to 6.1 pence for the year
to 30 June 2024, an increase of 4% (30 June 2023: 5.8 pence).
A full reconciliation between IFRS and Adjusted earnings can be found in note
11 of the financial information.
Dividend
In the financial year ended 30 June 2024, the Company paid the following
interim dividends:
Amount In respect of the Paid/
Declared pence per share financial year ended to be paid
6 July 2023 1.500p 30 June 2023 4 August 2023
5 October 2023 1.515p 30 June 2024 16 November 2023
4 January 2024 1.515p 30 June 2024 14 February 2024
4 April 2024 1.515p 30 June 2024 16 May 2024
Post period end, the Company declared an interim dividend in respect of the
financial year ended 30 June 2024 of 1.515 pence per Ordinary Share (the
"Fourth Quarterly Dividend"). The Fourth Quarterly Dividend was paid on 16
August 2024 as a Property Income Distribution ("PID") to shareholders on the
register as of 12 July 2024. The Company has now declared four quarterly
dividends totalling 6.06 pence per Ordinary Share in respect of the financial
year ended 30 June 2024.
EPRA net tangible assets and IFRS net asset
30 June 2024 30 June 2023
£'000 £'000
Investment property 1,768,216 1,685,690
Bank and other borrowings (694,168) (667,465)
Cash 38,691 37,481
Other net (liabilities)/assets (28,207) 100,828
EPRA net tangible assets 1,084,532 1,156,534
Fair value of interest rate derivatives 31,449 57,583
Fair value adjustment for financial assets held at amortised cost 3,493 3,609
IFRS net assets 1,119,474 1,217,726
EPRA net tangible assets ("EPRA NTA") is considered to be the most relevant
asset measure for the Group, and includes both income and capital returns, but
excludes the fair value of interest rate derivatives and includes a
revaluation to fair value of investment properties held at amortised cost.
At 30 June 2024, EPRA NTA was £1,085 million (30 June 2023: £1,157 million),
representing an EPRA NTA per share of 87 pence, a decrease of 6.3% since 30
June 2023 primarily due to the portfolio revaluation deficit of £65.8 million
or 5 pence per share.
Portfolio Valuation
The value of the portfolio at 30 June 2024, including the fair value of
investment properties held at amortised cost, was £1,776 million (30 June
2023: £1,693 million). During the Year, the Group invested £135.8 million in
20 omnichannel supermarkets (excluding transaction costs). On a like-for-like
basis, the portfolio recognised a revaluation deficit of £53.8 million, or
3.2%, which 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.
Cash Flow and Net Debt
Cash flows from operating activities before changes in working capital
increased by £12.6 million to £89.6 million, primarily due to increased
rental income received from rent reviews and property acquisitions.
During the year, the Group received £134.9 million following the disposal of
its interest in the Sainsbury's Reversion Portfolio Joint Venture. Part of the
proceeds were used to acquire two omnichannel supermarkets with a combined
acquisition cost of £36.4 million (excluding transaction costs), providing
earnings growth in line with the Group's strategy, with the remaining proceeds
used to reduce drawn debt.
In the second half of the year, the Group drew down £106.8 million from
facilities with existing lenders, to fund the acquisition of 18 supermarkets.
Net debt increased by £25.5 million over the year to 30 June 2024, to £655.5
million, and represents a loan to value of 37% (30 June 2023: 37%). The Group
continues to maintain a conservative leverage policy, with a medium-term
target LTV of 30-40%.
Financing
30 June 2024 30 June 2023
Undrawn facilities(36) £104m £190m
Loan to value 37% 37%
Net debt / EBITDA ratio 7.1x 7.9x
Weighted average cost of debt(37,38) 3.8% 2.9%
Interest cover 6.2x 4.1x
Average debt maturity(39)(,42) 4.0 years 3.7 years
% of drawn debt which is fixed/hedged(37) 100% 100%
In the first half of the year, the Group completed a comprehensive debt
refinancing exercise, completing a new £67 million unsecured facility with
Sumitomo Mitsui Banking Corporation, at the same time reducing its HSBC
facility from £150 million to £50 million and cancelling its Barclays/RBC
facility of £77.5 million.
In the second half of the year, the Group increased its unsecured facility
with Sumitomo Mitsui Banking Corporation by £37.5 million to £104.5 million,
to facilitate the acquisition of a Tesco omnichannel supermarket in
Stoke-on-Trent.
In April 2024, the Group drew down €81.7 million from its existing HSBC
revolving credit facility, having also increased the total size of the
facility by £25 million. The funds were used to acquire a portfolio of 17
supermarket stores from Carrefour.
At 30 June 2024, the Group has gross borrowings of £698 million diversified
across eight lenders, including £415 million of unsecured borrowings and
£283 million of secured borrowings. In addition, the Group has available
undrawn facilities of £104 million (which includes a £50 million accordion)
and plenty of headroom under banking covenants, providing the capacity to
execute opportunistic transactions as they arise.
Post year end, the Group announced the completion of a £170 million
refinancing through its first private placement issuance and a new unsecured
bank facility.
As part of the refinancing, the Company completed an agreement with a group of
institutional investors for a private placement of €83 million new senior
unsecured notes, which have a maturity of 7 years and a fixed rate coupon of
4.44%.
In addition, the Group also refinanced its existing £97 million secured debt
facility with Deka through a new £100 million unsecured debt facility with
ING Bank N.V., London Branch. The facility comprises a £75 million term loan
and a £25 million revolving credit facility, which has a maturity of
three-years and has two one-year extension options. Following the refinancing,
the Company has a weighted average debt maturity of 4 years, a weighted
average debt cost of 3.8% and available undrawn facilities of £176 million
(including £50 million accordion).
The Group's interest rate risk is mitigated through a combination of fixed
debt and derivative interest rate swaps and caps. During the year, the Group
utilised the value of its existing in-the-money interest rate hedges to extend
the term of its hedging arrangements by 12 months through terminating existing
derivatives and acquiring new instruments that aligned with the expiry of the
Group's debt portfolio. This exercise was performed at no additional cost to
the Company.
The Group maintains good long-term relationships with all lenders and is
currently in discussions regarding refinancing requirements over the next
financial year.
The Group continues to monitor its banking covenants and maintains significant
headroom on its LTV and ICR covenants. As at 30 June 2024, property values
would need to fall by around 38% before breaching the unsecured gearing
covenant. Similarly, net rental income would need to fall by 72% before
breaching the unsecured interest cover covenant.
Fitch Ratings, as part of its annual review, reaffirmed the Group's BBB+
rating with a stable outlook.
TCFD COMPLIANT REPORT
Energy and Carbon Foreword
The Company recognises the urgent need to address climate change and is
committed to supporting the required transition to a net zero economy.
This year, the Company reached a significant milestone with the Climate and
Environment pillar of its Sustainability Strategy, with the setting of a
formalised 2050 net-zero commitment and associated GHG emissions reduction
targets. These targets were approved by the SBTi in March 2024, and include a
commitment by the Company to reduce Scope 1 and 2 emissions 42% by 2030 and to
reduce Scope 1, 2 and 3 emissions 90% by 2050 (from a FY23 base year).
The Company's Board and the Investment Adviser recognise the importance of
transparent, decision-useful sustainability reporting to improve our
accountability to stakeholders. As such, the Company's SECR and TCFD Report
can be found below on pages 39 to 51. In addition, the Company has published a
standalone Sustainability Report covering its wider ESG performance.
The Company remains committed to further progressing its climate-related
strategy and emissions reductions activities, as it continues to identify
opportunities to reduce operational carbon and energy use and contribute
towards a net zero future.
Streamlined Energy and Carbon Reporting
The below table and supporting narrative summarise the SECR disclosure. As a
listed entity, Supermarket Income REIT plc is required to comply with the SECR
regulations under the Companies (Directors' Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018. Data for the year
2022-2023 and 2023-2024 is included as this is the Company's second year of
SECR.
Compared to the previous reporting year (2022-2023), there has been a slight
increase in Scope 1 fuel consumption and a decrease in Scope 2 purchased
electricity consumption. Overall, this has resulted in a decrease in total
Scope 1 and 2 emissions from 111 tCO(2)e in the previous reporting year to 103
tCO(2)e (7% reduction) in the current reporting year. Due to this overall
decrease in the Company's Scope 1 and 2 emissions, emissions from Fuel and
Energy related activities ("FERA") (Scope 3 category 3) have also decreased
from 37 to 32 tCO(2)e (14% reduction) for this reporting year.(40) Emissions
from Purchased Goods and Services (Scope 3 category 1) have decreased from
3,132 to 2,215 tCO(2)e (30% reduction) for this reporting year, due to a
decrease in total included spend as exclusions were more rigorous this year.
This year exclusions from spend include service charge costs and costs that
are recharged to tenants in full. This is due to a spend-based approach being
used for the Scope 3 Purchased Goods and Services, which supports the Company
in prioritising its suppliers for engagement on decarbonisation. This year no
newly built properties have been added to the portfolio; therefore, no
emissions are attributed to Capital Goods (Scope 3 category 2) this year.
Two new supermarket sites have been acquired by the Company in this reporting
year. Even with the two new sites acquired, Scope 3 energy consumption and
resultant emissions from Downstream Leased Assets (Scope 3 category 13), which
includes tenant Scope 1 and 2 emissions, have decreased from 83,794 to 81,931
tCO(2)e (1% decrease) for this reporting year due to improved estimation
methods. Overall, total Scope 1, 2 and 3 emissions have decreased from 87,537
tCO(2)e in the previous reporting year to 84,281 tCO(2)e (4% reduction) in the
current reporting year.
An error in the supermarket refrigerant emission calculation was found for the
previous reporting year (2022-2023), resulting in missing Scope 3 downstream
leased asset emissions reported last year. This has now been rectified and
restated figures are included in the table below. The correction has resulted
in an 8% increase in total emissions for the reporting year 2022-2023. In
April 2024, the Company acquired a portfolio of Carrefour omnichannel
supermarkets in France through a sale and leaseback transaction. Given the
timing of this transaction, full year energy and carbon data has not yet been
collected for these French assets. Therefore, the disclosures in this SECR
Report focus on the energy and carbon performance of the Company's UK
portfolio only. However, the Company intends to collect the required energy
and carbon performance data from these French assets over the next reporting
period to ensure the Company's next SECR Report covers both UK and French
assets.
Report Previous reporting year: As restated: 1(st) July 2022 - 30(th) June 2023 Current reporting year:
1(st) July 2022 - 30(th) June 2023 1(st) July 2023 - 30(th) June 2024
Location UK UK UK
Emissions from the combustion of fuel and operation of facilities (tCO(2)e) 10 10 11
(Scope 1)
Emissions from purchase of electricity (location-based) (tCO(2)e) (Scope 2) 101 101 92
Emissions from business travel in rental cars or employee-owned vehicles where N/A N/A N/A
company is responsible for purchasing the fuel (tCO(2)e) (Scope 3)(41)
Total mandatory emissions (tCO(2)e)(42) 111 111 103
Voluntary: Emissions from Fuel and Energy related activity (location-based) 37 37 32
(tCO(2)e) (Scope 3)
Voluntary: Emissions from Purchased Goods and Services (tCO(2)e) (Scope 3) 3,132 3,132 2,215
Voluntary: Emissions from Capital Goods (tCO(2)e) (Scope 3) 463 463 N/A
Voluntary: Emissions from Downstream Leased Assets (tCO(2)e) (Scope 3)(43) 77,274 83,794 81,931
Total gross emissions (tCO(2)e)(44) 81,017 87,537 84,281
Energy consumption used to calculate Scope 1 emissions (kWh) 606,629 52,726 56,568
Energy consumption used to calculate Scope 2 emissions (kWh) 521,321 521,321 443,555
Energy consumption used to calculate Scope 3 emissions (kWh)(45) 186,704,059 187,756,005 174,876,336
Total energy consumption (kWh) 187,832,009 188,330,052 175,376,459
Intensity ratio: tCO(2)e (gross Scope 1 + 2) per m(2) of floor area(46) 0.00045 0.00045 0.00037
Intensity ratio: tCO(2)e (gross Scope 1, 2 + 3) per m(2) of floor area(47) 0.14 0.14 0.10
Methodology
The 2023/24 footprint within the scope of SECR reporting is equivalent to
84,281 tCO(2)e, including voluntary emissions, with the largest portion being
made up of emissions from downstream leased assets at 81,931 tCO(2)e.
Anthesis has calculated the above GHG emissions to cover all material sources
of emissions for which the Company is responsible. The methodology used was
that of the GHG 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 by 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 2023 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 2023. 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 and mapped to 2023 DEFRA Input/Output ("IO")
categories. No newly built sites were acquired during this reporting year,
therefore there were no Capital Goods this year. 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.
The Company continued its efforts to improve energy efficiency across
landlord-controlled areas and to support tenant-led energy efficiency measures
between 1 July 2023 and 30 June 2024. A number of sites have been identified
for LED lighting upgrades across car park and communal areas which will have a
positive impact on the Company's Scope 2 emissions. Tenant-led investments in
store upgrades have also focused on energy efficiency and resulted in EPC
rating improvements, as discussed in the Sainsbury's Cheltenham case study
above.
Approach to GHG emissions restatements
To improve its GHG reporting, the Company may restate previously reported data
to provide a more accurate representation of previous performance and its
decarbonisation journey, should a significant change or error be identified,
such as:
· Significant changes in company structure and activities
· Methodology changes such as improvements in emissions factors, data access
and calculation methodologies
· Discovery of significant error(s) in previously reported data
The Company will restate the baseline used for its Scope 1, 2 and 3 emissions
reductions targets if any of the changes above result in a change of 5% or
more, in line with the requirements of the SBTi. The Company will review the
impact of the Carrefour portfolio acquisition on its SBT baseline once full
year energy and carbon data is collected for these French assets.
Taskforce on Climate-Related Financial Disclosures (TCFD)
Introduction
The following report contains the Company's voluntary climate-related
financial disclosures for the reporting period 1 July 2023 - 30 June 2024 in
relation to governance, strategy, risk management and metrics and targets. It
addresses all four core elements and 11 Recommended Disclosures as detailed in
"Recommendations of the Task Force on Climate-Related Financial
Disclosures".(48)
Governance
Describe how the board exercises oversight of climate-related risks and
opportunities:
The Board is responsible for setting the Company's sustainability strategy and
overseeing the Company's approach to climate-related risks and opportunities
affecting the business.
Both the Board and JTC Global AIFM Solutions Limited, the Company's
Alternative Investment Fund Manager (the "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 its ESG Committee in May 2022, whose role
helps to ensure that sustainability issues, including climate change, are
discussed in sufficient detail and given appropriate focus at the Board level.
The ESG Committee, which is Chaired by Frances Davies and attended by all of
the Company's Directors, meets at least four times a year and has
responsibility for overseeing the delivery of the Company's Sustainability
Strategy, including identification and management of climate-related risks.
The Board is primarily informed of climate-related issues by the Investment
Adviser through the meetings of the ESG Committee. The Board also considers
climate-related issues when making decisions on acquisitions and this process
is described below under the managing climate-related risks section of this
report. See Figure 1 for an overview of the Company's governance structure
related to climate-related risks and opportunities.
Figure 1 | Governance structure related to climate-related risks and
opportunities
The Board reviewed and approved a refreshed Sustainability Strategy for the
Company in March 2024, of which "Climate and Environment" is one of three key
pillars. The ESG Committee receives a report and verbal update from the
Investment Adviser at every quarterly meeting in relation to this aspect of
the strategy, and the other two pillars (namely, Tenant and Community
Engagement and Responsible Business). The ESG Committee update includes the
Company's quarterly performance against environmental measures outlined in the
Company's last TCFD Report
(https://supermarketincomereit.com/wp-content/uploads/2023/09/Supermarket-Income-REIT-plc-Annual-Report-2023.pdf)
(reporting period 1 July 2022 to 30 June 2023). The update also covers the
broader delivery of the Company's sustainability strategy, including
activities such as the roll-out of rooftop solar photovoltaic ("PV") and EV
charging, improvement of Energy Performance Certificate ("EPC") ratings,
ESG-related investor engagement and climate transition planning. These updates
allow the ESG Committee to oversee the Investment Adviser's performance
against the agreed deliverables under the sustainability strategy, as well as
holding it to account for non-performance. In addition, at the annual Board
strategy day event, sustainability strategy is included as a core agenda item.
The ESG Committee is also involved in the review process and ultimate approval
of the Company's TCFD Report. The Investment Adviser's Managing Director, ESG,
is responsible for leading the delivery of these services to the ESG Committee
on behalf of the Investment Adviser.
The Board is committed to ongoing improvement of the Company's climate-related
disclosures. During the reporting year, sustainability consultancy Anthesis
was again engaged to provide external support to help shape the Company's
response and alignment to the TCFD recommendations. As part of this support,
Anthesis conducted an independent peer review. In addition, they provided
analysis of and recommendations on the Company's final disclosures to further
advance its progress against best practice approaches and identify focus areas
for the Company to address in upcoming disclosures. The Board is invested in
enhancing the Company's understanding of climate risks and opportunities and,
as part of this, approved budget allocation for ongoing climate-related
activities, for the next reporting year. This facilitates forward planning and
preparation of ESG matters targeted for the next reporting year.
The Board recognises that appropriate training and upskilling is a key enabler
to ensure successful implementation of the Company's sustainability strategy
and, specifically, the integration of sustainability factors into the
investment process. In 2023 and 2024, Climate Risk training was delivered to
the Investment Adviser and the Board respectively, to improve understanding of
climate-related risks and opportunities and their tracking and oversight in
order to support the management of these issues in the Company's activities.
Describe management's role in assessing and managing climate-related risks and
opportunities:
Investment Adviser
The Investment Adviser is responsible for the day-to-day delivery of the
sustainability strategy as approved by the Board on behalf of the Company,
including the assessment, management and reporting of climate-related risks
and opportunities.
Steve Windsor, Principal and Sustainability Champion at the Investment
Adviser, is responsible for oversight, monitoring and management of
sustainability risks and opportunities including those related to climate
change. The Investment Adviser's Managing Director, ESG, 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 Investment Adviser's Managing Director, ESG, and Fund Management team meet
fortnightly to discuss ESG issues impacting the Company, and climate risk is a
standing agenda item as part of these meetings. The Managing Director, ESG is
also 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 management of the Company's sustainability activities
including climate-related reporting.
Where the Company has appointed a third-party 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. In order to formalise oversight of the TCFD
reporting process, the Investment Adviser plans to formally establish a
dedicated Climate Risk and TCFD Working Group in the next reporting period.
This Working Group will be led by the Investment Adviser's Managing Director,
ESG, and consist of members of the wider Investment Adviser team, including
from fund management and finance, to ensure appropriate assignment of
climate-related responsibilities and monitoring of climate-related issues.
Strategy
Describe the climate-related risks and opportunities the organization has
identified over the short, medium, and long term.
In accordance with TCFD recommended disclosures, the Company has identified
climate-related risks and opportunities across two key categories: (1)
physical risks related to the physical impacts of climate change (acute and
chronic) and (2) transition risks related to the transition to a low carbon
economy (policy, legal, technology, and market).
The Company considered these risks over three key time periods: from now until
2030 (near-term), from 2030 to 2050 (medium-term) and 2050 to 2100
(long-term).
Time Horizon Details
Near-term (until 2030) The near-term time horizon (2024-2030) aligns to both the Company's near-term
Science Based Target (2030) and the anticipated compliance deadline for the
proposed Minimum Energy Efficiency Standards ("MEES") regulation. The
Investment Adviser anticipates 2030 as the target year for a minimum B EPC
ratings. Due to the 12 year weighted average unexpired lease term ("WAULT") of
its portfolio, the Company expects that there will be a limited number of
lease renewals and few changes to its existing leases during this time
period.
Medium-term (from 2030 to 2050) The medium-term time horizon (from 2030) aligns with a period of current lease
renewals for the majority of the Company's assets, during which physical and
transition risks associated with the Company's portfolio may have greater
influence on lease agreements with existing and new tenants.
Long-term (2050 to 2100) The long-term time horizon aligns with both the Company's long-term / net-zero
Science Based Target and with a potential increase in the likelihood and
severity of physical climate risks impacting the Company's portfolio. This
allows for the creation of long-term strategies and planning regarding
portfolio management in response to these risks.
The Company considered two key temperature scenarios as part of its scenario
analysis conducted this year:
Scenario Details
1.5°C / REMIND / SSP2 / Orderly ("1.5°C Net Zero") Net Zero 2050 is an ambitious scenario that limits global warming to 1.5 °C
through stringent climate policies and innovation, reaching net zero CO₂
emissions around 2050.
3°C / REMIND / SSP2 / "3°C: Current Policies" Current Policies Scenario. No additional climate policies are applied leading
to significant global warming (exceeding 3°C) with severe physical risks and
irreversible impacts like sea-level rise.
Further details on the hazard level model and data sets used as part of the
Company's scenario analysis is included in the appendix of this TCFD Report.
The Company has utilised the MSCI Real Assets (Real Estate) Climate Risk Tool
(https://www.msci.com/our-solutions/climate-investing/real-estate-climate-solutions)
(the "MSCI tool") and associated Climate Value at Risk ("Climate VaR") outputs
to quantify the physical risks across the post-2050 (long-term) time
horizon.(49) The outputs provide a qualitative risk assessment using set
Financial Risk Categories determined based on the asset's Climate VaR. For
each hazard and for the transition risk, the Climate VaR is classified into
one of seven buckets as shown in Figure 2 below(50):
Figure 2 | Financial Risk Category
The Company recognises the MSCI tool is only one of many different scenario
analysis tools currently available on the market. In addition, such tools and
the underlying data models and inputs they utilise are constantly evolving as
climate research and available data sets continue to advance. Therefore, the
Company has adopted this method of scenario analysis as an efficient way to
review its portfolio, but any findings will require further investigation to
establish their accuracy. The Company's plans in this respect are outlined in
more detail under the 3°C (Current Policies) temperature scenario results
shared below on page 45. The Company also intends to collaborate with MSCI,
and other data providers that may be used in future, to provide feedback on
the tools and data inputs and to challenge assumptions and outputs when
necessary.
In FY23 the sustainability consultancy, Anthesis, was engaged to conduct a
preliminary climate risk assessment and qualitative scenario analysis as part
of preparing the Company's 2023 TCFD Report. During this assessment, the
following risks were considered as potentially most material to the Company
determined based on their relative likelihood and potential financial impact:
1. Physical Risk:
a. Flooding (Acute & Chronic): Increased insurance premiums and
increased capital expenditure required on adaptative or remediation measures.
b. Extreme Heat (Acute): Increasing 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.
2. Transition Risk
a. Policy and Legal Risk: Currently represented by the proposed MEES
regulation, but could include new or additional regulations. Any properties
not compliant with MEES could reduce tenant demand, reduce rent premiums or
result in fines.
b. Market: Energy costs may increase for tenants, shifting preferences
for more energy efficient buildings and renewables.
c. Reputation: Tenants demand preferences 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.
This initial analysis has been expanded on in this reporting year with further
qualitative and quantitative analysis undertaken over three potential risks,
namely:
· Physical risk of flooding (both coastal and pluvial);
· Extreme heat; and
· Transition risks related to MEES, as discussed in the Strategy section
above
These risks were selected due to their potential impact over different time
horizons, with the proposed MEES regulations identified as a key near-term
risk and flooding and extreme heat identified as potential longer-term risks,
allowing a broader assessment of the Company's strategic response and
resilience. The Company will look to further explore market and reputation
related transition risks (both longer term transition risks) in the next
reporting period.
In FY23, the Company also identified the following climate-related
opportunity:
1. Climate-related opportunities:
a. Market: By accelerating deployment of energy 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.
During the reporting period, the Company has acted on both the opportunity to
set a SBT and continued deployment of energy efficient measures - including
progressing roll out of rooftop solar PV and installation of EV across the
portfolio. These measures and the Company's targets in relation to
climate-related opportunities are discussed in more detail under the Metrics
and Targets section of this report, in Tables B and E.
As identified above, a key progress milestone in the maturity of the Company's
climate risk processes achieved in this reporting period is the adoption of
the MSCI tool. The Company has used this tool to assist with quantitative
scenario analysis and an assessment of the portfolio's exposure to
climate-related physical risks and associated value at risk. The Physical Risk
model integrated within the MSCI tool assesses the cost of physical risks on
buildings, using climate data for the given locations of assets incorporating
the hazards of extreme heat, extreme cold, fluvial and coastal flooding,
tropical cyclones and wildfire (see Figure 3). A summary of the key climate
data sets integrated into the MSCI Physical Risk model is included in the
appendix of this TCFD Report.
Figure 3 | Physical Risk Hazards:
In addition to other result outputs considered, the MSCI tool was also used to
conduct a physical risk assessment, identifying the percentage of the
Company's assets at above negligible risk(51). The assessment was undertaken
against the two key physical risks that were qualitatively analysed in the
Company's 2023 TCFD analysis, namely flood risk and extreme heat.
This is the first stage in the Company's project to develop plans to mitigate
any material climate risks at an asset level.
The outputs of this assessment under the high emissions 3°C (Current
Policies) temperature scenario (aggressive outcome)(52) highlighted the
following results for the portfolio(53):
· When considering both flood and extreme heat independently, the
majority of the Company's portfolio properties are exposed to negligible
(>0 to 0.5% VaR) or no identifiable risk. The same can be said when
considering aggregate physical risk overall.
· In terms of coastal flood risk, 89% of the portfolio properties has
either no identifiable or negligible exposure to coastal flooding risk.
· In terms of fluvial flood risk, 83% of the portfolio properties has
either no identifiable or negligible exposure to fluvial flooding risk.
· In terms of extreme heat risk, the results showed that no assets in
the portfolio face more than negligible exposure to extreme heat under this
scenario. Therefore, highlighting flood risk rather than extreme heat as a
priority for further analysis. This is in line with the benchmark of MSCI UK
Quarterly Supermarket Index which also identifies extreme heat as a negligible
risk under this scenario.
These risks reduce under an Average Outcome 3°C (Current Policies)
temperature scenario, and further reduce under a 1.5°C (Orderly) temperature
scenario (under both an Aggressive and Average Outcome).
Over the next reporting cycle, the Company will undertake the next phase of
its risk mitigation project and look to conduct further analysis over the
outputs from this assessment. This will involve specific review into the
assets identified from this assessment as being at above negligible exposure
to flooding, including:
· Further investigation into the results through review of any historic
flood or extreme heat events;
· Comparison against UK GOV flood risk scores and other publicly
available research; and
· Review of any existing tenant or local government adaptation plans.
Through this ongoing work, the Company will aim to validate the results and to
determine an appropriate strategic response and any planning required to
address any identified risks, for example, the development of site-specific
flood management plans or engagement of further environmental surveys.
While the outputs from the MSCI tool in terms of heat risk showed that this
risk is financially immaterial at a direct asset level, the Company recognises
that extreme heat still poses a potential indirect risk to the Company through
the potential impact on its tenants and their supply chains.
In terms of transition risk, policy and legal risk related to the proposed
MEES regulation was chosen as the key risk for the Company's transition risk
analysis. Over the next reporting period, the Company intends to conduct a
high-level assessment of the cost to retrofit our current portfolio to achieve
compliance with the proposed MEES regulations in lieu of expected tenant-led
investment. The Company also has a project underway to develop its first
Transition Plan which will further outline the Company's actions and resources
associated with its transition to net zero and actions to reduce the Company's
GHG emissions in line with its science-based emissions reductions targets.
Going forward, the Company intends to take an iterative approach to scenario
analysis as a strategic planning tool over time, as external tools and
analytical choices evolve and the Company's analysis further matures.
Describe the impact of climate-related risks and opportunities on the
organization's businesses, strategy, and financial planning.
The Company has identified two material risks, one per transition and
physical, from the outputs of the scenario analysis conducted over this
reporting period. The impact of each risk is likely to vary in magnitude
across different time horizons and climate scenarios (as listed in Table A),
and so the Company will continue to monitor and analyse these risks to better
understand how they may unfold.
Table A below provides a description of each risk and the Company's assessment
of potential impact and risk management strategy (including mitigating
actions).
Table A | Climate-related risks summary
TCFD Risk Category Risk Description Time Horizon Potential Impact and Strategy (including mitigating actions)
Transition Risk: Policy and Legal Proposed MEES regulation requiring portfolio assets to achieve a minimum of Near-term (from now until 2030) 1.5°C scenario (Net Zero): higher risk
EPC B rating by 2030.
3°C (Current Policies) scenario: lower risk
The proposed MEES regulation is expected to require all commercial property to
be a minimum EPC B by 2030. 56% of the Company's portfolio is currently rated
B or above.
This risk (and other policy and legal risks) is higher under a 1.5°C scenario
which assumes the implementation of stringent climate policies required to
reach net zero.
The direct impact of the proposed regulation is reduced given the Full
Repairing and Insuring ("FRI") nature of the leases(54), and the ambitious
emissions reduction and associated energy efficiency targets of the Company's
major tenants. 75% of the UK portfolio is leased to Tesco and Sainsbury's,
with both these tenants having set net zero by 2050 science-based targets,
supported by commitments to retrofit their stores to improve energy efficiency
over the near and medium-term. This tenant-led investment in energy efficiency
measures (including upgrades to heating and cooling systems and refrigeration
units) not reduces energy consumption but has also led to EPC rating
improvements at no cost to the Company.
In addition, SUPR has introduced a policy under which 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. Opportunities for the installation of energy efficiency and
renewable technology in support of the Net Zero transition (such as rooftop
solar PV and EV charging) are also considered as part of the investment case.
Physical Risk: Flooding Impact of acute physical risk of fluvial and coastal flooding. Long-term (2050 to 2100) 1.5°C scenario (Net Zero): lower risk
3°C (Current Policies) scenario: higher risk
The key potential impact of fluvial and coastal flooding is asset damage
(building damage costs). This risk is higher under a 3°C scenario which
assumes no additional climate policies are applied leading to significant
global warming (exceeding 3°C) with severe physical risks including from
sea-level rise, intense rainfall and associated flooding.
The direct impact of flooding risk on the Company is reduced given the
majority of the assets are on FRI leases, meaning the tenants have full
insurance obligations.
Flood risk is a key risk assessed as part of the Company's acquisition due
diligence process. The Company has expanded upon its assessment of flood risk
from initial UK Government online Flood Risk tool assessments to also utilise
the flood risk assessment within the MSCI tool. If flood risk is identified in
an acquisition opportunity further due diligence will be undertaken, for
example additional site surveys and analysis, and consideration of any
adaptation measures.
The Company has identified the assets exposed to above negligible risk of
flooding under different scenarios. The Company will explore how further
changes to its strategy and financial planning may be required in light of
this information, over the next reporting period. The Company's focus on
investing in strong performing stores and the long-dated nature of the
Company's leases already creates an incentive for the Company's tenants to
build physical climate-resilience considerations into their own long-term
management strategies for the stores they occupy. As the Company continues to
enhance its climate-related engagement with tenants, it will also look to
engage further on adaptation planning and tenants' plans in this respect.
Describe the resilience of the organisation's strategy, taking into
consideration different climate-related scenarios, including a 2°C or lower
scenario.
The Company's scenario analysis outputs have highlighted the following
findings:
· Overall, the current portfolio is not highly exposed to physical risks
given the location of the assets.
· Of the physical risks assessed, flood risk is the most material risk
for the portfolio.
· The impact of climate-related physical risks to the portfolio is
expected to become more relevant in the long term under a high emissions
scenario.
· Transitional risks are expected to be higher in the short term under a
1.5°C scenario driven by policy and legal changes, such as minimum EPC rating
requirements, whereas under a 3°C scenario transition risks remain low over
the short to medium-term until the point whereby policy and legal changes
(particularly adaptation measures) are required to address increasing physical
impacts.
The Company recognises that its strategy and financial planning regarding
climate related risks and opportunities, will need to continue to evolve over
the long term, particularly under a high emissions climate scenario. However,
a benefit of owning mission critical real estate is that the Company's tenants
make significant investments in maintaining, upgrading and decarbonising the
Company's store estate. These investments are linked to the ambitious net zero
targets and associated energy efficiency commitments of the Company's largest
tenants. Not only do these investments drive improvements in energy
consumption at the store level, they have also helped the Company to see an
improvement in EPC ratings, supporting the Company with progress against its
EPC-related improvement targets. In addition to acting as a transition risk
mitigant, these decarbonisation investments and the long-dated nature of the
Company's leases also create an incentive for the Company's tenants to build
physical climate-resilience considerations into their own long-term management
strategies for the stores they occupy.
During the reporting period, the Company has undertaken a range of initiatives
aimed at enhancing its resilience to climate-related risks and capitalising on
climate-related opportunities. This includes an ESG data sharing initiative,
focused on gaining a better understanding of the energy consumption
performance of the Company's tenants. For the first time, as outlined above,
the Company has also conducted quantitative climate scenario analysis as part
of the Company's efforts to better understand and manage the portfolio's
exposure to climate-related risks and opportunities.
A key climate-related milestone for the Company has been the development of
science-based emissions reduction targets. These targets were approved and
validated by the SBTi at the beginning of 2024, they include a commitment to
reduce our Scope 1 and 2 emissions by 42% by 2030 and to reduce Scope 1, 2 and
3 emissions 90% by 2050 (from a FY23 baseline). More details on the Company's
SBTs are provided under the Metrics & Targets section of this report on
page 48. As part of the development of the targets, the Company engaged
external consultants, Anthesis, to prepare a high-level decarbonisation plan.
The Company is currently building upon this initial plan through the
development of its first Transition Plan. During the reporting period, the
Company continued to seek out other opportunities to enhance the environmental
performance of its assets and contribute to the net zero transition. This
includes the continued roll out of EV charging and rooftop solar across the
portfolio and the Company's efforts to encourage energy efficiency
improvements by its tenants.
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 52 to 54.
The Board and 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 considers both physical and transition climate-related
risks, including existing and emerging regulatory requirements related to
climate change.
The climate-related risks included in SUPR's Risk Register have since been
updated to reflect the findings from this climate risk assessment.
Climate risk is also a standing agenda item at the fortnightly ESG meetings
held between the Investment Adviser's Managing Director, ESG, and its Fund
Management team. Additionally, the Investment Adviser seeks to ensure
climate-related issues are a standing item when engaging with the Company's
tenants. This includes discussion on topics such as any planned tenant-led
investments in store refurbishments and energy efficiency upgrades, energy
consumption data sharing and improvements to EPC ratings. Such engagement
occurs multiple times per year and more frequently with larger site tenants.
Describe the organisation's processes for managing climate-related risks.
As part of the acquisition due diligence process, the Investment Adviser
undertakes an assessment of each asset against a set of sustainability
criteria. This includes consideration of climate-related risk, such as flood
risk (using both the UK Government online Flood Risk tool and the MSCI tool)
and assessing the emissions reduction targets of tenants to assess alignment
with SUPR's own targets, as part of each transition review. The Company also
obtains external environmental surveys on all acquisitions, which address the
short-term risk of climate related damage to group properties. A summary of
the climate-related risk assessments undertaken is included as part of each
Investment Committee paper.
The Company will not recommend the acquisition of assets with an EPC of below
a C unless a deliverable EPC improvement plan is prepared 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. EPC rating assessments for
existing assets in the portfolio are conducted 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.
Both physical and transition climate risks associated with the Company's
portfolio are assessed and included in the risk register. 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.
Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organization's overall risk
management.
The Company's approach to risk assessment is as set out in the Our Principal
Risks Section on pages 52 to 54.
The Company manages its risk related to its emissions, and associated
regulatory risk, by monitoring, measuring, and disclosing its Scope 1, 2, and
3 GHG emissions, and identifying available decarbonisation levers. This
includes the preparation of the Company's first Transition Plan, currently
under development, which builds off the decarbonisation analysis completed to
prepare the Company's SBTs.
Tenant engagement is a core pillar of the Company's Sustainability Strategy
and includes engagement on energy efficiency measures and support of tenants'
own decarbonisation efforts and targets. As part of Scope 3 emissions
initiatives over the last reporting period the Company has undertaken
increased engagement efforts with tenants on energy consumption and other ESG
performance data.
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.
Metrics and Targets
Disclose the metrics used by the organization to assess climate-related risks
and opportunities in line with its strategy and risk management process.
To better understand and manage its climate-related risks and opportunities in
line with its strategy and risk management process, the Company measures a
number of climate-related metrics, see Table B below.
Table B | Climate-related metrics
Metric category Metric FY23 FY24
Transition risks % EPCs of UK supermarkets B or above (by valuations) 50%(55) 56%
% EPCs of UK ancillary units B or above (by valuations) 35%(55) 53%
% of actual energy consumption data from UK supermarket tenants used for GHG 14% 26%(56)
Inventory (vs estimated data)
Physical risks % of UK supermarket assets in the portfolio screened for physical climate Screening only at acquisition 95%(57)
hazards
Climate-related opportunities % of UK supermarket assets with on-site renewable energy generation 20%(55) 20%
% of UK supermarket assets with on-site EV charging 20% 30%
The Company has set ambitious climate-related targets, including both
near-term and long-term/net zero emissions reduction targets. The Company is
committed to ongoing reporting of progress against these targets as a means of
transparency and accountability. A summary of the Company's science based
targets and other core climate-related targets is provided in Table D and E.
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 GHG emissions, and the
related risks.
The Company engaged external consultants, Anthesis, to prepare its GHG
inventory for FY24, covering Scope 1, 2 and 3 emissions. The Company's full
GHG inventory, prepared in line with the GHG Protocol methodology is disclosed
below in Table C (see Appendix A for further details of the methodology).
Table C | GHG Inventory(58)
FY23 (as restated)(59) FY24
Location-based tCO2e Location-based tCO2e Market-based tCO2e Market-based (S1&2 & DLA) tCO2e
Scope 1 Total 10.49 11.46 11.46 11.46
Scope 2 Total 100.81 91.87 162.38 162.38
1: Purchased Goods and Services 3,131.50 2,214.70 2,214.70 2,214.70
2: Capital Goods 463.49 0 0 0
3: Fuel- and Energy-Related Activities 37.46 32.15 45.16 45.16
13: Downstream Leased Assets ("DLA") 72,902.93 72,030.53 72,030.53 67,008.85
Scope 3 Total 76,535.38 74,277.38 74,290.39 69,268.71
Scope 1,2,3 Total 76,646.68 74,380.71 74,464.23 69,442.55
Intensity ratio: tCO(2)e (gross Scope 1 & 2) per m(2) of floor area 0.00047 0.00037 0.00062 0.00062
Intensity ratio: tCO(2)e (gross Scope 1, 2 & 3) per m(2) of floor area 0.09201 0.08345 0.08355 0.07791
The Company's scope 1, 2 and 3 emissions total 74,381 tCO(2)e
(location-based) in its FY24 reporting year. Scope 3 accounts for the vast
majority of the Company's emissions at more than 99%, totalling 74,277 tCO(2)e
(location-based). This is to be expected as the Company's scope 1 and 2
emissions from the communal spaces of its assets is relatively immaterial,
producing 103 tCO(2)e (location-based) collectively. The majority of the
Company's emissions come from their leased properties which sit under scope 3,
category 13 downstream leased assets.
The GHG Inventory figures have removed FERA emissions that are categorised
under Scope 3 category 13: Downstream Leased Assets ("DLA") to align with the
SBTi minimum boundary alignment. These FERA emissions are associated with the
tenants Scope 1 and 2 emissions that are also categorised under Scope 3 DLA.
The figures reported in SECR Report above account for a fuller view of DLA
emissions by including FERA emissions under Scope 3 DLA. Therefore, Scope 3
DLA and consequentially, total Scope 3 figures reported in the SECR Report are
higher than figures reported for TCFD due to the exclusion of Scope 3 FERA
under DLA in TCFD.
[The Company engaged Grant Thornton UK LLP to provide independent limited
assurance over the Company's location-based GHG emission data disclosed in the
table above, using the assurance standard ISAE 3000 (Revised) and ISAE 3410,
for the year ending 30 June 2024. Grant Thornton has issued an unqualified
opinion over the selected data and the full assurance report is available on
the Sustainability page of the Company's website: Sustainability - Supermarket
Income REIT (https://supermarketincomereit.com/sustainability/) ].
Improving the quantity of actual (vs. estimated) energy consumption data, has
been a priority for the Company over the reporting period. As a result, the
amount of estimated data has reduced, from 84% estimated in FY23 to 71%
estimated data for this reporting period. The majority of the Company's
emissions from downstream leased assets come from assets leased out to
supermarkets. Therefore, the Company has prioritised engagement on data
sharing with its supermarket tenants. As a result of these engagement efforts
with supermarket tenants specifically the following improvements have been
made:
· The amount of actual purchased electricity data in FY23 was 23%,
improving to 52% actual data in FY24;
· The amount of actual natural gas consumption data in FY23 was 27%,
improving to 70% actual data in FY24.
This has subsequently improved the overall accuracy of the Company's emissions
disclosures on prior year. This is a marked improvement from FY22 where 100%
of emissions were estimated. This was achieved through a combination of
measures including the development of new tenant data request template,
aligned to the reporting requirements of EPRA sBPR and the Sustainability
Accounting Standards Board ("SASB") real estate standard. The Company has
identified engagement with supermarket tenants on refrigeration gas data,
which is currently 100% estimated, as a key priority over the next reporting
year. Details of the remaining assumptions and proxies used to complete the
Company's GHG inventory where actual data was not available, are outlined in
the Appendix A.
During the reporting period, the Company worked with external consultants,
Anthesis, to prepare and submit science-based emissions reductions targets to
the SBTi, see Table D below. These targets were validated and approved by the
SBTi at the beginning of 2024.
Table D | - Science Based Targets
Target Description
Near-term The Company commits to reduce scope 1 and scope 2 emissions 42% by 2030 from a
FY23 baseline.
Long-term The Company commits to reduce scope 1, 2 and 3 emissions 90% by 2050 from a
FY23 baseline.
Net Zero The Company commits to reach net-zero by 2050.
Describe the targets used by the organization to manage climate-related risks
and opportunities and performance against targets.
In addition to the Company's science-based targets, a number of other
climate-related targets are used by the Company to manage climate-related
risks and opportunities, see Table E below. These targets have been developed
to link to the transition and physical risks identified as part of the
Company's TCFD reporting.
Table E | - Climate-related targets linked to metrics
Metric category Metric Target
Transition risks % EPCs of UK supermarkets B or above (by valuations) All UK supermarkets(60) B or above by 2030
% EPCs of UK ancillary units B or above (by valuations) All UK ancillary units(61) B or above by 2030
% of actual energy consumption data from UK supermarket tenants used for GHG YoY increase in % actual energy consumption data from UK supermarket tenants
Inventory (vs estimated data) used for GHG Inventory
Physical risks % of UK supermarket assets in the portfolio screened for physical climate All assets included in annual portfolio climate risk analysis
hazards
Climate-related opportunities % of UK supermarket assets with on-site renewable energy generation YoY increase in % of supermarket assets with on-site renewable energy
generation
% of UK supermarket assets with on-site EV charging YoY increase in % of supermarket assets with on-site EV charging
Given the FRI nature of the majority of the Company's lease arrangements and
associated limitations to site control, the Company has not yet set further
specific targets with regards to the percentage of on-site solar PV installed
and on-site EV charging. However, the Company is committed to increasing the
number of assets with both on-site solar PV installed and on-site EV charging
and continues to actively engage with tenants on such opportunities and to
support installations wherever feasible.
During the reporting year, the Company achieved the following two
climate-related targets that were included in its FY23 TCFD Report:
Target Metric Status
100% of Investment Adviser staff receive training on climate risks and Percentage of staff trained 100%. Target achieved.
opportunities by end of 2023
Five sites with Company-owned and managed car parks with electronic vehicle Number of EV charging stations 5 of 5. Target achieved.
charging
Additional climate-related training will continue be rolled out on an ad-hoc
basis to the Investment Adviser team and to new joiners. Most recently, this
has covered topics such as quantitative scenario analysis and transition
planning fundamentals. The Company will review its selection of
climate-related metrics and targets over the next reporting period to ensure
that it continues to measure and manage its climate-related risks and evolve
its approach to meet best practice guidance and stakeholder expectations.
Appendix A: Methodology notes for GHG 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 for
communal areas where energy consumption is controlled by SUPR. Where there
were gaps, estimations were made using the data from previous year 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 (13. Downstream Leased Assets)
The majority of emissions relate to tenant energy use, particularly for
supermarket branches. Some supermarket tenants, including Tesco, Sainsbury's
and M&S provided actual consumption data for electricity and heating.
Where no consumption data was available, estimations were made using benchmark
intensity data based on floor area. The majority of refrigerant consumption
was estimated for all sites.
A smaller amount of emissions arises 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.
MSCI Physical Risk Model Data Inputs
Hazard Level Main Models and Datasets:
Hazard Type Severity Resolution Main Models and Datasets
Extreme Cold Chronic Number of days <0°C and <-10°C 56km v 42km · CMIP6 climate models: GFDL-ESM4, IPSL-CM6A-LR, MPI-ESM1-2-HR,
MRI-ESM2-0, UKESM1-0-LL
· Climate projections are bias-adjusted
Extreme Heat Chronic Number of days >30°C and >35°C 56km v 42km
Coastal Flooding Acute Inundation depth (metres) 90m x 70m · Regional sea level rise projections from Integrated Climate Data
Center
Flood distribution from 1yr to >10,000yr event
· Elevation data from Coastal DEM (upgraded Digital Elevation Model -
Climate Central / NASA)
Fluvial Flooding Acute Inundation depth (metres) 90m x 70m · Dailing fluvial flooding timeseries provided by Potsdam Institute
for Climate Impact Research
Flood distribution from 1yr to >10,000yr event
· Elevation data from Coastal DEM from Climate Central which is
complemented by data from SRTM
Tropical Cyclones Acute Wind speed (metres/second) 11km x 9km · CLIMADA
Cyclone distribution from 1yr to >10,000yr event · International Best Track Archive for Climate Stewardship (IBTRaCS)
Wildfire Acute Fire probability (% annual) 460m x 355m · 4 components: fire weather, fire ignition, fire spread and fire
intensity
· Fire weather & ignition: Canadian Forest Fire Weather Index
(FWI)
· Fire spread: Global Land Cover 2000 dataset; Elevation is derived
from the GMTED2010 dataset
· Fire intensity: Global Fire Atlas
Principal Risks and Uncertainties
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 process 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 and the AIFM 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 Company'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 risk review and as potential
significant risks arise. The assessment includes input from the Investment
Adviser and review of information by the AIFM prior to consideration by the
Audit and Risk Committee.
During the year, the Audit and Risk Committee, together with the AIFM and
Investment Adviser, undertook a review of the risk management reporting
framework. As a result of this exercise, the Board reviewed all risks and
decided to rationalise the principal risks from 17 risks, as set out in the
2023 Annual Report, to 10 risks.
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.
Key
1 There can be no guarantee that the dividend will grow in line with inflation.
2 The lower-than-expected performance of the property portfolio leading to a
significant fall in property valuations.
3 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.
4 The default of one or more of our grocery tenants would reduce revenue and may
affect our ability to pay dividends.
5 Inflationary pressure on the valuation of the portfolio.
6 Ability to source assets may be affected by competition for investment
properties in the supermarket sector.
7 The Company is reliant on the continuance of the Investment Adviser.
8 Impact of geopolitical conflict / major events.
9 Changes in regulatory policy could lead to our assets becoming unlettable.
10 We operate as a UK REIT and have a tax-efficient corporate structure. Loss of
REIT status could have adverse tax consequences for UK shareholders.
Risk Impact Mitigation Change in Year
1. There can be no guarantee that the dividend will grow in line with The Company has a stated ambition to grow its dividend progressively and its The Company has entered into interest rate swaps and caps to manage its
inflation. prospectus refers to providing investors with inflation protection. exposure to further increases in interest rates.
Although the Company has received 100% of rent demanded, has increased rents Interest rates have started to decline from their highs last year which, if
in line with its contractual rent reviews and has one of the lowest EPRA cost continued, would be supportive of earnings and dividend growth over the long
ratios in the sector, it has been unable to increase its earnings and dividend term beyond expiry of current interest rate hedges.
in line with inflation.
This has been caused primarily by the cap on rental uplifts in the majority of The Company is proactively pursuing a number of measures to grow earnings,
the Company's leases and the increase in cost of debt due to higher interest such as accretive acquisitions and cost reductions.
rates.
Increases in interest rates result in higher cost of debt and lower earnings.
2. The lower-than-expected performance of the property portfolio leading An adverse change in our property valuations may lead to a breach of our Our portfolio is 99.5% let (100% of supermarket units are let) with long
to a significant fall in property valuations. banking covenants. Market conditions may also reduce the revenues we earn from weighted unexpired lease terms and let to institutional-grade tenants.
our property assets, which affect our ability to pay dividends to
shareholders. A severe fall in values may result in us selling assets to repay
our loan commitments, resulting in a fall in our net asset value.
We own a portfolio of handpicked, high-quality supermarkets which deliver
low-risk and growing income returns that are resilient through economic
cycles.
We manage our activities to operate within our banking covenants and
constantly monitor our covenant headroom on loan to value and interest cover.
3. Shareholders may not be able to realise their shares at a price above The Company's ordinary shares have continued to be traded at a discount to net The Company may seek to address any significant discount to NTA at which its
or the same as they paid for the shares or at all. tangible assets ("NTA"). This is largely a function of supply and demand for ordinary shares may be trading by purchasing its own ordinary shares in the
the ordinary shares in the market and cannot therefore be controlled by the market on an ad-hoc basis.
Board.
Ordinary shares will be repurchased only at prices below the prevailing NTA
per Ordinary share, which should have the effect of increasing the NTA per
Ordinary share for remaining shareholders.
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.
4. The default of one or more of our grocery tenants would reduce revenue Our focus on supermarket property means we directly rely on the performance of Our investment policy requires the Group to derive at least 60% of its rental
and may affect our ability to pay dividends. supermarket operators. Insolvencies could affect our revenues earned and income from a portfolio let to the largest four supermarket operators in the
property valuations. UK by market share. Focusing our investments on assets let to tenants with
strong financial covenants and limiting exposure to smaller operators in the
sector decreases the probability of a tenant default.
At 30 June 2024, 75% of SUPR's income was from assets let to Tesco and
Sainsbury's who are deemed investment grade credit quality. The portfolio
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.
Our investment strategy is to acquire assets in 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.
5. Inflationary pressure on the valuation of the portfolio. Continued high inflation may cause rents to exceed market levels and result in Inflation is monitored closely by the Investment Adviser. The Group's
the softening of valuation yields. Where leases have capped rental uplifts, portfolio rent reviews include a mixture of fixed, upward only capped as well
high inflation may cause rent reviews to cap out at maximum values, causing as open market rent reviews, to hedge against a variety of inflationary
rental uplifts to fall behind inflation. outcomes.
6. Ability to source assets may be affected by competition for investment The Company faces competition from other property investors. Competitors may The investment Adviser has extensive contacts in the sector and we often
properties in the supermarket sector. have greater financial resources than the Company and a greater ability to benefit from off-market transactions. They also maintain close relationships
borrow funds to acquire properties. with a number of investors and agents in the sector, giving us the best
possible opportunity to secure future acquisitions for the Group.
The Company has acquired assets which are anchored by supermarket properties
The supermarket investment market continues to be considered a safe asset but which also have ancillary retail on site, and these acquisitions allow the
class for investors seeking long-term secure cash flows which is maintaining Company to access quality supermarket assets whilst providing additional asset
competition for quality assets. This has led to increased demand for management opportunities.
supermarket assets without a comparable increase in supply, which potentially
increases prices and makes it more difficult to deploy capital.
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.
7. The Company is reliant on the continuance of the Investment Adviser. We rely on the Investment Adviser's services and reputation to execute our The interests of the Company and the Investment Adviser are aligned due to (a)
investment strategy. Our performance will depend to some extent on the key staff of the Investment Adviser having personal equity investments in the
Investment Adviser's ability and the retention of its key staff. Company and (b) any fees paid to the Investment Adviser in shares of the
Company are due to be held for a minimum period of 12 months. The Board can
pay up to 25% of the Investment Adviser's fee in shares of the Company.
The Management Engagement Committee assesses the performance of the Investment
Adviser and ensures the Company maintains 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.
8. Impact of geopolitical conflict / major events. Global, regional and national events, such as terrorism, pandemics, and Supermarket operators have historically been able to successfully pass on
geopolitical conflict could adversely impact the Company, and present inflationary increases through price increases to the end consumer.
challenges to our tenants resulting in impairment of asset values and/or a
reduction in revenue.
Whilst sales volumes may fall in a recessionary environment, the nature of
food means that demand is relatively inelastic.
Our tenants have strong balance sheets with robust and diversified supply
chains. The tenants are therefore well positioned to deal with any disruption
that may occur.
9. Changes in regulatory policy could lead to our assets becoming Changes in regulations (currently represented by Minimum Energy Efficiency The ESG committee stays informed about changes in legislation by working
unlettable. Standards (MEES)) could lead to the possibility of our assets becoming closely with the Investment Adviser and seeks input from specialist ESG
unlettable. Any properties not compliant with MEES could attract reduced experts where necessary.
tenant demand, reduced rental income and/or be subject to fines.
Proposed updates to MEES, together with updates on businesses to develop Net
Zero transition plans are being closely monitored.
10. We operate as a UK REIT and have a tax-efficient corporate structure, If the Company fails to remain a REIT for UK tax purposes, our profits and The Board takes direct responsibility for ensuring we adhere to the UK REIT
with advantageous consequences for UK shareholders. gains will be subject to UK corporation tax. regime by monitoring REIT compliance. The Board has also engaged third-party
tax advisers to help monitor REIT compliance requirements and the AIFM
monitors compliance by the Company with the REIT regime.
SECTION 172(1) STATEMENT
The Directors consider that in conducting the business of the Company over the
course of the year ended 30 June 2024, 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 56 to 59. Further details of the Board activities and principal
decisions are set out on pages 72 to 73 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 consequences of any decision in the long-term The Board has regard to its wider obligations under Section 172 of the Act. As Key decisions of the Board during the year on page 73.
such strategic discussions involve careful considerations of the longer-term
consequences of any decisions and their implications on shareholders and other Our Key Stakeholder Relationships on pages 56 to 59.
stakeholders and the risk to the longer-term success of the business. Any
recommendation is supported by detailed cash flow projections based on various Board Activities during the year on pages 72.
scenarios, which include: availability of funding; borrowing; as well as the
wider economic conditions and market performance.
B. The interests of the Company's employees The Group does not have any employees as a result of its external management Our Key Stakeholder Relationships on pages 56 to 59.
structure.
The Board's main working relationship is with the Investment Adviser.
Consequently, the Directors have regard to the interests of the individuals Culture on page 69.
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 to foster the Company's business relationships with suppliers, The Company's key service providers and customers include the Investment Our Key Stakeholder Relationships on pages 56 to 59.
customers and others Adviser, professional firms such as lenders, property agents, accounting and
law firms, tenants with which we have longstanding relationships and
transaction counterparties which are generally large and sophisticated
businesses or institutions.
D. The impact of the Company's operations on the community and the environment As an owner of assets located in communities across the UK and France, we aim Our Key Stakeholder Relationships on pages 56 to 59.
to ensure that our buildings and their surroundings provide safe and
comfortable environments for all users.
The Board and the Investment Adviser have committed to limiting the impact of Details of the ESG policy and strategy are included on pages 39 to 51.
the business on the environment where possible and engage with tenants to seek
to improve the ESG credentials of the properties owned by the Company. The Board's approach to sustainability is also explained in the Company's
standalone sustainability report available on the Company website.
E. The desirability of the Company maintaining a reputation for high standards The Board is mindful that the ability of the Company to continue to conduct Chair's Letter on Corporate Governance on page 63.
of business conduct its investment business and to finance its activities depends in part on the
reputation of the Board, the Investment Adviser and Investment Advisory Team. Our Principal Risks and Uncertainties on pages 52 to 54.
The risk of falling short of the high standards expected and thereby risking Our Culture on page 69.
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 to act fairly as between members of the Company The Board recognises the importance of treating all members fairly and Chair's Letter on Corporate Governance on pages 63.
oversees investor relations initiatives to ensure that views and opinions of
shareholders can be considered when setting strategy. Our Key Stakeholder Relationships on pages 56 to 59.
Going Concern and Viability Statement
The Directors have considered 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 2024. In assessing the going concern basis of
accounting, the Directors have considered the prospects of the Group over the
period up to 30 September 2025.
Liquidity
At 30 June 2024, the Group generated net cash flow from operating activities
of £92.1 million, held cash of £38.7 million and undrawn committed
facilities totalling £104.2 million (including £50 million accordion) with
no capital commitments or contingent liabilities.
After the year end, the Group also increased its debt capacity from £752.0
million to £825.4 million (see Note 19 for more information), leaving undrawn
committed facilities of £176.0 million available (including £50 million
accordion).
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 Wells Fargo £39 million
loan facility (of which £30 million is drawn) and £50 million of the
syndicate unsecured term loan fall due for repayment during the going concern
period. It is intended that the facilities will be refinanced prior to
maturity, or if required, paid down in full utilising the Group's available
cash balances and undrawn committed facilities of over £117 million
(including post balance sheet events). 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 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 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. The Group
is 100% fixed or hedged (including post period end refinancings). No
sensitivity for movements in interest rates have been modelled for the hedged
debt during the going concern assessment period.
Scenario Rental Income Costs
Base case scenario (Scenario 1) 100% contractual rent received when due and rent reviews based on forward Investment adviser fee based on terms of the signed agreement (percentage of
looking inflation curve, capped at the contractual rate of the individual NAV as per note 27), other costs in line with contractual terms.
leases.
Scenario 2 Rental income to fall by 20% Costs expected to remain the same as the base case.
Scenario 3 Rental Income expected to remain the same as the base case. 10% increases on base case costs to all 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. The lowest amount of ICR headroom experienced in the
worst-case stress scenarios was 42%. Based on the latest bank commissioned
valuations, property values would have to fall by more than 26% before LTV
covenants are breached, and 19% against 30 June 2024 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 425% during the going concern period.
Having reviewed and considered the 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 2029. 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 52 to 54 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 2029, which is the period covered by the Group's
medium-term financial projections.
The Board considers the resilience of projected liquidity, as well as
compliance with secured debt covenants and UK REIT rules, under a range of
inflation and property valuation assumptions.
The principal risks and the key assumptions that were relevant to this
assessment are as follows:
Risk Assumption
Borrowing risk The Group continues to comply with all relevant loan covenants. The Group is
able to refinance all debt falling due within the viability assessment period
on acceptable terms.
Interest Rate Risk The increase in variable interest rates are managed by reduction of variable
debt from cash inflows and utilising interest rate derivatives to limit the
exposure to variable debt.
Liquidity risk The Group continues to generate sufficient cash to 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 Report on pages 14 to 22. 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 25 to 33. Disclosures in relation to
environmental and social issues have been included within the TCFD Report on
pages 39 to 51. 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 34 to 35.
The Strategic Report was approved by the Board and signed on its behalf by:
Nick Hewson
Chair
17 September 2024
DIRECTORS' REPORT
The Directors present their report together with the audited financial
information for the year ended 30 June 2024. The Corporate Governance
Statement on pages 74 to 75 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 on the Closed-ended investment
funds category of the LSE'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 2024 financial year, the Company has declared the
following interim dividends amounting to 6.06 pence per share (2023: 6.00
pence per share).
Relevant Period Dividend per share (pence) Ex-dividend date Record date Date paid
Quarter ended 1.515 12 October 2023 13 October 2023 16 November 2023
30 September 2023
Quarter ended 1.515 11 January 2024 12 January 2024 14 February 2024
31 December 2023
Quarter ended 1.515 11 April 2024 12 April 2024 16 May 2024
31 March 2024
Quarter ended 1.515 11 July 2024 12 July 2024 16 August 2024
30 June 2024
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 in the year ended 30 June 2024 are set
out in the Board of Directors section on pages 64 to 65 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 the general meeting.
The Board's role is to provide entrepreneurial leadership of the Company
within a framework of prudent and effective controls that enable 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 page 63.
Appointment and replacement of Directors
All Directors were elected or re-elected at the AGM on 7 December 2023. In
accordance with the AIC 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 £35 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 £40 million on 4
July 2024 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 2024.
Percentage of issued share capital
Number of shares
Blackrock Inc. 68,196,517 5.46%
Schroders Plc 63,131,941 5.08%
Close Brothers Asset Management 62,147,569 4.99%
Quilter Plc 62,058,617 4.99%
Ameriprise Financial, Inc. 61,728,272 4.98%
Since the year end, and up to 17 September 2024, 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 approved a donation of £120,000 to The Atrato Foundation during the
year which was settled post year end.
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 2024 can be found in
note 28 of the financial information.
Annual General Meeting
The Annual General Meeting of the Company will be held on 3 December 2024.
Greenhouse gas emissions
As a listed entity, the Company is required to comply with the 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 39 to 51.
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
There are no agreements with the Company or a subsidiary in which a Director
is or was materially interested or to which a controlling shareholder was
party.
Share capital structure
As at 30 June 2024, 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 Closed-ended investment funds category of the FCA's Official List of the
LSE'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 2023, shareholders authorised the Company to make
market purchases of up to 186,811,253 Ordinary Shares. The Company has not
repurchased any of its ordinary shares under this authority, which is due to
expire at the AGM in 2024 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 29 of the
consolidated financial information.
Corporate Governance
The Company's statement on corporate governance can be found in the Corporate
Governance Report on pages 74 to 75 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
Group's business during the year and likely future developments can be found
on pages 14 to 38.
This Directors' Report was approved by the Board and is signed on its behalf
by:
Nick Hewson
Chair
17 September 2024
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 Report, TCFD Compliant Report, Our Principal Risks and
the Section 172(1) Statement, together with the Corporate Governance Report 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 and Risk and Going
Concern), the Audit and Risk Committee Report and 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
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 in its annual financial report located at https://www
(https://www.jtcgroup.com/investor-relations/annual-review/)
.jtcgroup.com/investor-relations/annual-review/
(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. JTC Plc also reported
publicly to the Carbon Disclosure Project in 2023 and selected the Science
Based Targets initiative as its chosen net zero 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/
(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 alongside this
report which is available on the 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 £10,000 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 £10,000 in fixed fees and £46,211 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 £1 billion and 0.03% of the Company's
net asset value in excess of £1 billion, subject to a minimum of £50,000 per
annum, such fee being payable quarterly in arrears. The total fees paid to the
AIFM during the year under review were £0.44 million.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
17 September 2024
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2024
Notes Year to Year to
30 June 2024 £'000 30 June 2023
£'000
Gross rental income 4 107,851 95,823
Service charge income 4 6,822 5,939
Service charge expense 5 (7,441) (6,518)
Net Rental Income 107,232 95,244
Administrative and other expenses 6 (15,218) (15,429)
Operating profit before changes in fair value of investment properties and 79,815
share of income and profit on disposal from joint venture
92,014
Changes in fair value of investment properties 13 (65,825) (256,066)
Share of income from joint venture - 23,232
Profit on disposal of joint venture - 19,940
Operating profit/(loss) 26,189 (133,079)
Finance income 9 23,781 14,626
Finance expense 9 (40,043) (39,315)
Changes in fair value on interest rate derivatives 18 (31,251) 10,024
Profit on disposal of interest rate derivatives - 2,878
Loss before taxation (21,324) (144,866)
Tax credit / (charge) for the year 10 140 -
Loss for the year (21,184) (144,866)
Items to be reclassified to profit or loss in
subsequent periods
Fair value movements in interest rate derivatives 18 (1,765) 1,068
Foreign exchange movement 32 -
Total comprehensive expense for the year (22,917) (143,798)
Total comprehensive expense for the year attributable (22,917) (143,798)
to ordinary Shareholders
Earnings per share - basic and diluted 11 (1.7) pence (11.7) pence-
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2024
Notes As at As at
30 June 2024 £'000 30 June 2023 £'000
Non-current assets
Investment properties 13 1,768,216 1,685,690
Financial asset arising from sale and leaseback transactions 15 11,023 10,819
Interest rate derivatives 18 15,741 37,198
Total non-current assets 1,794,980 1,733,707
Current assets
Interest rate derivatives 18 15,708 20,384
Trade and other receivables 16 11,900 142,155
Deferred tax asset 20 140 -
Cash and cash equivalents 38,691 37,481
Total current assets 66,439 200,020
Total assets 1,861,419 1,933,727
Non-current liabilities
Bank borrowings 19 597,652 605,609
Trade and other payables 1,045 -
Total non-current liabilities 598,697 605,609
Current liabilities
Bank borrowings due within one year 19 96,516 61,856
Deferred rental income 24,759 21,557
Trade and other payables 17 21,973 26,979
Total current liabilities 143,248 110,392
Total liabilities 741,945 716,001
Net assets 1,119,474 1,217,726
Equity
Share capital 22 12,462 12,462
Share premium reserve 22 500,386 500,386
Capital reduction reserve 22 629,196 704,531
Retained earnings (24,141) (2,957)
Cash flow hedge reserve 23 1,539 3,304
Other reserves 32 -
Total equity 1,119,474 1,217,726
Net asset value per share - basic and diluted 27 90 pence 98 pence
EPRA NTA per share 27 87 pence 93 pence
The consolidated financial information was approved and authorised for issue
by the Board of Directors on 17 September 2024 and were signed on its behalf
by Nick Hewson (Chair).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2024
Share premium Cash flow hedge reserve £'000 Other reserve Capital reduction
Share capital £'000 reserve £'000 reserve Retained earnings £'000
£'000 £'000 Total £'000
As at 1 July 2023 12,462 500,386 3,304 - 704,531 (2,957) 1,217,726
Comprehensive income for the year:
Loss for the year - - - - - (21,184) (21,184)
Recycled from comprehensive loss to profit and loss - - (1,154) - - (1,154)
-
Other comprehensive loss - - (611) 32 - - (579)
Total comprehensive loss for the year - - (1,765) 32 - (21,184) (22,917)
Transactions with owners
Interim dividends paid (note 12) - - - - (75,335) - (75,335)
As at 30 June 2024 12,462 500,386 1,539 32 629,196 (24,141) 1,119,474
For the year ended 30 June 2023
Share capital £'000 Share premium Cash flow hedge reserve £'000 Capital reduction Retained earnings £'000 Total £'000
reserve £'000 reserve
£'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 - - (2,878) - - (2,878)
derivatives
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 (note 12) - - - (74,328) - (74,328)
As at 30 June 2023 12,462 500,386 3,304 704,531 (2,957) 1,217,726
CONSOLIDATED CASH FLOW statement
For the year ended 30 June 2024
Notes Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Operating activities
Loss for the year (attributable to ordinary shareholders) (21,184) (144,866)
Adjustments for:
Tax credit (140) -
Changes in fair value of interest rate derivatives measured at fair value 31,251 (10,024)
through profit and loss
Changes in fair value of investment properties and associated rent guarantees 13 65,825 256,066
Movement in rent smoothing and lease incentive adjustments 4 (2,434) (2,763)
Amortisation of lease fees 18 -
Finance income 9 (23,781) (14,626)
Finance expense 9 40,043 39,281
Share of income from joint venture - (23,232)
Profit on disposal of interest rate derivative - (2,878)
Profit on disposal of Joint Venture - (19,941)
Cash flows from operating activities before changes 89,598 77,017
in working capital
(Increase) in trade and other receivables (2,996) (548)
Decrease in rent guarantee receivables - 191
Increase in deferred rental income 3,202 5,198
Increase in trade and other payables 2,252 2,461
Net cash flows from operating activities 92,056 84,319
Investing activities
Disposal of Property, Plant & Equipment - 222
Acquisition and development of investment properties 13 (136,184) (362,630)
Capitalised acquisition costs (10,266) (14,681)
Bank interest received 78 -
Receipts from other financial assets 290 290
Investment in joint venture - (189,528)
Settlement of Joint Venture carried interest (7,500) -
Proceeds from disposal of Joint Venture 134,912 292,636
Net cash flows used in investing activities (18,670) (273,691)
Notes Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Financing activities
Costs of share issues - (89)
Bank borrowings drawn 19 217,560 912,114
Bank borrowings repaid 19 (191,077) (598,486)
Loan arrangement fees paid (1,318) (5,010)
Bank interest paid (35,275) (22,408)
Settlement of interest rate derivatives 21,182 8,646
Settlement of Joint Venture Carried Interest - (8,066)
Sale of interest rate derivatives 18 38,482 2,878
Purchase of interest rate derivative 18 (45,364) (44,255)
Bank commitment fees paid (1,031) (1,708)
Dividends paid to equity holders (75,335) (67,963)
Net cash flows (used in) / from financing activities (72,176) 175,653
Net movement in cash and cash equivalents in the year 1,210 (13,719)
Cash and cash equivalents at the beginning of the year 37,481 51,200
Cash and cash equivalents at the end of the year 38,691 37,481
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 The Scalpel, 18(th) Floor, 52 Lime
Street, London, EC3M 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 2024 the Group comprised the Company and its wholly owned
subsidiaries as set out in Note 14.
Basis of preparation
The consolidated financial information set out in this preliminary
announcement covers the year to 30 June 2024, with comparative figures
relating to the year to 30 June 2023, 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 2024. 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 2024 or 30 June 2023, 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 2023 have been delivered to
the Registrar of Companies and those for the year ended 30 June 2024 will be
delivered following the Company's AGM. The auditors' reports on both the 30
June 2024 and 30 June 2023 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 2024. In assessing the going concern basis of accounting, the Directors
have considered the prospects of the Group over the period up to 30 September
2025.
Liquidity
At 30 June 2024, the Group generated net cash flow from operating activities
of £92.1 million, held cash of £38.7 million and undrawn committed
facilities totalling £54.2 million with no capital commitments or contingent
liabilities.
After the year end, the Group also increased its debt capacity from £752.0
million to £825.4 million (see Note 19 for more information), leaving undrawn
committed facilities of £176.0 million available (including £50.0 million
accordion).
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 Wells Fargo facility and
£50 million of the syndicate unsecured term loan fall due for repayment
during the going concern period. It is intended that the facilities will be
refinanced prior to maturity, or if required, paid down in full utilising the
Group's available cash balances and undrawn committed facilities of over £117
million (including post balance sheet events). 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 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 the majority of 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. The Group
is 100% hedged (including post balance sheet events), no sensitivity for
movements in interest rates have been modelled for the hedged debt during the
going concern assessment period.
Scenario Rental Income Costs
Base case scenario (Scenario 1) 100% contractual rent received when due and rent reviews based on forward Investment adviser fee based on terms of the signed agreement (percentage of
looking inflation curve, capped at the contractual rate of the individual NAV as per note 27), other costs in line with contractual terms.
leases.
Scenario 2 Rental income to fall by 20%. Costs expected to remain the same as the base case.
Scenario 3 Rental Income expected to remain the same as the base case. 10% increases on base case costs to all 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. The lowest amount of ICR headroom experienced in the
worst-case stress scenarios was 42%. Based on the latest bank commissioned
valuations, property values would have to fall by more than 26% before LTV
covenants are breached, and 19% against 30 June 2024 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 425% 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 issue of this annual report and have therefore adopted the
going concern basis of accounting in preparing the Annual Report.
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 (£'000), except where otherwise indicated.
Pounds Sterling is the functional currency of the Company and the presentation
currency of the Group.
Euro denominated results of the French operation have been converted to
Sterling at the average exchange rate for the period from acquisition to 30
June 2024 of €1:£0.85, which is considered not to produce materially
different results from using the actual rates at the date of the transactions.
Year end balances have been converted to sterling at the 30 June 2024 exchange
rate of €1:£0.85. The accounting policy for foreign currency translation is
in note 2.
Adoption of new and revised standards
There were a number of new standards and amendments to existing standards
which are required for the Group's accounting period beginning on 1 July 2023.
The following amendments are effective for the period beginning 1 July 2023:
- IFRS 17 Insurance Contracts
- Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of
accounting policies
- Definition of Accounting Estimates (Amendments to IAS 8 Accounting
policies, Changes in Accounting Estimates and Errors)
- Amendments to IAS 12 - Deferred tax related to assets and
liabilities arising from a single transaction
- International Tax Reform - Pillar Two Model Rules (Amendments to IAS
12 - International tax reform - Pillar Two model rules)
There was no material effect from the adoption of the above-mentioned
amendments to IFRS effective in the period. They have no significant impact to
the Group as they are either not relevant to the Group's activities or require
accounting which is already consistent with the Group's current accounting
policies.
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).
· IFRS 18 - Presentation and Disclosure in Financial Statements. IFRS
18 sets out significant new requirements for how financial statements are
presented, with particular focus on the statement of profit or loss, including
requirements for mandatory sub-totals to be presented, aggregation and
disaggregation of information, as well as disclosures related to
management-defined performance measures. This new standard will first be
effective for the Group for the period commencing 1 July 2027.
The Group expects to review and determine the impact of the new standard on
the Group's reporting and financial information over the coming financial
year.
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 2024 or 30 June 2023.
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 13.
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 four acquisitions; this includes the
acquisition of 17 French properties in a single transaction. In four cases the
concentration test was applied and met, resulting in the acquisitions being
accounted for as asset purchases.
All £135.8 million of acquisitions during the year were accounted for as
asset purchases.
Key judgement: Sale and leaseback transactions
The Group acquires properties under a sale and leaseback arrangement. At the
time of the purchase the Directors assess whether the acquisition represents a
true sale to determine whether the assets can be accounted for as Investment
Properties under IFRS 16.
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.
During the year, the Group acquired 17 stores in France under sale and
leaseback arrangements. The terms of the sale and underlying lease were
reviewed for indicators of control and deemed that the significant risks and
rewards to ownership were transferred to the Group and will therefore be
accounted for as an investment property acquisition.
2. Summary of material accounting policies
The material accounting policies applied in the preparation of the
consolidated financial information is 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 2024.
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 are 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. 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 and initial costs to arrange leases 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.
Surrender premiums received in the period are included in rental income.
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.
2.3. 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.
2.4. 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.
2.5. 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.
2.6. 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.
2.7. 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.
2.8. 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.
2.9. 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.
Deferred tax is provided in full using the Balance Sheet liability method on
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is determined using tax rates that have been enacted or
substantively enacted by the reporting date and are expected to apply when the
asset is realised or the liability is settled.
Deferred tax assets are recognised to the extent that it is probable that
suitable taxable profits will be available against which deductible temporary
differences can be utilised.
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.
2.10. 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.
2.11. Foreign currency transactions
Foreign currency transactions are translated to the respective functional
currency of Group entities at the foreign exchange rate ruling on the
transaction date. Foreign exchange gains and losses resulting from settling
these, or from retranslating monetary assets and liabilities held in foreign
currencies, are booked in the Income Statement. The exception is for foreign
currency loans and derivatives that hedge investments in foreign subsidiaries,
where exchange differences are booked in other reserves until the investment
is realised.
Assets and liabilities of foreign entities are translated into sterling at
exchange rates ruling at the Balance Sheet date. Their income, expenses and
cash flows are translated at the average rate for the period or at spot rate
for significant items. Resultant exchange differences are booked in Other
Comprehensive Income and recognised in the Group Income Statement when the
operation is sold.
Exchange difference on non-monetary items measured at fair value through
profit or loss, being the value movement of the investment properties, are
recognised as part of the total fair value movement for the portfolio.
2.12. 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.
2.13. 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.
No shares were issued in the period.
2.14. 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. Operating Segments
Operating segments are identified on the basis of internal financial reports
about components of the Group that are regularly reviewed by the chief
operating decision maker (which in the Group's case is the Board, comprising
the Non-Executive Directors, and the Investment Adviser) in order to allocate
resources to the segments and to assess their performance.
The internal financial reports contain financial information at a Group level
as a whole and there are no reconciling items between the results contained in
these reports and the amounts reported in the consolidated financial
information. These internal financial reports include the IFRS figures but
also report the non-IFRS figures for the EPRA and alternative performance
measures as disclosed in Notes 11, 27 and the Additional Information.
The Group's property portfolio comprises investment property. The Board
considers that all the properties have similar economic characteristics.
Therefore, in the view of the Board, there is one reportable segment.
The geographical split of revenue and material applicable non-current assets
was:
Revenue Year to Year to
30 June 2024 £'000 30 June 2023 £'000
UK 107,063 95,823
France 788 -
107,851 95,823
Investment Properties As at As at
30 June 2024 30 June 2023
£'000 £'000
UK 1,704,280 1,685,690
France 63,936 -
1,768,216 1,685,690
4. Gross rental income
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Rental income - freehold property 58,345 53,119
Rental income - long leasehold property 49,063 42,669
Lease surrender income 443 35
Gross rental income 107,851 95,823
Year to Year to
30 June 2024 30 June 2023
£'000 £'000
Property insurance recoverable 621 585
Service charge recoverable 6,201 5,354
Total property insurance and service charge income 6,822 5,939
Total property income 114,673 101,762
Included within rental income is a £2,197,000 (2023: £2,512,000) 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.
Also included in rental income is a £237,000 (year to 30 June 2023:
£499,000) adjustment for lease incentives. Tenant lease incentives are
recognised on a straight-line basis over the lease term as an adjustment to
rental income. 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 £54,258,000 (2023:
£49,620,000) relating to the Group's largest tenant and £30,790,000 (2023:
£27,194,000) 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.
5. Service charge expense
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Property insurance expenses 714 715
Service charge expenses 6,727 5,803
Total property insurance and service charge expense 7,441 6,518
6. Administrative and other expenses
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Investment Adviser fees (Note 28) 9,472 10,292
Directors' remuneration (Note 8) 410 364
Corporate administration fees 1,049 1,108
Legal and professional fees 1,475 1,626
Other administrative expenses 2,812 2,039
Total administrative and other expenses 15,218 15,429
7. Operating profit/(loss)
Operating profit/(loss) is stated after charging fees for:
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Audit of the Company's consolidated and individual 292 260
financial statements
Audit of subsidiaries, pursuant to legislation 88 95
Total audit services 380 355
Audit related services: interim review 42 38
Total audit and audit related services 422 393
Not included in the table above is £95,000 of additional audit fees paid to
BDO relating to the year ended 30 June 2023.
The Group's auditor also provided the following services in relation to
corporate finance services:
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Other non-audit services: corporate finance services - 65
Total other non-audit services - 65
Total fees charged by the Group's auditor 422 458
8. 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 2024 £'000 30 June 2023 £'000
Directors' fees 371 330
Employer's National Insurance Contribution 39 34
Total Directors' remuneration 410 364
The highest paid Director received £75,000 (2023: £75,000) for services
during the year.
9. Finance income and expense
Finance income Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Interest received on bank deposits 306 53
Income from financial assets held at amortised cost (note 15) 494 483
Finance income on unwinding of discounted receivable 203 2,376
Finance income on settlement of interest rate derivatives (note 18) 22,778 11,714
Total finance income 23,781 14,626
Finance expense Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Interest payable on bank borrowings 36,823 29,707
Commitment fees payable on bank borrowings 817 1,571
Amortisation of loan arrangement fees* 2,403 8,037
Total finance expense 40,043 39,315
*This includes a non-recurring exceptional charge of £70,000 (June 2023:
£1.52 million), relating to the acceleration of unamortised arrangement fees
in respect of the modification of loan facilities under IFRS 9. Prior year
also included a one-off loan arrangement fee for the short-term J.P. Morgan
loan of £4.0 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 2024 £'000 30 June 2023 £'000
Total interest expense on financial liabilities held at amortised cost 39,226 37,744
Fee expense not part of effective interest rate for financial liabilities held 817 1,571
at amortised cost
Total finance expense 40,043 39,315
10. Taxation
A) Tax charge in profit or loss
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
UK Corporation tax - -
France Corporation Tax - -
UK deferred tax - -
France deferred tax (note 20) (140) -
(140) -
B) Total tax expense
Tax (credit)/charge in profit and loss as per the above (140) -
Share of tax expense of equity accounted joint ventures - (400)
Total tax (credit)/expense (140) (400)
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 before tax multiplied by the standard rate of
corporation tax for the year of 25% (2023: 20.4%) to the total tax charge is
as follows:
C) Reconciliation of the total tax charge for the year Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Loss on ordinary activities before taxation (21,324) (144,866)
Theoretical tax at UK standard corporation tax rate of 25% (2023: 20.4%) (5,331) (29,553)
Effects of:
Investment property and derivative revaluation not taxable 24,269 49,680
Disposal of interest rate derivative - (587)
Residual business losses 2,481 4,428
French subsidiary allowable expenses (140) -
Other non-taxable items - (8,807)
REIT exempt income (21,419) (15,161)
Share of tax expense of equity accounted joint ventures - (400)
Total tax (credit)/expense for the year (140) (400)
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 £43.4 million (2023: £36.2 million) as, given
the Group's REIT status, it is considered unlikely that these losses will be
utilised. The Group is subject to French Corporation tax on its French
property rental business at a rate of 25%.
11. 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 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 and
derivatives.
The Company has also included an additional earnings measure called "Adjusted
Earnings" and "Adjusted EPS." Adjusted earnings(62) 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 restructuring of the Group's debt facilities during the
period.
The reconciliation of IFRS Earnings, EPRA Earnings and Adjusted Earnings is
shown below:
Year to Year to
30 June 2024
30 June 2023
£' 000 £' 000
Net (loss) attributable to ordinary shareholders (21,184) (144,866)
EPRA adjustments:
Changes in fair value of investment properties and rental guarantees 65,825 256,066
Changes in fair value of interest rate derivatives measured at fair value 31,251 (10,024)
through profit and loss
Profit on disposal of interest rate derivatives - (2,878)
Group share of changes in fair value of joint venture investment properties - (11,486)
Gain on disposal of investments in joint venture - (19,940)
Deferred tax credit (140) -
Finance income received on interest rate derivatives held at fair value (22,469) (9,671)
through profit and loss
EPRA Earnings 53,283 57,201
Adjustments for:
Finance income received on interest rate derivatives held at fair value 22,469 9,671
through profit and loss
Restructuring costs in relation to the acceleration of unamortised arrangement 70 1,518
fees
Joint Venture acquisition loan arrangement fee - 4,009
Adjusted Earnings 75,822 72,399
Number(1) Number(1)
Weighted average number of ordinary shares 1,246,239,185 1,242,574,505
(1) Based on the weighted average number of ordinary shares in issue
Year to Year to
30 June 2024
30 June 2023
Pence per share ('p') Pence per share ('p')
Basic and Diluted EPS (1.7) (11.7)
EPRA adjustments:
Changes in fair value of interest rate derivatives measured at FVTPL 2.5 (0.8)
Changes in fair value of investment properties 5.3 20.6
and rent guarantees
Group share of changes in fair value of joint venture investment properties - (0.9)
Profit on disposal of interest rate derivatives - (0.2)
Group share of gain on disposal of joint venture investment properties - (1.6)
Deferred tax credit - -
Finance income received on interest rate derivatives held at fair value (1.8) (0.8)
through profit and loss
EPRA EPS 4.3 4.6
Adjustments for:
Finance income received on interest rate derivatives held at fair value 1.8 0.8
through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised - 0.1
arrangement fees
Joint Venture acquisition loan arrangement fee - 0.3
Adjusted EPRA EPS 6.1 5.8
12. Dividends
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Amounts recognised as a distribution to ordinary Shareholders
in the year:
Dividends 75,335 74,328
On 6 July 2023, the Board declared a fourth interim dividend for the year
ended 30 June 2023 of 1.500 pence per share, which was paid on 4 August 2023
to shareholders on the register on 14 July 2023.
On 5 October 2023 the Board declared a first interim dividend for the year
ending 30 June 2024 of 1.515 pence per share, which was paid on 16 November
2023 to shareholders on the register on 13 October 2023.
On 4 January 2024 the Board declared a second interim dividend for the year
ending 30 June 2024 of 1.515 pence per share, which was paid on 14 February
2024 to shareholders on the register on 12 January 2024.
On 4 April 2024 the Board declared a third interim dividend for the year
ending 30 June 2024 of 1.515 pence per share, which was paid on 16 May 2024 to
shareholders on the register on 12 April 2024.
On 4 July 2024, the Board declared a fourth interim dividend for the year
ending 30 June 2024 of 1.515 pence per share, which was paid on 16 August 2024
to shareholders on the register on 12 July 2024. This has not been included as
a liability as at 30 June 2024.
13. 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 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 2024 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 £'000 Long Leasehold £'000 Total £'000
At 1 July 2023 899,440 786,250 1,685,690
Property additions 101,104 34,700 135,804
Capitalised acquisition costs 8,093 2,317 10,410
Currency exchange movement (874) - (874)
Revaluation movement (35,747) (27,067) (62,814)
Valuation at 30 June 2024 972,016 796,200 1,768,216
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
Reconciliation of Investment Property to Independent Property Valuation Year to Year to
30 June 2024 £'000 30 June 2023
£'000
Investment Property at fair value per Group Statement of Financial Position 1,768,216 1,685,690
Market Value of Property classified as Financial Assets held at amortised cost 7,530 7,210
(Note 15)
Total Independent Property Valuation 1,775,746 1,692,900
There were four property acquisitions during the year, all of which were
direct purchases of the assets and not acquisition of a corporate structure.
They are all treated as asset purchases.
Included within the carrying value of investment properties at 30 June 2024 is
£10,920,000 (2023: £8,724,000) in respect of the smoothing of fixed
contractual rent uplifts as described in note 4. 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.
Included within the carrying values of investment properties at 30 June 2024
is £1,033,000 (year to 30 June 2023: £251,000) in respect of the lease
incentives with tenants in the form of rent free debtors as described in note
4 and capitalised letting fees.
The effect of these adjustments on the revaluation movement during the year is
as follows:
Year to Year to
30 June 2024 £'000 30 June 2023 £'000
Revaluation movement per above (62,814) (253,211)
Rent smoothing adjustment (note 4) (2,197) (2,512)
Movements in associated rent guarantees - (343)
Movement in Lease incentives (564) -
Movements in capitalised letting fees (218) -
Foreign exchange movement through OCI (32) -
Change in fair value recognised in profit or loss (65,825) (256,066)
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 ended 30 June 2024
UK France
Total
Fair value £1,704.3m £63.9m
£1,768.2
Range of Net Initial Yields 4.6% - 8.0% 4.2% - 6.8% 4.6% - 8.0%
Range of Rental values (passing rents or ERV as relevant) of Group's £0.3m - £5.1m £0.6m - £0.8m £0.3m - £5.1m
Investment Properties
Weighted average of Net Initial Yields 5.9% 6.3% 5.9%
Weighted average of Rental values (passing rents or ERV as relevant) of £2.9m £0.7m £2.9m
Group's Investment Properties
Year ended 30 June 2023
UK France
Total
Fair value £1,685.7m -
£1,685.7m
Range of Net Initial Yields 4.7% - 7.4% - 4.7% - 7.4%
Range of Rental values (passing rents or ERV as relevant) of Group's £0.3m - £5.1m - £0.3m - £5.1m
Investment Properties
Weighted average of Net Initial Yields 5.6% - 5.6%
Weighted average of Rental values (passing rents or ERV as relevant) of £2.8m - £2.8m
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 Initial Yield -0.5%
Rental value Rental value £m Net Initial Yield
£m £m £m
(Decrease)/increase in the fair value of investment properties as at 30 June 35.4 (35.4) (138.1) 164.1
2024
(Decrease)/increase in the fair value of investment properties as at 30 June 33.7 (33.7) (139.9) 168.1
2023
14. Subsidiaries
The entities listed in the following table were the subsidiary undertakings of
the Company at 30 June 2024 all of which are wholly owned. All but those noted
as Jersey or French entities below are subsidiary undertakings incorporated in
England.
Company name Holding Nature of business
type
Supermarket Income Investments UK Limited(+) Direct Intermediate parent company
Supermarket Income Investments (Midco2) UK Limited(+) Direct Intermediate parent company
Supermarket Income Investments (Midco3) UK Limited(+) Direct Intermediate parent company
Supermarket Income Investments (Midco4) UK Limited(+) Direct Intermediate parent company
SII UK Halliwell (MIDCO) LTD(+) Direct Intermediate parent company
Supermarket Income Investments UK (Midco6) Limited(+) Direct Intermediate parent company
Supermarket Income Investments UK (Midco7) Limited(+) Direct Intermediate parent company
Supermarket Income Investments UK (Midco8) Limited*(+) Direct Intermediate parent company
SUPR Green Energy Limited(+) Direct Energy provision company
SUPR Finco Limited(+) Direct Holding company
Supermarket Income Investments UK (NO1) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO2) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO3) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO4) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO5) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO6) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO7) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO8) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO9) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO10) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO11) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO12) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO16) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO16a) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO16b) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO16c) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO17) Limited(+) Indirect Property investment
TPP Investments Limited(+) Indirect Property investment
T (Partnership) Limited(+) Indirect Property investment
The TBL Property Partnership Indirect Property investment
Supermarket Income Investments UK (NO19) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO20) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO21) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO22) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO23) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO24) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO25) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO26) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO27) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO28) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO29) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO30) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO31) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO32) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO33) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO34) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO35) Limited^(-) Indirect Property investment
Supermarket Income Investments UK (NO36) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO37) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO38) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO39) Limited^(-) Indirect Property investment
Supermarket Income Investments UK (NO40) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO41) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO42) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO43) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO44) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO45) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO47) Limited(+) Indirect Property investment
Supermarket Income Investments UK (NO48) Limited*(+) Indirect Property investment
Supermarket Income Investments UK (NO49) Limited*(+) Indirect Property investment
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
Horner (GP) Limited^- Indirect Property investment
Horner (Jersey) Limited Partnership^- Indirect Property investment
Horner REIT^- Indirect Property investment
Supermarket Income Investments France 1"*¨ Indirect Property investment
Supermarket Income Investments France 2"*¨ Indirect Property investment
Supermarket Income Investments France 3"*¨ Indirect Property investment
Supermarket Income Investments France 4"*¨ Indirect Property investment
Supermarket Income Investments France 5"*¨ Indirect Property investment
Supermarket Income Investments France 6"*¨ Indirect Property investment
SII UK Halliwell (No1) LTD(+) Indirect Investment in Joint venture
SII UK Halliwell (No2) LTD(+) Indirect Property investment
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 2024
** Subsidiaries acquired during the year ended 30 June 2024
^ Jersey registered entity
" France registered entity
+ Registered office: The Scalpel 18th Floor, 52 Lime Street, London, United
Kingdom, EC3M 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
¨ Registered office: Tour Pacific, 11-13 Cours Valmy, 92977 Paris La Défense
Cedex
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.
Company name Companies House
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
15. Financial asset arising from sale and leaseback transactions
Year to Year to
30 June 2024 £'000 30 June 2023
£'000
At start of year 10,819 10,626
Additions - -
Interest income recognised in profit and loss (note 9) 494 483
Lease payments received during the period (290) (290)
At end of period 11,023 10,819
On 8 June 2022, the Group acquired an Asda store in Carcroft, via a sale and
leaseback transaction for £10.6 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 2024 the
market value of the property was estimated at £7.5 million (2023: £7.2
million).
Assets held at amortised cost are assessed annually for impairment with any
impairment recognised as an allowance for expected credit losses measured at
an amount equal to the lifetime expected credit losses. The Group considers
historic, current and forward-looking information to determine expected credit
losses arising from either a change in the interest rate implicit in the lease
or factors impacting the customer's ability to make lease payments. Based on
the information currently available the Group does not expect any credit
losses and the asset has not been impaired in the period.
16. Trade and other receivables
As at As at
30 June 2024 £'000 30 June 2023
£'000
Interest receivable on settlement of derivatives 4,946 3,122
Other receivables 6,077 1,601
Receivable from joint venture disposal - 136,582
Prepayments and accrued income 877 850
Total trade and other receivables 11,900 142,155
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 2024. 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.
17. Trade and other payables
As at As at
30 June 2024 £'000 30 June 2023
£'000
Accrued interest payable 8,072 6,524
Other corporate accruals 9,516 15,945
VAT payable 4,385 4,510
Total trade and other payables 21,973 26,979
18. Interest rate derivatives
As at As at
30 June 2024 £'000 30 June 2023
£'000
Non-current asset: Interest rate swaps 12,499 35,601
Non-current asset: Interest rate caps 3,242 1,597
Current Asset: Interest rate swaps 13,456 16,800
Current Asset: Interest rate cap 2,252 3,584
31,449 57,583
The rate swaps are remeasured to fair value by the counterparty bank on a
quarterly basis.
The fair value at the end of year comprises: Year to 30 June 2024 £'000 Year to
30 June 2023
£'000
At start of year (net) 57,583 5,114
Interest rate derivative premium paid on inception 47,494 44,255
Disposal of interest rate derivatives (40,612) (2,878)
Changes in fair value of interest rate derivative in the year (P&L) (8,782) 19,695
Changes in fair value of interest rate derivative in the year (OCI) (1,456) 3,111
(Credit)/Charge to the income statement (P&L) (note 9) (22,469) (9,671)
(Credit)/Charge to the income statement (OCI) (note 9) (309) (2,043)
Fair value at end of year (net) 31,449 57,583
To partially mitigate the interest rate risk that arises as a result of
entering into the floating rate debt facilities referred to in note 19, the
Group has entered into derivative interest rate swaps and caps.
A summary of these derivatives as at 30 June 2024 are shown in the table
below:
Issuer Derivative Type Notional amount £m Mark to Market 30 June 2024 £m Average Strike Rate Effective Date Maturity Date
Premium Paid £m
BLB Interest Rate Swap £37.3 £1.7 £1.2 2.58% Mar-23 Mar-26
BLB Interest Rate Swap £22.2 £1.0 £0.7 2.58% Mar-23 Mar-26
BLB Interest Rate Swap £27.4 £1.2 £0.9 2.58% Mar-23 Mar-26
Wells Fargo Interest Rate Swap £30.0 £2.3 £1.1 1.33% Sep-23 Jul-25
SMBC Interest Rate Swap £50.0 £3.7 £1.7 1.33% Sep-23 Jul-25
SMBC Interest Rate Swap £67.0 £6.5 £3.7 1.73% Sep-23 Sep-26
Barclays Interest Rate Cap £96.6 £2.9 £2.8 1.40% Aug-24 Jul-25
Wells Fargo Interest Rate Swap £204.3 £22.2 £12.9 1.96% Sep-23 Jul-27
Wells Fargo Interest Rate Swap £50.0 £4.8 £2.7 1.66% Sep-23 Jul-26
Wells Fargo Interest Rate Swap £3.2 £0.4 £0.4 0.00% Feb -24 Jul-27
SMBC Interest Rate Cap £96.6 £1.4 £1.3 1.40% Jul-25 Jan-26
SMBC Interest Rate Cap £30.0 £0.4 £0.4 1.40% Jul-25 Jan-26
SMBC Interest Rate Cap £50.0 £0.8 £0.7 1.40% Jul-25 Jan-26
SMBC Interest Rate Cap £3.0 £0.4 £0.3 1.21% Nov-23 Jun-27
SMBC Interest Rate Swap £37.5 £0.6 £0.6 3.61% Mar-24 Sep-26
Total £50.3 £31.4 - - -
90% of the Group's outstanding debt as at 30 June 2024 was hedged through the
use of fixed rate debt or financial instruments (30 June 2023: 100%). 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 Group restructured its derivatives during the year to match the changes in
its borrowings, the movements in the Group's fair value derivatives are
recognised in the profit and loss. There was one derivative terminated in the
year that hedged the Wells facility and was accounted for under hedge
accounting; on derecognition of hedge accounting, the cash flow hedge reserve
is recycled to the profit and loss over the remaining term of the Wells Fargo
facility.
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 balance sheet 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.
19. Bank borrowings
Amounts falling due within one year: As at As at
30 June 2024 £'000 30 June 2023
£'000
Secured debt 96,560 -
Unsecured debt - 62,090
Less: Unamortised finance costs (44) (234)
Bank borrowings per the consolidated statement of financial position 96,516 61,856
Amounts falling due after more than one year:
Secured debt 186,225 291,551
Unsecured debt 414,981 318,508
Less: Unamortised finance costs (3,554) (4,450)
Bank borrowings per the consolidated statement of financial position 597,652 605,609
Total bank borrowings 694,168 667,465
A summary of the Group's borrowing facilities as at 30 June 2024 are shown
below:
Lender Facility Expiry( 63 (#_ftn63) ) Credit Variable/ hedged^ Loan Amount drawn
Margin commitment 30 June 2024
£m £m
Expiry
HSBC Revolving credit facility Sep 2026 Sep 2028 1.7% EURIBOR - 3.71% £75.0 £69.3
Deka Term Loan Aug 2024 Aug 2024 1.35% 0.54% £47.6 £47.6
Deka Term Loan Aug 2024 Aug 2024 1.35% 0.70% £29.0 £29.0
Deka Term Loan Aug 2024 Aug 2024 1.40% 0.32% £20.0 £20.0
BLB Term Loan Mar 2026 Mar 2026 1.65% SWAP - 2.58% £86.9 £86.9
Wells Fargo Revolving credit facility Jul 2025 Jul 2025 2.00% SWAP - 1.33% £30.0 £30.0
Wells Fargo Revolving credit facility Jul 2025 Jul 2025 2.00% SONIA - 5.20% £9.0 -
Syndicate Revolving credit facility Jul 2027 Jul 2029 1.50% SWAP - 1.92% £250.0 £210.5
Syndicate Term Loan Jul 2025 Jul 2026 1.50% SWAP - 1.33% £50.0 £50.0
Syndicate Term Loan Jul 2026 Jul 2027 1.50% SWAP - 1.66% £50.0 £50.0
SMBC Term Loan Sep 2026 Sept 2028 1.40% SWAP - 1.73% £67.0 £67.0
SMBC Term Loan Sep 2026 Sept 2028 1.55% SWAP - 3.61% £37.5 £37.5
Total £752.0 £697.8
*Includes extension options that can be utilised following approval from all
parties.
^ Average rate from 1 July 2024 to expiry of the debt excluding extension
options.
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 Deka facility matured in August 2024, the Group announced
the arrangement of a new £100.0 million unsecured facility with ING Bank to
replace the Deka facility. The Group also completed an agreement with a group
of institutional investors for a private placement of €83.0 million of new
senior unsecured notes. For more information see note 29.
20. Deferred tax
The deferred tax asset relates entirely to unutilised trading losses on the
Group's French resident companies.
Audited Audited
Year to Year to
30 June 2024 30 June 2023
£'000 £'000
At the start of the year - -
Deferred tax on unutilised French trading losses (140) -
Net credit to income statement (note 10) (140) -
At the end of the year (140) -
Deferred tax has been calculated based on local rates applicable under local
legislation substantively enacted at the balance sheet date.
A deferred tax asset of £0.1 million has been recognised for unutilised
trading losses arising on the French Companies in the period. It is the
expectation that these losses will be offset against trading profits for the
French companies to reduce French Corporation Tax charges in future years.
Included in the investment property revaluation movement in the period is a
£6.1 million decrease in the fair value of the French properties relating to
capitalised acquisition costs. No deferred tax asset has been recognised in
respect of unrealised capital losses that would be available on disposal of
the properties at a loss at the current market value as it is considered there
would not be additional French properties to benefit against the capital loss.
21. Categories of financial instruments
As at As at
30 June 2024 £'000 30 June 2023
£'000
Financial assets
Financial assets at amortised cost:
Financial asset arising from sale and leaseback transaction 11,023 10,819
Cash and cash equivalents 38,691 37,481
Trade and other receivables 11,023 141,305
Financial assets at fair value:
Interest rate derivative 31,449 54,278
Derivatives in effective hedges:
Interest rate derivative - 3,304
Total financial assets 92,186 247,187
Financial liabilities
Financial liabilities at amortised cost:
Secured debt 281,635 289,736
Unsecured debt 412,533 377,729
Trade and other payables (note 17) 18,634 22,469
Total financial liabilities 712,802 689,934
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 18.
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 - Interest rate 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. 90% of the borrowings are hedged and
therefore at a fixed rate. Changes in market interest rates therefore effects
the value of the derivatives for the hedged debt and for the unhedged portion
it affects the Group's finance income and 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/ EURIBOR, was as follows:
Year to Year to
30 June 2024 30 June 2023 £'000
£'000
Effect on profit 1,187 1,383
Effect on other comprehensive income and equity - 58
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 market risk associated with
these financial instruments.
Market risk - currency risk
The Group prepares its financial information in Sterling. 4% of the Group's
Investment Properties are denominated in Euros and as a result the group is
subject to foreign currency exchange risk. This risk is partially hedged
because within the Group's French operations, rental income, interest costs
and the majority of both assets and liabilities are Euro denominated. An
unhedged currency risk remains on the value of the Group's net investment in,
and net returns from, its French operations.
The Group's sensitivity to changes in foreign currency exchange rates,
calculated on a 10% increase in average and closing Sterling rates against the
Euro, was as follows, with a 10% decrease having the opposite effect:
Year to Year to
30 June 2024 30 June 2023 £'000
£'000
Increase/(decrease) in net assets (580) -
Increase in profit/(loss) for the year (584) -
Market risk - inflation
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 2024 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.
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 and EURIBOR rate remains at the 30 June 2024
rate. Interest rate derivatives are shown at fair value and not at their gross
undiscounted amounts.
As at 30 June 2024 Less than one year £'000 One to two years £'000 Two to five years £'000 More than five years £'000 Total
£'000
Financial assets:
Cash and cash equivalents 38,691 - - - 38,691
Trade and other receivables 11,023 - - - 11,023
Amortised cost asset 290 290 946 74,602 76,128
Interest rate derivatives 15,708 12,209 3,532 - 31,449
Total financial assets 65,712 12,499 4,478 74,602 157,291
Financial liabilities:
Bank borrowings 119,810 186,374 443,364 - 749,548
Trade and other payables 17,589 - - 1,045 18,634
Total financial liabilities 137,399 186,374 443,364 1,045 768,182
As at 30 June 2023 Less than one year £'000 One to two years £'000 Two to five years £'000 More than five years £'000 Total
£'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 and other payables 22,469 - - - 22,469
Total financial liabilities 104,014 94,080 549,575 - 747,669
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 2024, the capital structure of the Group consisted of bank
borrowings (note 19), 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 to 24).
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
Total bank borrowings £'000 Interest and commitment fees payable £'000 Interest rate derivatives £'000 Total
£'000
As at 1 July 2023 667,465 6,837 (57,583) 616,719
Cash flows:
Debt drawdowns in the year 217,560 - - 217,560
Debt repayments in the year (191,077) - - (191,077)
Interest and commitment fees paid - (36,305) - (36,305)
Loan arrangement fees paid (1,318) - - (1,318)
Interest rate premium paid - - (45,364) (45,364)
Interest rate derivative disposal - - 38,482 38,482
Non-cash movements:
Finance costs in the statement of comprehensive income 2,403 37,605 - 40,008
Finance income in the statement of comprehensive income - - 22,778 22,778
Fair value changes - - 10,238 10,238
Foreign exchange movement (865) - - (865)
As at 30 June 2024 694,168 8,137 (31,449) 670,856
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
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 17. Cash flow movements are included in the
consolidated statement of cash flows and the non-cash movements are included
in note 9. The movements in the interest rate derivative financial liabilities
can be found in note 18.
22. Share capital
Ordinary Shares Share capital £'000 Share premium reserve £'000 Capital reduction reserve Total
of 1 pence £'000 £'000
Number
As at 1 July 2023 1,246,239,185 12,462 500,386 704,531 1,217,379
Dividend paid in the period (note 12) (75,335) (75,335)
As at 30 June 2024 1,246,239,185 12,462 500,386 629,196 1,142,044
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 12) - - - (74,328) (74,328)
As at 30 June 2023 1,246,239,185 12,462 500,386 704,531 1,217,379
23. Cash flow hedge reserve
Year to Year to
30 June 2024 30 June 2023 £'000
£'000
At start of the period 3,304 5,114
Recycled comprehensive loss to profit and loss (1,154) -
Cash flow hedge reserve taken to profit or loss for the period on disposal of - (2,878)
interest rate derivatives
Fair value movement of interest rate derivatives in effective hedges (611) 1,068
At the end of the period 1,539 3,304
During the period, a previously hedge accounted derivative in relation to the
Wells Fargo facility was terminated. The residual balance of the derivative is
recycled to the income statement over the remaining period of the Wells Fargo
facility to July 2025.
24. Reserves
The nature and purpose of each of the reserves included within equity at 30
June 2024 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.
· Other reserves represents cumulative gains or losses, net of tax, of
foreign currency exchange rate differences recognised in a period as other
comprehensive income.
The only movements in these reserves during the year are disclosed in the
consolidated statement of changes in equity.
25. Capital commitments
The Group had no capital commitments outstanding as at 30 June 2024 and 30
June 2023.
26. 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 based on rental income at 30 June 2024 is 12.4 years
(2023: 13.6 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 2024 30 June 2023
£'000 £'000
Year 1 112,127 100,156
Year 2 111,887 98,941
Year 3 111,048 98,614
Year 4 108,241 97,552
Year 5 106,936 97,177
Year 6-10 475,626 452,219
Year 11-15 281,725 310,150
Year 16-20 62,285 94,875
Year 21-25 20,626 23,358
More than 25 years 9,998 12,743
Total 1,400,499 1,385,785
27. 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 Group uses EPRA Net Tangible Assets 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 2024 30 June 2023
£'000 £'000
Net assets per the consolidated statement of financial position 1,119,474 1,217,726
Fair value of financial assets at amortised cost (3,493) (3,609)
Fair value of interest rate derivatives (31,449) (57,583)
EPRA NTA 1,084,532 1,156,534
Ordinary shares in issue at 30 June 1,246,239,185 1,246,239,185
NAV per share - Basic and diluted (pence) 90p 98p
EPRA NTA per share (pence) 87p 93p
28. 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
The table below shows the fees per annum for the roles performed by the Board
for the year ended 30 June 2024:
Role Jon Austen Frances Davies Vince Prior Sapna Shah Cathryn Vanderspar
Nick Hewson
Chair of Board of Directors - - £75,000 - - -
Director £52,500 £52,500 - £52,500 £52,500 £52,500
Audit and Risk Committee Chair £9,000 - - - - -
Nomination Committee Chair* - - - £4,000 £4,000 -
Senior Independent Director* - - - £5,000 £5,000 -
Remuneration Committee Chair - - - - - £5,000
ESG Committee Chair - £5,000 - - - -
Management Engagement Committee Chair* - - - £5,000 £5,000 -
*From 21 May 2024, Sapna Shah became Senior Independent Director and
Nomination Committee Chair in place of Vince Prior. Vince Prior became
Management Engagement Committee Chair in place of Sapna Shah.
The table below shows the total fees received by each member of the Board for
the year ended 30 June 2024:
Year to Year to
30 June 2024 30 June 2023 £'000
£'000
Nick Hewson 75 75
Jon Austen 62 62
Vince Prior 61 62
Cathryn Vanderspar 58 58
Frances Davies 58 58
Sapna Shah* 58 18
(*) Appointed 1 March 2023
The total remuneration payable to the Directors in respect of the current year
and previous year are disclosed in note 8.
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
2024 and at the date of the signing of the accounts were as follows:
· Nick Hewson: 1,330,609 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 shares (0.01% of issued share capital)
· Frances Davies: 36,774 shares (0.00% of issued share capital)
· Sapna Shah: 70,081 shares (0.01% 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 £1,500 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 £500 million,
1/12th of 0.5625% per calendar month of Adjusted Net Asset Value above £500
million and up to or equal to £1,000 million and 1/12(th) of 0.4875% per
calendar month of Adjusted Net Asset Value above £1,000 and up to or equal to
£1,500 million.
· Semi-Annual Management Fee payable semi-annually in arrears: 0.11875% of
Adjusted Net Asset Value up to or equal to £500 million, 0.09375% of Adjusted
Net Asset Value above £500 million and up to or equal to £1,000 million and
0.08125% of Adjusted Net Asset Value above £1,000 million and up to or equal
to £1,500 million.
For the year to 30 June 2024 the total advisory fees payable to the Investment
Adviser were £9,472,218 (2023: £10,292,302) of which £1,745,960 (2023:
£1,845,144) is included in trade and other payables in the consolidated
statement of financial position as at 30 June 2024.
The Investment Adviser is also entitled to an annual accounting and
administration service fee equal to: £54,107; plus (i) £4,386 for any
indirect subsidiary of the Company and (ii) £1,702 for each direct subsidiary
of the Company. A full list of the Company and its direct and indirect
subsidiary undertakings is listed in Note 14 of this financial information.
For the year to 30 June 2024 the total accounting and administration service
fee payable to the Investment Adviser was £363,869 (2023: £297,475) of which
£91,950 (2023: £83,614) is included in trade and other payables in the
consolidated statement of financial position as at 30 June 2024.
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 2024 the total introducer fees payable to the
affiliate of the Investment Adviser were £nil (2023: £nil).
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 2024 were as follows:
· Ben Green: 2,337,286 shares (0.19% of issued share capital)
· Steve Windsor: 1,764,679 shares (0.14% of issued share capital)
· Steven Noble: 246,885 shares (0.02% of issued share capital)
· Natalie Markham: 71,039 shares (0.01% of issued share capital)
On 9 September 2024, the Company announced that Steven Noble stepped down as
Chief Investment Officer of the Company's Investment Adviser, Atrato Capital
Limited.
Charitable donations
The Company approved a policy to make charitable donations of £150,000 per
annum. During the year £120,000 was approved by the Board and paid post year
end (2023: Nil). The donations will be made to the Atrato Foundation, a
corporate charity registered with the Charity Commission and Companies House,
whose Trustees are Lara Townsend (COO of the Investment Adviser) and Natalie
Markham (CFO of the Investment Adviser). The donations will be made in the
form of a restricted grant, the funds will be directed to charitable causes
specified by the Board of the Company. For further information on the
Company's charitable activities, please refer to page 11.
29. Subsequent events
Debt financing
· In July 2024, the Group announced the arrangement of a new £100.0
million facility with ING bank at a margin of 1.55% over SONIA. The facility
comprises a £75.0 million term loan and a £25.0 million revolving credit
facility. The term of the loan is for three-years with two further one-year
extension options.
· In July 2024, the Group announced the completed an agreement with a
group of institutional investors for a private placement of €83.0 million of
new senior unsecured notes. The notes have a term of 7 years and a fixed rate
coupon of 4.4%.
· In August 2024, the Deka facility of £96.6 million matured and was
settled with the proceeds of the new ING facility.
COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 June 2024
Registered number: 10799126
Notes As at As at
30 June 2024 30 June 2023
£'000 £'000
Non-current assets
Investments in subsidiaries D 1,139,114 1,564,226
Intercompany receivables D 491,566 -
Interest rate derivatives 14,312 29,318
Total non-current assets 1,644,992 1,593,544
Current assets
Interest rate derivatives 13,258 13,397
Trade and other receivables E 4,013 11,412
Cash and cash equivalents 382 2,928
Total current assets 17,653 27,737
Total assets 1,662,645 1,621,281
Current liabilities
Bank Borrowings G - 61,856
Trade and other payables F 227,194 127,027
Total current liabilities 227,194 188,883
Non-Current liabilities
Bank borrowings G 412,533 315,873
Total liabilities 639,727 504,756
Total net assets 1,022,918 1,116,525
Equity
Share capital H 12,462 12,462
Share premium reserve 500,386 500,386
Capital reduction reserve 629,196 704,531
Retained earnings (119,126) (100,854)
Total equity 1,022,918 1,116,525
The notes on pages 140 to 141 form part of these financial statements.
The Company has taken advantage of the exemption within section 408 of the
Companies Act 2006 not to present its own profit and loss account. The
accumulated loss for the year dealt with the financial statements of the
Company was £18,272,000 (2023: loss £164,541,000). As at 30 June 2024 the
Company has distributable reserves of £510.0 million (2023: £603.7 million).
The Company financial statements were approved and authorised for issue by the
Board of Directors on 17 September 2024 and were signed on its behalf by
Nick Hewson (Chair).
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2024
Share capital £'000 Share premium reserve £'000 Capital reduction reserve £'000 Retained earnings £'000 Total £'000
As at 1 July 2023 12,462 500,386 704,531 (100,854) 1,116,525
Loss and total comprehensive loss for the year - - - (18,272) (18,272)
Transactions with owners
Interim dividends paid - - (75,335) - (75,335)
As at 30 June 2024 12,462 500,386 629,196 (119,126) 1,022,918
As at 1 July 2022 12,399 494,174 778,859 63,687 1,349,119
Loss and total comprehensive loss for the year - - - (164,541) (164,541)
Transactions with owners
Ordinary shares issued at a premium during the year 63 6,301 - - 6,364
Transfer to capital reduction reserve
Share issue costs - (89) - - (89)
Interim dividends paid - - (74,328) - (74,328)
As at 30 June 2023 12,462 500,386 704,531 (100,854) 1,116,525
NOTES TO THE COMPANY FINANCIAL STATEMENTS
A. Basis of preparation
The Company's financial statements have been prepared in accordance with FRS
102, the Financial Reporting Standard applicable in the United Kingdom and the
Republic of Ireland.
The principal accounting policies relevant to the Company are as follows:
· Investments in subsidiaries are recognised at cost less provision for
any impairment
· Loans and receivables are recognised initially at fair value plus
transaction costs less provision for impairment
· Trade payables are recognised initially at fair value and subsequently
at amortised cost
· Equity instruments are recognised as the value of proceeds received net
of direct issue
costs
· Dividends are recognised as a financial liability and deduction from
equity in the period in which they are declared
In preparing the Company's financial statements, advantage has been taken of
the following disclosure exemptions available in FRS 102:
· No cash flow statement has been presented
· Disclosures in respect of the Company's financial instruments have not
been presented as equivalent disclosures have been provided in respect of the
Group
· No reconciliation of the number of shares outstanding at the beginning
and end of the year has been presented as it is identical to the
reconciliation for the Group shown in note 22
to the Group financial statements
· No disclosure has been given for the aggregate remuneration of the key
management personnel of the Company as their remuneration is shown in note 8
to the Group
financial statements
In the year to 30 June 2024, the Company intends to continue to use these
disclosure exemptions unless objections are received from Shareholders.
B. Significant accounting judgements, estimates and assumptions
In preparing the financial statements of the Company, the Directors have made
the following judgements:
· Determine whether there are any indicators of impairment of the investments
in subsidiary undertakings. Factors taken into consideration in reaching such
a decision include the financial position and expected future performance of
the subsidiary entity. Where indicators of impairment are identified the
carrying value of investments in subsidiaries will be compared to their
recoverable amount and an impairment charge recognised where this is lower
than carrying value. The net asset value of the individual subsidiary entities
is considered to be a reasonable proxy for fair value less costs to sell as
the underlying investment properties held within these entities is carried at
fair value.
C. Auditor's remuneration
The remuneration of the auditor in respect of the audit of the Company's
consolidated and individual financial statements for the year was £292,150
(2023: £260,000). Fees payable for audit and non-audit services provided to
the Company and the rest of the Group are disclosed in note 7 to the Group
financial statements.
D. Investment in subsidiary undertakings
The Company's wholly owned direct subsidiaries are Supermarket Income
Investments UK Limited, Supermarket Income Investments (Midco2) UK Limited,
Supermarket Income Investments (Midco3) UK Limited, Supermarket Income
Investments (Midco4) UK Limited, SII UK Halliwell (Midco) Limited,
Supermarket Income Investments (Midco 6) UK Limited , Supermarket Income
Investments (Midco7) UK Limited, Supermarket Income Investments (Midco 8),
SUPR Finco Limited and SUPR Green Energy Limited all of which are incorporated
and operating in England with a registered address of The Scalpel 18th Floor,
52 Lime Street, London, United Kingdom, EC3M 7AF. The full list of subsidiary
entities directly and indirectly owned by the Company is disclosed in note 14
to the Consolidated Financial Statements.
The movement in the year was as follows:
Year to
30 June 2024
£'000
Opening balance 1,564,226
Additions 1
Disposals (359,865)
Closing balance 1,204,362
Impairments of investments in subsidiaries (65,248)
As at 30 June 2024 1,139,114
Non-current loans receivable 491,566
Closing balance as at 30 June 2024 1,630,680
During the year a number of the Company's subsidiaries undertook buybacks of
their own shares. The proceeds of these buybacks were left outstanding as
intercompany loans provided by the Company to the respective subsidiaries.
These transactions are responsible for the increase in the Company's
intercompany loan receivable balance as at 30 June 2024.
Year to
30 June 2023
£'000
Opening balance 1,329,108
Additions 1,066,634
Closing balance 2,395,742
Impairments of investments in subsidiaries (831,516)
As at 30 June 2023 1,564,226
An impairment of investments in subsidiaries was recognised during both the
current and previous year following the payment of upstream dividends to the
Company. Following the payment of dividends, the net assets of certain
dividend paying subsidiaries no longer support the carrying value of the
Company's investment in those entities and thus an impairment charge was
recognised to bring the carrying value of the investments in line with the
recoverable amount, which was also considered to be its value in use.
E. Trade and other receivables As at As at
30 June 2024 30 June 2023
£'000 £'000
Intercompany receivables 3,645 9,345
Prepayments and accrued income 209 223
VAT receivable 159 -
Other receivables - 1,844
Total trade and other receivables 4,013 11,412
F. Trade and other payables
Trade creditors 2,120 2,235
Corporate accruals 6,491 5,122
VAT payable - 114
Intercompany payables 218,583 119,556
Total trade and other payables 227,194 127,027
G. Bank Borrowings
As at As at
30 June 2024 £'000 30 June 2023
£'000
Amounts falling due within one year:
Unsecured debt - 62,090
Less: Unamortised finance costs - (234)
Bank borrowings per the Company's statement of financial position - 61,856
Amounts falling due after more than one year:
Unsecured debt 414,981 318,508
Less: Unamortised finance costs (2,448) (2,635)
Bank borrowings per the Company's statement of financial position 412,533 315,873
Total bank borrowings 412,533 377,729
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.
Details of the bank borrowings of the Company are disclosed in note 19 to the
Group financial statements.
H. Share capital
Details of the share capital of the Company are disclosed in note 22 to the
Group financial statements.
I. Related party transactions
Details of related party transactions are disclosed in note 28 to the Group
financial statements.
Notes to EPRA and other Key Performance Indicators
1. EPRA Earnings and Adjusted Earnings per Share
For the period from 1 July 2023 to 30 June 2024 Net profit attributable Weighted average number of ordinary shares(1) Earnings/
to ordinary Shareholders
Number per share
£'000
Pence
Net (loss) attributable to ordinary Shareholders (21,184) 1,246,239,185 (1.7)
Adjustments to remove:
Changes in fair value of investment properties and associated rent guarantees 65,825 5.3
Changes in fair value of interest rate derivatives measured at FVTPL 31,251 2.5
Deferred Tax (140) -
Finance income received on interest rate derivatives held at fair value (22,469) (1.8)
through profit and loss
EPRA earnings 53,283 1,246,239,185 4.3
Add finance income received on interest rate derivatives held at fair value 22,469 1.8
through profit and loss
Add accelerated finance costs 70 -
Adjusted EPRA earnings 75,822 1,246,239,185 6.1
1 Based on the weighted average number of ordinary shares in issue in the
year ended 30 June 2024.
For the period from 1 July 2022 to 30 June 2023 Net profit attributable Weighted average number of ordinary shares(1) Earnings/
to ordinary Shareholders
Number per share
£'000
Pence
Net (loss) 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 (9,671) - (0.8)
through profit and loss
EPRA earnings 57,201 1,242,574,505 4.6
Add finance income received on interest rate derivatives held at fair value 9,671 - 0.8
through profit and loss
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
2 Based on the weighted average number of ordinary shares in issue in the
year ended 30 June 2023.
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.
30 June 2024 EPRA NTA EPRA NRV EPRA NDV £'000
£'000 £'000
IFRS NAV attributable to ordinary Shareholders 1,119,474 1,119,474 1,119,474
Fair value of Financial asset held at amortised cost (3,493) (3,493) (3,493)
Fair value of interest rate derivatives (31,449) (31,449) -
Purchasers' costs - 120,239 -
Fair value of debt - - 149
EPRA metric 1,084,532 1,204,771 1,116,130
EPRA metric per share 87p 97p 90p
30 June 2023 EPRA NTA EPRA NRV EPRA NDV £'000
£'000 £'000
IFRS NAV attributable to ordinary Shareholders 1,217,726 1,217,726 1,217,726
Fair value of interest rate derivatives (3,609) (3,609) (3,609)
Fair value of Financial asset held at amortised cost (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
3. EPRA Net Initial Yield (NIY) and EPRA "topped up" NIY
As at As at
30 June 2024 £'000 30 June 2023 £'000
Investment Property - wholly owned (note 13) 1,768,216 1,685,690
Investment Property - share of joint ventures - -
Completed Property Portfolio 1,768,216 1,685,690
Allowance for estimated purchasers' costs 120,239 122,990
Grossed up completed property portfolio valuation (B) 1,888,455 1,808,680
Annualised passing rental income - wholly owned 112,338 99,910
Annualised non-recoverable property outgoings (1,116) (1,117)
Annualised net rents (A) 111,222 98,793
Rent expiration of rent-free periods and fixed uplifts 440 447
Topped up annualised net rents (C) 111,662 99,240
EPRA NIY (A/B) 5.89% 5.46%
EPRA "topped up" NIY (C/B) 5.91% 5.49%
All rent free periods expire within the year to 30 June 2024
4. EPRA Vacancy Rate
EPRA Vacancy Rate As at As at
30 June 2024 £'000 30 June 2023 £'000
Estimated rental value of vacant space 591 439
Estimated rental value of the whole portfolio 113,660 100,797
EPRA Vacancy Rate 0.5% 0.4%
The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space
as a proportion of the total rental value of the 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 2024 £'000 30 June 2023 £'000
Administration expenses per IFRS 15,218 15,429
Service charge income (6,822) (5,939)
Service charge costs 7,441 6,518
Net Service charge costs 619 579
Share of joint venture expenses - 938
Total costs (including direct vacant property costs) (A) 15,837 16,946
Vacant property costs (331) (328)
Total costs (excluding direct vacant property costs) (B) 15,506 16,618
Gross rental income per IFRS 107,851 95,823
Less: service charge components of gross rental income - -
Add: Share of Gross rental income from Joint Ventures - 13,529
Gross rental income (C) 107,851 109,352
EPRA Cost ratio (including direct vacant property costs) (A/C) 14.7% 15.50%
EPRA Cost ratio (excluding vacant property costs) (B/C) 14.4% 15.20%
1. The Company does not have any overhead costs capitalised as it has no
assets under development.
6. EPRA LTV
As at As at
30 June 2024 30 June 2023
£'000 £'000
Group Net Debt
Borrowings from financial institutions 694,168 667,465
Net payables 34,832 -
Less: Cash and cash equivalents (38,691) (37,481)
Group Net Debt Total (A) 690,309 629,984
Group Property Value
Investment properties at fair value 1,768,216 1,685,690
Intangibles - -
Net receivables - 93,620
Financial assets 11,023 10,819
Total Group Property Value (B) 1,779,239 1,790,129
Group LTV (A-B) 38.80% 35.19%
Share of Joint Ventures Debt
Bond loans - -
Net payables - -
JV Net Debt Total (A) - -
Group Property Value
Owner-occupied property
Investment properties at fair value - -
Total JV Property Value (B) - -
JV LTV (A-B) 0.00% 0.00%
Combined Net Debt (A) 690,309 629,984
Combined Property Value (B) 1,779,239 1,790,129
Combined LTV (A-B) 38.80% 35.19%
7. EPRA Like-for-Like Rental Growth
Sector Year ended 30 June 2024 Year ended 30 June 2023 Like-for-Like rental growth
£'000 £'000 %
UK 82,003 80,329 2.1%
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 £1.30 billion (30 June 2023: £1.35 billion).
8. EPRA Property Related Capital Expenditure
As at As at
30 June 2024 30 June 2023
£'000 £'000
Group
Acquisitions 145,834 377,311
Development 380 -
Investment properties - -
Group Total CapEx 146,214 377,311
Joint Venture
Acquisitions - -
Development - -
Investment properties - -
Joint Venture CapEx - -
Total CapEx 146,214 377,311
Acquisitions relate to purchase of investment properties in the year and
includes capitalised acquisition costs. Development relates to capitalised
costs in relation to development expenditure on the property portfolio.
9. Total Shareholder Return
Total Shareholder Return Year to Year to
30 June 2024 Pence per share ('p') 30 June 2023 Pence per share ('p')
Share price at start of the year 73.00 119.50
Share price at the end of the year 72.50 73.00
Increase in share price (0.50) (46.50)
Dividends declared for the year 6.06 6.00
Increase / (decrease) in share price plus dividends 5.56 (40.50)
Share price at start of year 73.00 119.50
Total Shareholder Return 8% (34%)
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.
Net loan to value As at As at
30 June 2024 £'000 30 June 2023 £'000
Bank borrowings 694,168 667,465
Less cash and cash equivalents (38,691) (37,481)
Net borrowings 655,477 629,984
Investment properties valuation 1,768,216 1,685,690
Net loan to value ratio 37% 37%
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
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
FCA Financial Conduct Authority of the United Kingdom
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 international accounting standards
IPO An initial public offering (IPO) refers to the process of offering shares of
a corporation to the public in a new stock issuance
LSE London Stock Exchange
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 cash balances
or Net LTV
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 in 26 geographically diverse
high quality Sainsbury's supermarkets
Reversion Portfolio (SRP)
Total Shareholder Return (TSR) The movement in share price over a period plus 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
CONTACTS INFORMATION
Directors Nick Hewson (Non-Executive Chair)
Vince Prior (Chair of Management Engagement Committee)
Jon Austen (Chair of Audit and Risk Committee)
Cathryn Vanderspar (Chair of Remuneration Committee)
Frances Davies (Chair of ESG Committee)
Sapna Shah (Chair of Nomination Committee & Senior Independent Director)
Company Secretary Hanway Advisory Limited
The Scalpel 18th Floor, 52 Lime Street, London, United Kingdom, EC3M 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
3rd Floor, 10 Bishops Square, London E1 6EG
Financial adviser, Stifel Nicolaus Europe Limited
Joint Corporate Broker and Placing Agent 150 Cheapside, London, EC2V 6ET
Joint Corporate Broker Goldman Sachs International
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 (http://www.supermarketincomereit.com)
Registered Office The Scalpel 18th Floor, 52 Lime Street, London, EC3M 7AF
Stock exchange ticker ISIN SUPR
GB00BF345X11
This report will be available on the Company's website.
1 (#_ftnref1) The alternative performance measures used by the Group have
been defined and reconciled to the IFRS financial statements within the
unaudited supplementary information
2 (#_ftnref2) Calculated as Adjusted earnings divided by dividends paid
during the year
3 (#_ftnref3) IGD UK Grocery Market Value forecasts
4 (#_ftnref4) Kantar - UK Grocery Market Share Data (12 weeks ending 09 June
2024)
5 (#_ftnref5) IGD France Grocery Market Value forecasts
6 (#_ftnref6) Kantar - France Grocery Market Share Data (12 weeks ending 07
July 2024)
7 (#_ftnref7) Carrefour "Digital Retail 2026" strategy
8 (#_ftnref8) IGD Research, "Strategic outlook for Carrefour" (April 2024)
9 (#_ftnref9) Kantar - France Grocery Market Share Data (March 2024)
10 (#_ftnref10) Standard & Poor's
11 (#_ftnref11) Annual ILC-linked rent reviews
12 (#_ftnref12) IGD French Grocery Market (2024 forecast)
13 (#_ftnref13) Kantar France Grocery Market Share (12 weeks ending 07 July
2024)
14 (#_ftnref14) Carrefour "Digital Retail 2026" strategy
15 (#_ftnref15) Tesco FY23/24 Results
16 (#_ftnref16) Sainsbury's FY23/24 Results
17 (#_ftnref17) Carrefour Q2/H1 Sales and Results 2024
18 (#_ftnref18) IGD French Grocery Market Value (2024 forecast)
19 (#_ftnref19) IGD Research 2024, Strategic outlook for Carrefour
20 (#_ftnref20) Kantar France Grocery Market Share (12 weeks ending July
2024)
21 (#_ftnref21) IGD Research 2024
22 (#_ftnref22) Years ending 30 June Source: Knight Frank, Savills, MSCI,
operator announcements Atrato Capital research
23 (#_ftnref23) Based on most recent company accounts where disclosed
24 (#_ftnref24) Excluding acquisition costs
25 (#_ftnref25) With a break option at year 10
26 (#_ftnref26) "Winning in Grocery during and after Covid", OC&C,
Nectar 360
27 (#_ftnref27) IGD Grocery Market channel data (2019 actual, 2024 forecast)
28 (#_ftnref28) Kantar UK Grocery Market Share (12 weeks ending June 2024)
29 (#_ftnref29) Which? Supermarket food price inflation tracker, June 2024
30 (#_ftnref30) IGD
31 (#_ftnref31) Kantar France Grocery Market Share (12 weeks ending 07 July
2024)
32 (#_ftnref32) Carrefour "Digital Day - Digital Acceleration for Retail
& Ecommerce"
33 (#_ftnref33) "Carrefour 2026" Strategic Plan
34 (#_ftnref34) Net finance expense is adjusted for finance income from
derivatives held at fair value through profit and loss and non-recurring debt
restructuring costs
35 (#_ftnref35) Net finance expense is adjusted for finance income from
derivatives held at fair value through profit and loss and non-recurring debt
restructuring costs.
36 (#_ftnref36) Undrawn facilities for June 2024 includes a £50 million
accordion option
37 (#_ftnref37) Including post balance sheet events
38 (#_ftnref38) Includes rates fixed through interest rate derivatives
39 (#_ftnref39) Including extension options at lenders' discretion
40 (#_ftnref40) FERA emissions includes the well-to-tank (WTT) and
transmission and distribution (T&D) upstream emissions from Scope 1 and 2.
41 (#_ftnref41) 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.
42 (#_ftnref42) Values have been rounded.
43 (#_ftnref43) Emissions in downstream leased assets includes emission from
tenant electricity, fuel and refrigerant consumption. FERA emissions
associated with leased assets are included in Scope 3: Downstream Leased
Assets
44 (#_ftnref44) Values have been rounded.
45 (#_ftnref45) Tenant energy consumption from fuels and electricity only.
46 (#_ftnref46) Normalised to Scope 1 + 2 floor area: 281,291 m(2) FY24
47 (#_ftnref47) Normalised to Scope 3 floor area: 609,984 m(2) FY24
48 (#_ftnref48) Task Force on Climate-related Financial Disclosures, "Final
Report: Recommendations of the Task Force on Climate-related Financial
Disclosures" (June 2017).
https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf
(https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf)
49 (#_ftnref49) Physical Climate VaR is defined as the net present value of
the future costs attached to physical risk (cost of damage due to extreme
weather), expressed as a % of the asset's Capital Value. Calculated for a
given carbon emissions reduction scenario or climate change scenario, with a
given scenario outcome (aggressive or average) in case of physical risk.
Discount rate of 7.4% rate (average long-term total return of MSCI Global
Property Index).
50 (#_ftnref50) Financial Risk Categories include: Severe Risk
(VaR<-25%), Significant Risk (VaR<-5%), Moderate Risk (VaR<-0.5%),
Negligible Risk (VaR<0%), No Identifiable Risk (VaR=0%), Negligible Risk
Reduction (VaR>0%), Risk Reduction (VaR>0.5%).
51 (#_ftnref51) The exposure assessment adopted the Climate VaR financial
risk thresholds of negligible, moderate, significant and severe risk, with
severe the highest financial risk category.
52 (#_ftnref52) 3°C | REMIND | Current Policies (default) by 2100 time
horizon. The Aggressive Outcome reflects the severe downside physical risk of
a given climate change scenario and is computed from the 95th percentile of
the distribution of Discounted Costs reflecting uncertainty about the climate
system and modelling assumptions. The Aggressive Outcome (or worst case/95th
percentile) was selected to better stress test the Company's strategy.
53 (#_ftnref53) Percentages by count of total properties in the portfolio.
Three assets were excluded from the MSCI tool to avoid distorting the results.
This was due to their acquisition dates meaning no full year energy
consumption data from prior year was available to upload into the tool and
available proxy data within the tool was deemed inconsistent with the actual
data results.
54 (#_ftnref54) The nature of FRI leases means the tenants have
responsibility for the maintenance and operation of the assets (including the
heating and cooling of the building) during the term of the lease.
55 (#_ftnref55) As at 30 June 2023 including post balance sheet events
56 (#_ftnref56) The majority of estimates are attributed to refrigerant
gasses which were 100% estimated. 52% of purchased electricity emissions and
70% of natural gas emissions were calculated based on actual data in FY24, an
improvement from 23% and 27% actual data respectively in FY23.
57 (#_ftnref57) Three assets were excluded from the MSCI tool to avoid
distorting the results. This was due to their acquisition dates meaning no
full year energy consumption data from prior year was available to upload into
the tool and available proxy data within the tool was deemed inconsistent with
the actual data results.
58 (#_ftnref58) FERA emissions associated with tenant activities under Scope
3 downstream leased assets are not included in the figures reported.
59 (#_ftnref59) FY23 figures (1 July 2022 - 30 June 2023) as restated due to
an error identified in the supermarket refrigerant emission calculation for
FY23.
60 (#_ftnref60) Excludes supermarkets located in Scotland, due to differing
EPC calculation methodology used, making the sites non-comparable.
61 (#_ftnref61) Excludes ancillary units located in Scotland, due to
differing EPC calculation methodology used, making the sites non-comparable.
62 (#_ftnref62) 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.
63 (#_ftnref63) Including uncommitted extension options.
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