REG - Supermarket Inc REIT - INTERIM RESULTS FOR SIX MONTHS ENDED 31 DEC 2023
13/03/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240313:nRSM6043Ga&default-theme=true
RNS Number : 6043G Supermarket Income REIT PLC 13 March 2024
Supermarket Income REIT plc
(the "Group" or the "Company")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2023
RESILIENT FINANCIAL PERFORMANCE - STRONG BALANCE SHEET PROVIDING OPPORTUNITY
FOR FUTURE GROWTH
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 2023 (the "Period").
FINANCIAL HIGHLIGHTS
Six months to Six months to Change
31-Dec-23 31-Dec-22 in Year
Annualised passing rent(1) £104.7m £95.5m +10%
Operating profit(2) £45.0m £38.0m +18%
Adjusted Earnings(1,3) £36.3m £36.4m -
Changes in fair value of investment properties (£57.9m) (£248.1m) n/a
Dividend per share declared 3.0 pence 3.0 pence -
Adjusted EPS(1,3) 2.9 pence 2.9 pence -
Dividend cover(1,4) 0.97x 0.98x n/a
31-Dec-23 30-June-23 Change
in Period
IFRS net assets £1,125m £1,218m -8%
EPRA NTA(1) £1,094m £1,156m -5%
EPRA NTA per share(1) 88 pence 93 pence -5%
Net Loan to value 33% 37% n/a
Portfolio net initial yield(1) 5.8% 5.6% n/a
Resilient financial performance
· 18% growth in operating profit(2) to £45.0 million, reflecting:
o 10% increase in annualised passing rent to £104.7 million through
acquisitions and contractual rental uplifts
o Continuing 100% rent collection
o Lower EPRA cost ratio 15.1% (six months to 31 December 2022: 16.7%)
o Sainsbury's Reversion Portfolio ("SRP") JV earnings replaced via higher
yielding acquisitions
· Adjusted EPS stable at 2.9 pence reflecting lower leverage
· On track to deliver full-year 2024 dividend target of 6.06p
· Significant debt capacity for future earnings growth, well
positioned to capitalise on current yields
Performance underpinned by continued, structural growth in the grocery
sector
· UK grocery market sales up 8%(5)( (#_ftn5) ) in the Period,
forecast to be £250 billion in 2024(6)
· Record £2.1 billion of investment activity in UK grocery real
estate in 2023(7)
· Our largest tenants Tesco & Sainsbury's gaining market
share(8)
o Combined market share up by 2% to 44%
o 10% growth in sales from large format stores(9)
· Store sales growth continues to outpace rental growth -
increasing affordability of rental values
Unique portfolio of 55 mission critical supermarkets
· Future-proofed portfolio of omnichannel stores
· 13 years weighted average unexpired lease term ("WAULT")
· 78% of rental income inflation-linked
· Strong performing tenant covenants with 77% of income from
Sainsbury's and Tesco
· 93% of portfolio stores operate online fulfilment via home delivery
and/or click and collect, capturing current and future growth in online sales
Supermarket property valuations reflect broader property market values
· Portfolio independently valued at £1.68 billion, inclusive of
acquisitions of £36.4 million, reflecting Net initial yield ("NIY") of 5.8%
(30 June 2023: 5.6%)
· Like-for-like valuation decline of 3.2% compares favourably
versus MSCI All Property Capital Index decline of 4.0%
· The impact of higher yields has been partly mitigated by a 3.6%
average rental uplift on rent reviews during the period
Strong balance sheet with 100% of drawn debt hedged to fixed rate
· LTV of 33% as at 31 December 2023 (30 June 2023: 37%)
· 100% of drawn debt fixed or hedged at a weighted average finance
cost of 3.1% (30 June 2023: 3.1%)
o Interest rate hedging extended by 12 months in September 2023
o Existing in-the-money hedging restructured to extend hedge term at zero
upfront cost
· Fitch Ratings Limited ("Fitch") reaffirmed the Company's
Investment Grade Credit Rating of BBB+
Accretive acquisitions and active portfolio management
· Purchased two supermarket properties at a NIY of 6.5% for a total
consideration of £36.4 million
· Given reduced LTV, the Company has capacity available for
opportunistic acquisitions
· EV charging installations now operational at five stores
· Rooftop solar:
o Operational across 20% of the portfolio
o New solar installation at Tesco, Thetford generated an EPC upgrade from C
to B
Continued progress on sustainability reporting
· Science Based Targets initiative ("SBTi") net zero targets
submitted for validation
· Adopted a charitable giving policy focused on alleviating poverty and
hunger as well as having a positive impact on biodiversity at and near our
sites
· Post Period end, Atrato Group became an endorser of Spring - a
new PRI stewardship initiative for nature
Nick Hewson, Chair of Supermarket Income REIT plc, commented:
"The UK grocery sector continues to demonstrate strong resilience to the
challenging macroeconomic environment. Our tenants continue to grow,
strengthening their financial and operational performance by putting
omnichannel supermarkets at the heart of their operations.
We remain focused on our investment strategy of acquiring and managing a
high-quality portfolio of omnichannel supermarkets, which are critical to our
tenants, giving us exposure to the largest and fastest growing segment of the
grocery market.
A record £2.1 billion was invested into UK supermarket property in 2023,
highlighting the strong appeal of the asset class and the attractiveness of
current asset values. UK property valuations continue to be impacted by the
uncertain economic backdrop, however as interest rates normalise and with the
limited supply of omnichannel supermarkets, we remain highly optimistic for
the valuation outlook for the year.
Looking forward, the quality of our unique supermarket portfolio and the
increasing affordability of grocery rents, together with our strong balance
sheet means we are well positioned to deliver long-term value for our
shareholders."
PRESENTATION FOR ANALYSTS
The Company will be holding an in-person presentation for analysts at 08.30am
today at FTI Consulting's offices, 200 Aldersgate, Aldersgate Street, London,
EC1A 4HD. To register to attend in-person, please contact FTI Consulting:
SupermarketIncomeREIT@fticonsulting.com. There will also be a webcast
available. To join the presentation via the webcast, please register using the
following link:
https://brrmedia.news/SUPR_HY24 (https://brrmedia.news/SUPR_HY24)
The results presentation is available in the Investor Centre section of the
Group's website.
FOR FURTHER INFORMATION
Atrato Capital +44 (0)20 3790 8087
Limited
Steven Noble / Rob Abraham / Chris McMahon ir@atratocapital.com (mailto:ir@atratocapital.com)
Stifel Nicolaus Europe +44 (0)20 7710 7600
Limited
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 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.
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/)
LEI: 2138007FOINJKAM7L537
Stifel Nicolaus Europe Limited, which is authorised and regulated in the
United Kingdom by the Financial Conduct Authority, is acting exclusively for
Supermarket Income REIT plc and no one else in connection with this
announcement and will not be responsible to anyone other than the Company for
providing the protections afforded to clients of Stifel Nicolaus Europe
Limited nor for providing advice in connection with the matters referred to in
this announcement.
Goldman Sachs International, which is authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct Authority and the Prudential
Regulation Authority in the United Kingdom, is acting exclusively for
Supermarket Income REIT plc and no one else in connection with this
announcement and will not be responsible to anyone other than the Company for
providing the protections afforded to clients of Goldman Sachs International
nor for providing advice in connection with the matters referred to in this
announcement.
CHAIR'S STATEMENT
Dear Shareholder,
The UK grocery sector continued to show strong growth in 2023 against a
persistently uncertain economic backdrop. During the Period, Kantar reported
an 8%(10) increase in UK grocery sales building on the strong growth seen in
the previous period. Tesco and Sainsbury's, the UK's largest grocery operators
by revenue, and our two largest tenants, have performed particularly strongly,
with both operators growing market share and sales, which is fuelling cash
flow growth and profit margins.
In a tight market for new sites due to a lack of prime locations, planning
restrictions and elevated construction costs, our large format stores provide
the operators with the space to grow sales volumes and thus sales densities,
which will further increase rental affordability and should feed through to
higher rental income at lease expiry.
The importance of mission-critical supermarkets, the revenue hubs in this
growing sector, together with long inflation-linked full repairing and
insuring ("FRI") leases, has attracted a growing range of investors to this
market. In 2023 we saw a record £2.1 billion of investment volumes. In
addition, we continue to see our two biggest tenants, Tesco and Sainsbury's
buying in their stores with over £2.0 billion of supermarkets purchased in
the last five years, testament to the value that they see in owning their top
trading, omnichannel stores.
Despite the strong grocery market backdrop, supermarket property yields
continued to widen in line with the broader property market driven by the
negative macro-economic environment. As a result, the Portfolio valuation
declined 3.2% on a like-for-like basis, reflecting a Net Initial Yield of 5.8%
as at 31 December 2023 (30 June 2023: 5.6%).
Given the uncertain economic and interest rate outlook for much of 2023, the
Company took the prudent decision to use some of the proceeds from the sale of
the Sainsbury's Reversion Portfolio to pay down debt, reducing LTV to 33%.
Despite this lower leverage position, we have maintained the EPS level we
achieved before the sale of the SRP. The undrawn debt capacity means we are
ideally positioned to take advantage of some highly attractive pricing, and
earnings accretive acquisition opportunities in the market.
The reduction in the 5 year interest swap rate from 5.0% in June 2023 to 3.4%
in December 2023 has reduced borrowing costs, generating an attractive spread
to current supermarket investment yields. Combined with the strong, growing
operational market and improving lease reversion values, we remain highly
optimistic on the longer-term valuation outlook and remain open to future
earnings accretive investments.
The Company has continued to build on the progress that it has already made on
sustainability. Following the publication of our first standalone
sustainability report in September, along with our TCFD compliant Annual
Report, we have now submitted our science-based emissions reduction targets to
the Science Based Target initiative ("SBTi") for validation. We have also
actively managed assets to deliver sustainability improvements and have now
deployed EV charging at five sites and are continuing to support the roll out
of solar PV with rooftop solar now installed at 20% of our stores. This is
improving the environmental efficiency of our sites including our Tesco store
in Thetford, which energised in the Period. The PV system provides clean
energy directly to the store, helped to deliver an EPC upgrade from C to B and
was completed with zero capex cost to the Company.
OUTLOOK
Once again, the grocery market has delivered a strong performance in a
challenging, unpredictable economic environment. Whilst we have seen a decline
in valuations based on transactions which completed late last year,
constrained supply and falling debt cost conditions combined with evidence of
increased competition for assets since the start of the year, suggest that we
may see a more positive environment for valuations going forward.
With our current reduced leverage, we are now ideally placed to add earnings
accretive assets. Meanwhile, our high-quality portfolio of mission-critical
supermarkets continue to deliver stable, long-term inflation-linked income.
Combined with our robust balance sheet, fixed borrowing costs and highly
visible cashflows, the Board is confident of the Company's ability to provide
secure income to our investors.
Nick Hewson
Chair
12 March 2024
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. 23.2% for the six months ended 31 December 2023
(Six months ended
Total Shareholder Return ("TSR") is measured by reference to the growth in the
31 December 2022: -11.7%)
Group's share price over a period, plus dividends declared for that period.
2. WAULT WAULT measures the average unexpired lease term of the Property Portfolio, 13 years WAULT as at 31 December 2023 (As at 30 June 2023: 14 years)
weighted by the Portfolio valuations.
3. EPRA NTA per share The value of our assets (based on an independent valuation) less the book 88 pence per share as at 31 December 2023 (As at 30 June 2023: 93 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 22
for more information.
4. Net Loan to Value The proportion of our Direct Portfolio gross asset value that is funded by 33% as at 31 December 2023 (As at 30 June 2023: 37%)
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 2023 (Six months
profitability of the business. ended
31 December 2022: 2.9 pence per share)
Adjusted earnings is a performance measure used by the Board to assess the
Group's financial performance and dividend payments. The metric adjusts EPRA
earnings by deducting one-off items such as debt restructuring costs and the
adding back finance income on derivatives held at fair value through profit
and loss. Adjusted Earnings is considered a better reflection of the measure
over which the Board assesses the Group's trading performance and dividend
cover. Finance income received from derivatives held at fair value through
profit and loss are added back to EPRA earnings as this reflects the cash
received from the derivatives in the period and therefore gives a better
reflection of the Group's net finance costs. Debt restructuring costs relate
to the acceleration of unamortised arrangement fees following the refinancing
of the Group's debt facilities during the Period.
Adjusted EPS reflects the adjusted earnings defined above attributable to each
shareholder.
The Group uses alternative performance measures including the European Public
Real Estate ("EPRA") Best Practice Recommendations ("BPR") to supplement its
IFRS measures as the Board considers that these measures give users of the
interim 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 22 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 2.1 pence per share for the
operating activities.
six months ended 31 December 2023 (Six months ended 31 December 2022:
2.6 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 97 pence per share as at
aims to represent the value required to rebuild the entity.
31 December 2023 (As at
30 June 2023: 103 pence per share)
3. EPRA Net Tangible Assets (NTA) per share An EPRA NAV per share metric which assumes entities buy and sell assets, 88 pence per share as at
thereby crystallising certain levels of unavoidable deferred tax.
31 December 2023 (As at
30 June 2023: 93 pence per share)
4. EPRA Net Disposal Value (NDV) per share An EPRA NAV per share metric which represents the Shareholders' value under a 90 pence per share as at
disposal scenario, where deferred tax, financial instruments and certain other
31 December 2023 (As at
adjustments are calculated to the full extent of their liability, net of any
30 June 2023: 98 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 5.8% as at 31 December 2023 (As at 30 June 2023: 5.5%)
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 0.6% as at 31 December 2023 (As at 30 June 2023: 0.4%)
whole portfolio.
7. EPRA Cost Ratio (Including direct vacancy costs) Administrative & operating costs (including costs of direct vacancy) 15.1% for the six months ended 31 December 2023
divided by gross rental income.
(Six months ended
31 December 2022: 16.7%(11) (#_ftn11) )
8. EPRA Cost Ratio (Excluding direct vacancy costs) Administrative & operating costs (excluding costs of direct vacancy) 14.9% for the six months ended 31 December 2022
divided by gross rental income.
(Six months ended
31 December 2022: 16.5%)
9. EPRA LTV Net debt divided by total property portfolio and other eligible assets. 34.6% for the six months ended 31 December 2023 (As at 30 June 2023: 35.2%)
10. EPRA Like-for-like Rental Growth Changes in net rental income for those properties held for the duration of Rental increase of 2.5% for the six months to 31 December 2023 versus six
both the current and comparative reporting period. months to 31 December 2022
11. EPRA Capital Expenditure Amounts spent for the purchase and development of investment properties £38.5 million for the six months ended 31 December 2023 (Six months ended
(including any capitalised transaction costs).
31 December 2022: £310.2 million)
INVESTMENT ADVISER'S REPORT
Atrato Capital Limited, the Investment Adviser to the Group (the "Investment
Adviser"), is pleased to report on the operations of the Group for the Period.
Overview
Continued strong growth of the grocery sector
We observed UK grocery sales growth of 8%(12) in the Period. Annual sales in
the UK grocery market are currently forecast to reach £250 billion in
2024(13); an increase of £65 billion since the Company's IPO in 2017. The
sector's non-discretionary nature ensures that it is highly resilient relative
to the volatility of the economic cycle and is strongly correlated to
inflation. The recent peak of UK price inflation has now seemingly passed and
operators are reporting volume growth both in-store and online.
In October 2023, Tesco reported 9.3%(14) growth in grocery sales from its
supermarket estate and Sainsbury's reported similar growth of 10.8%(15),
outpacing the wider UK grocery market. Core to the operator's growth are the
omnichannel supermarkets that provide in-store shopping, but also operate as
last mile, online grocery fulfilment centres for both home delivery and click
and collect. Omnichannel stores provides the space, proximity to customers and
flexibility to service customer demand in the growing physical and online
markets. It is worth noting that approximately 80% of Tesco's 1.1 million
weekly online orders are now fulfilled from omnichannel supermarkets and,
similarly, the increased focus on omnichannel stores has propelled Sainsbury's
to become the number one click and collect retailer in the UK.
Focused investment strategy targeting top trading, mission critical real
estate
Our strategy is aligned with the future model of UK grocery, capitalising on
the long-term structural trend toward growing omnichannel operations. We have
handpicked the UK's leading portfolio of supermarket investment assets. We are
the largest landlord of omnichannel grocery stores in the UK, offering a
combination of attractive, secure and growing income with potential for
long-term capital growth. Our stores facilitate in-store shopping, home
delivery, click and collect, and increasingly, rapid ready to eat food
delivery. 93% of the Group's portfolio by value are omnichannel stores, future
proofing the portfolio and providing exposure to the fastest growing grocery
market channel since the Company's IPO in 2017(16)(.)
Omnichannel stores act as significant online fulfilment hubs. A typical
omnichannel store will operate as many as 25 home delivery vans, with c.200
employees dedicated to online fulfilment, accounting for up to 30% of store
turnover. These large sites, often exceeding 10 acres, have good road
transport links in densely populated areas and thus would be very difficult to
recreate today. The stores typically have long trading histories, many having
been supermarkets for more than 30 or 40 years, underlining the strength of
the site as a grocery location. The Company's strategy of targeting such
stores ensures that its tenants are committed to the location beyond the
contractual lease term and provides assurance of strong alternative occupier
demand in the highly competitive grocery market. The scarcity of alternative
locations combined with increased build costs, up c.30% since 2022, are
driving up supermarket replacement values, making existing omnichannel
supermarkets even more valuable.
Income generated from strong tenant covenants
The Company has continued to achieve 100% rent collection during the period,
of which 77% is received from its key tenants, Tesco and Sainsbury's, the UK's
largest retailers by revenue. The Company also benefits from its tenants'
capital investment programmes, which are focused on enhancing existing stores,
including those which are occupied leasehold, over new store openings. The
limited new store openings and capital investment programmes mean that high
sales growth is being achieved like-for-like, enhancing existing store trading
performance and ensuring progressive ERV growth.
While the growth of the Discounters has gained attention, it is worth noting
that much of their sales growth is achieved through new store openings and
therefore at a lower margin. Tesco and Sainsbury's have competed particularly
well with the Discounters, with Clubcard and Nectar customer loyalty
programmes proving highly effective in customer retention.
2023 was a record year for supermarket real estate investment volumes
The investment market for supermarkets saw volumes of £2.1 billion in
2023(17), highlighting the attractiveness of the asset class at current
yields. The volume of transactions demonstrated the significant value of
supermarket real estate to both the traditional institutional investors and
also to Tesco and Sainsbury's, as they continue to buy back leasehold stores.
This operator buyback activity, given the knowledge of their own store
estates, clearly demonstrates the value of their store networks.
The liquidity of the supermarket investment market means that valuers are able
to base valuations on real world transactional evidence. This stands in
contrast to other sectors of the real estate market where volumes were
significantly reduced in 2023, reflecting the wide gap that still remains
between buyer and seller price expectations in those sectors. The defensive
characteristics of supermarkets, combined with the capex certainty provided by
the Fully Repairing and Insuring lease structures are proving attractive for
investors.
Challenging economic environment impacting property valuations
The high level of transactions in the grocery investment market provided clear
market pricing guidance for the sector. For the majority of the year,
supermarket valuations remained broadly flat following the valuation decline
seen in Q4 of 2022. However, in December 2023, following an improvement in 5
year swap rates and forward financing expectations, some buyers
opportunistically closed deals to purchase assets from some vendors who were
under pressure. These transactions would have been priced earlier in the year
when the interest rate outlook was less favourable. This short burst of
transactions closing late in the year at wider yields resulted in a 3.2%
like-for-like valuation decline of the Company's portfolio as at 31 December
2023.
Since the start of 2024 we have seen strong investor interest, including for
those stores for which demand was weaker in Q4 2023. This includes assets on
short leases or let to non-institutional grade tenants such as Asda, Morrisons
and Waitrose, providing confidence that we have seen a bottoming out of
valuations in the sector.
Whilst volatility remains, interest rate expectations have moderated somewhat
and the 5 year swap rate has reduced from 5.0% in June to 3.4% in December,
providing accretive opportunities to deploy capital. We expect that more
constrained supply following very high transaction volumes in 2023 combined
with falling interest rates will provide support for capital growth going
forwards.
As sector specialists, we are able to identify value in often overlooked
sub-sectors in a challenging real estate market. The prospective all-in fixed
cost of debt for the Company is around 5.5% and we see accretive opportunities
to deploy, whilst maintaining focus on high quality assets.
Strong balance sheet, well positioned to take advantage of opportunities in
the market
The Company's balance sheet is in a robust position. During 2023, the Board
and Investment Adviser took the prudent decision to maintain lower leverage
given the challenging macro environment, resulting in an LTV of 33% as at 31
December 2023 (30 June 2023: 37%). This conservative approach, which saw the
Company reduce debt and step back from the investment market to conserve cash
during a period of continued volatility, now provides the Company with
capacity for accretive deployment in an increasingly attractive investment
environment.
The Company's cost of debt remains 100% fixed until FY26, through the peak of
the interest rate cycle and we continue to see good access to refinancing
liquidity from both new and existing lenders. We added Sumitomo Mitsui Banking
Corporation to our group of relationship banks in the Period and we continue
to maintain strong relationships with all lenders. Fitch ratings recently
reaffirmed the Company's Investment Grade, long-term Issuer Default Rating
("IDR") of 'BBB+' with a stable outlook.
The Company has significant headroom on its bank facility covenants and given
the attractiveness of current investment yields is currently assessing a
number of earnings accretive acquisition opportunities.
Acquisitions in the period relate to the conclusion of the sale of the
Sainsbury's Reversionary Portfolio to Sainsbury's plc
During the Period, the Group purchased two further supermarkets for £36.4
million(18) (#_ftn18) :
· July 2023: Two Sainsbury's superstores in Derby, for £19.0
million(18) and Gloucester, for £17.4 million(18), at a blended NIY of 6.5%.
The stores had a 10-year unexpired lease term, subject to 5-yearly, upwards
only open market rent reviews.
Valuation reflects transactions closing late Q4 which priced in higher
long-run cost environment
Cushman & Wakefield valued the Portfolio as at 31 December 2023 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 Portfolio value was £1,675 million, with this valuation reflecting a net
initial yield of 5.8% and a like-for-like valuation decline of 3.2% for the
Period.
The decline in valuation reflects the outward shift in property yields applied
by valuers as a result of transactions which completed in late 2023, having
priced in Q3 amidst expectations of higher long-run costs. The valuation
decline has been partially mitigated by our contractual inflation-linked
rental uplifts. The average increase in rent from rent reviews performed
during the six month period to 31 December 2023 was 5.1% (or 3.6% on an
annualised basis). 80% of the Company's leases benefit from contractual rental
uplifts, with 78% linked to inflation and 2% with fixed uplifts.
The benchmark MSCI All Property Capital Index during the same period was down
4.0%. Since the Period end we have seen signs of increasing investor interest
as the forecast cost of debt begins to fall and with current supermarket
yields producing attractive returns.
Active asset management delivering additional value and improving
sustainability of sites
We continue to seek to deliver additional value for shareholders through
active management of our larger sites which are not fully demised to the core
supermarket tenants and therefore benefit from greater landlord control.
At Tesco, Chineham, McDonald's has commenced fit out works of a unit with a
new 25-year lease. In addition to this, Pets Corner is upsizing into a new
unit. At Tesco, Bradley Stoke, works are currently being undertaken to
amalgamate two units, one of which was vacant at acquisition and the other let
on a concessionary basis, with B&M committing to a new 10-year lease,
rendering the site 100% let.
Opportunities to add complementary discount grocery operators have progressed.
At Tesco, Chineham, the existing planning consent was successfully implemented
and terms are agreed with a complementary discount grocery retailer. Other
developments are being considered at Sainsbury's, Newcastle, Morrisons,
Workington and Tesco, Bradley Stoke and various negotiations are ongoing with
potential tenants for those sites.
Progress has also been made on sustainability initiatives at our sites.
Electric Vehicle ("EV") charging has been completed at five sites. 58 EV
charging bays have been installed at zero capex cost to the Company across:
· Morrisons, Workington
· Morrisons, Wisbech
· Tesco, Bradley Stoke
· Tesco, Chineham
· Tesco, Beaumont Leys
We continue to assess the portfolio for other EV charging installation
opportunities with three immediate targets already identified.
Works were completed at Tesco, Thetford in partnership with Atrato Onsite
Energy plc where Tesco entered into a 20-year Power Purchase Agreement ("PPA")
for a new solar installation on the rooftop at the store. The EPC rating was
re-assessed post installation and improved from a C to a B.
Delivering on our sustainability strategy
The Company has continued to deliver on its sustainability strategy and
improve its ESG performance. The Company is pleased to have now progressed
from a Net Zero ambition to submitting science-based emissions reduction
targets to the SBTi and embarking on their delivery. The Company's targets,
currently submitted to the SBTi for validation, include:
- Net-Zero: A commitment to reach net zero Greenhouse Gas ("GHG")
emissions across the value chain by FY2050
- Near-term Target: A commitment to reduce absolute Scope 1 and 2 GHG
emissions by 42% by FY2030 from a FY2023 base year
- Long-term Target: A commitment to reduce absolute Scope 1, 2 and 3
GHG emissions by 90% by FY2050 from a FY2023 base year
The Annual Report and Accounts for the year ended 30 June 2023 included the
Company's Task Force on Climate-Related Financial Disclosures ("TCFD") report,
with disclosures made across all 11 TCFD recommendations. Included within this
report was the Company's GHG Inventory disclosures, across Scope 1, 2 and 3
emissions. As part of the Company's commitment to further developing its
mechanisms to identify, manage and respond to climate-related risks, TCFD and
climate risk training was rolled out to the Investment Adviser and completed
by the full team in December 2023.
The Company's approach to sustainability is underpinned by the Board's
commitment to good stewardship and creating long-term value for our
stakeholders. The Company continues to support the commitments of its
Investment Adviser as a signatory to both the United Nations Principles for
Responsible Investment ("UNPRI") and Net Zero Asset Managers Initiative
("NZAM"). The Investment Adviser received the results of its first PRI Report
submission in January 2024 and will be reporting on its responsible investment
activities again in the next PRI reporting cycle. In January 2024, the
Investment Adviser also became part of the first cohort of endorsers of Spring
- a PRI stewardship initiative for nature.
The Company continues to monitor the evolution of relevant ESG-related
regulation, specifically the implementation of the Financial Conduct
Authority's UK Sustainability Disclosure Requirements ("SDR") and the European
Commission's review of the EU Sustainable Finance Disclosure Regulations
("SFDR").
The Company's Board and the Investment Adviser recognise the importance of
transparent, decision-useful sustainability reporting to improve our
accountability to stakeholders. The Company's next annual Sustainability
Report will be published alongside the Company's Full Year Results. The
Company remains committed to further development of its sustainability
strategy and priority ESG activities, as it continues to integrate ESG best
practice and contribute towards a net zero future.
Post Period end, the Company adopted a charitable giving policy focused on the
themes of alleviating poverty and hunger, feeding the nation, and having a
positive impact on biodiversity at and near our sites. The Investment Adviser
has also formalised a volunteering programme and its employees have given
their time to support these themes. The Company will report on progress with
the implementation of the charitable giving policy and volunteering impact
within its next annual Sustainability Report.
Financial results
Net rental income
In the Period, the portfolio generated net rental income of £52.6 million
(six months to 31 December 2022: £45.9 million), representing an increase of
£6.7 million or 14.5% compared to the prior period.
On a like-for-like basis, EPRA net rental income increased by 2.5%. During the
Period we successfully completed 13 rent reviews generating £1.7 million of
additional rental income, representing an increase of 5.1% (or 3.6% on an
annualised basis).
The second half of the year will benefit both from a full period of rental
income from properties acquired in the Period and contractual uplifts across
27% of the portfolio subject to a review in the six months to 30 June 2024.
Direct property expenditure increased marginally to £0.4 million (six months
to 31 December 2022: £0.3 million), however our gross to net margin continues
to be among the highest in the sector at 99.3% (six months to 31 December
2022: 99.4%), reflecting the strength of our core single-let strategy and
further highlighting the covenant quality of our tenant base.
Rent collection rates were 100% for the six months to 31 December 2023 (six
months to 31 December 2022: 100%), as our focus on top trading stores and
covenant quality provided exceptional income security.
Administrative and other expenses and EPRA cost ratio
Administrative and other expenses, which include all operational costs of
running the business, remained broadly flat period-on-period at £7.6 million
(six months to 31 December 2022: £7.9 million). We continue to monitor the
operational efficiency of the Group through its EPRA cost ratio, which is
among the lowest in the sector, and improved by 160bps to 15.1%.
6 months to 6 months to
31 December 31 December
2023 2022
EPRA cost ratio including direct vacancy costs 15.1% 16.7%
EPRA cost ratio excluding direct vacancy costs 14.9% 16.5%
Net finance costs
During the Period, the Group received £135.1 million following the divestment
of its interest in the Sainsbury's Reversion Portfolio Joint Venture. Part of
the proceeds were utilised to pay down debt, reducing drawn debt by £84.4
million to £587.8 million at the period end. At the same time, the Group
extended the term of its hedging by 12 months, fixing the weighted average
cost of debt on drawn balances at 3.1%.
Net finance costs reduced by £1.5 million primarily due to one-off loan
restructuring costs recognised in the prior period.
Adjusted earnings
The Directors consider Adjusted earnings a key measure of the Company's
underlying operating results, and therefore excludes one-off items which are
non-recurring in nature and includes finance income on derivatives held at
fair value through profit on loss. Adjusted earnings for the six months to 31
December 2023 were £36.3 million (six months to 31 December 2022: £36.4
million). On a per share basis, adjusted earnings remained flat in the Period
at 2.9 pence (six months to 31 December 2022: 2.9 pence) per share.
A full reconciliation between IFRS and Adjusted earnings can be found in note
10 of the Financial Statements.
Dividend
In August 2023, the Company paid a fourth interim dividend in respect of the
period from 1 April 2023 to 30 June 2023 of 1.50 pence per share, taking total
dividends paid and declared in respect of the financial year ended 30 June
2023 to 6.00 pence per share.
In November 2023, the Company paid a first interim dividend in respect of the
period from 1 July 2023 to 30 September 2023 of 1.515 pence per share and in
January 2024 approved a second interim dividend of 1.515 pence per share for
the three months ended 31 December 2023.
The Company is continuing to target a dividend of 6.06 pence per share in
respect of the year ended 30 June 2024.
EPRA net tangible assets and IFRS net asset
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
£'000 £'000 £'000
Investment property 1,667,910 1,625,100 1,685,690
Investment in joint ventures - 197,821 -
Bank and other borrowings (583,893) (685,442) (667,465)
Cash 37,068 35,380 37,481
Other net assets/(liabilities) (27,191) (25,915) 100,828
EPRA net tangible assets 1,093,894 1,146,944 1,156,534
Fair value of interest rate derivatives 27,364 47,389 57,583
Fair value adjustment for financial assets held at amortised cost 3,631 3,423 3,609
IFRS net assets 1,124,889 1,197,756 1,217,726
EPRA net tangible assets ("EPRA NTA") is considered to be the most relevant
measure for the Group, and includes both income and capital returns, but
excludes fair value of interest rate derivatives and revaluation to fair value
of investment properties held at amortised cost.
At 31 December 2023, EPRA NTA was £1,094 million (30 June 2023: £1,157
million), representing an EPRA NTA per share of 88 pence, a decrease of 5.4%
since 30 June 2023 primarily due to the portfolio revaluation deficit of
£57.9 million or 5 pence per share.
Portfolio Valuation
The value of the portfolio at 31 December 2023, including the fair value of
investment properties held at amortised cost, was £1,675 million (30 June
2023: £1,693 million). During the period, the Group invested £38.4 million
in two omnichannel supermarkets (including transaction costs) and incurred
capital expenditure of £0.1 million. On a like-for-like basis, the portfolio
recognised a revaluation deficit of £54.4 million, or 3.2%, as a result of
20bps outward yield shift.
Cash Flow and Net Debt
Cash flows from operating activities before changes in working capital
increased by £6.9 million to £43.6 million, primarily due to increased
rental income received from rent reviews and property acquisitions.
During the Period, the Group received £135.1 million following the divestment
of its interest in the Sainsbury's Reversion Portfolio Joint Venture. Part of
the proceeds were used to acquire two omnichannel supermarkets with a combined
acquisition cost of £38.4 million (including transaction costs), providing
earnings growth in line with the Group's strategy.
Net debt decreased by £83.2 million over the six-months to 31 December 2023,
to £546.8 million, and represents a loan to value of 33% (30 June 2023: 37%).
The Group continues to maintain a conservative leverage policy, with a
medium-term target LTV of 30-40%.
Financing
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
Undrawn facilities £177m £172m £190m
Loan to value 33% 40% 37%
Net debt / EBITDA ratio (period end) 6.1x 8.6x 8.0x
Weighted average cost of debt 3.1% 2.6% 2.9%
Interest cover 5.8x 3.6x 4.1x
Average debt maturity(1) 4.1 years 4.0 years 3.7 years
% of drawn debt which is fixed/hedged 100% 100% 100%
1. Includes extension options at lenders' discretion
During the Period, the Group completed a comprehensive debt refinancing
exercise, completing a new £67 million unsecured facility with Sumitomo
Mitsui Banking Corporation, at the same time reducing its HSBC facility from
£150 million to £50 million and cancelling its Barclays/RBC facility of
£77.5 million. This refinancing has allowed the Group to increase its
weighted average debt maturity to 4.1 years (30 June 2023: 3.7 years).
At 31 December 2023, the Group has gross borrowings of £588 million
diversified across eight lenders, including £374 million of unsecured
borrowings and £214 million of secured borrowings. In addition, the Group has
available undrawn facilities of £177 million (which includes a £75 million
credit approved accordion) and plenty of headroom under banking covenants,
providing the capacity to execute opportunistic transactions as they arise.
The Group has £97 million of debt maturing in the next twelve months, all of
which is covered by undrawn facilities. The Group maintains good long-term
relationships with all lenders and is currently in discussions regarding the
refinancing requirement and expects to conclude the transaction on or around
the current financial year end.
The Group's interest rate risk is mitigated through a combination of fixed
debt and derivative interest rate swaps and caps. During the Period, the Group
utilised the value of its existing in-the-money interest rate hedges to extend
the term of its hedging arrangements by 12 months at no additional cost to the
Company. As a result of these transactions, 100% of the Group's drawn debt is
now either fixed or hedged for 2.7 years at a weighted average cost of 3.1%.
The Group continues to monitor its banking covenants and maintains significant
headroom on its LTV and ICR covenants. As at 31 December 2023, property values
would need to fall by around 42% before breaching the gearing covenant.
Similarly, net rental income would need to fall by 56% before breaching the
interest cover covenant.
Fitch Ratings, as part of its annual review, reaffirmed the Group's BBB+
rating with a stable outlook.
Atrato Capital Limited
Investment Adviser
12 March 2024
RINCIPAL RISKS AND UNCERTAINTIES
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. The risk management process
including the identification, consideration and assessment of those emerging
risks which may impact the Group, remain as described in the 2023 Annual
Report.
In the Period, the probability of Property Risk, 'our ability to source assets
may be affected by competition for investment properties in the supermarket
sector', was increased from low to moderate and the Macroeconomic Risk,
'impact of the war in Ukraine' was expanded to include the impact of all
geopolitical conflicts.
The principal risks and uncertainties faced by the Company in the Period have
otherwise not changed from what is detailed on pages 52 to 58 of the 2023
Annual Report and no further changes are expected in the remaining six-months
of the financial year ending 30 June 2024. A summary of those principal risks
and uncertainties is provided below:
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
· Our ability to source assets may be affected by competition for
investment properties in the supermarket sector
· The default of one or more of our lessees would reduce revenue
and may affect our ability to pay dividends
· 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
Financial risk
· Our use of floating rate debt will expose the business to underlying
interest rate movements as interest rates continue to rise
· A lack of debt funding at appropriate rates may restrict our ability
to grow
· We must be able to operate within our banking covenants
Corporate risk
· There can be no guarantee that we will achieve our investment
objectives
· We are reliant on the continuance of the Investment Adviser
Taxation risk
· We operate as a UK REIT and have a tax-efficient corporate structure,
with advantageous consequences for UK shareholders. Any changes to our tax
status or in UK legislation could affect our ability to achieve our investment
objectives and provide favourable returns to shareholders
Climate risk
· The assets within the Group's portfolio that are less energy efficient
may be exposed to downward pressure on valuation or increased pressure to
invest in the improvement of individual assets
· Changes in regulatory policy could lead to our assets becoming
unlettable
· Volatile changes in the weather systems may deem the Group's
properties no longer viable to tenants
Cyber risks
· The rise in attempted cyber crime and more recently cyber risks arising
from recent geopolitical tensions has increased the risk for a listed company
Market price risk
· Shareholders may not be able to realise their shares at a price above
or the same as they paid for the shares or at all
Macroeconomic risks
· Inflationary pressures on the valuation of the portfolio
· Impact of geopolitical conflict
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 21.
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
Chair
12 March 2024
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 2023 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 2023 which comprises the 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
12 March 2024
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 2023
Profit or loss Notes Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Gross rental income 4 52,924 46,162 95,823
Service charge income 4 3,309 2,884 5,939
Service charge expense 5 (3,672) (3,153) (6,518)
Net Rental Income 52,561 45,893 95,244
Administrative and other expenses 6 (7,608) (7,894) (15,429)
Operating profit before changes in fair value of investment properties and 44,953 37,999 79,815
share of income and profit on disposal from joint venture
Changes in fair value of investment properties and associated rent guarantees 12 (57,940) (248,064) (256,066)
Share of income from joint venture - 18,851 23,232
Profit on disposal of joint venture - - 19,940
Operating (loss) (12,987) (191,214) (133,079)
Finance income 8 10,967 3,209 14,626
Finance expense 8 (19,928) (13,655) (39,315)
Changes in fair value on interest rate derivatives (32,272) (950) 10,024
Profit on disposal of interest rate derivatives 19 - - 2,878
(Loss) before taxation (54,220) (202,610) (144,866)
Tax charge for the period 9 - - -
(Loss) for the period (54,220) (202,610) (144,866)
Items to be classified to profit or loss in subsequent periods
Changes in the fair value of interest rate derivatives 19 (1,043) 1,780 1,068
Total comprehensive (expense)/income for the period (55,263) (200,830) (143,798)
Total comprehensive (expense)/income for the period attributable to ordinary (55,263) (200,830) (143,798)
shareholders
Earnings per share - basic and diluted (pence) 10 (4.4p) (16.3p) (11.7p)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2023
Notes Unaudited Audited Unaudited
31 December 2023 30 June 2023 31 December 2022
£'000 £'000 £'000
Non-current assets
Property, plant and equipment - - 129
Investment properties 12 1,667,910 1,685,690 1,625,100
Investment in joint ventures - - 197,821
Other financial assets 13 10,921 10,819 10,723
Interest rate derivatives 16 13,670 37,198 31,862
Total non-current assets 1,692,501 1,733,707 1,865,635
Current assets
Interest rate derivatives 16 13,694 20,384 15,528
Trade and other receivables 14 8,901 142,155 7,502
Cash and cash equivalents 37,068 37,481 35,380
Total current assets 59,663 200,020 58,410
Total assets 1,752,164 1,933,727 1,924,045
Non-current liabilities
Bank borrowings 17 487,527 605,609 626,119
Total non-current liabilities 487,527 605,609 626,119
Current liabilities
Bank borrowings due within one year 17 96,366 61,856 59,323
Deferred rental income 22,352 21,557 21,171
Trade and other payables 15 21,030 26,979 19,676
Total current liabilities 139,748 110,392 100,170
Total liabilities 627,275 716,001 726,289
Total net assets 1,124,889 1,217,726 1,197,756
Equity
Share capital 18 12,462 12,462 12,426
Share premium reserve 18 500,386 500,386 497,316
Capital reduction reserve 18 666,957 704,531 741,821
Retained earnings (57,177) (2,957) (60,701)
Cash flow hedge reserve 19 2,261 3,304 6,894
Total equity 1,124,889 1,217,726 1,197,756
Net asset value per share - basic and diluted 22 90p 98p 96p
EPRA net tangible asset per share - basic 22 88p 93p 92p
and diluted
These unaudited condensed consolidated financial statements were approved and
authorised for issue by the Board of Directors on 12 March 2024 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 2023 (unaudited)
Share capital Share premium reserve Cash flow hedge reserve Capital reduction reserve Retained Total
£'000 £'000 £'000 £'000 earnings/Accumulated (Deficit) £'000
£'000
As at 1 July 2023 12,462 500,386 3,304 704,531 (2,957) 1,217,726
Comprehensive loss for
the period
Loss for the period - - - - (54,220) (54,220)
Recycled comprehensive loss to profit and loss - - (432) - - (432)
Other comprehensive loss - - (611) - - (611)
Total comprehensive loss - - (1,043) - (54,220) (55,263)
for the period
Transactions with owners
Interim dividends paid - - - (37,574) - (37,574)
As at 31 December 2023 12,462 500,386 2,261 666,957 (57,177) 1,124,889
For the year from 1 July 2022 to 30 June 2023 (audited)
Share capital Share premium reserve Cash flow hedge reserve Capital reduction reserve Retained Total
£'000 £'000 £'000 £'000 earnings/Accumulated (Deficit) £'000
£'000
As at 1 July 2022 12,399 494,174 5,114 778,859 141,909 1,432,455
Comprehensive loss for
the period
Cash flow hedge reserve to profit for the year on disposal of interest rate (2,878) (2,878)
derivatives
Loss for the year - - - - (144,866) (144,866)
Other comprehensive income - - 1,068 - - 1,068
Total comprehensive loss for - - (1,810) - (144,866) (146,676)
the period
Transactions with owners
Ordinary shares issued at a 63 6,301 - - - 6,364
premium during the year
Share issue costs - (89) - - - (89)
Interim dividends paid - - - (74,328) - (74,328)
As at 30 June 2023 12,462 500,386 3,304 704,531 (2,957) 1,217,726
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/Accumulated (Deficit) £'000
£'000
As at 1 July 2022 12,399 494,174 5,114 778,859 141,909 1,432,455
Comprehensive loss for
the period
Loss for the period - - - - (202,610) (202,610)
Other comprehensive income - - 1,780 - - 1,780
Total comprehensive loss - - 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
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six month period ending 31 December 2023
Notes Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Operating activities
(Loss) attributable to ordinary shareholders (54,220) (202,610) (144,866)
Adjustments for:
Changes in fair value of interest rate derivatives measured at fair value 32,272 950 (10,024)
through profit and loss
Changes in fair value of Investment properties and associated rent guarantees 12 57,940 248,064 256,066
Movement in rent smoothing and lease incentive adjustments 4 (1,315) (1,256) (2,763)
Amortisation of leasing fees 4 - -
Finance income 8 (10,967) (3,209) (14,626)
Finance expense 8 19,928 13,655 39,281
Share of income from Joint ventures - (18,851) (23,232)
Profit on disposal of interest rate derivative - - (2,878)
Profit on disposal of Joint Venture - - (19,941)
Cash flows from operating activities before changes in working capital 43,642 36,743 77,017
Increase in trade and other receivables (1,363) (3,962) (548)
Decrease in rent guarantee receivables - 198 191
Increase in deferred rental income 793 4,811 5,198
(Decrease)/Increase in trade and other payables (1,015) 7,567 2,461
Net cash flows from operating activities 42,057 45,357 84,319
Investing activities
Disposal of Property, Plant & Equipment - - 222
Acquisition of investment properties 12 (36,350) (299,130) (362,630)
Capitalised acquisition costs (2,151) (11,103) (14,681)
Decrease in other financial assets - 93 -
Receipts from other financial assets 145 - 290
Bank interest received 42 - -
Investment in Joint venture - (1,830) (189,528)
Proceeds from disposal of Joint Venture 135,107 - 292,636
Net cash flows from/(used in) investing activities 96,793 (311,970) (273,691)
Financing activities
Costs of share issues - (43) (89)
Bank borrowings drawn 70,000 664,064 912,114
Bank borrowings repaid (154,386) (325,717) (598,486)
Loan arrangement fees paid (846) (3,740) (5,010)
Bank interest paid (17,270) (8,646) (22,408)
Settlement of interest rate derivatives 9,801 1,436 8,646
Settlement of Joint Venture carried Interest (7,500) - (8,066)
Sale of interest rate derivatives 38,481 - 2,878
Purchase of interest rate derivative (41,578) (41,445) (44,255)
Bank commitment fees paid (669) (1,291) (1,708)
Dividends paid to equity holders (35,296) (33,825) (67,963)
Net cash flows (used in)/from financing activities (139,263) 250,793 175,653
Net movement in cash and cash equivalents for the period (413) (15,820) (13,719)
Cash and cash equivalents at the beginning of the period 37,481 51,200 51,200
Cash and cash equivalents at the end of 37,068 35,380 37,481
the period
1. Basis of preparation
General information
Supermarket Income REIT plc is a company registered in England & Wales
with its registered office at 1 King William Street, London, United Kingdom,
EC4N 7AF. The principal activity of the Company and its subsidiaries (the
"Group") is to provide its shareholders with an attractive level of income
together with the potential for capital growth by investing in a diversified
portfolio of supermarket real estate assets in the UK.
The financial information set out in this report covers the six months to 31
December 2023, with comparative numbers amounts shown for the year to 30 June
2023 and the six months to 31 December 2022. These condensed financial
statements are unaudited and the financial information for the year ended 2022
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 2023 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 2023 the Group comprised of the Company and its wholly-owned
subsidiaries. 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 2023. 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 2024.
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 current macroeconomic backdrop, 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
2023. In assessing the going concern basis of accounting the Directors have
had regard to the guidance issued by the Financial Reporting Council.
Liquidity
At 31 December 2023, the Group generated net cash flow from operating
activities of £42.1 million and had cash and undrawn committed facilities
totalling £138.8 million with no capital commitments or contingent
liabilities.
The Directors are of the belief that the Group continues to be well funded
during the going concern period with no concerns over its liquidity.
Refinancing events
At the date of signing the financial statements, the Deka facility (£96.6
million) falls due for repayment during the going concern period (August
2024). It is intended that the facility will be refinanced prior to maturity,
or if required, it will be paid down in full utilising the Group's available
undrawn committed facilities of over £100 million. All lenders have been
supportive during the year and have expressed commitment to the long-term
relationship they wish to build with the Company.
1. Basis of preparation (continued)
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 is 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 Investment Adviser fee based on terms of the signed agreement (percentage of
looking inflation curve, capped at the contractual rate of the individual NAV as per note 21), other costs grown by inflation.
leases.
Scenario 2 Rental income to fall by 20% Costs expected to remain the same as the base case, with an allowance for
vacancy costs.
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. One of the secured facilities in the Group has a debt
yield covenant, which is calculated as the passing rent divided by the loan
balance for the properties secured against the lender. The debt yield covenant
only would be breached for this facility if rental income is reduced by 11%
during the going concern assessment period. The Board considers this scenario
highly unlikely given the underlying covenant strength of the tenants.
Furthermore, there are remedies available to the Group which include reducing
a portion of the outstanding debt from available undrawn facilities or
providing additional security over properties that are currently unencumbered.
The lowest amount of ICR headroom experienced in the worst-case stress
scenarios was 38%. Based on the latest bank commissioned valuations, property
values would have to fall by 21% before LTV covenants are breached, and 8%
against the 31 December 2023 Group valuations. Similarly, the strictest
interest cover covenant within each of the ring-fenced banking groups is 225%,
where the portfolio as a whole is forecast to have an average interest cover
ratio of 529% 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 2023, other than
changes to certain assumptions applied in the valuation of properties. Details
of the key assumptions applied at 31 December 2023 are set out in note 12.
3. Summary of material 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 2023 and are expected to be consistently applied during the year
ending 30 June 2024.
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 2023.
The following amendments are effective for the period beginning 1 July 2023:
- IFRS 17 Insurance Contracts;
- Disclosure of Accounting Policies (Amendments to IAS 1
Presentation of Financial Statements and IFRS Practice Statement 2);
- Definition of Accounting Estimates (Amendments to IAS 8
Accounting policies, Changes in Accounting Estimates and Errors);
- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12 Income Taxes); and
- International Tax Reform - Pillar Two Model Rules (Amendment to
IAS 12 Income Taxes)
There was no material effect from the adoption of the above-mentioned
amendments to IFRS effective in the period. They have no significant impact to
the Group as they are either not relevant to the Group's activities or require
accounting which is already consistent with the Group's current accounting
policies.
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
will 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 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Rental income - freehold property 28,488 26,198 53,119
Rental income - long leasehold property 23,993 19,964 42,669
Surrender premiums 443 - 35
Gross rental income 52,924 46,162 95,823
Property insurance recoverable 306 300 585
Service charge recoverable 3,003 2,584 5,354
Total property insurance and service 3,309 2,884 5,939
charge income
Total property income 56,233 49,046 101,762
Included within rental income is a £1,099,000 (six months to 31 December
2022: £1,256,000; year to 30 June 2023: £2,512,000) rent smoothing
adjustment that arises as a result of IFRS 16 'Leases' requiring that rental
income in respect of leases with rents increasing by a fixed percentage be
accounted for on straight-line basis over the lease term. During the year this
resulted in an increase in rental income and an offsetting entry being
recognised in profit or loss as an adjustment to the investment property
revaluation.
Also included in rental income is a £216,000 (six months to 31 December 2022:
£205,000; year to 30 June 2023 £499,000) adjustment for lease incentives.
Tenant lease incentives are recognised on a straight line basis over the lease
term as an adjustment to rental income. During the year this resulted in an
increase in rental income and an offsetting entry being recognised in profit
or loss as an adjustment to the investment property revaluation.
On an annualised basis, rental income comprises £50,460,000 relating to the
Group's largest tenant and £30,681,000 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 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Property insurance expenses 354 419 715
Service charge expenses 3,318 2,734 5,803
Total property insurance and service 3,672 3,153 6,518
charge expenses
6. Administrative and other expenses
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Investment Adviser fees (note 23) 4,829 5,355 10,292
Directors' remuneration (note 7) 222 175 364
Corporate administration fees 500 557 1,108
Legal and professional fees 817 803 1,626
Other administrative expenses 1,240 1,004 2,039
Total administrative and other expenses 7,608 7,894 15,429
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 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Directors' fees 199 157 330
Employer's National Insurance Contribution 23 19 34
Total Directors' remuneration(1) 222 176 364
( )
(1) Directors' individual fee levels are unchanged in the period. In March
2023 the Board increased from five to six non-executive Directors, with an
associated increase in Total Directors' remuneration.
8. Finance Income and expense
Finance income
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Interest received on bank deposits 42 4 53
Income from financial assets held at amortised cost 247 241 483
Finance income on unwinding of discounted receivable 202 - 2,376
Finance income on settlement of interest rate derivatives 10,476 2,964 11,714
Total finance income 10,967 3,209 14,626
Finance expense
Interest payable on bank borrowings and hedging arrangements 17,731 10,492 29,707
Commitment fees payable on bank borrowings 536 875 1,571
Amortisation of loan arrangement fees* 1,661 2,288 8,037
Total finance expense 19,928 13,655 39,315
*This includes a non-recurring exceptional charge of £281,000 (six months to
31 December 2022: £1.52m, year to 30 June 2023: £1.52m), relating to the
acceleration of unamortised arrangement fees in respect of the modification of
loan 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 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Total interest expense on financial liabilities held at amortised cost 19,392 12,780 37,744
Fee expense not part of effective interest rate for financial liabilities held 536 875 1,571
at amortised cost
Total finance expense 19,928 13,655 39,315
9. Taxation
a) Tax charge in profit or loss Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Corporation tax - - -
b) Total tax expense
Tax (credited) in profit and loss as per the above - - -
Share of tax (credit)/expense of equity accounted joint ventures - (435) (400)
Total tax (credit)/expense - (435) (400)
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 25% (30 June 2023: 20.4% 31 December 2022:
19%) to the total tax (credited) is as follows:
c) Reconciliation of the tax (credited) for the period Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
(Loss)/ Profit on ordinary activities before taxation (54,220) (202,610) (144,866)
Theoretical tax at UK standard corporation tax rate Effects of: (13,555) (38,496) (29,553)
Investment property revaluation not subject 14,485 (47,132) 49,680
to taxation
Financial instruments revaluation not taxable 8,068 181 -
Disposal of interest rate derivative - (587)
Residual business losses 1,721 4,428
Other non-taxable items - (8,807)
REIT exempt income (10,719) 85,447 (15,161)
Share of tax expense of equity accounted - (435) (400)
joint ventures
Total tax (credit)/expense for the period - (435) (400)
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 is a performance measure used
by the Board to assess the Group's financial performance and dividend
payments. The metric adjusts EPRA earnings by deducting one-off items such as
debt restructuring costs and adding back finance income on derivatives held at
fair value through profit and loss. Adjusted Earnings is considered a better
reflection of the measure over which the Board assesses the Group's trading
performance and dividend cover.
Finance income received from derivatives held at fair value through profit and
loss are added back to EPRA earnings as this reflects the cash received from
the derivatives in the period and therefore gives a better reflection of the
Group's net finance costs.
Debt restructuring costs relate to the acceleration of unamortised arrangement
fees following the restructuring of the Group's debt facilities during the
period.
The reconciliation of IFRS Earnings, EPRA Earnings and Adjusted Earnings is
shown below:
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Net (loss) attributable to ordinary shareholders (54,220) (202,610) (144,866)
EPRA adjustments:
Changes in fair value of investment properties and rent guarantees 57,940 248,064 256,066
Changes in interest rate derivatives measured at fair value through profit and 32,272 950 (10,024)
loss
Profit on disposal of interest rate derivatives - - (2,878)
Group share of changes in fair value of joint venture investment properties - (11,485) (11,486)
(Gain) on disposal of investments in joint venture - - (19,940)
Finance income received on interest rate derivatives held at fair value (10,167) (2,085) (9,671)
through profit and loss
EPRA earnings 25,825 32,834 57,201
Adjustments for:
Finance income received on interest rate derivatives held at fair value 10,167 2,085 9,671
through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised 281 1,518 1,518
arrangement fees
Joint Venture acquisition loan arrangement fee - - 4,009
Adjusted Earnings 36,273 36,437 72,399
Number(1) Number(1) Number(1)
Weighted average number of ordinary shares 1,246,239,185 1,241,446,763 1,242,574,505
(1) Based on the weighted average number of ordinary shares in issue
10. Earnings per share (continued)
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
Pence per share Pence per share Pence per share
Basic and Diluted EPS (4.4) (16.3) (11.7)
EPRA adjustments:
Changes in fair value of investment properties and rent guarantees 4.7 20.0 20.6
Changes in fair value of interest rate derivatives measured at fair value 2.6 - (0.8)
through profit and loss
Profit on disposal of interest rate derivatives - - (0.2)
Group share of changes in fair value of joint venture investment properties - (0.9) (0.9)
Group share of gain on disposal of joint venture investment properties - - (1.6)
Finance income received on interest rate derivatives held at fair value (0.8) (0.2) (0.8)
through profit and loss
EPRA EPS 2.1 2.6 4.6
Adjustments for:
Finance income received on interest rate derivatives held at fair value 0.8 0.2 0.8
through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised - 0.1 0.1
arrangement fees
Joint Venture acquisition loan arrangement fee - - 0.3
Adjusted EPS 2.9 2.9 5.8
11. Dividends
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Amounts recognised as a distribution to ordinary Shareholders in the period:
Dividends 37,574 37,038 74,328
On 6 July 2023, the Board declared a fourth interim dividend for the year
ending 30 June 2023 of 1.5 pence per share, which was paid on 4 August 2023 to
shareholders on the register on 14 July 2023.
On 5 October 2023 the Board declared a first interim dividend for the year
ending 30 June 2024 of 1.515 pence per share, which was paid on 16 November
2023 to shareholders on the register on 13 October 2023. The withholding tax
element of the dividend of £2.3 million was settled in January 2024.
On 4 January 2024, the Board declared a second interim dividend for the year
ending 30 June 2024 of 1.515 pence per share, which was paid on 14 February
2024 to shareholders on the register on 12 January 2024. This has not been
included as a liability as at 31 December 2023.
12. Investment Properties
In accordance with IAS 40 'Investment Property', the Group's investment
properties have been independently valued at fair value by Cushman &
Wakefield, an accredited independent valuer with a recognised and relevant
professional qualification and with recent experience in the locations and
categories of the investment properties being valued. The valuations have been
prepared in accordance with the RICS Valuation - Global Standards (the 'Red
Book') and incorporate the recommendations of the International Valuation
Standards Committee which are consistent with the principles set out in IFRS
13.
The independent valuer in forming its opinion on valuation makes a series of
assumptions. All the valuations of the Group's investment property at 31
December 2023 are classified as 'level 3' in the fair value hierarchy defined
in IFRS 13. The valuations are ultimately the responsibility of the Directors.
Accordingly, the critical assumptions used in establishing the independent
valuation are reviewed by the Board.
Freehold Long Leasehold £'000 Total
£'000
£'000
At 1 July 2023 899,440 786,250 1,685,690
Property additions 36,350 - 36,350
Capitalised costs 2,108 38 2,146
Revaluation movement (29,688) (26,588) (56,276)
Valuation at 31 December 2023 908,210 759,700 1,667,910
At 1 July 2022 903,850 657,740 1,561,590
Property additions 131,600 231,030 362,630
Capitalised acquisition costs 4,132 10,549 14,681
Revaluation movement (140,142) (113,069) (253,211)
Valuation at 30 June 2023 899,440 786,250 1,685,690
At 1 July 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
Reconciliation of Investment Property to Independent Property Valuation Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Investment Property at fair value per Group Statement of Financial Position 1,667,910 1,625,100 1,685,690
Market Value of Property classified as Financial Assets held at amortised cost 7,290 7,300 7,210
(Note 16)
Total Independent Property Valuation 1,675,200 1,632,400 1,692,900
Of the seventeen properties held under long leaseholds, the years unexpired on
the headleases are as follows: four properties with between 115 and 155 years,
and thirteen properties with between 967 and 987 years. The Group has no
material liabilities in respect of these headleases.
12. Investment Properties (continued)
Included within the carrying values of investment properties at 31 December
2023 is £9,822,000 (six months to 31 December 2022: £7,468,000, year to 30
June 2023: £8,724,000) in respect of the smoothing of fixed contractual rent
uplifts as described in note 4. The difference between rents on a
straight-line basis and rents receivable is included within the carrying value
of the investment properties but does not increase that carrying value over
fair value.
Included within the carrying values of investment properties at 31 December
2023 is £816,000 (six months to 31 December 2022: £nil, year to 30 June
2023: £251,000) in respect of the lease incentives with tenants in the form
of rent free debtors as described in note 4.
The effect of these adjustments on the revaluation movement for the period is
as follows:
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Revaluation movement per above (56,276) (246,723) (253,211)
Rent smoothing adjustment (note 4) (1,099) (1,256) (2,512)
Lease Incentive adjustment (565) - -
Movements in associated rent guarantees - (85) (343)
Change in fair value recognised in profit or loss (57,940) (248,064) (256,066)
Valuation techniques and key unobservable inputs
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of market value which is
defined in the RICS Valuation Standards as 'the estimated amount for which an
asset or liability should exchange on the date of the valuation between a
willing buyer and a willing seller in an arm's length transaction after proper
marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion'. Market value as defined in the RICS Valuation Standards
is the equivalent of fair value under IFRS.
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.
12. Investment Properties (continued)
Sensitivity analysis - impact of changes in net initial yields and rental
values
Unaudited Unaudited Audited
Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Range of Net Initial Yields 4.6% - 8.1% 4.7% - 7.3% 4.7% - 7.4%
Range of Rental values (passing rents or ERV as relevant) of Group's £0.3m - £5.2m £0.3m - £5.1m £0.3m - £5.1m
Investment Properties
Weighted average of Net Initial Yields 5.8% 5.5% 5.6%
Weighted average of Rental values (passing rents or ERV as relevant) of £2.9m £2.8m £2.8m
Group's Investment Properties
The table below analyses the sensitivity on the fair value of investment
properties for changes in rental values and net initial yields:
+2% -2% +0.5% Net Initial Yield -0.5% Net Initial Yield
Rental value £m Rental value £m £m £m
Increase/(decrease) in the fair value of investment properties as at 31 33.4 (33.4) (132.7) 158.2
December 2023
Increase/(decrease) in the fair value of investment properties as at 31 16.3 (16.3) (137.0) 165.1
December 2022*
Increase/(decrease) in the fair value of investment properties as at 30 June 33.7 (33.7) (139.9) 168.1
2023
*31 December 2022 figures were calculated on +/- 1% rental value.
13. Financial assets held at amortised cost
Unaudited Audited Unaudited
31 December 2023 30 June 2023 31 December 2022
£'000 £'000 £'000
At start of period 10,819 10,626 10,626
Interest income recognised in profit and loss 247 483 241
Lease payments received during the period (145) (290) (144)
At end of period 10,921 10,819 10,723
On 8 June 2022, the Group acquired an Asda store in Carcroft, via a sale and
leaseback transaction for £10.6 million, this has been recognised in the
Statement of Financial Position as a Financial asset in accordance with IFRS
9. The financial asset is measured using the amortised cost model, which
recognises the rental payments as financial income and reductions of the asset
value based on the implicit interest rate in the lease. As at 31 December 2023
the market value of the property was estimated at £7.3 million.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables.
To measure expected credit losses on a collective basis, trade receivables are
grouped based on similar credit risk and ageing. The expected loss rates are
based on the Group's historical credit losses experienced over the period from
incorporation to 31 December 2023. 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.
14. Trade and other receivables
Unaudited Audited Unaudited
31 December 2023 30 June 2023 31 December 2022
£'000 £'000 £'000
Trade and other receivables 6,116 4,723 6,384
Prepayments 1,310 850 1,118
Receivable from joint venture disposal 1,475 136,582 -
Total trade and other receivables 8,901 142,155 7,502
The receivable from joint venture disposal is from March 2023 when the Group
sold its interests in its Joint Venture to Sainsbury's for gross proceeds of
£430.8 million, which was structured in three separate tranches:
· The first tranche of £279.3 million was paid in cash on 17 March 2023
· The second tranche of £116.9 million was paid in cash on 10 July 2023
· The third tranche of £34.7 million was conditional on the sale of the
remaining five stores in the portfolio.
In March 2023 the Group purchased two of the five stores for a gross purchase
price of £25.2 million and received total proceeds from Sainsbury's of £15.0
million.
During the period, the Group purchased two of the remaining three stores in
the portfolio for a gross purchase price of £36.4 million and received
proceeds from Sainsbury's of £18.2 million. It is expected that the one
remaining store will be sold at vacant possession value of which the Group's
portion is currently £1.5 million.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables.
To measure expected credit losses on a collective basis, trade receivables are
grouped based on similar credit risk and ageing. The expected loss rates are
based on the Group's historical credit losses experienced over the period from
incorporation to 31 December 2023. The historical loss rates are then adjusted
for current and forward-looking information on macroeconomic factors affecting
the Group's tenants. 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.
15. Trade and other payables
Unaudited Audited Unaudited
31 December 2023 30 June 2023 31 December 2022
£'000 £'000 £'000
Corporate accruals 16,668 22,469 15,211
VAT payable 4,362 4,510 4,465
Total trade and other payables 21,030 26,979 19,676
16. Interest rate derivatives
Unaudited Audited Unaudited
31 December 2023 30 June 2023 31 December 2022
£'000 £'000 £'000
Non-current asset: Interest rate swaps 10,369 35,601 29,572
Non-current asset: Interest rate cap 3,301 1,597 2,290
Current asset: Interest rate swaps 13,150 16,800 12,699
Current asset: Interest rate cap 544 3,584 2,829
Total 27,364 57,582 47,390
The interest rate cap and interest rate swap is remeasured to fair value by
the counterparty bank on a quarterly basis.
16. Interest rate derivatives (continued)
The fair value at the end of the period comprises: Unaudited Audited Unaudited
31 December 2023 30 June 2023 31 December 2022
At start of the period 57,583 5,114 5,114
Interest rate derivative premium paid on inception 43,708 44,255 41,445
Disposal of interest rate derivatives (40,612) (2,878) -
Changes in fair value of interest rate derivative (22,105) 19,695 3,795
in the year (P&L)
Changes in fair value of interest rate derivative in the year (OCI) (734) 3,111 -
(Credit) to the income statement (P&L) (10,167) (9,671) -
(Credit) to the income statement (OCI) (309) (2,043) (2,964)
As at the end of the period 27,364 57,583 47,390
To partially mitigate the interest rate risk that arises as a result of
entering into the floating rate debt facilities referred to in note 19, the
Group has entered into derivative interest rate swaps and caps.
A summary of these derivatives as at 31 December 2023 is shown in the table
below:
Issuer Derivative Type Notional amount £m Mark to Market 31 December 2023 £m Average Strike Rate Effective Date Maturity Date
Premium Paid £m
BLB Interest Rate Swap £37.3 £1.2 £1.0 2.64% Mar-23 Mar-26
BLB Interest Rate Swap £22.2 £0.7 £0.6 2.64% Mar-23 Mar-26
BLB Interest Rate Swap £27.4 £0.9 £0.7 2.64% Mar-23 Mar-26
Wells Fargo Interest Rate Swap £30.0 £2.2 £1.3 1.23% Sep-23 Jul-25
SMBC Interest Rate Swap £50.0 £3.4 £2.2 1.23% Sep-23 Jul-25
SMBC Interest Rate Swap £67.0 £6.2 £3.6 1.53% Sep-23 Sep-26
Barclays Interest Rate Cap £96.6 £2.9 £2.0 1.40% Aug-24 Jul-25
Wells Fargo Interest Rate Swap £204.3 £21.4 £11.4 1.78% Sep-23 Jul-27
Wells Fargo Interest Rate Swap £50.0 £4.5 £2.7 1.50% Sep-23 Jul-26
SMBC Interest Rate Cap £96.6 £1.4 £0.8 1.40% Jul-25 Jan-26
SMBC Interest Rate Cap £30.0 £0.4 £0.3 1.40% Jul-25 Jan-26
SMBC Interest Rate Cap £50.0 £0.8 £0.5 1.40% Jul-25 Jan-26
SMBC Interest Rate Cap £3.0 £0.4 £0.3 1.00% Nov-23 Jun-27
Total £764.4 £46.4 £27.4 - - -
100% of the Group's outstanding debt as at 31 December 2023 was hedged through
the use of fixed rate debt or financial instruments as at 31 December 2023 (30
June 2023: 100%). It is the Group's target to hedge at least 50% of the
Group's total debt at any time using fixed rate loans or interest rate
derivatives.
16. Interest rate derivatives (continued)
During the period, the Group extended the maturity of the interest rate
derivatives by 12 months. The weighted average interest rate following the
derivative changes is 3.1% inclusive of the margin. The Group also entered
into forward starting caps effective in August 2024 and July 2025 and
terminating in July 2025 and January 2026 with a strike rate of 1.4% versus
SONIA.
In accordance with the Group's treasury risk policy, the Group applies cash
flow hedge accounting in partially hedging the interest rate risks arising on
its Wells Fargo variable rate linked facility. Since the changes to the
interest rate derivatives in the period the Group no longer applies hedge
accounting to the newly acquired swaps including the derivative linked to the
Wells Fargo variable facility. Changes in the fair values of derivatives that
were designated as cash flow hedges and were effective, were recognised
directly in the cash flow hedge reserve and included in other comprehensive
income. On derecognition of hedge accounting, the cash flow hedge reserve is
recycled to the profit and loss over the remaining term of the Wells Fargo
facility.
The derivatives have been valued in accordance with IFRS 13 by reference to
interbank bid market rates as at the close of business on the last working day
prior to each balance sheet date. The fair values are calculated using the
present values of future cash flows, based on market forecasts of interest
rates and adjusted for the credit risk of the counterparties. The amounts and
timing of future cash flows are projected on the basis of the contractual
terms.
All interest rate derivatives are classified as level 2 in the fair value
hierarchy as defined under IFRS 13 and there were no transfers to or from
other levels of the fair value hierarchy during the year.
17. Bank borrowings
Amounts falling due within one year: Unaudited Audited Unaudited
31 December 2023 30 June 2023 31 December 2022
£'000 £'000 £'000
Secured debt 96,560 - 59,408
Unsecured debt - 62,090 -
Less: Unamortised finance costs (194) (234) (85)
96,366 61,856 59,323
Amounts falling due after more than one year:
Secured debt 116,903 291,551 250,555
Unsecured debt 374,299 318,508 380,597
Less: Unamortised finance costs (3,675) (4,450) (5,033)
487,527 605,609 626,119
Bank borrowing per consolidated statement of financial position
583,893 667,465 685,442
17. Bank borrowings (continued)
A summary of the Group's borrowing facilities as at 31 December 2023 are shown
below:
Lender Facility Expiry(19) Credit Variable/ hedged Loan Amount drawn
Margin commitment 31 December 2023
£m £m
Expiry
HSBC Revolving credit facility Sep 2026 Sep 2028 1.7% SONIA £50.0 -
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% £29.0 £29.0
Deka Term Loan Aug 2024 Aug 2026 1.40% 0.32% £20.0 £20.0
BLB Term Loan Mar 2026 Mar 2026 1.65% SWAP - 2.64% £86.9 £86.9
Wells Fargo Revolving credit facility Jul 2025 Jul 2027 2.00% SWAP - 1.23% £30.0 £30.0
Wells Fargo Revolving credit facility Jul 2025 Jul 2027 2.00% SONIA £9.0 -
Syndicate Revolving credit facility Jul 2027 Jul 2029 1.50% SWAP - 1.78% £250.0 £207.3
Syndicate Term Loan Jul 2025 Jul 2026 1.50% SWAP - 1.23% £50.0 £50.0
Syndicate Term Loan Jul 2026 Jul 2027 1.50% SWAP - 1.50% £50.0 £50.0
SMBC Term Loan Sep 2026 Sept 2028 1.40% SWAP - 1.53% £67.0 £67.0
Total £689.5 £587.8
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.
18. Share capital
Six months to 31 December 2023 (unaudited) Ordinary shares Share Share Capital Total
of 1 pence capital premium reduction £'000
Number £'000 reserve reserve
£'000 £'000
As at 1 July 2023 1,246,239,185 12,462 500,386 704,531 1,217,379
Dividends paid in the period - - - (37,574) (37,574)
As at 31 December 2023 1,246,239,185 12,462 500,386 666,957 1,179,805
Year to 30 June 2023 (audited)
As at 1 July 2022 1,239,868,420 12,399 494,174 778,859 1,285,432
Scrip dividends issued and fully paid- 22 August 2022 1,898,161 19 2,316 - 2,335
Scrip dividends issued and fully paid 866,474 9 869 - 878
- 16 November 2022
Scrip dividends issued and fully paid 729,198 7 721 - 728
- 23 February 2023
Scrip dividends issued and fully paid 2,876,932 28 2,395 - 2,423
- 26 May 2023
Share issue costs - - (89) - (89)
Dividend paid in the period (74,328) (74,328)
As at 30 June 2023 1,246,239,185 12,462 500,386 704,531 1,217,379
Six months to 31 December 2022 (unaudited)
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)
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
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 2023 total was 1.246 billion.
19. Cash flow hedge reserve
Unaudited Audited Unaudited
Six months to Year to Six months to
31 December 2023 30 June 2023 31 December 2022
£'000 £'000 £'000
At start of the period 3,304 5,114 5,114
Recycled comprehensive loss to profit and loss (432) - -
Cash flow hedge reserve taken to profit or loss for - (2,878)) -
the period on disposal of interest rate derivatives
Fair value movement of interest rate derivatives in effective hedges (611) 1,068 1,780
At the end of the period 2,261 3,304 6,894
During the period, a previously hedge accounted derivative in relation to the
Wells Fargo facility was terminated. The residual balance of the derivative is
recycled to the income statement over the remaining period of the Wells Fargo
loan.
20. Capital commitments
The Group had no capital commitments outstanding as at 31 December 2023 (30
June 2023: none; 31 December 2022: none).
21. 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. Sapna Shah is paid an additional £5,000
for her role as Chair of Management Engagement 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 2023 were as follows:
· Nick Hewson: 1,263,309 shares (0.1% of issued share capital)
· Jon Austen: 305,339 shares (0.02% of issued share capital)
· Vince Prior: 213,432 shares (0.02% of issued share capital)
· Cathryn Vanderspar: 125,802 shares (0.01% of issued share capital)
· Frances Davies: 36,774 (0.00% of issued share capital)
· Sapna Shah: 28,951 (0.00% of issued share capital)
b. Investment Adviser
Investment advisory and accounting fees
The investment adviser to the Group, Atrato Capital Limited, is entitled to
certain advisory fees under the terms of the Investment Advisory Agreement
(the "Agreement") dated 14 July 2021.
21. Transactions with related parties (continued)
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).
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 2023 the total advisory fees payable to the
Investment Adviser were £4,829,236
(six months to December 2022: £5,355,138; year to 30 June 2023: £10,292,302)
of which £1,859,105 (30 June 2023: £1,845,144; 31 December 2022:
£1,970,754) 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: £54,107; plus (i) £4,386 for any
indirect subsidiary of the Company and (ii) £1,702 for each direct subsidiary
of the Company.
For the period to 31 December 2023 the total accounting and administration
service fee payable to the Investment Adviser was £160,124 (six months to 31
December 2022: £149,548, year to 30 June 2023: £297,475) of which £80,353
(six months to December 2022: £78,322; year to 30 June 2023: £83,614) 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 2023 the total introducer fees payable to the
affiliate of the Investment Adviser were £Nil (six months to 31 December
2022: £Nil; year to 30 June 2023: £Nil)
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 2023
were as follows:
· Ben Green: 1,939,534 shares (0.15% of issued share capital)
· Steve Windsor: 1,698,928 shares (0.14% of issued share capital)
· Steven Noble: 232,255 shares (0.02% of issued share capital)
· Natalie Markham: 62,679 (0.01% of issued share capital)
22. 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 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Net assets per the consolidated statement of financial position 1,124,889 1,197,756 1,217,726
Fair value adjustment for financial assets at amortised cost (3,631) (3,423) (3,609)
Fair value of interest rate derivatives (27,364) (47,389) (57,583)
EPRA NTA 1,093,894 1,146,944 1,156,534
Ordinary shares in issue 1,246,239,185 1,242,633,055 1,246,239,185
NAV per share - Basic and diluted (pence) 90p 96p 98p
EPRA NTA per share (pence) 88p 92p 93p
23. Subsequent events
On 4 January 2024, the Board declared a second interim dividend for the year
ending 30 June 2024 of 1.515 pence per share, which was paid on 14 February
2024 to shareholders on the register on 12 January 2024. This has not been
included as a liability as at 31 December 2023.
Notes to EPRA and other Key Performance Indicators
This appendix does not form part of the notes to the condensed set of
consolidated financial statements.
1. EPRA Earnings and Adjusted Earnings per Share
EPRA EPS is a measure of EPS designed by EPRA to present underlying earnings
from core operating activities. Adjusted earnings is EPRA earnings adjusted
for company specific items to reflect the underlying profitability of the
business.
As at As at As at
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
(Loss) attributable to ordinary Shareholders (55,263) (200,830) (143,798)
Adjustments to remove:
Changes in fair value of interest rate derivatives (OCI) 1,043 (1,780) (1,068)
Changes in fair value of interest rate derivatives measured at FVTPL 32,272 950 (10,024)
Changes in fair value of investment properties and associated rent guarantees 57,940 248,064 256,066
Group share of changes in fair value of joint venture investment properties - (11,485) (11,486)
Finance income received on interest rate derivatives held at fair value (10,167) (2,085) (9,671)
through profit and loss
Profit on disposal of interest rate derivatives - - (2,878)
Profit on disposal of groups interest in joint venture - - (19,940)
EPRA Earnings 25,825 32,834 57,201
EPRA EPS 2.1p 2.6p 4.6p
Finance income received on interest rate derivatives held at fair value 10,167 2,085 9,671
through profit and loss
Joint Venture acquisition loan arrangement fee - - 4,009
One-off restructuring costs in relation to the acceleration of unamortised 281 1,518 1,518
arrangement fees
Adjusted Earnings 36,273 36,437 72,399
Weighted average number of ordinary shares₁ 1,246,239,185 1,241,446,763 1,242,574,505
Adjusted EPS 2.9p 2.9p 5.8p
(1) Based on the weighted average number of ordinary shares in issue for the
six months to 31 December 2023.
Notes to EPRA and other Key Performance Indicators 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 2023 EPRA NTA EPRA NRV EPRA NDV
£'000 £'000 £'000
IFRS NAV attributable to ordinary shareholders 1,124,889 1,124,889 1,124,889
Fair value of interest rate derivatives (27,364) (27,364) -
Fair value of financial assets held at amortised cost (3,631) (3,631) (3,631)
Purchasers' costs - 113,418 -
Fair value of debt - - 1,538
EPRA metric 1,093,894 1,207,312 1,122,796
EPRA metric per share 88p 97p 90p
30 June 2023
IFRS NAV attributable to ordinary shareholders 1,217,726 1,217,726 1,217,726
Fair value of interest rate derivatives (57,583) (57,583) -
Fair value of financial assets held at amortised cost (3,609) (3,609) (3,609)
Purchasers' costs - 122,990 -
Fair value of debt - - 4,876
EPRA metric 1,156,534 1,279,524 1,218,993
EPRA metric per share 93p 103p 98p
31 December 2022 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)
Purchasers' costs - 119,102 -
Fair value of debt - - 5,768
EPRA metric 1,146,944 1,266,046 1,200,101
EPRA metric per share 92p 102p 97p
Notes to EPRA and other Key Performance Indicators continued
3. EPRA Net Initial Yield (NIY) and EPRA "topped up" NIY
Annualised rental income based on the cash rents passing at the balance sheet
date, less non-recoverable property operating expenses, divided by the market
value of the property, increased with (estimated) purchasers' costs.
As at As at As at
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Investment Property - wholly owned (note 12) 1,667,910 1,625,100 1,685,690
Investment Property - share of joint ventures - 281,533 -
Completed Property Portfolio 1,667,910 1,906,633 1,685,690
Allowance for estimated purchasers' costs 113,418 139,111 122,990
Grossed up completed property portfolio valuation (B) 1,781,328 2,045,744 1,808,680
Annualised passing rental income - wholly owned 104,201 95,157 99,910
Annualised passing rental income - share of joint venture - 13,695 -
Annualised non-recoverable property outgoings (897) (952) (1,117)
Annualised net rents (A) 103,304 107,900 98,793
Rent expiration of rent-free periods and fixed uplifts 233 82 447
Topped up annualised net rents (C) 103,537 107,982 99,240
EPRA NIY (A/B) 5.80% 5.27% 5.46%
EPRA "topped up" NIY (C/B) 5.81% 5.28% 5.49%
All rent free periods expire within the year to 31 December 2024
4. EPRA Vacancy Rate
As at As at As at
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Estimated rental value of vacant space 648 451 439
Estimated rental value of the whole portfolio 105,371 95,239 100,797
EPRA Vacancy Rate 0.6% 0.5% 0.4%
The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space
as a proportion of the total rental value of the 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 continued
5. EPRA Cost Ratio
Administrative & operating costs (both including and excluding costs of
direct vacancy) divided by gross rental income.
As at As at As at
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Administration expenses per IFRS 7,608 7,894 15,429
Service charge income (3,309) (2,884) (5,939)
Service charge costs 3,672 3,153 6,518
Net Service charge costs 363 269 579
Share of joint venture expenses - 903 938
Total costs (including direct vacant property 7,971 9,066 16,946
costs) (A)
Vacant property costs (85) (125) (328)
Total costs (excluding direct vacant property 7,886 8,941 16,618
costs) (B)
Gross rental income per IFRS 52,924 46,162 95,823
Less: service charge components of gross rental income - - -
Add: Share of Gross rental income from Joint Ventures - 8,108 13,529
Gross rental income (C) 52,924 54,270 109,352
EPRA Cost ratio (including direct vacant property costs) (A/C) 15.06% 16.71% 15.50%
EPRA Cost ratio (excluding vacant property 14.90% 16.48% 15.20%
costs) (B/C)
1. Property operating expenses are net of costs capitalised in accordance with
IFRS of £0.1 million (2022: £nil). Capitalised costs relate to development
expenditure on the property portfolio.
Notes to EPRA and other Key Performance Indicators continued
6. EPRA LTV
Net debt divided by total property portfolio and other eligible assets.
As at As at As at
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Group Net Debt
Borrowings from financial institutions 583,893 685,442 667,465
Net payables 34,481 33,345 -
Less: Cash and cash equivalents (37,068) (35,380) (37,481)
Group Net Debt Total (A) 581,306 683,407 629,984
Group Property Value
Investment properties at fair value 1,667,910 1,625,100 1,685,690
Intangibles - - -
Net receivables - - 93,620
Financial assets 10,921 10,723 10,819
Total Group Property Value (B) 1,678,831 1,635,823 1,790,129
Group LTV (A-B) 34.63% 41.78% 35.19%
Share of Joint Ventures Debt
Bond loans - 85,420 -
Net payables - 6,302 -
JV Net Debt Total (A) - 91,722 -
Group Property Value - -
Owner-occupied property - - -
Investment properties at fair value - 291,070 -
Total JV Property Value (B) - 291,070 -
JV LTV (A-B) 0.00% 31.51% 0.00%
Combined Net Debt (A) 581,306 775,129 629,984
Combined Property Value (B) 1,678,831 1,926,893 1,790,129
Combined LTV (A-B) 34.63% 40.23% 35.19%
7. EPRA Like-for-Like Rental Growth
Changes in net rental income for those properties held for the duration of
both the current and comparative reporting period.
Sector Six months to Six months to Like-for-Like rental growth
31 December 2023 31 December 2022 %
£'000 £'000
UK 40,786 39,793 2.5%
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 £1.3 bn (31 December 2022: £1.4 bn).
Notes to EPRA and other Key Performance Indicators continued
8. EPRA Property Related Capital Expenditure
Amounts spent for the purchase and development of investment properties
(including any capitalised transaction costs).
As at As at As at
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Group
Acquisitions 38,391 310,223 377,311
Development 110 - -
Investment properties - - -
Group Total CapEx 38,501 310,223 377,311
Joint Venture
Acquisitions - - -
Development - - -
Investment properties - - -
Joint Venture Total CapEx - - -
Total CapEx 38,501 310,223 377,311
Acquisitions relate to purchase of investment properties in the year and
includes capitalised acquisition costs. Development relates to capitalised
costs in relation to development expenditure on the property portfolio.
9. Total Shareholder Return
Total Shareholder Return ("TSR") is measured by reference to the growth in the
Group's share price over a period, plus dividends declared for that period.
Total Shareholder Return Six months to Six months to Year to
31 December 2023 31 December 2022 30 June 2023
Pence per share Pence per share Pence per share
Share price at start of the period / year 73.00 119.5 119.50
Share price at the end of the period / year 86.90 102.5 73.00
(Decrease)/Increase in share price 13.90 (17.0) (46.50)
Dividends declared for the year 3.03 3.0 6.00
(Decrease)/Increase in share price plus dividends 16.93 (14.0) (40.50)
Share price at start of period 73.00 119.5 119.50
Total Shareholder Return 23% (12%) (34%)
10. Net loan to value ratio
The proportion of our gross asset value that is funded by borrowings
calculated as statement of financial position borrowings less cash balances
divided by total investment properties valuation.
Net loan to value As at As at As at
31 December 2023 31 December 2022 30 June 2023
£'000 £'000 £'000
Bank borrowings 583,893 685,442 667,465
Less cash and cash equivalents (37,068) (35,380) (37,481)
Net borrowings 546,825 650,062 629,984
Investment properties valuation 1,667,910 1,625,100 1,685,690
Net loan to value ratio 33% 40% 37%
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 (Chair of Management Engagement Committee)
Company Secretary Hanway Advisory Limited
1 King William Street
London
EC4N 7AF
Registrar Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
AIFM JTC Global AIFM Solutions Limited
Ground Floor
Dorey Court
Admiral Park
St Peter Port
Guernsey
Channel Islands
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 1 King William Street
London
EC4N 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
unaudited supplementary information
2 (#_ftnref2) Operating profit before changes in fair value of properties
and share of income and profit on disposal from joint venture
3 (#_ftnref3) Adjusted Earnings and Adjusted EPS are calculated as EPRA
Earnings and EPRA EPS adjusted for finance income from derivatives held at
fair value through profit and loss, loan arrangement fee for Joint Venture
acquisition and non-recurring debt restructuring costs. For further
information please see the Key Performance Indicators and EPRA Performance
Indicators sections
4 (#_ftnref4) Calculated as Adjusted Earnings divided by dividends paid
during the period
5 Kantar: 6 months year on year growth from June to December 2023
6 (#_ftnref6) IGD UK grocery market 2024 forecast
7 (#_ftnref7) Knight Frank, Savills, MSCI, Atrato Capital research. Year
ended 31 December 2023
( 8 (#_ftnref8) ) 77% of the Group's income is from Tesco and Sainsbury's.
Sale and market share based on Kantar for the period June 2023 to December
2023
( 9 (#_ftnref9) ) Sainsbury's Interim Results 2023/24 and Tesco Interim
Results 2023/24. Calculated as an average of like-for-like sales growth from
"Supermarkets" (Sainsbury's) and "Large" (Tesco) stores
10 (#_ftnref10) Kantar: 6 months year on year growth from June to December
2023
11 (#_ftnref11) 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%.
12 (#_ftnref12) Kantar: 6 months year on year growth from June to December
2023
13 (#_ftnref13) IGD UK grocery market 2024 forecast
14 (#_ftnref14) Tesco Interim Results 2023/24
15 (#_ftnref15) Sainsbury's Interim Results 2023/24
16 (#_ftnref16) IGD channel data 2017 to 2022 actuals, 2023 forecast
17 (#_ftnref17) Knight Frank, Savills, MSCI, Atrato Capital research. Year
ending 31 December 2023
18 (#_ftnref18) Excluding acquisition costs.
19 (#_ftnref19) Including uncommitted extension options.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR GPUQUWUPCPWPRecent news on Supermarket Income REIT
See all newsREG - Supermarket Inc REIT - Dividend Declaration
AnnouncementREG - Supermarket Inc REIT - Debt Refinancing Update
AnnouncementREG - Supermarket Inc REIT - Director/PDMR Shareholding
AnnouncementREG - Supermarket Inc REIT - Acquisition of a Tesco store and amendments to IAA
AnnouncementREG - Supermarket Inc REIT - Director/PDMR Shareholding
Announcement