TRADITIONAL
IN-STORE
CLICK & COLLECT
AT STORE
HOME DELIVERY
FROM STORE
INVESTING IN THE FUTURE MODEL OF UK GROCERY
ANNUAL REPORT AND ACCOUNTS 2018
STRATEGIC REPORT | W HO WE ARE
Supermarket Income REIT plc (LSE: SUPR) is a real estate
investment trust dedicated to investing in supermarket
property forming a key part of the future model of UK grocery.
We provide investors with long dated, secure, inflation-linked
income with capital appreciation potential over the longer term.
We invest in the future model of UK grocery – omnichannel supermarkets:
TRADITIONAL
IN-STORE
CLICK & COLLECT
AT STORE
HOME DELIVERY
FROM STORE
With highly attractive lease terms:
LONG
LEASE
LENGTHS
INFLATION
LINKED
RENT
REVIEWS
STRONG
TENANT
COVENANTS
19 YEARS AVERAGE
UNEXPIRED LEASE TERM
UPWARD-ONLY RPI-
LINKED RENT REVIEWS
MORRISONS, TESCO AND
SAINSBURY’S
Providing regular, sustainable, inflation-linked income and targeting strong total
shareholder returns:
5.5
PENCE
4.1%
8.0%
TOTAL DIVIDEND
DECLARED
TOTAL PORTFOLIO
VALUE GROWTH1
1 Excluding acquisition costs
TOTAL SHAREHOLDER
RETURN
CONTENTS
STRATEGIC REPORT
1 Highlights
2 Chairman’s Statement
4 Our Achievements
5 Our Portfolio
7
9
15 Our Market
18 Our Principal Risks
Omnichannel supermarkets
Investment Adviser’s Report
CORPORATE GOVERNANCE
22 Board of Directors
23 Investment Adviser
24 Corporate Governance
Statement
28 Audit Committee Report
32 Directors’ Report
35 Directors’ Remuneration
Report
FINANCIAL STATEMENTS
39 Independent Auditors’ Report
44 Consolidated Statements
48 Notes to the Consolidated
Financial Statements
66 Company Statements
68 Notes to the Company
Financial Statements
70 Unaudited Supplementary
37 Directors’ Responsibilities
Information
Statement
38 Alternative Investment Fund
Manager’s Report
74 Glossary
75 Contacts and Company Details
2 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | H IGHLIGHTS
• IPO in July 2017 raised gross proceeds of £100 million at an issue price of
100 pence per ordinary share. Shares were admitted to trading on the London
Stock Exchange on 21 July 2017.
• Two follow-on equity fundraisings in November 2017 and May 2018, raised an
additional £85 million in total gross proceeds, both oversubscribed.
• Following the IPO and each subsequent fundraisings, the Company was able to
fully deploy the proceeds including leverage within six weeks.
• During the Period, the Company acquired five supermarket assets in the UK that
operate as both physical supermarkets and as online fulfilment centres.
• The investment properties benefit from highly attractive terms:
– 19 years weighted average unexpired lease term
– strong tenant covenants of Tesco and Sainsbury’s
– upward-only, RPI-linked rent reviews
– annualised rental income of £13.7 million in the financial period
– average rental increases of 3.6% for the Period since acquisition
– all assets acquired off market
• Investment properties independently valued on 30 June 2018 at £264.9 million,
representing an increase of 4.1% above the aggregate acquisition price
(excluding acquisition costs) generating 4.9% weighted average net initial yield.
• Net loan to value ratio of 32.4%, with a cost of debt of 2.4%, as at 30 June 2018.
• Four quarterly dividends declared for the Period totalled 5.5 pence per ordinary
share, achieving our IPO target.
• Total shareholder return for the Period was 8.0%.
• EPRA Net Asset Value per ordinary share of 96 pence as at 30 June 2018.
POST BALANCE SHEET EVENT S
• Acquisition of a sixth supermarket, a Morrisons store in Sheffield, for £51.7 million
(net of acquisition costs), reflecting a net initial yield of 4.9%.
• £52 million debt facility provided by Bayerische Landesbank, fixed at 2.55% for
the five-year term of the facility.
• Increased dividend target for the FY 2018/19 to 5.63 pence per share.
• For the period September to December 2018 and thereafter, an increase in the
quarterly dividend of 3.2% to 1.419 pence per share.
A N N U A L R E P O RT 2 0 1 8 1
STRATEGIC REPORT | CH AIRMA N ’S STATEMENT
“ We have rapidly built our portfolio of
supermarket property assets, precisely
in line with the business plan outlined
at IPO.”
NI C K HEWSO N
Chairman
I am pleased to present the Group’s results from
incorporation on 1 June 2017 to 30 June 2018
(“the Period”).
Overview
We invest in the future model of grocery in the UK.
We have acquired a high quality portfolio of
omnichannel supermarkets which operate both as
physical supermarkets and as online fulfilment centres.
Financial results
The Group’s investment properties were independently
valued on 30 June 2018 at £264.9 million, representing
an increase of 4.1% above the aggregate acquisition
price (excluding acquisition costs).
This valuation growth, in the short period since the
acquisition of the Portfolio, highlights our success
in sourcing deals at favourable prices.
Our Portfolio is let on fully repairing and insuring
lease terms, with upward-only, RPI-linked rent
reviews, generating an annualised passing rent roll
of £13.7 million with a current weighted average
unexpired lease term of 19 years.
Our high quality portfolio produces attractive inflation
linked income for shareholders together with the
potential for long term capital returns. Supermarket
Income REIT is committed to providing investors with
stable, long-term inflation protected income, supported
by a compelling real estate and pricing opportunity.
Following our £100 million IPO in July 2017
(the “IPO”) our Investment Adviser, Atrato Capital
Limited, expeditiously invested the proceeds in three
supermarkets let on long leases to Tesco and Sainsbury’s.
The number of attractive opportunities available to
us was such that we performed two further equity
issuances, in November 2017 and May 2018, raising
an additional £85 million in total gross proceeds.
We are pleased that our shareholders recognised the
attractiveness of our proposition, resulting in both
fundraisings being oversubscribed.
In the 12 months since the IPO, we have built a portfolio
of five omnichannel supermarkets, deploying the
proceeds from the equity issues within four weeks.
Rental increases were an average of 3.6% in the Period.
All our properties have contractual, upward-only,
inflation-linked, rental uplifts.
The high degree of certainty of income inherent in the
Group’s long leases, combined with the improving
financial performance of the supermarket operators,
gives the Board confidence that further valuation growth
can be achieved in the future. The Group’s EPRA NAV
at 30 June 2018 equates to 96 pence per ordinary share.
Our EPRA earnings for the Period were £4.7 million,
generating earnings per share for the Period of
3.8 pence. The Group has a highly transparent and
low cost base. The adjusted EPRA cost ratio (excluding
non-recurring establishment costs) of 20% compares
favourably with many of our peers.
Dividends
One of our core objectives is to deliver a high-quality,
low-risk income stream to shareholders. We declared
four quarterly interim dividends totalling 5.5 pence per
share for the Period, fully achieving the objectives we
set out at the time of our July 2017 IPO.
For the period from September to December 2018, we
are targeting a 3.2% increase in the quarterly dividend,
resulting in a dividend target of 5.63 pence per share for
the 2018/19 financial year.
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Debt Financing
As of 30 June 2018, we have drawn down debt facilities
totalling £88.8 million, with a further £12.2 million of
facilities undrawn at the period end. We have broadened
our banking arrangements during the second half of
the calendar year, adding Bayerische Landesbank to
our banking relationship alongside HSBC (see Post
balance sheet events).
The Company has also arranged a new five-year, interest-
only loan facility with Bayerische Landesbank. The £52.1
million facility has a margin of 1.25% above three-
month LIBOR and is secured against the new Morrisons
supermarket in Sheffield and the Sainsbury’s supermarket
in Ashford. This new facility was hedged using an interest
rate swap, thus fixing the Company’s cost of debt at 2.55%
on this borrowing for the term of the facility.
The average unexpired term of our borrowing is
4.2 years (including the two, one-year extension
options on the HSBC facility.)
Our favourably priced debt facilities reflect the quality of
the Portfolio and strength of the tenant covenants. As at
30 June 2018, the Group’s net loan-to-value (LTV) ratio
was 32.4%. The Group will target an LTV ratio of 30-40%
in the medium term once the portfolio growth phase is
complete, which the Board considers conservative, given
the low-risk nature of the Portfolio.
Hedging and loan interest
Managing risk is essential to delivering the quality of
income we are targeting for our shareholders. We have,
therefore, entered into an interest rate cap derivative
to partially hedge our interest rate exposure on the debt
facilities we had drawn by the Period end.
Post balance sheet events
On 19 July 2018, we completed the acquisition of our
sixth supermarket asset, a Morrisons store in Sheffield,
for £51.7 million (net of acquisition costs), reflecting a
net initial yield of 4.9%.
Outlook
During the Period we have demonstrated our ability
to source high quality investments and to buy them at
favourable prices. We are very pleased to have delivered
a total shareholder return of 8% in our first year.
We remain confident of delivering strong returns for
our shareholders through a stable and growing income
stream with the potential for capital appreciation.
The Board and the Investment Manager continue to
see multiple opportunities in the market which meet
the Company’s investment objectives whilst potentially
adding further geographical, covenant and income
diversification to the portfolio. These opportunities are
still at an early stage and remain subject to the Investment
Adviser’s and Company’s stringent due diligence
procedures as well as agreement around key terms
including pricing. If these opportunities reach a more
advanced stage, the Board will consider possible ways
to fund these accretive purchases including raising new
equity pursuant to its existing share issuance programme.
Nick Hewson
Chairman
4 September 2018
A N N U A L R E P O RT 2 0 1 8 3
STRATEGIC REPORT | OU R A CH I E V E MENTS
Since our IPO in July 2017, we have achieved our investment
aims and secured the support of our shareholders through
further equity fundraisings. Set out below is a summary of
our achievements during the Period.
2017
JULY
• The Company’s IPO
raises £100 million
gross proceeds
AUGUST
• Acquisition of a Tesco
superstore in Thetford,
Norfolk, for £43.2 million
• Acquisition of a Tesco
superstore, in Lime Trees
Road, Bristol, for
£28.5 million
• Secured a Revolving
Credit Facility of
£100 million from HSBC
SEPTEMBER
• Acquisition of a
Sainsbury’s superstore
in Ashford, Kent, for
£79.8 million
• Declared first interim
dividend of 1.375 pence
per Ordinary Share
NOVEMBER
• Oversubscribed placing
of 20 million new
Ordinary Shares at an
issue price of 100 pence
per share
DECEMBER
• Acquisition of a Tesco
Extra in Cumbernauld,
North Lanarkshire,
for £50.0 million
2018
FEBRUARY
JULY*
• Declared second interim
dividend of 1.375 pence
per Ordinary Share
• Declared fourth interim
dividend of 1.375 pence
per Ordinary Share
• Secured a 5-year term
Credit Facility of £52.1
million from Bayerische
Landesbank
• Acquisition of a
Morrisons supermarket
in Hillsborough, Sheffield
for £51.7 million
* Post balance sheet events
APRIL
• Declared third interim
dividend of 1.375 pence
per Ordinary Share
MAY
• Oversubscribed placing
of 65 million new
Ordinary Shares at
an issue price of
101 pence per share
• Acquisition of a Tesco
Extra in Scunthorpe,
North Lincolnshire,
for £53.0 million
4 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | OU R PORTF OLIO
ASSET THREE:
TESCO,
CUMBERNAULD
PURCHASE PRICE:
£50.0m
PASSING RENT:
£2.94m
UNEXPIRED LEASE TERM:
22.2yrs
ASSET TWO:
TESCO,
BRISTOL
PURCHASE PRICE:
£28.5m
PASSING RENT:
£1.53m
UNEXPIRED LEASE TERM:
12.7yrs
ASSET FIVE:
MORRISONS,
SHEFFIELD*
PURCHASE PRICE:
£51.7m
PASSING NOTIONAL RENT:
£2.70m
UNEXPIRED LEASE TERM:
21.0yrs
ASSET FOUR:
TESCO,
SCUNTHORPE
PURCHASE PRICE:
£53.0m
PASSING RENT:
£2.88m
UNEXPIRED LEASE TERM:
22.2yrs
ASSET SIX:
TESCO,
THETFORD
PURCHASE PRICE:
£43.2m
PASSING RENT:
£2.56m
UNEXPIRED LEASE TERM:
11.5yrs
*Asset acquired post
balance sheet
A N N U A L R E P O RT 2 0 1 8 5
ASSET ONE:
SAINSBURY’S,
ASHFORD
PURCHASE PRICE:
£79.8m
PASSING RENT:
£3.82m
UNEXPIRED LEASE TERM:
20.2yrs
ASSET ONE:
SAINSBURY’S, ASHFORD
This 17 acre site is ideally
located to serve the
ever growing Ashford
population, located in
close proximity to the
town centre and directly
adjacent to the M20 and
a major leisure park. This
store plays an important
role in Sainsbury’s online
fulfilment network in the
South East. The store has
benefited from significant
capital investment with
Sainsbury’s undertaking
a major extension and
refurbishment of the
entire site in 2011.
PURCHASE PRICE:
£79.8m
ACQUISITION DATE:
August 2017
PASSING RENT:
£3.82m
RENT REVIEW BASIS:
Annual RPI uplift
NEXT RENT REVIEW:
September 2018
RENT REVIEW COLLAR:
3% cap, 1% floor
LEASE EXPIRY:
September 2038
SIZE:
125,000 sq ft
6 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | O MNI CH AN NEL SUPERMARK ET S
The omnichannel supermarket
OMNICHANNEL
SUPERMARKET
TRADITIONAL
IN-STORE
HOME DELIVERY
FROM STORE
CONSUMERS
Omnichannel Supermarkets
CLICK & COLLECT
AT STORE
We invest in the future model of UK grocery
We target future-proofed supermarkets known as
omnichannel supermarkets. These supermarkets
operate as both physical stores and online fulfilment
centres and represent one of the most attractive asset
classes within the real estate sector.
Consumer preference for convenience, fresh produce
and product assortment, together with operator need
to optimise online delivery logistics, has resulted in
large omnichannel supermarket properties being highly
favoured by the operators.
In the 18 years since Tesco introduced the UK’s first
nationwide online grocery platform in 2000, UK grocers
have pioneered the development of this omnichannel
business model which seamlessly integrates both
in-store and online demand across the UK creating
world-leading last-mile grocery fulfilment platform.
This omnichannel model has also created an appealing
new class of investment property. This new type of
property has become the nucleus for last-mile grocery
fulfilment, integrating online with traditional in-store sales.
These omnichannel supermarkets have characteristics
not evident in other forms of real estate, namely:
• modern flexible buildings adapted to operate both in-store
and online operations, accommodating multiple loading
bays, refrigeration units and home delivery vehicles
• strategically located close to major road networks,
allowing efficient goods inward stocking and
distribution of home deliveries
The UK online grocery market is growing strongly. In
2017, online grocery sales accounted for 6% of the £185
billion UK grocery market, resulting in the UK becoming
the world’s most advanced online grocery market. IGD
forecasts online to become the fastest-growing segment
of all UK grocery channels, with latest figures predicting
growth of more than 70% between 2017 and 2023, to
£17 billion. By 2023 online grocery sales are forecast to
account for 8% of total grocery sales.
Consumer trends for ultra-convenience shopping also
favour omnichannel supermarkets. In July 2017, Tesco
launched same-day delivery across 99% of the UK. In
August 2017, Sainsbury’s announced a 30-minute click-
and-collect service.
The success of the omnichannel grocery model has
resulted in pure-play online retailers following the UK
grocers’ model and adopting the omnichannel format.
Examples of this trend are Amazon’s purchase of Whole
Foods in the US and Alibaba’s Hema store network in
China, which it plans to expand by 2,000 sites over the
next five years.
Although large online-only grocery warehouses (known
as “dark stores” or “Customer Fulfilment Centres”) will
continue to play an important role in optimising online
fulfilment in high population density cities, such as
London, their prohibitive capital cost, combined with the
need for a distribution network closer to the consumer,
means that operators are increasingly focused on
omnichannel stores.
• situated in population centres close to consumers,
simplifying downstream, last-mile, online delivery logistics
• large floor areas, capable of housing a full range of fresh
groceries and providing scale economies for the operator
As a result, both pure-play online and traditional
bricks-and-mortar retailers are increasingly relying on
supermarket real estate, generating significant scope
for rental and valuation growth in the longer term.
A N N U A L R E P O RT 2 0 1 8 7
ASSET TWO:
TESCO, BRISTOL
The property is situated
within the Henleaze
suburb of Bristol and has
a long history of strong
trading performance.
This suburban store
is located in close
proximity to central
Bristol and facilitates
online fulfilment via
click and collect. This
sizable suburban
site has significant
potential for future asset
management.
PURCHASE PRICE:
£28.5m
ACQUISITION DATE:
August 2017
PASSING RENT:
£1.53m
RENT REVIEW BASIS:
Annual RPI uplift
NEXT RENT REVIEW:
March 2019
RENT REVIEW COLLAR:
4% cap, 0% floor
LEASE EXPIRY:
March 2031
SIZE:
55,000 sq ft
8 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | INVESTM E N T ADVISE R’S REPORT
Investment Adviser’s Report
Atrato Capital Limited is the Investment Adviser to
Supermarket Income REIT plc and is pleased to report
on the operations of the Group for the Period.
Overview
The Company’s investment policy is to invest in stores
which deliver the future model of grocery in the UK.
As grocery retailers are increasingly adopting a strategy
of integrating online and offline shopping, with all of
the major operators now utilising well-located stores as
last-mile fulfilment centres, the Group predominantly
acquires stores that operate both as physical
supermarkets and online fulfilment centres, via
home delivery and/or click and collect, with the
following characteristics:
• located in areas with large catchment populations
and excellent transportation links
• strong underlying trading performance
• long unexpired lease terms with index-linked
rental uplifts
• attractive property fundamentals with opportunities
for active asset management.
To date, the Group has invested in a portfolio of
principally freehold and long leasehold properties let to
Tesco and Sainsbury’s, and since the balance sheet date,
Morrisons. All our properties benefit from long dated
leases with contractual RPI-linked rental increases.
Investment activity
The Group acquired five omnichannel supermarket
assets between the IPO in July 2017 and 30 June 2018,
which comprise the properties in the table below.
These are high-quality supermarket properties, which
operate both as physical stores and online fulfilment
centres. Each property is located on a large site with the
potential for income and capital growth opportunities.
The Portfolio benefits from highly attractive leases
to strong tenant covenants (Tesco, Sainsbury’s and
Morrisons post 30 June), with upward-only, RPI-linked
rent reviews and long unexpired lease terms (weighted
average 18.7 years)
The properties in the table below are listed
chronologically in order of acquisition. Acquisitions
after the Period end date are described in the post
balance sheet event note below.
Portfolio valuation
Cushman & Wakefield valued the Portfolio at 30 June
2018, in accordance with the RICS Valuation Professional
Standards July 2017. The properties were valued
individually without premium/discount applying to the
Portfolio as a whole. The Portfolio market value was
£264.9 million, compared with the assets’ combined
purchase price of £254.5 million excluding purchase
Portfolio Summary
Tenant
Location
Acquisition date
Purchase price
Valuation at 30 June 2018
Passing annual rent
Size (sq ft)
Tesco
Thetford,
Norwich
Tesco
Sainsbury’s
Tesco
Tesco
Lime Trees,
Bristol
Ashford,
Kent
Cumbernauld,
N Lanarkshire
Gallagher
Retail Park,
Scunthorpe
August 2017
August 2017
August 2017
December 2017
May 2018
£43.2m
£43.8m
£2.56m
78,000
£28.5m
£29.1m
£1.53m
55,000
£79.8m
£83.4m
£3.82m
125,000
£50.0m
£54.5m
£2.94m
117,000
£53.0m
£54.1m
£2.88m
98,000
Rent review basis
Annual RPI
Annual RPI
Annual RPI
Annual RPI
Annual RPI
Lease expiry
Tenure
Dec ‘29
Mar ‘31
Sep ‘38
Aug ‘40
Aug ‘40
Virtual freehold
Virtual freehold
Freehold
Virtual freehold
Virtual freehold
A N N U A L R E P O RT 2 0 1 8 9
ASSET THREE:
TESCO, CUMBERNAULD
The store has an
impressive trading
record on site and plays
an important role in
Tesco’s Scottish online
fulfilment network.
It occupies a town centre
location equidistant
from Glasgow and
Sterling, which benefits
from a low site cover
ratio of 25%. This store
fulfils both online home
delivery and click
and collect.
PURCHASE PRICE:
£50.0m
PASSING RENT:
£2.94m
RENT REVIEW BASIS:
Annual RPI uplift
NEXT RENT REVIEW:
March 2019
ACQUISITION DATE:
December 2017
RENT REVIEW COLLAR:
5% cap, 0% floor
LEASE EXPIRY:
August 2040
SIZE:
117,000 sq ft
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STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
costs. This represents an increase of £10.4 million or
4.1%, above the aggregate acquisition price (excluding
acquisition costs).
This valuation growth in the short period since
acquisition of the Portfolio reflects: (i) the supermarket
operators entering a period of recovery and improving
their covenant strength as tenants; (ii) favourable supply
and demand characteristics in the investment market;
and (iii) the off-market nature of all of the Group’s
acquisitions.
With contracted rents increasing on average by 3.6% in
the Period and the high degree of certainty of income
inherent in the Group’s long leases, the Investment
Adviser believes further valuation growth will be
achieved in the future.
Financial results
EPRA earnings for the Period were £4.7 million.
The driver of this operating performance was strong
rental income.
Contracted annual rent reviews in the Period resulted in
rental increases of an average of 3.6%. Administrative
and other expenses were £2.1 million, which comprised
£0.3 million of non-recurring costs relating to the
establishment of the Group and £1.8 million of costs
relating to the management of the Group during the
Period. When adjusted for non-recurring costs, our
adjusted EPRA cost ratio was 20%, which compares
favourably with our peers.
Change in fair values of investment properties in
the Period was a deficit of £4.1m, which comprises
£14.1 million acquisition costs offset via a £10.4 million
increase in valuation. The Group’s EPRA NAV at
30 June 2018 equates to 96 pence per ordinary share.
The total IFRS profit before tax for the Period was
£0.8 million. The Group entered the UK Real Estate
Investment Trust (”REIT”) regime on 21 December
2017. Post entry, the REIT regime exempts profits of the
Group’s property rental business from UK corporation
tax. In the intervening period from the incorporation of
the Company on 1 June 2017 to 21 December 2017 the
Group was subject to UK corporation tax on its property
rental business at an effective rate of 19%, resulting in a
non-recurring £0.2 million tax charge.
Total shareholder return generated during the Period
was 8%. This is measured as the growth in share price
over the Period, plus dividends declared for the Period
ending 30 June 2018.
Financing and hedging
On 30 August 2017, the Group secured a revolving credit
facility of £100 million from HSBC. The credit facility has
an opening margin of 160 basis points over three-month
Libor, which is equivalent to a total cost of debt of 2.4%
for the Period.
Total net debt as at 30 June 2018 is £85.8 million,
reflecting a net loan-to-value “(LTV)” ratio of 32.4%.
The Group’s medium-term target is an LTV ratio of
30%-40% of the Portfolio’s valuation.
Each loan drawn under the credit facility requires
interest payments only until maturity and is secured
against both the subject property and the shares of the
property-owning entity. Each property-owning entity
is either directly or ultimately owned by the Company.
The Group has negotiated significant headroom on
its LTV covenants. The covenants contain a 60% LTV
threshold and 200% interest cover ratio for each asset in
the Portfolio. As at 30 June 2018, the Group could afford
to suffer a fall in property values of 30% before being
in breach of its LTV covenants and, with the current
hedging arrangements it has in place, it has significant
interest cover headroom.
In July 2018, the Investment Adviser successfully
broadened the Group’s debt funding relationships,
adding Bayerische Landesbank as a lender in addition
to HSBC (see Post Balance Sheet Events).
The Group has designed its debt strategy to minimise
the effect of a significant rise in underlying interest rates
through the use of an interest rate cap derivative. During
the Period the Group purchased a £63.5 million notional
cap on three-month Libor for the initial term of the
HSBC facility. The cap strike rate is 1.75%. The Group
is, therefore, exposed to increases in three-month Libor
up to 1.75%. If three-month Libor rises above 1.75% the
Group’s cost of debt is effectively fixed at 3.35% on the
hedged notional amount.
A N N U A L R E P O RT 2 0 1 8 11
ASSET FOUR:
TESCO, SCUNTHORPE
The store is strategically
located to support online
fulfilment given the
excellent motorway and
road connections with
multiple dedicated online
fulfilment distribution
docks the store plays an
important role in Tesco’s
online fulfilment network.
The store has a strong
trading record on site
and is situated adjacent
to the Lincolnshire Lakes
development, which will
consist of more than
6,000 new homes. This
store fulfils both online
home delivery and click
and collect.
PURCHASE PRICE:
£53.0m
ACQUISITION DATE:
May 2018
PASSING RENT:
£2.88m
RENT REVIEW BASIS:
Annual RPI uplift
NEXT RENT REVIEW:
March 2019
RENT REVIEW COLLAR:
5% cap, 0% floor
LEASE EXPIRY:
August 2040
SIZE:
98,000 sq ft
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STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
Post balance sheet events
On 19 July 2018, the Group completed the acquisition
of its sixth supermarket asset, a Morrisons store, in
Sheffield for £51.7 million (net of acquisition costs),
reflecting a net initial yield of 4.9%.
The Company has also arranged a new five-year,
interest-only loan facility with Bayerische Landesbank.
The £52.1 million facility has a margin of 125 basis
points above three-month LIBOR and is secured against
the new Morrisons supermarket in Sheffield and the
Sainsbury’s supermarket in Ashford. This new facility
was hedged using an interest rate swap, thus fixing the
Company’s cost of debt at 2.55% on this borrowing for
the term of the facility.
Atrato Capital Limited
Investment Adviser
4 September 2018
Dividends
The Company has declared four interim dividends
for the Period as follows:
• On 28 September 2017, a first interim dividend
of 1.375 pence per share, which was paid on
27 October 2017.
• On 5 February 2018, a second interim dividend
of 1.375 pence per share, which was paid on
3 March 2018.
• On 16 April 2018, a third interim dividend of 1.375
pence per share, which was paid on 21 May 2018.
• On 18 July 2018, a fourth interim dividend of 1.375
pence per share, which was paid on 21 August 2018.
In line with its objective at IPO, the Company has
declared an annualised dividend of 5.5 pence per
Ordinary Share.
The Company intends to target an increase of 3.2%
in the quarterly dividend in relation to the period
30 September to 31 December 2018 to 1.419 pence
(representing an increase by the latest published RPI).
The Company intends to target a quarterly dividend
of 1.375 pence payable for the period 30 June to 30
September 2018 and is expected to be declared in
October. As such the Company is targeting a dividend
for the year to 30 June 2019 of 5.63 pence per share.
Asset management
The Investment Adviser is engaged in detailed
discussions with the operators of a number of the
Company’s sites on asset management initiatives linked
to the following activities:
• The repurposing of space allowing operators to
maximise the value of their building and potentially
increase underlying footfall or revenues per square
foot by adding new customer offerings or facilities in
or around the site.
• Investing in green energy efficiency schemes, such as
energy efficient lighting, solar panelling and combined
heat and power.
Further details will be published in due course.
A N N U A L R E P O RT 2 0 1 8 1 3
ASSET FIVE:
MORRISONS, SHEFFIELD
The Morrisons store
occupies a town centre
location situated in the
historic and prominent
Hillsborough Barracks
site. The store has
benefited from significant
capital investment, has a
history of strong trading
performance and is
ideally placed to serve the
wider Hillsborough area.
PURCHASE PRICE:
£51.7m
ACQUISITION DATE:
July 2018
PASSING NOTIONAL RENT:
£2.70m
RENT REVIEW BASIS:
5 years RPI uplift
NEXT RENT REVIEW:
October 2019
RENT REVIEW COLLAR:
4% cap, 0% floor
LEASE EXPIRY:
October 2039
SIZE:
113,000 sq ft
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STRATEGIC REPORT | OU R MARK ET
Our market
Supermarket real estate assets represent an attractive
asset class for investors seeking long dated, secure,
inflation-linked income with capital appreciation
potential over the longer term.
The UK grocery market
UK consumer spending on grocery products has grown
year-on-year since 1999. According to forecasts by IGD
Retail Analysis, total spending will continue to increase by
a further 15% over the next five years from £190 billion in
2018 to £219 billion by 2023. Tesco, Asda, Sainsbury’s and
Morrisons (the ‘‘Big Four’’) have a combined market share
of approximately 70% and together operate more than
9,000 stores in the UK. Each of the Big Four have multi-
billion-pound revenues, an established consumer brand
and strong credit covenants.
Although dominated by a few players, the market is
dynamic and highly competitive and has fragmented
over the last 15 years, with lower-price operators (the
‘‘Discounters’’), led by Aldi and Lidl, experiencing strong
sales growth. The Discounters continue to expand their
presence by adding new stores and competing on price.
This has resulted in them successfully gaining market
share principally from the smaller independent operators.
One of the many reasons that the Big Four have been
able to protect their market share has been due to the
nature of their underlying store portfolio. The larger
operators benefitted from a first mover advantage and
benefit from the largest sites in the best locations. As sales
channels continue to evolve, however, the larger stores
remain the bedrock of the operators’ business models.
According to IGD Retail Analysis research, hypermarket
and supermarket stores generate more than 55% of
sales in the UK, followed by convenience stores at 21%.
This trend is not expected to change over the next five
years. Discounters are expected to continue to grow and
ultimately define their own distinct sales channel with the
discount channel representing approximately 15% of the
total market by 2023.
Supermarket property
Lease structures
Supermarket lease agreements are often long dated and
index-linked. Original lease tenures range from 20 to
30 years without break options. Rent reviews link the
growth in rents to an inflation index such as RPI, RPIX
or CPI (with caps and floors), or, alternatively, may have
a fixed annual growth rate. Such rent reviews take place
either annually or every five years, with the rent review
delivering an increase in the rent at the growth rate,
compounded over the period.
Landlords often benefit from “full repairing and insuring
leases”. These are lease agreements whereby the tenant
is obligated to pay all taxes, building insurance, other
outgoings and repair and maintenance costs on the
property, in addition to the rent and service charge.
Under such a lease, the tenant is responsible for all
costs associated with the repair and maintenance of
the building.
Operators will typically have the option to acquire the
leased property at the lease maturity date at market value.
Furthermore, to ensure that the operator does not transfer
its lease obligation to other parties, assignment of the
lease is usually prohibited.
Investment yields
Supermarket property has a long record of positive total
returns underpinned by strong income returns due in part
to the long length of lease commitments, upward-only
rent review growth and strong occupier covenants.
Investment yields on supermarket property have
consistently been lower than UK all-property yields and
reached a low of 4.3% in 2007. However, since 2013, the
market dynamics have changed: in contrast to most other
long-income property yields, the supermarket sector has
experienced a negative yield shift with yields increasing
by 20% from March 2007 to 5.2% as at June 2018.
Supermarket yields have now been trading at higher
yields than UK all-property since 2015. Over the last
five years the distribution warehouse subsector of the
property market has seen a significant improvement
in yields. Distribution warehouses are fundamentally
performing a different role to supermarkets in the supply
chain. However, the Investment Adviser believes there
are certain similarities in areas such as online sales, with
supermarkets often fulfilling online deliveries out of their
larger omnichannel stores. Despite these similarities, there
has been a significant difference in how the underlying
property yields of the two sectors have performed.
The grocery sector is now entering a period of increased
stability. Competitive intensity is still high among
operators, but multiple datapoints during 2017/18 suggest
growth has returned to the UK grocery sector together
with a more constructive margin environment.
In this current climate, the Investment Adviser believes
that secure, long income supermarket property leases
with index-linked rent can be acquired at attractive
investment yields.
A N N U A L R E P O RT 2 0 1 8 1 5
ASSET SIX:
TESCO, THETFORD
The property has a long
history of strong trading
and is situated directly
adjacent to a major
residential development.
The Crown Estate
has final planning
consent to build 5,000
homes and associated
infrastructure right
next to this store,
which will re-position
this Tesco store in
the centre of the
significantly enlarged
town of Thetford. This
store fulfils both online
home delivery and
click and collect.
PURCHASE PRICE:
£43.8m
PASSING RENT:
£2.56m
RENT REVIEW BASIS:
Annual RPI uplift
NEXT RENT REVIEW:
December 2018
ACQUISITION DATE:
August 2017
RENT REVIEW COLLAR:
4% cap, 0% floor
LEASE EXPIRY:
December 2029
SIZE:
78,000 sq ft
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1 6 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | OUR MARKET CON TI N UE D
Inflation protection
The Investment Adviser believes that, currently, real
estate markets are undervaluing the inflation protection
characteristics embedded in supermarket leases when
compared to other comparable inflation-linked products,
such as UK index-linked gilts. UK index-linked gilts have
traded at negative real yields since 2013.
Opportunities for asset management
In addition to current rental yields, supermarket
property also has potential for asset management upside
opportunities to enhance total shareholder returns.
These multiple asset management opportunities can
be categorised into two distinct segments:
Light asset management
Light asset management typically involves small-scale
changes and improvements to a building which require
limited additional capital and/or planning approvals.
Examples include investing in green energy efficiency
schemes, such as energy efficient lighting, solar panelling,
battery capture and storage and combined heat and
power. These types of schemes may provide incremental
additional returns for investors on a risk-adjusted basis,
but, importantly, can also assist the underlying operator
in meeting certain strategic objectives in areas such as
sustainability targets.
Repurposing space
The repurposing of space allows operators to maximise
the value of their building and, potentially, increase
underlying footfall or revenues per square foot by adding
new customer offerings or facilities in or around the store.
Repurposing space typically requires an increased level of
interaction with the operator and an element of planning
approval. However, the primary use of the majority of the
asset is not expected to change. Examples include adding
restaurants, cafes and drive-through facilities on excess
car parking or adapting some of the existing store for
alternative use such as click-and-collect facilities.
The Company will engage and work closely with its
tenants on all available asset management opportunities
with a view to enhancing long-term shareholder returns
by increasing cash yields from light asset management
and repurposing, and, where appropriate over the longer
term, releasing development profit opportunities from
heavy asset management.
Supply and demand
After a period of heavy expansion in store numbers since
2000, the Big Four have substantially completed their
store expansion plans and are now in a consolidation
phase. Few new large properties are being developed
by the operators and the strategic focus has generally
shifted from creating new assets to increasing efficiencies
on the supply side, meeting customer concerns with an
improved shopping experience and further diversification
in brands, merchandise and sales channels.
The effect of this shift in strategic focus has been an end
to sale-and-leaseback transactions involving the Big Four,
and, therefore, a decline in the number of assets being
offered to the investment market. 2016 was the first year
in which operators produced no new sale-and-leaseback
supply since the early 2000s. Indeed, in a reversal of
recent trends, Tesco has now become a net buyer of stores,
spending around £1.5 billion on store buybacks since 2015.
The Investment Adviser believes that operator buybacks
will continue to be a key theme in the investment market,
as changes to accounting rules through IFRS 16 mean
that reducing existing lease commitments will be an
increasingly attractive way for the operators to strengthen
their underlying balance sheet. IFRS 16 effectively requires
all rental obligations to be capitalised on a balance sheet
as a financing liability and then expensed as a finance cost
rather than rental expense in the income statement.
Demand for supermarket assets has been growing.
According to Colliers International, more than £1.4 billion
of secondary market transactions took place in 2017, an
increase of 18% on 2016. Other than the transactions
carried out by the Company, the majority of this activity
arose from operators seeking to buy back stores and
overseas investors who appear to have taken advantage
of the decline in sterling exchange rates and attractive
asset pricing.
The Investment Adviser believes that the reduced supply
of new stock from operators combined with a growing
demand for supermarket assets will generate favourable
future supply and demand dynamics and therefore
trigger a long-term compression in yields closer to those
for all property, with a corresponding increase in asset
market values.
A N N U A L R E P O RT 2 0 1 8 1 7
STRATEGIC REPORT | OU R PRIN CI PA L RISKS
Our Principal Risks
The Board of the Company and JTC Global AIFM
Solution Limited, the Company’s Alternative
Investment Fund Manager (the “AIFM”), together
have joint overall responsibility for the Company’s
risk management and internal controls, with the Audit
Committee reviewing the effectiveness of the Board’s
risk management processes on its behalf.
We aim to operate in a low-risk environment, focusing
on a single sector of the UK real estate market. The
Board and the AIFM therefore recognise that effective
risk management is key to the Group’s success.
Risk management ensures a defined approach to
decision-making that seeks to decrease the uncertainty
surrounding anticipated outcomes, balanced against
the objective of creating value for shareholders.
There are a number of potential risks and uncertainties
which could have a material impact on the Group’s
performance over the forthcoming financial year and
could cause actual results to differ materially from
expected and historical results.
Principal risks
The list below outlines the key risk factors identified
but does not purport to be exhaustive as there may be
additional risks that materialise over time that the Group
and the AIFM have not yet identified or have deemed
not likely to have a potentially material adverse effect
on the Group.
Property risk
1.1 The lower-than-expected performance of the Portfolio
could reduce property valuations and/or revenue, thereby
affecting our ability to pay dividends or lead to a breach
of our banking covenants.
Impact
An adverse change in our property valuations may lead
to breach of our banking covenants. Market conditions
may also reduce the revenues we earn from our property
assets, which may affect our ability to pay dividends to
shareholders. A severe fall in values may result in us
selling assets to repay our loan commitments, resulting
in a fall in our net asset value.
Mitigation
Our property portfolio is 100% let with long unexpired
weighted average lease terms and an institutional-grade
tenant base. All the leases contain upward-only rent
reviews which are inflation linked. These factors help
maintain our asset values.
We manage our activities to operate within our banking
covenants and constantly monitor our covenant
headroom on loan to value and interest cover.
1.2 Our ability to source assets may be affected by
competition for investment properties in the supermarket
sector.
Impact
The Company faces competition from other property
investors. Competitors may have greater financial
resources than the Company and a greater ability
to borrow funds to acquire properties.
Mitigation
The Investment Adviser has extensive contacts in
the sector and we often benefit from off-market
transactions. They also maintain close relationships
with a number of investors and agents in the sector,
giving us the best possible opportunity to secure future
acquisitions for the Group.
We are not exclusively reliant on acquisitions to grow the
portfolio. Our leases contain upward-only rent review
clauses, which mean we can generate additional income
and value from the current portfolio. We also have the
potential to add value through asset management and
we are actively exploring opportunities for all our sites.
1.3 The default of one or more of our lessees would reduce
revenue and may affect our ability to pay dividends.
Impact
Our focus on supermarket property means we directly
rely on the performance of UK supermarket operators.
Insolvencies could affect our revenues earned and
property valuations.
1 8 S U P E R M A R K E T I N C O M E R E I T P L C
Mitigation
Our investment policy requires the Group to derive at
least 60% of its rental income from a portfolio let to the
largest four supermarket operators in the UK by market
share. Focusing our investments on assets let to tenants
with strong financial covenants and limiting exposure to
smaller operators in the sector decreases the probability
of a tenant default.
Before investing, we undertake a thorough due diligence
process with emphasis on the strength of the underlying
covenant and receive a recommendation on any
proposed investment from the AIFM. All our leases
are either guaranteed by the parent company in the
operator group or are a direct obligation of the main
UK operating entity of the operator group.
We select assets that have strong property fundamentals
(good location, large sites with low site cover) and which
should be attractive to other occupiers or have strong
alternative use value should the current occupier fail.
Financial risk
2.1 Our use of floating rate debt will expose the business to
underlying interest rate movements.
Impact
Interest on our debt facility is payable based on a margin
over Libor. Any adverse movements in Libor could
significantly impair our profitability and ability to pay
dividends to shareholders.
Mitigation
We have entered into interest rate derivative contracts
to partially mitigate our direct exposure to movements
in Libor, by capping our exposure to Libor increases.
We aim to prudently hedge our Libor exposure, by
utilising hedging instruments with a view to keeping
the overall exposure at an acceptable level.
2.2 A lack of debt funding at appropriate rates may restrict
our ability to grow.
Impact
Without sufficient debt funding we may be unable to
pursue suitable investment opportunities in line with
our investment objectives. If we cannot source debt
funding at appropriate rates, this will impair our ability
to maintain our targeted level of dividend.
Mitigation
Before we contractually commit to buying an asset,
we enter discussions with our lenders to get outline
heads of terms on debt financing, which ensures that
we can borrow against the asset and maintain our
borrowing policy.
The Board keeps our liquidity and gearing levels under
review. We have recently broadened our lender base,
entering banking facilities with a new lender. This has
created new banking relationships for us with the aim
of keeping lending terms as competitive as possible.
Supermarket property should remain popular with
lenders, owing to long leases and letting to single
tenants with strong financial covenants.
2.3 We must be able to operate within our banking covenants.
Impact
If we were unable to operate within our banking
covenants, this could lead to default and our bank
funding being recalled.
Mitigation
We and the AIFM continually monitor our banking
covenant compliance to ensure we have sufficient
headroom and to give us early warning of any issues
that may arise. We will enter into interest rate caps and
swaps to mitigate the risk of interest rate rises and also
invest in assets let to institutional grade covenants.
Corporate risk
3.1 There can be no guarantee that we will achieve our
investment objectives.
Impact
Our investment objectives include achieving the
dividend and total returns targets. The amount of any
dividends paid or total return we achieve will depend,
among other things, on successfully pursuing our
investment policy and the performance of our assets.
Future dividends are subject to the Board’s discretion
and will depend, among other things, on our earnings,
financial position, cash requirements, level and rate of
borrowings, and available profit.
A N N U A L R E P O RT 2 0 1 8 1 9
STRATEGIC REPORT | OUR PRINCIPAL RISKS C ON TI NUED
Mitigation
At 30 June 2018, we had acquired five supermarket
assets that meet our investment criteria. The Investment
Adviser’s significant experience in the sector should
continue to provide us with access to assets that meet
out investment criteria going forward.
Rental income from our current portfolio, coupled with our
hedging policy, supports the current 5.5 pence per share
dividend target. Movement in capital value is subject to
market yield movements and the ability of the Investment
Adviser to execute asset management strategies.
3.2 We are reliant on the continuance of the
Investment Adviser.
Impact
We rely on the Investment Adviser’s services and
reputation to execute our investment strategy.
Our performance will depend to some extent on
the Investment Adviser’s ability and the retention
of its key staff.
Mitigation
Unless there is a default, either party may terminate
the Investment Advisory Agreement by giving not
less than 12 months’ written notice, which may not be
given before the fifth anniversary of the IPO. The Board
regularly reviews and monitors the performance of the
Investment Adviser.
The interests of the Company and the Investment Adviser
are aligned due to (a) key staff of the Investment Adviser
having significant personal equity investments in the
Company and (b) any fees paid to the Investment Adviser
in shares of the Company are to be held for a minimum
period of 12 months. The Board can pay up to 25% of the
Investment Adviser fee in shares of the Company.
In addition, the Board meets regularly with the
Investment Adviser to ensure we maintain a positive
working relationship and the AIFM receives and reviews
regular reporting from the Investment Adviser and
reports on to the Company’s Board on the Investment
Adviser’s performance. The AIFM also reviews and
makes recommendation to the Company’s Board on
any proposed investments or significant asset
management initiatives.
Taxation risk
4.1 We operate as a UK REIT and have a tax-efficient
corporate structure, with advantageous consequences for
UK shareholders. Any change to our tax status or in UK tax
legislation could affect our ability to achieve our investment
objectives and provide favourable returns to shareholders.
Impact
If the Company fails to remain a REIT for UK tax
purposes, our profits and gains will be subject to UK
corporation tax.
Mitigation
The Board takes direct responsibility for ensuring we
adhere to the UK REIT regime, by monitoring the REIT
compliance. The Board has also engaged third-party tax
advisers to help monitor REIT compliance requirements
and the AIFM also monitors compliance by the
Company with the REIT regime.
Political risks
5.1 Vote to leave the European Union (“Brexit”).
Impact
The vote in June 2016 to leave the European Union
has resulted in political and economic uncertainty that
could have a negative effect on the performance of
the Group. Until the terms of the settlement with the
European Union become clearer the exact outcome on
the business is difficult to predict at this early stage.
Mitigation
The Group operates with a focus on the UK supermarket
sector. It is currently well positioned with long-term
secure leases to institutional-grade tenants with strong
balance sheets and well placed to withstand any
downturn in the UK economy.
Market Price Risk
6.1 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.
Impact
Although the Company’s Ordinary Shares have to date
traded in a relatively narrow range closely related to
the price at which they were issued, this is largely a
function of supply and demand for the Ordinary Shares
in the market and cannot therefore be controlled by the
Board. Shareholders who wish to sell their Ordinary
Shares may be obliged to sell their Ordinary Shares at a
significant discount or may not be able to sell them at all.
2 0 S U P E R M A R K E T I N C O M E R E I T P L C
Mitigation
The Company may seek to address any significant
discount to NAV at which its Ordinary Shares may
be trading by purchasing its own Ordinary Shares in
the market on an ad hoc basis. The Directors have the
authority to make market purchases of up to 14.99%. of
the Ordinary Shares in issue as at IPO. Ordinary Shares
will be repurchased only at prices below the prevailing
NAV per Ordinary Share, which should have the effect
of increasing the NAV per Ordinary Share for remaining
Shareholders. It is intended that a renewal of the
authority to make market purchases will be sought
from Shareholders at each annual general meeting of
the Company. Purchases of Ordinary Shares will be
made within guidelines established from time to time
by the Board.
Investors should note that the repurchase of Ordinary
Shares is entirely at the discretion of the Board and
no expectation or reliance should be placed on such
discretion being exercised on any one or more occasions
or as to the proportion of Ordinary Shares that may be
repurchased.
Going concern
The Board regularly monitors the Group’s ability to
continue as a going concern. Included in the information
reviewed at quarterly Board meetings are summaries
of the Group’s liquidity position, compliance with loan
covenants and the financial strength of its tenants.
Based on this information, the Directors are satisfied
that the Group and Company are able to continue in
business for the foreseeable future and therefore have
adopted the going concern basis in the preparation of
this financial statement.
Viability statement
The Board has assessed the prospects of the Group over
the five years from the balance sheet date to 30 June
2023, which is the period covered by the Group’s longer-
term financial projections. The Board considers the
resilience of projected liquidity, as well as compliance
with secured debt covenants and UK REIT rules, under
a range of RPI and property valuation assumptions.
The principal risks and the key assumptions that were
relevant to this assessment are as follows:
Risk
Assumption
Tenant risk
Tenants (or guarantors where relevant)
continue to comply with their rental obligations
over the term of their leases and do not suffer
any insolvency events over the term of the
review.
Borrowing risk The Group continues to comply with all
relevant loan covenants. The Group is able to
refinance the £100 million RCF falling due in
August 2020 on acceptable terms.
Liquidity risk
The Group continues to generate sufficient
cash to cover its costs while retaining the
ability to make distributions.
Based on the work performed, the Board has a
reasonable expectation that the Group will be able
to continue in business over the five-year period of
its assessment.
Other disclosures
Disclosure in relation to the Company’s business model
and strategy have been included within the Investment
Adviser’s report on page 9. Disclosures in relation to the
main industry trends and factors that are likely to affect
the future performance and position of the business
have been included within Our Market on page 15.
Disclosures in relation to environmental matters,
employees, social and human rights issues, employee
diversity have not been included as the Directors do
not consider these to be relevant to the company.
Key Performance Indicators (KPIs)
The KPIs used by the Group in assessing its strategic
progress have been included within the supplementary
information on page 70.
The Strategic Report, which comprises the Chairman’s
Statement, Achievements in Brief, Our Portfolio,
Investment Adviser’s Report, Our Market and Our
Principal Risks section in the Annual Report was signed
on behalf of the Board on 4 September 2018
Nick Hewson
Chairman
4 September 2018
A N N U A L R E P O RT 2 0 1 8 2 1
CORPORATE GOVERNANCE | BOA RD O F DIREC TORS
DI RE C TORS
NI C K HEWSO N
Chairman
Nick Hewson was co-founder,
CEO and chairman of Grantchester
Holdings plc, where he worked from
1990 until 2012. Nick currently serves
as a non-executive director and chair
of the audit committee at Redrow
plc, a FTSE 250 company and one
of the UK’s leading housebuilders.
Prior to this, Nick was chair of the
executive committee of Pradera AM
plc, a European retail property fund
management business. Nick was also
a founding partner of City Centre
Partners LP.
VINCE PRIOR
Senior Independent Director
Vince Prior joined Sainsbury’s
Property Investment team in 2008
and was subsequently appointed as
Head of Property Investment. Over
a five-year period to 2014, the value
of Sainsbury’s property portfolio
grew from £7.5 billion to £12 billion.
Before joining Sainsbury’s Vince was
the head of Retail Advisory Services
at Jones Lang LaSalle (“JLL”) and
provided strategic advice to a range
of high-profile supermarket and retail
operators. Vince started his career
working for Tesco where he helped
to set up their store location team.
JON AUSTEN
Chair of Audit Committee
Jon Austen is chief financial officer at
Audley Court Limited, which develops
retirement villages in the UK. Jon is
also a non-executive director of McKay
Securities plc, which specialises in
office and industrial property. Prior
to Audley Court, Jon was group
finance director at Urban&Civic Plc.
Jon has also held senior finance roles
at London and Edinburgh Trust plc,
Pricoa Property plc and Goodman
Limited. Jon is a fellow of the Institute
of Chartered Accountants of England
and Wales.
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I NV ESTMENT ADVISER
B EN GR EEN
Ben has over 20 years of experience
structuring and executing real estate
transactions and has completed
£4 billion of supermarket sale and
leasebacks over the course of his
career. Ben qualified as a lawyer in
1997 and worked at Wilde Sapte and
Linklaters LLP. He left law in 2000 and
has since spent his career at Barclays,
Lloyds and Goldman Sachs where
he was a Managing Director and
European Head of Structured Finance.
STEVE WINDSOR
Steve spent 16 years at Goldman
Sachs specialising in finance and risk
management. Steve became a partner
at Goldman Sachs in 2008 and headed
Goldman Sachs’ European, Middle
East and African Debt Capital Markets
and Risk Management businesses
from 2010 until 2016. Steve has helped
and advised a number of FTSE 100
companies on how to finance their
business and manage risk. Steve was
a member of the Goldman Sachs
Investment Banking Risk Committee.
STEVEN NOBLE
Steven spent nine years at Lloyds in
origination and risk management
with focus on commercial real estate.
Steven has negotiated and executed
over £350 million of supermarket
property transactions. Prior to Lloyds,
Steven was at KPMG where he
qualified as a chartered accountant.
Steven is a fellow of the Institute
of Chartered Accountants Ireland
and holds the Chartered Financial
Analyst designation.
CHRISTOPHER FEARON
Christopher provides research analysis
on potential acquisitions and asset
management initiatives. Christopher
has several years’ experience working
for multi-sector asset managers and
holds an MSc in Real Estate from
CASS Business School.
NATALIE MARK HAM
Natalie was previously chief financial
officer at Macquarie Global Property
Advisors Europe. Natalie was also
amember of the MGPA European
management team and a director
of the MGPA European advisory
business. Natalie was involved in the
development of business strategy,
financial planning and responsible
for all aspects of the financial
management of the business. Natalie
qualified as a chartered accountant in
2000 and is a fellow of the Institute
of Chartered Accountants of England
and Wales.
A N N U A L R E P O RT 2 0 1 8 2 3
CORPORATE GOVERNANCE | COR POR ATE GOVERNANC E STATEMENT
Corporate Governance Statement
Governance Codes
The Board has considered the principles and
recommendations of the AIC code of Corporate
Governance (“AIC Code”) by reference to the AIC
Corporate Governance Guide (“AIC Guide”). The AIC
Code as explained by the AIC Guide, addresses all the
principles set out in the UK Corporate Governance
Code as well as setting out additional principles and
recommendations on issues that are of specific relevance
to the Company and Group.
The Board considers that reporting against the principles
and recommendations of the AIC Code, and by reference
to the AIC Guide (which incorporates the UK Corporate
Governance Code), will provide better information to
shareholders.
Throughout the period, the Company has complied with
the recommendations of the AIC Code and the relevant
provisions of the UK Corporate Governance Code as set
out below.
The UK Corporate Governance Code includes
provisions relating to:
• the role of the Chief Executive
• Executive Directors’ renumeration
• the need for an internal audit function.
For the reasons set out in the AIC Guide, and as
explained in the UK Corporate Governance Code,
the Board considers these provisions are not relevant
to Supermarket Income REIT plc, being an externally
managed investment company. In particular, all of the
Company’s day-to-day management and administrative
functions are outsourced to third parties. As a result,
the Company has no executive Directors, employees
or internal operations. The Company has therefore not
reported further in respect of these provisions.
AIC Code Principle
Evidence of compliance/explanation of departure from the AIC Code
1
2
3
4
5
The Chairman should be independent.
The Chairman, Nick Hewson, was independent on appointment.
A majority of the Board should be
independent of the Investment Manager
and of the Investment Adviser.
Directors should be submitted for
re-election at regular intervals.
Nomination for re-election should not
be assumed but be based on disclosed
procedures and continued satisfactory
performance.
The Board should have a policy on tenure,
which is disclosed in the annual report.
During the period under review the Board consisted solely of Non-Executive
Directors with Nick Hewson as Chairman. All of the Directors are
considered by the Board to be independent of the Alternative
Investment Fund Manager (“AIFM” or “Investment Manager”) and of
Atrato Capital Limited (“Investment Adviser”). As such they are considered
to be free from any business or other relationships that could interfere
with the exercise of their judgements.
The Directors are required to submit themselves for re-election at least
every three years. In addition, the Board has agreed that any Director with
more than nine years’ service will be required to stand for re-election at
each Annual General Meeting.
The Board's policy on tenure is that continuity and experience are
considered to add significantly to the strength of the Board and, as such,
there is no limit on the overall length of service of any of the Directors.
The Board does not believe that length of service on a wholly non-executive
Board has a bearing on independence. An individual Director's experience
and continuity of Board membership can significantly enhance the
effectiveness of the Board as a whole.
There should be full disclosure of
information about the Board.
Full information about the Board is set out in the Directors’
biographies on page 22 and on the Company website at
http://supermarketincomereit.com and through
announcements, as appropriate.
2 4 S U P E R M A R K E T I N C O M E R E I T P L C
AIC Code Principle
Evidence of compliance/explanation of departure from the AIC Code
6
7
8
9
10
11
The Board should aim to have a balance
of skills, experience, length of service
and knowledge of the company.
All new appointments by the Board are subject to election by shareholders
at the AGM following their appointment. The Group’s Articles of
Association require all Directors to retire at least every three years.
The Board believes in the benefits of having a diverse range of skills and
backgrounds, and the need to have a balance of experience, independence,
diversity, including gender, and knowledge on its Board of Directors.
All appointments will continue to be based on merit and therefore the
Board is unwilling to commit to numerical diversity targets.
The Board should undertake a formal
and rigorous annual evaluation of its own
performance and that of its committees
and individual Directors.
The Board has a formal policy to evaluate its own performance annually.
The Chairman leads the assessment which covers:
• The performance of the Board and its committees, including how the
Directors work together as a whole;
• The balance of skills, experience, independence and knowledge of the
Director remuneration should reflect
their duties, responsibilities and the
value of their time spent.
The independent directors should take
the lead in the appointment of new
Directors and the process should be
disclosed in the annual report.
Directors; and
• Individual performance, particularly considering whether each Director
continues to make an effective contribution.
The assessment involves the completion of anonymous questionnaires
followed by a discussion with all Directors, as a group and individually.
As the Company had not completed a full year of activity, a Board
evaluation has yet to be conducted.
The Company does not have a separate remuneration committee as
the Board as a whole fulfils the function of a remuneration committee.
Directors’ remuneration levels are set by the Board by reference to market
rates for equivalent positions in companies of similar size and operations.
The remuneration of the Directors is determined within the limits set out
in the remuneration policy and the total aggregate annual fees payable to
the Directors in respect of any financial period shall not exceed £500,000.
Any fees in excess of this amount must be approved by shareholders by
way of an ordinary resolution.
The Board which consists solely of independent non-executive Directors,
is responsible for identifying and recommending the appointment of new
directors. The Board does not use a separate nomination committee given
the size and nature of the Board. Following the annual evaluation process
during which the Board considers its own performance and that of any
committees and individual Directors, the Board led by the Chairman
assesses whether any skill gaps exist which would require the
appointment of a new Board member.
The Board also considers:
• the time spent by each Director, during the period, on matters relating
to the Company, having due regard to the other commitments each
Director has outside his or her involvement with the Company;
• whether each Director has demonstrated sufficient commitment to
discharging his or her duties as a Director for the Company and has
committed sufficient time to Company matters;
• whether the performance of each Director submitting themselves
for re-election continues to be effective, and
• that each Director has demonstrated commitment to the role.
Directors should be offered relevant
training and induction.
New Directors will receive an induction from the Investment Manager
and the Administrator on joining the Board.
Directors receive market updates and regulatory developments and are
provided training as identified through the Board evaluation, as required.
The Chairman (and the Board) should be
brought into the process of structuring a
new launch at an early stage.
This principle applies to the launch of new investment companies and is
therefore not applicable to the Company. Whenever the Company is
planning an equity fundraising, the Chairman and the Board will be
involved and are integral to the process from an early stage.
A N N U A L R E P O RT 2 0 1 8 2 5
CORPORATE GOVERNANCE | CORPORATE GOVERNANCE STATEMENT CONTINUED
AIC Code Principle
Evidence of compliance/explanation of departure from the AIC Code
12
13
14
15
16
17
18
Boards and managers should operate in
a supportive, co-operative and open
environment.
The primary focus at regular Board
meetings should be a review of
investment performance and associated
matters such as gearing, asset allocation,
marketing/investor relations, peer group
information and industry issues.
Formal Board meetings provide a forum for the Directors to receive
reports and interact with key members of the Investment Manager’s and
Investment Adviser’s teams. However, there is ongoing informal
interaction between the Directors, Investment Manager and Investment
Adviser through the provision of investment updates and other queries
that the Board may have.
The Board meets regularly and receives full information on the Group’s
investment performance, assets, liabilities, proposed investments and
other relevant information in advance of Board meetings.
The Board should give sufficient
attention to overall strategy.
Strategic issues and operational matters of a material nature are
determined and monitored on any on-going basis by the Board.
Where required Board meetings are convened to discuss strategy.
The Board should regularly review both
the performance of, and contractual
arrangements with, the manager (or
executives of a self-managed company).
The Board should agree policies with the
manager covering key operational issues.
The Board should monitor the level of
the share price discount or premium
(if any) and, if desirable, take action to
reduce it.
The Board should monitor and evaluate
other service providers.
JTC Global AIFM Solutions Limited has been appointed by the Company,
pursuant to the AIFM Agreement, to be the Group’s Alternative Investment
Fund Manager (“AIFM” or “Investment Manager”), under which it is
responsible for overall portfolio management and compliance with the
Group’s investment policy, ensuring compliance with the requirements of
the Alternative Investment Fund Manager Directive (“AIFMD”) that apply to
the Group, and undertaking risk management. The AIFM has delegated
certain services in relation to the Group and its Portfolio, which include
advising in relation to financing and asset management opportunities.
Atrato Capital Limited (“Atrato” or the “Investment Adviser”) advises
the Group on the acquisition of its investment portfolio and on the
development, management and disposal of UK commercial assets
in its portfolio pursuant to the Investment Advisory Agreement.
The Board keeps the appropriateness of the Investment Adviser’s and the
Investment Manager’s appointment under review. In doing so the Board
considers the past investment performance of the Group and the capability
and resources of the Investment Adviser to deliver satisfactory investment
performance in the future. It also reviews the fees payable to the
Investment Adviser and Investment Manager, together with the standard
of the other services provided.
The management agreement between the Group and the Investment
Manager sets out the matters over which the Manager has authority and
the limits beyond which Board approval must be sought. All other matters,
including investment and dividend policies, corporate strategy, gearing,
corporate governance procedures and risk management, are reserved for
the approval of the Board.
The Board monitors the share price on an ongoing basis. The Board has
not attempted to manage any discount through a repurchase of shares as
Directors believe that the discount is minimised through consistently good
long-term returns, transparent reporting, rigorous valuation, avoidance of
risk at the Company level and the maintenance or an active programme of
market engagement.
All third party service providers are monitored on an ongoing basis by
reference to the quality of work produced. A rolling programme has been
set up to review and monitor compliance of third party providers against
the terms of their agreements. The nature and depth of each review is
based upon the risk and materiality of each provider. The performance of
the other service providers is assessed on a regular basis by the Board.
As the Company has not completed a full year of activity, a formal
evaluation of the other service providers has yet to be conducted,
including that of the independent auditor by the Audit Committee.
2 6 S U P E R M A R K E T I N C O M E R E I T P L C
AIC Code Principle
Evidence of compliance/explanation of departure from the AIC Code
19
20
21
The Board should regularly monitor the
shareholder profile of the Group and
put in place a system for canvassing
shareholder views and for communicating
the Board’s views to shareholders.
The Board should normally take
responsibility for, and have a direct
involvement in, the content of
communications regarding major
corporate issues even if the manager
is asked to act as spokesman.
The Board should ensure that
shareholders are provided with sufficient
information for them to understand the
risk:reward balance to which they are
exposed by holding the shares.
The Board seeks the views of its shareholders and places great importance
on communication with them. The Board receives regular reports, from
the Investment Adviser and from the Company’s Broker, on the views of
shareholders, and the Chairman and other Directors make themselves
available to meet shareholders, when required, to discuss any significant
issues that have arisen and address shareholder concerns and queries.
The AGM, in particular, provides the Board with an important opportunity
to make contact with shareholders, who are invited to meet the Board
following the formal business of the meeting.
The Board has responsibility for approving the content and timing
of communications regarding major corporate issues and events.
Communications normally take the form of stock exchange
announcements, press releases and direct correspondence with
shareholders.
The Board places great importance on communication with shareholders.
It aims to provide shareholders with a full understanding of the Company’s
activities and performance and reports formally to shareholders twice
a year by way of the Interim Report and Annual Report and Accounts,
particularly the Strategic Report therein. The Board considers that the
Company’s Strategic Report provides information about the performance
of the Company, the investment policy, strategy and the risks and
uncertainties relating to the Company’s future prospects so that
shareholders have sufficient information to understand the nature of their
investment in the Company.
This is supplemented by frequent notifications via a regulatory information
service on developments such as asset acquisitions, and fundraising
activities, and the Company’s website at http://supermarketincomereit.
com is regularly updated.
A N N U A L R E P O RT 2 0 1 8 2 7
STRATEGIC REPORT | A U DIT CO M M I TTEE REPORT
Audit Committee Report
The Audit Committee comprises Jon Austen and Vince
Prior and is chaired by Jon Austen. Jon Austen has
sufficient recent and relevant financial experience to act
as chair of the Audit Committee. The Audit Committee
has responsibility for, amongst other things, the
planning and review of the Group’s annual report and
accounts, half-yearly reports and the involvement of the
Group’s auditors in the process. The Committee focuses
in particular on compliance with legal requirements,
accounting standards and on ensuring that an effective
system of internal financial control is maintained. The
Audit Committee also reviews the objectivity of the
Group’s auditors and the terms under which the Group’s
auditors are appointed to perform non-audit services.
The terms of reference of the Audit Committee cover
such issues as committee membership, frequency of
meetings, quorum requirements and the right to attend
meetings. The responsibilities of the Audit Committee
covered in the terms of reference relate to the following:
external audit, financial reporting, internal controls
and risk management. The terms of reference also set
out reporting responsibilities and the authority of the
Committee to carry out its responsibilities.
The Audit Committee will meet not less than twice a
year and at the appropriate times in the reporting and
audit cycle and at such other times as the Committee
Chairman shall require.
The Audit Committee’s primary responsibility is to
monitor the integrity of the financial statements of the
Company and Group, covering annual and interim
reports and financial statements and any other formal
announcement relating to financial performance. The
Committee reviews that information and reports to
the Board on significant financial reporting issues and
judgements, having regard to matters communicated to
it by the auditors. In particular, the Committee reviews
and challenges where necessary:
• the consistency of, and any changes to, accounting
policies both from year-to-year and across the
Company or Group;
• the methods used to account for significant or unusual
transactions where different approaches are possible;
• whether the Group and Company have followed
appropriate accounting standards and made
appropriate estimates and judgements, taking into
account the views of the external auditors;
• the clarity and completeness of disclosure in the
Group’s and Company’s financial reports and the
context in which statements are made; and
• all material information presented with the financial
statements, such as the business review and the
corporate governance statements relating to the audit
and to risk management.
Where requested by the Board the Audit Committee also
reviews the content of the annual report and financial
statements to advise the Board whether, taken as a
whole, they are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company’s performance, business model
and strategy.
The other key responsibilities of the Audit Committee are:
• overseeing the relationship with the auditors,
including an assessment of their independence
and the effectiveness of the external audit;
• reviewing the adequacy and effectiveness of the
Company’s internal financial controls and internal
control and risk management systems, including
those of the Investment Manager and Investment
Adviser and their delegates as far as they are relevant
to the Company;
• reviewing the adequacy and security of the Company’s
arrangements for any relevant party to raise concerns,
in confidence, about possible wrongdoing in financial
reporting, regulatory matters or other relevant matters;
• reviewing the Company’s procedures for detecting
fraud; and
• reviewing the Company’s systems and controls
for the prevention of bribery and receiving reports
on non-compliance.
In overseeing the relationship with the auditors, the
Committee considers and makes recommendations to
the Board, to be put to shareholders for approval at the
AGM, in relation to the appointment, reappointment
or removal of the auditors. If an auditor resigns, the
Committee is required to investigate the issues leading
to this and to decide whether any action is required.
The Committee also makes recommendations on the
remuneration of the auditors, including fees for both
audit and any non-audit services, ensuring that the
level of fees is appropriate to enable an effective and
high-quality audit to be conducted while remaining
reasonably consistent with other similar real estate
companies. Where the auditors undertake non-audit
work, the Committee considers whether that work could
be detrimental to the independence of the auditors.
The Committee also approves the auditors’ terms of
engagement, including the scope of the audit, and on an
annual basis assesses their independence and objectivity,
2 8 S U P E R M A R K E T I N C O M E R E I T P L C
taking into account relevant UK professional and
regulatory requirements and the relationship with
the auditors as a whole, including the provision of any
non-audit services to the Group and the provision
of any services to the Investment Adviser and
Investment Manager.
Composition of the Audit Committee
The Audit Committee currently comprises Jon Austen
and Vince Prior, and is chaired by Jon Austen. The
Committee has assessed whether its members have the
requisite skills to carry out their role and believes that
the composition of the Committee remains appropriate.
Meetings of the Audit Committee
The Audit Committee met twice during the Period.
Meetings were held on 18 October 2017 and 2 February
2018, the latter being just prior to the 2017 interim
results announcement. Both meetings were attended
by both members of the Committee.
External audit
BDO LLP were appointed auditors of the Company on
June 2017. The audit partner is Russell Field.
The Committee met formally with the auditors at each
Committee meeting during the Period. Part of each
meeting took place without the Investment Adviser
being present to discuss any issues arising relating to
them. The Committee’s review of the findings of the
work of the auditors covered:
• a discussion of any major issues which arose during
the audit of the Company’s initial accounts to
18 September 2017 and the review of the Group’s
Interim Report to 31 December 2017;
• a review of the key accounting matters and
judgements relating to those engagements;
• confirmation of the levels of potential adjustments,
if any, identified during the engagements;
• an assessment of the overall control environment; and
• an assessment of the effectiveness of the audit and
review processes.
The Committee has considered the performance,
effectiveness and objectivity of the auditors through its
regular meetings and communications with them. The
Committee’s assessment is that the auditors have the
necessary experience, independence and qualifications
to deliver an effective audit, and that their ability to
challenge and review the Investment Adviser and Board
is sufficient and appropriate.
There are therefore currently no plans for re-tendering
the audit. The Committee recommends that shareholders
vote in favour of the reappointment of the auditors,
which is proposed as an ordinary resolution at the
Company’s forthcoming AGM.
The total fees charged by the auditors to the Group during
the Period were £380,000, as disclosed in note 6 to the
Group financial statements and including fees accrued
for the audit of these financial statements. This total
includes £225,000 of non-audit work during the Period
largely relating to their work as Reporting Accountants
in connection with the Company’s share placings in
July 2017 and March 2018. Such work is, in the
Committee’s view, most effectively and cost-efficiently
carried out by the auditors and is not considered a
threat to their independence.
The Committee has approved a policy for non-audit
services, which aims to comply with the requirements
of the FRC’s Revised Ethical Standard 2016 applicable
to public interest entities. Non-audit services may not be
carried out by the auditors if they are considered to have
a direct effect on the financial statements or an indirect
effect that is not inconsequential.
Risk management and internal control
During the Period, the Audit Committee reviewed
the Group’s risk register, which is maintained by the
Investment Adviser subject to the supervision and
oversight of the Committee. Taking into account
that review, together with its review of the Group’s
internal controls and its knowledge of the business, the
Committee has reviewed and approved any statements
included in the Annual Report and Accounts concerning
internal controls and risk management. A summary of the
risk register is reviewed at least annually by the Board.
The Audit Committee has reviewed the adequacy of the
Company’s arrangements for any relevant party to raise
concerns, in confidence, about possible wrongdoing in
financial reporting, regulatory or other relevant matters.
The Committee considers that these arrangements allow
proportionate and independent investigation of such
matters and appropriate follow-up action. It has also
reviewed the Company’s Investment Manager’s and
Investment Adviser’s procedures for detecting
fraud and for preventing bribery and considers them
to be appropriate.
Significant matters relating to the financial
statements
The significant matters and judgements that the
Committee reviewed before recommending the financial
statements to the Board for approval were as follows:
A N N U A L R E P O RT 2 0 1 8 2 9
CORPORATE GOVERNANCE | AUDIT C OMM ITTE E RE PORT CONTINUED
Matter
Description
Investment property
valuations
Revenue recognition
Management overriding
controls
Investment properties make up the majority of the Group’s assets. Investment property valuations
are inherently subjective, but the Group operates in a mature and liquid property market in the UK,
which is a jurisdiction with well-developed valuation processes and methodologies. The opinion of
external valuers is obtained at each reporting date, using recognised valuation techniques and the
principles of IFRS 13 “Fair Value Measurement”. The valuations at the balance sheet date were
performed by Cushman and Wakefield (“C&W”), who the Audit Committee believes to be suitably
independent, competent and experienced to carry out the work. The Committee Chairman
attended a meeting between the auditors and C&W which included detailed discussions of
material fair value changes and a comparison of changes to external sources. The meetings also
included a review of current conditions and recent, relevant transactions to provide a context for
the valuations and to allow an assessment of the assumptions and judgements made by C&W.
The Committee’s intention is to continue to meet with the valuer in future to discuss their valuations.
The Committee considered that the inputs provided by the Group to C&W for the valuations
adopted in the financial statements were accurately extracted from the Group’s accounting
records. The Committee also reviewed the level of disclosure in note 12 to the financial statements
and believes that it meets the requirements of IFRS 13.
In accordance with applicable accounting standards, the Group recognises rental income on an
accruals basis. Contingent income such as RPI uplifts are recorded in the income statement in
the periods in which they are earned.
The Committee has reviewed recognised rent receivable from each property in the Period based
on expectations from a review of each lease agreement and having regard to any contractual rent
uplifts which took effect in the post-acquisition period and published RPI data. Under IAS 17
“Leases”, the Group is required to recognise rent receivable under operating leases on a
straightline basis over the expected term of the lease. This has resulted in the Group accruing
£328,000 of uninvoiced rental income in the period to 30 June 2018 in respect of the 1%
guaranteed annual uplifts provided within the Sainsbury’s Ashford lease.
Following this review the Committee is not aware of any issues that suggest Group revenue has
not been recognised in accordance with the requirements of IAS 17.
The management of an entity are in a unique position to perpetrate fraud because they have the
ability directly or indirectly to manipulate accounting records and prepare fraudulent financial
statements by overriding controls that otherwise appear to be operating effectively. The Committee
considered that due to the unpredictable way in which such override could occur, there exists a
significant risk of material misstatement due to fraud.
In relation to the financial statements for the Group, the Committee would have expected that
management override of controls would manifest through bias in the key accounting estimates.
The Committee considers the key accounting estimate to be the valuation of investment property.
This estimate was considered as a separate risk item above. The Committee also considered other
accounting estimates which could be subject to bias within the financial statements but did not
identify any material issues. The Committee also considered the transactions that occurred
between the Group and the Investment Adviser to confirm that they were in accordance with
expectations and the terms of the Investment Advisory Agreement. No issues were identified
in relation to these transactions.
The Committee did not identify any instances where management have overridden controls to
give rise to a material misstatement within the financial records of the Group.
3 0 S U P E R M A R K E T I N C O M E R E I T P L C
Matter
REIT status
Description
The Company and its subsidiaries gave notice to HMRC on 20 December 2017 that they would be
operating as a UK REIT, effective from 21 December 2017. Any failure to comply with the various
conditions that are required to be satisfied on an on-going basis to operate as a UK REIT could
have a material impact on the tax balances that need to be reflected in the financial records of
the Group.
The Committee reviewed a copy of the notice submitted by the Company to HMRC on 20 December
2017. Following successful entry into the UK REIT regime the Group’s exposure to UK taxation is
minimal. The Committee reviewed the Group’s compliance with the various requirements of the
UK REIT regime having regard to the work undertaken by the auditors and their tax specialists.
The tax calculations and reconciliations prepared by the Investment Adviser for the purposes of
inclusion in the Group’s financial statements were considered to ensure that the provisions
appropriately reflect the tax payable by the Group at the reporting date in respect of its profits
that are excluded from inclusion in the UK REIT regime.
The Committee has not identified any issues to suggest that the tax provisions and disclosures
contained within the Group’s financial statements are materially inappropriate.
Going concern and viability
statement
The Board is required to consider whether the Group has adequate resources to continue in
operational existence for the foreseeable future, which is considered to be at least 12 months
from the date of approval of the annual report.
The Audit Committee has reviewed the work of the Investment Adviser on going concern, which
included a report on the Group’s liquidity position, compliance with loan covenants and the
financial strength of its tenants, together with forecasts of the Group’s cash flow over the period
to at least July 2019. As a result, the Committee has concluded that the going concern basis
remains appropriate.
The Committee has also reviewed the work of the Investment Adviser to support the viability
statement included in the Strategic Report, which included forecasts of the Group’s results over
the period to June 2023. In carrying out this review, the Committee also considered the risks and
assumptions relevant to those forecasts, together with the various sensitivity scenarios modelled
in them. As a result, the Committee has concluded that there is a reasonable expectation that
the Group will be able to continue in business over the five year period of the assessment.
Signed on behalf of the Audit Committee
on 4 September 2018.
Jon Austen
Audit Committee Chairman
4 September 2018
A N N U A L R E P O RT 2 0 1 8 3 1
CORPORATE GOVERNANCE | DIRE CTO RS’ REPORT
Directors’ Report
The Directors present their report together with the
audited financial statements for the period ended
30 June 2018. The Corporate Governance Statement on
page 24 forms part of their report. The Group’s Strategic
Report can be found on pages 1 to 21.
Results and dividends
The results for the Period are set out in the attached
financial statements. It is the policy of the Board to
declare and pay dividends as quarterly interim dividends.
During and subsequently to the Period, the following
interim dividends amounting to aggregate 5.5 pence
per share were declared:
• on 28 September 2017, a first interim dividend of 1.375
pence per share, which was paid on 27 October 2017.
• on 5 February 2018, a second interim dividend of 1.375
pence per share, which was paid on 3 March 2018.
• on 16 April 2018, a third interim dividend of 1.375 pence
per share, which was paid on 21 May 2018.
• on 18 July 2018, a fourth interim dividend of 1.375 pence
per share, which was paid on 21 August 2018.
Dividend policy
Subject to market conditions and performance, financial
position and financial outlook, it is the Directors’
intention to pay an attractive level of dividend income
to shareholders on a quarterly basis. The minimum
targeted annual dividend is 5.5p per Ordinary share.
The Company intends to grow the dividend
progressively, through investment in upward-only,
inflation-protected, long-term lease agreements.
Principal activities and status
Supermarket Income REIT plc (the Company and
Group) is registered as a public limited company in
terms of the Companies Act 2006. It is an Investment
Company as defined by Section 833 of the Companies
Act 2006 and has been established as a closed-ended
investment company with an indefinite life. The Company
has a single class of shares in issue which are listed on
the Specialist Fund segment of the Official List and
traded on the London Stock Exchange’s Main Market.
The Group has subsequent to its launch, entered the
Real Estate Investment Trust (REIT) regime for the
purposes of UK taxation.
The Company is a member of the Association of
Investment Companies (AIC).
Strategy and investment policy
The strategy and investment objectives of the Group
are set out in the Strategic Report on pages 1 to 21.
Risk management and internal control
The Board is responsible for financial reporting and
controls, including the approval of the Annual Report
and Accounts, the dividend policy, any significant
changes in accounting policies or practices, and treasury
policies including the use of derivative financial
instruments. During the period the Board has carried
out a robust assessment of the principal risks facing the
Group and how they are being mitigated, as described
in the Strategic Report on pages 1 to 21.
In light of the Group’s current position and principal
risks, the Board has assessed the prospects of the
Group for a period of 12 months from the date of this
Annual Report, reviewing the Group’s liquidity position,
compliance with loan covenants and the financial
strength of its tenants, together with forecasts of the
Group’s future performance under various scenarios.
The Board has concluded there is a reasonable
expectation that the Group will be able to continue
in operation and meet its liabilities over that period.
The Board has also assessed the prospects of the Group
over a longer period than the going concern review and
has a reasonable expectation that the Group will be
able to continue in business over the five-year period
examined in that assessment.
The Board is also responsible for the internal controls
of the Group, including operational and compliance
controls and risk management systems, which are
documented in a Board memorandum. As with any
risk management system, the Group’s internal control
framework is designed to manage risk but cannot give
absolute assurance that there will never be any material
misstatement or loss. The Board has reviewed the risk
management and internal control framework in the
Period and believes it to be working effectively.
The Board has considered the appropriateness of
establishing an internal audit function and, having
regard to the relatively simple nature of the Group’s
operations and the likely cost of such a function,
has concluded that it is not necessary at this stage.
The Board meets at least every quarter to review
the Group’s performance against its strategic aims,
objectives, business plans and budgets and ensures
that any corrective action considered necessary is taken.
Additional meetings are held as required to deal with
the business of the Group in a timely manner.
3 2 S U P E R M A R K E T I N C O M E R E I T P L C
Directors are expected to attend all meetings of the Board
and all meetings of those committees on which they sit, as
well as the Annual General Meeting (“AGM”). Meetings
called outside the scheduled quarterly Board meetings
may need to be convened at relatively short notice and
therefore at times when not every Director is available.
Every meeting during the year has however been correctly
convened with an appropriate quorum and with the
Directors independent of the Investment Adviser.
Details of Directors’ attendance at each of the scheduled
Board and Committee meetings during the Period are set
out below:
Director
Nick Hewson
Vince Prior
Jon Austen
Audit
Committee
Quarterly
Board
N/A
2/2
2/2
3/3
3/3
3/3
All directors attended the Company’s EGM held on
Monday 21 May 2018.
Directors
All Directors are non-executive Directors and their
biographies are set out on page 22.
In accordance with the Articles of Association, all
Directors are required to retire and seek re-election at
the AGM following their initial appointment to the
Board. All three Directors will therefore retire and seek
re-election at the next AGM having been appointed
during June 2017 for an initial period of three years.
The Company maintains £10 million of Directors’ and
Officers’ Liability Insurance cover for the benefit of the
Directors, which was in place throughout the Period and
which continues in effect at the date of this report.
Details of the fees paid to Directors in the period are set
out in the Directors’ Remuneration Report on page 35.
Directors’ interests
The beneficial interests of the Directors and their families
in the Ordinary shares of the Company as at 30 June 2018
were as follows:
Nick Hewson
Jon Austen
Vince Prior
Number of
shares
360,000
99,000
35,431
Percentage
of issued
share capital
0.20
0.05
0.02
Significant shareholdings
As at 24 August 2018 the Directors have been notified that
the following shareholders have a disclosable interest of
3% or more in the ordinary shares of the Company:
Number
of shares
Percentage
of issued
share capital
Quilter Cheviot Investment
Management
Premier Fund Management
Miton Asset Management
BMO Global Asset
Management
Smith & Williamson
26,217,690
16,285,863
14,436,828
13,417,500
Investment Management
13,407,844
West Yorkshire
Pension Fund
Cannacord Genuity Wealth
River & Mercantile
Asset Management
TR Property
Investment Trust
Ruffer
Charles Stanley
12,066,791
10,988,832
9,775,280
9,482,500
9,454,343
5,794,652
14.22
8.83
7.83
7.28
7.27
6.55
5.96
5.30
5.14
5.13
3.14
Political contributions
The Group made no political contributions during
the Period.
Greenhouse gas emissions reporting
The Board has considered the requirement to disclose the
Company’s measured carbon emissions sources under
the Companies Act 2006 (Strategic report and Director’s
report) Regulations 2013.
During the period ended 30 June 2018:
• any emissions from the Group’s properties have been
the tenant’s responsibility rather than the Group’s, so
the principle of operational control has been applied;
• any emissions that are either produced from the
Company’s registered office or from offices used to
provide administrative support are deemed to fall
under the Adviser and Manager’s responsibility; and
• the Group has not leased or owned any vehicles
which fall under the requirements of Mandatory
Emissions Reporting.
As such, the Board believes that the Company has no
reportable emissions for the Period ended 30 June 2018.
A N N U A L R E P O RT 2 0 1 8 3 3
CORPORATE GOVERNANCE | DIRECTORS’ REPORT CONTINUED
Employees
The Group has no employees and therefore no
employees share scheme or policies for the employment
of disabled persons or employee engagement
Post balance sheet events
On 19 July 2018, the Group completed the acquisition
of its sixth supermarket asset, a Morrisons store, in
Sheffield for £51.7 million (net of acquisition costs),
reflecting a net initial yield of 4.9%.
The Company has also arranged a new five-year,
interest-only loan facility with Bayerische Landesbank.
The £52.1 million facility has a margin of 125 basis
points above three-month LIBOR and is secured against
the new Morrisons supermarket in Sheffield and the
Sainsbury’s supermarket in Ashford. This new facility
was hedged using an interest rate swap, thus fixing the
Company’s cost of debt at 2.55% on this borrowing for
the term of the facility.
Other disclosures
Disclosures of financial risk management objectives
and policies and exposure to financial risks are included
in note 18 to the financial statements. Details of future
developments are included in the Strategic Report on
pages 1 to 21.
Disclosure of information to auditors
All of the Directors have taken all the steps that they
ought to have taken to make themselves aware of any
information needed by the auditors for the purposes
of their audit and to establish that the auditors are
aware of that information. The Directors are not aware
of any relevant audit information of which the auditors
are unaware.
Auditors
BDO LLP were appointed as auditors by the Directors
in June 2017 and have expressed their willingness to
continue as auditor for the financial year ending
30 June 2019. A resolution to appoint BDO LLP as
auditors to the company will be proposed at the AGM.
Signed by order of the Board on 4 September 2018.
Nick Hewson
Chairman
4 September 2018
3 4 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | DIRE CTORS’ REMUNERATION REPORT
Directors’ Remuneration Report
Annual statement
The Board comprises only non-executive Directors.
The Group has no executive Directors or employees.
For these reasons, it is not considered necessary to have
a separate Remuneration Committee. The full Board
determines the level of Directors’ fees. The Remuneration
Report and the Remuneration Policy will be presented at
the AGM for shareholder consideration and approval.
Full details of the Group’s remuneration policy with
regards to Directors’ fees and details of fees paid during
the period ended 30 June 2018 are shown below.
Directors’ remuneration policy
The Board considers the level of Directors’ fees at least
annually. Reviews of Director’s fees take place each
financial year with any changes being applicable from
the start of the next financial year.
The remuneration of the Directors for their services are
determined within the limit set out in the Company’s
Articles of Association. The present limit states that
fees in aggregate shall not exceed £500,000 per annum
but this may be changed by way of ordinary resolution.
Directors can also be paid additional remuneration if
approved at a General Meeting. Director’s fees are fixed
and payable in cash, monthly in arrears. Directors are
not eligible for bonuses, pension benefits, share options,
long-term incentive schemes or other benefits.
The Company may repay to any Director all such
reasonable expenses incurred in undertaking their duties.
It is the Board’s policy that Directors do not have service
contracts, but each new Director is provided with a letter of
appointment. The terms of Directors’ appointments which
are terminable by either party on one month’s written
notice, provide that Directors should retire and be subject
to re-election at the first AGM after their appointment
and in accordance with the recommendations of the UK
Corporate Governance Code, the Board has agreed that all
Directors will seek re-election at least every three years. If a
Director has been in office for a continuous period of nine
years or more he or she must retire and seek re-election at
every AGM.
The Company’s Articles specify that one-third of the Board will retire and seek re-election at each AGM.
Director
Nick Hewson
Jon Austen
Vince Prior
Date of
original
appointment
Most recent
date of
election
Latest due
date of
re-election
20 June 2017
20 June 2017
20 June 2017
20 June 2017 6 November 2018
20 June 2017 6 November 2018
20 June 2017 6 November 2018
Directors’ emoluments for the Period
The Directors who served during the Period received the following emoluments in the form of fees:
Nick Hewson
Jon Austen
Vince Prior
Received in
Period ended
30 June 2018
£000
60
42
39
Annual fee
£000
55
40
38
Relative importance of spend on pay
The table below sets out, in respect of the Period ended 30 June 2018:
a) The remuneration paid to the Directors;
b) The management fee and expenses which have been included to give shareholders a greater understanding
of the relative importance of spend on pay; and
c) Distributions to shareholders by way of dividend.
A N N U A L R E P O RT 2 0 1 8 3 5
225
200
175
150
125
100
IGD UK grocery sales forecast 2018–2023 (£bn)
UK grocery market share by operator 2000–2018 (%)
Grocery sales forecast by channel (£bn)
Graph to come
CORPORATE GOVERNANCE | DIRECTORS’ REMUNERATION REPORT CONTINUED
218.5
212.2
206.1
200.3
190.3
195.1
25.5
34.8
18.5
27.5
11.9
2018
11.4
Period ended
30 June 2018
£000
105.5
2023
17.3
112.3
Directors’ fees
Management fee and expenses
2.8
Dividends paid
17.9
10.4
16.1
4.9
14.1
2000
15.6
2017
Directors’ fees as a percentage of:
Tesco Sainsbury’s Asda Morrisons Aldi, Lidl Other
160
1,079
40
4,675
Online Supermarkets
0
20
60
80
100
120
140
18
19
20
21
22
23
Management fee and expenses
Dividends paid
Directors’ shareholdings
The Directors, including connected parties, who
held office at the 30 June 2018 and their interests
(all beneficial) in the Ordinary shares of the Company
as at that date are set out in the Directors report on
page 32.
Group performance (subject to audit)
The Board is responsible for the Group’s investment
strategy and performance, whilst the management of
the investment portfolio is delegated to the Investment
Manager. The Investment Manager has in turn delegated
certain services, including but not limited to advice on
acquisitions and financing, to the Investment Adviser.
The graph below compares, for the period from launch
to 30 June 2018, the total return (assuming all dividends
are reinvested) to shareholders compared to the FTSE
All-Share Index. This index was chosen as it is considered
an indicative measure of the expected return from an
equity stock. An explanation of the performance of the
10
10
Period ended
30 June 2018
%
14.08
3.33
Group for the Period ended 30 June 2018 is given in the
Strategic Report.
It is a company law requirement to compare the
performance of the Group’s share price to a single broad
equity market index on a total return basis. However,
it should be noted that constituents of the comparative
index used above are larger in size than the Group.
The Group does not have a benchmark index.
Voting at Annual General Meeting
Ordinary resolutions for the approval of this
Directors’ Remuneration Report and of the Directors’
Remuneration Policy will be put to shareholders at
the AGM.
10
105.5
112.6
On behalf of the Board
2018 2023
Nick Hewson
Chairman
4 September 2018
IPD All Property, supermarket and distribution
warehouse yields 2010–2018 (%)
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
10
11
12
13
14
15
16
17
18
Supermarket Distribution Warehouse UK all property
FTSE 100 vs SUPR (Indexed)
e
c
n
a
m
r
o
f
r
e
p
e
v
i
t
a
l
e
R
110
105
100
95
90
JUL17
AUG17
SEP17
OCT17
NOV17
DEC17
JAN18
FEB18
MAR18
APR18
MAY18
JUN18
Supermarket RIET
FTSE 100
3 6 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | DIRE CTORS’ RESPONSIBILITIES STATEMEN T
Directors’ Responsibilities Statement
The Directors are responsible for preparing the annual
report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law, the
Directors have elected to prepare the Group financial
statements in accordance with International Financial
Reporting Standards as adopted by the European
Union, and the Company financial statements in
accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally
Accepted Accounting Practice), including Financial
Reporting Standard 102 “The Financial Reporting
Standard applicable in the UK and Republic of Ireland”.
Under company law the Directors must not approve
the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of
the Group and Company and of the profit or loss of the
Group for that period.
In preparing these financial statements, the Directors
are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
are reasonable and prudent;
• state whether applicable accounting standards have
been followed, subject to any material departures
disclosed and explained in the financial statements;
and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and Company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the Company and enable them to ensure that the
financial statements comply with the requirements
of the Companies Act 2006 and as regards the Group
financial statements, Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for such internal control
as they determine necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error.
Under applicable law and regulations, the Directors
are also responsible for preparing a Strategic Report,
Directors’ Report, Director’s Renumeration Report and
Corporate Governance Statement that comply with the
relevant law and regulations.
The Company is required to make the annual
report and financial statements available on a
website. The Company’s website address is www.
SupermarketIncomeREIT.co.uk. Financial statements
are published on the Company’s website in accordance
with legislation in the United Kingdom governing the
preparation and dissemination of financial statements,
which may vary from such legislation in other
jurisdictions. The maintenance and integrity of the
Company’s website is the responsibility of the Directors.
The Directors’ responsibility also extends to the ongoing
integrity of the financial statements contained therein.
Responsibility Statement
The Directors confirm to the best of their knowledge:
• The Group financial statements prepared in
accordance with International Financial Reporting
Standards as adopted by the European Union and
Article 4 of the IAS regulation, give a true and fair
view of the assets, liabilities, financial position and
profit or loss of the Group.
• The Annual Report and Accounts include a fair
review of the development and performance of the
business and the position of the Group and Company,
together with a description of the principal risks and
uncertainties that they face;
• The Annual Report and Accounts taken as whole, is
fair, balanced and understandable and the information
provided to shareholders is sufficient to allow them
to assess the Group’s performance, business model
and strategy.
This Responsibility Statement was approved by the
Board of Directors and is signed on its behalf by:
Nick Hewson
Chairman
4 September 2018
A N N U A L R E P O RT 2 0 1 8 3 7
CORPORATE GOVERNANCE | ALTERN ATIVE INVESTMENT
FUND MANAGE R’S REPORT
AIFM Report
The AIFMD came into force on 22 July 2013, although
there was a transitional period for compliance by existing
AIFMs and AIFs until 21 July 2014 under the UK’s
Alternative Investment Fund Managers Regulations,
2013 (the “AIFMD Regulations”). The objective of the
AIFMD is to ensure a common regulatory regime for
funds marketed in or into the EU which are not regulated
under the UCITS regime, primarily for investors’
protection and to enable European regulators to obtain
adequate information in relation to funds being marketed
in or into the EU to assist their monitoring and control
of systemic risk issues.
The Company’s Alternative Investment Fund Manager
(the “AIFM”) is a non-EU AIFM, although the Company
is an EU Alternative Investment Fund (an “AIF”) and the
Company is marketed into the EU, primarily the United
Kingdom. Although the AIFM is a non-EU AIFM, so
the depositary rules in Article 21 of the Alternative
Investment Fund Managers Directive (the “AIFMD”)
do not apply, the transparency requirements of Articles
22 (annual report) and 23 (Disclosure to investors) of
the AIFMD do apply to the AIFM and therefore to
the Company. In compliance with those articles, the
following information is provided to the Company’s
shareholders by the AIFM.
Material changes in the disclosures to investors
During the financial period under review, there were no
material changes to the information required to be made
available to investors before they invest in the Company
under Article 23 of the AIFMD from that information set
out in the Company’s prospectus dated 25 April 2018
(comprising the registration document, summary and
securities note), save as disclosed below and in the
Strategic Report, which comprises the Chairman’s
Statement, Achievements in Brief, Our Portfolio,
Investment Adviser’s Report, Our Market and Our
Principal Risks sections in this annual financial report.
Risks and Risk Management Policy
The current principal risks facing the Company and
the main features of the risk management systems
employed by AIFM and the Company to manage those
risks are set out in the Strategic Report and in notes 16
and 18 to the financial statements.
Leverage and borrowing
The Company is entitled to employ leverage in
accordance with its investment policy and as described
in the sections entitled “Debt Financing” in the
Chairman’s Statement and “Financing and Hedging”
in the Investment Adviser’s Report and in notes 17
and 25 to the financial statements. Other than as
disclosed therein, there were no changes in the
Company’s borrowing powers and policies.
Remuneration of the AIFM’s directors
and employees
During the financial period under review, no separate
remuneration was paid by the AIFM to its directors, all of
whom were executives, because they were all employees
of the JTC group of companies, of which the AIFM forms
part. Other than the directors, the AIFM has no other
employees. The Company has no agreement to pay any
carried interest to the AIFM.
Remuneration of the AIFM payable by
the Company
The AIFM was during the year under review paid a fee of
0.04% per annum of the net asset value of the Company,
subject to a minimum of £25,000 per annum. With effect
from 1 July, 2018, the minimum fee was increased to
£50,000 per annum.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
4 September 2018
3 8 S U P E R M A R K E T I N C O M E R E I T P L C
FINANCIAL STATEMENTS | IN DEP ENDENT AUDITORS’ REPORT
TO T HE MEMBE RS O F SU PE RM ARKET INC OME REIT PLC
Independent Auditors’ Report
Opinion
We have audited the financial statements of
Supermarket Income REIT Plc (the “Parent Company”)
and its subsidiaries (the “Group”) for the period from 1
June 2017 to 30 June 2018 which comprise the
consolidated statement of comprehensive income, the
consolidated and company statements of changes in
equity, the consolidated and company statements of
financial position, the consolidated statement of cash
flows and notes to the financial statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied
in the preparation of the Group financial statements is
applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
The financial reporting framework that has been applied
in the preparation of the parent Company financial
statements is applicable law and United Kingdom
Accounting Standards, including Financial Reporting
Standard 102 The Financial Reporting Standard in the
United Kingdom and Republic of Ireland (United
Kingdom Generally Accepted Accounting Practice).
In our opinion:
• the financial statements give a true and fair view of
the state of the Group’s and of the Company’s affairs
as at 30 June 2018 and of the Group’s profit for the
period then ended;
• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
• the Company financial statements have been properly
prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006; and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of
the financial statements section of our report. We are
independent of the Group and the Company in accordance
with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going
concern and viability statement
We have nothing to report in respect of the following
information in the Annual Report, in relation to which
the ISAs (UK) require us to report to you whether we
have anything material to add or draw attention to:
• the disclosures in the Annual Report and Accounts set
out on pages 18 to 21 that describe the principal risks
and explain how they are being managed or mitigated;
• the Directors’ confirmation set out on page 32 in the
Annual Report and Accounts that they have carried out
a robust assessment of the principal risks facing the
Group, including those that would threaten its business
model, future performance, solvency or liquidity;
• the Directors’ statement set out on page 21 in the
financial statements about whether the Directors
considered it appropriate to adopt the going concern
basis of accounting in preparing the financial
statements and the Directors’ identification of any
material uncertainties to the Group and the
Company’s ability to continue to do so over a period
of at least twelve months from the date of approval
of the financial statements;
• whether the Directors’ statement relating to going
concern required under the Listing Rules in
accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the
audit; or
• the Directors’ explanation set out on page 21 in the
annual report and accounts as to how they have
assessed the prospects of the Group, over what period
they have done so and why they consider that period
to be appropriate, and their statement as to whether
they have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment,
including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the financial statements of the current period
and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that
we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in
the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
A N N U A L R E P O RT 2 0 1 8 3 9
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME RE IT PL C CONTINUED
Key audit matter
How we addressed the key audit matter in the audit
Our audit work included, but was not restricted to, the following:
• We reviewed the design, implementation and appropriateness of the Group’s
controls relating to the valuation of investment properties. The key controls were
identified as being the processes by which the Group ensures that accurate data
is provided to the external expert valuer engaged to value the Group’s entire
property portfolio.
• We assessed the competency, qualifications, independence and objectivity of the
valuer to confirm that they were appropriate qualified to undertake the valuations
and reviewed the terms of their engagement to confirm that there were not any
unusual arrangements.
• We obtained and read the valuer’s report and confirmed that all valuations had
been prepared on a basis that was in accordance with the Group’s accounting
policy and appropriate for determining the carrying value in the Group’s financial
statements.
• The senior members of our team met with the valuer to discuss and challenge
the valuation methodology, key assumptions and to consider if there were any
indicators of undue management influence on the valuations.
• We tested the accuracy of the key observable valuation inputs supplied to and
used by the valuer. This primarily involved agreeing the passing rental income
and lease terms to underlying supporting documentation.
• We compared the key valuation assumptions against our independently formed
market expectations and challenged the valuer where significant variances from
these expectations were identified. We then corroborated their responses against
supporting documentation where appropriate. The key valuation assumptions
were the market capitalisation yields, which we reviewed by reference to market
data based on the location and specifics of each property.
• We reviewed the appropriateness of the Group’s disclosures within the financial
statements in relation to valuation methodology, key valuation inputs and
valuation uncertainty.
Valuation of investment properties
As detailed in note 12, the Group owns a
portfolio of investment properties which
are held at fair value in the Group
financial statements.
As described in the Group’s accounting
policies in note 3.8, determination of the
fair value of investment properties is a
key area of estimation and we therefore
considered this to be an area of
significant audit risk and focus.
The Group engages an independent
expert valuer to help mitigate this risk.
Each valuation requires consideration of
the individual nature of the property, its
location, its cash flows and comparable
market transactions. The valuation of
the Group’s investment properties
requires significant judgements to be
made by the external valuer in relation
to the appropriate market capitalisation
yields and estimated rental values and
appropriate input information to be
provided by management in relation to
the passing rents and lease particulars.
Any input inaccuracies or unreasonable
valuation judgements could result in a
material misstatement of the income
statement and balance sheet.
There is also a risk that management
may influence the significant
judgements and estimates in respect
of property valuations in order to
achieve performance targets to
meet market expectations.
Key observations
Based on our work, we are satisfied that the valuation of the Group’s investment
properties is appropriate and in line with the Group’s accounting policies.
4 0 S U P E R M A R K E T I N C O M E R E I T P L C
Our application of materiality
We apply the concept of materiality both in planning
and performing our audit, and in evaluating the
effect of misstatements. For planning, we consider
materiality to be the magnitude by which misstatements,
including omissions, could influence the economic
decisions of reasonable users that are taken on the
basis of the financial statements. In order to reduce
to an appropriately low level the probability that
any misstatements exceed materiality, we use a
lower materiality level, performance materiality, to
determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
The materiality for the Group financial statements as
a whole was set at £2.6 million. This was determined
with reference to a benchmark of Group property assets
(of which it represents 1.0%) which we consider to be
one of the principal considerations for members of the
Company in assessing the financial performance of this
asset based group. The materiality for the Company
financial statements was set at £1.7 million, determined
with reference to a benchmark of the Company’s total
assets (of which it represents 1.0%).
ISAs (UK) also allow the auditor to set a lower
materiality for particular classes of transactions, balances
or disclosures for which misstatements of lesser
amounts than materiality for the financial statements as
a whole could reasonably be expected to influence the
economic decisions of users taken on the basis of the
financial statements. In this context, we set a lower level
of materiality of £220,000 to apply to those classes of
transactions and balances which impact on the Group’s
EPRA earnings.
We set performance materiality at 75% of the respective
materiality level, having considered a number of
factors including the expected total value of known
and likely misstatements based on previous assurance
engagements and other factors.
We agreed with the Audit Committee that we would
report to the Committee all individual audit differences
in excess of £130,000. We also agreed to report
differences in excess of £11,000 that impacted upon
EPRA earnings and others that, in our view, warranted
reporting on qualitative grounds.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an
understanding of the group and its environment,
including the Group’s system of internal control, and
assessing the risks of material misstatement at the
Group level. Audit work to respond to the assessed risks
was performed directly by the group audit engagement
team who performed full scope audit procedures on the
parent company and its subsidiary undertakings.
Other information
The Directors are responsible for the other information.
The other information comprises the information
included in the Annual Report and Accounts, other
than the financial statements and our auditor’s report
thereon. Our opinion on the financial statements does
not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify
such material inconsistencies or apparent material
misstatements, we are required to determine whether
there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed,
we conclude that there is a material misstatement of the
other information, we are required to report that fact.
A N N U A L R E P O RT 2 0 1 8 4 1
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME RE IT PL C CONTINUED
We have nothing to report in this regard.
In this context, we also have nothing to report in
regard to our responsibility to specifically address the
following items in the other information and to report
as uncorrected material misstatements of the other
information where we conclude that those items meet
the following conditions:
• Fair, balanced and understandable set out on page 32
– the statement given by the directors that they
consider the annual report and financial statements
taken as a whole is fair, balanced and understandable
and provides the information necessary for
shareholders to assess the Group’s performance,
business model and strategy, is materially inconsistent
with our knowledge obtained in the audit; or
• Audit Committee reporting set out on page 28 – the
section describing the work of the Audit Committee
does not appropriately address matters communicated
by us to the Audit Committee; or
• Directors’ statement of compliance with the UK
Corporate Governance Code set out on page 37 – the
parts of the Directors’ statement required under the
Listing Rules relating to the Company’s compliance
with the UK Corporate Governance Code containing
provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not
properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the
course of the audit:
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with
the financial statements; and
• the Strategic Report and the Directors’ Report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of
the Group and Company and its environment obtained
in the course of the audit, we have not identified
material misstatements in the strategic report or the
Directors’ Report.
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by
the Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns;
or
• certain disclosures of Directors’ remuneration specified
by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors’
Responsibilities set out on page 37, the Directors
are responsible for the preparation of the financial
statements and for being satisfied that they give a
true and fair view, and for such internal control as
the Directors determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors
are responsible for assessing the Group’s and 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 Group or the Company or to cease
operations, or have no realistic alternative but to
do so.
4 2 S U P E R M A R K E T I N C O M E R E I T P L C
Use of our report
This report is made solely to the parent company’s
members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the parent
company’s members those matters we are required to
state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other
than the company and the parent company’s members
as a body, for our audit work, for this report, or for the
opinions we have formed.
Russell Field (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
4 September 2018
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole are
free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of
assurance but is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part
of our auditor’s report.
Other matters which we are required to address
Following the recommendation of the Audit Committee,
we were appointed by the Directors in June 2017 to audit
the financial statements for the period ending 30 June
2018 and subsequent financial periods. The period of
total uninterrupted engagement is therefore one year.
The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the parent
company and we remain independent of the Group and
the parent company in conducting our audit.
Our audit opinion is consistent with the additional
report to the Audit Committee.
A N N U A L R E P O RT 2 0 1 8 4 3
CONSO LI D ATED STATEMENT O F COMPREHENSIVE INCOME
FOR T H E PE R IOD F ROM 1 J U N E 2017 TO 3 0 J U N E 2018
Rental income
Administrative and other expenses
Operating profit before changes in fair value
of investment properties
Changes in fair values of investment properties
Operating profit
Finance expense
Profit before taxation
Tax charge for the period
Profit for the period
Items to be reclassified to profit or loss in subsequent periods
Changes in fair value of interest rate derivatives
Total other comprehensive income for the period
Total comprehensive income for the period attributable
to ordinary shareholders
Earnings per share – basic and diluted
No operations were discontinued in the financial period.
The notes on pages 48 to 65 form part of these financial statements.
Notes
4
5
12
8
9
16
10
1 June 2017 to
30 June 2018
£000
8,942
(2,097)
6,845
(4,081)
2,764
(1,917)
847
(227)
620
(82)
538
538
0.5p
4 4 S U P E R M A R K E T I N C O M E R E I T P L C
CO NSO LI D ATED STATEMENT OF FINANC IAL POSITION
A S AT 3 0 J U N E 2018
Notes
As at
30 June 2018
£000
Non-current assets
Investment properties
Interest rate derivatives
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Non-current liabilities
Bank borrowings
Total non-current liabilities
Current liabilities
Deferred rental income
Corporation tax liability
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium reserve
Capital reduction reserve
Retained earnings
Cash flow hedge reserve
Total equity
Net asset value per share – basic and diluted
EPRA NAV per share
12
16
14
17
15
19
19
19
23
23
264,900
37
264,937
1,035
2,239
3,274
268,211
88,099
88,099
1,666
227
1,473
3,366
91,465
176,746
1,844
149,039
25,325
620
(82)
176,746
96p
96p
The notes on pages 48 to 65 form part of these financial statements.
The Consolidated financial statements were approved and authorised for issue by the Board of Directors
on 4 September 2018 and were signed on its behalf by:
Nick Hewson
Chairman
A N N U A L R E P O RT 2 0 1 8 4 5
CONSO LI D ATED STATEMENT O F CHANGES IN EQUITY
FOR T H E PE R IOD F ROM 1 J U N E 2017 TO 3 0 J U N E 2018
Share
capital
£000
Share
premium
reserve
£000
Cash flow
hedge
reserve
£000
Capital
reduction
reserve
£000
Retained
earnings
£000
As at 1 June 2017
Comprehensive income for
the period
Profit for the period
Other comprehensive income
Total comprehensive income
for the period
Transactions with owners
Ordinary shares issued at a
premium during the period
Share issue costs
Issue of redeemable
preference shares
Redemption of redeemable
preference shares
Transfer to capital
reduction reserve
Interim dividends paid
–
–
–
–
–
–
–
–
–
–
1,844
–
183,156
(4,117)
12
(12)
–
–
–
–
(30,000)
–
–
–
–
(82)
(82)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
30,000
(4,675)
–
–
620
–
620
–
–
–
–
–
–
Total
£000
–
–
620
(82)
538
185,000
(4,117)
12
(12)
–
(4,675)
As at 30 June 2018
1,844
149,039
(82)
25,325
620
176,746
The notes on pages 48 to 65 form part of these financial statements.
4 6 S U P E R M A R K E T I N C O M E R E I T P L C
CO NSO LI D ATED CA SH FLO W
FOR T H E PE R IOD F ROM 1 J U N E 2017 TO 3 0 J U N E 2018
Operating activities
Profit for the period (attributable to ordinary shareholders)
Adjustments for:
Changes in fair value of Investment properties
Movement in rent smoothing adjustments
Finance expense
Tax expense
Cash flows from operating activities before changes
in working capital
Increase in trade and other receivables
Increase in deferred rental income
Increase in trade and other payables
Cash flows from operating activities
Investing activities
Acquisition of investment properties
Capitalised acquisition costs
Net cash flows from investing activities
Financing activities
Proceeds from issue of ordinary share capital
Costs of share issues
Issue of redeemable preference shares
Redemption of redeemable preference shares
Bank borrowings drawn
Bank borrowings repaid
Loan arrangement fees paid
Bank interest paid
Bank commitment fees paid
Interest rate cap premium paid
Dividends paid to equity holders
Net cash flows from financing activities
Net increase in cash and cash equivalents for the period
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
The notes on pages 48 to 65 form part of these financial statements.
Notes
1 June 2017 to
30 June 2018
£000
12
4
8
9
12
19
19
19
19
17
17
17
17
17
16
11
620
4,081
(328)
1,917
227
6,517
(1,035)
1,666
913
8,061
(254,540)
(14,113)
(268,653)
185,000
(4,117)
12
(12)
98,430
(9,586)
(1,029)
(1,053)
(94)
(158)
(4,562)
262,831
2,239
–
2,239
A N N U A L R E P O RT 2 0 1 8 4 7
NOTES TO THE CONS OLIDAT E D F I NANCIAL STATEM ENTS
1. Basis of preparation
General information
Supermarket Income REIT plc (“the Company”) is a company registered in England and Wales with its registered office
at 7th Floor 9 Berkeley Street, London, United Kingdom, W1J 8DW. The principal activity of the Company and its
subsidiaries (“the Group”) is to provide its shareholders with an attractive level of income together with the potential
for capital growth by investing in a diversified portfolio of supermarket real estate assets in the UK.
At 30 June 2018 the Group comprised the Company and its wholly owned subsidiaries as set out in note 13. Each of
these subsidiaries is incorporated in England and Wales and has the same registered office as the Company.
These consolidated financial statements for the period, from the Company’s incorporation on 1 June 2017
to 30 June 2017, have been prepared in accordance with:
• International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB)
as adopted by the European Union (IFRS);
• The Disclosure and Transparency Rules of the Financial Conduct Authority; and
• The Companies Act 2006, as applicable to companies reporting under IFRS.
Accounting convention and currency
The audited consolidated financial statements (“the financial statements”) have been prepared on a historical cost basis,
except that investment properties and interest rate derivatives are measured at fair value.
The financial information is presented in Pounds sterling and all values are rounded to the nearest thousand (£000),
except where otherwise indicated. Pounds sterling is the functional currency of the Company and the presentation
currency of the Group.
Going concern
In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial
Reporting Council.
During the period covered by this report, the Group has raised a total of £185 million from the issue of equity shares and
a further £100 million under the HSBC credit facility referred to in note 17, of which a total of £11.2 million remained
available for drawdown as at 30 June 2018. All financial covenants have been met to date.
During July 2018 the Group entered into a £52.1 million credit facility with Bayerische Landesbank and acquired a
further investment property for £51.7 million plus acquisition costs. Further details are set out in note 25.
The Group generated net cash flow from operating activities in the period of £8.1 million, with its cash balances at 30
June 2018 totalling £2.2 million and the Group having no capital commitments or contingent liabilities as at that date.
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 annual RPI rent reviews.
As a result, the Directors believe that the Group is well placed to manage its financing and other business risks and that
the Group will remain viable, continuing to operate and meet its liabilities as they fall due. The Directors are therefore of
the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.
New standards, interpretations and amendments
The new standards, interpretations and amendments set out below, which are all not yet effective and have not been
early adopted in these financial statements, may have an effect on the future financial statements of the Group.
Description of new standards:
• IFRS 9 “Financial Instruments”: This standard is replacing IAS 39 “Financial Instruments” and contains two primary
measurement categories for financial assets. The standard also introduces new requirements that align hedge
accounting more closely with risk management and establishes a more principles-based approach. This standard has
been endorsed by the European Union and is to be effective for annual periods beginning on or after 1 January 2018.
• IFRS 15 “Revenue from contracts with customers”: This standard is replacing IAS 11 “Construction Contracts” and
IAS 18 “Revenue”. The standard introduces a new revenue recognition model that recognises revenue either at a point
in time or over time. This standard has been endorsed by the European Union and is to be effective for annual periods
beginning on or after 1 January 2018.
4 8 S U P E R M A R K E T I N C O M E R E I T P L C
• IFRS 16 “Leases”: This standard introduces a single, on-balance sheet accounting model for leases which refers
primarily to accounting for lessees. Lessors continue to classify leases as operating or finance, with IFRS 16’s
approach to lessor accounting substantially unchanged from its predecessor, IAS 17. This standard has been endorsed
by the European Union and is to be effective for annual periods beginning on or after 1 January 2019.
Current assessment of expected impact:
The Directors do not currently anticipate that the adoption of IFRS 9 will have a material impact on the financial
statements, other than on presentation and disclosure, when the standard is first required to be applied by the Group,
assuming that the existing capital structure and financing arrangements remain in place when it becomes effective.
Under IFRS 9 financial instruments, trade and other receivables, trade and other payables and borrowings would be
classified and measured at amortised cost. This is in line with the accounting policies already adopted for these
financial instruments.
Under IFRS 9 expected credit losses would be recognised from the point at which financial instruments are originated or
purchased. There would no longer be a threshold (such as a trigger loss event of default) before expected credit losses would
start to be recognised. With limited exceptions, a 12-month expected credit losses must be recognised initially
for all assets subject to impairment. For example, an entity recognises a loss allowance at the initial recognition of a
purchased debt instrument rather than when an event of default by the issuer occurs. The amount of expected credit losses
that are recognised would depend on the change in the credit quality since initial recognition to reflect the link between
expected credit losses and the pricing of the financial instrument. With limited exceptions, IFRS 9 requires that at each
reporting date, an entity shall measure the loss allowance for a financial instrument at an amount equal to the lifetime
expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition.
The Group’s assessment in applying the new impairment approach to financial assets at amortised cost as required
under IFRS 9 for expected credit losses is not expected to result in any material changes given the Group’s requirement
for tenants to pay rental payments in advance. Therefore there is no restatement anticipated in the current period once
the standard is adopted and becomes effective.
The Group’s revenues are currently all derived from property leases, which are outside the scope of IFRS 15 but within
the scope of IFRS 16. The Directors therefore do not currently expect that IFRS 15 will have an impact on the financial
statements when the standard is first required to be applied by the Group.
Since IFRS 16 will not result in significant changes of accounting policies for lessors, the Directors do not currently
expect that the adoption of this standard will have a material impact on the financial statements when first required to
be applied by the Group.
2. Significant accounting judgements, estimates and assumptions
In the application of the Group’s accounting policies, which are summarised in note 3, the Directors are required to
make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements
and the disclosures therein.
The judgements estimates and assumptions that the Directors consider have a significant risk of causing a material
adjustment to the carrying amounts of the Group’s assets and liabilities within the next 12 months are outlined below.
Key estimate: Fair value of investment properties
The valuation of the Group’s investment properties is at fair value, which is determined by the Group’s independent valuer
on the basis of market value in accordance with the RICS Valuation – Global Standards (the ‘Red Book’). Recognised
valuation techniques are used by the independent valuer which are in accordance with those recommended by the
International Valuation Standard Committee and compliant with IFRS 13 “Fair Value Measurement.”
The independent valuer is considered to have sufficient current local and national knowledge of the supermarket property
market and the requisite skills and understanding to undertake the valuation competently.
In forming an opinion as to fair value, the independent valuer makes a series of assumptions, which are typically market-related,
such as those in relation to net initial yields and expected rental values. These are based on the independent valuer’s professional
judgement. Other factors taken into account by the independent valuer in arriving at the valuation of the Group’s investment
properties include the length of property leases, the location of the properties and the strength of tenant covenants.
A N N U A L R E P O RT 2 0 1 8 4 9
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
2. Significant accounting judgements, estimates and assumptions continued
The fair value of the Group’s investment properties as determined by the independent valuer, along with the significant
methods and assumptions used in estimating this fair value, are set out in note 12.
Key judgement: Acquisition of investment properties
The Group has acquired and intends to acquire further investment properties. At the time of each purchase the
Directors assess whether an acquisition represents the acquisition of an asset or the acquisition of a business.
To date all acquisitions of properties have been direct asset purchases. The Group may in future acquire entities that own
property assets. These acquisitions would be accounted for as a business combination only if an integrated set of activities
were to be acquired in addition to the property. In the situations where such an acquisition was not be judged
to be an acquisition of a business, the Group would not treat it as a business combination. Rather, the cost to acquire the
entity concerned would be allocated between the identifiable assets and liabilities of the entity based upon their relative fair
values at the acquisition date. Accordingly, no goodwill or additional deferred taxation would arise from such an acquisition.
Key judgement: Operating lease contracts – the Group as lessor
The Group has acquired investment properties that are subject to commercial property leases with tenants.
The Directors have concluded, based on an evaluation of the terms and conditions of the arrangements, in particular
the duration of the lease terms and the minimum lease payments, that the Group retains all the significant risks and
rewards of ownership of the properties acquired to date and so has accounted for these leases as operating leases
rather than finance leases. Such considerations are required each time that the Group acquires a new property.
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of the consolidated financial statements are set out below.
3.1 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries
drawn up to 30 June 2018.
Subsidiaries are those entities including special purpose entities, directly or indirectly controlled by the Company.
Control exists when the Company is exposed or has rights to variable returns from its investment with the investee and
has the ability to affect those returns through its power over the investee. In assessing control, potential voting rights
that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the
consolidated financial information from the date that control commences until the date that control ceases.
In preparing the consolidated financial information, intra Group balances, transactions and unrealised gains or losses
are eliminated in full.
Uniform accounting policies are adopted for all companies within the Group.
3.2 Segmental information
The Directors are of the opinion that the Group is currently engaged in a single segment business, being investment in
the United Kingdom in supermarket property assets.
3.3 Rental income
Rental income arising on investment properties is accounted for in profit or loss on a straight-line basis over the lease
term, as adjusted for the following:
• Any rental income from fixed and minimum guaranteed rent review uplifts is recognised on a straight line basis over
the shorter of the term to lease expiry or to the first tenant break option;
• Lease incentives are spread evenly over the lease term, even if payments are not made on such a basis. The lease
term is the non-cancellable period of the lease together with any further term for which the tenant has the option
to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will
exercise that option.
Contingent rents, such as those arising from indexed-linked rent uplifts or market-based rent reviews, are recognised
in the period in which they are earned.
5 0 S U P E R M A R K E T I N C O M E R E I T P L C
Where income is recognised in advance of the related cash flows due to fixed and minimum guaranteed rent review
uplifts or lease incentives, an adjustment is made to ensure that the carrying value of the relevant property, including
the accrued rent relating to such uplifts or lease incentives, does not exceed the external valuation.
Rental income is invoiced in advance with that element of invoiced rental income that relates to a future period being
included within current liabilities in the consolidated statement of financial position.
3.4 Finance expense
Finance expenses consist principally of interest payable and the amortisation of loan arrangement fees.
Loan arrangement fees are expensed using the effective interest method over the term of the relevant loan. Interest
payable and other finance costs, including commitment fees, which the Group incurs in connection with bank
borrowings, are expensed in the period to which they relate.
3.5 Administrative and other expenses
Administrative and other expenses, including the investment advisory fees payable to the Investment Adviser, are
recognised in profit and loss on an accruals basis.
3.6 Dividends payable to shareholders
Dividends to the Company’s shareholders are recognised when they become legally payable, as a reduction in equity in
the financial statements. Interim equity dividends are recognised when paid. Final equity dividends will be recognised
when approved by shareholders at an AGM.
3.7 Taxation
Non-REIT taxable income
Taxation on the Group’s profit or loss for the period that is not exempt from tax under the UK-REIT regulations
comprises current and deferred tax, as applicable. Tax is recognised in profit or loss except to the extent that it relates to
items recognised as direct movements in equity, in which case it is similarly recognised as a direct movement in equity.
Current tax is the expected tax payable on any non-REIT taxable income for the period, using tax rates enacted or
substantively enacted at the end of the relevant period.
Entry to the UK-REIT regime
The Group obtained its UK-REIT status effective from 21 December 2017. Entry to the regime results in, subject to
continuing relevant UK-REIT criteria being met, the profits of the Group’s property rental business, comprising both
income and capital gains, being exempt from UK taxation.
The Group intends to ensure that it complies with the UK-REIT regulations on an ongoing basis and regularly monitors
the conditions required to maintain REIT status.
3.8 Investment properties
Investment properties consist of land and buildings (all supermarkets) which are held to earn income together with the
potential for capital growth.
Investment properties are recognised when the risks and rewards of ownership have been transferred and are
measured initially at cost, being the fair value of the consideration given, including transaction costs. Transaction costs
include transfer taxes and professional fees for legal services. Any subsequent capital expenditure incurred in improving
investment properties is capitalised in the period incurred and included within the book cost of the property. All other
property expenditure is written off in profit and loss as incurred.
After initial recognition, investment properties are measured at fair value, with gains and losses recognised in profit and
loss in the period in which they arise.
Gains and losses on disposals of investment properties will be determined as the difference between the net disposal
proceeds and the carrying value of the relevant asset. These will be recognised in profit and loss in the period in which
they arise.
A N N U A L R E P O RT 2 0 1 8 5 1
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
3. Summary of significant accounting policies continued
3.9 Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant Group entity becomes a party to the unconditional
contractual terms of an instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities
are considered by the Directors to be reasonable estimates of their fair values.
Financial assets
Financial assets are recognised initially at their fair value. All of the Group’s financial assets, except interest rate
derivatives, currently constitute “loans and receivables” which are measured at amortised cost using the effective
interest method, less any impairment.
Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three
months or less.
Trade and other receivables
Trade and other receivables, including rents receivable, are recognised and carried at the lower of their original invoiced
value and recoverable amount. A provision for impairment will be made where there is objective evidence that the Group
will not be able to recover balances in full. Balances will be written-off in profit or loss in circumstances where the
probability of recovery is assessed as being remote.
Trade and other payables
Trade and other payables are recognised initially at their fair value and subsequently at amortised cost.
Bank borrowings
Bank borrowings are initially recognised at fair value net of attributable transaction costs. After initial recognition,
bank borrowings are subsequently measured at amortised cost, using the effective interest method. The effective
interest rate is calculated to include all associated transaction costs.
Derivative financial instruments and hedge accounting
The Group’s derivative financial instruments currently comprise interest rate caps that are designated as hedging
instruments and for which hedge accounting is being applied. These instruments are used to manage the Group’s cash
flow interest rate risk.
The instruments are initially recognised at fair value on the date that the derivative contract is entered into, being the
cost of any premium paid at inception, and are subsequently re-measured at their fair value at each reporting date.
Fair value measurement of derivative financial
The fair value of derivative financial instruments is the estimated amount that the Group would receive or pay to
terminate the agreement at the period end date, taking into account current interest rate expectations and the current
credit rating of the relevant group entity and its counterparties.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs
significant to the fair value measurement as a whole.
A number of assumptions are used in determining the fair values including estimations over future interest rates and
therefore future cash flows. The fair value represents the net present value of the difference between the cash flows
produced by the contract rate and the valuation rate.
Hedge accounting
At the inception of a hedging transaction, the Group documents the relationship between hedging instruments and
hedged items, as well as its risk management objectives and strategy for undertaking the hedging transaction.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
5 2 S U P E R M A R K E T I N C O M E R E I T P L C
Assuming the criteria for applying hedge accounting continue to be met the effective portion of gains and losses on the
revaluation of such instruments are recognised in other comprehensive income and accumulated in the cash flow
hedging reserve. Any ineffective portion of such gains and losses will be recognised in profit or loss within finance
income or expense as appropriate.
The cumulative gain or loss recognised in other comprehensive income is reclassified from the cash flow hedge reserve
to profit or loss (finance expense) at the same time as the related hedged interest expense is recognised.
3.10 Equity instruments
Equity instruments issued by the Company are recorded at the amount of the proceeds received, net of directly
attributable issue costs. Costs not directly attributable to the issue are immediately expensed in profit or loss.
Further details of the accounting for the proceeds from the issue of shares in the period are disclosed in note 19.
3.11 Fair value measurements and hierarchy
Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on the
presumption that the transaction takes place either in the principal market for the asset or liability, or in the absence
of a principal market, in the most advantageous market. It is based on the assumptions that market participants would
use when pricing the asset or liability, assuming they act in their economic best interest. A fair value measurement of
a non-financial asset takes into account the best and highest value use for that asset.
The fair value hierarchy to be applied under IFRS 13 is as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are carried at fair value and which will be recorded in the financial information on
a recurring basis, the Group will determine whether transfers have occurred between levels in the hierarchy by
reassessing categorisation at the end of each reporting period.
3.12 Occupational leases
The Directors exercise judgement in considering the potential transfer of the risks and rewards of ownership in
accordance with IAS 17 “Leases” for all occupational leases and head leases and determine whether such leases
are operating leases. A lease is classified as a finance lease if substantially all of the risks and rewards of ownership
transfer to the lessee. If the Group substantially retains those risks, a lease is classified as an operating lease.
All occupational leases reflected in these financial statements are classified as operating leases.
4. Rental income
Rental income – freehold property
Rental income – long leasehold property
Total rental income
1 June 2017 to
30 June 2018
£000
3,510
5,432
8,942
Included within rental income is a £328,000 rent smoothing adjustment that arises as a result of IAS 17 ‘Leases’
requiring that rental income in respect of leases with rents increasing by a fixed percentage to be accounted for on
straight-line basis over the lease term. During the period 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 £5,432,000 relating to the Group’s largest tenant and £3,510,000
relating to the Group’s second largest tenant.
A N N U A L R E P O RT 2 0 1 8 5 3
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
5. Administrative and other expenses
Investment Adviser fees (note 24)
Directors’ remuneration (note 7)
Corporate administration fees
Legal and professional fees
Other administrative expenses
Total administrative and other expenses
1 June 2017 to
30 June 2018
£000
1,079
160
216
297
345
2,097
The fees relating to the issue of shares in the period have been treated as share issue expenses and offset against
the share premium reserve. Legal and professional fees and other administrative expenses include £260,000 of
non-recurring costs relating to the establishment of the Company.
6. Operating profit
Operating profit is stated after charging fees for:
Audit of the Company’s consolidated and individual financial statements
Audit of subsidiaries, pursuant to legislation
Total audit services
Audit-related services: audit of the Historical Financial Information for
the period ended 31 December 2017 for inclusion in the April 2018 Prospectus
Audit-related services: interim review for the period ended 31 December 2017
Audit-related services: audit of the Company’s initial financial
information to 18 September 2017
Total audit and audit-related services
1 June 2017 to
30 June 2018
£000
55
15
70
55
20
10
155
The Group’s auditor also provided the following services in relation to the placing of share capital and the fees for which
have been recognised within equity as a deduction from share premium:
Other non-audit services: corporate finance services in
connection with the July 2017 placing
Other non-audit services: corporate finance services in
connection with the May 2018 placing
Total other non-audit services
Total fees charged by the Group’s auditor
1 June 2017 to
30 June 2018
£000
40
30
70
225
The other non-audit services charged to income in the current period relate to work as Reporting Accountants in
connection with the share placings in July 2017 and May 2018. The audit-related services are as described above.
5 4 S U P E R M A R K E T I N C O M E R E I T P L C
7. Directors’ remuneration
The Group had no employees in the current period. The Directors, who are the key management personnel of the
Company, are appointed under letters of appointment for services. Directors’ remuneration, all of which represents fees
for services provided, was as follows:
Directors’ fees
Employer’s National Insurance Contribution
Total Directors’ remuneration
1 June 2017 to
30 June 2018
£000
142
18
160
Further details of Directors’ remuneration is set out in the Remuneration Report. The highest paid Director received
£60,000 for services during the period.
8. Finance expense
Interest payable on bank borrowings and hedging arrangements
Commitment fees payable
Amortisation of loan arrangement fees
Amortisation of interest rate derivative premium (note 16)
Total finance expense
1 June 2017 to
30 June 2018
£000
1,495
99
284
39
1,917
The Group’s sensitivity to changes in interest rates, calculated on the basis of a ten-basis point increase or decrease in
LIBOR, was as follows:
Effect on profit for the period
Effect on other comprehensive income and equity
1 June 2017 to
30 June 2018
£000
70
7
The Group receives interest on its cash and cash equivalents so an increase in interest rates would also increase
finance income.
9. Taxation
A) Tax charge in profit or loss
UK corporation tax
1 June 2017 to
30 June 2018
£000
227
The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the
UK REIT regime exempts the profits of the Group’s property rental business from UK corporation tax. To operate as a UK
Group REIT a number of conditions had to be satisfied in respect of the Company, the Group’s qualifying activity and the
Group’s balance of business. Since 21 December 2017 the Group has met all such applicable conditions. In the
intervening period from incorporation of the Company on 1 June 2017 to 21 December 2017 the Group was subject to UK
corporation tax on its property rental business at an effective rate of 19%, resulting in the above tax liability.
The reconciliation of the profit before tax multiplied by the standard rate of corporation tax for the period of 19% to the
total tax charge is as follows:
A N N U A L R E P O RT 2 0 1 8 5 5
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
9. Taxation continued
B) Reconciliation of the tax charge for the period
Profit on ordinary activities before taxation
Theoretical tax at UK standard corporation tax rate of 19%
Effects of:
Investment property revaluation not taxable
REIT exempt income
Tax charge for the period
10. Earnings per share
1 June 2017 to
30 June 2018
£000
847
160
776
(709)
227
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 calculation of basic, diluted and EPRA EPS is as follows:
For the period from 1 June 2017 to 30 June 2018
Basic and diluted EPS
Adjustments to remove:
Changes in fair value of investment properties
EPRA EPS
Net profit
attributable
to ordinary
shareholders
£000
Weighted
average
number of
ordinary
shares1
Number
620
124,235,902
4,081
–
4,701
124,235,902
Earnings
per share
Pence
0.5p
3.3p
3.8p
1 Based on the weighted average number of ordinary shares in issue from the date of the initial public offering to 30 June 2018. This excludes the
period from 1 June 2017 to 20 July 2017 when the Group was effectively dormant.
11. Dividends
Amounts recognised as a distribution to ordinary shareholders in the period:
Dividends paid
1 June 2017 to
30 June 2018
£000
4,675
On 28 September 2017, the Board declared its first interim dividend of 1.375 pence per share which was paid on
27 October 2017 to shareholders on the register on 5 October 2017.
On 5 February 2018 the Board declared a second interim dividend of 1.375 pence per share which was paid on
3 March 2018 to shareholders on the register on 15 February 2018.
On 16 April 2018 the Board declared a third interim dividend of 1.375 pence per share which was paid on 22 May 2018
to shareholders on the register on 26 April 2018.
On 17 July 2018, the Board declared a fourth interim dividend of 1.375 pence per share, which was paid on
23 August 2018 to shareholders on the register on 26 July 2018. This has not been included as a liability as at
30 June 2018.
5 6 S U P E R M A R K E T I N C O M E R E I T P L C
12. Investment properties
In accordance with IAS 40 “Investment Property”, the Group’s investment properties have been independently valued
at fair value by Cushman & Wakefield, an accredited independent valuer with a recognised and relevant professional
qualification and with recent experience in the locations and categories of the investment properties being valued.
The valuations have been prepared in accordance with the RICS Valuation – Global Standards (the “Red Book”) and
incorporate the recommendations of the International Valuation Standards Committee which are consistent with
the principles set out in IFRS 13.
The independent valuer in forming its opinion on valuation makes a series of assumptions. As explained in note 2,
all the valuations of the Group’s investment property at 30 June 2018 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.
At 1 June 2017
Property additions:
Capitalised acquisition costs
Revaluation movement
Valuation at 30 June 2018
Freehold
£000
–
79,885
4,462
(997)
Long
Leasehold
£000
–
174,655
9,651
(2,756)
Total
£000
–
254,540
14,113
(3,753)
83,350
181,550
264,900
All property acquisitions in the period were direct asset acquisitions.
Of the four properties held under long leaseholds, one has 160 years unexpired on the headlease with the option to
extend and option to acquire, and the other three have 987 years unexpired. The Group has no material liabilities in
respect of these headleases.
Included within the carrying value of investment properties at 30 June 2018 is £328,000 in respect of the smoothing of
fixed contractual rent uplifts as described in note 4. The difference between rents on a straight-line basis and rents
actually receivable is included within the carrying value of the investment properties but does not increase that carrying
value over fair value. The effect of this adjustment on the revaluation movement for the period is as follows:
Revaluation movement per above
Rent smoothing adjustment (note 4)
Change in fair value recognised in profit or loss
Valuation techniques and key unobservable inputs
1 June 2017 to
30 June 2018
£000
(3,753)
(328)
(4,081)
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
These include but are not limited to: the estimated rental value (“ERV”) based on market conditions prevailing at the
valuation date; the future rental growth – the estimated average increase in rent based on both market estimations
and contractual situations; the equivalent yield (defined as the weighted average of the net initial yield and reversionary
yield); and the physical condition of the individual properties determined by inspection.
A decrease in ERV would decrease the fair value. A decrease in the equivalent yield would increase the fair value.
A N N U A L R E P O RT 2 0 1 8 5 7
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
12. Investment properties continued
Sensitivity of measurement of significant unobservable inputs
As described in note 2 to the financial information the determination of the valuation of the Group’s investment
property portfolio is open to judgements and is inherently subjective by nature.
Sensitivity analysis – impact of changes in initial yields and passing rent
Initial yields of the Group’s investment properties at 30 June 2018 range from 4.29% to 5.47%. A 0.25% shift of the initial
yield on all the Group’s investment properties would have an approximate £13.1 million impact on the total valuation of
the properties. A 1% movement in the passing rents across all the Group’s investment properties would have
approximately a £2.6 million impact on the total valuation of the properties.
13. Subsidiaries
The companies listed in the following table were the subsidiary undertakings of the Company at 30 June 2018, all of
which are wholly owned. All subsidiary undertakings are incorporated in England with their registered office at 7th floor,
9 Berkeley Street, London, W1J 8DW.
Company name
Nature of business
Supermarket Income Investments UK Limited
Supermarket Income Investments (Midco2) UK Limited
Supermarket Income Investments UK (NO1) Limited
Supermarket Income Investments UK (NO2) Limited
Supermarket Income Investments UK (NO3) Limited
Supermarket Income Investments UK (NO4) Limited
Supermarket Income Investments UK (NO5) Limited
Supermarket Income Investments UK (NO6) Limited
14. Trade and other receivables
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Intermediate parent company
Intermediate parent company
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Other receivables
Prepayments and accrued income
Total trade and other receivables
All trade receivables relate to amounts that are less than 30 days overdue as at the period end date.
15. Trade and other payables
Corporate accruals
VAT payable
Total trade and other payables
All trade and other payables relate to amounts that are less than 30 days overdue at the period end date.
As at
30 June 2018
£000
29
1,006
1,035
As at
30 June 2018
£000
1,132
341
1,473
5 8 S U P E R M A R K E T I N C O M E R E I T P L C
16. Interest rate derivatives
Non-current asset: Interest rate cap
The interest rate cap is remeasured to fair value by the counterparty bank on a quarterly basis.
The fair value at the end of the period comprises:
Interest rate cap premium paid on inception
Amortisation in the period (note 8)
Change in fair value in the period
Fair value as at 30 June 2018
As at
30 June 2018
£000
37
£000
158
(39)
(82)
37
To partially mitigate the interest rate risk that arises as a result of entering into the variable rate credit facility referred to in
note 17, the Group entered into a derivative interest rate cap (“the cap”) during the period. The total notional value of the
cap was £63.5 million with its term coinciding with the expiry of the initial term of the credit facility. The strike rate of the
cap as at 30 June 2018 was 1.75% which caps the Group’s cost of borrowing at 3.35% on the hedged notional amount.
It is the Group’s target to hedge at least 60% of the Group’s total debt at any time using interest rate derivatives.
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 variable rate linked loans. Changes in the fair values of derivatives that are designated as cash flow
hedges and are effective are recognised directly in the cash flow hedge reserve and included in other comprehensive income.
Any ineffectiveness that may arise in this hedge relationship will be included in profit or loss.
The interest rate derivative valuation is classified as “level 2” in the fair value hierarchy as defined in IFRS 13.
17. Bank borrowings
Amounts falling due after more than one year:
Secured debt
Less: Unamortised finance costs
Bank borrowings per the consolidated statement of financial position
As at
30 June 2018
£000
88,844
(745)
88,099
On 30 August 2017 the Group secured a revolving credit facility (the “credit facility”) of £100 million with HSBC Bank Plc.
The credit facility has a maturity of three years and contains options for extension of two years (split into two, one-year
extensions). The extension options require the agreement of both the Group and counterparty bank in order to exercise.
All the advances drawn under the credit facility have an interest charge which is payable quarterly based on a margin
above three-month LIBOR. The margin payable by the Group on its bank borrowings as at 30 June 2018 was 165 basis
points above three-month LIBOR.
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 facility as shown in the table above.
The Group has been in compliance with all of the financial covenants under the credit facility throughout the period.
The bank borrowings are secured by way of charges over the individual investment properties held by certain asset-holding
subsidiaries. The lending bank also holds charges over the shares of these subsidiaries and any intermediary holding
companies of those subsidiaries. At year end, no charge was in place over the Scunthorpe property acquired in May 2018.
The Group does not provide any cross-group guarantees nor does the Company act as a guarantor to the lending bank.
At 30 June 2018, £88.8 million had been drawn down in total under the credit facility. Leaving £11.2 million undrawn.
A new £52.1 million loan facility was subsequently entered into with Bayerische Landesbank in July 2018. Full details
are set out in note 25.
A N N U A L R E P O RT 2 0 1 8 5 9
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
18. Categories of financial instruments
Financial assets
Loans and receivables:
Cash and cash equivalents
Trade and other receivables
Fair value through profit and loss:
Interest rate derivative
Total financial assets
Financial liabilities
Financial liabilities at amortised cost:
Secured debt
Corporation tax liability
Trade and other payables
Deferred rental income
Total financial liabilities
As at
30 June 2018
£000
2,239
1,036
37
3,292
88,099
227
1,473
1,666
91,465
At the balance sheet date, all financial assets and liabilities were measured at amortised cost except for the interest
rate derivative which is measured at fair value. The interest rate derivative valuation is classified as “level 2” in the fair
value hierarchy as defined in IFRS 13 and its fair value was calculated using the present values of future cash flows,
based on market forecasts of interest rates and adjusted for the credit risk of the counterparties.
Financial risk management
Through the Group’s operations and use of debt financing it is exposed to certain risks. The Group’s financial risk
management objective is to minimise the effect of these risks, for example by using an interest rate cap to partially
mitigate exposure to fluctuations in interest rates, as described in note 16.
The exposure to each financial risk considered potentially material to the Group, how it arises and the policy for
managing it is summarised below.
Market risk
Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in market prices. The Group’s market risk arises from open positions in interest-bearing assets and
liabilities, to the extent that these are exposed to general and specific market movements.
The Group’s interest-bearing financial instruments comprise cash and cash equivalents and bank borrowings. Changes
in market interest rates therefore affect the Group’s finance income and costs, although the Group has purchased an
interest rate cap as described in note 16 in order to partially mitigate the risk in respect of finance costs. The Group’s
sensitivity to changes in interest rates, calculated on the basis of a ten-basis point increase or decrease in closing
three-month LIBOR, was as follows:
Effect on profit for the current period
Effect on other comprehensive income and equity
1 June 2017 to
30 June 2018
£000
70
7
Trade and other receivables and payables are interest free as long as they are paid in accordance with their terms,
and have payment terms of less than one year, so it is assumed that there is no material interest rate risk associated
with these financial instruments.
The Group prepares its financial information in sterling and all of its current operations are sterling denominated.
It therefore has no exposure to foreign currency and does not have any direct sensitivity to changes in foreign currency
exchange rates.
6 0 S U P E R M A R K E T I N C O M E R E I T P L C
Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations.
The principal counterparties are the Group’s tenants (in respect of trade receivables arising under operating leases)
and banks (as holders of the Group’s cash deposits).
The credit risk of trade receivables is considered low because the counterparties to the operating leases are considered
by the Board to be high-quality tenants and any lease guarantors are of appropriate financial strength. Rent collection
dates and statistics are monitored to identify any problems at any early stage, and if necessary rigorous credit control
procedures will be applied to facilitate the recovery of trade receivables. The Group does not hold any financial assets
which are either past due or impaired. The credit risk on cash deposits is limited because the counterparties are banks
with credit ratings which are acceptable to the Board and are kept under review each quarter.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance costs and principal repayments
on its secured debt. It is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group seeks to manage its liquidity risk by ensuring that sufficient cash is available to meet its foreseeable needs.
These liquidity needs are relatively modest and are capable of being satisfied by the surplus available after rental receipts
have been applied in payment of interest as required by the credit agreement relating to the Group’s secured debt.
Before entering into any financing arrangements, the Board assesses the resources that are expected to be available to
the Group to meet its liabilities when they fall due. These assessments are made on the basis of both base case and
downside scenarios. The Group prepares detailed management accounts which are reviewed by the Board at least
quarterly to assess ongoing liquidity requirements and compliance with loan covenants. The Board also keeps under
review the maturity profile of the Group’s cash deposits in order to have reasonable assurance that cash will be available
for the settlement of liabilities when they fall due.
Inflation risk arises from the impact of inflation on the Group’s income and expenditure. All of the Group’s passing rent
at 30 June 2018 is subject to inflation-linked annual rent reviews. Consequently, the Group is exposed to movements in
the Retail Prices Index (“RPI”), which is the relevant inflation benchmark. However, all RPI-linked rent review provisions
provide that rents will only be subject to upwards review and never downwards. As a result, the Group is not exposed to
a fall in rent in deflationary conditions.
The following table shows the maturity analysis for financial assets and liabilities. The table has been drawn up based
on the undiscounted cash flows of financial liabilities, including future interest payments, based on the earliest date
on which the Group can be required to pay and assuming that three-month LIBOR remains at the 30 June 2018 rate.
As at
30 June 2018
Financial assets:
Cash and cash equivalents
Trade and other receivables
Fair value through profit and loss
Total financial assets
Financial liabilities:
Bank borrowings
Trade payables and other payables
Total Financial liabilities
Less than
one year
£000
One to two
years
£000
Two to five
years
£000
More than
five years
£000
2,239
1,016
–
3,274
2,200
1,132
3,332
–
–
–
–
–
–
37
37
4,400
–
4,400
90,283
–
90,283
–
–
–
–
–
–
–
Total
£000
2,239
1,016
37
3,292
96,883
1,132
98,015
Capital risk management
The Board’s primary objective when monitoring capital is to preserve the Group’s ability to continue as a going concern,
while ensuring it remains within its debt covenants so as to safeguard secured assets and avoid financial penalties. Bank
borrowings are secured on the Group’s property portfolio by way of fixed charges over property assets and over the
shares in the property-owning subsidiaries and any intermediary holding companies of those subsidiaries. The Group
does not provide any cross-group guarantees nor does the Company act as a guarantor to the lending bank.
A N N U A L R E P O RT 2 0 1 8 6 1
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
18. Categories of financial instruments continued
At 30 June 2018, the capital structure of the Group consisted of bank borrowings (note 17), cash and cash equivalents,
and equity attributable to the shareholders of the Company (comprising share capital, retained earnings and the other
reserves referred to in notes 19 and 20).
In managing the Group’s capital structure, the Board considers the Group’s cost of capital. In order to maintain or adjust
the capital structure, the Group keeps under review the amount of any dividends or other returns to shareholders and
monitors the extent to which the issue of new shares or the realisation of assets may be required.
Reconciliation of financial liabilities relating to financing activities
At 1 June 2017
Cash flows:
Debt drawdowns in the period
Debt repayments in the period
Interest and commitment fees paid
Loan arrangement fees paid
Interest rate cap premium paid
Non-cash movements:
Finance costs in the statement of comprehensive income
Fair value changes
Bank
borrowings due
in more than
one year
£000
Interest and
commitment
fees payable
£000
Interest rate
derivatives
£000
98,430
(9,586)
–
(1,029)
284
–
–
–
(1,147)
–
1,594
(158)
39
82
Total
£000
98,430
(9,586)
(1,147)
(1,029)
(158)
1,197
1,594
At 30 June 2018
88,099
447
(37)
88,509
Movements in respect to share capital are disclosed in note 19 below.
The interest and commitment fees payable are included within the corporate accruals balance in note 15. Cash flow
movements are included in the consolidated statement of cash flows and the non-cash movements are included in
note 8. The movements in the interest rate derivative financial asset can be found in note 16.
19. Share capital
Ordinary shares
of 1 pence
Number
Share
premium
reserve
£000
Capital
reduction
reserve
£000
As at 1 June 2017
Issue of 1 ordinary share
Issue of 50,000 redeemable preference
shares – one-quarter paid up
Redemption and cancellation
of 50,000 redeemable preference shares
Ordinary shares issued and fully paid –
18 July 2017
Ordinary shares issued and fully paid –
15 November 2017
Ordinary shares issued and fully paid –
25 May 2018
Cancellation of 1 ordinary share
Share issue costs
Transfer to capital reduction reserve
Dividend paid in the period (note 11)
As at 30 June 2018
6 2 S U P E R M A R K E T I N C O M E R E I T P L C
100,000,000
1,000
99,000
Share
capital
£000
–
–
12
(12)
–
1
–
–
19,999,999
64,356,435
(1)
–
184,356,434
–
–
184,356,434
200
644
–
–
1,844
–
–
1,844
–
–
–
–
19,800
64,356
–
(4,117)
179,039
(30,000)
–
–
–
–
–
–
–
–
–
–
30,000
(4,675)
Total
£000
–
–
12
(12)
100,000
20,000
65,000
–
(4,117)
180,883
–
(4,675)
149,039
25,325
176,208
Share allotments and other movements in relation to the capital of the Company in the period:
On incorporation the Company issued 1 ordinary share of one pence which was fully paid up and 50,000 redeemable
preference shares of £1 each which were paid up to one-quarter of their nominal value. Both of these share classes
were issued to Atrato Capital Limited (see note 24). On 18 July 2017 the Directors resolved to redeem the 50,000
redeemable preference shares.
On 16 June 2017, the Board approved a proposed placing and offer for subscription (together the “Placing”). It was
intended that the ordinary shares of the Company to be issued as a result of the Placing would be admitted to trading
on the Specialist Fund Segment of the Main Market of the London Stock Exchange (“Admission”).
On 18 July 2017, the Company issued 100 million ordinary shares of one pence each at a price of £1 per share, raising
gross proceeds from the Placing of £100 million. Admission subsequently took place on 21 July 2017. The consideration
received in excess of the par value of the ordinary shares issued, net of total capitalised issue costs, of £96.9 million
was credited to the share premium reserve.
Following a successful application to the High Court and lodgement of the Company’s statement of capital with the
Registrar of Companies, the Company was permitted to reduce the capital of the Company by an amount of £30 million.
This was effected on 7 September 2017 by a transfer of that amount from the share premium reserve to the capital
reduction reserve. The capital reduction reserve is classed as a distributable reserve and dividends paid by the Company
are currently being offset against this reserve.
On 15 November 2017 the Company completed a second equity fundraising and issued an additional 19,999,999 ordinary
shares of one pence each at a price of £1 per share. The consideration received in excess of the par value of the ordinary
shares issued, net of total capitalised issue costs, of £19.5 million was credited to the share premium reserve.
On 25 May 2018 the Company completed a further equity fundraising and issued an additional 64,356,435 ordinary
shares of one pence each at a price of £1.01 per share. The consideration received in excess of the par value of the
ordinary shares issued, net of total capitalised issue costs, of £64.4 million was credited to the share premium reserve.
Ordinary shareholders are entitled to all dividends declared by the Company and to all of the Company’s assets after
repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the
Company. All ordinary shares carry equal voting rights.
20. Reserves
The nature and purpose of each of the reserves included within equity at 30 June 2018 are as follows:
• Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value
of the shares, net of the direct costs of equity issues
• Cash flow hedge reserve: represents cumulative gains or losses, net of tax, on effective cash flow hedging
instruments
• Capital reduction reserve: represents a distributable reserve created following a Court approved reduction in
capital less dividends paid
• Retained earnings represent cumulative net gains and losses recognised in the statement of comprehensive income.
The only movements in these reserves during the period are disclosed in the consolidated statement of changes in equity.
21. Capital commitments
The Group had no capital commitments outstanding as at 30 June 2018.
A N N U A L R E P O RT 2 0 1 8 6 3
NO TE S TO THE C ONSOLIDATED FINANCIAL STATE ME NTS CONTI NUED
22. Operating leases
The Group’s principal assets are investment properties which are leased to third parties under non-cancellable
operating leases. The weighted average remaining lease term at 30 June 2018 is 18.6 years and there are no break
options. The leases contain either fixed or RPI-linked uplifts.
The future minimum lease payments receivable under the Group’s leases, are as follows:
Within one year
Between one year and five years
More than five years
23. Net asset value per share
As at
30 June 2018
£000
13,758
55,422
194,032
263,212
Basic NAV per share is calculated by dividing the Group’s net assets as shown in the consolidated statement of financial
position that are attributable to the ordinary equity holders of the Company by the number of ordinary shares outstanding
at the end of the period. As there are no dilutive instruments outstanding, basic and diluted NAV per share are identical.
EPRA has issued guidelines aimed at enabling entities to provide a comparable measure of NAV on the basis of long
term fair values. The EPRA measure excludes items that are considered to have no impact in the long term. For the
current period EPRA NAV is calculated as net assets per the consolidated statement of financial position excluding the
fair value of interest rate derivatives.
NAV and EPRA NAV per share calculation are as follows:
Net assets per the consolidated statement of financial position
Fair value of interest rate derivatives
EPRA NAV
Ordinary shares in issue at 30 June 2018
NAV per share – Basic and diluted (pence)
EPRA NAV per share (pence)
24. Transactions with related parties
As at
30 June
2018
£000
176,746
(37)
176,709
Number
184,356,434
96p
96p
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 £55,000 per annum, with the other two
Directors each being paid fees of £35,000 per annum. Jon Austen is paid an additional £5,000 per annum for his role as
chair of the Company’s Audit Committee and Vince Prior is paid an additional £3,500 per annum for his role as Senior
Independent Director.
The total remuneration payable to the Directors in respect of the period to 30 June 2018 was £142,000. There were no
amounts outstanding at the end of the period.
6 4 S U P E R M A R K E T I N C O M E R E I T P L C
Directors’ interests
Details of the direct and indirect interests of the Directors and their close families in the ordinary shares of one pence
each in the Company at 30 June 2018 were as follows:
• Nick Hewson: 360,000 shares (0.20% of issued share capital)
• Jon Austen: 99,000 shares (0.05% of issued share capital)
• Vince Prior: 35,431 shares (0.02% of issued share capital)
b. Investment Adviser
Advisory fees
The investment adviser to the Group, Atrato Capital Limited (the ‘Investment Adviser’), is entitled to certain advisory fees
under the terms of the Investment Advisory Agreement (the ‘Agreement’) dated 20 June 2017.
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 £500 million, which it has not as at 30 June 2018, 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;
• Semi-Annual Management Fee payable semi-annually in arrears: 0.11875% of Adjusted Net Asset Value up to or equal
to £500 million.
For the period to 30 June 2018 the total advisory fees payable to the Investment Adviser were £1,079,000, of which
£304,000 is included in trade and other payables in the consolidated statement of financial position.
Interest in shares of the Company
Details of the direct and indirect interests of the Directors of the Investment Adviser and their close families in the
ordinary shares of one pence each in the Company at 30 June 2018 were as follows:
• Ben Green: 1,009,014 shares (0.55% of issued share capital)
• Steve Windsor: 1,585,000 shares (0.86% of issued share capital)
c. Transactions with other related parties
Morgan Williams acts as the Senior Adviser to the Company, with their appointment being to provide their supermarket
expertise to assist in sourcing suitable assets for investment. Any fees payable to the Senior Adviser form part of the
acquisition costs in relation to the acquisition of the relevant property.
Mark Morgan is a partner in Morgan Williams and sits on the Investment Committee of the Investment Adviser.
In the period to 30 June 2018 the amount payable to Morgan Williams for these services was £1,273,000 all of which has
been capitalised as additions to investment properties. No amounts payable were outstanding at the end of the period.
Other transactions:
Other than those related party transactions disclosed in this or other notes to the financial statements the Directors are
not aware of any transactions with related parties requiring disclosure. The Company does not have an ultimate
controlling party.
25. Post balance sheet events
On 19 July 2018, the Group acquired a Morrisons Supermarket in north-west Sheffield, South Yorkshire for £51.7 million
(excluding acquisition costs). The Company has also arranged a new five-year, interest-only loan facility with Bayerische
Landesbank. The £52.1 million facility has a margin of 125 basis points above three-month LIBOR and is secured against
the new Morrisons supermarket in Sheffield and the Sainsbury’s supermarket in Ashford.
Details of the acquisitions and financing are available in an announcement dated 19 July 2018 which can be found on the
Investor Centre of the Company’s website at www.supermarketincomereit.co.uk.
On 17 July 2018 the Board declared a fourth interim dividend. The dividend of 1.375 pence per ordinary share was paid
on 23 August 2018 to shareholders on the register on 26 July 2018.
A N N U A L R E P O RT 2 0 1 8 6 5
COMPANY STATEMENT OF F I N AN CIAL POSITION
A S AT 3 0 J U N E 2018
Notes
As at
30 June 2018
£000
Non-current assets
Investments in subsidiaries
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total net assets
Equity
Share capital
Share premium reserve
Capital reduction reserve
Accumulated loss
Total equity
C
D
E
F
172,466
172,466
3,780
225
4,005
176,471
609
609
609
175,862
1,844
149,039
25,325
(346)
175,862
The notes on pages 68 to 69 form part of these financial statements.
The Company has taken advantage of the exemption within section 408 of the Companies Act 2006 not to present its own
profit and loss account. The accumulated loss for the year dealt with the financial statements of the Company was
£346,000. As at 30 June 2018 the Company has distributable reserves of £25.4 million.
The Consolidated financial statements were approved and authorised for issue by the Board of Directors on 4 September
2018 and were signed on its behalf by:
Nick Hewson
Chairman
4 September 2018
6 6 S U P E R M A R K E T I N C O M E R E I T P L C
CO MPANY STATEMENT OF C HA NGES IN EQUITY
FOR T H E PE R IOD F ROM 1 J U N E 2017 TO 3 0 J U N E 2018
As at 1 June 2017
Loss for the period
Total comprehensive loss for the period
Transactions with owners
Ordinary shares issued at a premium
during the period
Share
premium
reserve
£000
Capital
reduction
reserve
£000
Accumulated
Loss
£000
Share
capital
£000
–
–
–
–
–
–
–
1,844
183,156
Total
£000
(346)
(346)
185,000
(4,117)
12
(12)
–
(4,675)
(346)
(346)
–
–
–
–
–
–
Share issue costs
Issue of redeemable preference shares
Redemption of redeemable preference shares
Transfer to capital reduction reserve
Interim dividends paid
–
12
(12)
–
–
(4,117)
–
–
(30,000)
–
–
–
–
30,000
(4,675)
As at 30 June 2018
1,844
149,039
25,325
(346)
175,862
The notes on pages 68 to 69 form part of these financial statements.
A N N U A L R E P O RT 2 0 1 8 6 7
NOTES TO THE COMPANY FI NA N CIAL STATEMENTS
A. Basis of preparation
The Company’s financial statements have been prepared in accordance with FRS 102, the Financial Reporting Standard
applicable in the United Kingdom and the Republic of Ireland.
The principal accounting policies relevant to the Company are as follows:
• Investments in subsidiaries are recognised at cost less provision for any impairment;
• Loans and receivables are recognised initially at fair value plus transaction costs less provision for impairment;
• Trade payables are recognised initially at fair value and subsequently at amortised cost;
• Equity instruments are recognised as the value of proceeds received net of direct issue costs; and
• Dividends are recognised as a financial liability and deduction from equity in the period in which they are declared.
In preparing the Company’s financial statements, advantage has been taken of the following disclosure exemptions
available in FRS 102:
• no cash flow statement has been presented;
• disclosures in respect of the Company’s financial instruments have not been presented as equivalent disclosures have
been provided in respect of the Group;
• no reconciliation of the number of shares outstanding at the beginning and end of the year has been presented as it is
identical to the reconciliation for the Group shown in note 18 to the Group financial statements; and
• no disclosure has been given for the aggregate remuneration of the key management personnel of the Company as
their remuneration is shown in note 6 to the Group financial statements.
In the year to 30 June 2019, the Company intends to continue to use these disclosure exemptions unless objections are
received from shareholders.
B. Auditors’ remuneration
The remuneration of the auditors in respect of the audit of the Company’s Consolidated and Individual Financial
Statements for the period was £60,000. Fees payable for non-audit services provided to the Company and the rest of the
Group are disclosed in note 6 to the consolidated financial statements.
C. Investment in subsidiary undertakings
The Company’s wholly owned direct subsidiaries are Supermarket Income Investments UK Limited and Supermarket
Income Investments (Midco2) UK Limited, both of which are incorporated and operating in England with a registered
address of 7th Floor 9 Berkeley Street, London, England, W1J 8DW. The full list of subsidiary entities directly and
indirectly owned by the Company is disclosed in note 13 to the Consolidated Financial Statements.
The movement in the period was as follows:
As at 1 June 2017
Additions
As at 30 June 2018
D. Trade and other receivables
Intercompany receivables
Prepayments and accrued income
Corporation tax receivable
VAT receivable
Other receivables
Total trade and other receivables
6 8 S U P E R M A R K E T I N C O M E R E I T P L C
As at
30 June 2018
£000
–
172,466
172,466
As at
30 June 2018
£000
3,293
19
310
129
29
3,780
E. Trade and other payables
Corporate accruals
Total trade and other payables
F. Share capital
Details of the share capital of the Company are disclosed in note 18 to the Group financial statements.
G. Related party transactions
Details of related party transactions are disclosed in note 24 to the Group financial statements.
As at
30 June 2018
£000
609
609
A N N U A L R E P O RT 2 0 1 8 6 9
UNAU DI TED SU PPLE ME NTARY I N F ORMATION
Key performance indicators
Our objective is to deliver attractive, low-risk returns to shareholders, by executing the Investment Policy. Set out below
are the key performance indicators we use to track our progress.
KPI and definition
Total Shareholder Return for the Period 1 June 2017 to 30 June 2018
Total Shareholder Return is measured by reference to the growth in the
Company’s share price over a period, plus dividends declared over
the same period.
Weighted average unexpired lease term as at 30 June 2018
The average unexpired lease term of the property portfolio,
weighted by valuation.
EPRA NAV per share as at 30 June 2018
The value of our assets (based on an independent valuation)
less the book value of our liabilities, attributable to Shareholders and
calculated in accordance with EPRA guidelines.
Net loan to value ratio
Balance sheet loan amount less cash balances divided by total
investment properties valuation.
Adjusted EPRA cost ratio
Administrative and operating costs (excluding non-recurring costs)
divided by gross rental income.
Earnings per share (EPS)
Earnings attributable to shareholders adjusted for other earnings
not supported by cash flows and calculated in accordance with EPRA guidelines.
Further information on the calculation of our KPIs can be found in pages 68 to 73.
Performance
8%
19 years
96p
32%
20%
3.8p
Total Shareholder Return
Shareholder return is one of the Group’s principal measure of performance. Total Shareholder Return (“TSR”) is
measured by reference to the growth in the Company’s share price over a period, plus dividends. The tables below show
the calculation of TSR for the Period.
Total Shareholder Return
As at
30 June 2018
Pence per share
100.0p
102.5p
2.5p
5.5p
8.0p
8.0%
Share price at IPO
Share price at the end of the year
Increase in share price since IPO
Dividends declared for the Period ending 30 June 2018
Increase in share price plus dividends
Total Shareholder Return
7 0 S U P E R M A R K E T I N C O M E R E I T P L C
Net loan to value ratio
The proportion of our gross asset value that is funded by borrowings calculated as balance sheet borrowings less cash
balances divided by total investment properties valuation.
Net loan to value
Bank borrowings
Less cash and cash equivalents
Net borrowings
Investment properties valuation
Net loan to value ratio
EPRA measures
EPRA NAV per share
EPRA Triple Net Asset Value (NNNAV) per share
EPRA EPS
EPRA Net Initial Yield
EPRA Topped Up Net Initial Yield
EPRA Vacancy Rate
EPRA Cost Ratio
Adjusted EPRA Cost Ratio
Further information on these EPRA measures is included below.
EPRA NAV per share
EPRA NAV (note 10)
Fair value of interest rate derivatives
EPRA NAV
EPRA Triple Net Asset Value Per Share
EPRA NAV (note 10)
Fair value of interest rate derivatives
Adjustments to reflect fair value of bank borrowings
EPRA Triple Net Asset Value Per Share
As at
30 June 2018
£000
88,099
(2,239)
85,860
264,900
32%
As at
30 June 2018
Pence per share
96p
95p
1 June 2017
to 30 June 2018
3.8 pence
4.9%
4.9%
0%
23.4%
20.5%
As at
30 June 2018
£000 Pence per share
176,746
(37)
176,709
96p
–
96p
As at
30 June 2018
£000 Pence per share
176,709
(37)
(745)
175,927
96p
–
(1)p
95p
The EPRA triple NAV is adjusted to reflect the fair values of any debt and hedging instruments, and any inherent tax
liabilities not provided for in the financial statements. EPRA NAV Per Share and EPRA Triple Net Asset Value Per Share
are calculated on the number of shares in issue at each balance sheet of 184,356,434.
A N N U A L R E P O RT 2 0 1 8 7 1
U NAUD IT ED SUPP LEMENTARY INFORMATION CONT INUED
EPRA EPS
For the period from 1 June 2017 to 30 June 2018
Basic and diluted EPS (note 10)
Adjustments to remove:
Changes in fair value of investment properties
EPRA EPS
Net profit
Weighted
attributable average number
of ordinary
to ordinary
shares1
shareholders
Number
£000
620
124,235,902
4,081
–
4,701
124,235,902
Earnings
per share
Pence
0.5p
3.3p
3.8p
1 Based on the weighted average number of ordinary shares in issue from the date of the initial public offering to 30 June 2018.
This excludes the period from 1 June 2017 to 20 July 2017 when the Group was effectively dormant.
EPRA Net Initial Yield
Wholly owned investment property at external valuation (note 12)
Allowance for estimated purchasers’ costs at 6.8%
Grossed-up completed property portfolio valuation
Annualised net rents
EPRA Net Initial Yield
EPRA Topped Up Net Initial Yield
EPRA Topped Up Net Initial Yield
As at
30 June 2018
£000
264,900
18,013
282,913
As at
30 June 2018
£000
13,727
4.9%
As at
30 June 2018
£000
4.9%
There are no unexpired tenant incentives therefore EPRA topped-up net initial yield is the same as EPRA net initial yield
in each year.
EPRA Vacancy Rate
EPRA Vacancy Rate
The Group had no vacant property in the Period.
As at
30 June 2018
£000
0%
7 2 S U P E R M A R K E T I N C O M E R E I T P L C
EPRA Cost Ratio
EPRA Gross Rental Income
Administrative and other expenses (note 5)
EPRA Costs
EPRA Cost Ratio inclusive and exclusive of vacant property costs
1 June 2017 to
30 June 2018
£000
8,942
2,097
2,097
23.4%
The Group has had no vacant property, therefore the EPRA Cost Ratio is the same inclusive and exclusive of vacant
property costs.
The Group has no capitalised overheads or operating expenses.
Adjusted EPRA Cost Ratio
The Group also calculates an Adjusted EPRA Cost Ratio excluding from administrative and other expenses £260,000 of
non-recurring costs relating to the establishment of the Group to give what the Board considers to be a measure of cost
efficiency more directly relevant to its ongoing cost performance.
EPRA gross rental income
Administrative and other expenses (note 5)
Non-recurring costs relating to the establishment of the Group
Adjusted EPRA Cost
Adjusted EPRA Cost Ratio (excluding non recurring costs)
1 June 2017 to
30 June 2018
£000
8,942
2,097
(260)
1,837
20.5%
A N N U A L R E P O RT 2 0 1 8 7 3
GLO SSARY
AGM
AIFMD
EPRA
EPRA EPS
Annual General Meeting
Alternative Investment Fund Managers Directive
European Public Real Estate Association
A measure of EPS designed by EPRA to present underlying earning from core
operating activities
EPRA Guidance
The EPRA Best Practices Recommendations Guidelines November 2016
EPRA NAV
EPS
IFRS
A measure of NAV designed by EPRA to present the fair value of a company on a
long-term basis, by excluding items such as interest rate derivatives that are held
for long-term benefit, net of deferred tax
Earnings per share, calculated as the profit for the period after tax attributable
to members of the parent company divided by the weighted average number of
shares in issue in the period
International Financial Reporting Standards adopted for use in the
European Union
Investment Advisory Agreement
The agreement between the Company and the Investment Adviser, key terms of
which are set out on page 101-102 of the IPO Prospectus
LTV
NAV
Net Initial Yield
Loan to Value: the outstanding amount of a loan as a percentage of property value
Net Asset Value
Annualised net rents on investment properties as a percentage of the investment
property valuation, less assumed purchaser’s costs of 6.8%
Net Loan to Value or Net LTV
LTV calculated on the gross loan amount less cash balances
Omnichannel
Stores offering both instore picking and online fulfilment
REIT
Running yield
Total Shareholder Return
Real Estate Investment Trust
The anticipated Net Initial Yield at a future date, taking account of any rent
reviews in the intervening period
The movement in share price over a period plus dividends declared for the same
period expressed as a percentage of the share price at IPO being the share price
of the Company at the start of the Period
7 4 S U P E R M A R K E T I N C O M E R E I T P L C
CO NTA CTS AN D COMPA NY DE TAILS
Directors
Company Secretary
AIFM
Investment Adviser
Financial adviser, Broker
and Placing Agent
Auditors
Property Valuers
Financial PR Advisers
Registrar
Nick Hewson (Chairman)
Vince Prior (Senior Independent Director)
Jon Austen (Chair of Audit Committee)
JTC
7th Floor, 9 Berkeley Street
London
W1J 8DW
JTC AIFM Services
Ground Floor, Dorney Court, Admiral Park
St Peter Port
Guernsey, Channel Islands
GY1 1PL
Atrato Capital Limited
8 Greencoat Place
London
SW1P 1PL
Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET
BDO LLP
55 Baker Street
London
W1U 7ET
Cushman & Wakefield
125 Old Broad Street
London
EC2N 1AR
Tavistock
1 Cornhill
London
EC3V 3ND
Link Asset Service
The Registry, 34 Beckenham Road
Beckenham, Kent
BR3 4TU
Registrar’s email address: enquiries@linkgroup.co.uk
Website
www.supermarketincomereit.com
Registered office
7th Floor, 9 Berkeley Street
London
W1J 8DW
Stock exchange ticker
ISIN
SUPR
GB00BF345X11
A N N U A L R E P O RT 2 0 1 8 7 5
7 6 S U P E R M A R K E T I N C O M E R E I T P L C
Design and production: theteam.co.uk
Print: Westerham Print
Supermarket Income Reit Plc
7th Floor, 9 Berkeley Street
London
W1J 8DW
www.supermarketincomereit.com