REG - Supermarket Inc REIT - Half-Year Report 6 Months Ended 31 December 2022
30/03/2023 07:00
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RNS Number : 6965U Supermarket Income REIT PLC 30 March 2023
Supermarket Income REIT plc
(the "Group" or the "Company")
LEI: 2138007FOINJKAM7L537
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2022
GROCERY SECTOR REMAINS RESILIENT DESPITE CHALLENGING MACROECONOMIC ENVIRONMENT
The Board of Directors of Supermarket Income REIT plc (LSE: SUPR), the real
estate investment trust providing secure, inflation-linked, long income from
grocery property in the UK, reports its interim results for the Group for the
six months ended 31 December 2022 (the "Period").
FINANCIAL HIGHLIGHTS
Six months to Six months to Change
31-Dec-22 31-Dec-21 in Year
Annualised passing rent 1 (#_ftn1) £95.5m £70.2m +36%
Adjusted Earnings(1, 2 (#_ftn2) , 3 (#_ftn3) ) £36.4m £26.9m +35%
Operating profit(3) £38.0m £26.4m +44%
Changes in fair value of investment properties(3, 4 (#_ftn4) ) (£248.1m) £11.0m n/a
Dividend paid per share 3.0 pence 3.0 pence -
Adjusted EPS(1,2,3) 2.9 pence 3.1 pence -5%
Dividend cover(1) 0.98x 5 (#_ftn5) 1.13x n/a
31-Dec-22 30-June-22 Change
in Period
IFRS net assets £1,198m £1,432m -16%
EPRA NTA(1) £1,147m £1,427m -20%
EPRA NTA per share(1) 92 pence 115 pence -20%
Loan to value (Direct Portfolio)(1) 40.0% 19.0% n/a
Portfolio net initial yield(1) 5.5% 4.6% n/a
Strong growth momentum
· 36% increase in annualised passing rent
· 3.7% average annualised rental uplift in the Period(( 6 (#_ftn6)
))
· 8.8% increase in grocery market 7 (#_ftn7)
· Operator revenues at record levels benefitting from
non-discretionary expenditure
· 80% of leases with inflation-linked rent reviews and 100% of rent
collected
Handpicked, high-quality portfolio of 50 supermarkets
· Strong tenant covenants; 75% of income from Sainsbury's and Tesco
· Future-proofed portfolio of omnichannel stores
· Capturing elevated online grocery demand, up 80% since 2019
· 14 years weighted average unexpired lease term ("WAULT")
Prudent management of the balance sheet, protecting earnings and maintaining a
sustainable dividend
· Flexibility to deploy capital via accretive acquisitions and/or
return excess capital to shareholders
· Transition to unsecured financing via new six-year £412 million
facility(( 8 (#_ftn8) ))
· Drawn debt 100% fixed (or hedged to fixed) at 2.9% weighted average
cost 9 (#_ftn9)
· Fitch Ratings Limited ("Fitch") reaffirmed the Company's Investment
Grade credit rating of BBB+
· Post-balance sheet monetisation of the Sainsbury's Reversion
Portfolio ("SRP") generating minimum cash proceeds of £430 million and
money-on-money multiple of 1.9x and IRR of 30%(( 10 (#_ftn10) )), with pro
forma LTV expected to decline to below 30% in July 2023
· On track to deliver full-year 2023 target dividend of 6 pence per
share
Valuation reflects impact of market repricing due to higher interest rates and
macroeconomic environment
· Direct Portfolio independently valued at £1.63 billion (30 June
2022: £1.56 billion)
· Net initial yield ("NIY") of 5.5% as at 31 December 2022 (30 June
2022: 4.6%)
· 13.3% downward valuation adjustment on a like-for-like basis
compared with MSCI All Property Capital Index reduction of 19%
Commitment to sustainability and governance
· Signatories of the Net Zero Asset Managers Initiative ("NZAM") as of
March 2023, associated United Nations Principles of Responsible Investment's
("UNPRI") pledge on carbon emissions
· EV charging to be installed at eight supermarket sites
· New Tesco 20-year PPA for rooftop solar installation to be
installed Summer 2023
Nick Hewson, Chairman of Supermarket Income REIT plc, commented:
"This Period has seen a very strong underlying performance of the grocery
sector with the most recent data from Kantar showing 8.8% 11 (#_ftn11) sales
growth on the prior year and annualised sales now exceeding the levels seen at
the height of the pandemic.
While property valuations have decreased as a function of broader interest
rate policy changes, our balance sheet remains strong. We have sold assets,
shortly after the Period end, worth c.40% of our market capitalisation which
brings net proceeds of at least £430 million over the course of the next few
months. The Board commits to utilise these funds in the most accretive way for
shareholders.
We have a high quality, handpicked portfolio of supermarket property with 100%
rental collection, benefitting from being in the non-discretionary spend
sector of grocery. Our secure rental income is 80% linked to inflation. Our
debt is 100% fixed (or hedged to fixed) giving us a high degree of certainty
of cashflows and, therefore, dividend over the medium term."
PRESENTATION FOR ANALYSTS
A presentation for analysts and investors will take place today at Stifel's
offices at 8.30 am. Please contact FTI Consulting using the contact details
below if you would like to attend.
Webcast details are as follows:
https://brrmedia.news/SupermarketIncomeREIT_HY
(https://brrmedia.news/SupermarketIncomeREIT_HY)
The results presentation is available in the Investor Centre section of the
Group's website. For further details, please email Dido Laurimore
at SupermarketIncomeREIT@fticonsulting.com
(mailto:SupermarketIncomeREIT@fticonsulting.com)
FOR FURTHER INFORMATION
Atrato Capital Limited +44 (0)20 3790 8087
Steven Noble / Rob Abraham / Chris McMahon ir@atratocapital.com (mailto:ir@atratocapital.com)
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Mark Young / Matt Blawat / Rajpal Padam
Goldman Sachs International +44 (0)20 7774 1000
Jimmy Bastock / Tom Hartley
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 UK's feed the nation infrastructure. The Company focuses on grocery stores
which are omnichannel, fulfilling online and in-person sales. All of the
Company's supermarkets are let to leading UK supermarket operators,
diversified by both tenant and geography.
The Company provides investors with attractive, long-dated, secure,
inflation-linked, growing income with the potential for capital appreciation
over the longer term and targets a 7% to 10% p.a. total shareholder return
over the medium term((1)). The Company has increased its dividend every year
since IPO.
The Company is listed on the premium segment of the Official List of the UK
Financial Conduct Authority and its Ordinary Shares are traded on the Main
Market of the London Stock Exchange, having listed initially on the Specialist
Fund Segment of the Main Market on 21 July 2017.
Atrato Capital Limited is the Company's Investment Adviser.
Further information is available on the Company's website
www.supermarketincomereit.com (http://www.supermarketincomereit.com/)
1. There is no certainty that these illustrative projections will be
achieved
Stifel Nicolaus Europe Limited, which is authorised and regulated in the
United Kingdom by the Financial Conduct Authority, is acting exclusively for
Supermarket Income REIT plc and no one else in connection with this
announcement and will not be responsible to anyone other than the Company for
providing the protections afforded to clients of Stifel Nicolaus Europe
Limited nor for providing advice in connection with the matters referred to in
this announcement.
Goldman Sachs International, which is authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the Prudential
Regulation Authority in the United Kingdom, is acting exclusively for
Supermarket Income REIT plc and no one else in connection with this
announcement and will not be responsible to anyone other than the Company for
providing the protections afforded to clients of Goldman Sachs International
nor for providing advice in connection with the matters referred to in this
announcement.
CHAIRMAN'S STATEMENT
Dear Shareholder,
2022 demonstrated the continuing strength of the grocery sector set against a
rapidly changing economic backdrop. The strong performance of the UK grocery
market highlights how non-discretionary grocery expenditure is highly
resilient to the volatile peaks and troughs of the economic cycle, especially
in the current inflationary environment.
The most recent data from Kantar shows that the UK grocery market has grown
8.8% 12 (#_ftn12) on the prior year, with annualised sales now exceeding the
levels seen at the height of the pandemic lockdowns in 2021. This growth is
further enhancing the strength of our primary tenants, Sainsbury's and Tesco,
which account for a combined 75% of our income. In January, Sainsbury's
predicted a 20% increase in full-year free cash flow to £600 million and
Tesco increased its free cash flow target by 29% to £1.8 billion 13
(#_ftn13) . At the store level, this results in revenue growing significantly
ahead of rental increases, which are typically capped at 4% annually. The
resulting increase in affordability provides a strong tailwind for future ERV
growth across our supermarket portfolio.
The robust performance of the grocery sector is in stark contrast to the
decline in values seen in the property investment market caused by the
challenging macroeconomic and geopolitical backdrop. The significant increase
in interest rates since September has caused a rapid decline in property
values, with the MSCI Capital Values Index declining by over 19%. Supermarket
property has been less volatile, but not immune, with a 13% like-for-like
decline in our portfolio value resulting in a net initial yield of 5.5% as at
31 December 2022 (30 June 2022: 4.6%).
While the sharp adjustment in interest rates has impacted our property values,
we took the prudent decision during the Period, to protect earnings through
hedging 100% of our drawn debt at a weighted average cost of 2.8%. As a
result, we remain on track to deliver our 6 pence per share dividend target
for the year.
We continue to focus on our sustainability strategy, where we have defined and
published the carbon footprint of our portfolio and are now embarking on a
benchmarking process to further improve the sustainability of our sites in
conjunction with our tenants. The Board holds itself and the Investment
Adviser to the highest standards of governance and this has been recognised
with four consecutive EPRA Gold awards. I am also delighted to welcome Sapna
Shah as an independent non-executive director who brings a wealth of
experience in advising UK companies, including listed REITs and investment
companies, and is also a non-executive director of The Association of
Investment Companies ("AIC").
OUTLOOK
During this period of macroeconomic uncertainty, the grocery sector has been a
standout positive performer. Our high quality portfolio continues to deliver
stable, long-term inflation-linked income. Despite the 13% decline in
like-for-like capital values, we believe supermarket yields now fully reflect
current economic conditions and are well positioned to benefit from the growth
in the UK grocery market.
Given the uncertain backdrop, it is essential for the Company to maintain its
flexible, resilient balance sheet and a supportive banking group. As a result
of the Company's £430.9 million disposal of its interest in the SRP, our pro
forma LTV will fall below 30% following receipt of the proceeds. The Board is
committed to utilising these funds in the most accretive way and will consider
all options, which may include returning capital to shareholders and/or
redeploying into supermarket real estate assets given current attractive
levels of pricing. This optionality gives us additional confidence in our
ability to provide secure income to our investors while remaining focused on
the resilient assets which have underpinned our investment strategy to date.
Nick Hewson
Chairman
29 March 2023
KEY PERFORMANCE INDICATORS
Our objective is to provide secure, inflation-linked, long income from grocery
property in the UK. Set out below are the key performance indicators we use to
track our progress.
KPI Definition Performance
1. Total Shareholder Return Shareholder return is one of the Group's principal measures of performance. (11.7%) for the six months ended 31 December 2022
(Six months ended
Total Shareholder Return ("TSR") is measured by reference to the growth in the
31 December 2021: 6.3%)
Group's share price over a period, plus dividends declared for that period.
2. WAULT WAULT measures the average unexpired lease term of the Direct Portfolio, 14 years WAULT as at 31 December 2022 (As at 30 June 2022: 15 years)
weighted by the Direct Portfolio valuations.
3. EPRA NTA per share The value of our assets (based on an independent valuation) less the book 92 pence per share as at 31 December 2022 (As at 30 June 2022: 115 pence per
value of our liabilities, attributable to Shareholders and calculated in share)
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 24
for more information.
4. Net Loan to Value The proportion of our Direct Portfolio gross asset value that is funded by 40.0% as at 31 December 2022 (As at 30 June 2022: 19.0%)
borrowings 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 2.9 pence per share for the six months ended 31 December 2022 (Six months
profitability of the business. ended
31 December 2021: 3.1 pence per share)
Including non-recurring debt restructuring costs 2.8 pence per share (Six
months ended: 31 December 2021 3.1 pence per share)
*New measure reported during the Period, with prior year comparative stated in
line with new methodology. Adjusted EPS is calculated using EPRA EPS and
adjusted to recognise finance income received from the settlement of
derivatives held at fair value through profit and loss. It also excludes
one-off exceptional costs in relation to the acceleration of unamortised
arrangement fees following the partial transition of the Group's debt
structure from secured to unsecured. The Board deems this a more relevant
indicator of core earnings as it reflects the overall interest cost to the
business in managing its Portfolio.
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 statements 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 10 and 24 to the financial statements.
EPRA PERFORMANCE INDICATORS
The table below shows additional performance measures, calculated in
accordance with the Best Practices Recommendations of the European Public Real
Estate Association (EPRA). We provide these measures to aid comparison with
other European real estate businesses.
For a full reconciliation of all EPRA performance indicators, please see the
Notes to EPRA measures within the supplementary section of the interim
financial statements.
Measure Definition Performance
1. EPRA EPS A measure of EPS designed by EPRA to present underlying earnings from core 2.6 pence per share for the
operating activities.
six months ended
31 December 2022
(Six months ended
31 December 2021:
3.1 pence per share)
2. EPRA Net Reinstatement Value (NRV) per share An EPRA NAV per share metric which assumes that entities never sell assets and 102 pence per share as at
aims to represent the value required to rebuild the entity.
31 December 2022 (As at
30 June 2022: 124 pence per share)
3. EPRA Net Tangible Assets (NTA) per share An EPRA NAV per share metric which assumes entities buy and sell assets, 92 pence per share as at
thereby crystallising certain levels of unavoidable deferred tax.
31 December 2022 (As at
30 June 2022: 115 pence per share)
4. EPRA Net Disposal Value (NDV) per share An EPRA NAV per share metric which represents the Shareholders' value under a 97 pence per share as at
disposal scenario, where deferred tax, financial instruments and certain other
31 December 2022 (As at
adjustments are calculated to the full extent of their liability, net of any
30 June 2022: 116 pence
resulting tax.
per share)
5. EPRA Net Initial Yield (NIY) & EPRA "Topped-Up" Net Initial Yield Annualised rental income based on the cash rents passing at the balance sheet 5.3% as at 31 December 2022 (As at 30 June 2022: 4.6%)
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 31 December 2022 (As at 30 June 2022: 0.2%)
whole portfolio.
7. EPRA Cost Ratio Administrative & operating costs (including costs of direct vacancy) 16.7% 14 (#_ftn14) for the six months ended 31 December 2022
divided by gross rental income.
(Six months ended
31 December 2021: 15.8%)
8. EPRA LTV Net debt divided by total property portfolio and other eligible assets. 40.2% for the six months ended 31 December 2022 (As at 30 June 2022: 22.2%)
9. EPRA Like-for-like Rental Growth Changes in net rental income for those properties held for the duration of Rental Increase of 1.6% for the six months to December 2022 versus six months
both the current and comparative reporting period. to December 2021
10. EPRA Capital Expenditure Amounts spent for the purchase of investment properties (including any £310.2 million for the six months ended 31 December 2022 (Six months ended
capitalised transaction costs). There has been no other capital expenditure
31 December 2021: £252.7 million)
incurred in relation to the investment property portfolio.
INVESTMENT ADVISER'S REPORT
Atrato Capital Limited, the Investment Adviser to the Group, is pleased to
report on the operations of the Group for the Period.
Overview
Strong grocery market supported by non-discretionary expenditure
The UK grocery market has performed strongly with current sales up 8.8% based
on the latest Kantar market data 15 (#_ftn15) , highlighting the ability of
grocers to pass through price increases. Grocery is a non-discretionary spend
sector which is therefore highly resilient to the volatile peaks and troughs
of the economic cycle. Record levels of food price inflation are translating
into an enlarged grocery market. The latest data from Kantar shows annualised
grocery sales exceeding levels previously seen at the height of the pandemic
lockdowns in April 2021.
Increased operator revenues driving sustainable rental growth
The enlarged grocery sector also provides favourable tailwinds for enhanced
ERV growth as elevated store sales exceed contracted rental growth. Across our
Direct Portfolio our inflation-linked rent reviews are capped at an average of
4% per annum. Added to this, we expect to see a significant reduction in
supermarket business rates with some stores seeing up to a 19% rate reduction.
These factors combine to increase the affordability of our supermarket rents
even further.
Income generated from strong tenant covenants
The affordability of rents and secure nature of the Group's income is
highlighted by the 100% rent collection during the Period. The Company's
assets are predominantly let to the leading and largest grocery operators in
the UK, with multibillion pound turnovers generated through nationwide
networks of stores. 75% of income is from assets let to Sainsbury's and Tesco.
The strong grocery market backdrop means that Sainsbury's and Tesco have grown
free cash flow, which is providing capacity for store buybacks, as evidenced
by Sainsbury's buying back 21 of the 26 stores in the SRP for a total
consideration of £1,040 million. In contrast, Morrisons and Waitrose, to
which our portfolio exposure is low, have been most impacted by the changes in
the macroeconomic environment. Those businesses however, remain of significant
scale, highly cash generative, with a significant hold in the UK grocery
market.
Focused investment strategy targeting future-proof stores
A key pillar of the Group's investment strategy is to invest in high quality
omnichannel supermarkets that form part of the UK online grocery distribution
network. These stores also facilitate in-store shopping and click and collect.
93% of the Group's portfolio by value are omnichannel stores. Online grocery
penetration remains significantly higher compared to pre-pandemic levels, with
a market share of 12% (up 52% in the three year period from January 2020 to
January 2023). In the last 12 months the impact of inflation has seen the
channel drop back from the pandemic high of 15% as consumers switch back to
in-store shopping. This channel shift highlights the operational flexibility
that omnichannel stores offer to our tenants. The seamless integration between
online and in-store channels in omnichannel stores allows our tenants to
reposition resources in real time to meet consumer channel demand.
Challenging economic environment impacting property valuations
During the Period, we have seen significant disruption to the UK property
investment market due to macroeconomic and geopolitical issues. A significant
increase in interest rates from 0.25% in December 2021 to 3.5% in December
2022 16 (#_ftn16) caused a sharp increase in the overall cost of capital and
subsequently drove property yields higher.
Valuers have been quick to respond to this higher rate environment, as
illustrated by the MSCI All Property Capital Index, which was down 19% as at
31 December 2022. Supermarkets have proven less volatile than broader property
markets but have not been immune to this adjustment. Our Direct Portfolio
declined 13.3% on a like-for-like basis over the six month period to £1,625
million as at 31 December 2022, reflecting a net initial yield of 5.5% (30
June 2022: 4.6%). We expect that the higher quality assets generating stable
income flows, such as the type we own, will stabilise more quickly and prove
to be more resilient in the face of a potentially weaker UK economy.
SRP proceeds bolstering the balance sheet
The Company's balance sheet is in a robust position. As at 31 December 2022
our LTV was 40.0%, however, following the sale of the Company's interest in
the SRP to Sainsbury's, the Company's LTV is expected to decline to c.30% by
July 2023 (see Sainsbury's Reversion Portfolio below).
We are committed to a disciplined approach to capital deployment. In the event
that investment opportunities arise in our market which generate accretive
returns for shareholders, our balance sheet is well positioned to capitalise.
In addition, the decision to enter into hedges to fix 100% of our drawn debt
during the Period means we have maintained our attractive cost of debt at
2.9%. The Company has a robust and liquid balance sheet with near-term cost of
debt significantly protected through its fixed (or hedged to fixed) debt
strategy.
Acquisitions further diversifying the Company's portfolio of high quality,
hand picked supermarkets
During the Period, the Group purchased eight further supermarkets in six
locations for £299.1million 17 (#_ftn17) :
· July 2022: A Tesco superstore and M&S Foodhall in Chineham,
Basingstoke, including non-grocery units for £71.9 million(17). The Tesco
superstore had a 12-year unexpired lease term and is subject to 5-yearly,
upwards only open market rent reviews.
· August 2022: A Sainsbury's supermarket and M&S Foodhall in Glasgow
with non-grocery units for £34.5 million(17). The unexpired lease terms of
the two stores are 10 and 15(( 18 (#_ftn18) )) years respectively and are
both subject to 5-yearly upwards only, open market rent reviews.
· August 2022: A Tesco supermarket in Newton-le-Willows, Merseyside,
for £16.6 million(17). The store had a 12-year unexpired lease term and is
subject to annual, upwards only RPI-linked rent reviews.
· August 2022: A Tesco in Bishops Cleeve, Cheltenham, for £25.4
million(17). The store has a 12-year unexpired lease term and is subject to
annual, upwards only RPI-linked rent reviews.
· September 2022: A Tesco supermarket in Llanelli, South Wales, for
£66.8 million(17). The store has a 12-year unexpired lease term and is
subject to annual, upwards only RPI-linked rent reviews.
· September 2022: A Tesco supermarket, Iceland Food Warehouse and
complementary non-grocery units in Bradley Stoke, Bristol, for £84.0
million(17). The Tesco store has a 14-year unexpired lease term and is subject
to annual, upwards only RPI-linked rent reviews.
A table summarising the properties in the Direct Portfolio of supermarkets can
be found in the Portfolio section on the Group's website:
www.supermarketincomereit.com (http://www.supermarketincomereit.com/)
Sector expertise delivering additional value for shareholders
The Company's investment in the SRP has generated a highly attractive return
for shareholders. Following the sale of the Company's interest and receipt of
proceeds, it is estimated that the investment will have provided a
money-on-money multiple of 1.9x and an IRR of 30%.
Post balance sheet transactions
In January 2023, the Company acquired its joint venture partner's 25.5%
interest in the SRP for £196 million, increasing its interest to 51.0%. This
was wholly funded by a non-recourse loan facility provided by JPMorgan Chase
Bank.
On 17 March 2023, the Company completed the sale of its interest in the SRP to
Sainsbury's for a total gross consideration of £430.9 million (excluding
costs). The sale completes the acquisition by Sainsbury's of 21 of the 26 SRP
properties and concludes the contractual unwind of the SRP structure.
The £430.9 million consideration is being received in three tranches. £279.3
million was received on 17 March 2023 and £116.9 million will be received on
10 July 2023. The third tranche of £34.7 million is conditional on the sale
of the remaining five stores in the SRP.
The JPM Chase Bank loan facility was repaid in full immediately following the
receipt of the first tranche of £279.3 million on 17 March 2023.
Sainsbury's has entered into new 15-year leases on four of the five remaining
stores, with five yearly open market rent reviews and a tenant break option in
year ten. Following completion of the transaction, SUPR has an option to
acquire these four stores benefitting from the new Sainsbury's 15-year leases
for a net consideration of £28.3 million (net of the Company's existing
interest and excluding acquisition costs). It is expected that the one
remaining store will be sold with vacant possession.
Background information on the SRP
In May 2020 the Group formed a 50:50 joint venture (the "JV") with British
Airways Pension Trustees Limited ("BAPTL") to acquire from British Land Plc a
25.5% stake in the SRP, one of the UK's largest portfolios of supermarket
properties for £102 million, excluding acquisition costs. In February 2021
the JV acquired a further 25.5% stake in this portfolio from Aviva for £115
million, excluding acquisition costs.
The SRP comprised a high-quality portfolio of 26 predominantly omnichannel
Sainsbury's supermarkets with strong trading histories and attractive property
fundamentals. At acquisition, the stores in the SRP were leased to Sainsbury's
until 2023. The investment case for acquiring the stakes in the SRP was
largely based on the Group's conviction that Sainsbury's would want to remain
in occupation of a large majority of the stores.
In September 2021 and in January 2022, Sainsbury's exercised options to
acquire 21 stores within the Portfolio. The purchase price on the 21 option
stores was agreed at £1,040 million. This outcome was in-line with the
Company's initial underwriting of the transaction and is evidence of the
strength of demand for UK grocery assets.
In addition, Sainsbury's has agreed to retain occupation of four of the five
remaining stores within the Portfolio under a new 15-year lease agreement with
five yearly open market rent reviews and a tenant break at year 10. It is
expected that the one remaining store will be sold at vacant possession value.
Further details on the valuation of the SRP can be found in Note 13 to the
financial statements.
Valuation reflects market repricing due to higher interest rates and macro
economic environment
Cushman & Wakefield valued the Direct Portfolio as at 31 December 2022 in
accordance with the RICS Valuation Global Standards. The properties were
valued individually without any premium/discount applied to the Portfolio as a
whole.
The Direct Portfolio market value was £1,625.1 million, a net increase of
£63.5 million for the Period following valuation decline of £235.6 million
and new acquisitions of £299.1 million (excluding acquisition costs). This
valuation reflects a net initial yield of 5.5% and a like-for-like valuation
decline of 13.3%.
The decline in valuation reflects the outward shift in property yields applied
by valuers as a result of higher interest rates and the macroeconomic
environment. However, the valuation decline has been partially mitigated by
our contractual inflation-linked rental uplifts. The average annualised
increase in rent from rent reviews performed during the six month period to 31
December 2022 was 3.7%. 82% of the Company's leases benefit from contractual
rental uplifts, with 80% linked to inflation and 2% with fixed uplifts.
The benchmark MSCI All Property Capital Index during the same period was down
19%. The repricing of assets has been rapid and significantly faster than in
previous property cycles. Since the Period end we have seen signs of improved
market sentiment. We expect the attractive characteristics of supermarket
property assets to continue to appeal to a wide range of property investors
resulting in relatively resilient yields compared to other property sectors.
Active asset management delivering additional value
We continue to seek to drive value for shareholders through active management
of our larger sites which are not fully demised to the grocery anchor tenants
and therefore benefit from greater landlord control.
Following the regear of the supermarket lease at our Tesco Leicester site
(announced in March 2022), we have achieved two new lettings to the Post
Office and an upsize of Greggs into an adjacent vacant unit. At acquisition
there were four vacant units and one retailer in Company Voluntary Arrangement
that was not paying rent. As at 31 December 2022, the site is fully let, rents
are now being paid on all units and the valuation gain compared to purchase
price on the non-grocery units is £6.85 million.
Feasibility studies are underway for the development of additional units at a
number of our sites including the Sainsbury's in Newcastle, Tesco in Chineham,
Sainsbury's in Bangor and Tesco in Bradley Stoke. Lease terms have been agreed
in each location with complementary retailers. Such development, if viable,
would drive additional income and footfall to the locations, enhancing the
overall site sales performance.
Following the acquisition of the Sainsbury's anchored site in Glasgow, upon
exercise of the break option in the Argos lease, the M&S Foodhall will
upsize into the adjacent unit, previously occupied by Argos. M&S will
enter in to a new 15-year RPI linked lease. As we have seen elsewhere in the
portfolio, the Argos offering has been moved into the Sainsbury's store
enhancing the omnichannel offering.
During the Period, the Group completed 12 rent reviews, resulting in an
annualised increase in rental income of £1.3 million. The weighted average
rental uplift for the rent reviews in the Period was 5.1% across 12 stores, of
which two stores benefitted from a 5-yearly rent review. On an annualised
basis the average uplift was 3.7%.
We also made progress on sustainability initiatives at our sites. Terms have
been agreed for EV charging to be installed at eight sites which is now in the
planning phase. Post the balance sheet date, in February 2023, Tesco entered
into a 20-year PPA with Atrato Onsite Energy plc for a new solar installation
on the rooftop at the Group's store in Thetford.
Commitment to sustainability
The Group has continued to develop and implement its sustainability strategy
in the Period. The Board has committed to expand the Company's existing
membership of the United Nations Principles of Responsible Investment
("UNPRI") by committing itself to the Net Zero Asset Managers Initiative
("NZAM"). NZAM focuses on the role of the investment community in delivering
the goals of the Paris Agreement's commitment to global net zero emissions.
This pledge will set the framework for the Company's implementation of Science
Based Targets into the investment process. This will set the basis for the
Company's reporting and disclosure and will allow investors to benchmark it
against other investment companies on its sustainability performance.
The Annual Report and Accounts for the year ended 30 June 2022 included a Task
Force on Climate-Related Financial Disclosures ("TCFD") aligned report which
included reporting on the Company's Green House Gas emissions. The Company
used a third-party consultant to calculate the baseline emissions for the
Company and the portfolio. The calculations covered Scope 1, 2 and 3
emissions. Scope 3 emissions are considered to be the "Scope 3 Category 13
Downstream Leased Assets". As the assets are owned but leased to tenants under
Fully Repairing and Insuring leases, the Company does not have full control
over the emissions at these assets. Under TCFD reporting, however, they are
considered part of the Company's emissions footprint. 96% of the Company's
87,715 tonnes of carbon dioxide equivalent ("TCO(2)e") total emissions
originate from tenant companies. The Company's tenants are primarily the UK's
leading grocery operators (75% Tesco and Sainsbury's by income), which have
their own ambitious net zero targets. As the TCO(2)e figure was the initial
baseline calculation, the Company will use this in 2023 to determine a
science-based carbon reduction target and a route to net zero.
The Company continued to evaluate the steps that will need to be taken to
ensure that the UK government's Minimum Energy Efficiency Standards ("MEES")
requirements are met. The Company is working in anticipation that all
commercial properties will require an EPC rating of at least a "B" by the end
of 2030, with the first compliance window likely to be April 2027 where
properties will require an EPC rating of at least a "C". We are confident that
the Group will meet the specified targets within the required timeframe. We
are currently seeing continuing improvements in our EPC scores as a result of
our tenants' commitments to sustainability and their ongoing store refresh
programmes. We therefore anticipate the long term requirement for capital by
the Company to be immaterial.
Some key Initiatives that the Company has engaged in during the Period,
include:
Electric Vehicle (EV) charging
During the Period, commercial and property agreements were progressed for the
introduction of EV charging points at selected centres and planning
applications for all of the sites were submitted. These sites will be test
cases for possible roll out on further properties. The need for EV
infrastructure remains critical and we believe that integrating EV charging
into consumers' shopping experience is a cost-effective way to help transition
the economy away from fossil fuels.
Green Lease Riders
Green lease riders have been developed based on the Better Buildings
Partnership model for green lease clauses, which are an industry standard.
These clauses have been included in all new leases negotiated by the Company
and enable the Company to request that tenants provide environmental
performance data and agree to a more significant level of commitment to
environmental issues. This forms part of an ongoing stakeholder engagement
process to ensure that all tenants disclose critical data on environmental
performance.
Environmental Action Plan
At three of the Company's larger sites where the Company has direct control
over day-to-day property management, environmental action plans have been
produced setting out policies to reduce the environmental impact of the
Company's operations. These action plans are based on independent evaluations
of the buildings' performance and conditions, and outline pathways to better
environmental and financial performance.
Sustainable waste contracts, where the Company has control of site management
Waste, especially food waste, significantly contributes to greenhouse gas
emissions at a national level. Food loss and waste amount to 8 to 10%(( 19
(#_ftn19) )) of anthropogenic greenhouse gas emissions. For comparison,
aviation is responsible for 3.5% of emissions. The Company is working with
site teams to drive recycling, become more sustainable in waste management and
look at various alternatives to reducing all waste streams.
Financial results
IFRS net rental income for the six months to 31 December increased by 41% to
£45.9 million, up from £32.6 million when compared to the same six month
period in the prior year. Contractual inflation-linked rent reviews in the
Period resulted in average annualised passing rent increases in the Portfolio
of 3.7% (six months to 31 December 2021: 3.3%), in addition to £6.2 million
of rental contributions from new acquisitions.
Administrative and other expenses, which include management and advisory fees
and other costs of running the Group, were £7.9 million (six months to 31
December 2021: £6.2 million) generating an EPRA cost ratio for the Period of
16.7% (six months to 31 December 2021: 15.8%). The Adjusted EPRA cost ratio,
which excludes a one-off exceptional cost of £0.9 million in relation to the
unwind of the SRP was 15.1% (six months to 31 December 2021: 15.8%).
Net financing costs for the Period were £10.4 million (six months to 31
December 2021: £5.7 million). The increase in net financing costs reflects
higher debt in the period, coupled with an increase in sterling borrowing
rates on the Company's floating rate debt exposure in the first half of the
Period, which was later fixed in full (see Financing and Hedging section
below). Net financing costs were also impacted by a one off non-recurring
finance charge of £1.5 million, resulting from the acceleration of
unamortised arrangement fees as a result of the Company restructuring 50% of
its debt from a secured to an unsecured debt structure in the Period. As at 31
December 2022, the Group's weighted average finance cost during the period was
3.0% 20 (#_ftn20) (six months to 31 December 2021: 2.5%).
The Group's operating profit, before changes in the fair value of investment
properties and share of income from joint ventures, as reported under IFRS,
increased by 44% to £38.0 million (six months to 31 December 2021: £26.4
million).
The net decrease in fair value of the Direct Portfolio investment properties
in the Period was £248.1 million (six months to 31 December 2021: £11.0
million increase), which comprised a £246.7 million valuation reduction,
offset by a £1.3 million rent smoothing adjustment. As noted above, the
decline in valuation reflects the outward shift in property valuation yields
due to rising interest costs and the macroeconomic environment. As at 31
December 2022, the EPRA NTA per share was 92 pence (30 June 2022: 115 pence).
Share of income from joint ventures during the Period was £18.9 million (six
months to 31 December 2021: £37.2 million). The fall represents the year on
year six-monthly valuation movement on the underlying properties, however the
share of income (excluding fair value movements) in the Period was £7.4
million compared to £6.2 million in the prior year.
The Group is a qualifying UK Real Estate Investment Trust ("REIT") which
exempts the Group's property rental business from UK Corporation Tax.
Dividends
The Group declared two interim dividends in the Period: on 8 July 2022, a Q4
2022 interim dividend of 1.485 pence per share and on 21 September 2022, a Q1
2023 interim dividend of 1.5 pence per share. The Q2 2023 interim dividend of
1.5 pence per share was declared after the Period end and the Group remains on
track to declare total dividends of 6 pence per share for the financial year.
The Group's dividend cover ratio, which shows the level of cover of Adjusted
Earnings compared to dividends paid was 0.98x for the Period.
Financing and hedging
During the Period, the Group extended and broadened its banking relationships
as follows:
· In July 2022, the Group secured a new £412.1 million unsecured
credit facility with a bank syndicate comprising Barclays, Royal Bank of
Canada, Wells Fargo and Royal Bank of Scotland International. This was priced
at 1.5% above SONIA with a weighted average term of six years (inclusive of
uncommitted extension options).
· In September 2022 the Group agreed a further two-year extension
(inclusive of a one-year accordion option at the lender's discretion) of its
£150.0 million Revolving Credit Facility with HSBC. All other terms of the
facility remained unchanged.
· In January 2023, after the Period end, the Group secured a new
£202.8 million secured debt facility provided by JPMorgan Chase Bank. The
Facility had an interest rate of 5.3% and was fully repaid in March 2023
following receipt of £279.3 million in respect of the first tranche of
proceeds from the sale of the Group's interest in the SRP to Sainsbury's.
· The Group also refinanced its existing loan facilities with
Bayerische Landesbank in March 2023, with a new three-year £86.9 million term
loan fixed at an all-in rate of 4.29%.
During the Period, the Group made the decision to fix 100% of its floating
rate debt exposure. This was achieved by entering into three interest rate
swaps in the Period. This hedged £381.0 million of drawn floating unsecured
debt for a weighted average term of four years.
The Group also purchased an interest rate cap to fix the variable rate of
interest on £96.5 million of its Revolving Credit Facility with HSBC until
August 2024.
The interest rate derivatives entered into during the Period have a weighted
average fixed rate of 2.8% (including margin) over an average term of four
years. The cost of acquiring these interest rate derivatives was £41.4
million and were valued at the Period end at £40.5 million. The effect on the
income statement for the new derivatives for the period are a loss on fair
value of the derivatives of £0.9 million and finance income received from the
quarterly settlement of the derivatives of £2.1 million.
A summary of the Group's credit facilities is provided below:
Lender Facility Maturity* Margin Loan commitment (31-Dec-22) Loan commitment Amount drawn at 31 December 2022 £m
£m (Post balance sheet)
Sonia/swap rate** £m
Barclays and RBC Revolving Credit Facility Jan-26 1.50% SONIA 77.5 77.5 -
Bayerische Landesbank Term Loan Jul-23 1.25% 1.31% 52.1 - 52.1
Bayerische Landesbank Additional Term Loan A Jul-23 1.85% 0.13% 7.3 - 7.3
Bayerische Landesbank Additional Term Loan B Aug -25 1.85% 0.18% 27.5 - 27.5
Deka Bank Term loan Aug-26 1.35% 0.54% 47.6 47.6 47.6
Deka Bank Term loan Aug-26 1.35% 0.7% 28.9 28.9 28.9
Deka Bank Term loan Aug-26 1.35% 0.32% 20.0 20.0 20.0
HSBC Revolving Credit Facility Aug-25 1.65% 1.12% 96.5 96.5 96.5
HSBC Revolving Credit Facility Aug-25 1.65% SONIA 3.5 3.5 -
HSBC Revolving Credit Facility Aug-25 1.75% SONIA 50.0 50.0 -
Wells Fargo Revolving Credit Facility Jul-27 2.00% 0.19% 30.0 30.0 30.0
Wells Fargo Revolving Credit Facility Jul-27 2.00% SONIA 9.0 9.0 0.0
Unsecured Syndicate Revolving Credit Facility Jul-29 1.50% 1.34% 250.0 250.0 218.5
Unsecured Syndicate Term Loan Jul-27 1.50% 1.34% 100.0 100.0 100.0
Unsecured Syndicate Term Loan Jan-25 1.50% 1.34% 62.1 62.1 62.1
Total 862.1 862.1 690.6
Post Balance Sheet Events
Bayerische Landesbank Term Loan Mar-26 1.65% 2.64% - 89.9 N/A
Total 862.1 862.1 690.6
*Inclusive of uncommitted accordion options
**Interest cost is inclusive of hedging arrangement where applicable. Amounts
stated do not include unamortised arrangement fees.
Total net debt as at 31 December 2022 stood at £650.1 million (30 June 2022:
£297.3 million), reflecting a net loan-to-value ("LTV") ratio of 40.0% (30
June 2022: 19.0%).
The Group has material headroom on its LTV and interest cover covenants. The
covenants contain a maximum 60% LTV threshold and a minimum of 200% interest
cover ratio for each asset in the Portfolio. Further analysis on the Group's
liquidity and banking covenant compliance strength is set out in note 1 of the
financial statements.
Atrato Capital Limited
Investment Adviser
29 March 2023
PRINCIPAL RISKS AND UNCERTAINITIES
The Audit and Risk Committee, which assists the Board with its
responsibilities for managing risk, regularly considers changes to the
principal risk and uncertainties for the Group. Following those presented on
pages 34 to 40 of the 2022 Annual Report, the following risk has been added as
an additional principal risk during the period:
Property Risk
The default of one of the supermarket operators would create an excess supply
of supermarket real estate, thereby putting pressure on ERVs leading to a
breach in our banking covenants.
Probability: Impact: Mitigation
Low High
A severe fall in values may result in us selling assets to repay our loan The failure of a single operator in any given town would place strain on the
commitments, resulting in a fall in our net asset value immediate surrounding retailers as demand previously supplied by the failed
operator would be taken up by existing retailers.
The potential demise of a major supermarket operator would therefore result in
the real estate being potentially acquired by another operator and would
continue to be used as a supermarket.
Our investment strategy is to acquire strong trading grocery locations, which
in many cases have been supermarkets for between 30 and 50 years.
Our investment underwriting targets strong property fundamentals (good
location, large sites with low site cover) and which should be attractive to
other occupiers or have strong alternative use value should the current
occupier fail.
The Board have also taken the decision to increase the probability and impact
for the following two risks:
Property Risk
The lower-than-expected performance of the Portfolio could reduce property
valuations and/or revenue, thereby affecting our ability to pay dividends or
lead to a breach of our banking covenants
Probability: Impact: Mitigation
Changed from Low to Moderate Moderate (No change) Our Direct Portfolio is 99.9% let (100% of supermarket assets are let) with
long weighted average unexpired lease terms and an institutional-grade tenant
An adverse change in our property valuations may lead to breach of our banking base.
covenants. Market conditions may also reduce the revenues we earn from our
property assets, which may affect our ability to pay dividends to All the leases contain upward-only rent reviews, 81% are inflation linked, 17%
Shareholders. A severe fall in values may result in us selling assets to repay are open market value and the rest contain fixed uplifts. These factors help
our loan commitments, resulting in a fall in our net asset value. maintain our asset values.
We manage our activities to operate within our banking covenants and
constantly monitor our covenant headroom on Loan to Value and Interest Cover.
We are reviewing alternative financing arrangements to lessen any dependence
on the banking sector.
Financial Risk
Our use of floating rate debt will expose the business to underlying interest
rate movements as interest rates continue to rise
Probability: Impact: Mitigation
Changed from Moderate to High Changed from Moderate to High We have entered into interest rate swaps and caps to partially mitigate our
direct exposure to movements in SONIA, by fixing our exposure to SONIA
Interest on the majority of our debt facilities is payable based on a margin increases.
over SONIA. Any adverse movements in SONIA could significantly impair our
profitability and ability to pay dividends to shareholders. We aim to hedge prudently our SONIA exposure, keeping the hedging strategy
under constant review to balance the risk of exposure to rate movements
against the cost of implementing hedging instruments.
We selectively utilise hedging instruments with a view to keeping the overall
exposure at an acceptable level. As at the period end 100% of SUPR's drawn
debt exposure is fixed.
The remaining risks are expected to remain broadly consistent for the
remaining six months of the financial year.
ALTERNATIVE INVESTMENT FUND MANAGER (the "AIFM")
The AIFM was appointed with effect from 15 June 2017 as the Company's
alternative investment fund manager under the terms of a Management Agreement
between the Company and the AIFM, in accordance with the Alternative
Investment Fund Manager's Directive and the Alternative Investment Fund
Managers Regulations 2013.
The AIFM is licensed and regulated by the Guernsey Financial Services
Commission.
The AIFM is responsible for the day-to-day management of the Company's
investments, subject to the investment objective and investment policy and the
overall supervision of the Directors. The AIFM is also required to comply with
on-going capital, reporting and transparency obligations and a range of
organisational requirements and conduct of business rules. The AIFM must also,
as the AIFM for the Company, adopt a range of policies and procedures
addressing areas such as risk management, liquidity management, conflicts of
interest, valuations, compliance, internal audit and remuneration.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that, to the best of their knowledge, this condensed set
of consolidated financial statements has been prepared in accordance with IAS
34 as adopted by the United Kingdom and that the operating and financial
review included herein provides a fair review of the information required by
DTR 4.2.7 and DTR 4.2.8 of the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority, namely:
· an indication of important events that have occurred during the Period
and their impact on the condensed financial statements and a description of
the principal risks and uncertainties for the remaining months of the Group's
financial year; and
· disclosures of any material related party transactions in the
Period. These are included in note 23.
A full list of Directors of the Company can be found at the end of this
interim report. Shareholder information is as disclosed on the Supermarket
Income REIT plc website.
For and on behalf of the Board
Nick Hewson
Chairman
29 March 2023
INDEPENDENT REVIEW REPORT TO SUPERMARKET INCOME REIT PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 December 2022 is not prepared, in
all material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
December 2022 which comprises Condensed Consolidated Statement of
Comprehensive Income, the Condensed Consolidated Statement of Financial
Position, the Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Cash Flow Statement and the related notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority and for
no other purpose. No person is entitled to rely on this report unless such a
person is a person entitled to rely upon this report by virtue of and for the
purpose of our terms of engagement or has been expressly authorised to do so
by our prior written consent. Save as above, we do not accept responsibility
for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
29 March 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six month period ended 31 December 2022
Profit or loss Notes Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Gross rental income 4 46,162 32,746 72,363
Service charge income 4 2,884 906 2,086
Service charge expense 5 (3,153) (1,008) (2,338)
Net Rental Income 45,893 32,644 72,111
Administrative and other expenses 6 (7,894) (6,218) (13,937)
Operating profit before changes in fair value of investment properties and 37,999 26,426 58,174
interest rate derivatives and share of income from joint venture
Changes in fair value of investment properties and associated rent guarantees 12 (248,064) 10,967 21,820
Changes in fair value of interest rate derivatives (950)
18 - -
Share of income from joint venture 13 18,851 37,214 43,301
Operating (loss) /profit (192,164) 74,607 123,295
Finance income 8 3,209 - -
Finance expense 8 (13,655) (5,661) (12,992)
(Loss)/Profit before taxation (202,610) 68,946 110,303
Tax charge for the period 9 - - -
(Loss)/Profit for the period (202,610) 68,946 110,303
Items to be classified to profit or loss in subsequent periods
Changes in the fair value of interest rate derivatives 21 1,780 2,232 5,566
Total comprehensive (expense)/income for the period (200,830) 71,178 115,869
Total comprehensive (expense)/income for the period attributable to ordinary (200,830) 71,178 115,869
shareholders
Earnings per share - basic and diluted (pence) 10 (16.3p) 7.9p 11.3p
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
Notes Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
£'000 £'000 £'000
Non-current assets
Property, plant and equipment 129 129 129
Investment properties 12 1,625,100 1,561,590 1,413,500
Investment in joint ventures 13 197,821 177,140 167,534
Contract fulfilment asset - 93 85
Other financial assets 15 10,723 10,626 2,786
Interest rate derivatives 18 31,862 5,114 2,124
Total non-current assets 1,865,635 1,754,692 1,586,158
Current assets
Interest rate derivatives 18 15,528 - -
Financial assets held at fair value through profit and loss 14 - 283 98
Trade and other receivables 16 7,502 1,863 10,368
Cash and cash equivalents 35,380 51,200 24,070
Total current assets 58,410 53,346 34,536
Total assets 1,924,045 1,808,038 1,620,694
Non-current liabilities
Bank borrowings 19 626,119 348,546 478,031
Interest rate derivatives 18 - - 344
Total non-current liabilities 626,119 348,546 478,375
Current liabilities
Bank borrowings 19 59,323 - -
Deferred rental income 21,171 16,360 15,047
Trade and other payables 17 19,676 10,677 12,188
Total current liabilities 100,170 27,037 27,235
Total liabilities 726,289 375,583 505,610
Total net assets 1,197,756 1,432,455 1,115,084
Equity
Share capital 20 12,426 12,399 9,854
Share premium reserve 20 497,316 494,174 194,770
Cash flow hedge reserve 21 6,894 5,114 1,780
Capital reduction reserve 20 741,821 778,859 778,859
Retained earnings (60,701) 141,909 129,821
Total equity 1,197,756 1,432,455 1,115,084
Net asset value per share - basic and diluted 23 96p 116p 113p
EPRA net tangible asset per share - basic 23 92p 115p 113p
and diluted
These unaudited condensed consolidated financial statements were approved and
authorised for issue by the Board of Directors on 29 March 2023 and were
signed on its behalf by: Nick Hewson, Chairman.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six month period ended 31 December 2022 (unaudited)
Share capital Share premium reserve Cash flow hedge reserve Capital reduction reserve Retained Total
£'000 £'000 £'000 £'000 earnings £'000
£'000
As at 1 July 2022 12,399 494,174 5,114 778,859 141,909 1,432,455
Comprehensive income for
the period
Loss for the period - - - - (202,610) (202,610)
Other comprehensive income - - 1,780 - - 1,780
Total comprehensive income - - 1,780 - (202,610) (200,830)
for the period
Transactions with owners
Ordinary shares issued at a premium during the period 27 3,185 - - - 3,212
Share issue costs - (43) - - - (43)
Interim dividends paid - - - (37,038) - (37,038)
As at 31 December 2022 12,426 497,316 6,894 741,821 (60,701) 1,197,756
For the year from 1 July 2021 to 30 June 2022 (audited)
Share capital Share premium reserve Cash flow hedge reserve Capital reduction reserve Retained Total
£'000 £'000 £'000 £'000 earnings £'000
£'000
As at 1 July 2021 8,107 778,859 (452) - 84,796 871,310
Comprehensive income for
the period
Profit for the period - - - - 110,303 110,303
Other comprehensive income - - 5,566 - - 5,566
Total comprehensive income for - - 5,566 - 110,303 115,869
the period
Transactions with owners
Ordinary shares issued at a 4,292 504,539 - - - 508,831
premium during the year
Share premium cancellation to capital reduction reserve - (778,859) - 778,859 - -
Share issue costs - (10,365) - - - (10,365)
Interim dividends paid - - - - (53,190) (53,190)
As at 30 June 2022 12,399 494,174 5,114 778,859 141,909 1,432,455
ONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six month period ended 31 December 2021 (unaudited)
Share capital Share premium reserve Cash flow hedge reserve Capital reduction reserve Retained Total
£'000 £'000 £'000 £'000 earnings £'000
£'000
As at 1 July 2021 8,107 778,859 (452) - 84,796 871,310
Comprehensive income for
the period
Profit for the period - - - - 68,946 68,946
Other comprehensive income - - 2,232 - - 2,232
Total comprehensive income for - - 2,232 - 68,946 71,178
the period
Transactions with owners
Ordinary shares issued at a 1,747 199,188 - - - 200,935
premium during the year
Share issue costs - (4,418) - - - (4,418)
Transfer to capital reduction reserve - (778,859) - 778,859 - -
Interim dividends paid - - - - (23,921) (23,921)
As at 31 December 2021 9,854 194,770 1,780 778,859 129,821 1,115,084
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six month period ending 31 December 2022
Operating activities Notes Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
(Loss) /profit for the period (attributable to ordinary shareholders) (202,610) 68,946 110,303
Adjustments for:
Changes in fair value of interest rate derivatives 950 - -
Changes in fair value of Investment properties and associated rent guarantees 12 248,064 (10,967) (21,820)
Movement in rent smoothing adjustments 4 (1,256) (1,209) (2,654)
Finance income 8 (3,209)
Finance expense 8 13,655 5,661 12,992
Share of income from Joint ventures 13 (18,851) (37,214) (43,301)
Cash flows from operating activities before changes in working capital 36,743 25,217 55,520
Increase in trade and other receivables (3,962) (7,229) 1,277
Decrease/(Increase) in rent guarantee receivables 198 (70) (87)
Increase in deferred rental income 4,811 2,986 4,299
Increase in trade and other payables 7,567 1,226 2,004
Cash flows from operating activities 45,357 22,130 63,013
Investing activities
Acquisition of contract fulfilment assets - - (8)
Acquisition of investment properties 12 (299,130) (243,449) (371,093)
Acquisition of financial assets held at fair value through profit and loss 15 - - (10,626)
Decrease/(Increase) in other financial assets 93 (2,786) -
Investment in Joint venture 13 (1,830) - (3,518)
Capitalised acquisition costs (11,103) (7,146) (17,603)
Net cash flows used in investing activities (311,970) (253,381) (402,848)
Financing activities
Proceeds from issue of ordinary share capital 20 - 200,000 506,727
Costs of share issues 20 (43) (4,418) (10,366)
Bank borrowings drawn 664,064 256,407 402,922
Bank borrowings repaid (325,717) (187,971) (464,029)
Loan arrangement fees paid (3,740) (1,096) (2,187)
Bank interest paid (8,646) (3,884) (9,846)
Settlement of interest rate derivatives 1,436 - -
Bank commitment fees paid (1,291) (310) (681)
Dividends paid to equity holders (33,825) (22,986) (51,084)
Purchase of interest rate derivative (41,445) - -
Net cash flows from financing activities 250,793 235,742 371,456
Net (decrease) / increase in cash and cash equivalents for the period (15,820) 4,491 31,621
Cash and cash equivalents at the beginning of the period 51,200 19,579 19,579
Cash and cash equivalents at the end of 35,380 24,070 51,200
the period
1. Basis of preparation
General information
Supermarket Income REIT plc (the "Company" or "Group") is a company registered
in England and Wales with its registered office at The Scalpel 18th Floor, 52
Lime Street, London, United Kingdom 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.
The financial information set out in this report covers the six months to 31
December 2022, with comparative numbers amounts shown for the year to 30 June
2022 and the six months to 31 December 2021. These condensed financial
statements are unaudited and the financial information for the year ended 2021
contained herein does not constitute statutory accounts for as defined in
section 434 of the Companies Act 2006. The statutory accounts for the year
ended 30 June 2022 have been delivered to the Registrar of Companies. The
independent auditors' report on those accounts was unqualified, did not draw
attention to any matters by way of emphasis, and did not contain a statement
under sections 498(2) or 498(3) of the Companies Act 2006.
At 31 December 2022 the Group comprised of the Company and its wholly-owned
subsidiaries and joint ventures. All subsidiaries are incorporated in the
England & Wales and Jersey.
The condensed consolidated financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by the United
Kingdom. The accounting policies adopted in this report are consistent with
those applied in the Group's audited financial statements for the year ended
30 June 2022. The accounting policies applied in the preparation of this
financial information are expected to be consistently applied in the financial
statements for the year to 30 June 2023.
Accounting convention and currency
The condensed consolidated financial statements ("the financial statements")
have been prepared on a historical cost basis, except that investment
properties, rental guarantees and interest rate derivatives are measured at
fair value.
The financial statements are 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 Group and the presentation
currency of the Group.
The Directors are of the opinion that the Group is currently engaged in a
single segment business, being investment in United Kingdom in supermarket
property assets.
Going concern
In light of the significant impact of rising inflation, the energy crisis, the
Ukrainian conflict and supply-chain issues on the UK economy, the Directors
have placed a particular focus on the appropriateness of adopting the going
concern basis in preparing the Group's interim results for the six months
ended 31 December 2022. In assessing the going concern basis of accounting the
Directors have had regard to the guidance issued by the Financial Reporting
Council.
Liquidity
At 31 December 2022, the Group generated net cash flow from operating
activities of £43.7 million and had cash and undrawn committed facilities
totalling £206.9 million with no capital commitments or contingent
liabilities.
After the period end, the Group announced that it was due to receive gross
proceeds of £430.9 million following the sale of its interest in the SRP. Of
this amount, £279.3 million has already been received and has been used to
repay the JP Morgan facility totalling £202.8 million which was put in place
in January 2023. The remaining £76.5 million will be used to either repay
debt (see below) or deploy into new acquisitions.
The remaining £151.6 million of proceeds from the SRP is expected to be
received as follows:
- £116.9 million is to be received on 9 July 2023; and
- £34.7 million conditional on the sale of the remaining five stores
in the SRP.
1. Basis of preparation (continued)
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, two facilities fall due for
repayment during the going concern period:
- A drawn £62.1 million unsecured term loan due to expire in January
2024 with a bank syndicate comprising Barclays, Royal Bank of Canada, Wells
Fargo and Royal Bank of Scotland International; and
- An undrawn £77.5 million secured facility due to expire in January
2024 with Barclays / RBC.
It is intended that the above facilities will either be paid down in full
using the cash proceeds received from the sale of the SRP or refinanced prior
to maturity. All lenders have been supportive during the period and have
expressed commitment to the long-term relationship they wish to build with the
Company.
Covenants
The Group's debt facilities include covenants in respect of LTV and interest
cover, both projected and historic. All debt facilities, except for the
unsecured facilities, are ring-fenced with each specific lender.
The Directors have evaluated a number of scenarios as part of the Group's
going concern assessment and considered the impact of these scenarios on the
Group's continued compliance with secured debt covenants. The key assumptions
that have been sensitised within these scenarios are falls in rental income
and increases in administrative cost inflation.
As at the date of issuance of this consolidated financial information 100% of
contractual rent for the period has been collected. The Group benefits from a
secure income stream from its property assets that are let to tenants with
excellent covenant strength under long leases that are subject to upward only
rent reviews.
The list of scenarios are below and are all on top of the base case model
which includes prudent assumptions on valuations and cost inflation. No
sensitivity for movements in interest rates have been modelled as the Group is
fully hedged 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 Costs assumed as 20% of rental income
looking inflation curve, capped at the contractual rate of the individual
leases.
Scenario 2 Rental income to fall by 25% 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 21%. Based on the latest bank commissioned
valuations, Property values would have to fall by more than 27% before LTV
covenants are breached, and 11% against 31 December 2022 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 515% during the going concern period.
Having reviewed and considered three modelled scenarios, the Directors
consider that the Group has adequate resources in place for at least 12 months
from the date of these results and have therefore adopted the going concern
basis of accounting in preparing the interim financial statements.
2. Significant accounting judgements, estimates and assumptions
There have been no new or material revisions to the nature and amount of
judgements and estimates reported in the Annual Report 2022, other than
changes to certain assumptions applied in the valuation of properties. Details
of the key assumptions applied at 31 December 2022 are set out in note 12.
3. Summary of significant accounting policies
The principal accounting policies adopted in this report are consistent with
those applied in the Group's audited financial statements for the year ended
30 June 2022 and are expected to be consistently applied during the year
ending 30 June 2023.
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.
3.1. New standards issued and effective
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 2022.
The Group has considered amendments to standards endorsed by the United
Kingdom effective for the current accounting period and determined that these
do not have a material impact on the consolidated financial statements of the
Group in the period ended 31 December 2022.
3.2. New standards issued but not yet effective
Amendments to IAS 1 on Classification of liabilities as Current or Non-Current
are effective for the financial years commencing on or after 1 January 2024
and are to be applied retrospectively. It is not expected that the amendments
may have an impact on the presentation and classification of liabilities in
the Group Statement of Financial Position based on rights that are in
existence at the end of the reporting period.
A number of new standards and amendments to standards and interpretations have
been issued but are not yet effective for the current accounting period. None
of these are expected to have a material impact on the consolidated financial
statements of the Group.
4. Gross rental income
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Rental income - freehold property 26,198 20,832 44,332
Rental income - long leasehold property 19,964 11,833 28,031
Surrender premiums - 81 -
Gross rental income 46,162 32,746 72,363
Property insurance recoverable 300 177 449
Service charge recoverable 2,584 729 1,637
Total property insurance and service 2,884 906 2,086
charge income
Total property income 49,046 33,652 74,449
4. Gross rental income (continued)
Included within rental income is a £1,256,000 (six months to 31 December
2021: £1,209,000; year to 30 June 2022: £2,654,000) rent smoothing
adjustment that arises as a result of IFRS 16 'Leases' requiring that rental
income in respect of leases with rents increasing by a fixed percentage be
accounted for on straight-line basis over the lease term. During the year this
resulted in an increase in rental income and an offsetting entry being
recognised in profit or loss as an adjustment to the investment property
revaluation.
On an annualised basis, rental income comprises £46,200,000 relating to the
Group's largest tenant and £25,400,000 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
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Property insurance expenses 419 248 639
Service charge expenses 2,734 760 1,699
Total property insurance and service 3,153 1,008 2,338
charge expenses
6. Administrative and other expenses
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Investment Adviser fees (note 23) 5,355 4,300 9,405
Directors' remuneration (note 7) 175 134 269
Corporate administration fees 557 414 893
Legal and professional fees 803 842 2,249
Other administrative expenses 1,004 528 1,121
Total administrative and other expenses 7,894 6,218 13,937
7. Directors' remuneration
The Group has no employees. The Directors, who are the key management
personnel of the Group, are appointed under letters of appointment for
services. Directors' remuneration, all of which represents fees for services
provided, was as follows:
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Directors' fees 157 120 245
Employer's National Insurance Contribution 19 14 24
Total Directors' remuneration 176 134 269
8. Finance Income and expense
Finance income
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Interest received on bank deposits 4 - -
Finance income recognised on financial assets held at amortised cost 241 - -
Finance income on settlement of interest rate derivatives (note 18) 2,964 - -
Total finance income 3,209 - -
Finance expense
Interest payable on bank borrowings 10,492 3,928 9,565
Finance expense on settlement of interest rate derivatives (note 18) - 326 296
Commitment fees payable on bank borrowings 875 465 969
Amortisation of loan arrangement fees* 2,288 937 2,157
Amortisation of interest rate cap premium - 5 5
(note 18)
Total finance expense 13,655 5,661 12,992
Net finance expense recognised in income statement
10,446 5,661 12,992
*This includes a one-off exceptional charge of £1.52 million, relating to the
acceleration of unamortised arrangement fees in respect of the modification of
the Wells Fargo and Barclays/RBC facilities under IFRS 9.
The above finance expense includes the following in respect of liabilities not
classified as fair value through profit or loss:
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Total interest expense on financial liabilities held at amortised cost 12,780 4,864 11,723
Fee expense not part of effective interest rate for financial liabilities held 875 465 969
at amortised cost
Total finance expense 13,655 5,329 12,692
9. Taxation
a) Tax charge in profit or loss Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Corporation tax - - -
b) Total tax expense
Tax charge in profit and loss as per the above - - -
Share of tax (credit)/expense of equity accounted joint ventures (435) 421 987
Total tax (credit)/expense (435) 421 987
The Company and its subsidiaries operate as a UK Group REIT. Subject to
continuing compliance with certain rules, the UK REIT rules exempt 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 21 December 2017 the Group has met all such applicable conditions.
The reconciliation of the profit before tax multiplied by the standard rate of
corporation tax for the period of 19% to the total tax charge is as follows:
c) Reconciliation of the tax charge for the period Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
(Loss)/ Profit on ordinary activities before taxation (202,610) 68,946 110,303
Theoretical tax at UK standard corporation tax rate of 19% Effects of: (38,496) 13,100 20,958
Investment property revaluation not subject (47,132) (2,084) (4,146)
to taxation
Financial instruments revaluation not taxable 181 - -
REIT exempt income 85,447 (11,016) (16,812)
Share of tax expense of equity accounted (435) 421 987
joint ventures
Total tax (credit)/expense for the period (435) 421 987
10. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing the profit or loss
for the period attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares in issue during the period. As
there are no dilutive instruments outstanding, basic and diluted earnings per
share are identical.
The European Public Real Estate Association ('EPRA') publishes guidelines for
calculating adjusted earnings on a comparable basis. EPRA EPS is a measure of
EPS designed by EPRA to enable entities to present underlying earnings from
core operating activities, which excludes fair value movements on investment
properties.
The Company has also included an additional earnings measure called "Adjusted
Earnings" and "Adjusted EPS." Adjusted Earnings and Adjusted EPS is based on
EPRA's Best Practices Recommendations and recognises finance income earned
from derivatives held at fair value through profit and loss used to fix the
Company's floating interest rate exposure and excludes one-off restructuring
costs in relation to the acceleration of unamortised arrangement fees
following the partial transition of the Group's debt structure from secured to
unsecured. The Board deems this a more relevant indicator of core earnings as
it reflects the overall interest cost to the business in managing its property
portfolio.
The reconciliation of IFRS Earnings, EPRA Earnings and Adjusted Earnings is
shown below:
10. Earnings per share (continued)
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
IFRS Net (loss)/profit attributable to ordinary shareholders (202,610) 68,946 110,303
EPRA adjustments:
Changes in interest rate derivatives measured at fair value through profit and 950 - -
loss
Changes in fair value of investment properties and rent guarantees 248,064 (10,967) (21,820)
Group share of changes in fair value of joint venture investment properties (11,485) (31,048) 6,021
Group share of gain on disposal of joint venture investment properties - - (37,102)
Finance income received on interest rate derivatives held at fair value (2,085) - -
through profit and loss
EPRA earnings 32,834 26,931 57,402
Adjustments for:
Finance income received on interest rate derivatives held at fair value 2,085 - -
through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised 1,518 - -
arrangement fees
Adjusted Earnings 36,437 26,931 57,402
Number(1) Number(1) Number(1)
Weighted average number of ordinary shares 1,241,446,763 878,171,925 975,233,858
(1) Based on the weighted average number of ordinary shares in issue
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
Pence per share Pence per share Pence per share
Basic and Diluted EPS (16.3)p 7.9p 11.3p
EPRA adjustments:
Changes in fair value of interest rate derivatives measured at FVTPL - - -
Changes in fair value of investment properties and rent guarantees 20.0p (1.3)p (2.2)p
Group share of changes in fair value of joint venture investment properties (0.9)p (3.5)p 0.6p
Group share of gain on disposal of joint venture investment properties - - (3.8)p
Finance income received on interest rate derivatives held at fair value (0.2)p - -
through profit and loss
EPRA EPS 2.6p 3.1p 5.9p
Adjustments for:
Finance income received on interest rate derivatives held at fair value 0.2p - -
through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised 0.1p - -
arrangement fees
Adjusted EPS 2.9p 3.1p 5.9p
11. Dividends
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Distributions to ordinary shareholders
in the period:
Dividends paid 37,038 23,921 53,190
On 8 July 2022, the Board declared a fourth interim dividend for the year
ended 30 June 2022 of 1.485 pence per share, which was paid on 22 August 2022
to shareholders on the register on 14 July 2022.
On 21 September 2022 the Board declared a first interim dividend for the year
ending 30 June 2023 of 1.5 pence per share, which was paid on 16 November 2022
to shareholders on the register on 6 October 2022.
On 12 January 2023, the Board declared a second interim dividend for the year
ending 30 June 2023 of 1.5 pence per share, which was paid on 23 February 2023
to shareholders on the register on 19 January 2023. This has not been included
as a liability as at 31 December 2022.
12. Investment Properties
In accordance with IAS 40 'Investment Property', the Group's investment
properties have been independently valued at fair value by Cushman &
Wakefield, an accredited independent valuer with a recognised and relevant
professional qualification and with recent experience in the locations and
categories of the investment properties being valued. The valuations have been
prepared in accordance with the RICS Valuation - Global Standards (the 'Red
Book') and incorporate the recommendations of the International Valuation
Standards Committee which are consistent with the principles set out in IFRS
13.
The independent valuer in forming its opinion on valuation makes a series of
assumptions. All the valuations of the Group's investment property at 31
December 2022 are classified as 'level 3' in the fair value hierarchy defined
in IFRS 13. The valuations are ultimately the responsibility of the Directors.
Accordingly, the critical assumptions used in establishing the independent
valuation are reviewed by the Board.
Freehold Long Leasehold £'000 Total
£'000
£'000
At 1 July 2022 903,850 657,740 1,561,590
Property additions 106,400 192,730 299,130
Capitalised acquisition costs 2,799 8,304 11,103
Revaluation movement (139,199) (107,524) (246,723)
Valuation at 31 December 2022 873,850 751,250 1,625,100
At 1 July 2021 723,540 424,840 1,148,380
Property additions 150,363 220,447 370,810
Capitalised acquisition costs 7,825 9,778 17,603
Revaluation movement 22,122 2,675 24,797
Valuation at 30 June 2022 903,850 657,740 1,561,590
At 1 July 2021 723,540 424,840 1,148,380
Property additions 96,182 147,267 243,449
Capitalised acquisition costs 3,629 5,657 9,286
Revaluation movement 18,339 (5,954) 12,385
Valuation at 31 December 2021 841,690 571,810 1,413,500
12. Investment Properties (continued)
Of the fifteen properties held under long leaseholds, the years unexpired on
the headleases are as follows: four properties with between 116 and 156 years,
and eleven properties with between 983 and 988 years. The Group has no
material liabilities in respect of these headleases.
Included within the carrying values of investment properties at 31 December
2022 is £7,468,000 (six months to 31 December 2021: £4,767,000, year to 30
June 2022: £6,212,000) 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 receivable is included within the carrying value
of the investment properties but does not increase that carrying value over
fair value. The effect of this adjustment on the revaluation movement for the
period is as follows:
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Revaluation movement per above (246,723) 12,385 24,797
Rent smoothing adjustment (note 4) (1,256) (1,209) (2,654)
Movements in associated rent guarantees (85) (209) (323)
(note 14)
Change in fair value recognised in profit or loss (248,064) 10,967 21,820
Valuation techniques and key unobservable inputs
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of market value which is
defined in the RICS Valuation Standards as 'the estimated amount for which an
asset or liability should exchange on the date of the valuation between a
willing buyer and a willing seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion'. Market value as defined in the RICS Valuation Standards
is the equivalent of fair value under IFRS.
Unobservable inputs
Significant unobservable inputs include: the estimated rental value ("ERV")
based on market conditions prevailing at the valuation date and the equivalent
yield (defined as the weighted average of the net initial yield and
reversionary 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 fair value. A decrease in the equivalent
yield would increase the fair value.
Sensitivity of measurement of significant unobservable inputs
The determination of the valuation of the Group's investment property
portfolio is open to judgements and is inherently subjective by nature.
Sensitivity analysis - impact of changes in initial yields and passing rent
Initial yields of the Group's investment properties at 31 December 2022 range
from 4.7% to 7.3% (year ended
30 June 2022: 3.8% to 6.6%; six months ended 31 December 2021: 3.8% to 6.6%).
Rental values (being passing rents or ERV as relevant) on the Group's
investment properties at 31 December 2022 range from £0.3 million to £5.1
million (year ended 30 June 2022: £0.3 million to £4.2 million; six months
ended 31 December 2021: £0.3 million to £4.8 million).
12. Investment Properties (continued)
The table below analyses the sensitivity on the fair value of investment
properties for changes in rental values and net initial yields:
+1% -1% +0.5% Net Initial Yield* -0.5% Net Initial Yield*
Rental value £m Rental value £m £m £m
(Decrease)/increase in the fair value of investment properties as at 31 16.3 (16.3) (137.0) 165.1
December 2022
(Decrease)/increase in the fair value of investment properties as at 31 14.1 (14.1) (72.3) 81.9
December 2021
(Decrease)/increase in the fair value of investment properties as at 30 June 15.6 (15.6) (81.1) 90.7
2022
*31 December 2021 and 30 June 2022 figures were calculated on +/-0.25%
sensitivity net initial yield.
13. Investment in joint ventures
As at 31 December 2022 the Group has one joint venture investment. On the 28
May 2020, the Group entered into a 50:50 joint venture with the British
Airways Pension Trustees Limited ("BAPTL") to acquire 100% of the issued share
capital in Horndrift Limited for a combined total consideration of £102m plus
costs.
On the 17 February 2021, the joint venture also acquired 100% of the issued
share capital in Cornerford Limited for a combined total consideration of
£115m plus costs. Further amounts have been advanced since this date to fund
operating costs and taxation liabilities on a pro-rata basis with the other
parties.
On 12 January 2023, after the balance sheet date, the Company acquired BAPTL's
25.5% beneficial interest in the SRP for £196 million (excluding acquisition
costs). Further details on this non-adjusting post balance sheet event have
been detailed in note 25.
Horndrift and Cornerford Limited each hold a 25.2% share of certain beneficial
interests in a property trust arrangement that holds a portfolio of 26
Sainsbury's supermarket properties funded by bonds which mature in 2023 (the
"Structure"). Rental surpluses generated by the Structure are required to be
applied in the repayment of the bonds and not therefore capable of being
transferred to the joint venture or Group until those bonds have been repaid.
The Group deems this to be a joint venture, as through the Group's interest in
Horndrift Limited and Cornerford Limited it indirectly has joint control of
the structure.
Under the terms of the Horner (Jersey) LP (the "JV") Limited Partnership
Agreement ("LPA"), an affiliate of the Investment Adviser, Atrato Halliwell
Limited (the "Carry Partner"), has a carried interest entitlement over the
investment returns from the JV's investment in the Structure. Under the terms
of the LPA, once the Group and its JV partner have received a return equal to
their total investment in the JV plus an amount equivalent to a 10% per annum
preferred return on that investment, the Carry Partner is entitled to share in
any further cash returns to be distributed by the JV. The Carry Partner's
entitlement to share in cash returns in excess of the preferred return
increases depending on the extent of those cash returns, up to a maximum
entitlement of £15,000,000.
The Group has estimated the value of the Carry Partner's interest in the
Group's share of the JV as at 31 December 2022 to be £7,500,000 (six months
to 31 December 2021: £7,500,000, 30 June 2022: £7,500,000). This has been
determined by reference to the expected returns from the JV's investment in
the Structure, assuming that the proceeds realised from the future sale of the
properties held by within the Structure are equal to the independent
valuations of those properties as at 31 December 2022. Accordingly, the
Group's beneficial interest in the JV, and therefore the Group's share of the
JV's net assets as at 31 December 2022, is estimated to amount to 52.7%
The carried interest payments are only payable upon cash distributions from
the JV to the Group. To date no carried interest payment have become payable.
13. Investment in joint ventures (continued)
After the balance sheet date, the Company announced the sale of its interest
in the SRP for £430.9 million. Of this amount, £279.3 million has already
been received and a further £116.9 million is due to be received on 10 July
2023 and the third tranche of £34.7 million is conditional on the sale of the
remaining five stores in the SRP. Carried interest payments are due to be paid
in July on receipt of the remaining sale proceeds. Further information on this
disposal has been detailed in note 25 of these financial statements.
Partner Address Ownership
Jersey
Horner (Jersey) LP British Airways Pensions Trustees Limited Third Floor, Liberation House, Castle Street, St Helier, Jersey, JE1 2LH 50% owned by the Group
parent company
Horner REIT Limited Third Floor, Liberation House, Castle Street, St Helier, Jersey, JE1 2LH 100% owned by Horner (Jersey) LP
parent company
United Kingdom
Horndrift Limited Langham Hall UK LLP, 1 Fleet Street, London, E4M 7RA 100% owned by Horner REIT Limited
Cornerford Limited Langham Hall UK LLP, 1 Fleet Street, London, E4M 7RA 100% owned by Horner REIT Limited
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Opening balance 177,140 130,320 130,321
Additions 1,830 - 3,518
Group's share of profit after tax 18,851 37,214 43,301
Closing balance 197,821 167,534 177,140
The joint venture entities have a 30 June year end. For accounting purposes
consolidated management accounts have been prepared for the joint venture for
the period from 1 July to 31 December 2022 using accounting policies that are
consistent with those of the Group.
The financial statements of Horner (Jersey) LP prepared on this basis would be
as follows:
Statement of comprehensive income Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Share of income from joint venture 37,644 84,748 97,464
Profit for the period and total comprehensive income 37,644 84,748 97,464
Group's share of profit for the period 18,851 37,214 43,301
Statement of financial position
Investment in joint ventures 410,643 350,069 369,280
Net assets 410,643 350,069 369,280
Group's share of net assets 197,821 167,534 177,140
13. Investment in joint ventures (continued)
Horner (Jersey) LP's share of the aggregate amounts recognised in the
consolidated statement of comprehensive income and statement of financial
position of the Structure are as follows:
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Rental income 2,871 14,986 12,878
Finance income 13,345 - 15,988
Administrative and other expenses (1,806) (99) (190)
Change in fair value of investment properties (4,256) 72,693 (11,336)
Gain on disposal of investment properties 27,228 - 84,095
Operating profit 37,382 87,580 101,435
Finance expense (608) (1,869) (1,996)
Profit before taxation 36,774 85,710 99,439
Tax charge for the period 870 (962) (1,974)
Profit for the period 37,644 84,748 97,465
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Non-current assets
Investment properties - 555,925 37,005
Total non-current assets - 555,925 37,005
Current assets
Contractual receivable 563,677 - 530,481
Trade and other receivables 3,214 18,220 2,897
Investment properties held for sale 33,772 - -
Cash and cash equivalents - - -
Total current assets 600,663 18,220 533,378
Total assets 600,663 574,145 570,383
Non-current liabilities
Debt securities in issue - 187,133 176,243
Interest rate derivative - 6,849 3,451
Deferred tax - 11,321 4,196
Other liabilities - 10,039 9,883
Total non-current liabilities - 215,342 193,773
Current liabilities
Debt securities in issue (170,840) - -
Interest rate derivative (743) - -
Deferred tax (357) - -
Other liabilities (10,252) - -
Trade and other payables (7,828) 8,733 7,329
Total current liabilities (190,020) 8,733 7,329
Total liabilities (190,020) 224,075 201,102
Net assets 410,643 350,070 369,281
13. Investment in joint ventures (continued)
During the year, Sainsbury's agreed to purchase 21 of the 26 stores within the
Structure for a price of £1,040 million.
The Group determined that the exercise of the purchase options by Sainsbury's
Plc resulted in the performance obligation being satisfied for a sale of the
properties in accordance with IFRS 15. The JV is deemed to hold a contractual
receivable from Sainsbury's plc, which has been valued based on the agreed
sales price as noted above and further rental income to be received until
expiry of the securitisation.
Sainsbury's has agreed to retain occupation of 4 of the 5 remaining stores
within the Portfolio under a new 15-year lease agreement with five yearly open
market rent reviews and a tenant break at year 10. The Company has exclusivity
to purchase these stores for £61.9 million (excluding acquisition costs),
reflecting a net initial yield of 6%, which can be exercised upon expiry of
the current leases between March and July 2023. The remaining store is
expected to be sold in March 2023 subject to vacant possession.
14. Financial assets held at fair value through profit or loss
Rental guarantees provided by the seller of an investment property are
recognised as a financial asset when there is a valid expectation that the
Group will utilise the guarantee over the contractual term. Rental guarantees
are classified as financial assets at fair value through profit and loss in
accordance with IFRS 9.
In determining the fair value of the rental guarantee, the Group makes an
assessment of the expected future cashflows to be derived over the term of the
rental guarantee and discounted these at the market rate. A review is
performed on a periodic basis based on payments received and changes in the
estimation of future cashflows.
The fair value of rental guarantees held by the Group as at the period end
date are as follows:
Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
£'000 £'000 £'000
At start of period 283 237 237
Additions - 283 -
Fair value changes (including changes in estimated cash flows) 86 (326) (209)
Payments (received)/refunded (369) 89 70
At end of period - 283 98
The fair value of rental guarantees recognised have a contractual expiry of
less than next twelve months.
15. Financial assets held at amortised cost
Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
£'000 £'000 £'000
At start of period 10,626 - -
Additions - 10,626 -
Interest income recognised in profit and loss 241 - -
Lease payments received during the period (144) - -
At end of period 10,723 10,626 -
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. The carrying value of
financial assets held at amortised cost approximates fair value.
15. Financial assets held at amortised cost (continued)
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 31 December 2022. The historical loss rates are then adjusted
for current and forward-looking information on macroeconomic factors affecting
the Group's customers. Both the expected credit loss provision and the
incurred loss provision in the current year is immaterial. No reasonable
possible changes in the assumptions underpinning the expected credit loss
provision would give rise to a material expected credit loss.
16. Trade and other receivables
Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
£'000 £'000 £'000
Trade and other receivables 6,384 1,430 9,531
Prepayments 1,118 433 837
Total trade and other receivables 7,502 1,863 10,368
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 31 December 2022. The historical loss rates are then adjusted
for current and forward-looking information on macroeconomic 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
Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
£'000 £'000 £'000
Corporate accruals 15,211 8,958 9,607
VAT payable 4,465 1,719 2,581
Total trade and other payables 19,676 10,677 12,188
18. Interest rate derivatives
Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
£'000 £'000 £'000
Non-current asset: Interest rate swaps 29,572 5,114 2,124
Non-current asset: Interest rate cap 2,290 - -
Current asset: Interest rate swaps 12,699 - -
Current asset: Interest rate cap 2,829 - -
Non-current liability: Interest rate swap - - (344)
Total 47,390 5,114 1,780
The interest rate cap and interest rate swap is remeasured to fair value by
the counterparty bank on a quarterly basis
18. Interest rate derivatives (continued)
The fair value at the end of the period comprises: Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
At start of the period 5,114 (447) (447)
Interest rate derivative premium paid on inception 41,445 - -
Amortisation of cap premium in the period (note 8) - (5) (5)
Changes in fair value of interest rate derivative 3,795 5,270 1,906
in the period
(Credit)/Charge to the income statement (2,964) 296 326
As at the end of the period 47,390 5,114 1,780
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 in relation to the drawn
Unsecured bank syndicate facilities ('the Unsecured swaps') and loan
facilities with Bayerische Landesbank ('the BLB swaps') and Wells Fargo Bank
('the Wells swaps'). The Group has also entered into a derivative interest
rate cap in relation to the drawn HSBC loan facility ('the HSBC cap').
The total notional value of the Unsecured swaps was £380.6 million, which is
equal to the total amounts drawn under the Unsecured bank syndicate
facilities. The terms of the Unsecured swaps coincide with the maturity of the
respective Unsecured bank syndicate loan facilities. The fixed interest rate
of the swaps as at 31 December 2022 was 0.99%. The weighted average strike
rate of the swaps to maturity is 1.34%.
The total notional value of the BLB swaps was £86.9 million, which is equal
to the total amounts drawn under Bayerische Landesbank loan facility. The
terms of the BLB swaps coincide with the maturity of the respective Bayerische
Landesbank loan facility. The fixed interest rate of £52.1 million of the
swap exposure as at 31 December 2022 was 1.305%. The fixed interest rate of
the swaps of £27.5 million and £7.3 million for the remaining
exposure of £34.8 million were 0.178% and 0.128% respectively.
The total notional value of the Wells swap was £30.0 million with its term
coinciding with the maturity of the Wells Fargo loan facility. The fixed
interest rate of the swap as at 31 December 2022 was 0.189%.
The total notional value of the HSBC cap was £96.5 million with its term
coinciding with the maturity of the HSBC loan facility. The strike rate of the
interest rate cap as at 31 December 2022 was 0.99%. The weighted average
strike of the swaps to maturity is 1.10%.
100% of the Group's outstanding debt as at 31 December 2022 was hedged through
the use of fixed rate debt or financial instruments (30 June 2022: 61%). It is
the Group's target to hedge at least 50% of the Group's total debt at any time
using fixed rate loans or interest rate derivatives.
The derivatives have been valued in accordance with IFRS 13 by reference to
interbank bid market rates as at the close of business on the last working day
prior to each 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.
In accordance with the Group's treasury risk policy, the Group applies cash
flow hedge accounting in partially hedging the interest rate risks arising on
its Bayerische Landesbank and Wells Fargo variable rate linked facilities.
Changes in the fair values of derivatives that are designated as cash flow
hedges and are effective are recognised directly in the cash flow hedge
reserve and included in other comprehensive income.
Any ineffectiveness that may arise in this hedge relationship will be included
in profit or loss.
18. Interest rate derivatives (continued)
The remaining derivatives (Unsecured swaps and HSBC cap), 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
profit or loss, net of interest receivable/payable from the derivatives shown
in the finance income or expense line.
19. Bank borrowings
Amounts falling due within one year: Unaudited Audited Unaudited
31 December 2022 30 June 2022 31 December 2021
£'000 £'000 £'000
Secured debt 59,408 - -
Unsecured debt - - -
Less: Unamortised finance costs (85) - -
59,323 - -
Amounts falling due after more than one year:
Secured debt 250,555 352,213 481,826
Unsecured debt 380,597 - -
Less: Unamortised finance costs (5,033) (3,667) (3,795)
626,119 348,546 478,031
Bank borrowing per consolidated statement of financial position
685,442 348,546 478,031
19. Bank borrowings (continued)
A summary of the Group's borrowing facilities as at 31 December 2022 are shown
below:
Lender Facility Expiry 21 (#_ftn21) Credit Swap/Cap Loan Amount drawn
Margin Rates commitment 31 December 2022
£m^ £m
Expiry
HSBC Revolving credit facility Aug 2024 Aug 2025 1.65% Cap - 1.12% £96.5 £96.5
HSBC Revolving credit facility Aug 2024 Aug 2025 1.65% SONIA £3.5 Nil
HSBC Revolving credit facility Aug 2024 Aug 2025 1.75% SONIA £50.0 Nil
Deka Term Loan Aug 2024 Aug 2026 1.35% 0.54% £47.6 £47.6
Deka Term Loan Aug 2024 Aug 2026 1.35% 0.70% £28.9 £28.9
Deka Term Loan Aug 2024 Aug 2026 1.40% 0.32% £20.0 £20.0
BLB Term Loan Jul 2023 Jul 2023 1.25% SWAP - 1.31% £52.1 £52.1
BLB Term Loan Aug 2025 Aug 2025 1.85% SWAP - 0.18% £27.5 £27.5
BLB Term Loan Jul 2023 Jul 2023 1.85% SWAP - 0.13% £7.3 £7.3
Wells Fargo Revolving credit facility Jul 2025 Jul 2027 2.00% SWAP - 0.19% £30.0 £30.0
Wells Fargo Revolving credit facility Jul 2025 Jul 2027 2.00% SONIA £9.0 Nil
Barclays Revolving credit facility Jan 2024 Jan 2026 1.50% SONIA £77.6 Nil
Syndicate Revolving credit facility Jul 2027 Jul 2029 1.50% SWAP - 1.34% £250.0 £218.5
Syndicate Term Loan Jul 2025 Jul 2027 1.50% SWAP - 1.34% £100.0 £100.0
Syndicate Term Loan Jan 2024 Jan 2025 1.50% SWAP - 1.34% £30.6 £30.6
Syndicate Term Loan Jan 2024 Jan 2025 1.50% SWAP - 1.34% £31.5 £31.5
Total £862.1 £690.5
^Includes uncommitted accordions
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
these financial statements.
Any associated fees in arranging the bank borrowings that are unamortised as
at the end of the period are offset against amounts drawn under the facilities
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
companies, not including the Company itself. There have been no defaults of
breaches of any loan covenants during the current or any prior period.
The Group's borrowings carried at amortised cost are considered to be
approximate to their fair value.
20. Share capital
Six months to 31 December 2022 (unaudited) Ordinary shares Share Share Capital Total
of 1 pence capital premium reduction £'000
Number £'000 reserve reserve
£'000 £'000
As at 1 July 2022 1,239,868,420 12,399 494,174 778,859 1,285,432
Scrip dividends issued and fully paid 1,898,161 19 2,316 - 2,335
- 22 August 2022
Ordinary shares issued and fully paid 866,474 8 869 - 877
- 22 November 2022
Share issue costs - (43) - (43)
As at 31 December 2022 1,242,633,055 12,426 497,316 778,859 1,288,601
Dividends paid in the period - - - (37,038) (37,038)
As at 31 December 2022 1,242,633,055 12,426 497,316 741,821 1,251,563
Year to 30 June 2022 (audited)
As at 1 July 2021 810,720,168 8,107 778,859 - 786,966
Scrip dividends issued and fully paid 300,468 3 348 - 351
- 20 August 2021
Ordinary shares issued and fully paid 173,913,043 1,740 198,261 - 200,001
- 22 October 2021
Scrip dividends issued and fully paid 500,750 5 578 - 583
- 16 November 2021
Share premium cancelled during the year and transferred to capital reduction - - (778,859) 778,859 -
reserve
Scrip dividends issued and fully paid 111,233 1 136 - 137
- 25 February 2022
Ordinary shares issued and fully paid 253,492,160 2,535 304,191 - 306,726
- 29 April 2022
Scrip dividends issued and fully paid 830,598 8 1,026 - 1,034
- 27 May 2021
Share issue costs - - (10,366) - (10,366)
As at 30 June 2022 1,239,868,420 12,399 494,174 778,859 1,285,432
Six months to 31 December 2021 (unaudited)
As at 1 July 2021 810,720,168 8,107 778,859 - 786,966
Scrip dividends issued and fully paid 300,468 3 349 - 352
- 20 August 2021
Ordinary shares issued and fully paid 173,913,043 1,739 198,261 - 200,000
- 22 October 2021
Scrip dividends issued and fully paid 500,750 5 578 - 583
- 16 November 2021
Transfer to capital reduction reserve (778,859) 778,859 -
Share issue costs - - (4,418) - (4,418)
As at 31 December 2021 985,434,429 9,854 194,770 778,859 983,483
Scrip dividends were issued on 22 August 2022 and 22 November 2022 at a
reference price of £1.23 and £1.01 per share respectively. The Company
issued a combined total of 2,764,635 shares under the scrip dividend programme
during the year. The consideration received in excess of the par value of the
ordinary shares issued, of £3.2 million was credited to the share premium
reserve.
20. Share capital (continued)
Ordinary shareholders are entitled to all dividends declared by the Company
and to all of the Company's assets after repayment of its borrowings and
ordinary creditors. Ordinary shareholders have the right to vote at meetings
of the Company. All ordinary shares carry equal voting rights. The aggregate
ordinary shares in issue at 31 December 2022 total was 1.24 billion.
21. Cash flow hedge reserve
Unaudited Audited Unaudited
Six months to Year to Six months to
31 December 2022 30 June 2022 31 December 2021
£'000 £'000
£'000
At start of the period 5,114 (452) (452)
Fair value movement of interest rate derivatives in effective hedges 1,780 5,566 2,232
At the end of the period 6,894 5,114 1,780
22. Capital commitments
The Group had no capital commitments outstanding as at 31 December 2022 (30
June 2022: none; 31 December 2021: none).
23. Transactions with related parties
Details of the related parties to the Group in the period and the transactions
with these related parties were as follows:
a. Directors
Directors' fees
Nick Hewson, Chairman of the Board of Directors of the Company, is paid fees
of £75,000 per annum, with the other Directors each being paid fees of
£52,500 per annum. Jon Austen is paid an additional £9,000 per annum for his
role as chair of the Company's Audit Committee, Vince Prior is paid an
additional £4,000 per annum for his role as chair of the Company's
Nominations Committee and £5,000 for his role as Senior Independent Director.
Cathryn Vanderspar is paid an additional £5,000 for her role as Chair of the
Remuneration Committee. Frances Davies is paid an additional £5,000 for her
role as Chair of the ESG Committee.
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 31
December 2022 were as follows:
· Nick Hewson: 1,154,170 shares (0.09% of issued share capital)
· Jon Austen: 305,339 shares (0.02% of issued share capital)
· Vince Prior: 173,432 shares (0.01% of issued share capital)
· Cathryn Vanderspar: 108,645 shares (0.01% of issued share capital)
· Frances Davies: 24,774 (0.00% of issued share capital)
b. Investment Adviser
Investment advisory and accounting fees
The investment adviser to the Group, Atrato Capital Limited (the 'Investment
Adviser'), is entitled to certain advisory fees under the terms of the
Investment Advisory Agreement (the 'Agreement') dated 14 July 2021.
The entitlement of the Investment Adviser to advisory fees is by way of what
are termed 'Monthly Management Fees' and 'Semi-Annual Management Fees' both of
which are calculated by reference to the net asset value of the Group at
particular dates, as adjusted for the financial impact of certain investment
events and after deducting any un-invested 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).
23. Transactions with related parties (continued)
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 1/12th of 0.4875% per
calendar month of Adjusted Net Asset Value above £1,000 million 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 period 31 December 2022 the total advisory fees payable to the
Investment Adviser were £5,355,138
(six months to December 2021: £4,299,869; year to 30 June 2022: £9,404,938)
of which £1,970,754 (30 June 2022: £1,446,246; 31 December 2021:
£1,937,162) is included in trade and other payables in the consolidated
statement of financial position.
The Investment Adviser is also entitled to an annual accounting and
administration service fee equal to: £52,788; plus (i) £4,279 for any
indirect subsidiary of the Company and (ii) £1,661 for each direct subsidiary
of the Company.
For the period to 31 December 2022 the total accounting and administration
service fee payable to the Investment Adviser was £149,548 (six months to 31
December 2021: £111,497, year to 30 June 2022: £237,559) of which £78,322
(six months to December 2021: £111,497; year to 30 June 2022: £81,833) is
included in trade and other payables in the consolidated statement of
financial position.
Introducer Services
Atrato Partners, an affiliate of the Investment Adviser, is entitled to fees
in relation to the successful introduction of prospective investors in
connection with subscriptions for ordinary share capital in the Company. The
entitlement of the Investment Adviser to introducer fees is by fees and/or
commission which can be summarised as follows:
· Commission basis: one per cent of total subscription in respect of
ordinary shares subscribed for by any prospective investor introduced by
Atrato Partners.
For the period to 31 December 2022 the total introducer fees payable to the
affiliate of the Investment Adviser were £Nil (six months to 31 December
2021: £92,805; year to 30 June 2022: £271,239)
Interest in shares of the Company
Details of the direct and indirect interests of persons discharged with
managerial responsibility of the Investment Adviser and their close families
in the ordinary shares of one pence each in the Company at 31 December 2022
were as follows:
· Ben Green: 1,305,454 shares (0.11% of issued share capital)
· Steve Windsor: 1,319,486 shares (0.11% of issued share capital)
· Steven Noble: 204,130 shares (0.02% of issued share capital)
· Natalie Markham: 62,679 (0.01% of issued share capital)
Carried interest held in the Group's joint venture
Under the terms of the Horner (Jersey) LP (the "JV") Limited Partnership
Agreement ("LPA"), an affiliate of the Investment Adviser, Atrato Halliwell
Limited (the "Carry Partner"), has a carried interest entitlement over the
investment returns from the JV's investment in the Structure. Further details
regarding the estimated value of the Carry Partner's interest in the JV are
included in note 13.
23. Transactions with related parties (continued)
The carried interest payments are only payable to the extent that
distributions are made from the JV to the Group. To date there have been no
cash distributions received by the Group and therefore no carried interest
payment has yet become payable.
After the balance sheet date, in February 2023, Tesco entered into a 20-year
PPA with Atrato Onsite Energy plc for a new solar installation on the rooftop
at the Group's store in Thetford. Atrato Onsite Energy plc is advised by
Atrato Partners Limited, which is a related party of the Investment Adviser.
No amounts have been paid to Atrato Onsite Energy plc or Atrato Partners
Limited to date in respect of this transaction.
24. 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 ("EPRA NTA") as the most meaningful
measure of long term performance and the measure which is being adopted by the
majority of UK REITs, establishing it as the industry standard benchmark. It
excludes items that are considered to have no impact in the long term, such as
the fair value of derivatives.
The EPRA NTA per share calculation are as follows:
Unaudited Unaudited Audited
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Net assets per the consolidated statement of financial position 1,197,756 1,115,084 1,432,455
Intangibles - (85) (93)
Fair value of financial assets at amortised cost (3,423) - (666)
Fair value of interest rate derivatives (47,389) (1,780) (5,114)
EPRA NTA 1,146,944 1,113,219 1,426,582
Ordinary shares in issue 1,242,633,055 985,434,429 1,239,868,420
NAV per share - Basic and diluted (pence) 96p 113p 116p
EPRA NTA per share (pence) 92p 113p 115p
25. Subsequent events
On 12 January 2023, the Board declared a second interim dividend for the year
ending 30 June 2023 of 1.5 pence per share, which was paid on 23 February 2023
to shareholders on the register on 19 January 2023. This has not been included
as a liability as at 31 December 2022.
On 12 January 2023, the Company announced the purchase of British Airways
Pension Trustees Limited's ("BAPTL") 25.5% beneficial interest in the SRP for
£196 million (excluding acquisition costs), increasing the Company's
beneficial interest in the SRP to 51%. The acquisition was funded entirely by
a new debt facility provided by JP Morgan Chase Bank of £202.8
million. This Facility was priced a margin of 1.5% over SONIA and an
arrangement fee of 2.0%.
On 20 March 2023, the Company announced the sale of its interest in the SRP.
The consideration of £430.9 million is to be received in three tranches.
£279.3 million was received on completion of the sale, of which £202.8
million of this was used to pay in full the debt facility provided by JP
Morgan Chase Bank. £116.9 million is due to be received on 10 July 2023 and
the third tranche of £34.7 million is conditional on the sale of the
remaining five stores in the SRP. The profit on disposal of the interest in
the SRP is expected to increase NTA by approximately £23.1 million or 1.9
pence per share (excluding transactional costs) compared to the value of
£197.8m as presented in the consolidated financial statements.
25. Subsequent events (continued)
On 21 March 2023, The Company announced the refinancing of its existing loan
facilities with Bayerische Landesbank with a new three-year £86.9 million
term loan replacing the existing tranches of the same amount. The facility
matures in March 2026 and is priced at a margin of 1.65% above SONIA which has
been fully hedged for the term of the facility using an interest rate swap to
fix at an all-in rate of 4.29%.
Notes to EPRA and other Key Performance Indicators (Unaudited)
1. EPRA Earnings and Adjusted Earnings per Share
As at As at As at
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Net profit/(loss) attributable to ordinary Shareholders (200,830) 71,178 115,869
Adjustments to remove:
Changes in fair value of interest rate derivatives (OCI) (1,780) (2,232) (5,566)
Changes in fair value of interest rate derivatives measured at FVTPL 950 - -
Changes in fair value of investment properties and associated rent guarantees 248,064 (10,967) (21,820)
Group share of changes in fair value of joint venture investment properties (11,485) (31,048) 6,021
Finance income received on interest rate derivatives held at fair value (2,085)
through profit and loss
Group share of gain on disposal of joint venture investment properties - - (37,102)
EPRA Earnings 32,834 26,931 57,402
EPRA EPS 2.6p 3.1p 5.9p
Finance income received on interest rate derivatives held at fair value 2,085 - -
through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised 1,518 - -
arrangement fees
Adjusted Earnings 36,437 26,931 57,402
Weighted average number of ordinary shares₁ 1,241,446,763 878,171,925 975,233,858
Adjusted EPS 2.9p 3.1p 5.9p
(1) Based on the weighted average number of ordinary shares in issue for the
six months to 31 December 2022.
Adjusted Earnings and Adjusted EPA are new measures shown in the Period - See
the Key Performance Indicators summary in the Interim Financial Statements.
Notes to EPRA and other Key Performance Indicators (Unaudited) continued
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 and financial assets held at amortised
cost.
31 December 2022 (Unaudited) EPRA NTA EPRA NRV EPRA NDV
£'000 £'000 £'000
IFRS NAV attributable to ordinary shareholders 1,197,756 1,197,756 1,197,756
Fair value of interest rate derivatives (47,389) (47,389) -
Fair value of financial assets held at amortised cost (3,423) (3,423) (3,423)
Intangibles - - -
Purchasers' costs - 119,102 -
Fair value of debt - - 5,768
Deferred tax - - -
EPRA metric 1,146,944 1,266,046 1,201,101
EPRA metric per share 92p 102p 97p
30 June 2022 (Audited)
IFRS NAV attributable to ordinary shareholders 1,432,455 1,432,455 1,432,455
Fair value of interest rate derivatives (5,114) (5,114) -
Fair value of financial assets held at amortised cost (666)
Intangibles (93) (666) (666)
Purchasers' costs - - -
Fair value of debt - 113,935 -
Deferred tax - - 4,320
EPRA metric 1,426,582 1,540,610 1,436,109
EPRA metric per share 115p 124p 116p
31 December 2021 (Unaudited) EPRA NTA EPRA NRV EPRA NDV
£'000 £'000 £'000
IFRS NAV attributable to ordinary shareholders 1,115,084 1,115,084 1,115,084
Fair value of interest rate derivatives (1,780) (1,780) -
Intangibles (85) - -
Purchasers' costs - 103,131 -
Fair value of debt - - (719)
Deferred tax - - -
EPRA metric 1,113,219 1,216,435 1,114,365
EPRA metric per share 113p 123p 113p
Notes to EPRA and other Key Performance Indicators (Unaudited) continued
3. EPRA Net Initial Yield (NIY) and EPRA "topped up" NIY
As at As at As at
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Investment Property - wholly owned (note 12) 1,625,100 1,413,500 1,561,590
Investment Property - share of joint ventures 281,533 265,325 266,500
Completed Property Portfolio 1,906,633 1,678,825 1,828,090
Allowance for estimated purchasers' costs 139,111 122,489 133,380
Grossed up completed property portfolio valuation (B) 2,045,743 1,801,314 1,961,470
Annualised passing rental income - wholly owned 95,239 70,161 77,230
Annualised passing rental income - share of joint venture 13,695 13,294 13,372
Annualised non-recoverable property outgoings (952) (344) (400)
Less: contracted rent under rent free periods (82) - -
Annualised net rents (A) 107,900 83,111 90,202
Rent expiration of rent-free periods and fixed uplifts 82 - 56
Topped up annualised net rents (C) 107,982 83,111 90,258
EPRA NIY (A/B) 5.27% 4.61% 4.60%
EPRA "topped up" NIY (C/B) 5.28% 4.61% 4.60%
4. EPRA Vacancy Rate
As at As at As at
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Estimated rental value of vacant space 451 155 188
Estimated rental value of the whole portfolio 95,239 70,161 77,237
EPRA Vacancy Rate 0.5% 0.2% 0.2%
The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space
as a proportion of the total rental value of the direct Investment Property
portfolio. This is expected to continue to be a highly immaterial percentage
as the majority of the portfolio is let to the largest supermarket operators
in the UK.
Notes to EPRA and other Key Performance Indicators (Unaudited) continued
5. EPRA Cost Ratio
As at As at As at
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Administration expenses per IFRS 7,894 6,218 13,937
Service charge income (2,884) (906) (2,086)
Service charge costs 3,153 1,008 2,338
Net Service charge costs 269 102 252
Share of joint venture expenses 903 50 95
Total costs (including direct vacant property 9,066 6,370 14,284
costs) (A)
Vacant property costs (125) (80) (99)
Total costs (excluding direct vacant property 8,941 6,290 14,185
costs) (B)
Gross rental income per IFRS 46,162 32,746 72,363
Less: service charge components of gross rental income - - -
Add: Share of Gross rental income from Joint Ventures 8,108 7,493 14,423
Gross rental income (C) 54,270 40,239 86,786
EPRA Cost ratio (including direct vacant property costs) (A/C) 16.71% 15.83% 16.46%
EPRA Cost ratio (excluding vacant property 16.48% 15.63% 16.34%
costs) (B/C)
1. The Company does not have any overhead costs capitalised as it has no
assets under development.
Notes to EPRA and other Key Performance Indicators (Unaudited) continued
6. EPRA LTV
As at As at As at
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Group Net Debt
Borrowings from financial institutions 685,442 478,031 348,546
Net payables 33,345 16,768 24,893
Less: Cash and cash equivalents (35,380) (24,070) (51,200)
Group Net Debt Total (A) 683,407 470,729 322,239
Group Property Value
Investment properties at fair value 1,625,100 1,413,500 1,561,590
Intangibles - 85 93
Financial assets 10,723 - 10,626
Total Group Property Value (B) 1,635,823 1,413,585 1,572,309
Group LTV (A-B) 41.78% 33.30% 20.49%
Share of Joint Ventures Debt
Bond loans 85,420 93,566 88,121
Net payables 6,302 9,070 822
JV Net Debt Total (A) 91,722 102,636 88,943
Group Property Value
Owner-occupied property - - -
Investment properties at fair value 291,070 277,962 277,407
Total JV Property Value (B) 291,070 277,962 277,407
JV LTV (A-B) 31.51% 36.92% 32.06%
Combined Net Debt (A) 775,129 573,365 411,182
Combined Property Value (B) 1,926,893 1,691,547 1,849,717
Combined LTV (A-B) 40.23% 33.90% 22.23%
7. EPRA Like-for-Like Rental Growth
Sector Six months to Six months to Like-for-Like rental growth
31 December 2022 31 December 2022 %
£'000 £'000
UK 30,821 30,337 1.60
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 £ 1.03 bn (31 December 2021: £1.17 bn).
The rental growth movement includes a £0.9m reduction in rent for a lease
regear of one of the Group's assets. Excluding this reduction, the like for
like rental growth increases to 3.08%.
Notes to EPRA and other Key Performance Indicators (Unaudited) continued
8. EPRA Property Related Capital Expenditure
As at As at As at
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Group
Acquisitions 310,223 252,735 388,695
Development - - -
Investment properties - - -
Group Total CapEx - - -
Joint Venture
Acquisitions - - -
Development - - -
Investment properties - - -
Joint Venture Total CapEx - - -
Total CapEx 310,223 252,735 388,695
9. Total Shareholder Return
Total Shareholder Return Six months to Six months to Year to
31 December 2022 31 December 2021 30 June 2022
Pence per share Pence per share Pence per share
Share price at start of the period / year 119.5 117.5 117.5
Share price at the end of the period / year 102.5 122.0 119.5
(Decrease)/Increase in share price (17.0) 4.5 2.0
Dividends declared for the year 3.0 2.95 5.9
(Decrease)/Increase in share price plus dividends (14.0) 7.45 7.9
Share price at start of period 119.5 117.5 117.5
Total Shareholder Return -12% 6% 7%
10. Net loan to value ratio
The proportion of our gross asset value that is funded by borrowings
calculated as statement of financial position borrowings less cash balances
divided by total investment properties valuation.
Net loan to value As at As at As at
31 December 2022 31 December 2021 30 June 2022
£'000 £'000 £'000
Bank borrowings 685,442 478,031 348,546
Less cash and cash equivalents (35,380) (24,070) (51,200)
Net borrowings 650,062 453,961 297,346
Investment properties valuation 1,625,100 1,413,500 1,561,590
Net loan to value ratio 40% 32% 19%
11. Annualised passing rent
Annualised passing rent is the annualised cash rental income being received as
at the stated date.
COMPANY INFORMATION
Directors Nick Hewson (Non-Executive Chairman)
Vince Prior (Chair of Nomination Committee & Senior Independent Director)
Jon Austen (Chair of Audit Committee)
Cathryn Vanderspar (Chair of Remuneration Committee)
Frances Davies (Chair of ESG Committee)
Sapna Shah (Independent Non-Executive
Director)
Company Secretary JTC (UK) Limited
The Scalpel
52 Lime Street
18(th) Floor
London
EC3M 7AF
Registrar Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
AIFM JTC AIFM Services
Ground Floor
Dorey Court
Admiral Park
St Peter Port
Guernsey
Channel Islands
GY21 2HT
Investment Adviser Atrato Capital Limited
36 Queen Street
London
EC4R 1BN
Financial Adviser and Joint Corporate Broker Stifel Nicolaus Europe Limited
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
52 Lime Street
18(th) Floor
London
EC3M 7AF
Stock exchange ticker SUPR
ISIN GB00BF345X11
This report will be available on the Company's website.
END
1 (#_ftnref1) The alternative performance measures used by the Group have
been defined and reconciled to the IFRS financial statements within the
supplementary information.
2 (#_ftnref2) Adjusted Earnings and Adjusted EPS are calculated as EPRA
Earnings and EPRA EPS adjusted for finance income from derivatives held at
fair value through profit and loss and non-recurring debt restructuring costs.
3 (#_ftnref3) New financial highlight for the Period, expected to be
included in future financials as they provide a more comprehensive
understanding of core business performance
4 (#_ftnref4) Includes changes in fair value of associated rental guarantees
in accordance with IFRS.
5 (#_ftnref5) Calculated as Adjusted earnings divided by dividends paid
during the Period.
6 (#_ftnref6) Average annualised increase for rents subject to an
inflation-linked review during the period 1 July 2022 to 31 December 2022.
7 (#_ftnref7) Based on Kantar UK food retail for the 4 weeks to 19 February
2023 vs 19 February 2022.
8 (#_ftnref8) Four year term plus 2 years of uncommitted extension options.
9 (#_ftnref9) As at the date of issuance of the interim financial
statements, including post balance sheet refinancing events.
10 (#_ftnref10) Including post balance sheet events.
11 (#_ftnref11) Kantar UK food retail data for the four weeks to 19 February
2023 vs 2022.
12 (#_ftnref12) Kantar UK food retail data for the four weeks to 19 February
2023 vs 2022.
13 (#_ftnref13) Based on Retail Free Cash Flow guidance as per Tesco and
Sainsbury's Q3 Trading Statement updates January 2023.
14 (#_ftnref14) Includes one off exceptional cost in relation to the unwind
of the SRP totalling £0.9m. The EPRA cost ratio excluding this one off cost
would be 15.1%.
15 (#_ftnref15) Based on Kantar UK food retail for the 4 weeks to 19
February 2023 vs 19 February 2022.
16 (#_ftnref16) Bank of England Official Bank Rate data.
17 (#_ftnref17) Excluding acquisition costs.
18 (#_ftnref18) 4 year lease length at the point of acquisition however the
tenant has subsequently upsized its unit and taken a 15 year lease.
19 (#_ftnref19) IPCC's 2019, Special Report on Climate Change and Land.
20 (#_ftnref20) Excluding non-recurring costs relating to the acceleration
of unamortised arrangement fees.
21 (#_ftnref21) Including uncommitted extension options.
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