SUPERMARKET INCOME REIT | ANNUAL REPORT 2020
S
U
P
E
R
M
A
R
K
E
T
I
N
C
O
M
E
R
E
I
T
P
L
C
|
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
INVESTING IN THE FUTURE MODEL OF UK GROCERY
TRADITIONAL
IN-STORE
CLICK & COLLECT
AT STORE
HOME DELIVERY
FROM STORE
Supermarket Income REIT plc
The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
www.supermarketincomereit.com
STRATEGIC REPORT | WHO WE ARE
Supermarket Income REIT plc (LSE: SUPR) is a real estate investment trust
dedicated to investing in property which enables the future model of UK grocery.
We invest in omnichannel supermarkets:
With highly attractive lease terms:
Providing regular, sustainable, inflation-linked income with strong total shareholder returns:
CONTENTS
STRATEGIC REPORT
1 Financial Highlights
2 Chairman’s Statement
4 Key performance indicators
5 Our Portfolio
6 Q&A with Justin King
10 Investment Adviser’s Report
18 Our market
22 Implementing the Group’s
investment policy
24 Operating responsibly
28 Our principal risks
CORPORATE GOVERNANCE
36 Board of Directors
37 Investment Adviser
38 Corporate Governance Statement
43 Key Board statements
44 Corporate social responsibility
45 Audit Committee Report
49 Nomination Committee Report
51 Directors’ Remuneration Report
54 Directors’ Report
58 Directors’ Responsibilities Statement
59 Alternative Investment Fund
Manager’s Report
FINANCIAL STATEMENTS
60
Independent Auditors’ Report to the
members of Supermarket Income
REIT PLC
66 Consolidated Statements
70
Notes to the Consolidated Financial
Statements
94 Company Statements
96
Notes to the Company Financial
Statements
Unaudited Supplementary Information
98
102 Glossary
103 Contacts and Company Details
Design and production: theteam.co.uk
Print: Westerham Print
HOME DELIVERY FROM STORE CLICK & COLLECT AT STORE TRADITIONAL IN-STORE5.9pTARGET DIVIDEND FY 2111.6%TOTAL SHAREHOLDER RETURN FY 20100%RENT RECEIVED FY 20 STRONG TENANT COVENANTS INFLATION LINKED RENT REVIEWS LONG LEASE LENGTHS
STRATEGIC REPORT | HIGHLIGHTS FOR THE YEAR
FINANCIAL HIGHLIGHTS
Annualised passing rent
EPRA earnings
Total shareholder return1
Dividend paid per share
EPRA EPS
Total net assets
Loan to value2
EPRA NAV per share
Portfolio net initial yield
12 months to
30 June 2020
£28.7m
£16.8m
11.6%
5.8 pence
5.0 pence
£477.2m
22.3%
101 pence
5.0%
12 months to
30 June 2019
£19.2m
£9.9m
8.0%
5.6 pence
5.0 pence
£230.5m
36.3%
97 pence
4.9%
Change
in period
+49%
+70%
n/a
+4%
0%
+107%
n/a
+4%
n/a
• 11.6% Total Shareholder Return for the year and 24.0% since listing in July 20171
• 4.1% growth delivered in EPRA NAV to 101 pence per share as at 30 June 2020
(30 June 2019: 97 pence per share)
• Annual increase in dividend of 3.8%
• Portfolio of investment properties (the “Direct Portfolio”) independently valued at £539.4 million
(30 June 2019: £368.2 million) increasing by £171.2 million:
› £22.4 million of valuation growth this year (excluding acquisition costs)
• £199.8 million of new acquisitions3
BUSINESS HIGHLIGHTS
• £239.8 million of equity raised via two upsized and over-subscribed issuances of New Ordinary Shares
› £100.0 million Placing and Offer for Subscription in October 2019
› £139.8 million Placing in April 2020
• Acquisition of three complementary omnichannel supermarket assets for an aggregate purchase price of
£148.8 million at a blended net initial yield of 5.3%
› Sainsbury’s in Preston, Lancashire for £54.4 million (excluding acquisition costs)
› Sainsbury’s in Cheltenham, Gloucestershire for £60.4 million (excluding acquisition costs)
› Sainsbury’s in Hessle, Yorkshire for £34.0 million (excluding acquisition costs)
• Acquisition of the Sainsbury’s Reversion Portfolio:
› 50:50 joint venture (the “JV”) with British Airways Pension Trustees Limited
› The JV acquired a 25.5% stake in one of the UK’s largest Portfolios of UK supermarket properties for
£102 million (excluding acquisition costs) (the Group’s investment was £51 million)
• Net loan to value (“LTV”) ratio of 22.3% as at 30 June 2020, with a weighted current cost of debt of 2.0%
• 100% of all rents collected in full
POST BALANCE SHEET EVENTS
• £188.9 million acquisition of nine supermarkets with a blended net initial yield of 4.8% comprising:
› Portfolio of six supermarkets via a sale and leaseback transaction with Waitrose & Partners (“Waitrose”)
for £74.1 million (excluding acquisition costs)
› Morrisons in Telford, Shropshire for £14.3 million (excluding acquisition costs)
› Tesco Extra in Newmarket, Suffolk for £61.0 million (excluding acquisition costs)
› Tesco Superstore in Bracknell, Berkshire for £39.5m (excluding acquisition costs)
• £134.8 million of new debt financing at a weighted average cost of 2.0% and weighted average term of 4 years
• Increased dividend target for the FY 2021 to 5.86 pence per share, increased in line with June 2020 RPI inflation
1 Includes dividends declared, for the year ended 30 June 2020
2 LTV includes the proportional consolidation of the Sainsbury’s Reversion Portfolio
3 Including Sainsbury’s Reversion Portfolio
A N N U A L R E P O R T 2 0 2 0 1
STRATEGIC REPORT | CHAIRMAN’S STATEMENT
Nick Hewson Chairman
I am delighted to report to you another year of solid
performance by the Group, delivering a 4.3% growth
in our Direct Portfolio value (excluding acquisition
costs) and a 4.1% growth in EPRA NAV to 101 pence
per share as at 30 June 2020.
The growing dominance of the omnichannel model in
the UK online grocery market together with the
undoubted covenant strength of the operators, is driving
value creation in the supermarket property market, in
stark contrast to a number of other sectors.
We firmly believe omnichannel supermarkets represent
the future model of grocery in the UK. This has been
clearly demonstrated during the COVID-19 pandemic
where well located omnichannel stores became pivotal
to the delivery of food by UK grocers to their customers.
Over the 12-week period up to 12 July 2020, UK grocery
sales increased by 17% vs the same period in 2019. This
is the fastest rate of growth since comparable records
began and shows the significant impact the pandemic
has had on the sector. All the substantial grocers
experienced a major increase in demand, especially in
the online grocery channel which increased market
penetration by over 50%, from 8% of the UK grocery
market pre-COVID-19 to 13% to end of June 2020.
Omnichannel supermarkets played a vital role in
responding to this increased demand, having the size
and stock to respond effectively to the increased in-store
demand, whilst having the operational flexibility to
increase online grocery fulfilment capacity by over 100%.
Omnichannel stores remain the dominant model for
last-mile grocery fulfilment in the UK.
The pandemic has also served to reinforce the fact that
supermarkets provide an essential service in feeding the
nation. The grocery industry was able to adapt rapidly to
ensure that key workers and those most in need were
prioritised. Thousands of jobs were and continue to be
created across the sector, providing essential work in a
time of rising unemployment.
We recognise our obligation to continue to create long
term value for investors in a responsible and sustainable
way and we acknowledge that as a business there is
always more that we can do. We have begun a review
of our Environmental, Social and Governance (‘ESG’)
strategy, with a specialist third party consultant, in order
to identify ways to fully integrate environmental and
sustainable initiatives into our investment and asset
management strategies.
Financial results
The Direct Portfolio of investment properties was
independently valued on 30 June 2020 at £539.4 million
reflecting a 4.3% growth in value during the Year
(excluding acquisition costs). This has in turn driven
an increase in the Group’s EPRA NAV from 97 pence
as at 30 June 2019 to 101 pence as at 30 June 2020.
All our directly owned properties have contractual,
upward-only, inflation-linked rental uplifts and our
average rental increases during the year were 2.5%.
We have a high degree of certainty of income through
the Group’s long leases to tenants with undoubted
covenants. Throughout the COVID-19 crisis this has
been borne out as we collected 100% of rents with
no defaults, deferrals, or rent reductions.
Reflecting the growth in total assets, EPRA earnings
increased by 65% to £16.7 million, generating EPRA
earnings per share for the year of 5.0 pence.
The Group has a low and highly transparent cost base.
Our ongoing cost ratio, calculated under the AIC
methodology, was 1.4% and our EPRA cost ratio for the
year was 19.7% against 17.9% for the prior year. The
increase in the EPRA cost ratio reflecting the short-term
impact of costs applicable to the period between equity
proceeds being raised and fully deployed.
Our stable, inflation-linked income stream has enabled us
to increase our quarterly dividend in line within inflation
every year since our IPO in July 2017. During the year we
have declared dividends totaling 5.8 pence per share,
representing an increase of 3% on the prior year. In line
2 S U P E R M A R K E T I N C O M E R E I T P LC
“ Supermarkets provide an essential
service in feeding the nation.”
with previous years, we are once again targeting an
increase in the quarterly dividend in line with June RPI
inflation. This will result in an annual dividend target
of 5.86 pence per share for the financial year ending
30 June 2021. The first quarterly dividend at the increased
level is expected to be declared in October 2020.
During the year ended 30 June 2020 we closed two
significantly over-subscribed equity placings raising circa
£240 million. We also continued to diversify our banking
relationships with the addition of Deka Bank. The
proceeds of these placings together with drawings under
our banking facilities have enabled us to enhance both
the quality and geographic diversification of the Portfolio.
We acquired three additional supermarkets totaling
£148.8 million and invested £51 million (excluding
acquisition costs) to jointly acquire a 25.5% interest in
the Sainsburys Reversion Portfolio with British Airways
Pension Trustees Limited.
Since the balance sheet date activity levels have
remained high and we have continued to deploy capital
through the purchase of a further nine supermarkets.
In addition, Wells Fargo became the fourth bank to enter
into financing arrangements with the Group during July
2020 providing us with a seven-year facility (including
two one-year extension options).
Including our interest in the Sainsbury’s Reversion
Portfolio we now have direct or indirect exposure to
45 supermarkets.
Outlook
Given the challenging environment for the wider
real estate market and the impact of the COVID-19
pandemic, we have been especially pleased with the
robust performance of our Portfolio and to be able to
reaffirm our 100% rental collection each quarter. We are
also pleased to have delivered a total shareholder return
of 11.6% for the year and remain confident of delivering
stable returns for our shareholders in the future.
The COVID-19 pandemic looks as if it is going to be
around for some time, meaning that the retail sector
will be required continually to adapt to the changing
operating environment. However, the food retailers have
demonstrated that they can act speedily and efficiently
to deliver groceries to customers. The next challenge
facing the grocery sector is Brexit. We believe that our
tenants are well positioned to deal with any disruption
that may occur. They have strong balance sheets and
have demonstrated their ability to adapt their business
models and supply chains through the COVID-19 crisis.
As a result, we believe any adverse impact for the Group
would be short lived.
The Investment Adviser has proven its ability to identify
and acquire attractive investments for the Group despite
the on-going COVID-19 crisis. Since lockdown in late
March, the Investment Adviser has deployed £188.9m
million of capital on behalf of the Group in four separate
transactions, spreading our geographic coverage and
diversifying our tenant base.
Nick Hewson
Chairman
17 September 2020
A N N U A L R E P O R T 2 0 2 0
3
STRATEGIC REPORT | KEY PERFORMANCE INDICATORS
Our objective is to deliver attractive, stable returns to
shareholders. Set out below are the Key Performance
Indicators we use to track our progress. Further details
and calculations can be found on page 98.
1 Including post balance sheet events
2 LTV includes the proportional consolidation of the Sainsbury’s
Reversion Portfolio
4 S U P E R M A R K E T I N C O M E R E I T P LC
5.0pFY19 - 5.0pEPRA EPS19.7%FY19 - 17.9%EPRA COST RATIO101pFY19 - 97PEPRA NAV PER SHARE22.3%2FY19 - 36%NET LOAN TO VALUE11.6%FY19 - 8.0%TOTAL SHAREHOLDER RETURN16yrs1FY19 - 18yrsWAULT STRATEGIC REPORT | OUR PORTFOLIO
TESCO,
CUMBERNAULD
VALUATION AS AT
30TH JUNE 2020:
£59.9m
SAINSBURY’S,
PRESTON
VALUATION AS AT
30TH JUNE 2020:
£59.8m
MORRISONS,
SHEFFIELD
VALUATION AS AT
30TH JUNE 2020:
£55.8m
WAITROSE1,
SANDBACH
PURCHASE
PRICE:
£15.8m
WAITROSE1,
TELFORD
PURCHASE
PRICE:
£14.3m
SAINSBURY’S,
CHELTENHAM
VALUATION AS AT
30TH JUNE 2020:
£60.4m
TESCO,
SCUNTHORPE
VALUATION AS AT
30TH JUNE 2020:
£59.7m
SAINSBURY’S,
HESSLE
VALUATION AS AT
30TH JUNE 2020:
£35.3m
20
15
16
14
09
22
02
19
17
13
18
12
10
24
04
03
11
26
25
01
08
07
21
05
23
06
TESCO,
MANSFIELD
VALUATION AS AT
30TH JUNE 2020:
£50.1m
WAITROSE1,
OUNDLE
PURCHASE
PRICE:
£8.7m
TESCO,
THETFORD
VALUATION AS AT
30TH JUNE 2020:
£41.9m
WAITROSE1,
ELY
PURCHASE
PRICE:
£12.6m
WAITROSE1,
SUDBURY
PURCHASE
PRICE:
£16.3m
WAITROSE1,
NEWMARKET
PURCHASE
PRICE:
£61.0m
TESCO,
BRISTOL
VALUATION AS AT
30TH JUNE 2020:
£28.0m
TESCO1,
BRACKNELL
PURCHASE
PRICE:
£39.5m
WAITROSE1,
EDENBRIDGE
PURCHASE
PRICE:
£7.5m
WAITROSE1,
EASTBOURNE
PURCHASE
PRICE:
£13.3m
SAINSBURY’S REVERSION PORTFOLIO JOINT VENTURE INVESTMENT
01 ALPERTON
02 GLOUCESTER
03 ALTON
04 GUILDFORD
05 AYLESFORD
06 HASTINGS
07 BROMLEY
08 HAYWARDS HEATH
09 CHESTER
10 HEMEL HEMPSTEAD
11 CHICHESTER
12 KETTERING
13 COVENTRY
14 KIDLINGTON
15 DENTON
16 KNOTTY ASH
17 DERBY
18 LEAMINGTON SPA
19 DONCASTER
20 NORWICH
21 EAST GRINSTEAD
22 SHREWSBURY
23 EASTBOURNE
24 TAPLOW
25 FERNDOWN
26 WITNEY
SAINSBURY’S,
ASHFORD
VALUATION AS AT
30TH JUNE 2020:
£88.5m
1 Post balance sheet acquisitions
A N N U A L R E P O R T 2 0 2 0 5
Q&A WITH JUSTIN KING | JUSTIN KING ON THE FUTURE OF THE UK GROCERY SECTOR
A conversation with
Justin King about
the future of the
UK grocery sector.
A senior adviser to Atrato Capital,
Justin King is recognised as one of
the UK’s most successful grocery
sector leaders, having served as CEO
of Sainsbury’s for over a decade.
Prior to that, he was part of the
leadership team at Marks & Spencer
and previously held senior roles at
Asda. He is currently non-executive
director of Marks & Spencer, a
member of the Public Interest Body
of PwC and Vice Chairman of Terra
Firma. Justin brings an unrivalled
wealth of grocery sector experience
and a deep understanding of grocery
property strategy.
Q: The pandemic has illustrated
just how important the grocery
sector is to the UK, how well
do you think the supermarket
operators have responded?
A: For 100 years and more, the
UK’s largest grocery operators have
exhibited a great adaptability and
resilience, evolving their operating
models in response to changes in
consumer behaviour. To my mind
their response to the pandemic is
further proof of their ability to adapt
to change.
The start of the pandemic triggered
an initial stockpiling rush from
consumers. However, within a few
weeks the supermarkets had
responded to this surge in demand
and demonstrated in real time their
ability to serve their customers whilst
simultaneously implementing new
social distancing measures.
As a direct result of the crisis, grocery
workers are now rightly appreciated
as key workers. Supermarkets coped
with the massive increase in grocery
sales by recruiting, training and
deploying tens of thousands of new
staff. This ability to flex quickly also
meant that the Big Four were best
able to respond to the step change in
online demand. Together, the Big
Online grocery delivery slots change March to July 2020
+150%
)
s
0
0
0
(
s
t
o
l
s
y
r
e
v
i
l
e
d
f
o
r
e
b
m
u
N
1600
1400
1200
1000
800
600
400
200
0
+61%
+76%
+40%
10
Tesco
ASDA
Sainsburys
Ocado
Pre Covid
Post Covid
Source: Atrato Research, Financial Times
6 S U P E R M A R K E T I N C O M E R E I T P LC
Four have effectively doubled home
delivery capacity by adding over 1
million additional home delivery slots
in just a few weeks.
This year’s unprecedented growth in
grocery demand was in a large part
triggered by the shift in consumption
from eating outside the home in
restaurants to eating in the home.
I do not believe we will return to the
pre-COVID-19 levels of dining out
anytime soon and therefore I expect
to see strong grocery demand
continuing in the foreseeable future.
In summary, when viewed
retrospectively, I believe the grocery
operators have performed incredibly
well in response to the pandemic and
this crisis has reinforced just how
important a network of well-located
physical omnichannel supermarkets
are to the UK’s food infrastructure.
Q: The pandemic has driven
a large increase in demand for
online grocery shopping, what
do you think this means for
supermarkets?
A: Online grocery in the UK took
twenty years to achieve a 8% market
share and then almost doubled in just
eight weeks from the start of the
crisis. Most of that growth has been
captured by Tesco, Sainsburys and
ASDA which have seen their
combined market share in UK online
grocery increase from 82% to 85%1.
It’s clear that there is still unsatiated
demand for online grocery as much
of the increase in capacity was rightly
directed to the vulnerable and those
needing to self-isolate. On the other
hand, some shoppers are likely to
1 Atrato Capital research
“ Over 80%1 of online grocery in the UK is
fulfilled from omnichannel supermarkets
operating as a last mile hub for both online
and offline sales.”
return to their previous shopping
habits across in-store channels as
COVID-19 related restrictions ease.
Only time will tell the extent of the
permanent in growth in online
grocery participation, but I wouldn’t
be surprised if online share of
grocery was 12% in 2021. Five years
growth in one year!
I am of the view that this strict
distinction between ‘bricks and
mortar’ vs online is a false one. The
future model of grocery necessitates
seamless customer service across
all channels in which the customer
chooses to shop. To this end, it is
interesting to note that the vast
majority of capacity growth during
the pandemic has come from
Sainsbury’s, Tesco and Asda, which
operate a largely in-store pick
model. Hence nearly all of that
growth has come from omnichannel
supermarkets rather than
centralised automated hubs. As a
result, over 80%1 of online grocery
in the UK is fulfilled from
omnichannel supermarkets
operating as a last mile hub for
both online and offline sales.
I have always believed that it’s
important to “think customer, not
channel”. A pure play online operator
can service a single channel need for
the consumer, however this is only
one aspect of the consumer
relationship. Long term, profitable
growth requires operators to think
about the overall relationship with the
customer, which I believe means
developing a network of multichannel
assets across the market it serves.
It’s clear the larger supermarkets
operating a truly omnichannel
1 Atrato Capital research
operation with in-store pick capacity
were best positioned to respond
quickly to the pandemic. This
further underpins the importance of
having the right stores in the right
locations to be successful in the
grocery industry.
Q: Will the store-pick model
continue to dominate online
grocery fulfilment in the future?
A: As I’ve mentioned, it’s the
store-pick model that has enabled
this recent step change in online
grocery market share, facilitating a
doubling of online capacity since the
start of the pandemic. I expect the
capacity challenges faced by pure
play operators that rely on heavily
automated warehouses will be
addressed in the medium term.
However, this pandemic has
illustrated the overall flexibility of the
omnichannel store-pick model.
At the extreme, some individual
omnichannel grocery store sales are
now 50% online and 50% physical
shopping and a 25%:75% split is not
uncommon. Any foreseeable growth
in online market share can be fulfilled
through the omnichannel store-pick
model, but some question how this
impacts the in-store customer
experience and operator productivity.
For the customer, the store-pick
model can create a virtuous circle
because an omnichannel store needs
to carry a bigger and better range and
the increased turnover from online
leads to a fresher product on the
shelves. Thus, adding online
fulfilment to a store has been
shown to create a much better
in-store experience.
For the operator, the crisis has driven
improvements in the productivity of
store-pick. Going forwards, store-pick
technology will not be static and will
continue to narrow the productivity
gap to automated warehouses.
The large part of the cost to the
operator incurred by delivering
groceries to a consumer’s door does
not come from the cost of picking, but
from the cost of delivery. Hence, the
cost saving from being proximate to
customers outweighs any potential
cost saving from a centralised or
automated pick approach.
Q: Is the grocery industry
moving away from the
centralised automated shed
model for online grocery?
A: There remain some that still
believe that the future model of
grocery might just be a centralised
automated shed model. However,
a better understanding of the true
economics of online grocery
fulfilment points to the likelihood
that the future model of grocery,
globally, looks very much to be an
omnichannel model with more
technology being deployed in
micro-fulfilment, for example,
semi-automated online picking
located on site at the store.
Centralised online only distribution
still forms part of most national
online grocery fulfilment networks,
but tends makes economic sense
where the distribution centre is
close to major population densities
in order for the picking efficiency
gains not to be more than offset by
increased delivery costs through
longer drive times. As a result,
A N N U A L R E P O R T 2 0 2 0 7
Q&A WITH JUSTIN KING | JUSTIN KING ON THE FUTURE OF THE UK GROCERY SECTOR CONTINUED
the vast majority of centralised
distribution hubs are concentrated
around London where it is most
efficient. Outside of London, the
rest of online grocery fulfilment
in the UK is well served by the
omnichannel model.
There is still a major structural
issue for online grocery delivery to
overcome: everybody wants a 10am
weekend delivery slot, but very few
opt for a 9am to 5pm weekday slot!
For the supermarket operators that
means, by definition, that their
entire online logistics model can be
at low utilisation most of the time.
The recent crisis has temporarily
released operators from this burden
as most people are at home and
more flexible when it comes to
delivery slots. It would not be
prudent to assume this will
continue in the medium term as
people return to work. Over the
longer term, a model that enables
operators to flex delivery slot
capacity to demand will win in the
end. This will almost certainly
include charging for the most
desirable slots.
Putting automation into the store
in the form of micro-fulfilment is
likely to play a part. Tesco is at the
forefront of micro-fulfilment in the
UK, rolling out Takeoff Technologies
into 25 of its stores. Its first centre
in West Bromwich was installed in
this year.
Q: What impact do you think
the pandemic will have on the
profitability of the Big Four
supermarket operators?
A: At the moment we are seeing
very little guidance as to the
long-term impact on profitability
caused by the pandemic from the
supermarket operators themselves.
On the positive side it is clear there
will be a significant boost to sales and
in the grocery industry additional
sales typically flow through the P+L
strongly. The grocers also have the
material benefit of a business rates
holiday, however, labour costs have
been substantially higher as are the
additional costs incurred to facilitate
the rapid expansion of online delivery.
Whatever the profitability impact, rent
will remain a very small proportion of
their total costs – this is in significant
contrast to other sectors. Short term
changes in profitability will not really
affect an operator’s ability to pay rent,
especially on their best sites, further
demonstrating the resilience of these
large scale, well positioned,
multichannel assets.
Q: 2019 saw a significant
increase in supermarket
property investment volumes,
did that surprise you?
A: Not at all. I have always said that
there is still no greater retail business
proposition than a large, grocery-led
supermarket selling fresh food in the
right location. Supermarkets
generate significant cash flow and
are the core infrastructure of how
and where consumers shop.
A successful grocery business can
only be achieved through well located
shops, operating a multichannel
business model with a well-
developed supply chain. Unlike
non-food, it’s the large incumbent
grocery retailers who are the market
leaders in online. The incumbent
players also have the added
structural advantage of already
having an existing store presence
in key locations, which are ideally
located to be last mile fulfilment
centres for online delivery.
Investors looking for property
assets that offer consistent returns
underpinned by solid corporate
covenants have increasingly targeted
the supermarket property sector and
are driving yields tighter in this space.
During a period in which broader
non-food UK retailing has continued
to be the subject of negative
sentiment, the grocery sector has
been a stand-out positive performer.
Having said that, not all supermarket
property is equal and specialists like
the Atrato Capital team are essential
to ensure the right asset selection for
the long term.
8 S U P E R M A R K E T I N C O M E R E I T P LC
Q&A WITH JUSTIN KING | JUSTIN KING ON THE FUTURE OF THE UK GROCERY SECTOR CONTINUED
STRATEGIC REPORT | OUR PORTFOLIO
WAITROSE
ACQUISITION
WAITROSE PORTFOLIO ACQUISITION
On the 6 July 2020 the Company
completed the acquisition of a
portfolio of Waitrose
supermarkets via a sale and
leaseback transaction with
Waitrose & Partners for
£74.1 million.
The portfolio comprises six
freehold supermarkets with an
average gross internal area of
32,000 sq ft. The stores form a
key part of Waitrose’s UK online
grocery fulfilment network and
all of the stores have an
impressive trading record. The
stores are complementary to our
existing portfolio, and providing
further tenant and geographic
diversification. The stores are
let to Waitrose on new 20-year
leases with a tenant-only break
option in year 15 and are subject
to five-yearly, upward-only,
inflation-linked rent reviews.
The portfolio of stores form a
key part of Waitrose’s UK online
grocery fulfilment network.
All of the stores have an
impressive trading record
and are complementary to our
existing portfolio, providing
further tenant and geographic
diversification.
WAITROSE1,
OUNDLE
PURCHASE
PRICE:
£8.7m2
WAITROSE1,
SANDBACH
PURCHASE
PRICE:
£15.8m2
WAITROSE1,
ELY
PURCHASE
PRICE:
£12.6m2
WAITROSE1,
SUDBURY
PURCHASE
PRICE:
£16.3m2
WAITROSE1
EASTBOURNE
PURCHASE
PRICE:
£13.3m2
WAITROSE1
EDENBRIDGE
PURCHASE
PRICE:
£7.5m2
Sandbach,
Cheshire
1 Post balance sheet acquisition
2 Excluding acquisition costs
Oundle,
Northamptonshire
A N N U A L R E P O R T 2 0 2 0
9
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT
crucial infrastructure that is integrating
“ Omnichannel supermarkets represent the
online and traditional in-store sales”
Ben Green Atrato Capital
Atrato Capital Limited, the Investment Adviser to
the Group, is pleased to report on the operations of
the Group for the year.
Overview
The COVID-19 pandemic has illustrated that
supermarket stores in strategic locations are pivotal to
the critical supply of food across the UK. Supermarkets
are a regular part of the lives of the UK population, a
core part of the UK’s infrastructure with robust supply
chains and staffed by dedicated key workers.
A pillar of the Group’s investment strategy is investing
in omnichannel supermarkets that facilitate in-store
shopping, while also forming part of the UK online
grocery distribution network. These omnichannel
properties have become the dominant model for
last-mile grocery fulfilment. Omnichannel supermarkets
represent the crucial infrastructure that is integrating
online and traditional in-store sales, with characteristics
not evident in other forms of real estate, namely:
• large catchment populations and excellent
transportation links
• long unexpired lease terms, often with inflation
linked rental uplifts
• strong underlying trading
• attractive property fundamentals with opportunities
for active asset management
The sites owned by the Group proved particularly
flexible and resilient in dealing with the increased
grocery demand from both online and in-store sales
growth caused by the COVID-19 pandemic.
The Group is highly selective in the supermarket assets
that it seeks to acquire. As well as targeting assets which
operate both as physical supermarkets and online
fulfilment centres, the Group also seeks to ensure that
its assets benefit from a solid trading history for the
operators, long unexpired lease terms, contractual,
upward only rental uplifts, strong tenant covenants
and geographic diversity.
Managing sustainability is core to the Group’s overall
investment strategy. During the year, we have
commenced a detailed review of our ESG strategy with
Emperor, a leading ESG consultant. We are committed
to building on our current sustainability strategy and
fully integrating ESG into the investment decision
making process.
We undertake ESG risk assessments on all prospective
acquisitions and where relevant we look to improve
our assets’ sustainability through asset management.
Underpinning our commitment to sustainability, we
have recently entered into a strategic partnership with
EVO Energy, the UK’s leading commercial renewable
energy company to evaluate and execute projects which
will reduce the carbon emissions of the Group’s
Portfolio. Our first deliverable from this partnership will
be the installation of a 370 kilowatt rooftop solar array
on our Tesco Thetford supermarket, which will supply
decarbonised electricity direct to the store. We have
plans for similar schemes across our Portfolio and
further details are provided in the Asset Management
section below.
To date, the Group has invested in a Direct Portfolio of
freehold and virtual freehold properties let to Tesco,
Sainsbury’s, Morrison and, post balance sheet, Waitrose.
The properties in the Portfolio benefit from contractual
inflation-linked rental increases from long dated fulling
repairing and insuring (FRI) leases, generating an
average unexpired lease term of 16 years (including post
balance sheet events). We are pleased to report that
throughout the COVID-19 crisis, we have collected
100% of rents with no deferrals or rent reductions.
Investment activity – Direct Portfolio
During the Year, the Group strengthened its Direct
Portfolio with the addition of three accretive omnichannel
supermarket assets for £148.8 million, namely:
• Sainsbury’s in Preston, Lancashire for £54.4 million
(excluding acquisition costs) with 22 years unexpired
lease term and annual, upward-only, RPI-linked
rent reviews.
1 0 S U P E R M A R K E T I N C O M E R E I T P LC
STRATEGIC REPORT | OUR PORTFOLIO
NEW JOINT
VENTURE
JOINT VENTURE WITH BRITISH AIRWAYS PENSION TRUSTEE LIMITED
On the 27 May 2020 the Company
established a new joint venture
with British Airways Pension
Fund to acquire a 25.5% stake in
one of the UK’s largest portfolios
of supermarket properties for
£102 million with the Company’s
contribution to the joint venture
equalling £51million1.
The Portfolio consists of 26
Sainsbury’s supermarkets. It is
a geographically diverse high
quality portfolio of stores with a
London and south east bias. It
was created through two sale
and leaseback transactions by
Sainsbury’s in 2000. Our
investment in this portfolio gives
us an interest which we believe
will be highly NAV accretive over
the next three years.
Following the acquisition by the
joint venture the freeholds of the
properties are now owned by
Sainsbury’s (49%), Aviva (25.5%)
and the joint venture. Further
details of the joint venture can
be found in note 14 of the
financial statements.
Taplow,
Buckinghamshire
1 Excluding acquisition costs
A N N U A L R E P O R T 2 0 2 0 1 1
Attractive future pipelineProgressive valuation growthHigh quality portfolio STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CON TIN UED
• Sainsbury’s in Cheltenham, Gloucestershire for
£60.4 million (excluding acquisition costs) with
13 years unexpired lease term and five-yearly,
upward-only, RPI-linked rent reviews.
• Tesco Extra in Newmarket, Suffolk for £61.0 million
(excluding acquisition costs) with 15 years unexpired
lease term and annual, upward-only, RPI-linked
rent reviews.
• Sainsbury’s in Hessle, Yorkshire for £34.0 million
• Tesco Superstore in Bracknell, Berkshire for £39.5m
(excluding acquisition costs) with 14 years unexpired
lease term and annual, upward-only, RPI-linked
rent reviews.
(excluding acquisition costs) with 10 years unexpired
lease term and annual, upward-only, RPI-linked
rent reviews
The acquisitions had a blended unexpired lease term of
17 years and a blended net initial yield of 5.3%, which is
accretive to the Direct Portfolio net initial yield of 5.0%,
supporting the Group’s ability to grow its dividend
whilst also enhancing the quality and diversification of
the Portfolio.
The acquisitions were financed from a significantly
over-subscribed £100 million Placing and Offer for
Subscription in October 2019 and drawings from
banking facilities (see financing below).
Post balance sheet the Group acquired a further nine
supermarkets with a blended net initial yield of 4.8%
for a total consideration of £188.9 million (excluding
acquisition costs). The stores acquired post balance
sheet were:
• Portfolio of six supermarkets via a sale and leaseback
transaction with Waitrose & Partners (“Waitrose”)
for £74.1 million (excluding acquisition costs) with
15 years unexpired lease term and five-yearly,
upward-only, CPIH-linked rent reviews.
• Morrisons in Telford, Shropshire for £14.3 million
(excluding acquisition costs) with 13 years unexpired
lease term and five-yearly, upward-only, RPI-linked
rent reviews.
The post balance sheet acquisitions were financed from
the over-subscribed £139.8 million Placing in April 2020.
Further details of the post balance sheet acquisitions and
financing are provided below.
Our Portfolio of supermarkets comprises the properties
in the following table.
The properties listed below and on the next page are listed
chronologically in order of acquisition. Acquisitions after
the year end date are described in the post balance sheet
event note below.
The Direct Portfolio benefits from highly attractive leases
to strong tenant covenants (Tesco, Sainsbury’s, Morrisons
and Waitrose), with upward-only, inflation-linked rent
reviews and long unexpired lease terms. Including the
stores acquired post balance sheet, the weighted average
lease term of the Direct Portfolio is 16 years with a
weighted average yield of 5%.
Investment activity – Sainsbury’s Reversion Portfolio
In May 2020, the Group announced the formation of
a 50:50 joint venture (the “JV”) with British Airways
Pension Trustees Limited acting on behalf of the British
Airways Pension Fund to acquire from British Land Plc
a 25.5% stake in one of the UK’s largest Portfolios of
supermarket properties (the “Sainsbury’s Reversion
Portfolio”) for £102 million.
Tenant
Tesco
Tesco
Sainsbury’s Tesco
Tesco
Morrisons
Tesco
Sainsbury’s Sainsbury’s Sainsbury’s
Location
Thetford,
Norfolk
Bristol,
Avon
Ashford,
Kent
Cumber-
nauld,
N Lanak
Scunthorpe,
Lincs
Sheffield,
South Yorks
Mansfield,
Notts
Preston,
Lancs
Cheltenham,
Gloucs
Hessle,
Yorks
Aug-17
Aug-17
Aug-17
Dec-17
May-18
Jul-18
Apr-19
Aug-19
Oct-19
Feb-20
£43.2
£28.5
£79.8
£50.0
£53.0
£51.7
£45.0
£54.4
£60.4
£34.0
£41.9
£28.0
£88.5
£59.9
£59.7
£55.8
£50.1
£59.8
£60.4
£35.3
Acquisition
Date
Purchase
Price (£m)
Valuation
at 30 June
2020 (£m)
Passing
annual
rent (£m)
£2.7
GIA (sq.ft.)
78,000
NSA (Sq.ft.) 48,000
£1.6
55,000
31,000
£4.0
£3.1
£3.0
£2.9
£2.6
£3.0
£3.4
125,000
117,000
98,000
113,000
90,000
106,000
98,724
72,000
70,000
65,000
58,000
64,000
78,000
61,964
£2.3
70,899
50,763
Rent review
basis
Annual
RPI
Annual
RPI
Annual
RPI
Annual
RPI
Annual
RPI
5 yearly
RPI
Annual
RPI
Annual
RPI
5 yearly
RPI
Annual
RPI
Lease
Expiry
Tenure
Dec 29
Mar 31
Sep 38
Aug 40
Aug 40
Oct 39
Mar 39
Feb 42
Jun 32
Jun 34
Virtual
freehold
Virtual
freehold
Freehold
Virtual
freehold
Virtual
freehold
Virtual
freehold
Virtual
freehold
Freehold
Freehold
Freehold
1 2 S U P E R M A R K E T I N C O M E R E I T P LC
The Sainsbury’s Reversion Portfolio consists of the
freehold interest in 26 geographically diverse high-
quality Sainsbury’s supermarkets, with a London and
south east location bias. It was originally created through
two sale and leaseback transactions by Sainsbury’s in
2000. The freehold interests of the properties are now
owned by Sainsbury’s (49%), Aviva (25.5%) and the JV
(25.5%). Further details of the JV can be found in note 14
of the financial statements.
The Group’s contribution to the JV was £51 million,
excluding acquisition costs, which was financed from the
proceeds of the Ordinary Share Placing in April 2020.
Portfolio valuation
Cushman & Wakefield valued the Direct Portfolio at
30 June 2020, in accordance with the RICS Valuation
Global Standards July 2017. The properties were valued
individually without any premium/discount applying to
the Portfolio as a whole. The Direct Portfolio market
value was £539.4. million, compared with the assets’
combined purchase price of £500.2 million (excluding
acquisition costs). The Direct Portfolio increased in value
by £22.4 million or 4.3% for the Year.
This valuation growth of the Direct Portfolio reflects the
supermarket operators’ undoubted covenant strength as
tenants, increased demand in the investment market, and
our ability to source off-market acquisitions for the Group.
With inflation-linked lease agreements and the high
degree of certainty of income inherent in the Group’s
long leases, the Investment Adviser believes further
valuation growth can be achieved in the future.
The investment properties within the Sainsbury’s
Reversion Portfolio, held as an investment in joint
venture, were also independently valued by Cushman
& Wakefield, in accordance with the RICS Valuation
Global Standards July 2017. The net carrying value of
the underlying investment was £56.1 million increasing
by £3.5 million above the Group’s acquisition price of
£52.6 million (including capitalised acquisition costs)
which is the combination of negative goodwill arising on
acquisition of the joint venture investment and the profit
generated by the joint venture in the post-acquisition
period, both of which are included within the share of
income from joint venture in accordance with IFRS.
Financial results
IFRS net rental income for the year was £26.4 million
(2019: £17.2 million). Contracted RPI rent reviews in
the year resulted in average rental increases of 2.5%
(12 months to 30 June 2019: 3.2%) with IFRS £8.7 million
rental growth contribution from new acquisitions. The
strong rental growth reflects the contracted upward-only,
inflation-linked rent reviews present in the Group’s leases.
Administrative and other expenses, which include
management and advisory fees and other costs of
running the Group, were £5.2 million (2019: £3.1
million) generating an EPRA cost ratio of 19.7%
(2019: 17.9%). The increase in the EPRA cost ratio
reflecting the short-term impact of costs applicable to
the period between equity proceeds being raised and
fully deployed. The Group’s EPRA cost ratio is expected
to reduce in the coming years, reflecting a growing level
of cost efficiency that is achievable as the Group
continues to scale.
Tenant
Waitrose1 Waitrose1 Waitrose1 Waitrose1 Waitrose1 Waitrose1
Tesco1
Morrisons1 Tesco1
Location
Eastbourne,
East
Sussex
Edenbridge,
Kent
Ely,
Cambs
Oundle,
Northants
Sandbach,
Ches
Sudbury,
Suffolk
Newmarket,
Suffolk
Telford,
Shrops
Bracknell,
Berk
Jul-20
Jul-20
Jul-20
Jul-20
Jul-20
Jul-20
Jul-20
Aug-20
Sep-20
£13.3
£7.5
£12.6
£8.7
£15.8
£16.3
£61.0
£14.3
£39.5
£13.3
£7.5
£12.6
£8.7
£15.8
£16.3
£61.0
£14.3
£39.5
Acquisition
Date
Purchase
Price (£m)
Valuation
at 30 June
2020 (£m)
Passing
annual
rent (£m)
£0.6
GIA (sq.ft.)
34,600
NSA (Sq.ft.) 22,177
£0.4
19,104
13,275
£0.6
32,890
15,137
£0.4
22,104
15,220
£0.7
40,082
24,443
£0.8
43,734
30,380
£3.0
£0.8
106,834
42,434
68,421
27,200
Rent review
basis
5 yearly
CPIH
5 yearly
CPIH
5 yearly
CPIH
5 yearly
CPIH
5 yearly
CPIH
5 yearly
CPIH
Annual
RPI
5 yearly
RPI
Lease
Expiry
Tenure
Jul 40
Jul 40
Jul 40
Jul 40
Jul 40
Jul 40
Mar 36
Nov 37
Freehold
Freehold
Freehold
Freehold
Freehold
Freehold
Freehold
Freehold
£2.4
73,638
44,899
Annual
RPI
Dec-30
Virtual
freehold
1 Post balance sheet acquisition
A N N U A L R E P O R T 2 0 2 0 1 3
STRATEGIC REPORT | OUR PORTFOLIO
NEW
ACQUISITION
NEWMARKET TESCO EXTRA
On the 27 July 2020 the Company
acquired the Tesco Extra store in
Newmarket, Suffolk.
Tesco has a long history of
trading from this prominent site
which was originally developed in
the 1980s and completely rebuilt
in 2016 to a modern store and key
online grocery fulfilment hub
supporting Tesco’s online grocery
business across the region
through both home delivery
and click and collect.
The site comprises a modern
68,000 sq ft net sales area Tesco
Extra with a 12-pump petrol
filling station, 654 parking
spaces and purpose-built online
fulfilment distribution docks.
It was acquired with an
unexpired lease term of 16 years
with annual, upward-only,
RPI-linked rent reviews for
£61.0 million (excluding
acquisition costs), reflecting
a net initial yield of 4.6%.
Newmarket,
Suffolk
1 4 S U P E R M A R K E T I N C O M E R E I T P LC
Large, flexible siteInflation-linked rent reviewsLong unexpired leaseOmnichannel store STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CON TIN UED
Financing costs for the year were £4.9 million (2019:
£4.2 million). As at 30 June 2020 the Group’s weighted
average finance cost was 2.0% (2019: 2.3%). The change
in net financing costs in the year reflects the continued
growth in the business and the reduction in the cost of
borrowing for its most recent facilities. The Group’s
conservative leverage policy continues to maintain a
healthy level of interest cover at 715% compared to the
covenant at a minimum of 200%. Further information on
financing and hedging is provided below.
As a result of the above, operating profit, before changes
in the fair value of investment properties, as reported
under IFRS, increased by 51% to £21.2 million (2019:
£14.1 million).
Change in fair value of the Direct Portfolio investment
properties in the year was £13.1m (2019: £0.6 million),
which comprises £8.5 million acquisition costs offset via
a £22.4 million increase in valuation and £0.8 million
rent smoothing adjustment. The Group’s EPRA NAV at
30 June 2020 equates to 101 pence per ordinary share
(2019: 97 pence per ordinary share).
The Group is a qualifying UK Real Estate Investment
Trust (”REIT”) which exempts the Group’s property
rental business from UK Corporation Tax.
The total shareholder return generated during the year
was 11.6% (2019: 8.0%). This is measured as the growth
in share price over the Year of 6.4 pence (2019: 2.5
pence), plus dividends declared for the Year of 5.8 pence
(2019: 5.6 pence) divided by the share price at the
beginning of the Year.
Financing and hedging
In October 2019, the Company successfully completed
an oversubscribed £100 million Placing and Offer for
Subscription under which 98,039,215 New Ordinary
Shares were issued at 102 pence per New Ordinary
Share representing a 5% premium to prevailing NAV
at the time of issue. Following a strong level of support
from investors during the marketing roadshow the
October Placing was increased from the original target
of £50.0 million.
In April 2020, the company successfully completed a
further oversubscribed Placing of Ordinary Shares
raising £139.8 million under which 135,748,028
New Ordinary Shares were issued at 103 pence per
New Ordinary Share representing a 6.2% premium to
prevailing NAV at the time of issue. Following a strong
level of support from investors during the marketing
roadshow the April Placing was increased from the
original target of £75.0 million.
During the year, the Group has broadened its banking
relationships further, adding Deka Bank in August 2019.
Deka Bank has provided the Group with a £76.6 million
fully drawn seven year (five year plus two one year
extension options) term loan facility at a fixed coupon
of 2.0%.
Post balance sheet in July 2020, the Group arranged a new
secured revolving credit facility of £60.0 million with Wells
Fargo. This facility has a seven year term (five year plus
two one-year extension options). Once drawn, the facility
has a margin of 2.0% above 3-month Libor which is
currently equivalent to a total cost of 2.1%. It also includes
a £100 million uncommitted accordion option, exercisable
at any time throughout the term of the facility.
Also post balance sheet, in August 2020, the Group
increased its facility with Bayerische Landesbank by
£34.8 million comprising a new £27.5 million, secured,
five-year tranche and a further £7.3 million tranche,
upsizing its existing £52.1 million secured term loan for
the remaining three-year term. The new facilities are in
both cases priced at a 1.85% margin over 3-month Libor,
representing a total cost of debt of 2.0%. In September
the Group agreed an increase to our existing HSBC RCF
facility of £40.0 million at a 1.75% margin over 3-month
Libor, whilst other terms remain the same as the existing
£100m RCF facility.
The new debt facilities included in post balance sheet
events have a weighted term of seven years (including
extension options) generating a total weighted debt
maturity of 4.1 years (2019: 4.2 years)
A summary of the Group’s credit facilities is provided on
the following page:
A N N U A L R E P O R T 2 0 2 0 1 5
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CON TIN UED
Wells Fargo
Revolving Credit Facility
July 2027*
2.00%
The Group has the following credit facilities:
Lender
HSBC
Bayerische Landesbank
Deka Bank
Total
Post balance sheet events
Facility
Revolving Credit Facility
Term Loan
Term loan
Bayerische Landesbank
Additional Term Loan A
Bayerische Landesbank
Additional Term Loan B
HSBC
Total
Revolving Credit Facility
*Including two further one-year extension options.
Total net debt as at 30 June 2020 is £128.7million,
reflecting a net loan-to-value (“LTV”) ratio of 19.7%
(22.3% LTV including the proportional consolidation of
the Sainsburys Reversion Portfolio). The low LTV reflects
the use of the April Placing proceeds to pay down over
£90m of debt which was subsequently redrawn to
support the Groups post balance sheet acquisitions.
The Group’s medium-term target is an LTV ratio of
30-40%.
Each loan drawn under the credit facilities requires
interest payments only until maturity and is secured
against both the subject properties and the shares of the
property-owning entities. Each property-owning entity
is either directly or ultimately owned by the Group.
The Group has significant headroom on its LTV
covenants. The covenants contain a maximum 60% LTV
threshold and a minimum 200% interest cover ratio for
each asset in the Portfolio. As at 30 June 2020, the Group
could afford to suffer a fall in property values of 38.0%
before being in breach of its LTV covenants and, with the
current hedging arrangements it has in place, it has
significant interest cover headroom.
The Group has designed its debt strategy to minimise
the effect of a significant rise in underlying interest rates
through the use of hedging instruments. Further details
of our debt and hedging can be found in note 18 of the
financial statements.
1 6 S U P E R M A R K E T I N C O M E R E I T P LC
Maturity
Aug 2022*
Jul 2023
Aug 2026*
Credit
margin
1.65%
1.25%
1.35%
Loan
commitment
£m
100.0
52.1
76.6
Amount
drawn at
30 June
2020 £m
0.0
52.1
76.6
July 2023
Aug 2025
Aug 2022*
1.85%
1.85%
1.75%
228.7
128.7
60.0
7.3
27.5
40.0
134.8
n/a
n/a
n/a
n/a
n/a
Dividends
The Company has declared four interim dividends for
the year as follows:
• On 8 October 2019, a first interim dividend of 1.419
pence per share, which was paid on 7 November 2019.
• On 8 January 2020, a second interim dividend of 1.460
pence per share, which was paid on 7 February 2020.
• On 8 April 2020, a third interim dividend of 1.460
pence per share, which was paid on 22 May 2020.
• On 8 July 2020, a fourth interim dividend of 1.460
pence per share, which was paid on 7 August 2020.
The Group’s EPRA dividend cover ratio was 0.84x for the
year (2019: 0.91x). The reduction reflects the short term
impact on dividend cover applicable to the period
between equity proceeds being raised and being fully
deployed.
The Company intends to target an increase of 1.1% in
the dividend for the year to June 2021 (representing an
increase equivalent to the published RPI inflation for
June 2020). The first increased quarterly dividend of
1.465 pence per share will be payable in October 2020.
The Company is therefore targeting a dividend for the
year to 30 June 2021 of 5.86 pence per share.
Asset Management
As referenced earlier in this report, during the year we
entered into a strategic partnership with EVO Energy,
the UK’s leading commercial renewable energy
company. The goal of the strategic partnership is to
evaluate and execute projects which will reduce the
carbon emissions of the Portfolio.
In a key milestone for the partnership we have reached
an agreement with Tesco on the commercial terms for
the installation of a 370 kilowatt rooftop solar array,
which will provide circa 310,000 kilowatt hours of
decarbonised electricity for the Thetford store. Although
the installation was delayed due to the impact of
COVID-19, we have agreed a revised installation date in
October 2020 and are in advanced discussions for the
installation of a further 1.3 megawatt rooftop solar arrays
across a further 4 stores in the coming months.
These solar investments improve the environmental
sustainability of our sites something which is very
important to the company and its tenants, whilst also
generating an additional incremental income stream for
the Group, thus enhancing the long-term capital value
of the site.
We are passionate about improving the environmental
impact of our properties and our medium-term ambition
is to install on-site decarbonised energy producing
plants across our estate.
Eight rent reviews were concluded during the year. The
combination of these inflation-linked rent reviews led to
an increase in rental income of £0.8 million, equivalent
to a 2.5% average annualised increase in the rents for
these reviewed properties.
Atrato Capital Limited
Investment Adviser
17 September 2020
A N N U A L R E P O R T 2 0 2 0 1 7
IGD UK grocery market forecast
Source IGD 2020
IGD UK channel forecasts 2019-2022
Source IGD 2020
STRATEGIC REPORT | 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 has grown year-on-
year since 2015. The UK grocery market has seen
significant growth and changes in consumer shopping
patterns due to the outbreak of COVID-19. IGD Retail
Analysis forecast total spending on UK Grocery will
increase by 6.8% in 2020 due to the full year impact of
the COVID-19 pandemic and will continue to increase
by a total growth of 10% over the 3 years to 2022, rising
from £192 billion in 2019 to £211 billion by 2022. Tesco,
Asda, Sainsbury’s and Morrisons (the ‘‘Big Four’’) have
a combined market share of approximately 66% and
together operate more than 9,000 stores in the UK. Each
of the Big Four has multi-billion-pound revenues, an
established consumer brand and strong credit covenants.
UK Grocery Market Operators
One of the many reasons that the Big Four have been
able to protect their combined market dominance has
been due to the nature of their underlying store
Portfolio. The Big Four benefitted from a first mover
advantage and as a result are located in the best
locations, both for drive times on the way in, and for last
mile delivery times on the way out, in each and every
town across the UK.
Although dominated by a few players, the grocery
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,
UK discounter market share 1989-2020 YTD
IGD UK grocery market forecast 2015-2022
211
209
205
192
190
185
180
178
)
n
b
£
(
s
e
l
a
s
y
r
e
c
o
r
G
220
210
200
190
180
170
160
150
2015
2016 2017 2018 2019
2020 2021
2022
Grocery sales (bn)
Source: IGD 2020
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, though principally
from the existing discounter channel rather than the
Big Four.
210
220
The grocery sales channels continue to evolve.
IGD UK grocery market forecast 2015-2022
However, the bigger stores remain the bedrock of the
larger operators’ business models with sales growing
significantly due to the impact of the COVID-19
211
18
pandemic. According to IGD Retail Analysis research,
19
16
supermarkets will continue to fulfil over 60% of sales in
14
the UK, followed by convenience stores at c.21%. This
12
190
trend is not expected to change over the next five years.
10
)
n
b
£
(
s
e
l
a
s
190
200
205
185
209
192
20
15
17
180
178
7
8
4
1
y
r
e
c
o
r
G
180
170
160
150
2015
2016 2017 2018 2019
2020 2021
Grocery sales (bn)
Cumlative increase (%)
2022
15
)
%
(
h
t
w
o
r
g
e
v
i
t
a
l
m
u
C
8
6
4
2
0
16
15
14
11
12
10
e
r
a
h
S
r
e
k
r
a
M
%
r
e
t
n
u
o
c
s
i
D
18
16
14
12
10
8
6
4
2
0
13
12
12
Source: IGD 2020
12
12
11
10
9
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
UK discounter (Netto, Kwik Save, Iceland, others)
Aldi
Lidl
Source: Fooddeserts 2020, Morrisons plc, IGD
1 8 S U P E R M A R K E T I N C O M E R E I T P LC
IGD UK channel forecasts 2019-2022
Supermarket property
120
100
80
)
n
b
£
(
60
40
20
0
104
105
Over 80% of total UK
online grocery sales
are fulfilled direct
from supermarkets
46
41
31
25
19
12
10 10
Supermarkets
Convenience
Discount
Online
Other retailers
2019 Value (£bn)
2022 Value (£bn)
Source: IGD 2020
In the 23 years since Tesco introduced the UK’s first
nationwide online grocery platform in 1997, UK grocers
have pioneered the development of the omnichannel
business model which seamlessly integrates both in-store
and online fulfilment by using the supermarket as a last
mile distribution hub for click and collect and home
delivery, creating a world-leading last-mile grocery
fulfilment platform. These omnichannel supermarkets
have become the dominant model for last-mile grocery
fulfilment, representing the crucial infrastructure that
integrates online and traditional in-store sales channels.
Lease structures
Supermarket lease agreements are often long dated and
inflation-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 of the
property, in addition to the rent and service charge.
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 often 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.
IPD net investment yields 2004-2020 (YTD)
)
%
(
d
l
e
i
y
l
a
i
t
i
n
i
t
e
N
8
7
6
5
4
MSCI Net Initial Yields Mar 2020
Supermarkets 5.3%
UK All Property 4.8%
Distribution Warehouses 4.5%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Supermarkets
Distribution Warehouses
UK All Property
Source: IPD quarterly index
A N N U A L R E P O R T 2 0 2 0 1 9
STRATEGIC REPORT | OUR MARKET CONTINUED
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 March 2020.
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.
Over the last five years the distribution warehouse
subsector of the property market has seen a significant
compression 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 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 with improving investor sentiment towards
supermarket operators driven by the performance of
the sector and the undoubted covenant strength of the
Big Four.
The Big Four operators, led by Tesco, have been
progressively improving cashflow generation through
cost reduction programmes and enhancing balance
sheet strength through sustained debt reductions. As at
June 2020, all 3 of the principal rating agencies rated
Tesco plc as investment grade citing the operator’s cash
generation, debt reduction and their anticipated growth
in profits as the reasons behind the investment grade
rating. In addition, they believe that Tesco will cement its
position as the dominant UK grocer and further
deleverage its balance sheet. This is evidenced in recent
years by the yields available to investors in supermarket
corporate bonds becoming lower, which in the opinion
of the Investment Adviser reflects an increased
confidence in the supermarket asset class.
Opportunities for asset management
In addition to current rental yields, supermarket
property has further potential for asset management
upside opportunities to enhance total shareholder
return. 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 requires
limited additional capital and/or planning approvals.
Examples include investing in green energy efficiency
schemes, such as energy efficient lighting, solar
paneling, 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.
2 0 S U P E R M A R K E T I N C O M E R E I T P LC
The Group works 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.
demand has arisen from investors seeking inflation
protection from the long-let and index-linked rent
reviews structure of supermarket leases and from
overseas investors who appear to have taken advantage
of the decline in sterling exchange rates and attractive
asset pricing.
Supply and demand
After a period of material expansion in store numbers
since 2000, the Big Four have substantially completed
their store growth 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, there has been a decline in
the number of assets being offered to the investment
market. Indeed, in a reversal of recent trends, Tesco has
now become a net buyer of stores, spending around
£2.8 billion1 on store buybacks since 2015 to date.
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 balance sheet as a financing liability and then
expensed as a finance cost rather than rental expense in
the income statement.
Improved financial performance by the UK’s major
grocery operators has triggered increased buying of
supermarket property assets and £1.78 billion2 of
grocery property assets changed hands in 2019 up 80%
on volumes in the previous year. The majority of this
The Investment Adviser believes that the reduced supply
of new stock from operators combined with a growing
demand for supermarket assets will trigger a medium-
term compression in yields closer to those for the UK
commercial property, with a corresponding increase in
supermarket property asset values.
Future prospects
The Investment Adviser believes that current
supermarket yields present a buying opportunity.
Supermarket operators appear to be entering a period
of higher earnings, strengthening even further their
covenants as an operator. The investment market,
having experienced some changes over the last few
years, appears to have favorable supply and demand
characteristics. Meanwhile, the underlying nature of
the asset continues to provide investors with long term,
upward only rental growth, whilst the assets themselves,
due to their location and structural design, offer asset
management opportunities.
All of these potential benefits are being priced at an
investment yield which is currently higher than the rest
of the property market. Against a backdrop of the
uncertain economic outlook arising from the COVID-19
pandemic and events such as the UK’s withdrawal from
the European Union, the Directors and the Investment
Adviser believe that supermarket real estate assets are
one of the most compelling asset classes in the UK
property investment market.
1 Property Data 2020. Includes securitisation buy backs
2 Colliers International
A N N U A L R E P O R T 2 0 2 0 2 1
STRATEGIC REPORT | IMPLEMENTING THE GROUP’S INVESTMENT POLICY
Steven Noble Atrato Capital
The supermarket property sector remains highly
attractive and we continue to demonstrate our ability
to source attractively priced, high-quality
supermarket property.
Investing in the future model of UK grocery
Our investment strategy is simple. We seek to own and
actively manage a leading portfolio of high-quality
omnichannel supermarkets which deliver stable and
growing income returns that are resilient through
economic cycles.
Our investment strategy is informed by our Investment
Policy. This Policy requires us to invest primarily in
future-proofed supermarkets known as omnichannel
supermarkets. These supermarkets operate as both
physical stores and online fulfilment centres, which
are typically:
• let to tenants with strong covenants and established
positions in the UK grocery sector
• modern flexible buildings adapted to operate both
in-store and online operations, accommodating
multiple loading bays, refrigeration units and home
delivery vehicles
• in the right locations, situated in population centres
close to consumers
• strategically located close to major road networks,
allowing efficient goods inward stocking, distribution
of home deliveries and convenient access to click and
collect facilities
• large floor areas, capable of housing a full range of
fresh groceries and providing scale economies for
the operator
We target standing assets which are completed
stores that have a tenant in place on acquisition.
The investment is thereby income producing from the
point of purchase with the tenant remaining committed
to the existing lease terms. We typically target
investments with long leases, but we may acquire assets
with shorter leases, if we can create value by re-gearing
or re-letting.
We target assets which offer value to our Shareholders
and usually have a yield range of approximately 4-6%.
Our investment objective is to deliver a total return of
7% - 10% per annum over the medium-term with total
return based on geared net rental income plus growth in
EPRA net asset value.
As our portfolio continues to grow, we benefit from
economies of scale and increased diversification by both
geography and tenant. A larger portfolio also gives us
greater insight into our tenants’ operations, grocery
market developments and greater potential to create
multi-asset initiatives.
Optimising Portfolio value
Our deep understanding of where and how each of our
grocery stores fits both within the national store network
and the micro catchment area is key to our investment
decision. A good example of this is our Tesco Store in
Newmarket acquired in July 2020. Tesco has a long
history of successful trading at this site since the 1980s.
The current store was completely rebuilt in 2016 into a
modern omnichannel supermarket which is purpose-
built to support Tesco’s growing online grocery business
across the region, whilst also maintaining an efficient
and growing in-store trade from the local catchment
population.
This store houses 68,000 sq ft net sales area whilst also
operating multiple online fulfilment distribution docks
for home delivery vehicles plus a purpose-built drive-
thru click and collect facility. This modern omnichannel
operation enhances the re-gear potential of the
supermarket and the long-term value of the underlying
real estate.
2 2 S U P E R M A R K E T I N C O M E R E I T P LC
asset class for investors seeking
“ Supermarket property is an attractive
secure, inflation-linked income.”
Capitalising on the depth of our relationship with
occupiers is a key part of our overall strategy. Our regular
programme of operator engagement at all levels of the
organisation allows us to identify opportunities to
enhance our sites and generate additional income to
increase capital values. An example of this is providing
environmentally sustainable supermarkets to support
carbon reduction efforts and lower running costs for
occupiers.
We continuously evaluate the performance of individual
assets and look to maximise the positive attributes of the
portfolio as a whole. We also review external factors that
could influence future performance and opportunities
for asset management.
Our asset management strategy aims to create value
throughout the asset lifecycle. In particular, we look to
protect and grow our income and capital values by
creating business plans for each asset and regularly
monitor and assess delivery against these plans.
For example, we have performed extensive due diligence
on the opportunity to install on-site decarbonised
energy producing plants across our estate linked to our
sustainability objectives. To date we have commenced
District Network Operator (DNO) applications for the
installation of extensive rooftop photovoltaic panels
covering most of our estate. We look forward to
delivering our first solar installation at our Thetford
store in October.
Through green energy investment, we not only generate
an income producing asset but also reduce costs for our
tenants whilst also assisting in their transition to a lower
carbon emission future.
We continue to explore and work with our tenants on
the repurposing of space that 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.
A N N U A L R E P O R T 2 0 2 0 2 3
STRATEGIC REPORT | OPERATING RESPONSIBLY
The Company is committed to delivering its strategic
objectives in an ethical and responsible manner and
meeting its corporate responsibilities towards society
and the environment. The Company’s environmental
and social policies address the importance of these
issues in the day-to-day running, as detailed below.
Environmental policy
The Board’s responsibility to society is broader than
simply generating financial returns for shareholders and
the Board ensures the Investment Adviser acts responsibly
in the areas it can influence as a landlord, for example by
working with tenants to improve the environmental
performance of the Company’s assets and minimise their
impact on climate change. The Board believes that
following this approach will ultimately be to the benefit of
shareholders through enhanced asset values.
The investment properties are let on full repairing and
insuring leases, meaning its day-to-day environmental
responsibilities are limited as properties are controlled
by the tenants. We do not purchase any utilities and we
cannot use the lease terms to influence how the tenant
operates. As a result, we do not submit performance data
to benchmarking indices such as the Global Real Estate
Sustainability Benchmark. However, the Board and
Investment Adviser adopt sustainable principles where
possible and the key elements of the Company’s
environmental policy are:
• We want our properties to minimise their impact on
the local and wider environment. We carefully
consider the environmental performance of assets
before we acquire them, including obtaining an
independent environmental report and energy
performance certificate (“EPC”) for all potential
acquisitions, which considers, amongst other matters,
the historical and current usage of the site and the
extent of any contamination present. This report may
lead to further enquiries of the vendor, surveyor or
legal teams and is considered by the Investment
Committee of the Investment Manager when
approving the acquisition.
• Sites are visited periodically and any obvious
environmental issues are reported to the Board.
• We perform extensive due diligence on the
opportunity to install on-site decarbonised energy
producing plant on each acquisition. To date we have
completed District Network Operator (“DNO”)
applications for the installation of extensive rooftop
photovoltaic panels covering over 70-80% of the total
gross internal area of our estate. Our first deliverable
from this initiative will be the installation of a 370
kilowatt rooftop solar array on the our Tesco Thetford
supermarket, which will supply decarbonised
electricity direct to the store.
All of our tenants have broad and deep corporate
responsibility targets and we continue to encourage and
engage with them, so we can work together to
understand their property requirements and provide
environmentally efficient Supermarkets which suit their
needs. Examples include investing in green energy
efficiency schemes, such as energy efficient lighting,
solar, 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.
Social policy
Our assets provide important benefits to their local
communities. This has been particularly evident during
the Covid-19 pandemic, Supermarkets provided essential
services to the local population and in increasing the
numbers of delivery slots particularly to vulnerable and
shielding individuals. Supermarkets also increased staff
numbers materially providing employment to people who
had lost their jobs or been furloughed.
Our communities are those who live in the areas in
which our Supermarkets are located, and we recognise
the importance of supporting those local communities.
We endeavour to invest in opportunities which will be fit
for future purpose and which align with our ESG targets.
We help to benefit our local communities by investing in
onsite decarbonised energy generation and other
sustainability initiatives, promoting bio-diversity and
seeking to increase efficiency of our stores for our
tenants and their consumers.
2 4 S U P E R M A R K E T I N C O M E R E I T P LC
Going forward
In 2020 we commenced a project in partnership with an
ESG consultancy to develop a new sustainability strategy
for the Group. The project consists of three key stages,
the first of which has been completed:
i) to determine the ESG issues that are most relevant to
our business and our stakeholders through a process
of detailed desk research and stakeholder interviews,
primarily investors or ESG rating agencies
ii) to develop a framework of how various ESG issues
are relevant to us and our stakeholders and we
approach each of them
iii) to assemble an action plan spanning the next five
years that clearly defines our commitments to a more
sustainable future, and how we will play our part,
including activities, partnerships, key performance
indicators and targets.
We believe that we can have a positive impact on the
planet by carefully considering our future investments,
by working with our tenants to operate in increasingly
sustainable ways, and to improve our own social and
environmental activities. These three tenets are at the
core of our sustainability philosophy and will form the
basis of our new strategy.
Section 172(1) Statement
The Directors consider that in conducting the business
of the Company over the course of the year ended
30 June 2020, they have complied with Section 172(1)
of the Companies Act 2006 (“the Act”). The business is
externally managed and the Group has no employees.
Its key stakeholders are considered to be its
shareholders, the Investment Adviser and other
suppliers, lenders, tenants and transaction
counterparties. The Board is of the opinion that its
conduct culminated from decisions made in good faith
to promote the success of the Company for the benefit
of all of its members, having regard to the impact of
decisions on the following matters specified in Section
172 of the Companies Act:
(A) the likely consequences of any decision in the
long term,
(B) the interests of the company’s employees,
(C) the need to foster the company’s business
relationships with suppliers, customers and others,
(D) the impact of the company’s operations on the
community and the environment,
(E) the desirability of the company maintaining a
reputation for high standards of business conduct,
and
(F) the need to act fairly as between members of the
company.
How the Director’s ensure long term success
The strategy of the Company was initially laid out in
Prospectus prepared for the Placing and subsequent
listing on the Specialist Fund Segment of the London
Stock exchange in July 2017 which was approved by
the Board at that time. In running the business, any
deviation from or amendment to that strategy is subject
to Board and, if necessary, shareholder approval. At least
annually, the Board considers a business plan and
budget for the delivery of its strategic objectives.
Through regular engagement with its stakeholder
groups, the Board aims to gain a rounded and balanced
understanding of the impact of its decisions. In the main,
that information is gathered in the first instance by the
Investment Adviser and communicated to the Board in
its regular quarterly meetings and otherwise as required.
A. The likely consequences of any decision in
the long term
The key strategic decisions for the Board are those
relating to asset acquisitions, financing, disposals and
distributions, and where these types of transaction, or
any other material transaction or decision, is considered,
the Board has regard to its wider obligations under
Section 172 of the Act. As such these strategic
discussions involve careful considerations of the
longer-term consequences of any decisions and their
implications on shareholders and other stakeholders and
the risk to the long term success of the business, and are
supported by detailed cash flow projections based on
various scenarios, which include: availability of funding;
borrowing; as well as the wider economic conditions
and market performance.
During the 2020 financial year, the primary non-routine
decision made by the Board was considering the
formation of a 50:50 joint venture (the “JV”) with British
Airways Pension Trustees Limited (“BAPTL”) to acquire
from British Land Plc a 25.5% stake (the “Acquisition”)
in a portfolio of 26 Sainsbury’s supermarket properties
(the “Portfolio”) for £102 million. The Company’s
contribution to the JV was £51 million, excluding costs,
which was satisfied from its existing cash balances and
credit facilities. The Portfolio is funded by bonds, which
mature in 2023 and the rental income received from the
Portfolio pays down the outstanding balance of the
bonds to a final amount which will be repayable in 2023
by way of a refinancing or sale of the Portfolio. Given
that this transaction is materially different from the
direct asset acquisitions that make up the majority of the
Company’s portfolio and the inherent complexity of the
underlying structure the Board obtained extensive,
detailed due diligence and legal reports from external
A N N U A L R E P O R T 2 0 2 0 2 5
STRATEGIC REPORT | OPERATING RESPONSIBLY CONTINUED
advisers. The acquisition was discussed in significant
detail and the impact on the wider portfolio was
assessed, together with the implications of allocating
capital to an investment that was not a direct asset
purchase and was non-cash generative in the short term.
The Company’s relationships with the workforce and its
key customers and suppliers did not change significantly
as a result of making this investment. The reasons for the
acquisition were announced at the time, so that all
stakeholders were aware of the decision, and through
the shareholder engagement programme investors
have had an opportunity to ask questions to understand
the Board’s decision. The principal benefits of the
Acquisition to shareholders included acquiring an
interest in a high quality portfolio, progressive valuation
growth, optimal capital structuring and providing an
attractive potential future pipeline.
B. The interests of the company’s employees
While the Group has no employees as a result of its
external management structure, the Directors have
regard to the interests of the individuals who are
responsible for delivery of the investment advisory
services to the Company to the extent that they are
able to. There have been no strategic initiatives or
transactions in the year that were considered to have
a direct bearing on the employees of the Investment
Adviser. The Board does not have direct responsibility
for any employees.
Investment Adviser since the IPO in July 2017. Where
material counterparties are new to the business, checks,
including anti money laundering checks, are conducted
prior to transacting any business to ensure that no
reputational or legal issues would arise from engaging
with that counterparty. The Company also reviews the
compliance of all material counterparties with relevant
laws and regulations such as the Modern Slavery Act
2015. All Group entities have a policy of paying suppliers
in accordance with pre agreed terms as reported in the
Supplier Payment Policies below:
Supplier payment policies
Neither the Company nor any of its subsidiary
undertakings exceeds the thresholds for reporting
payment practices and performance.
The following voluntary disclosures relate to the Group:
• the Group does not have standard or maximum
payment terms, but seeks to settle supplier invoices in
accordance with pre-agreed terms;
• invoices may be submitted electronically but as the
volume of payments is relatively low, the Group does
not operate electronic tracking for suppliers;
• the Group does not offer supply chain finance;
• there are no arrangements for participation on supplier
lists and no charges for being on such a list;
• the Group is not a member of a payment code of
conduct; and
• the average number of days taken to make payments
C. The need to foster the company’s business
in the year was 23 days (2018: 20 days).
relationships with suppliers, customers, the
Investment Adviser and others
The Company’s principal suppliers, customers and
counterparties are the Investment Adviser, professional
firms such as lenders, property agents, accounting and
law firms, tenants with which we have longstanding
relationships and transaction counterparties which
are generally large and sophisticated businesses or
institutions. The Investment Adviser was appointed in
July 2017 and the performance of the Investment Adviser
is kept under continual review as set out on page 40.
There is frequent direct engagement between the
Investment Advisory team and the Board. Most
professional firms and advisers acting for the business
have had relationships with the Company and the
D. The impact of the company’s operations on
the community and the environment
The interaction of Group entities with the wider
community and its impact on the environment is
relatively limited as a result of the Group’s business
operations being entirely related to investment in
properties let on long leases, where the operation of
the properties, their upkeep and environmental impact
is the responsibility of the occupational tenants. The
Board’s approach to sustainability is explained on pages
24 to 27 and 44. The Board and the Investment Adviser
have committed to limiting the impact of the business on
the environment where possible, including, for example,
the reduction during the year of the use of single use
plastics, with the aim of fully eliminating their use.
2 6 S U P E R M A R K E T I N C O M E R E I T P LC
E. The desirability of the company maintaining a
reputation for high standards of business conduct
The Board is mindful that the ability of the Company to
continue to conduct its investment business and to
finance its activities depends in part on the reputation of
the Board, the Manager and Investment Advisory Team.
The risk of falling short of the high standards expected
and thereby risking business reputation is included in
the Board’s review of the Company’s risk register, which
is conducted at least annually. Principal risks and
uncertainties facing the business are summarised on
pages 28 to 35.
F. The need to act fairly as between members of
the company.
The Company’s shareholders are an incredibly important
stakeholder group. The Board oversees the Investment
Adviser’s formal investor relations programme which is
supported by the Company’s brokers and financial PR
advisers. The Board aims to be open with shareholders
and available to them, subject to compliance with
relevant securities laws. The investor relations
programme is designed to promote formal engagement
with major investors, generally defined as those holding
more than approximately 1% of the shares in the
Company. Major investors are offered meetings after
each results announcement. The Board and the
Investment Adviser also engage with major investors,
other investors who may request meetings and with
potential new investors on an ad hoc basis throughout
the year including where prompted by Company
announcements. All formal shareholder presentations
are made available on the Company’s website and
remain available to any interested party. The whole
Board attends the Company’s Annual General Meeting.
The Company has a single class of shares in issue with
all members of the Company having equal rights. The
investment strategy of the Group is focussed on medium
to long term returns and as such the long term is firmly
within the sights of the Board when all material
decisions are made.
A N N U A L R E P O R T 2 0 2 0 2 7
STRATEGIC REPORT | OUR PRINCIPAL RISKS
The Board of the Company and JTC Global AIFM
Solutions Limited, the Company’s Alternative
Investment Fund Manager (the “AIFM”), together
have joint overall responsibility for the Company’s
risk management and internal controls, with the
Audit Committee reviewing the effectiveness of the
Board’s risk management processes on its behalf.
To ensure that risks are recognised and appropriately
managed, the Board has agreed a formal risk
management framework. This framework sets out the
mechanisms through which the Board identifies,
evaluates and monitors its principal risks and the
effectiveness of the controls in place to mitigate them.
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.
The Board determines the level of risk it will accept in
achieving our business objectives, and this has not changed
during the year. We have no appetite for risk in relation to
regulatory compliance or the health, safety and welfare of
our tenants, and service providers, and the wider community
in which we work. We continue to have a moderate appetite
for risk in relation to activities which drive revenues and
increase financial returns for our investors.
There are a number of potential risks and uncertainties
which could have a material impact on the Group’s
performance over the forthcoming financial year and
could cause actual results to differ materially from
expected and historical results.
The risk management process includes the Board’s
identification, consideration and assessment of those
emerging risks which may impact the Group. Emerging
risks are specifically covered in the risk framework, with
assessments made both during the regular quarterly risk
review and as potentially significant risks rise during the
year. The quarterly assessment includes input from the
Investment Advisor and review of information by the
AIFM, prior to consideration by the Audit Committee.
Key emerging risks considered during the year include:
• uncertainty around the impact of the Brexit transitional
arrangements – this is not currently considered to be a
significant risk for the REIT, as all our assets and
tenants are based in the UK and there is diversity
of tenants and assets.
• the impact of the COVID-19 pandemic – this has been
evaluated as a significant risk and has been included
within the summary of principal risks and mitigations.
The matrix below illustrates our assessment of the
impact and the probability of the principal risks
identified. The rationale for the perceived increases and
decreases in the risks identified is contained in the
commentary for each risk category.
2 8 S U P E R M A R K E T I N C O M E R E I T P LC
T
C
A
P
M
I
h
g
H
i
i
m
u
d
e
M
w
o
L
e
r
a
R
3
8
2
5
9
10
1
6
4
7
Impact of Covid 19
The Board considers these risks have increased since last year
9
11 European Union exit without EU trade deal (“Brexit”)
2
Our ability to source assets may be affected by competition for
investment properties in the supermarket sector
The Board considers all the other risks to be broadly unchanged
since last year
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
The default of one or more of our lessees would reduce revenue
and may affect our ability to pay dividends
Our use of floating rate debt will expose the business to underlying
interest rate movements
11
12
1
3
4
6 We must be able to operate within our banking covenants
7
There can be no guarantee that we will achieve our investment
objectives
8 We are reliant on the continuance of the Investment Adviser
10 We operate as a UK REIT and have a tax-efficient corporate
structure, with advantageous consequences for UK shareholders
12 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
The Board considers these risks have decreased since last year
5
A lack of debt funding at appropriate rates may restrict our ability
to grow
Rare
Low
Medium
High
PROBABILITY
PROPERTY RISK
1
The lower-than-expected performance of the Portfolio could reduce property valuations and/or revenue,
thereby affecting our ability to pay dividends or lead to a breach of our banking covenants
Probability:
Low
Impact:
Moderate
Mitigation
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.
Our property Portfolio is 100% let with long weighted average unexpired
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.
2
Our ability to source assets may be affected by competition for investment properties in the supermarket sector
Probability:
Low
Impact:
Moderate
Mitigation
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.
The Supermarket investment market has
been seen as a safe haven in a time of
distress in other real estate investment
categories driving up competition for
quality assets. This has led to increased
demand for Supermarket assets without
a comparable increase in supply, which
could potentially increase prices and
make it more difficult to deploy capital.
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 active asset management and we
are actively exploring opportunities for all our sites.
We maintain a disciplined approach to appraising and acquiring assets,
engaging in detailed due diligence and do not engage in bidding wars
which drive up prices in excess of underwriting.
A N N U A L R E P O R T 2 0 2 0 2 9
STRATEGIC REPORT | OUR PRINCIPAL RISKS CON TIN UED
3
The default of one or more of our lessees would reduce revenue and may affect our ability to pay dividends
Probability:
Low
Impact:
High
Mitigation
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.
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
4
Our use of floating rate debt will expose the business to underlying interest rate movements
Probability:
Low
Impact:
Low
Mitigation
Interest on the majority of our debt
facilities 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.
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, keeping the hedging
strategy under constant review in order to balance the risk of exposure to
rate movements against the cost of implementing hedging instruments.
We selectively utilise hedging instruments with a view to keeping the
overall exposure at an acceptable level.
5
A lack of debt funding at appropriate rates may restrict our ability to grow
Probability:
Low
Impact:
Low
Mitigation
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.
The company has had two oversubscribed
capital raises during the year ended
30 June 2020 which have provided
increased liquidity and enabled
considerable growth within the year
and the numerous acquisitions post year
end. We believe that this indicates that
alternative credit sources will become
available in the short to medium term
and we will become less reliant on
bank funding.
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 has remained popular with lenders, owing to long
leases and letting to single tenants with strong financial covenants and
being seen as a safe asset class in times of market uncertainty. We have
seen increased appetite from lenders to provide financing for future
acquisitions.
3 0 S U P E R M A R K E T I N C O M E R E I T P LC
6
We must be able to operate within our banking covenants
Probability:
Low
Impact:
Moderate
Mitigation
If we were unable to operate within our
banking covenants, this could lead to
default and our bank funding being
recalled.
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
7
There can be no guarantee that we will achieve our investment objectives
Probability:
Low
Impact:
Low
Mitigation
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 on our
earnings, financial position, cash
requirements, level and rate of
borrowings, and available profit.
The Board uses its expertise and experience to set our investment
strategy and seeks external advice to underpin its decisions, for example
independent asset valuations. There are complex controls and detailed
due diligence arrangements in place around the acquisition of assets,
designed to ensure that investments will produce the expected results.
Significant changes to the Portfolio, both acquisitions and disposals,
require specific Board approval.
The Investment Adviser’s significant experience in the sector should
continue to provide us with access to assets that meet our investment
criteria going forward.
Rental income from our current Portfolio, coupled with our hedging
policy, supports the current 5.86 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.
8
We are reliant on the continuance of the Investment Adviser.
Probability:
Low
Impact:
Moderate
Mitigation
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.
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 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
investments or significant asset management initiatives proposed by the
Investment Adviser.
A N N U A L R E P O R T 2 0 2 0 3 1
STRATEGIC REPORT | OUR PRINCIPAL RISKS CON TIN UED
9
Impact of COVID-19
Probability:
Low
Impact:
Moderate
In addition to the immediate health and
social care risks, the potential impact
of the pandemic could be significant,
including: the potential for reduced rental
collection and a corresponding increase
in bad debts, this in turn could impact on
banking covenants, asset values, returns
and potentially dividend. There is also the
potential for reduced quality of services
and support from professional advisors
and service providers.
Mitigation
The underlying strength of the business is the investment grade tenant
base. The grocery sector has proven to be robust in the face of the wider
challenges posed by the pandemic, reporting increased sales, albeit
pitted against higher costs, and a rapid positive response to the changing
ways in which customers shopped. This has resulted in the Supermarket
asset class being resilient and in high demand, underpinning asset
values. All rental income has been received on time and in full.
However, it is likely that the pandemic will have an impact across all
commercial and business activities.
A range of enhanced controls and mitigations have been put in place,
including regular updates with the Investment Advisor and diversification
of banking relationships and close monitoring of rent collection. Different
working arrangements have been implemented for both the Investment
Advisor’s team and the outsourced Property Managers, which are
designed to maintain safe, regular contact and dialogue with tenants,
to provide the Board with clear visibility of significant issues and risks
arising. The outsourced operating model offers additional resilience, as
staff resource absences are more easily covered, and in most cases those
providing services to the REIT were already operating with remote
working arrangements. The Board is constantly assessing the position,
with additional mitigations possible. For example, there is the ability to
drawdown under the revolving credit facility and to enter into new credit
arrangements which provides comfort that were any of our tenants not
pay their rent in full or on time we would have sufficient liquidity to meet
our outgoing cash requirements..
TAXATION RISK
10
We operate as a UK REIT and have a tax-efficient corporate structure, with advantageous consequences for UK
shareholders. Any change to our tax status or in UK tax legislation could affect our ability to achieve our investment
objectives and provide favourable returns to shareholders
Probability:
Low
Impact:
Moderate
Mitigation
If the Company fails to remain a REIT for
UK tax purposes, our profits and gains
will be subject to UK corporation tax.
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.
3 2 S U P E R M A R K E T I N C O M E R E I T P LC
POLITICAL RISK
11
European Union exit without EU trade deal (“Brexit”)
Probability:
High
Impact:
Moderate
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.
The major supermarket operators used the Covid-19 crisis to test the
resilience of their supply chains and have been planning for Brexit
since 2016.
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 stage. However, as the
deadline for the achievement of a deal
approaches the risk of a no deal
becomes more likely. There continues to
be uncertainty around the potential
impact on supply chains which could
impact the major supermarket operators.
MARKET PRICE RISK
12.
Shareholders may not be able to realise their shares at a price above or the same as they paid for the shares or at all
Probability:
Moderate
Impact:
Moderate
Mitigation
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.
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 per cent 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.
A N N U A L R E P O R T 2 0 2 0 3 3
STRATEGIC REPORT | OUR PRINCIPAL RISKS CON TIN UED
Going concern
In light of the significant impact of COVID-19 on the UK
economy, and the retail sector, the Directors have placed a
particular focus on the appropriateness of adopting the
going concern basis in preparing the Group’s and
Company’s financial statements for the year ended 30 June
2020. In assessing the going concern basis of accounting
the Directors have had regard to the guidance issued by
the Financial Reporting Council.
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, being at least twelve months from the
date of approval of the financial statements, and therefore
have adopted the going concern basis in the preparation
of these financial statements.
During the period covered by this report, the Group has
raised a total of £239.8 million from the issue of equity
shares and a further £76.6million under the Deka Bank
facility. All financial covenants have been met to date.
Post year end the Group entered into a new £100.0 million
credit facility with Wells Fargo and has increased the
Bayerische Landesbank credit facility by a further
£34.8 million. Further details are set out in the notes
to the Financial statements. In addition, the HSBC
facility has been increased by £40 million.
The Group generated net cash flow from operating
activities in the period of £26.9 million, with its cash
balances at 30 June 2020 totaling £20.4 million. The Group
had no capital commitments or contingent liabilities as at
the balance sheet date. All contractual rent for the March
and June quarters has been collected on time and in full.
The Group benefits from a secure income stream from its
property assets that are let to tenants with excellent
covenant strength, and are critical to the UK grocery
infrastructure, under long leases that are subject to
upward only 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 meeting its liabilities as they fall due over
the assessment period. The Directors are therefore of the
opinion that the going concern basis adopted in the
preparation of the financial statements is appropriate.
Assessment of viability
The period over which the Directors consider it feasible and
appropriate to report on the Group’s viability is the five-year
period to 30 June 2025. This period has been selected
because it is the period that is used for the Group’s medium-
term business plans and individual asset performance
forecasts. The assumptions underpinning these forecast cash
flows and covenant compliance forecasts were sensitised to
explore the resilience of the Group to the potential impact of
the Group’s significant risks, or a combination of those risks.
The principal risks on pages 28 to 35 summarise those
matters that could prevent the Group from delivering on its
strategy. A number of these principal risks, because of their
nature or potential impact, could also threaten the Group’s
ability to continue in business in its current form if they were
to occur. The Directors paid particular attention to the risk of
a deterioration in economic outlook which could impact
property fundamentals, including investor and occupier
demand which would have a negative impact on valuations,
and give rise to a reduction in the availability of finance.
COVID-19: In light of the COVID-19 pandemic, the Board
also paid attention to the impact of either a reduction in
availability of funds under the existing RCF or a delay to
the receipt of rental incomes. However, the full facility
amount continued to be available under the RCF and all
rental income was received on time and in full. The
additional risk from the pandemic was therefore not
considered to be material to the Group.
The remaining principal risks, whilst having an impact on
the Group’s business model, are not considered by the
Directors to have a reasonable likelihood of impacting the
Group’s viability over the five-year period to 30 June 2025.
The sensitivities performed were designed to be severe but
plausible; and to take full account of the availability of
mitigating actions that could be taken to avoid or reduce
the impact or occurrence of the underlying risks:
Tenant risk: Key assumptions including the failure of
tenants to (or guarantors where relevant) continue to
comply with their rental obligations over the term of their
leases and the related impact on yields were sensitised to
reflect reasonably likely levels associated with the failure of
a key tenant.
Borrowing risk: The Group continues to comply with all
relevant loan covenants. The Group is able to refinance
the £100.0 million RCF falling due in August 2022 and
the £52.1 million Term Loan falling due in July 2023 on
acceptable terms. The Group does not have a significant
refinancing event occurring until December 2024.
3 4 S U P E R M A R K E T I N C O M E R E I T P LC
Other disclosures
Disclosure in relation to the Company’s business model
and strategy have been included within the Investment
Adviser’s report on pages 10 to 17. 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
pages 18 to 21. Disclosures in relation to environmental
and social issues have been included within Operating
Responsibility on pages 24 to 27. 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 Chairman’s
Statement on pages 2 to 3, the Investment Adviser’s
report on pages 10 to 17 and the supplementary
information on pages 98 to 101.
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 17 September 2020.
Nick Hewson
Chairman
17 September 2020
Financing is arranged in advance of expected
requirements and the Directors have reasonable
confidence that additional or replacement debt facilities
will be put in
place at the point of refinancing.
Liquidity risk: The Group continues to generate sufficient
cash to cover its costs while retaining the ability to make
distributions.
Viability statement
The Board has assessed the prospects of the Group over
the five years from the balance sheet date to 30 June
2025, which is the period covered by the Group’s longer
term financial projections. The board considers five years
to be an appropriate forecast period since, although the
Group’s contractual income extends beyond five years,
the availability of finance and market uncertainty
reduces the overall reliability of forecast performance
over a longer period.
The Board considers the resilience of projected liquidity,
as well as compliance with secured debt covenants and
UK REIT rules, under a range of RPI and property
valuation assumptions.
The principal risks and the key assumptions that were
relevant to this assessment are as follows:
Risk
Assumption
Tenant risk
Tenants (or guarantors where relevant) fail
to comply with their rental obligations over
the term of their leases and a key tenant
suffers an insolvency event 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 £100.0 million RCF falling
due in August 2022 and the £52.1 million
Term Loan falling due in July 2023 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.
A N N U A L R E P O R T 2 0 2 0 3 5
CORPORATE GOVERNANCE | BOARD OF DIRECTORS
DIRECTORS
NICK HEWSON
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
CHAIR OF THE
NOMINATION COMMITTEE
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. Jon has also
held senior finance roles at
London and Edinburgh Trust
plc, Pricoa Property plc and
Goodman Limited. Jon is a is
a fellow of the Institute of
Chartered Accounts of
England and Wales.
CATHRYN VANDERSPAR
CHAIR OF THE
REMUNERATION
COMMITTEE
Cathryn has more than 20
years experience as a real
estate lawyer and is Head of
Real Estate Tax at Travers
Smith LLP. Cathryn
specialises in direct and
indirect real estate with
experience in unauthorised,
authorised and listed funds,
across all types of vehicle
and asset classes, including
real estate, debt and private
equity. Cathryn is an active
member of the HMRC and
HMT working groups and is
the author of the tax chapter
on REITs in Tolleys Taxation
of Collective Investment.
3 6 S U P E R M A R K E T I N C O M E R E I T P LC
INVESTMENT ADVISER
BEN GREEN
Ben has over 20 years’ of
experience structuring and
executing real estate
transactions and has
completed £4 billion of
supermarket sale and
leaseback transactions 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 a focus on
commercial real estate.
Steven has negotiated and
executed over £500 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.
NATALIE MARKHAM
Natalie was previously chief
financial officer at Macquarie
Global Property Advisors
Europe. Natalie was also a
member 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 R T 2 0 2 0 3 7
CORPORATE GOVERNANCE | CORPORATE GOVERNANCE STATEMENT
Key Board Statements
Statement of Compliance
The Board has considered the Principles and Provisions
of the AIC Code of Corporate Governance (February
2019) (‘AIC Code’) and that these provide the most
appropriate framework for SUPR’s governance and
reporting to shareholders.
The AIC Code addresses the Principles and Provisions
set out in the UK Corporate Governance Code
(July 2018) (the ‘UK Code’), as well as setting out
additional Provisions on issues that are of specific
relevance to the Company.
The Board considers that reporting against the Principles
and Provisions of the AIC Code, which has been
endorsed by the Financial Reporting Council provides
more relevant information to shareholders.
The Company has complied with the Principles and
Provisions of the AIC Code throughout the year, except
as set out below. The UK Corporate Governance Code
includes provisions relating to:
• the role of the chief executive;
• executive directors’ remuneration; and
• the need for an internal audit function.
The Board considers that these provisions are not
relevant to Supermarket Income REIT plc, being an
externally managed investment company. 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.
A copy of the AIC Code can be obtained via the AIC’s
website, www.theaic.co.uk It includes an explanation of
how the AIC Code adapts the Principles and Provisions
set out in the UK Code to make them relevant to
investment companies.
This Corporate Governance Statement forms part of
the Directors’ Report.
The Company’s compliance with, or reasons for
departure from, the principles of the AIC Code are set
out in the table below. Throughout the period, the
Company has also complied with the following
provisions of the UK Code:
B.2.4 (DTR 7.2.8AR) Provide a description of the Board’s
policy on diversity, including gender, any measurable
objectives that this has set for implementing the policy,
and progress on achieving the objectives and Diversity
Policy. The Board adopted a formal diversity policy at its
meeting on 3 September 2018, reflecting wider diversity
characteristics of gender, ethnicity, age, disability, social
or educational background. Previously, the Board’s
approach was to appoint the best possible candidate,
considered on merit and against objective criteria.
Further information is provided within the Nomination
Committee report on pages 49 to 50.
3 8 S U P E R M A R K E T I N C O M E R E I T P LC
AIC
Code Principle
Evidence of compliance/explanation of departure from the AIC Code
A successful company is led
by an effective board, whose
role is to promote the long-
term sustainable success of
the company, generating
value for shareholders and
contributing to wider society.
The Company has embedded its approach of responsible investing into the whole spectrum of
the investment process. Responsible investing means considering the environmental impact of
prospective investments, identifying opportunities to install on-site decarbonised energy
producing plant on each acquisition and engaging external consultants to identify additional ESG
opportunities. The company takes an active interest in how its tenants manage environmental,
social, and governance (‘ESG’) issues. Both the Board, the AIFM and Adviser agree that
responsible business practices help generate superior long-term performance. More information
on SUPR’s long-term performance record can be found on page 53 and more details on the
Adviser’s approach to responsible investing is on pages 10 to 17 of this Report
A
B
C
The board should establish
the company’s purpose,
values and strategy, and
satisfy itself that these and its
culture are aligned. All
directors must act with
integrity, lead by example and
promote the desired culture.
The board should ensure that
the necessary resources are
in place for the company to
meet its objectives and
measure performance against
them. The board should also
establish a framework of
prudent and effective controls,
which enable risk to be
assessed and managed.
D
In order for the company to
meet its responsibilities to
shareholders and
stakeholders, the board
should ensure effective
engagement with, and
encourage participation
from, these parties.
The Board is responsible for the overall leadership of the Company, setting its values and
standards, including approval of the Group’s strategic aims and objectives and oversight of its
operations. The Company’s business model and strategy were established at the time of the
IPO in July 2017. Whilst the business has grown materially since the Company’s listing, its
strategy has not changed. The business continues to generate long term income with inflation
protection from key operating real estate assets, with additional potential for capital growth
over the medium to long term. Acquisition opportunities and any related debt finance are
examined by the Board with a view to ensuring the long term sustainability of the business.
The security and longevity of returns is absolutely fundamental to the Company’s strategy,
as summarised in the outline of the Group’s business model on page 10, and the Company’s
investment strategy is described in the Strategic Report on pages 10 to 17.
In meeting its duty to the Company’s shareholders to promote the success of the business,
the Board takes a long term view, assessing opportunities and risks together with considering
and reporting on the viability of the business over a five year period. The Board is collectively
responsible for the long term success of the Company and seeks to achieve:
• competent and prudent management;
• sound planning;
• maintenance of appropriate management and internal control systems;
• reliable accounting and other records; and
• compliance with statutory and regulatory obligations.
The control environment operated within the Group is subject to the review of the Audit
Committee which formally considers the internal control framework at least annually and
discusses the operation and effectiveness of internal controls with the Group’s external
auditors in its meetings with them.
The Company has an outsourced operating model.
JTC Global AIFM Solutions Limited has been appointed by the Group, pursuant to the AIFM
Agreement, to be the Group’s Alternative Investment Fund Manager (the ‘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
and the AIFM 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 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,
together with the standard of the other services provided.
On pages 25 to 27, within the s.172 statement key stakeholders, an understanding of their
interests and how they are engaged with is set out.
A N N U A L R E P O R T 2 0 2 0 3 9
CORPORATE GOVERNANCE | CORPORATE GOVERNANCE STATEMENT CONTINUED
AIC
Code Principle
Evidence of compliance/explanation of departure from the AIC Code
F
G
H
I
The chair leads the board and
is responsible for its overall
effectiveness in directing the
company. They should
demonstrate objective
judgement throughout their
tenure and promote a culture
of openness and debate. In
addition, the chair facilitates
constructive board relations
and the effective contribution
of all non-executive directors,
and ensures that directors
receive accurate, timely and
clear information.
The board should consist of
an appropriate combination
of directors (and, in
particular, independent non-
executive directors) such that
no one individual or small
group of individuals
dominates the board’s
decision making.
Non-executive directors
should have sufficient time to
meet their board
responsibilities. They should
provide constructive
challenge, strategic guidance,
offer specialist advice and
hold third party service
providers to account
The board, supported by the
company secretary, should
ensure that it has the policies,
processes, information, time
and resources it needs in order
to function effectively and
efficiently.
The Chairman leads the Board by presiding over Board meetings; agreeing the agendas,
ensuring, among other matters, that appropriate weight is given to topics such as strategy,
asset allocation and financial performance; he ensures that Board debates are balanced, open
and inclusive and promotes behaviours and attributes that make up our culture. The Chairman
ensures that the Board is provided with information of appropriate quality and form, in a timely
manner. In addition to formal Board meetings, there is also an ongoing informal interaction
between the Directors, the Manager and the Adviser. The annual evaluation of the Board’s
effectiveness always considers the performance of the Chairman, and whether he has
performed his role effectively. In recent years, the Directors, led by the SID, have concluded
that the Chairman has fulfilled his role and supported effective functioning of the Board.
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 (the ‘AIFM’ or ‘Investment Manager’) and of Atrato
Capital Limited (the ‘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 also spend a considerable amount of time reviewing the composition of the Board
as well as the longer-term succession plans. The Board established a Remuneration Committee
and Nomination Committee in the year to formalise these policies and strategies. The Board
aims to be as well-equipped as a Board of any REIT group to give direction and scrutiny to
SUPR’s activities. More information on the changes to the Board can be found on pages 49.
The Board considers the required time commitment annually and during the year under review
all Directors continued to devote sufficient amount of time to the Company’s business. Both,
through their contributions in meetings as well as outside of the usual meeting cycle.
JTC Global AIFM Solutions Limited has been appointed by the Group, pursuant to the AIFM
Agreement, to be the Group’s Alternative Investment Fund Manager (the ‘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 Managers 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 to Atrato Capital Limited (‘Atrato’ or the ‘Investment Adviser’). Atrato
advises the Group and the AIFM on the acquisition and financing of its 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 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, 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 Investment Manager has authority and the limits beyond which Board
approval must be sought. All other matters, including investment and dividend policies,
corporate strategy, gearing and, corporate governance procedures and risk management,
are reserved for the approval of the Board of Directors.
The Directors remain focused on understanding the needs of the shareholders and other
stakeholders and considering how the Board’s decisions impact them in the longer term. More
information can be found on pages 25 to 27, where Directors explain how they discharged their
duties under Section 172 of the Companies Act 2006. A number of Board policies, which help
to codify its processes, are reviewed and, if needed, periodically updated. Directors are also
regularly provided with any relevant information and have access to the Company Secretary
and independent advisors, if deemed necessary.
4 0 S U P E R M A R K E T I N C O M E R E I T P LC
AIC
Code Principle
Evidence of compliance/explanation of departure from the AIC Code
J
K
L
M
N
Appointments to the board
should be subject to a formal,
rigorous and transparent
procedure, and an effective
succession plan should be
maintained. Both
appointments and succession
plans should be based on
merit and objective criteria
and, within this context, should
promote diversity of gender,
social and ethnic backgrounds,
cognitive and personal
strengths.
The board and its committees
should have a combination of
skills, experience and
knowledge. Consideration
should be given to the length
of service of the board as a
whole and membership
regularly refreshed.
Annual evaluation of the
board should consider its
composition, diversity and
how effectively members
work together to achieve
objectives. Individual
evaluation should
demonstrate whether each
director continues to
contribute effectively.
The board should establish
formal and transparent
policies and procedures to
ensure the independence and
effectiveness of external audit
functions and satisfy itself on
the integrity of financial and
narrative statements
The board should present a
fair, balanced and
understandable assessment
of the company’s position and
prospects.
In 2018, the Directors adopted a Diversity and Inclusion Policy, which sets out the process the
Board follows when making new appointments, including how the Directors will ensure that
any new appointment will add to the diversity of experience, skill, gender, social and/or ethnic
backgrounds of the Board. During the year, the Directors considered succession planning and
agreed that the size of the Company warranted appointment of a fourth director, a formal,
rigorous and transparent procedure was conducted to appoint an additional director to the
Board. More information is contained within the Nomination Committee report on page 50.
During the year ended 30 June 2020 a Nomination Committee was established. The
Nomination Committee, comprised of independent non executive Directors, is responsible for
identifying and recommending to the Board the appointment of new Directors. The Nomination
Committee will regularly consider the balance of skills, experience, diversity and independence
of the Board, as well as the strategy and likely future developments in order to assess the
current composition of the Board and its suitability, or likely needed changes, in the longer-
term. In the coming year the committee will consider and formulate succession plans.
The Directors consider the evaluation of the Board, its Committees and members to be an
important aspect of corporate governance and as such 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 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.
Following the completion of the this years’ evaluation process, the Chairman held one to one
discussions with the Board members to consider the feedback on the performance of the
individuals and the Senior Independent Director, Vince Prior, led the discussion on the
performance of the Chairman. The results of the evaluation process were presented to and
discussed by the Board and it was concluded that the Board was functioning effectively.
An externally run evaluation will be undertaken during the next financial year and every three
years thereafter.
The Audit Committee supports the Board in fulfilling its oversight responsibilities by reviewing
the performance of the external auditor, audit quality, as well as the auditor’s objectivity and
independence. The Committee also reviews the integrity and content of the Financial
Statements, including the on going viability of the Company. More details can be found in
the Committee’s report on pages 45 to 48.
The Audit Committee supports the Board in assessing that SUPR Annual Report present a fair,
balanced and understandable assessment of the company’s position and prospects. In its
assessment, the Committee in particular focuses on the aspects of SUPR’s reporting such as:
• Whether the information is deemed to be free of bias, reasonable and impartial and it does
not omit important elements;
• Whether there is a good level of consistency between the front and back sections of the
reports and the same conclusions can be drawn from reading the two sections
independently;
• Whether the key judgements referred to in the narrative reporting are consistent with the
disclosures in the back end of the reports and correspond with the risks that the external
auditor would include in their report;
• Whether there is there a clear and cohesive framework and the important messages are
highlighted throughout the document;
• Whether the information set out in the reports is easy to find and written in accessible
language, and where the use of specialist terms or acronyms is necessary, there a glossary
that indicates how they are defined for clarity and consistency.
A N N U A L R E P O R T 2 0 2 0 4 1
CORPORATE GOVERNANCE | CORPORATE GOVERNANCE STATEMENT CONTINUED
AIC
Code Principle
Evidence of compliance/explanation of departure from the AIC Code
O
P
Q
R
The board should establish
procedures to manage risk,
oversee the internal control
framework, and determine
the nature and extent of the
principal risks the company is
willing to take in order to
achieve its long-term
strategic objectives
Remuneration policies and
practices should be designed
to support strategy and
promote long-term
sustainable success.
A formal and transparent
procedure for developing a
remuneration policy should
be established. No director
should be involved in deciding
their own remuneration
outcome.
Directors should exercise
independent judgement and
discretion when authorising
remuneration outcomes,
taking account of company
and individual performance,
and wider circumstances.
The work of the Audit Committee, that supports the Board through its independent oversight
of the financial reporting process, including the financial statements, the system of internal
control and management of risk, the appointment and ongoing review of the quality of the
work and independence of the Company’s external auditor, as well as the procedures for
monitoring compliance, is described in pages 45 to 48.
The AIFM also provides oversight of the internal control structure and risk management
framework as set out in their report on page 59.
The Board has appointed a Remuneration Committee comprised of all Board members, all of
whom are Independent. Only members of the Remuneration Committee have the right to
attend Committee meetings but other individuals and external advisers may be invited to
attend for all or part of any meeting as and when appropriate. Appointments to the Committee
are made by the Board. The Chairman of the Board may not be chairman of the Committee.
The Remuneration Committee meets at least once each year and otherwise as required, and
the Committee chairman attends the AGM to answer any questions about the Committee’s
activities. The report of the Remuneration Committee to shareholders is included on pages 51
to 53.
The responsibilities of the Committee are set out in the report on page 51 and include setting
remuneration policy for the Chairman and the executive team which for these purposes means
the Investment Adviser.
The Board considers the appropriateness of the level of remuneration for all Directors each
year, having regard to the time commitment and responsibilities involved. The assessment of
the performance of the Chairman is determined by the other Directors. However, because
there are no performance related elements of the remuneration, there is very little scope for
the exercise of discretion or judgement.
4 2 S U P E R M A R K E T I N C O M E R E I T P LC
CORPORATE GOVERNANCE | KEY BOARD STATEMENTS
Requirement
Going concern basis
Viability Statement
Annual review of systems of risk
management and internal control
Robust assessment of the Company’s
emerging and principal risks to the
business model, future performance,
solvency and liquidity of the Company.
Fair, balanced and understandable
Appointment of the Adviser
Board statement
Where to find further information
The Board is of the opinion that the going
concern basis adopted in the preparation
of the Annual Report is appropriate.
Further details are set out on page 34 of
the Strategic report.
The Board is of the opinion that the
viability statement adopted in the
preparation of the Annual Report is
appropriate.
A continuing process for identifying,
evaluating and managing the risks the
Company faces has been established and
the Board has reviewed the effectiveness
of the internal control systems.
The Audit & Risk Committee and the
Board undertake a full risk review twice
a year where all the emerging, principal
risks and uncertainties facing the
Company and the Group are considered
The Directors confirm that to the best
of their knowledge the Annual Report
taken as a whole is fair, balanced and
understandable and provides the
information necessary for Shareholders
to assess the Company’s position,
performance, business model and
strategy.
The Directors consider the continuing
appointment of the Adviser on the terms
agreed in the Investment Advisory
Agreement dated 14 September 2020 to
be in the best interests of the Company.
Further details are set out on page 34 of
the Strategic report.
Further details are set out in Audit, Risk
and Internal Controls on page 54 of this
Governance Report
Further details can be found in Our
Principal Risks and Uncertainties on
pages 28 to 35 of the Strategic Report.
Further details of the fair, balanced and
understandable statement can be found in
the Audit Committee Report on pages 45
to 48.
Further details are set out in the Directors
Report on page 55.
s172
The Directors have considered the
requirements of s172 when making
strategic decisions.
Further details are set out on pages 25 to
27 of the Strategic Report and pages 39 to
43 of the Governance Report.
A N N U A L R E P O R T 2 0 2 0 4 3
CORPORATE GOVERNANCE | CORPORATE SOCIAL RESPONSIBILITY
The Company is committed to delivering its strategic
objectives in an ethical and responsible manner and
meeting its corporate responsibilities towards society
and the environment. The Company’s environmental
and social policies address the importance of these
issues in the day-to-day running, as detailed below.
Environmental policy
The Board’s responsibility to society is broader than
simply generating financial returns for shareholders and
the Board ensures the Investment Adviser acts responsibly
in the areas it can influence as a landlord, for example by
working with tenants to improve the environmental
performance of the Company’s assets and minimise
their impact on climate change. The Board believes that
following this strategy will ultimately be to the benefit
of shareholders through enhanced asset values.
The investment properties are let on full repairing and
insuring leases, meaning its day-to-day environmental
responsibilities are limited as properties are controlled
by the tenants. We do not purchase any utilities and we
cannot use the lease terms to influence how the tenant
operates. As a result, we do not submit performance data
to benchmarking indices such as the Global Real Estate
Sustainability Benchmark. However, the Board and
Investment Adviser adopt sustainable principles where
possible and the key elements of the Company’s
environmental policy are:
• We want our properties to minimise their impact on
the local and wider environment. We carefully
consider the environmental performance of assets
before we acquire them, including obtaining an
independent environmental report and energy
performance certificate (“EPC”) for all potential
acquisitions, which considers, amongst other matters,
the historical and current usage of the site and the
extent of any contamination present. This report may
lead to further enquiries of the vendor, surveyor or
legal teams and is considered by the Investment
Committee of the Investment Manager when
approving the acquisition;
• Sites are visited periodically and any obvious
environmental issues are reported to the Board.
• We perform extensive due diligence on the
opportunity to install on-site decarbonised energy
producing plant on each acquisition. To date we have
completed District Network Operator (“DNO”)
applications for the installation of extensive rooftop
photovoltaic panels covering over 70% of the total
gross internal area of our estate.
All of our tenants have broad and deep corporate
responsibility targets and we continue to encourage
and engage with them, so we can work together to
understand their property requirements and provide
environmentally efficient Supermarkets which suit their
needs. Examples include investing in green energy
efficiency schemes, such as energy efficient lighting,
solar, 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.
Social policy
Our assets provide important benefits to their local
communities. This has been particularly evident during
the Covid-19 pandemic, Supermarkets provided
essential services to the local population and in
increasing the numbers of delivery slots particularly to
vulnerable and shielding individuals. Supermarkets also
increased staff numbers materially providing
employment to people who had lost their jobs or been
furloughed.
Whistleblowing Policy
The whistleblowing policy applicable to all Atrato staff
who work on the Group’s operations encourages
employees to raise concerns they may have over the way
the company is run or about conduct of those running it
with Senior managers/directors. With this policy in mind
the Group will want to hear any concerns or issues the
employee may have about suspected malpractice or
unlawful activity. In order to maintain this level of
transparency the Group has a set of procedures that
allows genuine concerns to be dealt with appropriately.
The policy is reviewed and approved by the Audit
Committee each year for recommendation (if
appropriate) to the Board, and that policy provides for
direct lines of communication from Atrato staff to
Independent Directors if required. To date no such
reports have been made but, in the event that any arise,
the Audit Committee will in the first instance investigate
on behalf of the Board and follow up any matters arising,
reporting their results to the Board.
4 4 S U P E R M A R K E T I N C O M E R E I T P LC
CORPORATE GOVERNANCE | 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
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 auditor and the terms under which the Group’s
auditor is appointed to perform non-audit services.
The terms of reference of the Audit Committee, which
are available on the Company website and at the
Company registered office for inspection, 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, internal 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 at a minimum 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 external auditor. 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 auditor;
• 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 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 auditor, 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 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 external auditor,
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 auditor. 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 auditor, 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 auditor undertakes non-audit
work, the Committee considers whether that work
could be detrimental to the independence of the auditor.
The Committee also approves the auditor terms of
engagement, including the scope of the audit, and on an
annual basis assesses their independence and objectivity,
taking into account relevant UK professional and
regulatory requirements and the relationship with
the auditor as a whole, including the provision of any
non-audit services to the Group and any services to
the Investment Adviser and the Investment Manager.
A N N U A L R E P O R T 2 0 2 0 4 5
CORPORATE GOVERNANCE | AUDIT COMMITTEE REPORT CONTINUED
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 three times during the year.
Meetings were held on 2 September 2019, 5 February
2020 and 6 May 2020 prior to the release of the 30 June
2020 results and the December 2019 interim results
announcement respectively. All meetings were attended
by both members of the Committee.
External audit
BDO LLP were initially appointed as auditor of the
Company in June 2017 and were reappointed at the
AGM held on 7 November 2019. The audit partner is
Russell Field who is retiring on 30 September 2020. The
Company’s new audit partner for the year ending 30
June 2021 will be Thomas Edward Goodworth.
The Committee met formally with the auditor at each
Committee meeting during the year. 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
audit with the auditor covered:
• a discussion of any major issues which arose during
the audit of the Company’s accounts to 30 June 2020
and the review of the Group’s interim Report to
31 December 2019;
• 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 auditor through its
regular meetings and communications with them. The
Committee’s assessment is that the auditor has 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 auditor, which
is proposed as an ordinary resolution at the Company’s
forthcoming AGM.
The total fees charged by the auditor to the Group
during the year were £342,000 (12 months to 30 June
2019: £150,000), as disclosed in note 6 to the Group
financial statements and including fees accrued for the
audit of these financial statements. This total includes
£65,000 of non-audit work during the year largely
relating to their work as Reporting Accountants in
connection with the Company’s share placings in
October 2019 and May 2020. Such work is, in the
Committee’s view, most effectively and cost-efficiently
carried out by the auditor 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 2019 applicable to
public interest entities. Non-audit services may not be
carried out by the auditor 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 year, 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 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 issues and judgements that the
Committee reviewed before recommending the financial
statements to the Board for approval were as follows:
4 6 S U P E R M A R K E T I N C O M E R E I T P LC
Matter
Description
Accounting for the
Investment in Joint
Ventures
Investment property
valuations
Revenue recognition
Management overriding
controls
The Group entered into a 50:50 joint venture with British Airways Pension Trustees to acquire 100%
of the issued share capital of Horndrift Limited for a consideration of £102 million plus costs.
The classification and accounting treatment of this investment is subject to significant judgement
as a result of the complicated structure that exists below Horndrift Limited.
The Audit Committee has reviewed the work of the Investment Adviser and the resultant disclosure
and measurement of the investment within the accounts. They consider that the structure is such
that they are able to exercise joint control as defined within IAS 28 and therefore the approach to
equity account for this as a joint venture is appropriate.
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 auditor and C&W which included
detailed discussions of material fair value changes and a comparison of changes to external
sources. The meeting also included a review of current conditions, in particular the impact of
COVID-19, 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 accurate. 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 that arising from RPI uplifts is recognised in the income
statement in the period in which it is earned.
The Group as lessor has adopted IFRS 16 ‘leases’ for the current year, however this has not had a
material impact and accordingly there have been no restatements to the Group’s previously reported
financial information as a result of adopting IFRS 16.
The Committee has reviewed recognised rent receivable from each property in the year based on
expectations from a review of each lease agreement and having regard to any contractual rent uplifts
which took effect in the year and published RPI data. Under IFRS 16 ‘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 £865,000 of uninvoiced rental income in the year
to 30 June 2020 in respect of the guaranteed annual uplifts provided within a number of leases.
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 IFRS 16.
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.
A N N U A L R E P O R T 2 0 2 0 4 7
CORPORATE GOVERNANCE | AUDIT COMMITTEE REPORT CONTINUED
Matter
REIT status
Going concern and viability
statement
Description
The Company and its subsidiaries gave notice to HMRC on 20 December 2017 that they would be
operating as a UK Group 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 Group
REIT could have a material impact on the tax balances that need to be reflected in the Group
Financial Statements.
Following successful entry into the UK Group 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
Group REIT regime having regard to the work undertaken by the Auditor and their tax specialists.
The tax returns in respect of the period prior to entry into the REIT regime were finalised and
submitted prior to the year ended 30 June 2020. 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 Group 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.
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
September 2021.
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 2025.
In carrying out both the going concern and viability reviews, the Committee considered the risks and
assumptions relevant to those forecasts, including the potential impact of COVID-19 on the business
and its tenants and other stakeholders, together with the various sensitivity scenarios and stress
tests modelled within them. As a result, the Committee has concluded that the going concern basis
of preparation for the financial statements remains appropriate and 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 17 September 2020.
Jon Austen
Audit Committee Chairman
17 September 2020
4 8 S U P E R M A R K E T I N C O M E R E I T P LC
CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT
New Appointment to the Board
During the year ended 30 June 2020, the Board considered
its current composition with reference to diversity, both of
gender and social and ethnic backgrounds. It concluded
that the appointment of a female board member would
be a positive step in improving diversity, in line with the
diversity policy, as set out on page 50.
The Board undertook a formal, rigorous and transparent
procedure in conjunction with both the Investment
Adviser and the Funds Broker, Stifel. Stifel assisted in
researching and putting together a short list of female
candidates based on merit and objective criteria and,
both cognitive and personal strengths. In undertaking
the process the Board had regard to both the AIC and
FRC Guidance on Board effectiveness.
In line with the FRC Guidance on Board Effectiveness the
whole board was responsible for the appointment process
taking into account the company’s strategic priorities and
the main trends and factors affecting the company’s
long-term success and future viability.
On 6 February 2020 Cathryn Vanderspar was appointed
as a non-executive director of the Company.
Role and responsibilities of the Nominations
Committee
The Nomination Committee was established on
6 May 2020.
The Board as a whole is responsible for ensuring adequate
succession planning so as to maintain an appropriate
balance of skills on the Board. Any changes to the
structure, size and composition of the Board may be made
following recommendations from the Nominations
Committee. The Committee operates under written terms
of reference. Only members of the Committee have the
right to attend meetings of the Committee but other
individuals such as the Company Secretary and external
advisers may be invited to attend all or part of any
meeting as and when appropriate or necessary. The
Committee meets at least once a year and otherwise as
required, and the Committee chairman attends the
AGM to answer any shareholder questions about the
Committee’s activities.
The responsibilities of the Nominations Committee are:
• to regularly review the structure, size and composition
(including the skills, knowledge, experience and
diversity) of the Board and make recommendations to
the Board with regard to any changes;
• to give full consideration to succession planning for
Directors and in particular for the key roles chair of the
board, audit committee and this committee, taking into
account the challenges and opportunities facing the
Company, and the skills and expertise expected to be
needed on the Board in the future;
• to keep under review the leadership needs of the
Group, with a view to ensuring the continued ability
of the Group to compete effectively;
• to keep up to date and fully informed about strategic
issues and commercial changes affecting the Group
and the market in which it operates;
• to review the results of the board performance
evaluation process that relate to the composition of
the board;
• to be responsible for identifying and nominating for
Board approval, candidates from diverse backgrounds
to fill Board vacancies as and when they arise.
Before any appointment is made by the Board, the
Nominations Committee is required to evaluate the
balance of skills, knowledge, experience and diversity on
the Board, and, in the light of this evaluation, prepare a
description of the role and capabilities required for a
particular appointment. In identifying suitable candidates
the Committee shall consider whether it is appropriate to
use open advertising or the services of external advisers
to facilitate the search; consider candidates from a wide
range of backgrounds assuming such candidates put
themselves forward; and consider candidates on merit,
against objective criteria and with due regard for the
benefits of diversity on the Board, in all cases taking care
that appointees have enough time available to devote to
the position. Additional requirements apply for the
appointment of the Chairman, including the preparation
of a job specification.
The Committee is required to make recommendations to
the Board concerning:
• plans for succession for Directors, in particular for the
key role of Chairman, and for the Investment Adviser;
• suitable candidates for the role of Senior Independent
Director;
• membership of the Audit and Remuneration
Committees and any other Board committees as
appropriate, in consultation with the chairmen of
those committees;
A N N U A L R E P O R T 2 0 2 0 4 9
CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT CONTINUED
• the reappointment of any Director at the conclusion of
their specified term of office, having given due regard to
their performance and ability to continue to contribute
to the Board in the light of knowledge, skills and
experience required;
• the re-election by shareholders of Directors under the
annual re-election provisions of the Code, having due
regard to their performance and ability to continue to
contribute to the Board in the light of the knowledge,
skills and experience required and the need for
progressive refreshing of the Board, particularly in
relation to Directors being re-elected for a term
beyond six years;
• any matters relating to the continuation in office
of any Director at any time; and
• the appointment of any person as a Director.
Composition of the Nominations Committee
The Nominations Committee comprises all members
of the Board and is chaired by Vince Prior.
Report on the Committee’s Activities
The Committee was established during May 2020 and
has not met during the financial year.
During the next financial year the Committee will meet at
least once to consider whether all Directors are able to
allocate sufficient time to the Company to discharge their
responsibilities effectively.
Development
The Chairman is responsible for ensuring that any
ongoing training and development needs of the Directors
that are relevant for their role in the Company are met.
All Directors are provided with an appropriate induction
at the time of appointment. The remit of the Nominations
Committee includes monitoring the skills and knowledge
of the Directors and, where necessary, further support is
provided. Cathryn Vandespar received a formal induction
upon the joining the board which consisted of meetings
with the Chair, Investment Adviser and Company
Secretary. There were no further training or development
activities conducted in the year that are considered
material to report.
Evaluation
The Nominations Committee will be responsible for
reviewing the composition of the Board and performance
relating to attendance, appropriate skills and adequacy of
time devoted to Board duties. In performing these
reviews, the Committee will take account of any feedback
provided by shareholders, including through the
Company’s Nominated Adviser and Broker. The
Committee will conduct an annual review of the balance
of skills on the Board in the context of the risks identified
in the Group’s risk register and will report on whether the
balance of skills, knowledge, experience and diversity on
the Board is appropriate to the Group, its operations and
the risks that it faces.
Diversity and inclusion policy
The Board adopted a formal diversity policy during
September 2018. The Nominations Committee will be
responsible for monitoring adherence to this policy
going forward.
The Board was responsible for compliance up to the date
when the Nominations Committee was formed. The
Company does not have any employees. In respect of
appointments to the Board, we consider that each
candidate should be appointed on merit to make sure
that the best candidate for the role is appointed every
time. The Board supports diversity and inclusion at Board
level and encourage candidates from all educational
backgrounds and walks of life. What is important is
professional achievement and the ability to be a successful
Director based on the individual’s skill set and experience.
Qualifications are considered when necessary to ensure
compliance with regulation such as in relation to
appointments to the Audit Committee. The Company’s
Diversity Policy is reviewed regularly and it is believed
that the Board has a balance of skills, qualifications and
experience which are relevant to the Company. As at the
date of this report the Board consisted of three male and
one female member meaning we have a 25% female
Board representation.
Succession Planning
In conducting the annual review of the size structure and
composition of the Board, the Committee will have regard
to the likely future needs of the Company including the
terms of service for Directors recommended by the Code.
The Investment Adviser is appointed under an agreement
which expires in July 2022 and which is further
commented on in the Report of the Remuneration
Committee on page 51.
Signed on behalf of the Nominations Committee
Vince Prior
Nomination Committee Chairman
17 September 2020
5 0 S U P E R M A R K E T I N C O M E R E I T P LC
CORPORATE GOVERNANCE | DIRECTORS’ REMUNERATION REPORT
Annual Statement
The Board voted to establish a Remuneration Committee
during the year ended 30 June 2020. The Board
comprises only independent non-executive Directors
and I was appointed as its Chair.
Composition of the Remuneration Committee
The Remuneration Committee comprises all members of
the Board, whose biographies are shown on page 36,
and is chaired by Cathryn Vanderspar. All members of
the Committee are Independent Directors.
The Group has no executive Directors or employees.
The Committee determines the level of Directors’ fees
and this was the only major decision that the Committee
took during the year.
Meetings of the Remuneration Committee
The Remuneration Committee met once during the
financial year. This meeting was attended by all members
of the Committee.
Full details of the Group’s policy with regards to
Directors’ fees and fees paid during the year ended
30 June 2020 are shown below.
Cathryn Vandespar
Remuneration Committee Chairwoman
17 September 2020
Role of the Remuneration Committee
The main responsibilities of the Remuneration
Committee, which apply as necessary to the Company, its
subsidiary undertakings and the Group as a whole, are:
• to set the remuneration policy for the Board and the
Company’s Chairman;
• review the ongoing appropriateness and relevance of
the remuneration policy; and
• agree the policy for authorising claims for expenses for
the directors
In determining remuneration policy, the Remuneration
Committee takes into account all factors which it deems
necessary, including the Company’s strategy and the risk
environment in which it operates, relevant legal and
regulatory requirements, the provisions and
recommendations of the Code considered to be relevant,
and associated guidance. In order to obtain reliable, up
to date information about remuneration in other
companies of comparable scale and complexity, the
Remuneration Committee may appoint remuneration
consultants and commission or purchase any reports,
surveys or information which it deems necessary, at the
expense of the Company but within any budgetary
constraints imposed by the Board.
The Committee is responsible for appropriately
managing Directors’ conflicts of interests. No conflicts
have been identified during the year. If a conflict were to
be identified, the Committee would take the appropriate
steps to resolve and manage such conflicts appropriately.
The Committee has responsibility for ensuring that
engagement between the Independent Directors and the
employees of the Investment Adviser are appropriate
and that the workplace culture of the Atrato Group is
aligned with the values of the Company and appropriate
for the delivery of the Company’s strategy. No workforce
issues have been identified in this regard.
Remuneration Policy
The Company’s policy is to determine the level of fees
with due regard to the experience of the board as a
whole, the time commitment required and to be fair and
comparable to non-executive directors of other similar
companies. The Board considers the level of directors’
fees at least annually 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. Directors’ 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, and these are available for inspection
at the Company’s registered office. Each Director is
appointed for an initial three year term subject to annual
re-election at the Company’s AGM. The Directors
appointments can be terminated at no notice in
accordance with the terms of the letters of appointment
without compensation for loss of office. The Directors’
remuneration policy was approved by shareholders at
the 2018 AGM with 100% of the votes cast being in
favour of the resolution. Shareholder views for any
proposed changes to that policy will be sought prior to
it being subject to another shareholder vote in 2021.
The Directors’ remuneration report for the year ended
30 June 2019 was approved by the shareholders at the
2019 AGM with 99.84% of the votes cast being in favour.
In accordance with the Articles of Association, all
Directors are required to retire and seek re-election at
least every three years. Although not required by the
Company’s Articles of Association, the Company is
choosing to comply voluntarily with the provision of the
UK Corporate Governance Code requiring all directors
A N N U A L R E P O R T 2 0 2 0 5 1
CORPORATE GOVERNANCE | DIRECTORS’ REMUNERATION REPORT CONTINUED
of FTSE 350 companies to be subject to annual election.
All four directors retire at each annual general meeting
and those eligible and wishing to serve again offer
themselves for election.
Director
Nick Hewson
Jon Austen
Vince Prior
Cathryn Vanderspar
Directors Fees
The Board considers the level of Directors’ fees at least
annually. Reviews of Directors’ fees take place in each
financial year with any changes being applicable from
the start of the next financial year. The remuneration
of the Directors’ was benchmarked during the year ended
30 June 2020, as fees had remained unchanged since the
Chairman
Non-Executive Directors (‘NEDs’)
Senior Independent Director (‘SID’)*
Audit Committee Chair*
* In addition to the Non-Executive Director fee payable
Date of
original
appointment
Most recent
date of
election
Latest due
date of
re-election
20 June 2017
20 June 2017
20 June 2017
5 February 2020
7 November 2019 31 December 2020
7 November 2019 31 December 2020
7 November 2019 31 December 2020
– 31 December 2020
IPO in July 2017. Having regard to the increase in size and
complexity of the Group and the fee levels identified during
the benchmarking exercise, fees for all Board members and
the Chairman were increased with effect from 1 July 2020.
In aggregate total fees remain under the limit set out in the
Governing documents as set out below.
Revised fee
per annum
Fees agreed
in 2017
£70,000
£50,000
£5,000
£7,500
£55,000
£35,000
£3,500
£5,000
Annual Report on Remuneration
Directors’ emoluments – single total figure table (audited)
The Directors who served during the year received the following emoluments, all of which was in the form of fees:
Nick Hewson
Jon Austen
Vince Prior
Cathryn Vanderspar
1 Or date of appointment if later.
Year ended
30 June 2020
£000
Year ended
30 June 2019
£000
Fixed
Remuneration
(both years)
%
Annual percentage
change since IPO
(July 2017)1
%
55
40
39
14
55
40
39
–
100
100
100
100
0
0
0
0
Relative importance of spend on pay
The table below sets out, in respect of the year ended
30 June 2020:
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.
Directors’ fees
Management fee and expenses
Dividends paid
5 2 S U P E R M A R K E T I N C O M E R E I T P LC
Year ended
30 June 2020
£000
Year ended
30 June 2019
£000
Variance
year-on-year
%
165
3,252
20,045
146
1,814
10,934
13
79
83
Director’s fees as a percentage of:
Management fee and expenses
Dividends paid
FTSE All Share Total Return vs SUPR
140
130
Year ended
30 June 2020
%
Year ended
30 June 2019
%
5.1
0.82
80
1.34
120
e
c
n
a
m
r
o
f
r
e
p
e
v
i
t
a
l
e
R
110
100
90
80
70
60
JUL17
OCT17
JAN18
APR18
JUL18
OCT18
JAN19
APR19
JUL19
OCT19
JAN20
APR20
JUN20
Supermarket REIT
FTSE All Share Total return
Directors’ shareholdings (audited)
The Directors of the Company had the following
beneficial interests in the issued Ordinary Shares as at
30 June 2020 and at the date of this report:
Directors
As at the
date of this report
September 2020
As at
30 June 2020
Nick Hewson
Jon Austen
Vince Prior
FTSE All Share Total Return vs SUPR
Cathryn Vandespar
433,575
144,270
76,019
19,418
433,575
144,270
76,019
19,418
90
110
100
130
The Company does not oblige the Directors to hold
120
shares in the Company, but this is encouraged to ensure
the appropriate alignment of interests.
e
c
n
a
m
Group performance – Total Shareholder Return
r
o
f
The Board is responsible for the Group’s investment
r
e
p
strategy and performance, whilst the management of the
e
v
i
t
investment portfolio is delegated to the Investment
a
l
e
R
Manager. The Investment Manager has in turn delegated
certain services, including but not limited to advice on
acquisitions and financing, to the Investment Adviser.
NOV19
The graph below compares, for the year from 1 July 2019
FTSE All Share Total return
to 30 June 2020, the total return (assuming all dividends
are reinvested) to ordinary shareholders compared to the
Supermarket REIT
AUG19
OCT19
JUL19
80
60
70
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 Group for the year ended 30 June 2020 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
An Ordinary resolution to approve the Remuneration
Report will be put to shareholders at the Company’s
AGM and shareholders will have the opportunity to
express their views and raise any queries in respect of
the Remuneration Report at this meeting.
This Directors’ Remuneration Report
is Approved on behalf of the Board by
JAN20
Cathryn Vandespar
APR20
Remuneration Committee Chairwoman
17 September 2020
MAR20
JUN20
A N N U A L R E P O R T 2 0 2 0 5 3
CORPORATE GOVERNANCE | DIRECTORS’ REPORT
The Directors present their report together with the
audited financial statements for the year ended 30 June
2020. The Corporate Governance Statement pages 38 to
42 forms part of their report.
Results and dividends
The results for the year 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 the year and subsequently, the
following interim dividends amounting to aggregate
5.8 pence per share were declared:
Date declared
Amount per share (pence)
Date paid
8 July 2019
8 October 2019
8 January 2020
8 April 2020
8 July 2020
1.419
7 August 2019
1.419 7 November 2019
7 February 2020
1.460
22 May 2020
1.460
7 August 2020
1.460
Dividend policy
Subject to market conditions and performance, financial
position and outlook, it is the Directors’ intention to pay
an attractive level of dividend income to shareholders on
a quarterly basis. The Company intends to grow the
dividend progressively through investment in
supermarket properties with upward-only, inflation-
protected, long-term lease agreements.
Principal activities and status
Supermarket Income REIT plc (the “Company” or
“Group”) is registered as a public limited company
under the Companies Act 2006. It is an Investment
Company as defined by Section 833 of the Companies
Act 2006 and has been established as a closed-ended
investment company with an indefinite life. The
Company has a single class of shares in issue which are
traded on the Specialist Fund segment of the London
Stock Exchange’s Main Market. The Group has 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 (the “AIC”).
Strategy and investment policy
The strategy and investment objectives of the Group are
set out in the Strategic Report on pages 10 to 17.
Risk management and internal control
The Board is responsible for financial reporting and
controls, including the approval of the Annual Report,
the dividend policy, any significant changes in
accounting policies or practices, and treasury policies
including the use of derivative financial instruments.
During the year the Board has carried out a robust
assessment of the emerging and principal risks facing
the Group and the disclosures, as described in the
Strategic Report on pages 28 to 35, that describe those
risks, the procedures in place to identify them, and
explain how they are being managed or mitigated.
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. We have
contractually delegated responsibility for administrative,
accounting and secretarial services to the Administrator
(“JTC”). JTC have their own internal control systems
relating to these matters. The Board and the Investment
Adviser have together reviewed all financial performance
and results notifications. Non-financial internal controls
include the systems of operational and compliance
controls maintained by JTC. 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 year
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.
Directors are expected to attend all meetings of the
Board and all meetings of those committees on which
5 4 S U P E R M A R K E T I N C O M E R E I T P LC
they sit, as well as the Annual General Meeting (the
“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.
Details of Directors’ attendance at each of the scheduled
Board and Committee meetings during the year are set
out below:
Director
Nick Hewson
Vince Prior
Jon Austen
Cathryn Vanderspar
Audit
Committee
Quarterly
Board
n/a
3/3
3/3
n/a
4/4
4/4
4/4
2/2
All Directors in office at the time attended the
Company’s AGM held on 7 November 2019. Cathryn
Vanderspar was not appointed until February 2020.
All members of the Board attended the inaugural
meetings of both the Remuneration and Nominations
Committee, both of which were held on 6 May 2020.
No other meetings of these Committees were held
during the year.
Investment Advisory Agreement
The Board as a whole is responsible for the review of the
performance and terms of engagement with the
Investment Advisor.
In reviewing the terms of the Investment Advisory
Agreement (material terms of which are summarised in
note 25 to the financial statements) and the fee
arrangements within it, the Board has considered the
extent to which the outcome for shareholders and
management is consistent with the provisions of the
UK Corporate Governance Code.
Specifically:
• Clarity and transparency is achieved by way of the
structure of the Investment Advisory Agreement
which compensates the Adviser through the advisory
fee to cover all overheads and running costs relating
to the Group and which provides strong shareholder
alignment through the payment of the Semi-annual
fees, which are to be used to purchase further shares
in the Company.
straightforward to calculate and not subject to
discretion. While the Code recommends oversight of
the level of reward to individual team members, this is
not appropriate in the case of an externally managed
structure where the Independent Directors do not
control the workforce.
Certain provisions within the Investment Advisory
Agreement have been amended to provide additional
flexibility around the payment of the semi-annual
fee and to encourage participation for employees of
the Adviser.
The scope of the Investment Advisory Agreement has
been widened to incorporate the provision of certain
accounting and Administrative functions, for which
the Adviser will be remunerated. The fee levels for
these services will be benchmarked and subject to
annual review.
The Board has sought and received confirmation
from the Investment Adviser that it complies with
all governance requirements relevant to it. Such
confirmation will be sought at least annually.
Directors
All three Directors retired and were re-elected at the
AGM on 7 November 2019. In accordance with the
Articles of Association, all Directors are required to
retire and seek re-election at least every three years.
Although not required by the Company’s Articles of
Association, the Company is choosing to comply
voluntarily with the provision of the UK Corporate
Governance Code requiring all directors of FTSE 350
companies to be subject to annual election. All three
Directors retire at each AGM and those eligible and
wishing to serve again offer themselves for election.
The Company maintains £10 million of Directors’ and
Officers’ Liability Insurance cover for the benefit of
the Directors, which was in place throughout the year.
The level of cover was increased to £20m on 19 July
2020 and continues in effect at the date of this report.
Directors’ interests
The beneficial interests of the Directors and their
families in the Ordinary shares of the Company as at
30 June 2020 were as follows:
• The structure of and rationale behind the Investment
Adviser’s fees are explained in note 25 to the financial
statements and are designed to be simple and not to
require subjectivity in their calculation.
Nick Hewson
Jon Austen
Vince Prior
Cathryn Vanderspar
• Given the simple arithmetic underlying the fee
calculations, the range of potential outcomes is
Number of
shares
468,525
144,270
76,019
19,418
Percentage
of issued
share capital
0.989%
0.305%
0.016%
0.004%
A N N U A L R E P O R T 2 0 2 0 5 5
CORPORATE GOVERNANCE | DIRECTORS’ REPORT CONTINUED
Significant shareholdings
As at 30 June 2020 the Directors have been notified that
the following shareholders have a disclosable interest of
3% or more in the ordinary shares of the Company:
• 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
Thames River Capital
Premier Miton
Quilter Cheviot Investment
Management
Close Brothers Asset
Management
Smith and Williamson
Wealth Management
Cazenove Capital
Management
West Yorkshire PF
Canaccord Genuity
Wealth Management (Inst)
Aberdeen Standard
Investments
Ruffer
River and Mercantile
Number
of shares
32,910,821
32,441,967
Percentage
of issued
share capital
6.95%
6.85%
31,796,558
6.71%
31,309,354
6.61%
27,610,884
5.83%
25,462,546
25,266,291
5.38%
5.33%
21,941,748
4.63%
19,831,500
16,707,454
16,125,471
4.19%
3.53%
3.40%
Political contributions
The Group made no political contributions during the
year (year ended 30 June 2019: none).
Energy and Carbon reporting
The Board has considered the requirement to disclose the
Company’s measured carbon emissions sources under
The Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations
2018.
During the year ended 30 June 2020:
• performed extensive due diligence on the opportunity
to install on-site decarbonised energy producing plant
across our estate. To date we have commenced District
Network Operator (DNO) applications for the
installation of extensive rooftop photovoltaic panels
covering over 70% of the total GIA of our estate.
Through green energy investment, we not only generate
an income producing asset but also reduce costs for our
tenants whilst also assisting their transition to a lower
carbon emission future
Company’s registered office or from offices used to
provide administrative support are deemed to fall
under the Investment Adviser and Investment
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 year ended 30 June 2020
(12 months to 30 June 2019: none).
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 the 6 July 2020 the Group announced the
acquisition of a Portfolio of 6 omnichannel
supermarkets via a sale and leaseback transaction
with Waitrose for £74.1 million (excluding acquisition
costs), which are let to Waitrose on new 20-year leases
with a tenant-only break option in year 15 and are
subject to five-yearly, upward-only, CPIH-linked rent
reviews.
• On the 27 July 2020 the Group announced the
acquisition of a Tesco store in Newmarket, which was
acquired for £61.0 million (excluding acquisition costs)
with an unexpired lease term of 15 years with annual,
upward-only, RPI-linked rent reviews.
• On the 10 August 2020, the Group announced the
acquisition of a Morrisons store in Telford, which was
acquired for £14.3 million (excluding acquisition costs)
with an unexpired lease term of 13 years with
five-yearly, upward-only, RPI-linked rent reviews.
• On the 14 September 2020, Tesco in Bracknell,
Berkshire for £39.5m (excluding acquisition costs)
with10 years unexpired lease term and annual,
upward-only, RPI-linked rent reviews.
5 6 S U P E R M A R K E T I N C O M E R E I T P LC
Auditor
BDO LLP was appointed as auditor by the Directors
in June 2017 and was re-appointed as auditor by
the Company’s shareholders at the AGM held on
7 November, 2019. BDO LLP have expressed their
willingness to continue as auditor for the financial year
ending 30 June 2021. A resolution to appoint BDO LLP
as auditor of the Company will be proposed at the
forthcoming AGM.
Signed by order of the Board on 17 September 2020.
Nick Hewson
Chairman
17 September 2020
• On the 27 July 2020, the Group announced a new
revolving credit facility (“RCF”) of £60.0 million with
Wells Fargo. This secured, interest-only, RCF has an
initial five-year term and two further one-year
extension options. The RCF has a margin of 2.0%
above 3-month Libor which is currently equivalent
to a total cost of 2.1%. The RCF also includes a
£100 million uncommitted accordion option,
exercisable at any time over the term of the facility.
• In August 2020, the Group also increased facilities
with Bayerische Landesbank by £34.8 million
comprising a new £27.5 million, secured, five-year
tranche and a further £7.3 million tranche, upsizing
its existing £52.1 million secured term loan for the
remaining three-year term. The new facilities are in
both cases priced at a 1.85% margin over 3-month
Libor, representing a total cost of debt of 2.0%.
• On the 15 September 2020, the Group agreed an
increase to our existing HSBC RCF of £40.0 million at
a 1.75% margin over 3-month Libor, representing a
total cost of debt of 1.8% whilst other terms remain
the same as the existing £100m RCF.
• Increased dividend target for the FY 2021 to
5.86 pence per share, increased in line with
June 2020 RPI inflation.
Other disclosures
Disclosures of financial risk management objectives and
policies and exposure to financial risks are included in
note 20 to the financial statements. Details of future
developments are included in the Strategic Report on
pages 1 to 23. Details of the Company’s capital structure
are included within the Financial Statements on page 88.
Disclosure of information to auditor
All of the Directors have taken all the steps that they
ought to have taken to make themselves aware of any
information needed by the auditor for the purposes of
their audit and to establish that the auditor is aware of
that information. The Directors are not aware of any
relevant audit information of which the auditor is
unaware.
A N N U A L R E P O R T 2 0 2 0 5 7
CORPORATE GOVERNANCE | DIRECTORS’ RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Annual
Report in accordance with applicable law and regulations.
The UK Companies Act 2006 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, Directors’ Remuneration Report and
Corporate Governance Statement that comply with the
relevant law and regulations.
The Company is required to make the Annual Report
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 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 taken as a whole, is fair, balanced
and understandable and the information provided
to shareholders is sufficient to allow them to assess
the Group’s position, 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
17 September 2020
5 8 S U P E R M A R K E T I N C O M E R E I T P LC
CORPORATE GOVERNANCE | ALTERNATIVE INVESTMENT FUND MANAGER’S REPORT
3. Leverage and borrowing
The Company is entitled to employ leverage in
accordance with its investment policy and as described
in the sections entitled “Financing and Hedging” in the
Investment Adviser’s Report and in notes 17, 18 and 26
to the financial statements. Other than as disclosed
therein, there were no changes in the Company’s
borrowing powers and policies.
4. Remuneration of the AIFM’s Directors and
Employees
During the financial year under review, no separate
remuneration was paid by the AIFM to its executive
directors, James Tracey, Graham Taylor and Gregory Kok,
because they were all employees of the JTC group of
companies, of which the AIFM forms part. Matthew
Tostevin is a non-executive director and is paid a fixed
fee of £10,000 for acting in such capacity. Other than the
directors, the AIFM has no employees. The Company
has no agreement to pay any carried interest to the
AIFM.
5. Remuneration of the AIFM Payable by the Company
The AIFM was during the period under review paid a
fee of 0.04% per annum of the net asset value of the
Company, subject to a minimum of £50,000 per annum,
such fee being payable quarterly in arrears. The total
fees paid to the AIFM during the year under review
were £110,966.
Graham Taylor
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
17 September, 2020
Background
The Alternative Investment Fund Manager’s Directive
(the “AIFMD”) came into force on 22 July 2013. The
objective of the AIFMD was to ensure a common
regulatory regime for funds marketed in or into the
EU which are not regulated under the UCITS regime.
This was primarily for investors’ protection and also
to enable European regulators to obtain adequate
information in relation to funds being marketed in or
into the EU to assist their monitoring and control of
systemic risk issues.
The AIFM is a non-EU AIFM, although the Company is
currently 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 AIFMD
do not apply, the transparency requirements of Articles
22 (Annual report) and 23 (Disclosure to investors) of
the AIFMD do apply to the AIFM and therefore to the
Company. In compliance with those articles, the
following information is provided to the Company’s
shareholders by the AIFM.
1. Material Changes in the Disclosures to Investors
During the financial year under review, there were no
material changes to the information required to be made
available to investors before they invest in the Company
under Article 23 of the AIFMD from that information set
out in the Company’s prospectus dated 12 September,
2019, save as updated in the supplementary prospectus
dated 9 April, 2020 and as disclosed below and in certain
sections of the Strategic Report, those being the
Chairman’s Statement, Investment Adviser’s Report, Our
Market, Implementing the Group’s Investment Policy
and Our Principal Risks sections in this Annual Report.
2. Risks and Risk Management Policy
The current principal risks facing the Company and
the main features of the risk management systems
employed by AIFM and the Company to manage
those risks are set out in the Strategic Report, the
Directors’ Report and in notes 17 and 19 to the
financial statements.
A N N U A L R E P O R T 2 0 2 0 5 9
CORPORATE GOVERNANCE | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC
Opinion
We have audited the financial statements of
Supermarket Income REIT Plc (the ‘Parent Company’)
and its subsidiaries (the ‘Group’) for the year ended
30 June 2020 which comprise the consolidated statement
of comprehensive income, consolidated and company
statements of financial position, consolidated and
company statements of changes in equity, consolidated
cash flow 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
applicable 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 Parent Company’s
affairs as at 30 June 2020 and of the Group’s profit for
the year then ended;
• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
• the Parent 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 Parent
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 directors’ confirmation set out on pages 28 to 35 in
the annual report that they have carried out a robust
assessment of the company’s emerging and principal
risks and the disclosures in the annual report that
describe the principal risks and the procedures in
place to identify emerging risks and explain how they
are being managed or mitigated;
• the Directors’ statement set out on page 70 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 Parent
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;
6 0 S U P E R M A R K E T I N C O M E R E I T P LC
• 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 54 in the
annual report 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 judgement, 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.
Key audit matter
How we addressed the key audit matter in the audit
Valuation of investment properties
As detailed in note 12, the Group, directly
or through its joint venture, owns a
portfolio of investment properties which,
as described in the accounting policy in
note 3.10, are held at fair value in the
Group financial statements.
As described in the significant
accounting judgements, estimates and
assumptions section of note 2,
determination of the fair value of
investment properties is a key area of
estimation.
The Group engaged an independent
expert valuer to undertake the valuation
of its investment property portfolio.
The valuation of the Group’s investment
properties requires significant
judgements to be made by the valuer.
Any input inaccuracies or unreasonable
judgements could result in a material
misstatement of the financial
statements.
We therefore considered this to be a key
audit matter.
Our audit work included, but was not restricted to, the following:
• We assessed the competency, qualifications, independence and objectivity of the
independent external valuer engaged by the Group and reviewed the terms of their
engagement for any unusual arrangements or limitations in the scope of their work.
• We read the valuation reports and confirmed that all valuations had been prepared
in accordance with applicable valuation guidelines and were therefore appropriate
for determining the carrying value in the Group’s financial statements.
• We met with the Group’s external valuer to discuss and challenge the valuation
methodology and key assumptions and considered 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 external valuer. This primarily involved agreeing that the passing rental
income and lease terms were consistent with the information that we had audited.
• We compared the key valuation assumptions against our independently formed
market expectations and challenged the external valuer where significant variances
from these expectations were identified. We corroborated their responses to
supporting documentation where appropriate. The key valuation assumptions were
the market capitalisation rates and market rental values, which we evaluated 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.
Key observations
We did not identify any indicators to suggest that the valuation of the Group’s investment properties (both held directly and
indirectly through its joint venture) is inappropriate.
A N N U A L R E P O R T 2 0 2 0 6 1
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC CONTINUED
Key audit matter
How we addressed the key audit matter in the audit
Accounting for interests in joint
ventures
As detailed in note 14, during the year
the Group entered into a 50:50 joint
venture in order to acquire 100% of the
issued share capital of Horndrift Limited,
which holds a 25.5% share of certain
beneficial interests in a property trust
arrangement.
As described in the significant
accounting judgements, estimates and
assumptions section of note 2,
determination of the nature of the
interest held in the property trust
arrangement via Horndrift Limited was
subject to significant judgement.
Furthermore, the notional purchase
price allocation exercise performed on
the acquisition of the interest required
estimation to determine the fair value of
the assets and liabilities held within the
property trust arrangement, including
the investment property portfolio, the
fixed coupon borrowings and the interest
rate derivatives.
Given the significant judgements and
estimation involved we considered this to
be a key audit matter.
Our audit work included, but was not restricted to, the following:
• We inspected the agreements in relation to the formation of the joint venture
structure and the purchase agreements in respect of the joint venture’s subsequent
acquisition of Horndrift Limited. We verified:
i) the purchase price paid;
ii) a sample of directly attributable transaction costs to supporting documentation
and;
iii) the share of the acquisition cost attributable to the Group.
• We inspected the underlying contractual agreements and deeds in respect of the
property trust arrangement and the key due diligence documentation prepared in
connection with the transaction in order to evaluate the key judgements made by the
Directors in determining that Horndrift Limited had joint control over the property
trust arrangement.
• We assessed the notional purchase price allocation by:
i) Evaluating the fair value of the investment property portfolio held within the
property trust arrangement by applying the same procedures as detailed in the
“Valuation of investment properties” key audit matter above.
ii) Evaluating the fair value of the fixed coupon borrowings and the interest rate
derivatives held within the property trust arrangement by performing an
independent valuation of the instruments based on a market approach.
iii) Verifying, on a sample basis, the other identifiable assets and liabilities held to
corroborating evidence.
iv) We recalculated the negative goodwill recognised upon acquisition.
• We reviewed the appropriateness of the Group’s disclosures within the financial
statements in relation to the joint venture.
Key observations
We did not identify any indicators to suggest that the Group’s accounting for its joint venture interest was inappropriate.
Our application of materiality
We apply the concept of materiality both in planning
and performing our audit, and in evaluating the effect of
misstatements. 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 £6.0 million (2019: 3.6 million). This
was determined with reference to a benchmark of the
Group’s total assets (of which it represents 1.0 per cent)
which we consider to be one of the principal
considerations for the users of the financial statements
in assessing the financial performance of the Group. The
Group financial statement materiality level applied in
the previous year was determined by reference to Group
property assets (of which it represented 1.0 per cent),
being the principal assets held by the Group at that time.
Following the acquisition of the joint venture interest in
the current year, the Group now holds significant non
property assets. Consequently, we consider that the
Group’s total assets now represent a more relevant
metric for the likely users of the financial statements
and therefore a more appropriate benchmark for
determining our materiality level.
The materiality for the Parent Company financial
statements as a whole was set at £5.2 million (2019:
£2.6 million), determined with reference to a benchmark
of the Parent Company’s total assets, of which it
represents 1.1 per cent (2019: 1.1 per cent).
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 £800,000 (2019: £450,000), determined
with reference to a benchmark of the Group’s EPRA
earnings, of which it represents 4.8 per cent (2019: 4.5
per cent), to apply to those classes of transactions and
balances which impact on those earnings.
6 2 S U P E R M A R K E T I N C O M E R E I T P LC
We set performance materiality at 75% (2019: 75%) of
the respective materiality levels, 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 £120,000 (2019: £75,000). We also agreed to
report differences in excess of £16,000 (2019: £10,000)
that impacted upon EPRA earnings and other
differences that, in our view, warranted reporting on
qualitative grounds.
An overview of the scope of our audit
Our audit of the Group was scoped by obtaining an
understanding of the Group and its environment,
including the Group’s system of internal control,
applicable legal and regulatory framework and the
industry in which it operates, and assessing the risks of
material misstatement at the Group level.
The Group operates solely in the United Kingdom and in
one segment, investment property, structured through a
number of subsidiary entities and a joint venture. None of
the subsidiaries or the joint venture were considered to be
significant components and as such the audit approach
included undertaking audit work on the key risks of
material misstatements identified for the Group across
the subsidiary entities and joint venture. The Group audit
engagement team performed all the work necessary to
issue the Group and Parent Company audit opinion,
including undertaking all of the audit work on the risks of
material misstatement identified in the key audit matters
section above. As a result of our audit approach, we
achieved coverage of 100% of rental income and 100% of
investment property valuations in respect of those
property assets held directly by the Group.
The extent to which the audit was capable of detecting
irregularity including fraud
The extent to which the audit is capable of detecting
irregularities is affected by the inherent difficulty in
detecting irregularities, the effectiveness of the entity’s
controls, and the nature, timing and extent of the audit
procedures performed.
As part of the audit we gained an understanding of the
legal and regulatory framework applicable to the Group
and the industry in which it operates, and considered
the risk of acts by the Group that were contrary to
applicable laws and regulations, including fraud. We
considered the Group’s compliance with laws and
regulations that have a direct impact on the financial
statements including, but not limited to, UK company
law, UK tax legislation (including the REIT regime
requirements) and the UK Listing Rules, and we
considered the extent to which non-compliance might
have a material effect on the Group financial statements.
We designed audit procedures to respond to the risk,
recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion.
Based on our understanding we designed our audit
procedures to identify instances of non-compliance with
such laws and regulations. Our procedures included
reviewing the financial statement disclosures and
agreeing to underlying supporting documentation
where necessary. We reviewed minutes of all Board and
Committee meetings held during and subsequent to the
year for any indicators of non-compliance and made
enquiries of management and of the Directors as to the
risks of non-compliance and any instances thereof. We
also made similar enquiries of advisers to the Group,
where information from that adviser has been used in
the preparation of the Group financial statements.
We also addressed the risk of management override
of internal controls, including testing journal entries
processed during and subsequent to the year and
evaluating whether there was evidence of bias by the
Directors that represented a risk of material
misstatement due to fraud.
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our
audit in accordance with the auditing standards. For
example, the further removed non-compliance with laws
and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by the auditing
standards would identify it.
Other information
The Directors are responsible for the other information.
The other information comprises the information
included in the Annual Report 2020, 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
A N N U A L R E P O R T 2 0 2 0 6 3
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC CONTINUED
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.
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 43
– 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 position,
performance, business model and strategy, is
materially inconsistent with our knowledge obtained
in the audit; or
• Audit Committee reporting set out on page 45 – 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 38
– 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 Parent 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 Parent Company, or returns adequate for our audit
have not been received from branches not visited by
us; or
• the Parent 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 Directors’ Responsibilities
Statement on page 58, 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 Parent
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 Parent Company or to cease operations, or have
no realistic alternative but to do so.
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.
6 4 S U P E R M A R K E T I N C O M E R E I T P LC
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. We were subsequently reappointed by the
members at the Parent Company’s first Annual General
Meeting in November 2018 to audit the financial
statements for the year ending 30 June 2019 and
subsequent financial years. The period of total
uninterrupted engagement is three years, covering the
periods ending 30 June 2018 to 30 June 2020.
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.
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 Parent 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
17 September 2020
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
A N N U A L R E P O R T 2 0 2 0 6 5
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2020
Rental income
Administrative and other expenses
Operating profit before changes in fair value of investment
properties and share of income from joint venture
Changes in fair values of investment properties
Share of income from joint venture
Negative goodwill
Total share of income from joint venture
Operating profit
Finance expense
Profit before taxation
Tax charge for the year
Profit for the year
Year to
30 June 2020
£000
Year to
30 June 2019
£000
26,352
(5,184)
17,231
(3,088)
Notes
4
5
12
14
14
8
9
21,168
14,143
13,052
647
486
2,960
3,446
–
–
–
37,666
14,790
(4,903)
(4,180)
32,763
10,610
–
(18)
32,763
10,593
Items to be reclassified to profit or loss in subsequent periods
Fair value movements in interest rate derivatives
17
(818)
(1,121)
Total comprehensive income for the year
Total comprehensive income for the year attributable
to ordinary shareholders
31,945
9,471
31,945
9,471
Earnings per share – basic and diluted
10
9.8 pence
5.3 pence
6 6 S U P E R M A R K E T I N C O M E R E I T P LC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Non-current assets
Investment properties
Investment in Joint ventures
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Non-current liabilities
Bank borrowings
Interest rate derivatives
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
As at
30 June 2020
£000
As at
30 June 2019
£000
Notes
12
14
539,410
56,081 –
368,230
595,491
368,230
15
1,702
20,353
22,055
3,521
9,898
13,419
617,546
381,649
18
17
126,791
1,988
143,708
1,113
128,779
148,821
5,203
–
6,403
11,606
3,543
245
2,570
6,358
140,385
151,179
477,161
230,470
4,735
436,126
–
38,321
(2,021)
2,398
203,672
14,391
11,212
(1,203)
477,161
230,470
101 pence
96 pence
101 pence
97 pence
16
20
20
20
24
24
The consolidated financial statements were approved and authorised for issue by the Board of
Directors on 17 September 2020 and were signed on its behalf by:
Nick Hewson
Chairman
A N N U A L R E P O R T 2 0 2 0 6 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
Share
capital
£000
As at 1 July 2019
Comprehensive income for the year
2,398
–
Profit for the year
Other comprehensive income
Total comprehensive income
for the year
Transactions with owners
Ordinary shares issued at a
premium during the year
Share issue costs
Interim dividends paid
As at 30 June 2020
–
–
–
2,337
–
–
4,735
Share
premium
reserve
£000
203,672
–
–
–
–
Cash flow
hedge
reserve
£000
(1,203)
–
–
(818)
(818)
Capital
reduction
reserve
£000
14,391
–
–
–
–
Retained
earnings
£000
11,212
–
32,763
–
Total
£000
230,470
–
32,763
(818)
32,763
31,945
237,483
(5,029)
–
–
–
–
–
–
(14,391)
–
–
(5,654)
239,820
(5,029)
(20,045)
436,126
(2,021)
–
38,321
477,161
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2019
Share
capital
£000
1,844
–
–
–
Share
premium
reserve
£000
149,039
–
–
–
Cash flow
hedge
reserve
£000
(82)
–
–
(1,121)
Capital
reduction
reserve
£000
25,325
–
–
–
Retained
earnings
£000
620
–
10,593
–
Total
£000
176,746
–
10,593
(1,122)
As at 1 July 2018
Comprehensive income for the year
Profit for the year
Other comprehensive income
Total comprehensive income
for the year
–
–
(1,121)
–
10,593
9,472
Transactions with owners
Ordinary shares issued at a
premium during the year
Share issue costs
Interim dividends paid
554
–
–
55,695
(1,062)
–
–
–
–
–
–
(10,934)
–
–
–
56,249
(1,062)
(10,934)
As at 30 June 2019
2,398
203,672
(1,203)
14,391
11,212
230,470
6 8 S U P E R M A R K E T I N C O M E R E I T P LC
CONSOLIDATED CASH FLOW
FOR THE YEAR ENDED 30 JUNE 2020
Operating activities
Profit for the year (attributable to ordinary shareholders)
Adjustments for:
Changes in fair value of Investment properties
Movement in rent smoothing adjustments
Finance expense
Tax expense
Negative goodwill arising on acquisition of interest in Joint venture
Share of income from Joint venture
Cash flows from operating activities before changes
in working capital
Increase in trade and other receivables
Increase in deferred rental income
Corporation tax paid
Increase in trade and other payables
Cash flows from operating activities
Investing activities
Acquisition of investment properties
Investment in Joint venture
Capitalised acquisition costs
Net cash flows used in investing activities
Financing activities
Proceeds from issue of ordinary share capital
Costs of share issues
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 year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
1 July 2019 to
30 June 2020
£000
1 June 2018 to
30 June 2019
£000
Notes
32,763
10,593
12
4
8
9
14
14
12
14
12
20
20
19
19
19
19
19
17
11
(13,052)
(865)
4,903
–
(2,960) –
(486) –
(20,303)
1,819
1,659
(245) –
3,411
(647)
(366)
4,180
18
13,777
(2,486)
1,877
745
26,947
13,913
(148,825)
(85,450)
(52,635) –
(8,438)
(5,617)
(209,898)
(91,067)
239,820
(5,029)
141,510
(157,744)
(1,270)
(4,116)
(165)
–
(19,600)
45,000
(1,062)
128,341
(72,291)
(933)
(3,323)
(42)
(27)
(10,850)
193,406
84,813
10,455
9,898
20,353
7,659
2,239
9,898
A N N U A L R E P O R T 2 0 2 0 6 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
General information
Supermarket Income REIT plc (the “Company”) is a company registered in England and Wales with its registered office
at The Scalpel 18th Floor, 52 Lime Street, London, United Kingdom EC3M 7AF. The principal activity of the Company and
its subsidiaries (the “Group”) is to provide its shareholders with an attractive level of income together with the potential
for capital growth by investing in a diversified portfolio of supermarket real estate assets in the UK.
At 30 June 2020 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.
Basis of preparation
These consolidated financial statements set out in this report covers the year to 30 June 2020, with comparative figures
relating to the year to 30 June 2019, and includes the results and net assets of the Group.
The consolidated financial statements have been prepared in accordance with:
• International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)
as adopted by the European Union;
• The Disclosure and Transparency Rules of the Financial Conduct Authority; and
• The Companies Act 2006, as applicable to companies reporting under IFRS.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to all years presented, other than where new policies have been adopted.
Going concern
In light of the significant impact of COVID-19 on the UK economy, and the retail sector, the Directors have placed a
particular focus on the appropriateness of adopting the going concern basis in preparing the Group’s and Company’s
financial statements for the year ended 30 June 2020. 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 £239.8 million from the issue of equity shares and
a further £76.6million under the Deka Bank facility referred to in note 18. All financial covenants have been met to date.
The Group generated net cash flow from operating activities in the period of £26.9 million, with its cash balances at
30 June 2020 totalling £20.4 million. The Group had no capital commitments or contingent liabilities as at the balance
sheet date. All contractual rent for the March and June quarters has been collected on time and in full.
The Group benefits from a secure income stream from its property assets that are let to tenants with excellent covenant
strength, and are critical to the UK grocery infrastructure, under long leases that are subject to upward only 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.
Accounting convention and currency
The 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 statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£000),
except where otherwise indicated. Pounds Sterling is the functional currency of the Company and the presentation
currency of the Group.
Adoption of new and revised standards
There were a number of new standards and amendments to existing standards which are required for the Group’s
accounting period beginning on 1 July 2019, which have been considered and applied as follows:
IFRS 16 Leases. In January 2016, the IASB published the final version of IFRS 16 Leases. IFRS 16 specifies how an IFRS
reporter will recognise, measure, present and disclose leasing arrangements. The new standard results in almost all
leases held as lessee being recognised on the balance sheet, as the distinction between operating and finance leases is
removed. However, IFRS 16 has not impacted operating leases held by the Group where the Group is lessor.
Given headlease rentals on the Group’s leasehold properties are for a peppercorn there are no material lease payments
for the Group as a lessee.
7 0 S U P E R M A R K E T I N C O M E R E I T P LC
Therefore, the adoption of IFRS 16 has not had a material impact on the Group’s accounting policies and financial
statements. As part of the transition, the Group reassessed the classification of all subleases by reference to the
requirements of IFRS 16 but this resulted in no reclassifications.
None of the other new or amended standards or interpretations issued by the International Accounting Standards Board
(“IASB”) or the IFRS Interpretations Committee (“IFRIC”) have led to any material changes in the Group’s accounting
policies or disclosures during the year.
Standards and interpretations in issue not yet adopted
There are a number of new standards and amendments to existing standards which have been published and are
mandatory for the Group’s accounting periods beginning on or after 1 July 2020 or later. The Group is not adopting these
standards early and does not expect the adoption of new accounting standards issued but not yet effective to have a
significant impact on its financial statements.
2. Significant accounting judgements, estimates and assumptions
The preparation of these financial statements in accordance with IFRS requires the Directors of the Company to make
judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements.
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 RICS issued a valuation practice alert on the 14 May 2020 which prescribed commercial real estate such as those
owned by the Group did not require a material uncertainty clause. Accordingly, the independent valuer did not include
any material valuation uncertainty clause in relation to the valuation of the Group’s investment property for 30 June 2020
as there was sufficient transactional evidence to support valuations in accordance with Red Book procedure.
The independent valuer is considered to have sufficient current local and national knowledge of the supermarket
property market and the requisite skills and understanding to undertake the valuation competently.
In forming an opinion as to fair value, the independent valuer makes a series of assumptions, which are typically
market-related, such as those in relation to net initial yields and expected rental values. These are based on the
independent valuer’s professional judgement. Other factors taken into account by the independent valuer in arriving at
the valuation of the Group’s investment properties include the length of property leases, the location of the properties
and the strength of tenant covenants.
The fair value of the Group’s investment properties as determined by the independent valuer, along with the significant
methods and assumptions used in estimating this fair value, are set out in note 12.
Key judgement: Joint ventures – joint control
On 28 May 2020 the Group entered into a 50:50 joint venture with the British Airways Pension Trustees Limited to
acquire 100% of the issued share capital in Horndrift Limited for a combined total consideration of £102m plus costs.
Horndrift Limited holds a 25.2% share of certain beneficial interests in a property trust arrangement/bond securitisation
structure (the “Structure”) that holds a portfolio of 26 Sainsbury’s supermarket properties funded by bonds which
mature in 2023.
The classification and accounting treatment of the Group’s interest in the property trust arrangement in the Group’s
consolidated financial statements is subject to significant judgement. By reference to the relevant facts and
circumstances surrounding Horndrift’s interest in the Structure, principally being the contractual arrangements and
deeds that regulate the Structure, it was determined whether Horndrift, together with the other key parties of the
Structure had the ability to jointly control the Structure through their respective rights as defined by the contractual
arrangements and deeds of the Structure. The review of Horndrift’s and the other key parties rights required significant
judgement in assessing whether the rights identified were substantive as defined by IFRS 10 Consolidated Financial
Statements, principally in respect of whether there were any economic barriers that prevent Horndrift or the other key
parties from exercising their rights. Through assessing the expected possible outcomes either before or upon maturity
of the Structure it was determined that there were no significant economic barriers that would prevent Horndrift or the
other key parties from exercising their rights under the contractual arrangements and deeds of the Structure.
A N N U A L R E P O R T 2 0 2 0 7 1
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CON TIN UED
2. Significant accounting judgements, estimates and assumptions continued
The directors have therefore concluded that through its interest in Horndrift Limited the Group indirectly has joint
control of the Structure as defined by IFRS 10 Consolidated Financial Statements. As such the Group’s interest in the
Structure is required to be accounted for using the equity method of accounting under IAS 28.
Key judgement: Fair value measurement of joint venture on initial acquisition
A purchase price allocation exercise was carried out to determine the fair value of the Group’s share of identifiable net
assets of its joint venture interest in the property trust arrangement. Significant judgement was applied in selecting the
assumptions used as part of the fair value measurement, particularly in respect of the investment property assets, fixed
rate bonds and interest rate derivatives held within the structure.
Fair values of investment properties were determined on a comparable basis to that used in valuing the Group’s directly
held investment properties, as described above.
Fair values of the fixed rate bonds and interest rate derivatives have been calculated using valuation techniques which,
to the extent possible, use market observable inputs, but in some cases use non-market observable inputs. Valuation
techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison to
instruments with characteristics similar to those of the property trust arrangement. Both the interest rate swap and
secured bonds were valued in accordance with IFRS 13 Fair Value Measurement level 3 using discount cash flow
valuation techniques.
The above exercise resulted in the recognition of negative goodwill. The Directors considered whether this gave rise to
any impairment to the carrying value of the joint venture and determined that no impairment provision was required.
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 the 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 being
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 2020.
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.
7 2 S U P E R M A R K E T I N C O M E R E I T P LC
Uniform accounting policies are adopted for all companies within the Group.
3.2 Business Combinations
The consolidated financial statements incorporate the results of business combinations using the purchase method.
In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The results of acquired operations are included in the
consolidated statement of comprehensive income from the date on which control is obtained.
3.3 Joint Ventures
Interests in joint ventures are accounted for using the equity method of accounting. The Group’s joint ventures are
entities over which the Group has joint control with a partner. Investments in joint ventures are carried in the balance
sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the joint venture, less any
impairment or share of income adjusted for dividends. In assessing whether a particular entity is controlled, the Group
considers the same principles as control over subsidiaries as described in note 3.1
3.4 Segmental information
The Directors are of the opinion that the Group is currently engaged in a single segment business, being investment in
United Kingdom in supermarket property assets.
3.5 Rental income
Rental income arising on investment properties is accounted for in profit or loss on a straight-line basis over the lease
term, as adjusted for the following:
• Any rental income from fixed and minimum guaranteed rent review uplifts is recognised on a straight-line basis over
the lease term;
• Lease incentives are spread evenly over the lease term, even if payments are not made on such a basis. The lease
term is the non-cancellable period of the lease together with any further term for which the tenant has the option
to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will
exercise that option.
Contingent rents, such as those arising from indexed-linked rent uplifts or market-based rent reviews, are recognised
in the period in which they are earned.
Where income is recognised in advance of the related cash flows due to fixed and minimum guaranteed rent review
uplifts or lease incentives, an adjustment is made to ensure that the carrying value of the relevant property, including
the accrued rent relating to such uplifts or lease incentives, does not exceed the external valuation.
Rental income is invoiced in advance with that element of invoiced rental income that relates to a future period being
included within deferred rental income in the consolidated statement of financial position.
3.6 Finance expense
Finance expenses consist principally of interest payable and the amortisation of loan arrangement fees.
Loan arrangement fees are expensed using the effective interest method over the term of the relevant loan. Interest
payable and other finance costs, including commitment fees, which the Group incurs in connection with bank
borrowings, are expensed in the period to which they relate.
3.7 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.
3.8 Dividends payable to shareholders
Dividends to the Company’s shareholders are recognised when they become legally payable, as a reduction in equity in
the financial statements. Interim equity dividends are recognised when paid. Final equity dividends will be recognised
when approved by shareholders at an AGM.
3.9 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.
A N N U A L R E P O R T 2 0 2 0 7 3
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CON TIN UED
3. Summary of significant accounting policies continued
Current tax is 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 on-going basis and regularly monitors
the conditions required to maintain REIT status.
3.10 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. Where the
purchase price (or proportion thereof) of an investment property is settled through the issue of new ordinary shares in
the company, the number of shares issued is such that the fair value of the share consideration is equal to the fair value
of the asset being acquired. Transaction costs include transfer taxes and professional fees for legal services. Any
subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and
included within the book cost of the property. All other property expenditure is written off in profit 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.
3.11 Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant Group entity becomes a party to the unconditional
contractual terms of an instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities
are considered by the Directors to be reasonable estimates of their fair values.
Financial assets
Financial assets are recognised initially at their fair value. All of the Group’s financial assets, except interest rate
derivatives, are held at amortised cost using the effective interest method, less any impairment.
Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three
months or less.
Trade and other receivables
Trade and other receivables, including rents receivable, are recognised and carried at the lower of their original invoiced
value and recoverable amount. Provisions for impairment are calculated using an expected credit loss model. Balances
will be written-off in profit or loss in circumstances where the probability of recovery is assessed as being remote.
Trade and other payables
Trade and other payables are recognised initially at their fair value and subsequently at amortised cost.
Bank borrowings
Bank borrowings are initially recognised at fair value net of attributable transaction costs. After initial recognition,
bank borrowings are subsequently measured at amortised cost, using the effective interest method. The effective
interest rate is calculated to include all associated transaction costs.
Derivative financial instruments and hedge accounting
The Group’s derivative financial instruments currently comprise an interest rate cap and interest rate swap. Both are
designated as hedging instruments for which hedge accounting is being applied as under IAS 39. These instruments
are used to manage the Group’s cash flow interest rate risk.
7 4 S U P E R M A R K E T I N C O M E R E I T P LC
The instruments are initially recognised at fair value on the date that the derivative contract is entered into, being the
cost of any premium paid at inception, and are subsequently re-measured at their fair value at each reporting date.
Fair value measurement of derivative financial instruments
The fair value of derivative financial instruments is the estimated amount that the Group would receive or pay to
terminate the agreement at the period end date, taking into account current interest rate expectations and the current
credit rating of the relevant group entity and its counterparties.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs
significant to the fair value measurement as a whole.
A number of assumptions are used in determining the fair values including estimations over future interest rates and
therefore future cash flows. The fair value represents the net present value of the difference between the cash flows
produced by the contract rate and the valuation rate.
Hedge accounting
At the inception of a hedging transaction, the Group documents the relationship between hedging instruments and
hedged items, as well as its risk management objectives and strategy for undertaking the hedging transaction.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Assuming the criteria for applying hedge accounting continue to be met the effective portion of gains and losses on
the revaluation of such instruments are recognised in other comprehensive income and accumulated in the cash flow
hedging reserve. Any ineffective portion of such gains and losses will be recognised in profit or loss within finance
income or expense as appropriate. The cumulative gain or loss recognised in other comprehensive income is
reclassified from the cash flow hedge reserve to profit or loss (finance expense) at the same time as the related
hedged interest expense is recognised.
3.12 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 20.
3.13 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.
A N N U A L R E P O R T 2 0 2 0 7 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CON TIN UED
3. Summary of significant accounting policies continued
3.14 Occupational leases
The Directors exercise judgement in considering the potential transfer of the risks and rewards of ownership in
accordance with IFRS 16 “Leases” for all occupational 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. Where a lease is a sub-lease, this
classification is determined by reference to the right-of-use asset arising from the headlease, rather than by reference
to the underlying asset. 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
Insurance/service charge income
Insurance/service charge expense
Total rental income
Year to
30 June 2020
£000
Year to
30 June 2019
£000
10,725
15,627
26,352
315
(315)
4,280
12,951
17,231
163
(163)
26,352
17,231
Included within rental income is a £865,000 (2019: £366,000) rent smoothing adjustment that arises as a result of
IFRS 16 ‘Leases’ requiring that rental income in respect of leases with rents increasing by a fixed percentage 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 £12,844,000 (2019: £10,500,000) relating to the Group’s largest tenant,
£10,725,000 (2019: £4,280,000) relating to the Group’s second largest tenant and £2,783,000 (2019: £2,451,000) relating
to the Group’s third largest tenant.
5. Administrative and other expenses
Investment Adviser fees (Note 25)
Directors’ remuneration (Note 7)
Corporate administration fees
Legal and professional fees
Other administrative expenses
Total administrative and other expenses
Year to
30 June 2020
£000
Year to
30 June 2019
£000
3,252
165
317
708
742
5,184
1,814
145
372
396
361
3,088
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.
7 6 S U P E R M A R K E T I N C O M E R E I T P LC
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: interim review
Total audit and audit related services
Year to
30 June 2020
£000
Year to
30 June 2019
£000
210
41
251
26
277
74
21
95
25
120
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 March 2019 placing
Other non-audit services: corporate finance services in
connection with the October 2019 and May 2020 placing
Total other non-audit services
Total fees charged by the Group’s auditor
Year to
30 June 2020
£000
Year to
30 June 2019
£000
–
65 –
65
342
30
30
150
The other non-audit services charged to income in the current period relate to work as Reporting Accountants in
connection with the share placing in October 2019 and May 2020. The audit-related services are as described above.
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
The highest paid director received £55,000 (2019: £55,000) for services during the year.
8. Finance expense
Interest payable on bank borrowings and hedging arrangements
Fair value adjustment of interest rate derivatives (Note 17)
Commitment fees payable
Amortisation of loan arrangement fees
Amortisation of interest rate derivative premium (Note 17)
Total finance expense
Year to
30 June 2020
£000
Year to
30 June 2019
£000
148
17
165
134
12
146
Year to
30 June 2020
£000
Year to
30 June 2019
£000
3,685
294
280
587
57
4,903
3,334
252
47
492
54
4,180
The above finance expense include the following in respect of liabilities not classified as fair value through profit
and loss
A N N U A L R E P O R T 2 0 2 0 7 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CON TIN UED
8. Finance expense continued
Total interest expense on financial liabilities held at amortised cost
Fee expense not part of effective interest rate for financial liabilities held at amortised cost
Total finance expense
9. Taxation
A) Tax charge in profit or loss
Corporation tax
Year to
30 June 2020
£000
Year to
30 June 2019
£000
4,271
280
4,551
3,827
47
3,873
Year to
30 June 2020
£000
Year to
30 June 2019
£000
–
18
The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the
UK REIT regime exempts the profits of the Group’s property rental business from UK corporation tax. To operate as a UK
Group REIT a number of conditions had to be satisfied in respect of the Company, the Group’s qualifying activity and the
Group’s balance of business. Since the 21 December 2017 the Group has met all such applicable conditions.
The reconciliation of the profit before tax multiplied by the standard rate of corporation tax for the period of 19% to the
total tax charge is as follows:
B) Reconciliation of the tax charge for the year
Profit on ordinary activities before taxation
Theoretical tax at UK standard corporation tax rate of 19%
Effects of:
Investment property revaluation not taxable
Negative goodwill not taxable
REIT exempt income
Adjustments in respect of prior year
Tax charge for the year
10. Earnings per share
Year to
30 June 2020
£000
Year to
30 June 2019
£000
32,763
6,225
(2,480)
(562)
(3,183)
–
–
10,610
2,016
(123)
–
(1,893)
18
18
Earnings per share (EPS) amounts are calculated by dividing the profit or loss for the year 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 and negative goodwill.
The calculation of basic, diluted and EPRA EPS is as follows:
For the year ended 30 June 2020
Basic and diluted EPS
Adjustments to remove:
Changes in fair value of investment properties
Negative goodwill
EPRA EPS
7 8 S U P E R M A R K E T I N C O M E R E I T P LC
Net profit
attributable
to ordinary
shareholders
£000
Weighted
average
number of
ordinary
shares1
Number
Earnings/
per share
Pence
32,763
334,236,233
9.8p
(13,052)
(2,960)
–
–
16,751
334,236,233
(3.9)p
(0.9)p
5.0p
10. Earnings per share continued
For the year ended 30 June 2019
Basic and diluted EPS
Adjustments to remove:
Changes in fair value of investment properties
EPRA EPS
1 Based on the weighted average number of ordinary shares in issue.
11. Dividends
Amounts recognised as a distribution to ordinary shareholders in the year:
Dividends paid
Net profit
attributable
to ordinary
shareholders
£000
Weighted
average
number of
ordinary
shares1
Number
Earnings/
per share
Pence
10,593
198,087,482
5.3p
(647)
–
9,946
198,087,482
(0.3)p
5.0p
1 July 2019 to
30 June 2020
£000
1 July 2018 to
30 June 2019
£000
20,045
10,934
On 8 July 2019, the Board declared a Q4 interim dividend of 1.419 pence per share, which was paid on 7 August 2019 to
shareholders on the register on 19 July 2019.
On 8 October 2019, the Board declared a Q1 interim dividend of 1.419 pence per share, which was paid on
7 November 2019 to shareholders on the register on 18 October 2019.
On 8 January 2020, the Board declared a Q2 interim dividend of 1.460 pence per share, which was paid on
7 February 2020 to shareholders on the register on 17 January 2020.
On 8 April 2020, the Board declared a Q3 interim dividend of 1.460 pence per share, which was paid on 22 May 2019 to
shareholders on the register on 1 May 2020.
On 8 July 2020, the Board declared a Q4 interim dividend of 1.460 pence per share, which was paid on 7 August 2020 to
shareholders on the register on 17 July 2020. This has not been included as a liability as at 30 June 2020.
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 2019 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.
A N N U A L R E P O R T 2 0 2 0 7 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12. Investment properties continued
At 1 July 2019
Property additions
Capitalised acquisition costs
Revaluation movement
Valuation at 30 June 2020
At 1 July 2018
Property additions
Capitalised acquisition costs
Revaluation movement
Valuation at 30 June 2019
Freehold
£000
84,450
148,825
8,438
2,317
Long
Leasehold
£000
283,780
–
–
11,600
Total
£000
368,230
148,825
8,438
13,917
244,030
295,380
539,410
Freehold
£000
83,350
–
–
1,100
Long
Leasehold
£000
181,550
96,700
5,617
(87)
Total
£000
264,900
96,700
5,617
1,013
84,450
283,780
368,230
All property acquisitions in the period were direct asset acquisitions.
Of the six properties held under long leaseholds, one has 119 years unexpired on the headlease, one has 158 years with
the option to extend and option to acquire, three have 986 years unexpired and one has 989 year unexpired. The Group
has no material liabilities in respect of these headleases.
Included within the carrying value of investment properties at 30 June 2020 is £1,560,000 (2019: £694,000) 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 July 2019 to
30 June 2020
£000
1 June 2018 to
30 June 2019
£000
13,917
(865)
13,052
1,013
(366)
647
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of market value which is defined in the RICS Valuation Standards as
‘the estimated amount for which an asset or liability should exchange on the date of the valuation between a willing
buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion’. Market value as defined in the RICS Valuation Standards is the
equivalent of fair value under IFRS.
Unobservable inputs
Significant unobservable inputs include: the estimated rental value (“ERV”) based on market conditions prevailing at the
valuation date and the equivalent yield (defined as the weighted average of the net initial yield and reversionary yield).
Other unobservable inputs include but are not limited to the future rental growth – the estimated average increase in
rent based on both market estimations and contractual situations and the physical condition of the individual properties
determined by inspection.
A decrease in ERV would decrease the fair value. A decrease in the equivalent yield would increase the fair value.
8 0 S U P E R M A R K E T I N C O M E R E I T P LC
12. Investment properties continued
Sensitivity of measurement of significant valuation 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 2020 range from 4.27% to 6.21% (2019: 4.36% to 5.70%).
A 0.25% shift of the initial yield on all the Group’s investment properties would have an approximate £23.8 million
(2019: £18.1 million) impact on the total valuation of the properties. Passing rents on the Group’s investment properties
at 30 June 2020 range from £1.6 million to £4.0 million (2019: £1.6 million to £3.9 million). A 1% movement in the
passing rents across all the Group’s investment properties would have approximately a £2.9 million (2019: £3.7 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 2020 all of
which are wholly owned. All subsidiary undertakings are incorporated in England with their registered office at The
Scalpel 18th Floor, 52 Lime Street, London, United Kingdom EC3M 7AF.
Company name
Type of holding
Nature of business
Supermarket Income Investments UK Limited
Supermarket Income Investments (Midco2) UK Limited
Supermarket Income Investments (Midco3) UK Limited
Supermarket Income Investments (Midco4) UK* Limited
SII UK Halliwell (MIDCO) LTD*
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
Supermarket Income Investments UK (NO7) Limited
Supermarket Income Investments UK (NO8) Limited*
Supermarket Income Investments UK (NO9) Limited*
Supermarket Income Investments UK (NO10) Limited*
Supermarket Income Investments UK (NO11) Limited*
Supermarket Income Investments UK (NO12) Limited*
Supermarket Income Investments UK (NO16) Limited*
Supermarket Income Investments UK (NO16a) Limited*
Supermarket Income Investments UK (NO16b) Limited*
Supermarket Income Investments UK (NO16c) Limited*
Supermarket Income Investments UK (NO17) Limited*
SII UK Halliwell (No1) LTD*
SII UK Halliwell (No2) LTD*
SII UK Halliwell (No3) LTD*
SII UK Halliwell (No4) LTD*
SII UK Halliwell (No5) LTD*
SII UK Halliwell (No6) LTD*
* New subsidiaries incorporated during the year ended 30 June 2020
Direct
Direct
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Intermediate parent company
Intermediate parent company
Intermediate parent company
Intermediate parent company
Intermediate parent company
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Investment in Joint venture
Investment in Joint venture
Investment in Joint venture
Investment in Joint venture
Investment in Joint venture
Investment in Joint venture
A N N U A L R E P O R T 2 0 2 0 8 1
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14. Investment in joint ventures
As at 30 June 2020 the group has one joint venture investment. On the 28 May 2020, entered into a 50:50 joint venture
with the British Airways Pension Trustees Limited to acquire 100% of the issued share capital in Horndrift Limited for a
combined total consideration of £102m plus costs.
Horndrift Limited holds a 25.2% share of certain beneficial interests in a property trust arrangement that holds a
portfolio of 26 Sainsbury’s supermarket properties funded by bonds which mature in 2023 (the “Structure”). Rental
surpluses generated by the Structure are required to be applied in the repayment of the bonds and not therefore capable
of being transferred to the joint venture or group until those bonds have been repaid.
The Group deem this to be a joint venture, as through its 50:50 share of a 25.2% of beneficial interest in a property trust
arrangement it indirectly has joint control of the Structure. The joint venture ownership structure is summarised below:
Partner
Address and principal place of business
Ownership
Jersey
Horner (Jersey) LP
Horner REIT Limited
United Kingdom
Horndrift Limited
British Airways Pensions Third Floor, Liberation House,
Trustees Limited
Castle Street, St Helier, Jersey,
JE1 2LH parent company
50% owned by
the Group
Third Floor, Liberation House,
Castle Street, St Helier,
Jersey, JE1 2LH parent company
Langham Hall UK LLP,
Fleet Street, London,
E4M 7RA
100% owned by
Horner (Jersey) LP
100% owned by
Horner REIT Limited
Opening balance
Acquired in the year
Negative goodwill arising on acquisition
Group’s share of profit after tax excluding negative goodwill
Closing Balance
2020
£000
–
52,635
2,960
486
56,081
A purchase price allocation (“PPA”) exercise was carried out to compare the fair value of the Group’s share of identifiable
net assets of Horndrift Limited and its joint venture interest in the Structure. The notional PPA exercise resulted in a
bargain purchase of £2,960,000 which increased the carrying value of the investment in the joint venture to £55,595,000
as at the date of acquisition. The gain on bargain purchase arises as a result of the fair value of the interests in the
individual assets and liabilities acquired at the transaction date exceeding the consideration paid for the investment
as a whole.
The joint venture entities have a 31 March year end. For accounting purposes consolidated management accounts have
been prepared for the joint venture for the period from acquisition to 30 June 2020 using accounting policies that are
consistent with those of the Group.
The financial statements of Horner (Jersey) LP prepared on this basis would be as follows:
Statement of comprehensive income
Share of income from joint venture
Profit for the period and total comprehensive income
Group’s share of profit for the period
8 2 S U P E R M A R K E T I N C O M E R E I T P LC
Period ended
30 June 2020
£’000
971
971
486
14. Investment in joint ventures continued
Statement of financial position
Investment in joint venture
Net assets
Group’s share of net assets
30 June 2020
£000
112,161
112,161
56,081
Horner (Jersey) LP’s share of the aggregate amounts recognised in the consolidated statement of comprehensive
income and statement of financial position of the structure are as follows:
Rental income
Administrative and other expenses
Operating profit
Finance expense
Profit before taxation
Tax charge for the period
Profit for the period
Group’s share of profit for the period
Non-current assets
Investment properties
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Non-current liabilities
Debt securities in issue
Interest rate derivative
Deferred tax
Other liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Group’s share of net assets
Period ended
30 June 2020
£000
1,224
(8)
1,216
(171)
1,045
(74)
971
486
30 June 2020
£000
227,400
227,400
7,403
–
7,403
234,803
102,320
6,478
5,376
4,445
118,619
4,023
4,023
122,642
112,161
56,081
A N N U A L R E P O R T 2 0 2 0 8 3
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15. Trade and other receivables
Other receivables
Prepayments and accrued income
Total trade and other receivables
As at
30 June 2020
£000
As at
30 June 2019
£000
1,629
73
1,702
3,503
17
3,521
All other receivables relate to amounts that are less than 30 days overdue as at the period end date.
16. Trade and other payables
Corporate accruals
VAT payable
Total trade and other payables
As at
30 June 2020
£000
As at
30 June 2019
£000
5,279
1,124
6,403
1,828
742
2,570
All trade and other payables relate to amounts that are less than 30 days overdue at the period end date.
17. Interest rate derivatives
Non-current liability: Interest rate cap
Non-current liability: Interest rate derivative
As at
30 June 2020
£000
As at
30 June 2019
£000
–
(1,988)
(18)
(1,095)
The interest rate cap and interest rate swap is remeasured to fair value by the counterparty bank on a quarterly basis.
The fair value at the end of period comprises:
At start of period
Interest rate cap premium paid on inception
Amortisation of cap premium in the period (note 8)
Changes in fair value of interest rate derivative in the period
Charge to the Income Statement (note 8)
Fair value as at 30 June 2020
£000
(1,113)
–
(57)
(1,112)
294
(1,988)
£000
37
26
(55)
(1,374)
253
(1,113)
To partially mitigate the interest rate risk that arises as a result of entering into the debt facilities referred to in note 18,
the Group has entered into a derivative interest rate cap (‘the cap’) and a derivative interest rate swap (‘the swap’).
The total notional value of the cap was £63.5 million with its term coinciding with the expiry of the term of the HSBC
credit facility. The strike rate of the cap as at 30 June 2020 was 1.75%, which caps the Group’s cost of borrowing at
3.35% on the hedged notional amount.
The total notional value of the swap was £52.1 million with its term coinciding with the maturity of the Bayerische
Landesbank loan facility. The fixed interest rate of the swap as at 30 June 2020 was 1.305%.
The Group uses all of its interest rate derivatives in risk management as cash flow hedges to protect against movements
in future interest cash flows on secured loans which bear interest at variable rates. The Group enters into interest rate
swaps that have similar critical terms as the hedged item, such as reference rate, reset dates, payment dates,
maturities and notional amount. All of the Group’s variable rate debt was hedged as at 30 June 2020 (30 June 2019: 80%)
with £63.5 million of the cap not currently being utilised in a hedging relationship. It is the Group’s target to hedge at
least 60% of the Group’s total debt at any time using interest rate derivatives.
8 4 S U P E R M A R K E T I N C O M E R E I T P LC
17. Interest rate derivatives continued
The derivatives have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the
close of business on the last working day prior to each balance sheet date. The fair values are calculated using the
present values of future cash flows, based on market forecasts of interest rates and adjusted for the credit risk of
the counterparties. The amounts and timing of future cash flows are projected on the basis of the contractual terms.
All interest rate derivatives are classified as level 2 in the fair value hierarchy as defined in IFRS 13 and there were no
transfers to or from other levels of the fair value hierarchy during the year.
In accordance with the Group’s treasury risk policy, the Group applies cash flow hedge accounting in partially hedging
the interest rate risks arising on its 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.
18. 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 2020
£000
As at
30 June 2019
£000
128,660
(1,869)
144,894
(1,186)
126,791
143,708
Secured debt comprises a revolving credit facility (the ‘credit facility’) of £100 million with HSBC Bank Plc, a five year
interest-only loan facility (‘the BLB loan facility’) of £52.1 million with Bayerische Landesbank and a five year fixed rate
loan facility (‘the Deka loan facility’) of £76.6 million with Deka Bank.
The credit facility is secured on four Tesco assets (Thetford, Bristol, Cumbernauld and Scunthorpe). The BLB loan facility
is secured on Sainbury’s, Ashford and Morrisons, Sheffield and the Deka loan facility is secured on Tesco Mansfield and
two Sainsbury’s assets (Cheltenham and Preston).
During June 2020 the Group exercised a 12-month extension on the credit facility from 30 August 2021 to 30 August 2022.
The original terms of the credit facility are unchanged. At June 2020, £100 million has remained undrawn under the
credit facility.
All the advances drawn under the credit facility have an interest charge which is payable quarterly based on a margin
above three-month LIBOR.
As at 30 June 2020, the full amount of the BLB loan facility had been drawn down. Interest is payable quarterly on the
loan facility based on a margin of 125 basis points above three-month LIBOR. The fixed interest rate on the loan facility
resulting from the Interest rate swap was 2.55%.
As at 30 June 2020, the full £76.6 million of the Deka loan facility has been drawn down. The Deka loan facility has
been entered into as a fixed rate agreement, fixing the interest rate at 1.95% over the term of the facility.
All three facilities have loan covenants of 60% LTV and 200% interest cover. There have been no defaults or breaches of
any loan covenants during the current or any prior period. As at 30 June 20, under the HSBC credit facility, loan
covenants were 0% LTV and 1260% interest cover, under the BLB facility, loan covenants were 35% LTV and 520%
interest cover and under the Deka facility, loan covenants were 48% LTV and 565% interest cover.
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 debt is secured by charges over the Group’s
investment properties and by charges over the shares of certain group companies, not including the Company itself.
There have been no defaults of breaches of any loan covenants during the current or any prior period.
A N N U A L R E P O R T 2 0 2 0 8 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
18. Bank borrowings continued
On the 27 July 2020, the Group announced a new revolving credit facility (“RCF”) of £60.0 million with Wells Fargo.
This secured, interest-only, RCF has an initial five-year term and two further one-year extension options. The RCF has
a margin of 2.0% above 3-month Libor which is currently equivalent to a total cost of 2.1%. The RCF also includes a
£100 million uncommitted accordion option, exercisable at any time over the term of the facility.
In August 2020, the Group also increased facilities with Bayerische Landesbank by £34.8 million comprising a new
£27.5 million, secured, five-year tranche and a further £7.3 million tranche, upsizing its existing £52.1 million secured
term loan for the remaining three-year term. The new facilities are in both cases priced at a 1.85% margin over 3-month
Libor, representing a total cost of debt of 2.0%.
In September 2020 the Group agreed an increase to our existing HSBC RCF of £40.0 million at a 1.75% margin
over 3-month Libor, representing a total cost of debt of 1.8% whilst other terms remain the same as the existing
£100 million RCF.
19. Categories of financial instruments
Financial assets
Financial assets at amortised costs:
Cash and cash equivalents
Trade and other receivables
Total Financial Assets
Financial liabilities
Financial liabilities at amortised cost:
Secured debt
Trade and other payables
Derivatives in effective hedges:
Interest rate derivative
Total Financial Liabilities
As at
30 June 2020
£000
As at
30 June 2019
£000
20,353
1,629
21,982
9,898
3,503
13,401
126,791
5,279
143,708
1,828
1,988
1,113
134,058
146,649
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 and interest
rate swap derivative to partially mitigate exposure to fluctuations in interest rates, as described in note 17.
The exposure to each financial risk considered potentially material to the Group, how it arises and the policy for
managing it is summarised below.
Market risk
Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market prices. The Group’s market risk arises from open positions in interest bearing assets
and liabilities, to the extent that these are exposed to general and specific market movements.
The Group’s interest-bearing financial instruments comprise cash and cash equivalents and bank borrowings.
Changes in market interest rates therefore affect the Group’s finance income and costs, although the Group has
purchased interest rate derivatives as described in note 17 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:
8 6 S U P E R M A R K E T I N C O M E R E I T P LC
19. Categories of financial instruments continued
Effect on profit for the current period
Effect on other comprehensive income and equity
1 July 2019 to
30 June 2020
£000
1 June 2018 to
30 June 2019
£000
130
(233)
142
(211)
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.
Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations.
The principal counterparties are the Group’s tenants (in respect of rent receivables arising under operating leases)
and banks (as holders of the Group’s cash deposits).
The credit risk of rent receivables is considered low because the counterparties to the operating leases are considered
by the Board to be high quality tenants and any lease guarantors are of appropriate financial strength. Rent collection
dates and statistics are monitored to identify any problems at any early stage, and if necessary rigorous credit control
procedures will be applied to facilitate the recovery of rent receivables. The credit risk on cash deposits is limited
because the counterparties are banks with credit ratings which are acceptable to the Board and are kept under review
each quarter.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance costs and principal repayments
on its secured debt. It is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group seeks to manage its liquidity risk by ensuring that sufficient cash is available to meet its foreseeable needs.
These liquidity needs are relatively modest and are capable of being satisfied by the surplus available after rental receipts
have been applied in payment of interest as required by the credit agreement relating to the Group’s secured debt.
Before entering into any financing arrangements, the Board assesses the resources that are expected to be available to
the Group to meet its liabilities when they fall due. These assessments are made on the basis of both base case and
downside scenarios. The Group prepares detailed management accounts which are reviewed by the Board at least
quarterly to assess ongoing liquidity requirements and compliance with loan covenants. The Board also keeps under
review the maturity profile of the Group’s cash deposits in order to have reasonable assurance that cash will be available
for the settlement of liabilities when they fall due.
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 2020 is subject to inflation linked rent reviews. Consequently, the Group is exposed to movements in the
Retail Prices Index (“RPI”), which is the relevant inflation benchmark. However, all RPI-linked rent review provisions
provide 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 non-derivative financial instruments, including future interest payments, based on
the earliest date on which the Group can be required to pay and assuming that three-month LIBOR remains at the
30 June 2020 rate. Interest rate derivatives are shown at fair value and not at their gross undiscounted amounts.
A N N U A L R E P O R T 2 0 2 0 8 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19. Categories of financial instruments continued
As at
30 June 2020
Financial assets:
Cash and cash equivalents
Trade and other receivables
Total Financial assets
Financial liabilities:
Bank borrowings
Trade payables and other payables
Interest rate derivatives
Total Financial liabilities
As at
30 June 2019
Financial assets:
Cash and cash equivalents
Trade and other receivables
Total Financial assets
Financial liabilities:
Bank borrowings
Trade payables and other payables
Interest Rate Derivatives
Total Financial liabilities
Less than
one year
£000
One to two
years
£000
Two to five
years
£000
More than
five years
£000
20,353
1,629
21,982
2,821
5,279
–
8,100
–
–
–
–
–
–
5,642
–
–
5,642
128,660
–
1,988
130,648
–
–
–
–
–
–
–
Less than
one year
£000
One to two
years
£000
Two to five
years
£000
More than
five years
£000
9,898
3,503
13,401
3,626
1,828
–
5,454
–
–
–
–
–
–
7,251
–
–
7,251
148,084
–
1,113
149,197
–
–
–
–
–
–
–
Total
£000
20,353
1,629
21,982
137,123
5,279
1,988
144,390
Total
£000
9,898
3,503
13,401
158,961
1,828
1,113
161,902
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. Covenants
associated with the bank borrowings are referred to in note 18. The Group does not provide any cross-group guarantees
nor does the Company act as a guarantor to the lending bank.
At 30 June 2020, the capital structure of the Group consisted of bank borrowings (note 18), 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 20 and 21).
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.
8 8 S U P E R M A R K E T I N C O M E R E I T P LC
19. Categories of financial instruments continued
Reconciliation of financial liabilities relating to financing activities
Bank
borrowings due
in more than
one year
£000
Interest and
commitment
fees payable
£000
Interest rate
derivatives
£000
Total
£000
At 1 July 2019
143,708
715
1,113
145,535
Cashflows:
Debt drawdowns in the Year
Debt repayments in the Year
Interest and commitment fees paid
Loan arrangement fees paid
Non-cash movements:
Finance costs in the statement of comprehensive income
Fair value changes
At 30 June 2020
141,510
(157,744)
–
(1,270)
587
–
126,791
–
–
(4,282)
–
4,259
–
692
–
–
–
–
57
818
141,510
(157,744)
(4,282)
(1,270)
4,903
818
1,988
129,470
Bank
borrowings due
in more than
one year
£000
Interest and
commitment
fees payable
£000
Interest rate
derivatives
£000
Total
£000
At 1 July 2018
88,099
447
(37)
88,509
Cashflows:
Debt drawdowns in the Year
Debt repayments in the Year
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
At 30 June 2019
128,341
(72,291)
–
(933)
–
492
–
143,708
–
–
(3,365)
–
–
3,663
–
715
–
–
–
–
(27)
54
1,122
1,113
128,341
(72,291)
(3,365)
(933)
(27)
4,180
1,122
145,535
Movements in respect to share capital are disclosed in note 20 below.
The interest and commitment fees payable are included within the corporate accruals balance in note 16. 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 17.
A N N U A L R E P O R T 2 0 2 0 8 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
20. Share capital
As at 1 July 2019
Ordinary shares issued and fully paid –
7 October 2019
Ordinary shares issued and fully paid –
30 April 2020
Ordinary shares
of 1 pence
Number
239,833,219
Share
capital
£000
2,398
Share
premium
reserve
£000
203,672
Capital
reduction
reserve
£000
Total
£000
14,391
220,461
Share issue costs
–
–
(5,029)
98,039,215
980
99,020
135,748,028
1,357
138,463
–
–
–
100,000
139,820
(5,029)
Dividends paid in the Year
(14,391)
(14,391)
As at 30 June 2020
473,620,462
4,735
436,126
–
440,861
As at 1 July 2018
Ordinary shares issued and fully paid –
26 March 2019
Ordinary shares issued and fully paid –
24 April 2019
Share issue costs
Dividends paid in the year (note 11)
Ordinary shares
of 1 pence
Number
184,356,434
44,554,455
10,922,330
–
–
Share
capital
£000
1,844
446
109
–
–
Share
premium
reserve
£000
149,039
44,554
11,141
(1,062)
Capital
reduction
reserve
£000
Total
£000
25,325
176,208
–
–
–
45,000
11,250
(1,062)
–
(10,934)
(10,934)
As at 30 June 2019
239,833,219
2,398
203,672
14,391
220,461
Share allotments and other movements in relation to the capital of the Company in the period:
On 7 October 2019 the Company completed an equity fundraising and issued an additional 98,039,215 ordinary shares
of one pence each at a price of £1.02 per share. The consideration received in excess of the par value of the ordinary
shares issued, net of total capitalised issue costs, of £96.7 million was credited to the share premium reserve.
On 30 April 2020 the Company completed an equity fundraising and issued an additional 135,748,028 ordinary shares
of one pence each at a price of £1.03 per share. The consideration received in excess of the par value of the ordinary
shares issued, net of total capitalised issue costs, of £135.7 million was credited to the share premium reserve.
Ordinary shareholders are entitled to all dividends declared by the Company and to all the Company’s assets after
repayment of its borrowings and ordinary creditors. Ordinary shareholders have the right to vote at meetings of the
Company. All ordinary shares carry equal voting rights. The aggregate ordinary shares in issue at 30 June 2020 total
was 473.6 million.
9 0 S U P E R M A R K E T I N C O M E R E I T P LC
21. Reserves
The nature and purpose of each of the reserves included within equity at 30 June 2020 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.
22. Capital commitments
The Group had no capital commitments outstanding as at 30 June 2020.
23. 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 2020 is 17.1 years (2019: 18.4 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
24. Net asset value per share
As at
30 June 2020
£000
As at
30 June 2019
£000
28,770
116,038
354,707
19,241
77,366
260,172
499,515
356,779
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
NAV per share – Basic and diluted (pence)
EPRA NAV per share (pence)
As at
30 June 2020
£000
As at
30 June 2019
£000
477,161
1,988
230,470
1,113
479,149
231,583
Number
473,620,462
101p
101p
239,833,219
96p
97p
A N N U A L R E P O R T 2 0 2 0 9 1
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
25. Transactions with related parties
Details of the related parties to the Group in the period and the transactions with these related parties were as follows:
a. Directors
Directors’ fees
Nick Hewson, Chairman of the Board of Directors of the Company, is paid fees of £55,000 per annum, with the other
three 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 current year and previous period is disclosed in note 7.
There were no amounts outstanding at the end of either period.
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 2019 were as follows:
• Nick Hewson: 468,525 shares (0.10% of issued share capital)
• Jon Austen: 144,270 shares (0.03% of issued share capital)
• Vince Prior: 76,019 shares (0.02% of issued share capital)
• Cathryn Vanderspar: 19,418 (0.00% 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 £1,000 million, the entitlements to advisory fees can be summarised
as follows:
• Monthly Management Fee payable monthly in arrears: 1/12th of 0.7125% per calendar month of Adjusted Net Asset
Value up to or equal to £500 million and 1/12th of 0.5625% per calendar month of Adjusted Net Asset Value above
£500 million and up to or equal to £1,000 million.
• Semi-Annual Management Fee payable semi-annually in arrears: 0.11875% of Adjusted Net Asset Value up to or equal
to £500 million and 0.09375% of Adjusted Net Asset Value above £500 million and up to or equal to £1,000 million.
For the period to 30 June 2020 the total advisory fees payable to the Investment Adviser were £3,252,000 (2019:
£1,814,000) of which £820,000 (2019: £379,000) is included in trade and other payables in the consolidated statement of
financial position.
Introducer Services
Atrato Partners, an affiliate of the Investment Adviser, is entitled to fees in relation to the successful introduction of
prospective investors in connection with subscriptions for ordinary share capital in the Company.
The entitlement of the Investment Adviser to introducer fees is by fees and/or commission which can be summarised
as follows:
• Fee basis: £5,000 for any day on which prospective investors are introduced in meetings, provided that there are at
least five such meetings with prospective investors on that day; and (ii) £1,000 per meeting for any day on which
prospective investors are introduced in meetings but there are fewer than five such meetings with prospective
investors on that day or:
• Commission basis: one per cent of total subscription in respect of ordinary shares subscribed for by any prospective
investor introduced by Atrato Partners.
For the period to 30 June 2020 the total introducer fees payable to the affiliate of the Investment Adviser were £25,000
(2019: nil).
9 2 S U P E R M A R K E T I N C O M E R E I T P LC
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 2020 were as follows:
• Ben Green: 1,137,101 shares (0.24% of issued share capital)
• Steve Windsor: 1,251,936 shares (0.26% of issued share capital)
26. Post balance sheet events
• On the 6 July 2020 the Group announced the acquisition of a Portfolio of 6 omnichannel supermarkets via a sale and
leaseback transaction with Waitrose for £74.1 million (excluding acquisition costs), which are let to Waitrose on new
20-year leases with a tenant-only break option in year 15 and are subject to five-yearly, upward-only, CPIH-linked rent
reviews.
• On the 27 July 2020 the Group announced the acquisition of a Tesco store in Newmarket, which was acquired for
£61.0 million (excluding acquisition costs) with an unexpired lease term of 15 years with annual, upward-only,
RPI-linked rent reviews.
• On the 10 August 2020, the Group announced the acquisition of a Morrisons store in Telford, which was acquired for
£14.3 million (excluding acquisition costs) with an unexpired lease term of 13 years with five-yearly, upward-only,
RPI-linked rent reviews.
• On the 14 September 2020, the Group announced the acquisition of a Tesco in Bracknell, Berkshire for £39.5 million
(excluding acquisition costs) with 10 years unexpired lease term and annual, upward-only, RPI-linked rent reviews.
• On the 27 July 2020, the Group announced a new revolving credit facility (“RCF”) of £60.0 million with Wells Fargo.
This secured, interest-only, RCF has an initial five-year term and two further one-year extension options. The RCF has
a margin of 2.0% above 3-month Libor which is currently equivalent to a total cost of 2.1%. The RCF also includes a
£100 million uncommitted accordion option, exercisable at any time over the term of the facility.
• In August 2020, the Group also increased facilities with Bayerische Landesbank by £34.8 million comprising a new
£27.5 million, secured, five-year tranche and a further £7.3 million tranche, upsizing its existing £52.1 million secured
term loan for the remaining three-year term. The new facilities are in both cases priced at a 1.85% margin over
3-month Libor, representing a total cost of debt of 2.0%.
• On the 15 September 2020 the Group agreed an increase to our existing HSBC RCF of £40.0 million at a 1.75% margin
over 3-month Libor, representing a total cost of debt of 1.8% whilst other terms remain the same as the existing
£100 million RCF.
• Increased dividend target for the FY 2021 to 5.86 pence per share, increased in line with June 2020 RPI inflation.
A N N U A L R E P O R T 2 0 2 0 9 3
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
Registered number: 10799126
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 Profit
Total equity
As at
30 June 2020
£000
As at
30 June 2019
£000
Notes
D
337,256
228,458
337,256
222,458
E
F
G
139,023
3,479
142,502
831
7,531
8,362
479,758
230,820
16,942
16,942
16,942
9,529
9,529
9,529
462,816
221,291
4,735
436,126
–
21,955
2,398
203,672
14,391
829
462,816
221,291
The notes on pages 96 to 97 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 profit for the year dealt with the financial statements of the Company
was £26,781,000 (2019: 1,175,000). As at 30 June 2020 the Company has distributable reserves of £29.5 million.
The Company financial statements were approved and authorised for issue by the Board of Directors on
17 September 2020 and were signed on its behalf by:
Nick Hewson
Chairman
17 September 2020
9 4 S U P E R M A R K E T I N C O M E R E I T P LC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
As at 1 July 2019
Profit and total comprehensive Income
for the period
Transactions with owners
Ordinary shares issued at a premium
during the period
Share issue costs
Interim dividends paid
As at 30 June 2020
Share
capital
£000
2,398
Share
premium
reserve
£000
203,672
Capital
reduction
reserve
£000
14,391
Accumulated
Profit
£000
Total
£000
829
221,291
–
–
2,337
237,483
–
–
26,781
26,781
–
239,820
–
–
(5,029)
–
–
(14,391)
–
(5,656)
(5,029)
(20,047)
4,735
436,126
–
21,955
462,816
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2018
As at 1 July 2018
Profit and total comprehensive Income
for the period
Transactions with owners
Ordinary shares issued at a premium
during the period
Share issue costs
Interim dividends paid
As at 30 June 2019
Share
capital
£000
1,844
Share
premium
reserve
£000
149,039
Capital
reduction
reserve
£000
25,325
Accumulated
Profit
£000
Total
£000
(346)
175,862
–
–
555
55,695
–
–
–
–
(1,062)
–
–
(10,934)
1,175
1,175
–
–
–
56,250
(1,062)
(10,934)
2,398
203,672
14,391
829
221,291
The notes on pages 96 to 97 form part of these financial statements.
A N N U A L R E P O R T 2 0 2 0 9 5
NOTES TO THE COMPANY FINANCIAL STATEMENTS
A. Basis of preparation
The Company’s financial statements have been prepared in accordance with FRS 102, the Financial Reporting Standard
applicable in the United Kingdom and the Republic of Ireland.
The principal accounting policies relevant to the Company are as follows:
• Investments in subsidiaries are recognised at cost less provision for any impairment;
• Loans and receivables are recognised initially at fair value plus transaction costs less provision for impairment;
• Trade payables are recognised initially at fair value and subsequently at amortised cost;
• Equity instruments are recognised as the value of proceeds received net of direct issue costs; 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 20 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 2021, the Company intends to continue to use these disclosure exemptions unless objections are
received from shareholders.
B. Significant accounting judgements, estimates and assumptions
In preparing the financial statements of the company, the directors have made the following judgements:
• Determine whether there are any indicators of impairment of the investments in subsidiary undertakings. Factors
taken into consideration in reaching such a decision include the financial position and expected future performance
of the subsidiary entity.
C. Auditors’ remuneration
The remuneration of the auditors in respect of the audit of the Company’s Consolidated and Individual Financial
Statements for the Year was £95,000 (2019: £74,000). Fees payable for audit and non-audit services provided to the
Company and the rest of the Group are disclosed in note 6 to the consolidated financial statements.
D. Investment in subsidiary undertakings
The Company’s wholly owned direct subsidiaries are Supermarket Income Investments UK Limited, Supermarket
Income Investments (Midco2) UK Limited, Supermarket Income Investments (Midco3) UK Limited, Supermarket Income
Investments (Midco4) UK Limited and SII UK Halliwell (Midco) Limited, all of which are incorporated and operating in
England with a registered address of The Scalpel 18th Floor, 52 Lime Street, London, United Kingdom EC3M 7AF.
The full list of subsidiary entities directly and indirectly owned by the Company is disclosed in note 13 to the
Consolidated Financial Statements.
The movement in the period was as follows:
As at 1 July 2019
Additions
As at 30 June 2020
Impairments of investments in subsidiaries
Closing value per Statement of Financial Position
9 6 S U P E R M A R K E T I N C O M E R E I T P LC
As at
30 June
£000
222,458
159,086
381,544
(44,288)
337,256
As at 1 July 2018
Additions
As at 30 June 2019
Impairments of investments in subsidiaries
Closing value per Statement of Financial Position
As at
30 June
£000
172,466
84,897
257,363
(34,905)
222,458
An impairment of investments in subsidiaries was recognised during the year following the payment of an upstream
dividend to the Company. Following the payment of the dividend, the net assets of the dividend paying subsidiary no
longer supported the carrying value of the Company’s investment in that entity and thus an impairment charge was
recognised to bring the carrying value of the investment in line with the recoverable amount, which was also considered
to be its value in use.
E. Trade and other receivables
Intercompany receivables
Prepayments and accrued income
Corporation tax receivable
VAT receivable
Other receivables
Total trade and other receivables
As at
30 June 2020
£000
As at
30 June 2019
£000
136,775
31
–
297
1,920
139,023
637
16
–
153
25
831
The increase in intercompany receivables were led by repayment of the HSBC facility on behalf of indirectly held
companies in the group which was financed by equity capital raising in the year.
F. Trade and other payables
Corporate accruals
Intercompany payables
Total trade and other payables
G. Share capital
As at
30 June 2020
£000
As at
30 June 2019
£000
2,969
13,973
16,942
768
8,761
9,529
Details of the share capital of the Company are disclosed in note 20 to the Consolidated financial statements.
H. Related party transactions
Details of related party transactions are disclosed in note 25 to the Group financial statements.
A N N U A L R E P O R T 2 0 2 0 9 7
UNAUDITED SUPPLEMENTARY INFORMATION
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 July 2019 to 30 June 2020
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 divided by the share price at the beginning of the financial year.
Weighted average unexpired lease term as at 30 June 2020
The average unexpired lease term of the property portfolio, weighted by valuation.
EPRA NAV per share as at 30 June 2020
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.
EPRA Cost Ratio
Administrative and operating 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.
Performance
12%
17 years
101 pence
20%
20%
5.0 pence
Total Shareholder Return
Shareholder return is one of the Group’s principal measures 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.
As at
30 June 2020
As at
30 June 2019
Pence per share Pence per share
105.0
111.4
6.4p
5.8p
12.2p
102.5
105.0
2.5p
5.6p
8.1p
105.0p
102.5p
11.6%
8.0%
Total Shareholder Return
Share price at start of the year
Share price at the end of the year
Increase in share price
Dividends declared for the year
Increase in share price plus dividends
Share price at start of period
Total Shareholder Return
9 8 S U P E R M A R K E T I N C O M E R E I T P LC
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
Further information on these EPRA measures is included below.
EPRA NAV per share
IFRS NAV (note 10)
Fair value of interest rate derivatives
EPRA NAV
EPRA Triple Net Asset Value Per Share
EPRA NAV (note 24)
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 2020
£000
As at
30 June 2019
£000
126,791
(20,353)
106,438
539,410
143,708
(9,898)
133,810
368,230
20%
36%
As at
30 June 2020
As at
30 June 2019
Pence per share Pence per share
101p
101p
97p
96p
1 July 2019 to
30 June 2020
1 July 2018 to
30 June 2019
5.0 pence
5.0%
5.0%
0%
19.7%
5.0 pence
4.9%
4.9%
0%
17.9%
As at
30 June 2020
£000 Pence per share
477,161
1,988
479,149
101p
0p
101p
As at
30 June 2020
£000 Pence per share
479,149
(1,988)
(1,869)
475,292
101p
0p
0p
101p
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 473,620,462.
A N N U A L R E P O R T 2 0 2 0 9 9
UNAUDITED SUPPLEMENTARY INFORMATION CONTINUED
EPRA EPS
For the period from 1 July 2019 to 30 June 2020
Basic and diluted EPS (note 10)
Adjustments to remove:
Changes in fair value of investment properties
Negative goodwill
EPRA EPS
Net profit
Weighted
attributable average number
of ordinary
to ordinary
shares1
shareholders
Number
£000
Earnings
per share
Pence
32,763
334,236,233
10.0p
(13,052)
(2,960)
–
–
(3.9)p
(1.1)p
16,751
334,236,233
5.0p
1 Based on the weighted average number of ordinary shares in issue in the year ending 30 June 2020.
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 2020
£000
As at
30 June 2019
£000
539,410
36,680
368,230
25,039
576,090
393,269
As at
30 June 2020
£000
As at
30 June 2019
£000
28,731
19,209
5.0%
4.9%
As at
30 June 2020
As at
30 June 2019
5.0%
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.
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
As at
30 June 2020
As at
30 June 2019
0%
0%
1 July 2019 to
30 June 2020
£000
1 June 2018 to
30 June 2019
£000
26,352
17,231
5,184
5,184
19.7%
3,088
3,088
17.9%
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 capitalized overheads or operating expenses.
1 0 0
S U P E R M A R K E T I N C O M E R E I T P LC
New EPRA Measures
EPRA published its latest Best Practices Recommendations in October 2019 which included three New Asset Valuation
metrics, namely EPRA Net Reinstatement value (NRV), EPRA Net Tangible assets (NTA) and EPRA Net Disposal Value
(NDV). These metrics are effective for periods commencing 1 January 2020 but have been presented below as at 30 June
2020 to provide comparison to the current measures EPRA NAV and EPRA NNNA.
EPRA NRV
EPRA NTA
As at June 2020 As at June 2020
£’ 000
£’000
EPRA Net asset value
Adjustment for:
Purchasers’ costs
Intangibles
Deferred tax
Per share Measure
479,149
479,150
36,680
–
–
–
–
–
515,829
479,150
109p
101p
As the Group’s EPRA NDV is the same as the EPRA NNNAV there are no reconciling items.
A N N U A L R E P O R T 2 0 2 0 1 0 1
GLOSSARY
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
FRI
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
A lease granted on an FRI basis means that all repairing and insuring obligations
are imposed on the tenant, relieving the landlord from all liability for the cost of
insurance and repairs
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 pages 101 to 102 of the IPO Prospectus
IPO
LTV
NAV
An initial public offering (IPO) refers to the process of offering shares of a
corporation to the public in a new stock issuance
Loan to Value: the outstanding amount of a loan as a percentage of property value
Net Asset Value
Net Initial Yield
Annualised net rents on investment properties as a percentage of the investment
property valuation, less assumed purchaser’s costs of 6.8%
Net Loan to Value 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
Real Estate Investment Trust
The anticipated Net Initial Yield at a future date, taking account of any rent
reviews in the intervening period
Total Shareholder Return
The movement in share price over a period plus dividends declared for the same
period expressed as a percentage of the share price at the start of the Period
WAULT
Weighted Average Unexpired Lease Term. It is used by property companies as an
indicator of the average remaining life of the leases within their portfolios
1 0 2
S U P E R M A R K E T I N C O M E R E I T P LC
CONTACTS AND COMPANY DETAILS
Directors
Company Secretary
AIFM
Investment Adviser
Financial adviser, Broker
and Placing Agent
Auditors
Property Valuers
Financial PR Advisers
Registrar
Nick Hewson (Chairman)
Vince Prior (Chair of Nomination Committee)
Jon Austen (Chair of Audit Committee)
Cathryn Vanderspar (Chair of Remuneration Committee)
JTC
The Scalpel
18th Floor, 52 Lime Street
London
EC3M 7AF
JTC Global AIFM Solutions Limited
Ground Floor, Dorey Court, Admiral Park
St Peter Port
Guernsey, Channel Islands
GY1 2HT
Atrato Capital Limited
123 Victoria Street
London
SW1E 6DE
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
FTI
200 Aldersgate Street
London
EC1A 4HD
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
The Scalpel
18th Floor, 52 Lime Street
London
EC3M 7AF
Stock exchange ticker
ISIN
SUPR
GB00BF345X11
A N N U A L R E P O R T 2 0 2 0 1 0 3
1 0 4
S U P E R M A R K E T I N C O M E R E I T P LC
STRATEGIC REPORT | WHO WE ARE
Supermarket Income REIT plc (LSE: SUPR) is a real estate investment trust
dedicated to investing in property which enables the future model of UK grocery.
We invest in omnichannel supermarkets:
With highly attractive lease terms:
Providing regular, sustainable, inflation-linked income with strong total shareholder returns:
CONTENTS
STRATEGIC REPORT
1 Financial Highlights
2 Chairman’s Statement
4 Key performance indicators
5 Our Portfolio
6 Q&A with Justin King
10 Investment Adviser’s Report
18 Our market
22 Implementing the Group’s
investment policy
24 Operating responsibly
28 Our principal risks
CORPORATE GOVERNANCE
36 Board of Directors
37 Investment Adviser
38 Corporate Governance Statement
43 Key Board statements
44 Corporate social responsibility
45 Audit Committee Report
49 Nomination Committee Report
51 Directors’ Remuneration Report
54 Directors’ Report
58 Directors’ Responsibilities Statement
59 Alternative Investment Fund
Manager’s Report
FINANCIAL STATEMENTS
60
Independent Auditors’ Report to the
members of Supermarket Income
REIT PLC
66 Consolidated Statements
70
Notes to the Consolidated Financial
Statements
94 Company Statements
96
Notes to the Company Financial
Statements
Unaudited Supplementary Information
98
102 Glossary
103 Contacts and Company Details
Design and production: theteam.co.uk
Print: Westerham Print
HOME DELIVERY FROM STORE CLICK & COLLECT AT STORE TRADITIONAL IN-STORE5.9pTARGET DIVIDEND FY 2111.6%TOTAL SHAREHOLDER RETURN FY 20100%RENT RECEIVED FY 20 STRONG TENANT COVENANTS INFLATION LINKED RENT REVIEWS LONG LEASE LENGTHS
SUPERMARKET INCOME REIT | ANNUAL REPORT 2020
S
U
P
E
R
M
A
R
K
E
T
I
N
C
O
M
E
R
E
I
T
P
L
C
|
A
N
N
U
A
L
R
E
P
O
R
T
2
0
2
0
INVESTING IN THE FUTURE MODEL OF UK GROCERY
TRADITIONAL
IN-STORE
CLICK & COLLECT
AT STORE
HOME DELIVERY
FROM STORE
Supermarket Income REIT plc
The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
www.supermarketincomereit.com