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INVESTING
IN THE
FUTURE
OF UK
GROCERY
Supermarket Income REIT plc
1 King William Street,
London,
United Kingdom,
EC4N 7AF
www.supermarketincomereit.com
ANNUAL REPORT 2023
SUPERMARKET INCOME REIT | ANNUAL REPORT 2023
Who we are | Supermarket Income REIT plc (LSE: SUPR) is dedicated
to investing in supermarket property forming a key part of the future
model of UK grocery.
FEEDING THE UK
SUPR invests in grocery properties which are an essential part of
the UK’s feed the nation infrastructure and are mission critical to the
operations of the UK’s leading grocers.
CONTENTS
Investment Adviser’s Report
Financial Highlights
SUPR at a glance
STRATEGIC REPORT
1 Highlights for the year
2 Chair’s Statement
4
6
12 Q&A with Justin King CBE
15
22 The Company’s Portfolio
26 The UK Grocery Market
29 Key Performance Indicators
30 EPRA Performance Indicators
31 Financial Overview
35 TCFD Compliant Report
51 Our Principal Risks
61 Section 172(1) Statement
FINANCIAL STATEMENTS
97
Independent Auditors’ Report to the
members of Supermarket Income
REIT PLC
106 Consolidated Financial Statements
110 Notes to the Consolidated
Financial Statements
142 Company Financial Statements
144 Notes to the Company
Financial Statements
146 Unaudited Supplementary Information
151 Glossary
152 Contacts Information
CORPORATE GOVERNANCE
62 Our Key Stakeholder Relationships
65 Chair’s Letter on Corporate Governance
66 The Board of Directors
68 The Investment Adviser
70 Leadership and Purpose
74 Board Activities during the year
Key Decisions of the Board
75
during the year
76 Corporate Governance Statement
78 Nomination Committee Report
81 Audit and Risk Committee Report
Management Engagement
85
Committee Report
87 ESG Committee Report
88 Remuneration Committee Report
92 Directors’ Report
94 Directors’ Responsibilities Statement
95
Alternative Investment Fund
Manager’s Report
Design and production: theteam.co.uk
Print: Westerham Print
STRATEGIC REPORT | HIGHLIGHTS FOR THE YEAR
We aim | To provide investors with a combination of attractive, secure
and growing income with potential for long‑term capital growth.
8.2%
DIVIDEND YIELD
(AS AT 30 JUNE 2023)
14yrs
PORTFOLIO WAULT
6p
DIVIDEND PER SHARE
5.8p
ADJUSTED EPS
93p
EPRA NTA
PER SHARE
35%
EPRA LTV
DIVIDEND PAID
PER SHARE
(pence)
NET RENTAL
INCOME
(£m)
ACQUISITIONS
TO DATE
(stores)
CUMULATIVE TOTAL
SHAREHOLDER
RETURN (%)
TOTAL NET
ASSETS
(£m)
60
50
40
30
20
10
0
18 19
20
21 22 23
50
40
30
20
10
0
19
20
21 22 23
1500
1200
900
600
300
0
18
19
20
21 22
6
5
4
3
2
1
0
18 19
20
21 22 23
SUPERMARKET TENANT
MIX BY VALUE
100
80
60
40
20
0
18 19
20
21 22 23
● Tesco
● Sainsbury’s
● Morrisons
● Waitrose
● Asda
● Aldi
● M&S
A N N U A L R E P O R T 2 0 2 3 1
STRATEGIC REPORT | CHAIR’S STATEMENT
“ The quality of our unique omnichannel
supermarket portfolio and the increasing
affordability of grocery rents, together
with our robust balance sheet means we
are well positioned to continue delivering
long-term value for our shareholders.”
Nick Hewson Chair
Dear Shareholder,
I am pleased to report a resilient operational performance
for the Company, in what has been an challenging year for
the broader economy and the real estate investment market.
Despite the economic volatility, the UK grocery market has
grown by 11% during the year and 30% since our IPO to
a £242 billion market today. This highlights the strength
and resilience of grocery spending through the peaks and
troughs of the economic cycle.
Throughout the year, we have focused on our investment
strategy of building and managing a unique high-quality
portfolio of omnichannel supermarkets, which gives us
exposure to the fastest growing segment of the expanding
UK grocery market. Growth in the grocery market is
enhancing the strength of our tenants and the affordability
of our rents, providing positive tailwinds for future rental
growth across the portfolio.
The robust performance of the supermarket operators is in
stark contrast to the valuation declines experienced by the
broader property investment market. The scale and pace
of interest rate hikes since September 2022 has triggered
a rapid decline in property values, with the MSCI UK All
Property Capital Values Index declining by over 19% for
the year to 30 June 2023. Supermarket property has been
less volatile, but not immune, with a 14% like-for-like
decline in our portfolio value resulting in a net initial
yield of 5.6% as at 30 June 2023 (30 June 2022: 4.6%,
31 December 2022: 5.5%).
The property market experienced an initial rapid repricing
to December 2022. We have since observed a stabilisation
of pricing in recent transactions and our 30 June 2023
valuations are essentially flat to our last reported valuation
as at 31 December 2022. It is also noteworthy that we have
seen significant investment volumes in UK supermarket
property which have exceeded £1.7 billion1. This total
includes £483 million of leasehold store buybacks by
operators; a unique feature of the grocery real estate market.
This elevated interest in grocery property highlights the
positive long-term outlook for the sector. We are cautiously
optimistic on the outlook for supermarket property
valuations, though we recognise the general correlation
of these values to Bank of England policy and interest
rate movements.
The Company owns and manages a unique and high-quality
portfolio of mission-critical omnichannel supermarkets.
Our sector specialism and information advantage allow us
to identify and deliver value through actively managing the
portfolio. During the year, our tenant Sainsbury’s purchased
our interest in the Sainsbury’s Reversion Portfolio (“SRP”)
Joint Venture (“JV”), buying back 21 stores at a 4.3% Net
Initial Yield (“NIY”), for which the Company received
proceeds of £430.9 million. The proceeds from these
disposals, received during the year and post balance sheet,
were recycled into higher-yielding acquisitions2 that met
our strict investment criteria, and utilised to pay down debt.
As a result, drawn debt has reduced from £672.2 million
in June 2023, to £584.8 million today. During the year we
acquired nine stores and a further two shortly after year end
for a combined total consideration of £399.0 million at an
average NIY of 5.5%.
2 S U P E R M A R K E T I N C O M E R E I T P L C
1
2
Knight Frank, Savills, MSCI and Atrato Capital research.
Year ending 30 June 2023
Average weighted NIY for the stores at acquisition, including post balance
sheet acquisitions of £36.4m (excluding acquisition costs)
Adviser’s signatory status of the Net Zero Asset Managers
Initiative (“NZAM”) and the United Nations Principles
for Responsible Investment (“UNPRI”). At the asset level
we are working with our tenants on initiatives such as
the installation of solar photovoltaic (“PV”) panels and
electric vehicle charging to further enhance the Company’s
sustainability performance.
Outlook
While economic conditions look set to remain challenging
in the near term, our unique high-quality portfolio of
omnichannel supermarkets, let on long-term, predominantly
inflation-linked leases, with strong tenant covenants, in the
non-discretionary spend sector of grocery, continues to offer
a compelling investment case.
The stabilisation of valuations in the short term and strong
sector dynamics in the medium to long-term mean that the
Board is confident of the growth prospects for the Company.
However, we remain cautious given the uncertain economic
backdrop and accordingly, the Company is targeting
a conservative dividend increase to 6.06 pence per share for
the next financial year.
Nick Hewson
Chair
19 September 2023
We continue to focus on maintaining balance sheet strength
and at year end our European Public Real Estate (“EPRA”)
Loan to Value (“LTV”) was 35%, which has further reduced
post year end, following the further receipt of monies
from the sale of the SRP interest. Our debt is provided by
a well-diversified group of relationship banks. Post the year
end, we have expanded our banking group and extended
the term of our debt facilities to in excess of four years3.
We also took the prudent decision to fix the cost of 100% of
our drawn debt. All our borrowings are either fixed rate or
hedged to a fixed rate via interest rate derivatives with an
average cost of debt of 3.1%.
During the year, we strengthened our governance
credentials with the appointment of Sapna Shah to the
Board. Sapna brings extensive corporate finance and
governance experience having advised listed REITs
and investment companies as a senior investment
banker. Sapna has agreed to chair the new Management
Engagement Committee which is tasked with the job
of ensuring that we receive best value from our key
service providers.
Sustainability continues to be a key focus of both the Board
and the Investment Adviser. Having established an ESG
committee, chaired by Frances Davies, we have this year
voluntarily published a Task Force on Climate-related
Financial Disclosures (“TCFD”) compliant Annual Report
and Accounts, significantly enhancing the Company’s
sustainability reporting and environmental commitments.
We are pleased to present this report in full in this year’s
Annual Report and Accounts and the accompanying
Sustainability Report. In addition, the Company has also
made a commitment to submit a greenhouse gas emissions
reduction target to the Science Based Target Initiative
(“SBTi”) by Q4 2023. The Company supports the Investment
3
Including uncommitted extension options
A N N U A L R E P O R T 2 0 2 3 3
STRATEGIC REPORT | FINANCIAL HIGHLIGHTS
GROCERY SECTOR STRENGTH UNDERPINS DEMAND FOR MISSION CRITICAL SUPERMARKETS
Supermarket Income REIT plc (LSE: SUPR), the UK supermarket real estate investment trust providing secure,
inflation-linked, long income from grocery property in the UK, reports its audited consolidated results for the
Group for the year ended 30 June 2023 (the “Year”).
FINANCIAL HIGHLIGHTS
Annualised passing rent4
Operating profit5
Adjusted earnings4,6,7
Changes in fair value of investment properties
Dividend per share declared
Adjusted EPS4,6
Dividend cover4,8
IFRS net assets
EPRA NTA4
EPRA NTA per share4
EPRA LTV4
Direct Portfolio net initial yield4
12 months to
30 June 23
12 months to
30 June 22
Change in Year
£100.6m
£79.8m
£72.4m
(£256.1m)
£77.6m
£58.2m
£57.4m
£21.8m
6.00 pence
5.94 pence
5.8 pence
5.9 pence
0.97x8
1.08x
+30%
+37%
+26%
n/a
+1%
-2%
n/a
30 June 23
30 June 22
Change in Year
£1,218m
£1,156m
£1,432m
£1,427m
93 pence
115 pence
35.2%
5.6%
22.2%
4.6%
-15%
-19%
-19%
n/a
n/a
4
The alternative performance measures used by the Group have been defined and reconciled to the IFRS financial statements within the unaudited
supplementary information
5 Operating profit before changes in fair value of properties and share of income and profit on disposal from joint venture
6
Adjusted Earnings and Adjusted EPS are calculated as EPRA Earnings and EPRA EPS adjusted for finance income from derivatives held at fair value through
profit and loss, loan arrangement fee for Joint Venture acquisition and non-recurring debt restructuring costs. For further information please see the Key
Performance Indicators and EPRA Performance Indicators sections on pages 29 and 30
New financial highlight for the year, expected to be included in future financials as they provide a more comprehensive understanding of core
business performance
7
8 Calculated as Adjusted EPRA earnings divided by dividends paid during the year
4 S U P E R M A R K E T I N C O M E R E I T P L C
Resilient financial performance with strong income growth
• 30% increase in annualised passing rent to £100.6 million
Strong balance sheet with 100% of drawn debt hedged
• Fitch Ratings Limited (“Fitch”) investment grade credit
– 100% occupancy
– 100% of rent collected
– 4.1% average rental uplift
• 26% increase in adjusted earnings to £72.4 million
• FY 2023 dividend of 6 pence per share, target dividend
of 6.06 pence per share for FY 2024
Grocery sector strength and resilience driving elevated
property investment volumes
• UK grocery market grew 11% during the period9
• 30% increase in UK grocery market since IPO to
£242 billion10
• Supermarket store revenues growing much faster than
rents, improving affordability and rental values
• UK supermarket property investment volumes exceeded
£1.7 billion during the year11
Active portfolio management – accretive asset sales and
capital recycling
• Sale of interest in 21 supermarket properties held in the
SRP at a NIY of 4.3%12 and a total consideration of £430.9
million13, delivering a:
– 30% IRR
– 1.9x money-on-money multiple
• Purchase of eleven supermarket properties at a NIY of
5.5%14 for a total consideration of £399.0 million
High‑quality portfolio of mission‑critical supermarkets15
• Future-proofed portfolio of omnichannel stores
• Capturing elevated online grocery demand, which is up
+80% since 201916
• 14 years, weighted average unexpired lease
term (“WAULT”)
• Strong performing tenant covenants; 77% of income from
Sainsbury’s and Tesco
• 78% of rental income is inflation-linked, subject to caps of
4% per annum on average
Lower supermarket property valuations reflect higher
interest rates with encouraging indications that valuations
are stabilising
• Direct Portfolio independently valued at £1.69 billion
(30 June 2022: £1.56 billion), reflecting a NIY of 5.6% as
at 30 June 2023 (30 June 2022: 4.6%)
• Direct Portfolio value stable versus last reported valuation
(31 December 2022: £1.63 billion reflecting a NIY of 5.5%)
9 IGD growth from 2022 to 2023 (forecast), June 2023
10 IGD channel data 2018 to 2022 actuals, 2023 forecast
11
Knight Frank, Savills, MSCI and Atrato Capital research.
Year ending 30 June 2023
rating of BBB+ reaffirmed in February 2023
• Total debt further reduced post balance sheet with current
LTV of 34%
• Refinancing of facilities during the year and post balance
sheet extending weighted average debt maturity by
12 months to four years17 (30 June 2022: four years)
• Unsecured debt increased to 61% of debt commitments
(30 June 2022: Nil)
• 100% of drawn debt hedged and interest rate hedging
extended by 12 months:
– Weighted average finance cost fixed at 3.1%
(30 June 2022: 2.6%)
– Existing in-the-money hedges restructured to extend
hedge term at zero net upfront cost
Continued progress on sustainability and
governance programme
• Supported the responsible investment commitments
made by our Investment Adviser as a signatory of the
Net Zero Asset Managers Initiative and United Nations
Principles for Responsible Investment
• Published our first voluntary, fully TCFD compliant
annual report, consistent with all 11 of the TCFD
recommendations and recommended disclosures
• Committed to submit a target to the Science Based Target
Initiative by Q4 2023
Nick Hewson,
Chair of Supermarket Income REIT plc, commented:
“The UK grocery sector has again demonstrated resilience
despite the challenging macroeconomic environment we
have experienced during the year. We remain focused on our
investment strategy of acquiring and managing a high-quality
portfolio of omnichannel supermarkets. These give us exposure
to the fastest-growing segment of the UK grocery market which
itself is experiencing strong growth.
During the year, Sainsbury’s purchased our interest in the
Sainsbury’s Reversion Portfolio joint venture for £430.9 million
which we redeployed into higher-yielding supermarkets that
met our strict investment criteria alongside reducing our debt,
materially strengthening our balance sheet.
This purchase by one of our own tenants of 21 of its own stores
highlights the attractiveness of UK supermarket property, which
is further illustrated by the fact that the year has seen in excess
of £1.7 billion of investment volume in our property sub-sector,
driven by the positive long-term outlook for UK grocery. This
activity has contributed to stabilising property valuations in the
UK supermarket property sub-sector.
As we look forward, the quality of our unique omnichannel
supermarket portfolio and the increasing affordability of grocery
rents, together with our robust balance sheet means we are
well positioned to continue delivering long-term value for our
shareholders.”
12 Blended NIY across the 21 properties
13
SRP investment: the Sainsbury’s Reversion Portfolio held in a joint
venture arrangement. See Note 14 in the financial statements for
further information
Average weighted NIY for the stores at acquisition, including post balance
sheet acquisitions of £36.4m (excluding acquisition costs)
15 Portfolio statistics include Post balance sheet acquisitions
16 Kantar grocery channel report June 2023
14
17
Inclusive of uncommitted extension options
A N N U A L R E P O R T 2 0 2 3 5
STRATEGIC REPORT | SUPR AT A GL ANCE
OMNICHANNEL – THE FUTURE MODEL OF UK GROCERY | Over 80% of online grocery
in the UK is fulfilled from omnichannel supermarkets.
OMNICHANNEL AT WORK
THE OMNICHANNEL MODEL:
THE OMNICHANNEL VIRTUOUS CIRCLE:
The seamless integration between online and
offline fulfilment provides our tenants with
economies of scale and operational efficiencies.
The combination of in‑store and online
fulfilment help to deliver increased sales and
customer satisfaction.
TRADITIONAL
IN-STORE
IMPROVED
CUSTOMER
EXPERIENCE
MATERIAL
JUMP IN STORE
TURNOVER
INCREASED
IN-STORE
SALES
OMNICHANNEL
SUPERMARKET
HOME DELIVERY
FROM STORE
CONSUMERS
CLICK & COLLECT
AT STORE
THE OMNICHANNEL
VIRTUOUS CIRCLE
FRESHER
PRODUCT
BIGGER
BETTER
RANGE
INCREASED
PRODUCT
TURNOVER
6 S U P E R M A R K E T I N C O M E R E I T P L C
OUR PORTFOLIO | We have built a unique portfolio of supermarkets, diversified both
by geography and tenant. Our properties are ‘mission critical’ to our grocery tenants,
operating as key online fulfilment hubs as well as generating in‑store physical sales.
A NATIONWIDE PORTFOLIO
Indexation
Income mix by
rent review type*
RPI
CPI
Fixed
OMV
Total
71.2%
6.7%
2.1%
20.0%
100.0%
Supermarket
exposure by value
Tesco 49%
Sainsbury’s 30%
Morrisons 6%
Waitrose 5%
Asda 2%
Aldi 1%
M&S 1%
Iceland <1%
Portfolio weighted by value
based on 30 June 2023
valuation plus acquisitions
at cost.
78% of the Direct Portfolio benefits from upward
only, indexed‑linked rent reviews.
55
SUPERMARKETS*
3.8%
RENT TO
TURNOVER
93%
OMNICHANNEL
STORES
100%
OCCUPANCY
SINCE IPO
100%
RENT COLLECTION
SINCE IPO
*including post balance sheet acquisitions.
A N N U A L R E P O R T 2 0 2 3 7
STRATEGIC REPORT | SUPR AT A GLANCE CONTINUED
HEADLINE STRATEGY | We acquire supermarket property with long, inflation‑linked
leases and aim to provide sustainable, long‑term income and value growth for shareholders.
INVESTING IN THE
FUTURE OF UK GROCERY
WE INVEST PRIMARILY IN OMNICHANNEL SUPERMARKETS:
TRADITIONAL
IN-STORE
CLICK & COLLECT
AT STORE
HOME DELIVERY
FROM STORE
WITH HIGHLY ATTRACTIVE LEASE TERMS:
LONG LEASE
LENGTHS
INFLATION-LINKED
RENT REVIEWS
TENANTS ARE UK’S
LEADING GROCERS
LONG-TERM GROWTH DRIVERS IN THE STRUCTURALLY SUPPORTED UK GROCERY SECTOR:
NON-DISCRETIONARY
GROCERY
EXPENDITURE
£56bn
GROWTH OVER
LAST 5 YEARS
19.2%
PEAK GROCERY
PRICE INFLATION*
*Office for National Statistics,
year to March 2023
8 S U P E R M A R K E T I N C O M E R E I T P L C
OUR STRATEGY AT WORK | We have handpicked a unique portfolio of supermarkets
with attractive trading fundamentals. We are the largest landlord of supermarkets in
the UK. Our investment strategy of acquiring top trading omnichannel supermarkets
provides investors exposure to leading future proofed stores in the growing UK
grocery market.
CAPITAL LIGHT
ONLINE FULFILMENT
OMNICHANNEL
HUB
GROWING OUR
PORTFOLIO
SECTOR
SPECIALISM
Tesco, Bishop’s Cleeve
Tesco, Llanelli
Tesco, Worcester
Standalone supermarket
serving the local residential
population acquired as
part of an off-market
transaction.
Read more on page 16
A dominant store forming
a key part of Tesco’s
omnichannel fulfilment
capability in South Wales,
operating 10 home
delivery vans.
Read more on page 19
Omnichannel store
operating 9 delivery vans,
acquired as part of an
off-market transaction.
Read more on page 20
Sainsbury’s Reversion
Portfolio
Sector specialism:
underwriting Sainsbury’s
ongoing occupation and
creating value for investors.
Read more on page 23
A N N U A L R E P O R T 2 0 2 3 9
STRATEGIC REPORT | SUPR AT A GLANCE CONTINUED
OUR SUSTAINABILITY JOURNEY | Environment, social and governance (ESG) is a
key priority for the Company. The Board is committed to delivering the Company’s
ambitious sustainability goals.
OUR SUSTAINABILITY
JOURNEY
OUR SUSTAINABILITY ACTIVITY:
PUBLISHED A
SUSTAINABILITY REPORT
COMMITTED TO SUBMIT
A TARGET TO THE
SCIENCE BASED TARGET
INITIATIVE (SBTI) BY Q4
2023
PUBLISHED FIRST
FULLY TCFD COMPLIANT
ANNUAL REPORT
COMMUNITY
ENGAGEMENT THROUGH
CHARITABLE GIVING
AND COMMUNITY
PARTNERSHIPS
AWARD WINNING GOVERNANCE:
SUPPORTED THE
RESPONSIBLE
INVESTMENT
COMMITMENTS MADE
BY OUR INVESTMENT
ADVISER AS A SIGNATORY
OF THE NET ZERO ASSET
MANAGERS INITIATIVE
(NZAM) AND UNITED
NATIONS PRINCIPLES
FOR RESPONSIBLE
INVESTMENT (UNPRI)
ENVIRONMENTAL
ASSET MANAGEMENT
INITIATIVES
2019
2020
2021
2022
2023
1 0 S U P E R M A R K E T I N C O M E R E I T P L C
IMPROVING SUSTAINABILITY WITH OUR TENANTS:
Supermarket EPC breakdown
EPC rating
% of supermarket Portfolio (June 2023)
A
B
C
D
Total
4.2%
46.2%
33.7%
15.8%
100.0%
*Including post balance sheet events (Excluding Scottish EPCs)
AMBITIOUS NET ZERO TARGETS:
Grocer
Tesco
Sainsbury’s
Waitrose & Partners
Morrisons
ASDA
Net Zero target
Net Zero in the UK by 2035
Net Zero by 2035
Net Zero by 2035
Net Zero by 2035
Net Zero by 2040
REPORTING AND REDUCING CARBON EMISSIONS:
ANNUAL
CALCULATION
OF BASELINE
EMISSIONS USING
KEY TENANT DATA
EV CHARGING
INITIATIVE
SOLAR PV
ENERGY
GENERATION
INITIATIVE
FULLY TCFD
COMPLIANT
ANNUAL
REPORT
A N N U A L R E P O R T 2 0 2 3 1 1
STRATEGIC REPORT | Q&A WITH JUSTIN KING CBE
A conversation with Justin King about the future of the UK grocery sector
“ In the next phase of the cycle I think we will
start to see market rents inflating above
passing rents on most existing stores given
the high levels of inflation driving store
turnovers above rental cap levels. In addition,
rising construction costs on developing new
stores are making supermarket store leases
look increasingly good value.”
Justin King CBE Senior Adviser
Justin King is a senior adviser to Atrato Partners. Justin
is recognised as one of the UK’s most successful grocery
sector leaders, having served as CEO of Sainsbury’s for
over a decade and previously held senior roles at Marks &
Spencer, Asda, PepsiCo and Mars.
Justin is currently a Non‑Executive Director of Marks &
Spencer and Chair of Allwyn Entertainment, leading its
transition to operating the National Lottery licence. Justin
also advises a series of high‑profile consumer‑focused
companies including Itsu Grocery, where he chairs the
grocery business, and is the Chair of Dexters Real Estate.
Justin is an advocate for responsible business and has
been instrumental in launching several charitable concerns
including the charity Made by Sport, which champions
the power of sport to change young lives. Justin brings an
unrivalled wealth of grocery sector experience and a deep
understanding of grocery property strategy.
Q: How have the supermarket operators been
reacting to unprecedented increases in the cost of
living faced by many consumers, especially given
the impact from recent grocery price inflation?
A: Clearly the high rate of food price inflation is having a
major impact on consumers’ budgets, although it has started
to decline from its peak of 19% with many analysts expecting
it to fall to around 8-10% by the end of 2023. While the rate
of increase is likely to slow, I expect actual food prices to
continue to rise at least until mid-2024.
Several factors are contributing to this high food price
inflation, mainly significant rises in the cost of food
commodities, increased energy costs and the depreciation
of Sterling, all of which have raised the domestic price of
inputs into the food supply chain and for the most part are
outside the control of operators. Perhaps the most persistent
pressure will be labour costs, which makes up in excess of
20% of the cost of the average basket of groceries if you
take a full supply chain view.
1 2 S U P E R M A R K E T I N C O M E R E I T P L C
We are seeing clear evidence that the operators have not
‘passed through’ to consumers all the cost increases that
they have incurred as evidenced from falling operating
margins from 3.2% to around 1.8% on average18. It is
worth noting that a grocer’s power to implement price
rises is less than many people think, as the sector’s intense
competitiveness drives low margins and high operational
efficiencies.
However, I believe that the most impactful contribution
operators are making is the change to their product lines
and promotional strategies on the shelves to help their
customers switch from expensive calories to less expensive
calories. Think of it as giving the customer the ability to
achieve a cut in their pence per calorie consumed or ‘dial
out’ inflation. In previous recessions we have seen the
effectiveness of supporting the customer through value
alternatives. That’s why the traditional supermarkets carry
an extensive range of products to ensure their mix can cater
for the changing needs of the customers’ shopping basket.
Q: You mention the reduction in profit margins
for operators. Does that give you any concerns
about the sector and by extension supermarket
property values?
A: If you take the longer-term view, historical net profit
margins of the incumbent operators range between 3% and
5% and that will typically wax and wane depending on how
much pressure there is from competition and costs. Over
time, changes in productivity, operational efficiencies and
pricing eventually restores margins to a more normal long-
run level of around 4%.
18
Competition and Markets Authority, “Competition and Markets Authority
updates on action to contain cost of living pressures in groceries sector”,
20 July 2023
The supermarkets have clearly taken a view that squeezing
net profit margins today is the right thing to do to help
their customers in this current environment. In time that
will of course correct, though not necessarily result in an
increased cost to the customer. Part of that correction will
naturally come from running the business as efficiently
as possible and there will also be some challenging cost
of goods conversations with suppliers who have perhaps
over-inflated. So, in time, I believe we will see profit margins
coming back to a more normal level.
I don’t believe this current cycle of lower net margins will
impact supermarket property values. Supermarket rents
represent a very small proportion of total costs – this is in
significant contrast to other sectors. Short-term changes in
profitability will not affect an operator’s ability to pay rent,
especially on their best sites, demonstrating the resilience
of these large scale, well positioned, supermarkets. In fact,
with the top line inflating and rent increases lagging, rent as
a percentage of sales (which is the key metric for operators)
is actually reducing.
Of course, supermarket property has not been immune
to the outward yield shift experienced across all property
investment markets. However, these declines in values
are reflecting the outward shift in property yields applied
by valuers because of higher interest rates and the overall
macroeconomic environment.
Q: Why have transaction volumes in supermarket
real estate remained high relative to other real
estate sectors, especially against the backdrop of
higher interest rates?
A: It is worth noting that when you examine performance
trends over the last 15 years, the supermarket property
investment market has been less volatile than the broader
UK property market. In fact, the sector has been a stand-
out positive performer in contrast to others, illustrating the
long-term strength and stability of this somewhat unique
asset class.
Investors looking for property assets that offer consistent
income are increasingly targeting the supermarket property
sector. Research from Atrato on property investment
volumes clearly shows that this trend continues with
transaction liquidity in supermarket property investments
remaining high relative to the declines seen in other
property markets.
In the next phase of the cycle, I think we will start to
see market rents inflating above passing rents on most
existing stores given the high levels of inflation driving
store turnovers above rental cap levels. In addition, rising
construction costs on developing new stores are making
supermarket store leases look increasingly good value.
This is one of the drivers of the store buyback activity that
we are seeing from Tesco and Sainsbury’s.
Given the current high yield on offer as a function of higher
rates, it is not surprising to see increased investment interest
in the asset class. Having said that, not all supermarket
property is equal and specialists like the Atrato team are
critical to ensure the right asset selection for the long-term.
Q: Digitalisation of business models and the
opportunities from artificial intelligence are
generating significant headlines. Do you believe
supermarket operators have embraced this and how
do you see its application to the UK grocery market?
A: The digitalisation of the economy has generated
turbulent change across many industries. We saw this first in
the media sector, followed by retail and then moving rapidly
into all other sectors. Digitalisation is an ever-changing
force that many businesses understandably struggle to
keep up with.
However, the idea that incumbent grocers have not
embraced digitalisation is a false one. In fact, the reality is
very different. The incumbent grocers transitioned from
an analogue to digital business model around the early
2000’s following the introduction of Clubcard by Tesco and
Nectar by Sainsbury’s. The data from these loyalty card
systems meant that we could see what people were buying
and, for the first time, who was buying it. This was coupled
with an ability to process that data in close to real time. It is
staggering to think that the Clubcard today is held by over
20 million households in the UK.
These loyalty programmes provide powerful insights for
operators looking to tailor the range, mix and price of
products to meet the needs of the consumer, as well as
an appreciation of how to serve customers better in the
future. Additionally, operators are able to understand the
differences between when customers shop, what they buy
and through which channel. The insights gained from these
systems were key factors behind UK grocers becoming early
adopters of omnichannel strategies. Operators recognised
the value of seamless integration between online and offline
fulfilment, empowering them to become truly blind to
channel. Of course, today, this is fashionably characterised
as big data technology, however it’s been operating for over
20 years in UK grocery.
I’m a firm believer that the potential of this information will
grow, especially when overlaid with the processing power
of artificial intelligence. However, grocery will always
remain a people-facing sector and in the new omnichannel
environment, digital technology will continue to provide a
valuable complementary tool in serving the customer better
through a network of physical stores.
A N N U A L R E P O R T 2 0 2 3 1 3
STRATEGIC REPORT | Q&A WITH JUSTIN KING CBE CONTINUED
Q: Valuations within pure play online and ultra-
convenience platforms such as Ocado and Getir
have declined over the last 24 months. What do you
think is behind that and do you think the market is
less convinced on the potential of online grocery
post the pandemic highs?
A: In the last five years we have seen a dramatic change
in the online grocery landscape, including a step change
in demand. Online accounted for 8% market share in 2018,
a figure which subsequently peaked at 15% in 2021 at the
height of the pandemic, and which is around 12% today.
Online grocery is set to remain the fastest growth channel
proportionately, but still behind the volumes seen in the
physical supermarket and convenience channels.
I think pure play online operators had been considered by
some as a route to overcome the barriers to entry into the
wider £242 billion UK grocery market and an opportunity to
capture much of the online growth in the space. However,
technology in the form of very large, centralised warehouses
with automated picking operations have failed to provide
any substantive cost or flexibility advantage. In fact, a better
understanding of the true economics points to the global
convergence of an omnichannel model with stores acting as
last mile fulfilment centres. Automated picking technology
is increasingly being deployed inside the physical store via
micro-fulfilment solutions as a more productive alternative
to manual store pick.
What the pandemic period has shown is the importance,
flexibility and resilience of the omnichannel store pick
model. This has allowed the incumbents to take a leading
market share in online grocery, with the large multi-channel
grocers now controlling over 80%19 of the online market
in the UK. This is in contrast to the market belief that new
technology players would capture that online market. I
have always believed that we should “think customer, not
channel”. In a post-pandemic era, the customer requires
seamless integration between online and offline channels
offered by omnichannel supermarkets.
In addition, rapid grocery delivery platforms such as
Deliveroo and Just-Eat have increasingly been partnering
with supermarkets including Sainsbury’s, Waitrose and
Aldi as a more effective way of addressing the ultra-
convenience grocery market than the dark store model
of Getir and others.
Of course, centralised, online-only distribution units or
warehouses will still have a role to play in providing a
solution to store capacity constraints in metropolitan areas
or as a solution to operators with limited store networks.
However, I think this will be a smaller role than the market
would have previously perceived.
Q: Environmental sustainability is in the spotlight,
given the impact of climate change seen across
multiple countries this year. What role do you think
supermarkets as retailers have to play in this area?
A: Supermarkets have generally been ahead of other
sectors in understanding the full supply chain and
management of farm-to-fork strategies. A key role of the
supermarket is to represent the consumer in the supply
chain and given the heightened consumer concern around
environmental sustainability when shopping for groceries,
supermarket operators are becoming a driving force for a
more sustainable supply chain.
According to a recent report from Cushman & Wakefield,
26% of global green-house gas emissions are attributable
to the food supply chain with around 83% derived from
production20. The supermarket operators are therefore
naturally placed to centralise and coordinate this drive
towards the decarbonisation of the wider food supply chain.
When we launched the 20 by 20 Sustainability Plan at
Sainsbury’s in 2011, we set ambitious goals for a more
sustainable footprint, which today has developed even
further to reduce scope 1 & 2 emissions to Net Zero by
2035 and reduce Scope 3 emissions to Net Zero by 2050.
In fact, Sainsbury’s has now reduced its absolute greenhouse
gas (“GHG”) emissions within its operations to 461,692
tCO2e, a reduction of 38% year-on-year and 51% per cent
from its 2019 baseline, keeping it on course to achieve its
2035 Net Zero target21. It’s also encouraging to see the
grocery industry taking a lead in implementing substantive
governance frameworks around reporting progress against
these vitally important sustainability objectives too.
Many problems however can also be opportunities in
disguise. A route to being transparent on environmental
sustainability provides a platform for the grocers to build
another conversation with the customer, in marketing terms,
around assessing the environmental impact of their basket
of groceries in a way which can differentiate brand and add
value to consumers.
All together, these are important building blocks that are
compounding at an increasing rate. Over time, I believe
we will look back and see grocers as an industry leader in
improving how to measure, report and reduce the carbon
footprint of the food that we consume.
19 Kantar grocery update, June 2023
20 Cushman & Wakefield, Future of Food Chains, 2023
21 Sainsbury’s Plan for Better Report, 2022/23 Sustainability Update
1 4 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT
“ Stores are vital to grocers’
operations. Whether sales
are achieved through
traditional in-store shopping
or online, the store network
and associated supply chain
infrastructure is critical to
generating revenue.”
Ben Green Principal of Atrato Capital
Robert Abraham Managing Director
Fund Management
Key achievements
• Sale of 21 properties22 for £430.9 million reflecting
Key figures
• 5.6% portfolio NIY
a 4.3%23 NIY
• Purchasing £399.0 million new properties at a 5.5% NIY
• Reduced EPRA LTV to 35.2%
• Portfolio grown to 55 stores
• 100% occupancy and rent collection since IPO
• £1.7 billion of total investment market volumes
22 SRP investment: the Sainsbury’s Reversion Portfolio held in a joint venture arrangement. See Note 14 for further information
23 Blended NIY across the 21 properties
Atrato is the Company’s Investment Adviser. Ben Green
(Principal) and Robert Abraham (Managing Director, Fund
Management) discuss SUPR’s performance and the long‑
term outlook for the business.
Fund Report
Q: In a year of significant macroeconomic
headwinds, how has SUPR fared?
A: Commercial property is a cyclical asset class that
typically underperforms during the interest rate hike phase
of an economic cycle. What has been different during the
current cycle was the pace and magnitude of interest rate
rises which triggered a rapid repricing of the cost of capital
and therefore the yields demanded by commercial property
investors. This property yield repricing was reflected
by valuers quickly and arguably more efficiently than in
previous cycles.
During an economic downturn, the key concern for most
property companies is the ability of their tenants to pay their
rent. This is not a concern for SUPR given the strength of the
underlying tenants and is evidenced by the Company’s 100%
rent collection. The supermarket assets that SUPR owns are
mission critical to its tenants and that essentiality ensures
100% occupancy.
On a relative basis, markets generally expect supermarket
property to be less volatile than broader property markets
given the defensive nature of the underlying grocery sector.
This has again played out during this cycle with SUPR’s
high-quality asset valuation down 13.7% during the year
compared to broader UK commercial property valuations
which are down 19%24.
The Company’s share price performance vs Tesco & Sainsbury’s (indexed)
)
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July 22
October 22
January 23
April 23
July 23
SUPR LN Equity
Tesco & Sainsbury’s
24 MSCI UK Quarterly Property Index (June 2022 – June 2023)
A N N U A L R E P O R T 2 0 2 3 1 5
STRATEGIC REPORT | INVESTMENT ACTIVIT Y
CAPITAL LIGHT
ONLINE FULFILMENT
Tesco, Bishop’s Cleeve
The standalone Tesco Supermarket was acquired in
August 2022 in an off-market transaction. The 44k sq.ft.
store was constructed in 1998 and is situated on a 4-acre
site within the town centre. At acquisition, the store had
an unexpired lease term of 12 years, subject to annual
RPI linked reviews (0% floor and 5% cap).
Post-acquisition, Tesco introduced a two bay Click &
Collect operation within the car park, which
demonstrates the ease of omnichannel expansion within
strong, pre-existing grocery locations.
Tesco Click & Collect investment post-acquisition
1 6 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
SUPR has understandably been impacted by the challenging
equity markets for real estate companies, which whilst
disappointing, does now present an interesting value
proposition for investors. UK grocery sales have experienced
strong growth over the past 12 months, and our key tenants
Tesco and Sainsbury’s have reported strong free cashflow
growth in the period, underlining their positive performance
in the current economic climate. The disconnect between
the recent fortunes of grocery operators compared with
real estate companies is highlighted by the share price
performance of Tesco and Sainsbury’s during the period
compared with that of Real Estate Investment Trusts and
owners of grocery property such as SUPR.
Our key tenants, Tesco and Sainsbury’s, have reported sales
growth of around 10% in their latest figures25. This growth
has been generated on a like-for-like basis given there
has been no net new floor space for large multi-channel
operators. This sales growth is running ahead of contractual
rental increases, meaning that rents are becoming even
more affordable for operators.
Q: What has been the key commercial focus of the
Investment Adviser during the year?
A: Our focus has been on taking a more active approach
to asset management within the portfolio; rotating capital,
strengthening the balance sheet and delivering progress on
our sustainability goals.
A key milestone was the sale of the joint venture interest in
the SRP, our tenant Sainsbury’s purchased 21 supermarkets
held in the joint venture, at a net initial yield of 4.3%, with the
Company receiving proceeds of £430.9 million. This followed
on from the NTA accretive acquisition of the interest of
our original joint venture partner British Airways Pension
Trustees Limited (“BAPTL”) in January for £188.8 million
(excluding acquisition costs), which was fully funded by a
debt facility provided by J.P. Morgan.
We utilised these proceeds to pay down debt reducing EPRA
LTV from 40.2% to 35.2%. The Company’s LTV was further
reduced post balance sheet and currently stands at 34.0%.
The Company has also been opportunistically deploying into
new acquisitions at attractive net initial yields. In total we
have deployed £399 million during the year including two
properties since the year end at an accretive net initial yield
of 5.5%26. This included four omnichannel stores from the
Sainsbury’s Reversion Portfolio. This recycling of capital into
higher-yielding assets that met our strict investment criteria
has helped offset some of the increased financing costs
incurred as a result of higher interest rates.
Q: How has SUPR’s financing strategy changed in
response to these macroeconomic challenges?
A: We and the Board considered it prudent to repay debt
to reduce the Company’s LTV post balance sheet to 34.0%,
utilising the second tranche of the SRP proceeds and taking
a number of actions to manage debt maturities and hedging
post year end. We also extended the term of our debt by
12 months, maintaining a weighted average debt maturity
of over 4 years28, whilst also broadening our banking
group. Further, we conducted a ‘blend and extend’ hedge
restructure, utilising the significant profit on the pre-existing
hedge arrangements to extend the term of the hedges
by 12 months27. As a result of this treasury management
exercise, SUPR’s cost of debt is now fixed at an average
rate of 3.1%.
A testament to the strength of the investment proposition
is SUPR’s continued access to liquidity, despite concerns
in other commercial real estate sectors. During the year
the Company refinanced its term loan with BLB. This was
achieved during the period following the collapse of Silicon
Valley Bank and Credit Suisse, calling into question the
availability for financing for commercial real estate. We also
added Sumitomo Mitsui Banking Corporation (“SMBC”)
as a new relationship bank, highlighting lender appetite
for supermarkets. Fitch also reaffirmed SUPR’s BBB+
investment grade credit rating in February 2023.
The debt maturity profile below, which includes
uncommitted extension options, highlights the spread of
maturities and diverse relationship lenders which support
the Company.
The Company’s debt maturity profile28
The Company’s debt maturity profile
)
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0
250
87
97
100
30
67
50
FY26
FY30
■ Deka ■ BLB ■ Wells ■ HSBC ■ Unsecured club facilities ■ SMBC
FY28
FY27
FY25
FY24
FY23
FY29
SUPR has covenant headroom across its debt facilities
along with over £100 million of undrawn debt capacity.
The Company is well positioned and importantly, retains
additional capital capacity to be acquisitive if compelling
opportunistic investment propositions arise.
25 Tesco & Sainsbury’s Q1 trading updates
26 Including post-balance sheet events
27 Including post-balance sheet events
28 Including uncommitted accordions and indications of appetite
from lenders
A N N U A L R E P O R T 2 0 2 3 1 7
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
Q: What has been the impact on SUPR’s portfolio/
valuation?
A: The total net initial yield moved out on the portfolio by
100bps from 4.6% to 5.6% during the year; a fall in valuation
of 14% on a like-for-like basis. This compares to the MSCI
UK All Property Capital Values Index which fell 19% in the
same period, reflecting the high quality of the Company’s
assets and defensive nature of supermarkets. The portfolio’s
inflation-linked rent reviews also provide an element of
natural hedge to the higher inflation and interest rates
environment, partially offsetting the portfolio yield shift.
The decline in property values occurred quickly during
autumn 2022 and the impact on SUPR’s EPRA NTA was
reflected in the Company’s interim results for the period
to 31 December 2022. During the second half of SUPR’s
financial year valuations stabilised and therefore the
reported June 2023 valuations are essentially flat compared
to those reported as at December 2022. This is supported
by good transactional evidence from a particularly liquid
investment market relative to the UK property market
as a whole. The elevated liquidity observed in the UK
supermarket property market is a result of investors being
attracted to the attractive risk/return profile of grocery
assets following the repricing that has taken place.
Recent transactional evidence would imply that peak cycle
yields in supermarket property may well be behind us, and
further, that yields on high-quality omnichannel stores are
actually starting to tighten. However, we remain acutely
aware that a long-term yield tightening trend can only
occur once the market is convinced that UK base rates
have reached the top of this cycle.
Investment Market
Q: What impact has the high inflation environment
had on the supermarket investment market?
A: Higher interest rates as a policy response to inflation
have driven a rapid repricing of commercial real estate
assets and supermarkets have not been immune. However,
this now means that supermarkets are in our view one of the
most attractive asset classes in commercial real estate.29
Total market volume during the year was £1.7 billion.
As shown below, Tesco and Sainsbury’s store buybacks
represent a substantial share of this volume, alongside
which we see purchasers active in two broad strategies.
Supermarket investment volumes FY 2019-202330
Supermarket investment volumes FY 2019-2023
)
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£2.5
£2.0
£1.5
£1.0
£0.5
£0.0
£2.1bn
£0.3bn
£0.6bn
£1.4bn
£0.2bn
£0.1bn
£1.7bn
£0.5bn
£0.2bn
£1.1bn
£1.0bn
£1.2bn
£1.6bn
£0.3bn
£0.3bn
£0.4bn
£0.6bn
£1.7bn
£0.2bn
£0.3bn
£0.4bn
£0.9bn
30 June 2019
30 June 2020
30 June 2021
30 June 2022
30 June 2023
■ Other ■ SUPR ■ Tesco buyback ■ Sainsbury’s buyback
Firstly, value oriented, levered purchasers are targeting
higher yielding opportunities at c. 7% NIY. These value
players are opportunistically targeting Asda and Morrisons
stores, buying at historically wide yields due to weaker
levered covenants and in some cases weak store trading.
Secondly there are buyers of high-quality supermarkets at
yields of c. 5%, which is more closely aligned with the type
Investment Property Databank (“IPD”) net initial yields 2006-2023 (YTD)29
8.4%
7.6%
6.3%
9%
8%
7%
6%
5%
4%
3%
2%
1%
)
%
(
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5.9%
4.9%
4.7%
3.9%
3.2%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
All UK property
Supermarkets
Logistics
1 8 S U P E R M A R K E T I N C O M E R E I T P L C
29 Property yields sourced from MSCI for the period March 2006 to June 2023
30
Knight Frank, Savills, MSCI, Atrato Capital research. Years ending 30 June
STRATEGIC REPORT | INVESTMENT ACTIVIT Y
OMNICHANNEL
HUB
Tesco, Llanelli
This Tesco supermarket was acquired by the Company in
September 2022 in an off-market transaction. The large
format 120k sq.ft. store was built in the late 1980s and was
extended in 2006. Its strategic location provides omnichannel
capacity for Tesco in South Wales, operating ten delivery vans
and a dedicated three bay Click & Collect facility in the car
park. There is only one alternative Tesco store operating
home delivery within a 25 minute drive time radius.
At acquisition, the store had an unexpired lease term of
12 years, subject to annual RPI linked reviews (0% floor
and 5% cap).
The store adds to the Group’s weighting to inflation-linked
leases within the portfolio and emphasises the Company’s
strategy of acquiring strong trading, omnichannel hubs in
geographically diverse locations.
Omnichannel hub with 10 delivery vans
A N N U A L R E P O R T 2 0 2 3 1 9
STRATEGIC REPORT | INVESTMENT ACTIVIT Y
GROWING OUR
PORTFOLIO
Tesco, Worcester
In April 2023, the Company acquired a strong performing
65k sq.ft. Tesco supermarket in Worcester in an off-market
transaction. Tesco has a long trading history at the store,
having operated at the site since the early 1990s which
was subsequently expanded in 2008. The store is an online
hub for Tesco, operating nine delivery vans and a Click &
Collect facility helping to supply the predominantly
residential local catchment. There is only one alternative
Tesco store operating home delivery within a 25 minute
drive time radius.
At acquisition, the store had an unexpired lease term of 12
years, subject to annual RPI linked rent reviews (0% floor
and 4% cap).
The store further increases rental indexation within the
portfolio and increases the Company’s exposure to the
UK’s strongest grocery tenants.
Long trading history
2 0 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
of assets in the SUPR portfolio. These assets are typically
let to the strong covenants of Sainsbury’s and Tesco on long
leases. Buyers are looking to the attractive returns that
can be achieved, with current valuations representing a
significant value opportunity in our view. This is particularly
the case as higher inflation arguably supports higher market
rental growth.
Significant institutional demand for grocery real estate
is particularly evidenced by the success of the recently
announced Asda sale and leaseback, which is reported
to have achieved a £650 million transaction price despite
challenging market conditions.
Q: Should we expect to see more sale and
leaseback (“SLB”) activity by the operators?
A: Not necessarily, as it depends on the operators’ funding
requirements and strategic objectives.
The more highly levered operators, Asda and Morrisons,
have demonstrated appetite for SLBs. This is likely to
continue as an attractive source of finance compared to
the prospective cost of leveraged finance in the current
environment, given peak leverage for Asda of c. 7x and for
Morrisons c. 9x31. Asda is expected to use the £650 million
proceeds of its SLB at a 6.4% NIY to fund part of the cost
of acquiring EG Group. The cost of the SLB compared
favourably to the debt leverage for the acquisition provided
by Apollo which was priced at c. 11%.
It is worth noting that these operators have historically
preferred to own their stores, with only c. 15% of their stores
being leasehold. That gives both significant capacity for SLB
activity while maintaining a proportion of freehold stores in
line with Tesco and Sainsbury’s.
On the other hand, we have seen Tesco and Sainsbury’s
utilising free cashflow generation for store buybacks,
alongside bond repurchases to de-lever their balance
sheets. They have balanced this with returning cash to
shareholders through share buybacks. Since SUPR’s IPO
in 2017, Tesco has increased the proportion of its store
ownership from 52% to 58%32. The most notable recent
example of operator store buybacks was the sale to
Sainsbury’s of SUPR’s interest in the Sainsbury’s Reversion
Portfolio, with the portfolio of 21 stores acquired by
Sainsbury’s valued at over £1 billion.
Operator buybacks and SLBs on long leases highlight
the mission critical nature of supermarket real estate.
Operators seek to own or secure decades of occupation
of their best performing stores, which are also the stores
targeted by SUPR.
31 Net Debt/EBITDA
32 Tesco Annual Reports 2017 and 2023, % of net selling space owned
Portfolio
Q: What makes supermarket property ‘mission
critical’ to the operators?
A: Stores are vital to grocers’ operations. Whether sales
are achieved through traditional in-store shopping or online,
the store network and associated supply chain infrastructure
is critical to generating revenue.
The flexibility of omnichannel stores, such as those in
SUPR’s portfolio, has been clearly demonstrated in the last
few years, as operators are able to reposition resources to
fulfil orders through consumers’ chosen channel. Pure play
operators, whether solely online or physical, are not able to
flex between channels in the same way.
While online market share is significantly higher than
pre-pandemic levels, as expected, it has come off the peak
of 15%, settling at c. 12%. Whilst we expect growth to revert
to the modest long-term trend from here, the ability of the
grocers to rapidly respond to changing consumer habits is
a key barrier to entry to the market.
Tesco’s latest results highlight how valuable large format
stores are for operators. These stores are Tesco’s largest
growth channel with sales up 9.9%. An element of this
growth is a result of cost-conscious consumers seeking
to achieve better value through the lower price point and
greater promotional activity. However, another attraction
is also the broader product range at large format stores,
providing greater opportunity to shop across product
ranges including premium and value options.
Q: Given the majority of SUPR’s assets are
occupied under full repairing and insuring (“FRI”)
leases, what action is being taken to demonstrate
the Company’s commitment to sustainability?
A: At the asset level, at sites which are not fully demised
to the tenants under FRI leases, we are looking to enhance
sustainability wherever possible. That starts with electric
vehicle charging points, which we are targeting for eight
sites so far, while at the time of writing construction has
begun at two sites.
We have also worked with Tesco and Atrato Onsite Energy
(LSE: ROOF) to support the installation of a rooftop solar
array at our Tesco store in Thetford. This solar array
energised in September 2023. We are looking to roll out
solar installations across as many stores as possible in
the portfolio.
Our grocery tenants have formal Net Zero commitments,
resulting in very good engagement with SUPR on
sustainability initiatives as these are beneficial for both
landlord and tenant alike. We are now receiving energy
consumption data from c. 85% of tenants and are looking to
increase this further. We are delighted to have produced our
first annual report which includes voluntary reporting in-line
with the recommendations of the TCFD.
A N N U A L R E P O R T 2 0 2 3 2 1
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
A benefit of the supermarket operator sustainability
commitments coupled with long-dated, FRI leases is that
tenants therefore invest in modernising and decarbonising
stores within our portfolio at their own expense.
In all new leases we do our utmost to negotiate ‘green’
lease provisions, which permit the Company to access
greater sustainability data from tenants, further aligning
the interests of SUPR and its tenants.
Outlook
Q: What will be the key areas of focus for the fund
in FY 2024?
A: Strategically we have positioned the Company to
have a very robust balance sheet thus protecting it from
any further macroeconomic surprises, whilst maintaining
sufficient capital capacity to enable the Company to invest
opportunistically into compelling investment opportunities
that may arise as a result of the challenging broader
market backdrop.
In the near term we will continue to actively manage the
portfolio, seeking to generate value for shareholders.
We have progressed plans to develop complementary retail
units at a number of our larger sites33. We are negotiating
terms to develop discount food stores of c. 20,000 sq.ft.
alongside our strong performing existing supermarkets.
Such development can drive additional footfall, making
a more appealing grocery destination to consumers and
increasing total grocery spend at the site.
Whilst we invest in stores with a long-term hold objective,
the Company regularly receives approaches on individual
assets from potential buyers. As demonstrated by the sale
of the SRP during the year, there may be an opportunity
to selectively dispose of assets. Proceeds can then
be reinvested opportunistically in the current market
environment, which can be value accretive whilst fully
utilising our sector specialism.
to turnover (“RTO”) is 3.8%34 compared to a sector
benchmark RTO of 4.0%. We have high security of income
with 100% rent collection during the year.
The Company’s assets are predominantly let to the leading
UK grocery tenants with Tesco and Sainsbury’s accounting
for 77% of the Company’s rent roll.
As part of the Company’s investment strategy to acquire
high-quality, strong trading supermarkets, it is sometimes
necessary to acquire complementary non-grocery units
that are co-located with the store. These units often form
a retail destination helping to drive further footfall into the
supermarket. Non-grocery assets represent 6.2% of the
Direct Portfolio by value.
The Company disposed of its joint venture interest in the SRP
for a combined total of £430.935 million. The consideration
was based on a blended net initial yield of 4.3% for the
underlying stores. There is further information on the SRP
investment on page 23.
During the year, the Company selectively strengthened its
Direct Portfolio with the addition of nine supermarkets for a
combined total of £362.6 million36 at 11 different locations,
including a further two after the year end.
July 2022: A Tesco superstore and M&S Foodhall in
Chineham, Basingstoke, including non-grocery units
for £71.9 million36. The Tesco superstore had a 12-year
unexpired lease term and is subject to 5-yearly, upwards
only open market rent reviews.
August 2022: A Sainsbury’s supermarket and M&S Foodhall
in Glasgow with non-grocery units for £34.5 million36.
The unexpired lease terms of the two stores were 10 and
15 years respectively and both are subject to 5-yearly
upwards only, open market rent reviews.
August 2022: A Tesco supermarket in Newton-le-Willows,
Merseyside, for £16.6 million36. The store had a 12-year
unexpired lease term and is subject to annual, upwards
only RPI-linked rent reviews.
THE COMPANY’S PORTFOLIO
The Company has built a handpicked portfolio of strong
trading, ‘mission critical’ omnichannel supermarkets backed
by the UK’s leading grocery operators.
August 2022: A Tesco in Bishops Cleeve, Cheltenham, for
£25.4 million36. The store had a 12-year unexpired lease
term and is subject to annual, upwards only RPI-linked
rent reviews.
A key pillar of the Company’s investment policy is to acquire
omnichannel supermarkets that form a key part of the UK
grocery network. These stores offer both an online provision
and in-store shopping, helping to capture a greater share of
the UK grocery market. Currently 93% of our supermarket
assets are omnichannel, by value.
The leases on our stores benefit from long, unexpired
lease terms with predominately upwards only, index linked
rent reviews, helping to provide long-term income with
contractual rental growth. The portfolio benefits from
affordable rents. Our Direct Portfolio average rent
33
Stores include Sainsbury’s – Newcastle, Tesco – Chineham, Tesco –
Bradley Stoke and Sainsbury’s – Bangor
2 2 S U P E R M A R K E T I N C O M E R E I T P L C
September 2022: A Tesco supermarket in Llanelli, South
Wales, for £66.8 million36. The store had a 12-year unexpired
lease term and is subject to annual, upwards only RPI-linked
rent reviews.
September 2022: A Tesco supermarket, Iceland Food
Warehouse and complementary non-grocery units in
Bradley Stoke, Bristol, for £84.0 million36. The Tesco store
had a 14-year unexpired lease term and is subject to annual,
upwards only RPI-linked rent reviews.
34
Turnover: Atrato research based on communication with operators and
store managers, combined with demographic and local competitor
analysis. Store turnover has been inflated based on the time since
last store visit
35 Gross consideration, excluding costs
36 Excluding acquisition costs
STRATEGIC REPORT | INVESTMENT ACTIVIT Y
SECTOR
SPECIALISM
Sainsbury’s Reversion Portfolio
Between May 2020 and January 2023, the Company built a c. 51%
stake in the Sainsbury’s Reversion Portfolio firstly through a joint
venture with British Airways Pension Trustees Limited (“BAPTL”)
and then through buying out BAPTL’s stake. The SRP consisted of
the freehold interest in 26 geographically diverse high-quality
Sainsbury’s supermarkets, with a London and southeast location
bias. In September 2021 and January 2022, Sainsbury’s exercised
options to acquire 21 stores in the SRP (the “Option Stores”) and
agreed 15-year leases on four stores (the “Non-Option Stores”),
illustrating the strategic importance of physical real estate to the
grocery operators and the strength of the underlying SRP.
Upon the sale of its interest in the SRP to Sainsbury’s in March
2023, the Company generated £430.9 million of gross proceeds,
resulting in an IRR of 30% and money multiple of 1.9x. The
transaction highlights the Company’s ability to identify strong
trading supermarket assets and the value creation from
underwriting a grocer’s ongoing occupation. For more information
please see note 14 of the Financial Statements.
Creating shareholder value
- 30% IRR
- 1.9x money-on-money multiple
A N N U A L R E P O R T 2 0 2 3 2 3
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
April 2023: A Tesco in Worcester, for £38.3 million36.
The store had a 12-year unexpired lease term and is
subject to annual, upwards only RPI-linked rent reviews.
upwards only, inflation-linked rent reviews is 78% with
54% reviewing annually (including post balance sheet
acquisitions).
May 2023: A Sainsbury’s in Kettering, for £12.0 million36.
The store has a 10-year unexpired lease term and is subject
to 5-yearly upwards only, open market rent reviews.
May 2023: A Sainsbury’s in Denton, for £13.2 million36.
The store has a 10-year unexpired lease term and is subject
to 5-yearly upwards only, open market rent reviews.
Post balance sheet, following the receipt of the second
tranche of SRP disposal proceeds the Company announced
that it had acquired a further two supermarkets from
Sainsbury’s that were previously held within the SRP for
a purchase price of £36.4 million37.
July 2023: A Sainsbury’s in Gloucester, for £17.4 million37.
The store has a 10-year unexpired lease term and is subject
to 5-yearly upwards only, open market rent reviews.
July 2023: A Sainsbury’s in Derby, for £19.0 million37.
The store has a 10-year unexpired lease term and is subject
to 5-yearly upwards only, open market rent reviews.
Acquisitions during the year were financed using proceeds
received from the unwind of the SRP, existing headroom
within unsecured debt facilities and the proceeds from the
equity raise in April 2022. For more information on financing
arrangements refer to note 20 of the financial statements.
A table summarising the properties in the Direct Portfolio
can be found in the Portfolio section on the Group’s website:
www.supermarketincomereit.com
Indexation
RPI
CPI
Fixed
OMV
Total
*Including post balance sheet events
WAULT
0-5 years
5-10 years
10-15 years
15-20 years
20+ years
Total
Income mix by
rent review type
71.2%
6.7%
2.1%
20.0%
100.0%
Supermarket WAULT
breakdown
0.2%
19.3%
45.8%
29.6%
5.2%
100.0%
*Including post balance sheet events
The environmental efficiency of our stores continues to be a
key priority through asset management initiatives, selective
acquisitions and is supported by the ongoing investment by
grocery tenants into respective store estates. A breakdown
of supermarket EPC ratings can be seen below:
Tenant exposure:
Supermarket EPC breakdown
Tenant
Tesco
Sainsbury’s
Morrisons
Waitrose
Asda
Aldi
M&S
Non-food
Total
Exposure by
rent roll
Exposure by
Valuation
48.2%
28.7%
6.2%
4.7%
2.1%
0.8%
0.8%
8.5%
48.9%
30.4%
5.6%
5.2%
2.0%
0.8%
0.9%
6.2%
100.0%
100.0%
*Including post balance sheet events
The strength of the Direct Portfolio is underpinned by
long-term, secure income with a weighted average
unexpired lease term of 13 years38. In addition, our portfolio
is heavily weighted towards upwards only inflation-linked
rent reviews which provide protection in the current
inflationary environment and help to reduce the impact of
rising debt costs. The Direct Portfolio’s weighting towards
37 Excluding costs
38 As at 20 September 2023
2 4 S U P E R M A R K E T I N C O M E R E I T P L C
EPC rating
A
B
C
D
Total
% of
supermarket
Portfolio
4.2%
46.2%
33.7%
15.8%
100.0%
*Including post balance sheet events
Sainsbury’s Reversion Portfolio
Between May 2020 and January 2023, the Company built a
c. 51% stake in the Sainsbury’s Reversion Portfolio firstly
through a joint venture with BAPTL and then through buying
out BAPTL’s stake. The SRP consisted of the freehold interest
in 26 geographically diverse high-quality Sainsbury’s
supermarkets, with a London and southeast location bias.
Sainsbury’s occupied the stores in the SRP under leases due
to expire during 2023. The investment case for acquiring the
stakes in the SRP was based on the Company’s conviction
that Sainsbury’s would remain in occupation of a large
majority of the stores.
This proved to be correct with Sainsbury’s exercising options
to acquire 21 stores within the SRP (the Option Stores) for
£1,040 million from the SRP and entering into new 15-year
leases on four of the five remaining stores within the SRP
(the Non-Option Stores).
In January 2023, the Company acquired BAPTL’s interest
in the SRP for £188.8 million (excluding acquisition costs).
This acquisition was wholly funded by a receivables loan
from J.P. Morgan secured against the Company’s share of
proceeds from the sale of the 21 Option Stores.
In March 2023, the Company sold its 51.0% beneficial
interest in the SRP to Sainsbury’s for a gross consideration
of £430.9 million (excluding costs) payable in tranches.
The first tranche of £279.3 million was received on 17 March
2023 and the second of £116.9 million on 10 July 2023.
The Company received the third tranche when it acquired
the four Non-Option Stores for a total consideration of
£61.6 million. The remaining store will be sold at vacant
possession value and the Company will receive 51.0% of
the net proceeds, which are expected to be approximately
£1.5 million.
The net proceeds from the sale of the Company’s interest in
the SRP have been used to reduce the Company’s existing
debt facilities, providing the Company with balance sheet
flexibility and the ability to take advantage of opportunistic
value add transactions.
Portfolio valuation
Cushman & Wakefield valued the Direct Portfolio as at
30 June 2023, in accordance with the RICS Valuation –
Global Standards which incorporate the International
Valuation Standards and the RICS UK Valuation Standards
edition current at the valuation date.
The properties were valued individually without any
premium/discount applying to the Direct Portfolio as a
whole. The Direct Portfolio market value was £1,685.7
million, an increase of £124.1 million reflecting a valuation
decline of £253.2 million offset by new acquisitions of
£377.3 million. This valuation reflects a net initial yield of
5.6% and a like-for-like valuation decline of 13.7% since
30 June 2022. The benchmark MSCI All Property Capital
Index during the same period was down 19%.
The decline in valuation reflects the outward shift in property
yields applied by valuers across the real estate sector as
a result of higher interest rates and the macroeconomic
environment. This was largely recognised in the first half
of the year, with a like-for-like valuation decline of 13.4%
reported in the Company’s valuation as at 31 December
2022. Valuations remained broadly flat in the second half
of the year.
The valuation decline in the year has however been partially
mitigated by our contractual inflation-linked rental uplifts.
The average annualised increase in rent from rent reviews
performed during the year was 4.1%. 80% of the Company’s
leases benefit from contractual rental uplifts, with 78%
linked to inflation and 2% with fixed uplifts.
A N N U A L R E P O R T 2 0 2 3 2 5
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
“ The defensive characteristics displayed
by supermarket property coupled with
ongoing demand for long-term secure
income is expected to continue to generate
strong investor demand in this asset class
for the foreseeable future.”
Steven Noble Chief Investment Officer
THE UK GROCERY MARKET
Atrato Capital Limited is the Investment Adviser to the
Company. Steven Noble (Chief Investment Officer of Atrato
Capital) discusses the UK grocery market and the outlook for
real estate investment in the sector.
Q: How has the grocery sector performed over
the last few years given the turbulent market
macroeconomic backdrop?
A: The grocery market has demonstrated its defensive
characteristics yet again over the last few years. Total UK
grocery market sales are up 11% in the year, with the
total UK grocery market now expected to generate over
£240 billion in annual sales in 202339.
In fact, since IPO, the grocery market will have increased by
over £50 billion from £185 billion in 2017 to an estimated
£242 billion in 2023 representing a compound growth rate
of 5% which exceeds both CPIH inflation and GDP growth
over the same period.
IGD UK Grocery Market Value 2018 – 2028 (forecast)
This long-term growth has been driving record flows of
investment into the sector from a broad range of institutional
investors, including the £14 billion of net investment from
the sale of Asda in 2021 and Morrisons in 2022. This year
there has also been £1.7 billion41 of capital investment into
the supermarket property sector from investors looking for
assets that offer consistent returns, underpinned by solid
corporate covenants and low rent to turnover ratios.
The outlook for the sector remains positive, with structural
long-term growth drivers, which in turn support property
rental growth over the medium to long-term.
Q: What operators have been capturing this growth
and who are the largest operators in the
UK grocery market?
A: Six major supermarket operators fulfil over 83% of UK
grocery demand with the majority fulfilled via a combined
network of over 4,500 stores across the UK.
Kantar Worldpanel June 2023 – UK grocery market share by operator
14
12
)
%
8
10
(
e
g
n
a
h
c
r
a
e
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(
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e
k
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a
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y
r
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350
300
250
200
150
100
50
0
11.3%
250
257
242
265
286
276
208
210
8.5%
217
189
192
2.3%
3.7%
3.2% 2.8%
3.3%
4.3%
1.3%
0.6%
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Market value – actual (£bn)
Market value – forecast (£bn)
YOY% Change
Grocery is non-discretionary expenditure which accounts
for 14%40 of household spending. The change in consumer
behaviour towards a greater proportion of time spent
working from home and the increased market penetration
of online grocery has resulted in a long-term structural shift
in grocery demand. This has been achieved against a very
turbulent five-year period for the wider UK economy which
includes Covid lockdowns, supply disruptions, the Ukraine
war, inflation and a sharp increase in interest rates.
Tesco
Sainsbury's
Asda
Aldi
Morrisons
Lidl
Co-op
Waitrose
Iceland
Other outlets
Ocado
27.0%
14.8%
13.7%
10.2%
8.7%
7.7%
6.1%
4.4%
2.3%
1.9%
1.7%
Symbols & Independent
1.5%
Tesco, Sainsbury’s, Asda and Morrisons are the larger
multi-channel grocers who boast a combined market share
of approximately 65%. Each of these businesses has multi-
billion-pound revenues, an established consumer brand and
core supermarket locations across the UK. These operators
play an integral role in the UK market, successfully operating
a strategy of price and assortment management through
a multi-channel brand focused strategy. Their combined
market share is largely unchanged since 2019, meeting
demand of the enlarged market through their existing
39 IGD UK grocery market retail forecast 2023-2028
40 Office for National Statistics 2023
41
Knight Frank, Savills, MSCI and Atrato Capital research.
Year ending 30 June 2023
2 6 S U P E R M A R K E T I N C O M E R E I T P L C
network of stores and deep-rooted “farm to fork” supply
chains which provide a significant barrier to entry to the
UK market.
We are seeing some short-term pressure on margins, as the
grocers seek to shield consumers from price rises. However,
these well-established multi-channel operators have been
generating consistent profitability and free cashflows with
net profit margins that typically averaged around 4% over
the long-term.
The second largest group of operators is the lower-price
grocery operators (“Discounters”) such as Aldi and Lidl.
They have grown through ambitious new store opening
programmes which have captured a combined market share
of 18%. However recent significant increases in construction
costs are expected to result in a decline in the number of
new stores in the coming years. The Discounters’ lower
cost, low-margin business model requires simplicity and
standardisation of range which is attractive to price sensitive
customers.
This discount market remains highly competitive and
the sector typically operates a lower net profit margins
of between 1% to 2%. These fine margins mean that the
Discounters are inflating prices quicker than other operators,
having peaked at 26% compared to 15% for Tesco and
Sainsbury’s42. Therefore, we see an element of market share
gain coming simply through higher prices.
Q: What changes have you seen in the various
grocery formats over the last 5 years?
A: As illustrated below, over the last five years the
supermarket channel has remained the dominant sales
channel in the UK grocery market, while online grocery
has been the fastest growing, despite paring back from
pandemic peaks over the last year.
Institute of Grocery Distribution (“IGD”) UK Grocery Channel forecasts
125
100
)
n
b
£
(
s
e
l
a
S
75
50
25
0
123
105
53
41
40
25
21
12
9 13
Supermarkets
Convenience
Discount
Online
Other retailers
2019
2024
In the last 5 years we have seen a dramatic change in the
online grocery channel. In 2018 online accounted for 8% of
market share. The channel’s market share rapidly increased,
peaking at 15% in 2021 at the height of the pandemic and
it has since fallen to around 12% today. Online grocery is,
however, set to remain one of the fastest growth channels in
the grocery sector according to IGD’s forecasts.
The larger multi-channel operators have responded rapidly
and effectively to capture this growth, increasing home
delivery and Click & Collect capacity from a network of
stores acting as last mile fulfilment centres. This agility has
pioneered the new omnichannel store model that combines
the largest channel with the fastest growing.
Larger supermarkets with in-store pick capacity have been
well positioned to fulfil this growth with over 80%43 of online
grocery sales estimated to now be fulfilled from these
omnichannel stores. At the extreme, our research has shown
that the turnover of some individual omnichannel grocery
stores is now 50% online and 50% physical shopping, and a
25%:75% split is not uncommon.
The UK’s large multi-channel grocers pioneered the
development of the omnichannel business model towards
which we are seeing a global convergence. The seamless
integration between online and offline is a very significant
development within the grocery industry empowering the
operator to be truly blind to channel. Future grocery strategy
can therefore be focussed purely on the customer and be
agnostic to where the sale takes place – in-store, or online
via delivery or Click & Collect.
Our investment strategy is aligned with this future model of
grocery. A key pillar of the Company’s strategy is investing
in omnichannel supermarkets to capitalise on the long-term
structural trend towards growing omnichannel operations.
We believe that our high-quality portfolio of omnichannel
supermarket properties will deliver sustainable income and
capital growth over the long-term.
Q: What is a typical supermarket lease structure?
A: Supermarket lease agreements are often long-dated
and inflation-linked. Original lease tenures range from 15 to
30 years without break options. Rent reviews often link the
growth in rents to an inflation index such as RPI, RPIX or CPI
(with typically 4% caps and 0% floors), or, alternatively, may
have fixed annual growth rates or open market rent reviews.
An open market review means that the rent is adjusted
(usually upwards only) to reflect the rent the landlord could
achieve on a letting in the open market. 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 usually 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 often 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
by the tenant is restricted.
42 Which? supermarket food price inflation tracker 15/08/2023
43 Atrato research
A N N U A L R E P O R T 2 0 2 3 2 7
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
Q: How has supply and demand for supermarket
property performed?
A: The supermarket sector is a highly attractive asset class
within real estate investment. The financial performance
by the UK’s major grocery operators against a backdrop
of growing UK grocery market and inflation has attracted
increasing numbers of domestic and international
institutional investors to invest in UK supermarket property.
Supermarkets have been less volatile than the broader UK
property market when you examine investment performance
trends over the last 15 years, illustrating the long-term
strength and stability of this asset class, and underlining its
ability to provide highly attractive and resilient income.
The significant level of grocery market growth and current
high levels of inflation have driven the increase in store
turnovers materially above rental caps making supermarket
store leases look increasingly good value.
In addition, the combination of yields offered by supermarket
properties and the rental review structures from which our
market benefits mean they offer highly attractive long-term
returns. As such, it is not surprising to see over £1.7 billion
level of investment in this asset class over the 12-month
period ending 30 June 2023.
There has been some supply of new grocery investment
property opportunities due to the growth in the store
network of the Discounters and the recent sale and
leaseback activity from Asda and Morrisons, however, the
buyback of supermarket property by Tesco and Sainsbury’s
over the last five years has resulted in a net overall
contraction of leasehold supply. We believe this will be
favourable to long-term yield compression in our sector.
The defensive characteristics displayed by supermarket
property coupled with ongoing demand for long-term secure
income is expected to continue to generate strong investor
demand in this asset class for the foreseeable future.
2 8 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | KEY PERFORMANCE INDICATORS
Our objective is to provide secure, inflation-linked, long income from grocery property in the UK. Set out below are the key
performance indicators we use to track our progress.
KPI
1. Total
Shareholder
Return
2. WAULT
3. EPRA NTA per
share
Definition
Performance44
Total shareholder return (“TSR”) is one of the Group’s
principal measures of performance.
TSR is measured by reference to the growth in the
Company’s share price over a period, plus dividends
declared for that period.
(34%) for the year to 30 June 2023
(31 December 2022: (11.7%), 30
June 2022: 7%)
WAULT measures the average unexpired lease term
of the Direct Portfolio, weighted by the Direct Portfolio
valuations.
14 years WAULT as at
30 June 2023 (31 December 2022:
14 years, 30 June 2022: 15 years)
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. EPRA provides three
recommended measures of NAV, of which the Group
deems EPRA NTA as the most meaningful measure. See
Note 26 for more information.
93 pence per share as at 30 June
2023 (31 December 2022: 92p, 30
June 2022: 115p)
4. Net Loan to
Value
The proportion of our investment property portfolio gross
asset value that is funded by borrowings calculated as
balance sheet borrowings less cash balances divided by
total investment properties valuation.
37% as at 30 June 2023 (31
December 2022: 40%, 30 June
2022: 19%)
5. Adjusted EPS*
EPRA earnings adjusted for company specific items to
reflect the underlying profitability of the business.
5.8 pence per share for the year
ended 30 June 2023 (31 December
2022: 2.9p, 30 June 2022: 5.9p)
*New measure reported during the period, with prior year comparative stated in line with new methodology
44 31 December 2022 figures are extracted from the Group’s Interim Report for the six months ended 31 December 2022
Adjusted earnings45 is a performance measure used by the
Board to assess the Group’s financial performance and
dividend payments. The metric adjusts EPRA earnings by
deducting one-off items such as debt restructuring costs and
the Joint Venture acquisition loan arrangement fee which
are non-recurring in nature and adding back finance income
on derivatives held at fair value through profit and loss.
Adjusted Earnings is considered a better reflection of the
measure over which the Board assesses the Group’s trading
performance and dividend cover.
The Joint Venture acquisition loan arrangement fee relates
to the upfront amount payable to J.P. Morgan in respect of
the short-term facility taken out in January 2023 to fund
the Group’s purchase of BAPTL’s 50% interest in the Joint
Venture. This was specific debt taken out to finance the
transaction to acquire and then dispose of the joint venture,
whilst protecting the Group from any recourse on unwind of
the Joint Venture’s financial asset. This adjustment reflects
the arrangement fee only, as the Group largely had other
committed undrawn facilities that it could have utilised.
Finance income received from derivatives held at fair value
through profit and loss are added back to EPRA earnings
as this reflects the cash received from the derivatives in the
period and therefore gives a better reflection of the Group’s
net finance costs.
Debt restructuring costs relate to the acceleration of
unamortised arrangement fees following the partial transition
of the Group’s debt structure from secured to unsecured.
Adjusted EPS reflects the adjusted earnings defined above
attributable to each shareholder.
The Group uses alternative performance measures, as disclosed
above and including the EPRA Best Practice Recommendations
(“BPR”) to supplement its IFRS measures as the Board
considers that these measures give users of the Annual
Report and financial statements the best understanding of the
underlying performance of the Group’s property portfolio.
45 The Directors have identified certain measures that they believe will assist
the understanding of the performance of the business. The measures
are not defined under IFRS and they may not be directly comparable
with other companies’ adjusted measures. The non-GAAP measures are
not intended to be a substitute for, or superior to, any IFRS measures of
performance, but they have been included as the Directors consider them
to be important comparable and key measures used within the business
for assessing performance. The key non-GAAP measures identified by the
Group have been defined in the supplementary information and, where
appropriate, reconciliation to the nearest IFRS measure has been given
The EPRA measures are widely recognised and used by
public real estate companies and investors and seek to
improve transparency, comparability and relevance of
published results in the sector.
The key EPRA performance measures used by the Group
are disclosed on the following page.
Reconciliations between EPRA measures and the IFRS
financial statements can be found in Notes 10 and 27 to the
financial statements.
A N N U A L R E P O R T 2 0 2 3 2 9
STRATEGIC REPORT | EPRA PERFORMANCE INDICATORS
The table below shows additional performance measures, calculated in accordance with the Best Practices Recommendations
of the European Public Real Estate Association (EPRA). We provide these measures to aid comparison with other European
real estate businesses.
For a full reconciliation of all EPRA performance indicators, please see the Notes to EPRA measures within the
supplementary section of the annual report.
Measure
1. EPRA EPS
Definition
A measure of EPS designed by EPRA to present
underlying earnings from core operating activities.
Performance46
4.6 pence per share for the
year ended 30 June 2023
(31 December 2022: 2.6p,
30 June 2022: 5.9p)
2. EPRA Net
Reinstatement Value
(NRV) per share
An EPRA NAV per share metric which assumes that
entities never sell assets and aims to represent the
value required to rebuild the entity.
103 pence per share as at
30 June 2023 (31 December
2022: 102p, June 2022: 124p)
3. EPRA Net Tangible
Assets (NTA) per
share
An EPRA NAV per share metric which assumes
entities buy and sell assets, thereby crystallising
certain levels of unavoidable deferred tax.
93 pence per share as at
30 June 2023 (31 December
2022: 92p, 30 June 2022: 115p)
4. EPRA Net Disposal
Value (NDV) per
share
5. EPRA Net Initial
Yield (NIY) & EPRA
“Topped-Up” Net
Initial Yield
An EPRA NAV per share metric which represents the
shareholders’ value under a disposal scenario, where
deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their
liability, net of any resulting tax.
Annualised rental income based on the cash rents
passing at the balance sheet date, less non‑
recoverable property operating expenses, divided by
the market value of the property, increased with
(estimated) purchasers’ costs. The “topped‑up” yield is
the same as the standard measure as we do not have
material adjustments for any rent‑free periods or other
lease incentives.
6. EPRA Vacancy Rate Estimated Market Rental Value (ERV) of vacant space
divided by ERV of the whole portfolio.
7. EPRA Cost Ratio
(Including direct
vacancy costs)
8. EPRA Cost Ratio
(Excluding direct
vacancy costs)
9. EPRA LTV
Administrative & operating costs (including costs of
direct vacancy) divided by gross rental income.
Administrative & operating costs (excluding costs of
direct vacancy) divided by gross rental income.
Net debt divided by total property portfolio and other
eligible assets.
10. EPRA Like-for-like
rental growth*
Changes in net rental income for those properties
held for the duration of both the current and
comparative reporting period.
98 pence per share as
at 30 June 2023 (31 December
2022: 97p, 30 June 2022: 116p)
5.5% as at 30 June 2023 (31
December 2022: 5.3%, 30 June
2022: 4.6%)
0.4% as at 30 June 2023
(31 December 2022: 0.5%,
30 June 2022: 0.2%)
15.5% for the year ended 30
June 2023 (31 December 2022:
16.7%, 30 June 2022: 16.5%)
15.2% for the year ended 30
June 2023 (31 December 2022:
16.5%, 30 June 2022: 16.4%)
35.2% as at 30 June 2023
(31 December 2022: 40.2%,
30 June 2022: 22.2%)
Rental increase of 2.7% for the
year ended 30 June 2023
11. EPRA Capital
Expenditure*
Amounts spent for the purchase of investment
properties (including any capitalised transaction costs).
There has been no other capital expenditure incurred in
relation to the investment property portfolio.
£377.3 million for the year
ended 30 June 2023 (31
December 2022: £310.2 million,
30 June 2022: £388.7 million)
*New measure reported during the year, with prior year comparative stated in line with new methodology
46 31 December 2022 figures are extracted from the Group’s Interim Report for the six months ended 31 December 2022
3 0 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | FINANCIAL OVERVIEW
“ The Company has taken prudent
steps to further strengthen the
balance sheet, by paying down
debt as well as extending the term
of its facilities with both new and
existing lenders.”
Haffiz Kala Finance Director
Key achievements
• Restructuring the balance sheet, transitioning the
Key figures
• 30% increase in annualised passing rent to £100.6 million
Company from a secured to an unsecured debt structure
• Average passing rent increases of 4.1%
• Fixed 100% of drawn debt at a weighted average
cost of 3.1%
• Extending and broadening its banking relationships
• 37% increase in operating profit to £79.8 million
• Delivered FY 2023 dividend of 6p
FINANCIAL OVERVIEW
Atrato Capital Limited, the Investment Adviser to the Group,
is pleased to report the financial results of the Group for the
12 months ended 30 June 2023.
IFRS net rental income for the year to 30 June 2023
increased by 32% to £95.2 million, up from £72.1 million in
the prior year. Contracted inflation rent reviews in the year
resulted in average passing rent increases in the Portfolio
of 4.1% compared to 3.7% in the prior year, with the
majority of reviews hitting their maximum rental caps. The
like-for-like rental growth for properties held for a full year
was 2.7%. A further £15.2 million of rental income was also
recognised from new acquisitions during the year, which
were purchased at an average NIY of 5.4%.
Administrative and other expenses, including management
and advisory fees and other costs of running the Group,
were £15.4 million (30 June 2022: £13.9 million) generating
an EPRA cost ratio (including direct vacancy costs) for the
year of 15.5% (30 June 2022: 16.5%).
Net financing costs for the year were £24.7 million
(30 June 2022: £13.0 million). The increase in net financing
costs reflects higher leverage in the period, with the
weighted average debt for the year being £672.3 million
(30 June 2022: £491.4 million). The Company fixed 100%
of its drawn debt during the year which provided security
during a time of significant interest rate volatility (see
financing and hedging section below). Subsequent to the
year end, the Company completed a debt refinancing
exercise, maintaining its weighted average maturity of debt
to just over four years47. At the same time the Company
extended the term of its hedging by 12 months, fixing 100%
of the Company’s drawn debt at a weighted average cost of
debt of 3.1%.
47 Including uncommitted extension options
Net financing costs reflect a one-off non-recurring finance
charge of £1.5 million, resulting from the acceleration of
unamortised arrangement fees as a result of the Company
restructuring 50% of its debt from a secured to an unsecured
debt structure. Financing costs were further impacted by
the upfront amount payable to J.P. Morgan in respect of
the short-term facility taken out in January 2023 to fund
the Group’s purchase of BAPTL’s 50% interest in the
Joint Venture.
The Group’s operating profit, before changes in fair value
of investment properties and share of income from the joint
venture, as reported under IFRS, increased by 37.2% to
£79.8 million (30 June 2022: £58.2 million).
The net decrease in fair value of the Direct Portfolio
investment properties in the year was £256.1 million
(30 June 2022: £21.8 million increase), which comprised
of a £253.2 million valuation reduction in addition to
£2.9 million of rent smoothing, lease incentive and rental
guarantee adjustments. As noted above, the decline in
valuation reflects the outward shift in property valuation
yields due to rising interest rates and the macroeconomic
environment. As at 30 June 2023, the Group’s EPRA NTA
per share was 93 pence (31 December 2022: 92 pence,
30 June 2022: 115 pence).
In January 2023, the Group increased its interest in the
joint venture relating to the SRP, with the acquisition of
an additional 25% stake for £188.8 million (excluding
transaction costs). This was fully funded by a short-term
loan from J.P. Morgan, which was repaid in full on receipt
of the first tranche of proceeds received in March 2023
(see financing and hedging section below).
The Company subsequently sold its stake in the SRP to
Sainsbury’s in March 2023. The share of income from
the joint venture prior to disposal was £23.2 million
(30 June 2022: £43.3 million). However, the share of
income (excluding fair value movements) in the year
was £11.7 million (30 June 2022: £12.2 million).
A N N U A L R E P O R T 2 0 2 3 3 1
STRATEGIC REPORT | FINANCIAL OVERVIEW CONTINUED
During the year, the Group made the decision to fix 100%
of its floating rate debt exposure. This was achieved
by entering into three interest rate swaps. This hedged
£381.0 million of drawn floating unsecured debt for
a weighted average term of four years. The cost of acquiring
the hedges was £35.5 million.
The Group also purchased an interest rate cap to fix the
variable rate of interest on £96.5 million of its Revolving
Credit Facility with HSBC until August 2024 for £6.0 million.
In March 2023, in line with the refinanced Bayerische
Landesbank loan facilities, the Group settled early its
existing in-the-money hedges for this facility for a profit
of £2.9 million. The proceeds were used to enter into
new interest rate swaps that matched the terms of the
new refinanced loan facility of £86.9 million maturing
in May 2026. The cost of acquiring the new hedges was
£2.8 million.
The interest rate derivatives entered into during the year
had a weighted average fixed rate on the associated debt of
3.1% (including margin). The cost of acquiring these interest
rate derivatives was £44.3 million and were valued at year
end at £54.3 million. The effect on the income statement
for the new derivatives for the period are a profit on fair
value of the derivatives of £10.0 million and finance income
received from the quarterly settlement of the derivatives of
£9.7 million.
Post year end, the Group used the value of its existing
in-the-money interest rate hedges to extend the term of its
hedging arrangements by 12 months at no additional cost
to the Company. 100% of the Company’s drawn debt is
now either fixed rate or hedged to a fixed rate, representing
a weighted average all-in cost of debt of 3.1%.
Following the sale of the Company’s interest in the SRP, the
Group generated gross proceeds of £430.9 million, resulting
in a profit on disposal of £19.9 million. The proceeds
were structured in three tranches, where a receivable of
£136.4 million was recognised as at 30 June 2023.
The first tranche of £279.3 million was received on
17 March 2023 and the second tranche of £116.9 million
was received on 10 July 2023. The timing of the third
tranche of £34.7 million was conditional on the sale of the
remaining five stores in the SRP.
Four of the five stores were purchased by the Group
for £61.6 million in March 2023 and July 2023, utilising
£33.3 million of the outstanding receivable.
The Group is a qualifying UK Real Estate Investment
Trust (“REIT”) which exempts the Group’s property rental
business from UK Corporation Tax48.
Financing and hedging
During the year, the Group extended and broadened its
banking relationships as follows:
• In July 2022, the Group secured a new £412.1 million
unsecured credit facility with a bank syndicate comprising
Barclays, Royal Bank of Canada, Wells Fargo and Royal
Bank of Scotland International. This was priced at 1.5%
above SONIA with a weighted average term of six years
(inclusive of uncommitted extension options).
• In September 2022, the Group agreed a further two-year
extension (inclusive of a one-year accordion option at
the lender’s discretion) of its £150.0 million Revolving
Credit Facility with HSBC. All other terms of the facility
remained unchanged.
• In January 2023, the Group secured a new £202.8 million
secured debt facility provided by J.P. Morgan. The Facility
had an interest rate of 5.3% and was fully repaid in
March 2023 following receipt of £279.3 million in
respect of the first tranche of proceeds from the sale
of the Group’s interest in the SRP to Sainsbury’s.
• In March 2023, the Group refinanced its existing loan
facilities with Bayerische Landesbank, with a new
three-year £86.9 million term loan fixed at an all-in
rate of 4.29%.
• Post year end, the Group completed a comprehensive
debt refinancing exercise securing a new £67.0 million
facility with Sumitomo Mitsui Banking Corporation
(“SMBC”) priced at 1.4% above SONIA, whilst reducing
its HSBC facility from £150.0 million to £50.0 million
and cancelling its Barclays/RBC facility of £77.5 million.
The average maturity of the Group’s facilities (including
extension options) is now over 4 years.
48 Profits which are not derived from property rental business would be
subject to corporation tax
3 2 S U P E R M A R K E T I N C O M E R E I T P L C
A summary of the Group’s credit facilities as at the year end and after the balance sheet date is provided below:
Lender
Barclays and RBC
Facility
Revolving
Credit Facility
Bayerische Landesbank
Term Loan
Deka Bank
Deka Bank
Deka Bank
HSBC
HSBC
HSBC
Wells Fargo
Wells Fargo
Unsecured Syndicate
Term Loan
Term Loan
Term Loan
Revolving
Credit Facility
Revolving
Credit Facility
Revolving
Credit Facility
Revolving
Credit Facility
Revolving
Credit Facility
Revolving
Credit Facility
Maturity
Jan-24
Mar-26
Aug-24
Aug-24
Aug-24
Aug-24
Extended
Maturity*
Jan-26
Mar-26
Aug-26
Aug-26
Aug-26
Aug-25
Margin
1.50%
1.65%
1.35%
1.35%
1.40%
1.65%
Sonia/
swap rate**
SONIA
2.64%
0.54%
0.70%
0.32%
1.12%
Aug-24
Aug-25
1.65%
SONIA
Aug-24
Aug-25
1.75%
SONIA
Jul-25
Jul-27
2.00%
0.19%
Jul-25
Jul-27
2.00%
SONIA
Loan
commitment
(30‑June‑23)
£m
Amount drawn
(30‑June‑23)
£m
77.5
86.9
47.6
28.9
20.0
96.5
3.5
50.0
30.0
9.0
–
86.9
47.6
28.9
20.0
78.1
–
–
30.0
0.0
Jul-27
Jul-29
1.50%
1.34%
250.0
218.5
Unsecured Syndicate
Term Loan
Unsecured Syndicate
Term Loan
Jul-25
Jan-24
Jul-27
Jan-25
1.50%
1.50%
1.34%
1.34%
Total
100.0
62.1
862.1
100.0
62.1
672.1
Loan
commitment
(Post balance
sheet)
£m
Amount
drawn
(Post balance
sheet)
£m
Sonia/swap
rate**
Lender
Facility
Bayerische Landesbank
Term Loan
Deka Bank
Deka Bank
Deka Bank
HSBC
SMBC
Term Loan
Term Loan
Term Loan
Revolving
Credit Facility
Maturity
Mar-26
Aug-24
Aug-24
Aug-24
Extended
Maturity*
Mar-26
Aug-26
Aug-26
Aug-26
Sept-26
Sept-28
Margin
1.65%
1.35%
1.35%
1.40%
1.70%
1.40%
1.50%
2.64%
0.54%
0.70%
0.32%
SONIA
1.57%
1.76%
Term Loan
Sept-26
Sept-28
Unsecured Syndicate
Revolving
Credit Facility
Jul-27
Jul-29
Unsecured Syndicate
Term Loan
Jul-25
Jul-27
1.50%
1.21%
Unsecured Syndicate
Term Loan
Wells Fargo
Wells Fargo
Total
Revolving
Credit Facility
Revolving
Credit Facility
Jul-26
Jul-25
Jul-27
Jul-27
1.50%
2.00%
1.48%
1.21%
Jul-25
Jul-27
2.00%
SONIA
* Inclusive of uncommitted extension options
**Interest cost is inclusive of hedging arrangements where applicable. Amounts stated do not include unamortised arrangement fees
86.9
47.6
28.9
20.0
50.0
67.0
250.0
50.0
50.0
30.0
9.0
86.9
47.6
28.9
20.0
–
67.0
204.3
50.0
50.0
30.0
0.0
689.4
584.8
A N N U A L R E P O R T 2 0 2 3 3 3
STRATEGIC REPORT | FINANCIAL OVERVIEW CONTINUED
The overall facilities and hedging arrangements (including
post balance sheet events) have a weighted average
debt maturity of 4 years (including extension options)
(30 June 2022: 4 years) and a cost of borrowing of 3.1%
(30 June 2022: 2.8%).
The Group continues to have a conservative leverage policy,
with a medium-term LTV target of 30%-40%. At the year
end, total net debt was £630.0 million, resulting in a net
loan to value (LTV) ratio of 37.4% (30 June 2022: 19.0%).
Including post balance sheet events, the Group’s Gross LTV
currently stands at 34.0%. The Group has further balance
sheet capacity to utilise for opportunities which may
come to market.
Each of the loans under the secured credit facilities requires
interest payments only until maturity and are 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.
Each of the loans under the unsecured credit facilities
requires interest payments only until maturity.
The Group continues to maintain significant headroom on
its LTV covenants which contain a maximum 60% LTV
threshold and a minimum 190% interest cover ratio for each
asset in the Portfolio. As at 30 June 2023, the Group could
afford to suffer a fall in secured property values of 48%
before being in breach of its LTV covenants. With current
hedging arrangements in place the Group has significant
interest cover headroom.
Further analysis on the Group’s liquidity and banking
covenant compliance strength is set out in note 1 of the
financial statements. Details of the Group’s debt and
interest rate hedging can be found in Notes 20 and 21
to the financial statements.
Dividends
The Company has declared four interim dividends for the
year as follows:
• On 21 September 2022, a first interim dividend of 1.5
pence per share, which was paid on 16 November 2022.
• On 12 January 2023, a second interim dividend of 1.5
pence per share, which was paid on 23 February 2023.
• On 11 April 2023, a third interim dividend of 1.5 pence
per share, which was paid on 26 May 2023.
• On 6 July 2023, a fourth interim dividend of 1.5 pence per
share, which was paid on 4 August 2023.
The Group’s adjusted dividend cover ratio was 0.97x for the
year (30 June 2022: 1.08x). The decrease is reflective of the
increased debt levels of the Group for the year, interest rate
increases and the timing of the receipt of the SRP proceeds
to reinvest into increasing the earnings of the Group.
The Company is targeting to increase the dividend for the
year to 30 June 2024 to 6.06 pence per share, which will be
the sixth consecutive year of annual dividend increases.
Atrato Capital Limited
Investment Adviser
19 September 2023
3 4 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | TCFD COMPLIANT REPORT
ESG Statement
The UK is targeting Net Zero emissions by 2050. Achieving
this will require the full commitment of the real estate
sector, among many others. Supermarket Income REIT
plc acknowledges that it has a role to play within that
commitment and therefore must identify and manage its
sustainability risks accordingly. The Company believes
that this approach aligns with the interests of its key
stakeholders.
Enhanced collaboration between landlords and tenants is
necessary if zero carbon initiatives are to be successful and
the Company is especially focused on this, given the (full
repairing and insuring) nature of the majority of its leases.
The Company’s sector has proved itself to be agile in times
of hardship through the “feed the nation” enterprises; now
is the time to deliver on zero carbon initiatives throughout
its operations.
In addition to the Company’s disclosures in line with the
Task Force on Climate-related Financial Disclosures (TCFD)
recommended disclosures, the Company will publish
its first Sustainability Report in 2023. The Sustainability
Report contains disclosures on other environmental,
social and governance (ESG) topics, including outlining
the Company’s work to consolidate its approach, by
integrating sustainability into all levels of the fund and its
investment process.
Highlights from the Sustainability Report, beyond the
Company’s climate-related activities and commitments,
will include environmental asset management initiatives to
benefit occupiers and communities, further improvements
to its ESG Governance following the establishment of
the ESG Committee during FY 2022, and community
engagement through charitable giving and community
partnerships.
The Company’s approach to ESG is underpinned by the
Board’s commitment to good stewardship and long-term
value creation for our stakeholders. Our aim is to continue
to enhance and refine our sustainability strategy and
reporting moving forward.
Streamlined Energy and Carbon Reporting (“SECR”)
The below table and supporting narrative summarise
the Streamlined Energy and Carbon Reporting (SECR)
disclosure. As a listed entity, the Company is required to
comply with the Streamlined Energy and Carbon Reporting
(SECR) regulations under the Companies (Directors’ Report)
and Limited Liability Partnerships (Energy and Carbon
Report) Regulations 2018. Only data for the year ended
30 June 2023 is included as this is the Company’s first
year of SECR.
Reporting year
Location
Emissions from the combustion of fuel and operation of facilities (tCO2e) (Scope 1)
Emissions from purchase of electricity (location-based) (tCO2e) (Scope 2)
Emissions from business travel in rental cars or employee-owned vehicles where company
is responsible for purchasing the fuel (tCO2e) (Scope 3)49
Voluntary: Emissions from Fuel and Energy related activity (tCO2e) (Scope 3)
Voluntary: Emissions from Purchased Goods and Services (tCO2e) (Scope 3)
Voluntary: Emissions from Capital Goods (tCO2e) (Scope 3)
Voluntary: Emissions from Downstream Leased Assets (tCO2e) (Scope 3)
Total gross emissions based on the above (tCO2e)50
Energy consumption used to calculate Scope 1 emissions (kWh)
Energy consumption used to calculate Scope 2 emissions (kWh)
Energy consumption used to calculate Scope 3 emissions (kWh)51
Total energy consumption based on above (kWh)
Intensity ratio: tCO2e (gross Scope 1 + 2) per m2 of floor area
Intensity ratio: tCO2e (gross Scope 1, 2 + 3) per m2 of floor area
Current reporting year:
1st July 2022 – 30th June 2023
UK
10
101
N/A
37
3,132
463
77,274
81,017
606,629
521,321
186,704,059
187,832,009
0.00045
0.13
49 Emissions not calculated due to lack of data and immateriality (<1% of total emissions). SUPR does not have an office or employees. The only travel is quarterly
travel by non-exec directors, the majority of which is local travel in London
50 Values have been rounded
51 Tenant energy consumption only
A N N U A L R E P O R T 2 0 2 3 3 5
STRATEGIC REPORT | TCFD COMPLIANT REPORT CONTINUED
Energy Efficiency Action
The Company has made efforts to improve energy efficiency
across landlord-controlled areas between 1 July 2022 and
30 June 2023. The car park and communal lighting has
been upgraded to LED at Winchester, West End Retail
Park (50% complete), Willow Brook Centre (99% complete)
and Wisbech sites. Further upgrades to LED lighting are
planned for other sites. The Company is also in the process
of replacing the Air Handling Unit at the Beaumont Leys
site and implementing a sustainable heating solution for the
mall. A Battery Management System upgrade, PIR controls
and monitoring and education has also been put in place at
the Willow Brook Centre.
Task Force on Climate-Related Financial
Disclosures (TCFD)
Introduction
The effects of climate change are impacting countries,
businesses and society in many ways. Such impacts will
continue to increase if significant mitigation measures
are not taken by all contributors. The UK commercial real
estate industry is not immune from these effects and faces
numerous risks associated with climate change that could
impact the industry in the near and long-term. These risks
include, but are not limited to, flooding and heat waves,
impacting tenant operations and supply chains, as well
as regulatory actions requiring emissions reductions and
energy efficiency improvements. Along with these risks also
come opportunities for improving the industry’s readiness,
which could offer valuable contributions to mitigation of
climate change’s impacts and associated risks.
Supermarket Income REIT plc is dedicated to mitigating
climate-related risks, reducing its environmental impact and
managing its climate-related risk exposure. In anticipation
of, and in response to, the impacts that these risks pose to
the Company, its tenants and stakeholders, the Company
continues to build out an effective governance structure
and put measures in place to enhance its climate risk
management strategy. The Company is supported by
Atrato Capital Limited (the “Investment Adviser”) which, as
a signatory of the United Nations’ Principles for Responsible
Investment (UNPRI) and the Net Zero Asset Managers
(NZAM) Initiative, is committed to assisting the Company
achieve its sustainability and climate goals to combat the
climate crisis.
Methodology
The 2022/23 SECR footprint is equivalent to 81,017 tCO2e,
with the largest portion being made up of emissions from
downstream leased assets at 77,273 tCO2e.
The Company has calculated the above greenhouse gas
(GHG) emissions to cover all material sources of emissions
for which the Company is responsible. The methodology
used was that of the Greenhouse Gas Protocol: A Corporate
Accounting and Reporting Standard (revised edition, 2015).
Responsibility for emissions sources was determined using
the operational control approach. All emissions sources
required under The Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 are included.
Raw data captured in spreadsheets including energy
spend and consumption data has been collected from the
Company. Where actual consumption data was available
for natural gas and electricity use, this was used. To address
data gaps, the most appropriate proxy was applied by
using either previous year’s data, actual data to calculate
average monthly consumption, or by applying the average
floor area intensity from sites with actual data. Fuel oil was
estimated by applying the average 2022 UK fuel oil price to
the budgeted spend for fuel oil. Energy was then converted
to GHG emissions using the UK Government’s GHG
Conversion Factors for Company Reporting 2022.
Scope 3 emissions have been calculated for relevant
material categories using consumption data, spend data,
floor area and EPC data. Fuel and Energy related activities
includes well-to-tank (“WTT”) and transmission and
distribution (“T&D”) upstream emissions from Scope 1&2.
For Purchased Goods and Services, Environmentally
Extended Input Output (“EEIO”) has been used. Spend
data was provided per supplier by the Company’s Finance
team and mapped to 2022 DEFRA Input/Output (“IO”)
categories. Embodied emissions from two newly built sites
were estimated for Capital Goods, based on LETI factors.
Where actual data was not available for Downstream Leased
Assets, a combination of CIBSE benchmarks were used
against EPC data on energy use and heating type. Publicly
available air conditioning (“AC”) certificates were used to
determine the type and amount of refrigerants, where this
was not available other similar sites were used as proxies.
As per EPA data, the size of the air conditioning equipment
used was dependent on the amount of refrigerant used and
the floor area. Supermarket refrigeration and non-food air
conditioning was estimated using an intensity estimate from
EPA data as no activity data was available. Refrigerant loss
rate for refrigeration was taken from Direct Emissions from
Use of Refrigeration, Air Conditioning Equipment and Heat
Pumps from DEFRA.
3 6 S U P E R M A R K E T I N C O M E R E I T P L C
The Company continues to build on its voluntary reporting
in line with the taskforce on Climate-related Financial
Disclosure (TCFD) recommendations and enhance its
climate-related strategy to advance the development and
implementation of a comprehensive risk management
framework. This strategy, developed by the Investment
Adviser, in conjunction with the Board of the Company, will
include a roadmap derived from climate risk identification,
scenario analysis and a financial impact assessment of
material risks. This collaboration between the Investment
Adviser and the Board helps to ensure that the Company’s
investments will continue to be guided by a comprehensive
risk management strategy that incorporates climate risks.
In 2022, the Company reported against the four TCFD
pillars in its TCFD-aligned report. In 2023 the Company
is voluntarily disclosing for the first time on a basis
consistent with all 11 of the TCFD recommendations and
recommended disclosures.
Table 1 summarises the 2023 disclosures and areas
identified for improvement in future years.
Table 1: The Company’s TCFD Statement of the Extent of Consistency with the TCFD Framework
TCFD Category
TCFD Recommendation
2023 TCFD compliance
Future planned improvements
Governance
Describe how the board exercises oversight of
climate-related risks and opportunities.
Consistent – see
Governance section
Describe management’s role in assessing and
managing climate-related risks and opportunities.
Consistent – see
Governance section
N/A
N/A
Strategy
Describe the climate-related risks and
opportunities the organisation has identified over
the short-, medium-, and long-term.
Consistent – see
Strategy section
Expand upon risk and opportunity
identification processes to include
engagement with tenants.
Ongoing process 2024
Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning.
Consistent –
see Table 2
Refine and publish quantitative,
financial impacts.
To be completed by Q1 2024
Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C or
lower scenario.
Consistent – see
Strategy section
Build upon the Science Based Target
(SBT) road map into a more detailed
Climate Transition Plan.
Q2 2024
Risk Management Describe the organisation’s processes for
identifying and assessing climate-related risks.
Consistent – see Risk
Management section
Expand on climate risk and opportunity
identification.
Q2 2024
Describe the organisation’s processes for
managing climate-related risks.
Consistent – see Risk
Management section
Formalise climate-related
communication channels with tenants.
Q2 2024
Describe how processes for identifying, assessing,
and managing climate–related risks are integrated
into the organisation’s overall risk management.
Consistent – see Risk
Management section
Metrics and Targets Disclose the metrics used by the organisation
to assess climate-related risks and
opportunities in line with its strategy and risk
management process.
Consistent – see
Metrics and
Targets – Table 3
Disclose Scope 1, Scope 2 and, if appropriate
Scope 3 greenhouse gas (GHG) emissions and
the related risks.
Consistent – see
Greenhouse Gas
Emissions section
Describe the targets used by the organisation to
manage climate-related risks and opportunities
and performance against targets.
Consistent – see
Metrics and
Targets section
N/A
N/A
N/A
Work is currently ongoing to model
emissions reductions, develop
a roadmap to reduce those emissions
and submit a target to the Science
Based Targets initiative (SBTi).
Q4 2023
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Governance
Describe how the board exercises oversight of
climate‑related risks and opportunities:
The Board and the Alternative Investment Fund Manager
(“AIFM”) are responsible for the investment decisions
of the Company and directing the delivery of services
by the Investment Adviser to ensure that climate-related
priorities are incorporated into the execution of the
investment strategy. In support of this objective, the
Board established the ESG Committee in May 2022 to
ensure that the Company’s climate-related issues are
integrated into its business plan and corporate performance
objectives. Following the 2023 reporting process, the
Board will consider the annual budget implications of the
inaugural climate scenario analysis results and will also
consider updating risk management policies as is deemed
appropriate.
The Board appoints the members of the Committee,
which has the delegated authority of the Board to monitor
the integrity and quality of the Company’s climate risk
strategies, as well as to track progress against climate-related
goals and targets, which will be presented to the Board on
a quarterly basis. Many of these goals and targets are new
to 2023 (documented within Table 3 below) and are in the
process of being embedded within Board presentations.
The Investment Adviser is responsible for advising the
Board and ESG Committee in matters related to climate
risk and the Investment Adviser’s Head of Sustainability is
responsible for delivery of these services on behalf of the
Investment Adviser. The Board also engages with third-party
advisers to develop its understanding of climate-related risks
and how they apply to the Company.
Figure 1: Governance structure related to climate‑related risks and opportunities
Board
JTC AIFM
Company Audit and Risk
Company ESG Committee
JTC
Investment
Commitee
JTC
Risk
Commitee
Atrato Partners Board
Atrato Partners
Investment Committee
Atrato Capital
Investment Adviser
Atrato Capital
Atrato Partners
JTC
Company
Head of
Sustainability
Board
Investment
Commitee
Risk
Commitee
Investment
Commitee
AIFM
ESG
Commitee
Audit and Risk
Commitee
Board
Develops and
executes the
sustainability
strategy, risk
indentification
and oversight
Ensures
sustainability
considerations
and risk
management
are embedded
in IA systems
and controls
Ensures
sustainability
risks and
opportunities
are reflected
in investment
advice
Oversight of JTC
sustainability
and policies
including as
they apply to
AIF clients
Ensures
sustainability
risks and
opportunities
are reflected
in investment
proposals
Oversees and
executes the
sustainability
strategy.
Develops and
executes risk
identification
and oversight
Climate risk
monitoring
strategy
recommendations
and oversight
Climate risk
monitoring
and mitigation
recommendations
in the context
of overall risk
management
Approval of
sustainability
strategy
and joint
responsibility
for company
risk
management
3 8 S U P E R M A R K E T I N C O M E R E I T P L C
Sustainability Strategy and Benchmarking –
The sustainability activities of the Investment Adviser are
supplemented by services from third-party providers. During
the financial year, the Company has sought advice from
CEN-ESG on improvements it can make to its sustainability
strategy and framework, as well as undertaking
a benchmarking exercise to assess the Company’s
sustainability strategy delivery against its peer group.
The outcome of this exercise has been the development of
a gap analysis for more holistic, ESG disclosures against
best practices and against the Company’s peer group. The
consultants provided advice on climate and other ESG
disclosure expectations of the independent sustainability
rating agencies, and the consequential improvements
required by the Company and Investment Adviser in this
regard. These recommendations have been reflected in the
Company’s sustainability strategy, against which the ESG
Committee tracks the Investment Adviser’s progress against
the agreed deliverables.
These additions have also been included in the review of the
Company’s Sustainable Investment Management System
(SIMS) which was developed concurrently.
Systems and controls – The Investment Adviser has
appointed specialist sustainability systems experts, Quarter
Penny Consulting Ltd to expand its sustainability systems
and controls to ensure they are effective in delivering
the Company’s sustainability strategy. Identification of
climate-related risks already forms part of the Investment
Adviser’s investment process. However, this has been
expanded to ensure more accurate data collection and asset
level risk analysis. These changes which the Company is in
the process of implementing include:
• Expansion of the existing asset level sustainability
improvement tracking to include asset level plans and the
introduction of greater oversight of their delivery;
• Active analysis and monitoring of flood risk on a location
specific basis under different climate scenarios;
• Formalising a tenant engagement policy with standardised
information request templates;
• Formalising use of the legal risk register to monitor
applicable regulatory and legal changes.
Such systems and controls will continue to be reviewed
and improved in response to the climate scenario analysis
performed in Q2 2023.
Describe management’s role in assessing and managing
climate-related risks and opportunities:
Investment Adviser
The Investment Adviser is responsible for the delivery of
the climate risk strategy on behalf of the Company. Steve
Windsor, Principal and Sustainability Champion at the
Investment Adviser, is responsible for oversight, monitoring
and management of climate-related risks and opportunities.
The Investment Adviser’s Head of Sustainability is
responsible for the operational delivery of climate-related
risks and opportunities measures within the Investment
Adviser’s operations and leads the provision of climate risk
advice to the Company.
The Head of Sustainability is a standing attendee at the
Investment Adviser’s Investment Committee, assuming
responsibility for implementation and alignment with the
Investment Adviser’s sustainability systems and controls,
co-ordination of third-party service providers, and delivery
of the Company’s sustainability strategy.
Where the Company has appointed a specialist service
provider, the Investment Adviser will require and hold
regular project progress meetings with the service provider,
where delivery is tracked against an agreed project timeline.
The results of the progress will be communicated to the ESG
Committee by the Investment Adviser in the context of its
progress against the agreed sustainability strategy.
Reporting – The Investment Adviser has reviewed its
reporting obligations to the Company over the year. With
the introduction of the ESG Committee, key topics such
as strategic developments, occupational health and safety
events, and potentially material adverse impacts will be
reported under a more consistent framework.
Certain topics will be included as standing items in the
quarterly information pack provided to the ESG Committee.
These are designed to:
1. Provide Committee members with the ability to directly
monitor management of the identified climate-related
risks and opportunities. This will include Energy
Performance Certificate (“EPC”) ratings and progress
against the delivery of the sustainability plans for the
higher risk assets, flood risk assessments and updates on
and feedback from the tenant engagement plan;
2. Oversee the Investment Adviser’s performance against
the agreed deliverables under the sustainability strategy as
well as holding it to account for non-performance.
The Investment Adviser has also sought to expand its
external reporting, having become a signatory to both
UNPRI and NZAM. It will be making the necessary reports
required under these commitments over the next reporting
period. Finally, the Investment Adviser has improved its
data collection in relation to its own activities to support the
public disclosures of the Company, in particular the social
and governance aspects.
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Strategy
Describe the climate‑related risks and opportunities the
organisation has identified over the short‑, medium‑,
and long‑term:
During the reporting period, the ESG Committee approved
an updated climate risk strategy for the Company in
line with its continual improvement ethos. In addition
to the review and revision of the Company’s previous
sustainability commitments, the strategy identified three key
aims for the 2022/23 reporting period.
– Expansion of reporting in-line with TCFD
application guidance.
– Introduction of climate-related performance targets for the
Investment Adviser.
– Further review and development of the Investment
Adviser’s systems and controls.
The Board and ESG Committee recognise that to ensure
successful implementation of the Company’s sustainability
strategy, and specifically the integration of sustainability
factors into the investment process, appropriate training
and communication of sustainability considerations must
be provided to the Investment Adviser’s employees. The
Investment Adviser will therefore expand its training
programs over the course of the year to more fully
incorporate climate risk topics, which it will continue to
develop in line with stakeholder expectations and sector
developments.
For this reporting period, a first stage risk screening
was conducted to identify and assess the impact of the
Company’s climate-related transition and physical
risks, as well as corresponding opportunities. Relevant
and potentially material risks and opportunities were
identified through a review of existing risk assessments and
consultation with the Investment Adviser. These risks were
given a ‘First Stage Rating’, based on the judgement of the
Investment Advisers, to enable the higher priority risks to be
taken forward for a more detailed review.
The short-, medium-, and long-term time horizons were
chosen to align with specific climate risks and risk
management strategies. The short-term time horizon
(2023-2030) aligns to the anticipated compliance deadline
for Minimum Energy Efficiency Standards (“MEES”). The
Investment Adviser anticipates 2030 as the target year for
a minimum B-rating across qualifying sites. Due to the
14-year WAULT of its portfolio, the Company expects few
changes to the existing leases arrangements during this
time period. The medium time horizon (2030-2040) aligns
with a period of current lease renewals for the majority of
Company’s tenants, during which physical and transition
risks associated with the Company’s portfolio may have
greater influence on lease agreements with existing and
new tenants. Finally, the long-term horizon (2040-2050)
coincides with a potential increase in the likelihood and
severity of physical climate risks impacting the Company’s
portfolio and allows for the creation of long-term strategies
and planning regarding portfolio management in response
to these risks. The Company expects that the short-,
medium-, and long-term horizons will align with those of the
Company’s forthcoming climate targets, which will be set in
the next reporting period.
4 0 S U P E R M A R K E T I N C O M E R E I T P L C
Table 2 | Scenario analysis results for the Company’s climate risks and opportunities and First Stage risk rating
Risk description
Scenario (a)
Impact(b)
Likelihood(c)
Overall Rating(d) by Time Horizon
Short
(2023‑2030)
Medium
(2030‑2039)
Long
(2040‑2050)
Physical Risk – Flooding (Acute
& Chronic): Increased insurance
premiums and increased capital
expenditure required on adaptative or
remediation measures.
Physical Risk – Extreme Heat
(Acute): Increasing operating costs
for tenants through increased energy
demand required for cooling; supply
chain disruption, stock damage and
write off. This may increase capital
expenditure, repairs and maintenance,
and reduced tenant demand and/or
rent premiums for less energy efficient
buildings.
Transition Risk – Policy and Legal
Risk: Currently represented by
Minimum Energy Efficiency Standards
(MEES), but could also include, new,
future, additional regulations. Any
properties not compliant with MEES
could reduce tenant demand, reduce
rent premiums or result in fines.
Transition Risk – Market: Energy
Costs may increase for tenants,
shifting preferences for more energy
efficient buildings and renewables.
Transition Risk – Reputation:
Tenants demand preferences may
shift to lower carbon, highly energy
efficient buildings, due to Net Zero
commitments and their customer
demands, reducing tenant demand
and/or rent premiums.
Opportunity – Market: By accelerating
deployment of energy efficient
measures, setting a Science Based
Target (SBT) and better aligning with
tenant preferences, the Company
could gain a competitive advantage
relative to other commercial landlords
who are not as progressive on in their
climate and sustainability related
ambitions. This could enable increased
tenant demand and rent premiums.
Notes:
First
Stage Rating
Below
2ºC Scenario
Above
4ºC Scenario
First
Stage Rating
Below
2ºC Scenario
Above
4ºC Scenario
First
Stage Rating(e)
Below
2ºC Scenario
Above
4ºC Scenario
First
Stage Rating
Below
2ºC Scenario
Above
4ºC Scenario
First
Stage Rating
Below
2ºC Scenario
Above
4ºC Scenario
First
Stage Rating
Below
2ºC Scenario
Above
4ºC Scenario
Higher
Higher
Moderate
Higher
Higher
Moderate
Higher
Moderate
Moderate
Moderate
Moderate
Higher
Moderate
Moderate
Moderate
Moderate
Higher
Moderate
Higher
Higher
Moderate
Lower
Lower
Lower
Lower
Moderate
Lower
Lower
Lower
Moderate
Moderate
Higher
Higher
Higher
Moderate
Higher
Moderate
Moderate
Moderate
Moderate
Higher
Lower
Lower
Lower
Lower
Moderate
Moderate
Moderate
Moderate
Moderate
n/a – scenario analysis not performed for this risk type
Moderate
Moderate
Moderate
Moderate
Lower
n/a – scenario analysis not performed for this risk type
Moderate
Moderate
Moderate
Moderate
Lower
n/a – scenario analysis not performed for this risk type
a) The IPPC Atlas’ RCP2.6 scenario and the NGFS’s Net Zero 2050 scenario are assumed to represent “Below 2°C scenarios” for physical and transition risks
respectively. Above 4ºC scenarios were included voluntarily for prudent, comparative purposes, and are based on the IPPC Atlas’ RCP8.5 scenario and the
NGFS’s Current Policies scenarios for physical and transition risks respectively
b) Impact represents assumed, inherent financial exposure and/or vulnerability of the Company
c) Likelihood represents the probability and/or frequency of occurrence
d) Overall Rating represents the product of Impact and Likelihood
e) First Stage ratings were based on initial internal discussions and comparison with peer organisations. The top three risk types with relatively higher ratings for
impact and likelihood were then taken forward for more detailed scenario analysis in 2023. Please see Appendix A for further details on the methodology
Subsidence was not selected to be included in scenario analysis this year, but it was identified as a climate risk alongside Flooding and Extreme Heat.
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against these plans is reviewed monthly with the Head of
Sustainability and at asset management planning meetings
with site managers.
Financial planning – The majority of the Company’s assets
are on long-term full repairing and insuring (FRI) leases.
The maintenance and operation of the assets, including
improvements necessary to achieve the required EPC
improvements and the tenant’s own Net Zero targets are
therefore the responsibility of the tenant during the term of
the lease. The Company’s approach to financial planning is
reflective of this and includes the following activities.
– Assessment of the costs of improving all assets to an
EPC B. This is currently underway and has not yet been
formally reflected in the Company’s financial planning
as it is likely that the asset improvement costs may be
shared, at least in part, with its tenants, which requires
further engagement.
– On-going monitoring of the likelihood of potential asset
level risks. This may prompt a future change to asset
values, provisions for increased insurance premiums
and/or increased future rectification costs.
– Updates to the future budgeting process to incorporate
the costs of appointing suitable advisers to support its risk
assessment and reporting requirements.
– Updates to the future budgeting process to incorporate
additional acquisitions costs to support the more
detailed due diligence around climate-related risks and
opportunities.
Access to Capital – Access to both debt and equity capital
will increasingly require the Company to align with the
financial community’s requirements for robust climate risk
and opportunity management and activities relating to Net
Zero. The Company’s sustainability strategy is designed to
address this through:
– Regular engagement via the Investment Adviser with
Shareholders to understand their requirements and
to ensure timely responses to their own sustainability
due diligence.
– Increased transparency over risks and opportunities
and how they are being managed; which includes this
TCFD report.
– Independent review and support in the preparation of
climate-related disclosures by third-party advisers.
– Horizon scanning for sustainability initiatives to be
implemented by relevant regulators.
– Ongoing dialogue with debt funders around their
sustainability policies including relevant lending
exclusions and funding incentives linked to green
lending criteria.
The three climate risks and/or opportunities judged to be
the most material and assigned the highest overall risk
or opportunity rating in the initial risk screening were
evaluated using climate scenario analysis. The results of this
analysis are shown in Table 2. The scope of this detailed
analysis will be expanded in future years to evaluate
more risk and opportunity types and to better quantify the
financial impacts associated with these risks. Additional
risks to be evaluated include energy costs and customer
and tenant demand for lower carbon buildings, while
opportunities include gaining a competitive advantage
over peers by offering assets with higher energy efficiency
ratings. Quantitative financial values at risk have not been
published this year, as the corresponding costs of managing
the risks require further research and greater access to and
engagement with tenants. This research and engagement
will be performed over the next 12 months. This is
considered to be a transitional challenge as the Company’s
scenario analysis methodology is developed and embedded.
Describe the impact of climate-related risks and
opportunities on the organisation’s businesses, strategy,
and financial planning:
The Company’s ability to evolve its commercial strategies to
reflect the relevant climate-related risks and opportunities
identified, will be fundamental to its continued success. This
will include considering the risks and opportunities within
specific activities, such as:
Acquisitions – The Investment Adviser has already
adapted its asset sourcing criteria and approach to
acquiring new assets.
– No asset with an EPC below C can be acquired unless
a demonstrable EPC improvement plan is developed, the
cost of which is reflected in the investment case for the
asset acquisition.
– Consideration is given to the costs required to improve
all assets to EPC B, based on current anticipated
legislative changes.
– A sustainability review is completed for all assets.
– Opportunities for the installation of energy efficiency
and renewables technology in support of the Net Zero
transition are considered as part of the investment case.
– The credit standing of the Company’s tenants is assessed
in the context of their ability to manage climate-related
risks and opportunities.
As the Investment Adviser continues to embed the SIMS it
will also undertake additional due diligence including future
flood risk assessments under alternative climate scenarios.
Asset Management – The Investment Adviser already
maintains records relating to the delivery of sustainability
initiatives across the Company’s portfolio. Priority
initiatives will be defined through this risk and opportunity
identification process and combined with initiatives
previously identified through to the Company’s engagement
with tenants, the acquisition due diligence process. Current
example initiatives include feasibility assessments for
installation of renewable energy solutions or electric
charging points. The Investment Adviser’s progress
4 2 S U P E R M A R K E T I N C O M E R E I T P L C
Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related
scenarios, including a 2°C or lower scenario:
Each risk type with Moderate-Higher First Stage Ratings
have been considered under two future scenarios.
The future scenarios are the IPCC’s Representative
Concentration Pathway (RCP) 2.6 IPCC RCP8.5. The RCP2.6
scenario describes a scenario where global temperature
increases remain below 2°C as a result of sharp decreases in
emissions, whilst the RCP8.5 scenario describes a scenario
commensurate with much higher emissions and subsequent
temperature increases (around 4°C of warming). These
scenarios have been included in analysis on the basis that
they represent a low-emissions future scenario as well as
a high-emissions future scenario.
Policy and Legal
The Company’s current, key regulatory risk is associated
with the MEES. MEES impacts the Company’s portfolio
of assets by requiring that each asset achieves minimum
EPC ratings in order to be leased. It is acknowledged that
within the RCP2.6 scenario, other policy and legal changes
may be introduced in addition to, or in-place of the current
MEES regulation. Therefore, this risk is intended to
represent a broader suite of future climate Policy and Legal
interventions. Current MEES readiness and EPC ratings
serve as only one indicator for how vulnerable the Company
is to the broader risk of climate-related Policy and Legal
changes. Other vulnerability indicators include tenant lease
term. The likelihood rating is based on the proxy of global
carbon price data, on the rationale that in future scenarios
with higher carbon prices, there is an increased likelihood
of policies, such as MEES, that discourage emissions. In the
RCP2.6 scenario, carbon prices increase more rapidly in the
short-term than under the RCP8.5 scenario. Further details
of this approach have been included in Appendix A.
Currently, the MEES regulation sees compliance as
a landlord responsibility, is applied to all commercial leases
(subject to some exemptions) and dictates that a property
with an EPC lower than an ‘E’ cannot be let to new tenants
or renewed with existing tenants. Revisions to the legislation
are currently under consultation, but it is widely anticipated
that landlords, including the Company, will be required to
ensure their properties are rated at C or better by 2028 and
B or better by 2030 to continue to lease the properties to
tenants. Although, as aforementioned, these regulations are
subject to exclusions.
The Company’s leased supermarket assets in England
currently achieve an average rating of C, with 8 of 50 (16%)
rated at D or worse. The Company has undertaken an
exercise to understand the capital expenditure required
to bring the portfolio up to a lettable standard, should
the legislation progress as is anticipated (i.e. B by 2030).
Based on the Investment Adviser’s initial analysis of the
upgrade costs, these are not expected to be material for the
Company. However, the Company is actively engaging with
tenants to improve asset energy efficiency, where possible,
since an asset with a lower rating could invite lower demand
and rental income relative to an asset with a comparatively
higher rating. This is likely to be of greater concern to the
Company over the medium term when the majority of its
leases will be due for renewal. While the landlord is not
able to make change without consent from the tenants, the
landlord may register an exemption should the tenant not
permit access and alterations to facilitate improvement.
As a result of this analysis, the Company will be evaluating
the capital refurbishment plans on those sites with lower
EPC ratings and ensuring that robust plans are in place
to comply with, if not exceed, future MEES regulations.
The financial impact of this risk will be assessed in
future analysis.
Extreme Heat
Heat waves have increasingly impacted businesses in the
UK and across Europe, with average impacts estimated
as high as 0.5% of GDP in the last decade (www.nature.
com/articles/). The heat wave in July 2022 saw UK
temperatures rise above 40°C in some areas, impacting
grocery store refrigeration capability, energy supply,
supply chains and operations. Such events impact store
profitability as they lead to increased energy consumption
and associated costs to facilitate greater levels of cooling.
Other impacts include stock loss and the cost of newer,
more efficient refrigeration technology. If this were to
disproportionately impact the Company’s stores this could
reduce their attractiveness to the operators, leading to
impacts on rental income.
The results of the scenario analysis show that heat waves
are generally a low risk for the Company’s portfolio in the
RCP2.6 scenario, with temperatures rising above 35°C fewer
than one day per year on the short-, medium-, and long-term
horizon. In the RCP8.5 scenario, this risk increases but
remains low compared to global risk levels, with the number
of days with temperatures of 35°C or greater increasing
to over three days per year on average. Higher risk sites
were mainly located in the South West, with the remaining
located in the Midlands and the South East of England.
Informed by this analysis, the Company will engage
with tenants of higher risk sites through site visits and
engagement to better understand the operational impacts
as a result of extreme heat, if and how it has affected asset
operations at these locations in the past, and the extent to
which it may influence a tenant’s decision to renew its lease.
Tenants are continuing to advance their own refrigeration
and supply chain technology alongside the changing
environment, with refrigeration upgrades at stores where
the equipment is aged, reducing any stock loss associated
with inadequate refrigeration.
Flooding
While there have been no instances of flooding across
the Company’s portfolio during its period of ownership,
flooding has in some locations impacted other supermarket
properties across the UK. This impact is expected to
increase over time due to climate change (see WWF Water
Risk Filter). Scenario analysis results for the Company’s
portfolio show flood risk to be moderate on the short
and medium-term time horizons in the RCP8.5 scenario.
This risk level is reflective of the higher risk level that the
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UK faces relative to many other countries. The scenario
analysis highlighted regional differences in risk levels
within the Company’s portfolio, with higher risk sites
distributed equally across the South East, South West and
Midlands, with Wales, the North East and North West
comparatively lower risk.
These results will inform tenant engagement across
the portfolio regarding flood risk, including enhanced
communication for any higher risk sites identified.
Furthermore, the Company has undertaken a closer review
of past flood risk assessments to understand what adaptation
measures are available and the capital investment required
for such measures. Detailed financial impacts of this risk
will be quantified over the next 12 months. The Investment
Adviser will be reviewing its investment due diligence and
exploring if more detailed analysis of acute and chronic
flood risk impacts can be embedded into its investment
strategy and decisions.
Risk Management
Describe the organisation’s processes for identifying and
assessing climate-related risks:
The Company’s approach to risk assessment is as set out in
the Our Principal Risks Section on pages 51 to 60.
The Board and JTC Global AIFM Solutions Limited, the
Company’s Alternative Investment Fund Manager (the
AIFM), together have joint overall responsibility for the
Company’s risk management and internal controls, with
the Audit and Risk Committee reviewing the effectiveness
of the Board’s risk management processes on its behalf.
The ESG Committee is responsible under the delegated
authority of the Board for the identification and monitoring
of climate-related risks which are incorporated into the risk
management process.
The ESG Committee will consider both physical risk
factors such as flood risk as well as existing and future,
emerging regulatory risks, including the implications of
the introduction of MEES. Additionally, the Investment
Adviser seeks to ensure climate-related risks are a standing
item when engaging with the Company’s tenants. Such
engagement occurs multiple times per year and more
frequently with larger site tenants. Where relevant to do so,
it will formally incorporate any risks identified through that
engagement channel into the Company’s risk register over
the next 12 months.
Materiality of climate-related risks and opportunities is
determined based on their relative likelihood and potential
financial impact. This is a process that has been reviewed
and will continue to be enhanced over the course of 2023.
At present, the Company’s finance team have fed into
a ‘First Stage Rating’, which has enabled the process of
financial quantification to commence via the scenario
analysis for selected risks. Once the risk quantification
is complete, it will allow a more robust assessment of
materiality to be made.
4 4 S U P E R M A R K E T I N C O M E R E I T P L C
Describe the organisation’s processes for managing
climate-related risks:
The Investment Adviser undertakes an assessment of each
asset against a set of sustainability criteria, incorporating
metrics such as a flood risk assessment into each transaction
review. The Company will not recommend the acquisition
of assets with an Energy Performance Certificate (EPC)
of D or below unless a deliverable EPC improvement
plan is in place, prior to acquisition, to improve an asset
to an EPC rating of C or better. The cost of delivering
the EPC Improvement plan forms part of the acquisition
investment case.
Materiality and prioritisation determinations are made
through impact, likelihood, and risk scoring as a part of the
risk register. Inherent and residual probabilities are assigned
to each risk, from which a risk score is derived. Mitigating
actions are described in detail in the risk register, laying
out governance structure and processes in place aimed at
mitigating each risk. Finally, actions taken to mitigate risks
are tracked and recorded in the register.
Regulatory transition risks associated with the Company’s
portfolio are assessed and included in the risk register.
EPC ratings and scoring are updated on a rolling basis
when there are known sustainable improvements
to assets, on expiry or following a change to EPC
calculation methodology. These ratings, as the Company’s
responsibility, are undertaken by the Company’s consultants
when required. The Company strives to acquire assets with
higher EPC ratings in order to mitigate exposure to this
risk. This is reflected in the Investment Adviser’s systems
and controls.
Describe how processes for identifying, assessing, and
managing climate-related risks are integrated into the
organisation’s overall risk management:
The Company’s approach to risk assessment is as set out in
the Our Principal Risks Section on pages 51 to 60.
The Company manages its risk related to emissions
regulations by monitoring, measuring, and disclosing its
Scope 1, 2, and 3 GHG emissions. Emissions mitigation
strategies, including specific emissions targets, are being
developed to reduce the Company’s emissions and to reduce
exposure to this regulatory risk.
Rising energy costs are a key transition risk, as tenants
facing rising energy, or other, costs would put downward
pressure on rent revenue. To manage this risk, the
Investment Adviser prioritises energy efficiency and
alternative energy sources, such as renewable energy, in
communications with tenants. Energy efficiency and energy
sources are tracked as part of the EPC assessments and this
information is used to inform risk exposure related to rising
energy costs.
The Company’s identified physical climate risks include
flooding, heat waves, and subsidence. Flood risk across
the UK has historically been high and this risk is expected
to increase, per the UK’s Third Climate Change Risk
Assessment. Should there be an incidence of flood, it is
anticipated that a flooding report would be submitted by the
tenants to the Investment Adviser. These can be consulted to
inform the Company’s risk and investment strategy.
The Company’s tenants maintain their own risk registers
related to their site’s facilities and property. As part of
building on its risk management processes, the Investment
Adviser plans to link the material site-specific risks of the
Company’s tenants to the Company’s own risk register.
In addition, as part of their Scope 3 emissions initiatives,
the Investment Adviser plans to engage tenants through this
process in order to enhance dialogue related to emissions
reductions strategies.
Metrics and Targets
Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with
its strategy and risk management process. Describe
the targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets:
The Company uses EPC ratings of its properties to assess its
progress towards meeting and exceeding the MEES. In line
with anticipated legislation, the Company targets an EPC
rating of C or better on all owned properties by 2028 and
a rating of B or better by 2030.
The Company has defined nine metrics, including asset EPC
ratings, against which it can measure progress towards its
climate targets. These metrics, their associated targets, and
progress to date are shown in Table 3.
Table 3 | Climate‑related metrics and targets
Target
Metric
Progress (as of June
2023)52
EPC rating
25 of 50 (50%)
EPC rating
42 of 50 (84%)
EPC rating
37 of 107 (35%)
EPC rating
99 of 107 (93%)
Number of vehicle
charging stations
0 of 5 (0%)
Percentage of
staff trained
In progress.
Training for staff
due in Q3 2023.
1
All supermarkets53
B or above by 2030
2 All supermarkets53
C or above by 2028
3 All ancillary units54
B or above by 2030
4 All ancillary units54
C or above by 2028
5 Five sites with
Company-owned
and managed
car parks with
electronic
vehicle charging
6 100% of
Investment
Adviser staff
received training
on climate risks
and opportunities
by end of 2023
7 Reduction in the
Company’s Scope 1
& 2 GHG emissions
Absolute
emissions
Emissions
intensity
8 Reduction in
the Company’s
Scope 1 & 2
energy emissions
(kgCO2e/m2)
9 Reduction in
tenant energy
emissions
(kgCO2e/m2)
Emissions
intensity
Science-based
target (SBT)
currently being
developed. SBT to
be submitted by
the end of 2023.
Science-based
target (SBT)
currently being
developed. SBT to
be submitted by
the end of 2023.
Science-based
target (SBT)
currently being
developed.
Metrics and targets are not currently linked to remuneration
policies for the Investment Adviser or other personnel. This
will be considered by the Company over the next 12 months.
Disclose Scope 1, Scope 2 and, if appropriate, Scope 3
greenhouse gas (GHG) emissions and the related risks:
The Company completed its first full Scope 1, 2 & 3 GHG
inventory in 2023 based on FY 2023 (July 2022 – June 2023)
data. The GHG inventory was calculated following the GHG
Protocol Guidance and all relevant scopes and categories
have been included. The Company defines its organisational
boundary using the operational control approach. This
means that consumption relating to areas where the
Company has operational control, such as the communal
areas of certain sites, are included in its direct Scope 1 & 2
52
53
2023 is the first year of reporting the majority of metrics, so no prior year
comparisons have been included in this table. The 2024 Annual report will
allow for trend analysis and compare metrics disclosed in 2023
Excludes three supermarkets and seven ancillary units located in
Scotland, due to differing EPC calculation methodology used, making the
sites non-comparable
54 “Ancillary units” are units not used as a supermarket
A N N U A L R E P O R T 2 0 2 3 4 5
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emissions. Meanwhile, consumption relating to areas where
the Company has limited operational control, such as sites
controlled by its tenants, are included in its indirect Scope
3 emissions. Given that most of the Company’s portfolio is
let on full repairing and insuring leases, Scope 3 forms the
largest proportion of its emissions at 99.7% of total Scope 1,
2 & 3 emissions, largely due to tenants’ energy use.
FY 2023 represented a normal year of business for the
Company. FY 2023 is the reporting period that will be used
as the baseline year for the Company’s Science-based Target
(SBT), which is currently in development. A target is due to
be submitted to the Science Based Targets initiative (SBTi)
by the end of 2023.
Data Improvements
The FY 2023 GHG inventory improved upon the Company’s
initial measure of tenant emissions in 2022, which were
estimated due to a lack of activity data. In 2023, the
Investment Adviser worked with the Company’s tenants
to source activity data to improve the accuracy of the
emissions. This resulted in the percentage of tenant
emissions that were estimated reducing from 100% in
2022 to 86% in 2023. In 2023, the Company was also able
to provide more data for its direct emissions, such as the
energy use in the communal areas of its sites where the
Company has operational control, and its operational
Scope 3 emissions, which enabled the Company to compile
a complete GHG inventory. The details of this GHG
inventory are provided in Table 4 (see Appendix B for
details of the methodology).
Table 4 | Greenhouse Gas Emissions
Scope and Category
Description
Scope 1
Fuels used in the communal areas of sites where the Company as
the landlord is responsible for procuring the energy on behalf of
the tenants.
Scope 2 (location-based)
Scope 2 (market-based)
Electricity use in the communal areas of sites where the Company
as the landlord is responsible for procuring the energy on behalf
of the tenants.
Total Scope 1 & 2 Emissions (market‑based)
Scope 3
(1. Purchased Goods & Services)
The Company’s purchased goods and services, including
emissions relating to the Investment Adviser, Atrato Capital.
Scope 3 (2. Capital Goods)
Embodied emissions of newly built properties added to the
portfolio in the reporting period.
Scope 3
(3. Fuel-and Energy-
Related Activities)
Upstream emissions of energy use included in Scope 1 & 2.
Scope 3
(13. Downstream Leased Assets)
Scope 1 & 2 energy use of tenants, including fugitive emissions
arising from refrigeration and air conditioning.
Scope 1 & 2 energy use of communal areas where the Company is
not responsible for procuring the energy (included in FY23 only).
Total Scope 3 Emissions
Total Scope 1, 2 & 3 Emissions (market‑based)
Out-of-scope
Tenant emissions relating to biomass used to heat some
tenant sites.
Table 5 | Energy Consumption
Energy Consumption
Scope 1 & 2 Company (landlord) Energy Consumption
(electricity and fuels) (kWh)
Scope 3 Tenant Energy Consumption (electricity and fuels) (kWh)
Scope 3 Tenant Energy Consumption (refrigerant losses) (kg)
Table 6 | Intensity Metrics
Intensity Metric
Scope 1 & 2 Company (landlord) Emissions Intensity (kgCO2e/m2)
Scope 3 Tenant Energy Emissions Intensity (tCO2e/m2)
Scope 1 & 2 Company (landlord) Energy Intensity (kWh/m2)
Scope 3 Tenant Energy Intensity (electricity and fuels) (kWh/m2)
4 6 S U P E R M A R K E T I N C O M E R E I T P L C
FY23 Emissions
(tCO2e)
FY22 Emissions
(tCO2e)
10
N/A
101
184
194
3,131
463
61
N/A
N/A
N/A
N/A
N/A
N/A
77,273
87,715
80,929
81,123
22
87,715
87,715
1,376
FY23
FY22
574,047
N/A
186,704,059
224,504,601
11,381
10,719
FY23
0.78
117.99
2.30
473.86
FY22
N/A
284
N/A
715
Appendix A: Methodology notes for scenario analysis
Overview
The scenario analysis described in this report is
underpinned by a standard, recognised formula for risk:
Likelihood x Impact = Risk
This taxonomy is considered best practice and is informed
by approaches taken in major financial risk, climate risk and
transitional planning frameworks.
This approach goes beyond many generic climate models
which focus more on the likelihood scores and ratings,
by considering company specific inputs, as part of
impact scoring.
First Stage ratings are based on the Investment Adviser’s
initial judgement. This considered previously performed
risk assessment activities and secondary research (including
peer review). More formally defined materiality thresholds
will be defined in the next 12 months as a result of this
inaugural 2023 scenario analysis process.
For scenario analysis ratings, the likelihood and impact are
each scored on a scale of 1-5 and are multiplied together
to give a risk score between 1-25 for each time horizon.
An overall risk score (Overall Rating) is calculated for all
scenarios and time periods. Moderate-higher risk scores rate
between 15-20, whilst higher risk scores rate between 21
and 25. The Overall Rating and Impact gradings in Table 2
are based on the average across all sites within the portfolio.
The Likelihood grading in Table 2 is based on the average
across all time horizons under a given scenario and risk
type. Consideration is still made for moderate-higher and
higher risk sites that are outliers relative to the average
value as explored in the accompanying text. Inherent risks
and the Company response will continue to be refined and
understood following this assessment.
A quantitative, value at risk or value of opportunity figure
can be subsequently assigned to the overall risk score in
GBP (£), however this has not been undertaken for the FY
2023 reporting. The corresponding costs of managing the
risks require further research and greater access to and
engagement with tenants. To publish only the value of
inherent risks without the associated costs of managing
the risks, in the reasonable opinion of the Company, was
felt to present a reporting risk of misleading users of this
information, at this point in time. Therefore, research and
engagement will be performed over the next 12 months to
progress this area of subsequent analysis. This is considered
to be a transitional challenge as the Company’s scenario
analysis methodology is developed and embedded.
Likelihood
A 1-5 likelihood score is assigned to each location for each
risk type. This score represents the probability of the risk
occurring in a given location and is based on generic climate
scenario data. Here likelihood scores are calculated based
on the IPPC Atlas and Network for Greening the Financial
System (NGFS) transition variables available in the NGFS
Scenarios Database. A specific ‘sub-data set’ is assigned
to each risk type to act as a proxy for the likelihood of
that risk occurring. The ‘raw unit’ values are converted to
a continuous score between 1-5 as described below.
Risk Type
Policy and Legal
IPPC or NGFS
sub‑data set
Carbon
Price (NGFS)
Raw Unit
Justification
US$/tCO2
The NGFS presents the shadow carbon price as a proxy for government
policy intensity. In reality, governments are pursuing a range of
fiscal and regulatory policies which have varying costs and benefits.
Carbon price is considered a good proxy to emerging regulation and is
sensitive to the country’s level of ambition to mitigate climate change,
timing of policy implementation and distribution of policy measures
across sectors.
Scores are relative to policy across other countries internationally.
Days above 35ºC are judged to be extreme. While thresholds for Met
Office warnings and ‘heat wave’ definitions are variable across the
UK, over 35 degrees Celsius appears to meet the historical thresholds
required for a Met Office ‘heat wave’ classification and amber or red
weather warning being issued.
Sites are scored relative to all other UK locations, with a 5 representing
the highest 20% of frequencies (over 3.2 or more days per year), and
a 1 representing the lowest 20% of frequencies (fewer than 0.8 days
per year).
Extreme heat
CMIP6 – Days
above 35ºC
(IPCC Atlas)
ºC
Flooding
WWF’s Water
Risk Filter
Bespoke WWF
risk score
number (1-6.6)
This database specifically considers the physical flood risk indicator
within the tool. Scores are relative to all countries internationally.
‘Optimistic case’ scores selected for RCP 2.6, ‘Pessimistic case’ for RCP
8.5 scenario.
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Impact
Impact assesses the Company’s current sensitivity or
vulnerability to specific risks and opportunities, based on
current or historic company insight. Similar to likelihood,
a 1-5 score is assigned to each indicator, by a relevant
location (e.g. activity, customer, supplier etc.), for each Risk
Type. There are a number of considerations here.
• Impact Pathway: An ‘impact pathway’ is defined for each
risk type. An impact pathway is a financial statement
line item (FSLI) that we would expect to be materially
affected by a risk type e.g. revenue, cost of sales, operating
costs, fixed assets, cash etc. A risk type may have multiple
impact pathways; however, the scope of this assessment
considers only one impact pathway. The impact pathway
that is judged to be most significantly impacted is selected.
The impact pathways in focus were selected following
consultation with the Investment Adviser’s finance team.
• Impact indicator: Multiple impact indicators can combine
to give an overall impact score and can be a combination
of the Company’s own data points and secondary sources.
There are no limits on the nature and extent of indicators
used; we have used one per risk type for the current year
reporting, however two, three or 10 could be used as the
risk screening evolves.
• Weighting: Each indicator used is combined to give an
overall impact score. The ‘weight’ each impact indicator
carries is judgmental. At present, because only one
indicator has been used per risk, they all carry a weighting
of 100%, but should more indicators be added over time,
the Company will reflect on the weighting these carry and
can adjust these within the Excel model as they see fit.
• Financial materiality alignment: Where possible; we
have aligned the upper impact score (a ‘5 rating’) with
a financially material impact.
4 8 S U P E R M A R K E T I N C O M E R E I T P L C
The below table details the impact scores and justifications for the Company’s impact ratings:
Risk Type
Impact Indicator
Policy and Legal EPC Certificate
ratings per site –
100% weighting
Extreme heat
Energy Intensity
per site
(kWh/m2 per year)
– 100% weighting
Flooding
Revenue per site –
100% weighting
Impact
banding Raw unit
Justification
5
4
3
2
1
5
4
3
2
1
5
4
3
2
1
EPC E
EPC D
EPC C
EPC B
EPC A
859-706
705-552
551-399
398-245
244-92
As of June 2023, it is anticipated that Minimum Energy Efficiency
Standards (MEES) will require asset EPC ratings to be raised to C by
2028 and to B by 2030. This means that the landlord of any properties
not meeting these requirements could incur a fine (exemptions
do apply – for example where there is a tenant in situ who will not
allow the landlord to make changes to improve building energy
performance). EPC ratings are an indicator of energy efficiency, so as
the UK transitions to Net Zero, higher energy intensity will indicate
a greater risk exposure.
The landlord of any asset currently at a E or below is more vulnerable
to incurring fines as a result of current regulation, as they are not
compliant. Given the direction of change, D or below would also
be most vulnerable to any other future regulation changes that
may arise. Moderate-Higher and Higher impact (bandings 4 & 5
respectively) assets may also harm the Company’s reputation and
reduce the marketability of the individual asset.
While it is anticipated that an EPC C will not be judged as compliant
in 2030, the Company has judged this impact remains as a moderate
risk due to the following factors: there is felt to be sufficient time to
upgrade to EPC B by 2030 and plans are already underway to achieve
this, many of the Company’s tenants are on long-term leases, and
so are less able and/or likely to terminate or not renew lease if
there were any MEES compliance issues. In addition, the majority of
the grocery tenants have clear plans they are actioning in order to
improve the energy performance of their store as this leads to cost
savings, as well as contributing towards their own sustainability and
Net Zero targets.
This is a more specific indicator of energy use and is not related to
regulation like in the case of EPCs. In instances of extreme heat, it
is assumed that properties will consume more energy for cooling.
Therefore, less efficient or more energy intense assets are deemed
more vulnerable as they are likely already incurring higher than
average energy costs. The higher energy consumption will also be
putting pressure on the specific tenant’s Net Zero targets and could
indicate assets that are more vulnerable to that tenant not renewing /
applying pressure for the Company to improve these buildings.
The highest impact banding (5) represents the highest energy
intensity 20% of the range. The range is (859-92 = 767kWh/m2),
therefore anything over 705kWh/m2 is assigned a 5.
This scores each site relative to each other – we cannot yet validate
whether the increase in cooling requirements at a more energy
intense site is material for the tenant; however, this will be explored
in the future years SA.
>5% (>£4.4m) Annual rent collected (revenue) was used as an indicator for impact.
>2.5% (>£2.2m)
>1.25% (>£1.1m)
>0.6% (>£0.5m)
<0.6% (<£0.5m)
The rationale being that the greater the rent, the more material the
impact if a site was damaged by a flood, which resulted in a tenant
defaulting/deferring on lease payment.
Bandings are based on a % of total supermarket revenue where an
individual site generating over 5% of revenue is deemed financially
material. Bandings are not linear but logarithmic (50% of the banding
above), in order to align with the approach commonly applied in
financial auditing.
A N N U A L R E P O R T 2 0 2 3 4 9
STRATEGIC REPORT | TCFD COMPLIANT REPORT CONTINUED
Limitations of this analysis
– EPCs are only one means of assessing the overall energy
efficiency of a site and it may be the case that dynamic
standards are introduced in the near future.
– Two sites (Sainsbury’s Denton & Sainsbury’s Kettering)
were missing from the data and were assigned an impact
value of 3 by default.
– Non-food assets were not screened in this analysis
due to limited data availability but will look to be
included in next year’s reporting following a data
remediation exercise.
Appendix B: Methodology notes for greenhouse
gas inventory
Methodology and Assumptions
The 2022 Conversion Factors published by the UK
Department for Energy Security and Net Zero (DESNZ)
and Department for Business, Energy, and Industrial
Strategy (BEIS) was the main source used for emission
factors. All relevant categories have been included and
any exclusions are described below.
Scope 1 & 2
For electricity and natural gas, some actual consumption
data was provided. Where there were gaps, estimations
were made using previous year data or floor area intensities
(based on similar sites within the portfolio) as proxies.
For fuel oil, spend was used as a proxy due to a lack of
activity data.
Scope 3 (1. Purchased Goods & Services)
This category was estimated using spend as a proxy and
applying Department for Environment, Food & Rural Affairs
(DEFRA) input-output factors (kgCO2/GBP) to expenditure.
Scope 3 (2. Capital Goods)
There were two sites where development was completed
in the reporting period. For these sites, embodied carbon
emissions were estimated by applying a benchmark
intensity (kgCO2e/m2) to the floor area.
Scope 3 (13. Downstream Leased Assets)
The majority of emissions relate to tenant energy use. Some
tenants provided actual consumption data for electricity
and heating. Where there were gaps, estimations were
made using benchmark intensity data based on floor area.
Refrigerants were estimated for all sites. One small non-food
site was excluded from the calculations due to a lack of
activity data or floor area required for estimations.
A smaller amount of emissions arise from the communal
areas of sites where the Company owns the land but is not
responsible for paying for the energy. These emissions were
estimated using the floor area intensities of similar sites with
actual data.
5 0 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | OUR PRINCIPLE RISKS
The Board and JTC Global AIFM Solutions Limited, the
Company’s Alternative Investment Fund Manager (the
AIFM), together have joint overall responsibility for the
Company’s risk management and internal controls, with the
Audit 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.
The Board aims to operate in a low-risk environment,
focusing substantially 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 its business objectives, and this has not changed
during the year. We have no appetite for risk in relation to
regulatory compliance or the health, safety and welfare of
our tenants, service providers and the wider community in
which we work. We continue to have a moderate appetite
for risk in relation to activities which drive revenues and
increase financial returns for our investors.
4
3
1
9
2
17
7
14
10
12
6
11
13
15
5
16
8
T
C
A
P
M
I
h
g
H
i
e
t
a
r
e
d
o
M
w
o
L
e
r
a
R
Rare
Low
Moderate
High
PROBABILITY
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
arise. The quarterly assessment includes input from the
Investment Adviser and review of information by the AIFM,
prior to consideration by the Audit Committee.
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.
The following risks have been added in the current year
and are discussed in detail below:
• The default of one of the supermarket operators would
create an excess supply of supermarket real estate.
• Changes in regulatory policy could lead to our assets
becoming unlettable.
The Board considers these risks have increased 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.
A lack of debt funding at appropriate rates may restrict our
ability to grow.
There can be no guarantee that we will achieve our
investment objectives.
The assets within the Group’s portfolio that are less energy efficient may
be exposed to downward pressure on valuation or increased pressure to
invest in the improvement of individual assets.
Volatile changes in the weather systems may deem the Group’s
properties no longer viable to tenants.
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.
Inflationary pressures on the valuation of the portfolio.
The Board considers these risks to be broadly unchanged
since last year
Our ability to source assets may be affected by competition for
investment properties in the supermarket sector.
The default of one of the supermarket operators would create an excess
supply of supermarket real estate, thereby putting pressure on ERVs
leading to a breach in our banking covenants.
We must be able to operate within our banking covenants.
We are reliant on the continuance of the Investment Adviser.
We operate as a UK REIT and have a tax-efficient corporate structure,
with advantageous consequences for UK shareholders.
Changes in regulatory policy could lead to our assets
becoming unlettable.
The rise in attempted cyber crime and more recently cyber risks
arising from recent geopolitical tensions has increased the risk for
listed companies being targets for market manipulation and/or
insider trading.
Impact of war in Ukraine.
1
3
5
6
8
11
13
15
16
2
4
7
9
10
12
14
17
The Board considers these risks have decreased since last year
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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:
Impact:
Mitigation
Moderate
(from Low)
High (from Moderate)
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 Portfolio is 99.6% let (100% of supermarket assets are let) with long
weighted average unexpired lease terms and an institutional-grade
tenant base.
All the leases contain upward-only rent reviews, 80% are
inflation-linked, 18% are open market value and the rest contain fixed
uplifts. 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. We are reviewing alternative financing arrangements to lessen any
dependence on the banking sector.
2. Our ability to source assets may be affected by competition for investment properties in the supermarket sector
Probability:
Impact:
Mitigation
Low
Moderate
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
continues to be considered a safe asset
class for investors seeking long-term
secure cash flows which is maintaining
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.
The Company has acquired assets which are anchored by supermarket
properties but which also have ancillary retail on site, and these
acquisitions allow the Company to access quality supermarket assets
whilst providing additional asset management opportunities.
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.
5 2 S U P E R M A R K E T I N C O M E R E I T P L C
3. The default of one or more of our lessees would reduce revenue and may affect our ability to pay dividends
Probability:
Impact:
Mitigation
Moderate
(from Low)
High
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.
As at 30 June 2023, 76% of SUPR's income is from assets let to Sainsbury’s
and Tesco who are deemed investment grade credit quality, with 2% of
rental exposure to Asda and 1% for Aldi. The portfolio however continues
to be geographically diversified with no individual tenant operating
within more than 10-15 minutes of one of the Group's assets in any single
geographical area.
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.
Our investment strategy is to acquire strong trading grocery locations,
which in many cases have been supermarkets for between 30
and 50 years.
Our investment underwriting targets strong tenants with strong property
fundamentals (good location, large sites with low site cover) and which
should be attractive to other occupiers or have strong alternative use
value should the current occupier fail.
4. The default of one of the supermarket operators would create an excess supply of supermarket real estate, thereby putting
pressure on ERVs leading to a breach in our banking covenants
Probability:
Impact:
Mitigation
High
High
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
The failure of a single operator in any given town would place strain on
the immediate surrounding retailers as demand previously supplied by
the failed operator would be taken up by existing retailers.
The potential demise of a major supermarket operator would therefore
result in the real estate being potentially acquired by another operator
and would continue to be used as a supermarket.
Our investment strategy is to acquire strong trading grocery locations,
which in many cases have been supermarkets for between 30
and 50 years.
Our investment underwriting targets strong property fundamentals (good
location, large sites with low site cover) and which should be attractive
to other occupiers or have strong alternative use value should the current
occupier fail.
A N N U A L R E P O R T 2 0 2 3 5 3
STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED
FINANCIAL RISK
5. Our use of floating rate debt will expose the business to underlying interest rate movements as interest rates continue to rise
Probability:
Impact:
Mitigation
High (from
Moderate)
High (from Moderate)
Interest on the majority of our debt
facilities is payable based on a margin
over SONIA. Any adverse movements
in SONIA could significantly impair our
profitability and ability to pay dividends to
shareholders.
We have entered into interest rate swaps to partially mitigate our direct
exposure to movements in SONIA, by capping our exposure to SONIA
increases.
We aim to hedge prudently our SONIA 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.
As at the year end 100% of SUPR’s drawn debt is fixed.
6. A lack of debt funding at appropriate rates may restrict our ability to grow
Probability:
Impact:
Mitigation
Moderate
(from Low)
Moderate (from Low)
Impacts of both macroeconomic events
and banks’ exposure to offices in the US
has resulted in many lenders reducing
their exposure to real estate globally.
Without sufficient debt funding we may
be unable to pursue suitable investment
opportunities in line with our investment
objectives.
The Board reviews the Group’s financing arrangements and considers
options for refinancing well ahead of maturity.
The Board keeps our liquidity and gearing levels under review. We
have recently broadened our capital structure by starting to transition
our balance sheet to an unsecured structure, reducing our reliance on
a single source of funding.
Supermarket property continues to remain 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
continue to see appetite from both new and existing lenders to provide
financing to SUPR which has been demonstrated by the new facilities
entered during and after the year end.
The Company has had a cash liquidity event from the sale of the SRP
which has provided increased liquidity. We believe that this indicates that
the Company is not reliant in the short to medium-term on bank funding,
however note the recent refinancing events after the year end shows
appetite from banks to lend to SUPR.
7. We must be able to operate within our banking covenants
Probability:
Impact:
Mitigation
Low
Moderate
The Group’s borrowing facilities contain
certain financial covenants relating to
Loan to Value ratio and Interest Cover
ratio, a breach of which would lead to
a default on the loan. The Group must
continue to operate within these financial
covenants to avoid default.
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.
5 4 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE RISK
8. There can be no guarantee that we will achieve our investment objectives
Probability:
Impact:
Mitigation
Moderate
(from Low)
Low
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
distributable reserves.
The Board uses its expertise and experience to set our investment
strategy and it 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 dividend target. Movement in capital value
is subject to market yield movements and the ability of the Investment
Adviser to execute asset management strategies.
9. We are reliant on the continuance of the Investment Adviser
Probability:
Impact:
Mitigation
Low
Moderate
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.
A new Investment Advisory Agreement was entered into on 14 July 2021;
this revised agreement provides that unless there is a default, either
party may terminate by giving not less than two years, written notice.
This provides additional certainty for the Company. The Board keeps
the performance of the Investment Adviser under continual review and
undertakes a formal review at least annually.
The interests of the Company and the Investment Adviser are aligned
due to (a) key staff of the Investment Adviser having 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 has set up a management engagement committee
to assess the performance of the Investment Adviser and ensure we
maintain a positive working relationship.
The AIFM receives and reviews regular reporting from the Investment
Adviser and reports to the Board on the Investment Adviser’s
performance. The AIFM also reviews and makes recommendations to the
Board on any investments or significant asset management initiatives
proposed by the Investment Adviser.
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:
Impact:
Mitigation
Low
Moderate
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.
A N N U A L R E P O R T 2 0 2 3 5 5
STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED
CLIMATE RISKS
11. The assets within the Group’s portfolio that are less energy efficient may be exposed to downward pressure on valuation or
increased pressure to invest in the improvement of individual assets
Probability:
Impact:
Mitigation
Moderate
(from Low)
Moderate
As investors increase their focus on
climate risk, there is likely to become
a larger pool of capital looking to invest in
energy efficient assets.
Although this represents an opportunity
for those best-in-class assets to achieve
a ‘green premium’, there is likely to be an
impact on yield demanded, and therefore
valuation on assets within the portfolio
which are less energy efficient.
Given the unexpired lease terms across
the portfolio, this trend may impact the
residual values implicit in valuations
and reduce tenant demand for these
properties.
An ESG committee has been created to develop a road map for an energy
efficient property portfolio including an appropriate policy for minimum
energy performance across the Group’s assets.
Many of the supermarket operators have published targets to achieve
net zero and are actively upgrading stores to make them more energy
efficient.
The Company continues to work with its tenants to help them meet this
target and has entered into a framework agreement with Atrato Onsite
Energy to install rooftop solar panels across SUPR’s portfolio.
We are conducting ongoing work to update our physical risk assessments
on an annual basis and integrate the outcomes of the analysis into our
asset and property management activities.
Further detail has been included within the TCFD report on
pages 35 to 50.
12. Changes in regulatory policy could lead to our assets becoming unlettable
Probability:
Impact:
Mitigation
Moderate
Moderate
Changes in regulations (currently
represented by Minimum Energy
Efficiency Standards (MEES)) could lead
to the possibility of our assets becoming
unlettable. Any properties not compliant
with MEES could attract reduced tenant
demand, reduced rental income and/or be
subject to fines.
The ESG committee stays informed about changes in legislation by
working closely with the Investment Adviser and seeks input from
specialist ESG experts where necessary.
Proposed updates to MEES, together with updates on businesses to
develop Net Zero transition plans are being closely monitored.
Further detail has been included within the TCFD report on
pages 35 to 50.
13. Volatile changes in the weather systems may deem the Group’s properties no longer viable to tenants
Probability:
Impact:
Mitigation
Moderate
(from Low)
Moderate
Given the impact of global warming,
there is likely to be an increased risk of
floods and natural disasters which could
result in physical damage to the Group's
properties.
Rising temperatures may also result in
increased energy demand required for
cooling, reducing tenant demand for less
energy efficient buildings.
The Company obtains environmental surveys on all acquisitions,
which address the short-term risk of climate-related damage to group
properties.
A specialist ESG consultant was engaged during the year to understand
the impacts of climate change on the portfolio, using scenario analysis.
Work is ongoing in this area, where further detail has been included
within the TCFD report on pages 35 to 50.
The Investment Adviser’s asset management team continue to monitor
the changing physical risk as it develops through regular site visits to the
Group’s assets.
5 6 S U P E R M A R K E T I N C O M E R E I T P L C
CYBER RISKS
14. The rise in attempted cyber crime and more recently cyber risks arising from recent geopolitical tensions has increased the risk
for listed companies being targets for market manipulation and/or insider trading
Probability:
Impact:
Mitigation
Low
Moderate
Given the increase in remote and
hybrid working, this greater reliance on
technology has resulted in organisations
becoming more vulnerable to cyber
threats and online hacking.
As an externally managed REIT, all
services are contracted with external
third-party service providers. A cyber
attack on any of the Group’s third-party
service providers could lead to wider
business disruption or loss of market
sensitive information.
The Company’s main service provider is the Investment Adviser. The
Investment adviser’s Cyber Security Policy reflects the NCSC’s 10 steps
to Cyber Security guidance. Robust network security measures have
been implemented, including real time system oversight, combined with
offsite data back-up and access controls based on the principle of least
privilege. The Investment Adviser frequently reviews its cyber security
arrangements, alongside business continuity plans to address a major
disruption to the organisation. Members of the Investment Adviser team
receive regular training on cyber security issues.
When onboarding other service providers, the Investment Adviser
undertakes detailed background checks including a review of data
security when relevant. Additional due diligence is undertaken where
access to the Investment Adviser’s systems is required, with enhanced
controls implemented, again based on the principle of least privilege.
MARKET PRICE RISK
15. 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:
Impact:
Mitigation
High (from
Moderate)
Moderate
The Company’s ordinary shares have
this year traded in a wider range to the
price at which they were issued than they
have in previous years. This is largely
a function of supply and demand for the
ordinary shares in the market and cannot
therefore be controlled by the Board. The
Company’s move to the premium list of
the London Stock Exchange increased
liquidity in shares, thereby reducing the
risk that shareholders will not be able to
sell their shares at all.
The Company may seek to address any significant discount to NTA 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; being 1.20% of the total shares in issue as at 30 June 2023.
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.
The recent sale proceeds from the SRP investment has optionality to be
used for this purpose.
A N N U A L R E P O R T 2 0 2 3 5 7
STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED
MACROECONOMIC RISKS
16. Inflationary pressures on the valuation of the portfolio
Probability:
Impact:
Mitigation
Inflation is monitored closely by the Investment Adviser. The Group’s
portfolio rent reviews include a mixture of fixed, upward only capped
as well as open market rent reviews, to hedge against a variety of
inflationary outcomes.
High
(from low)
Moderate
The UK is experiencing historic price rises
with the highest inflation rate in 40 years,
and a slowing economy. The Bank of
England has responded by successive
interest rate increases which could lead
to a sharp decline in economic activity,
stock markets and possibly stagflation.
A recessionary environment could impact
real estate valuations.
Continued high inflation may cause rents
to exceed market levels and result in
the softening of valuation yields. Where
leases have capped rental uplifts, high
inflation may cause rent reviews to cap
out at maximum values, causing rental
uplifts to fall behind inflation.
17. Impact of the war in Ukraine
Probability:
Impact:
Mitigation
Low
Moderate
Russia’s invasion of the Ukraine in
February 2022 has led to a surge in global
energy and food prices. The extent
and impact of military action, resulting
sanctions and further market disruptions
is difficult to predict which increases the
uncertainty, and challenges of tenant
operators as well as consumer confidence
and financial markets.
This could lead to a recession should the
conflict move towards a global one.
Supermarket operators have historically been able to successfully
pass on inflationary increases through increasing price increases to the
end consumer.
Whilst sales volumes may fall in a recessionary environment, the
nature of food means that demand is relatively inelastic, where the
end consumer may decide to substitute luxury brands for supermarket
own-branded products.
Our tenants have strong balance sheets with robust and diversified
supply chains. The tenants are therefore well positioned to deal with any
disruption that may occur. As a result, we believe any adverse impact for
the Group would be minimal.
The Group invests solely in UK properties.
5 8 S U P E R M A R K E T I N C O M E R E I T P L C
Going concern
In light of the current macroeconomic backdrop,
the Directors have placed a particular focus on the
appropriateness of adopting the going concern basis in
preparing the Group’s and Company’s financial statements
for the year ended 30 June 2023. In assessing the going
concern basis of accounting the Directors have had regard to
the guidance issued by the Financial Reporting Council.
Liquidity
At 30 June 2023, the Group generated net cash flow
from operating activities of £84.3 million, held cash of
£37.5 million and undrawn committed facilities totalling
£189.9 million with no capital commitments or contingent
liabilities.
From the sale of its interest in the Sainsburys Reversion
Portfolio (SRP), the Group received proceeds of
£135.1 million post year end. £97.1 million of this was used
for working capital and debt repayment and £38.0 million
towards acquiring two stores (including acquisition costs).
As at the date of signing the annual report the Gross LTV
of the group was 34.0%. The remainder of the receivable
of £1.5 million is conditional on the sale of the remaining
store in the SRP.
After the year end, the Group also reduced its debt capacity
from £862.1 million to £689.5 million (see Note 20 for more
information), leaving undrawn committed facilities of over
£100 million available.
The Directors are of the belief that the Group continues to
be well funded during the going concern period with no
concerns over its liquidity.
Refinancing events
At the date of signing the financial statements, the Deka
facility falls due for repayment during the going concern
period (August 2024). It is intended that the facility will
be refinanced prior to maturity, or if required, it will be
paid down in full using the Group’s available undrawn
committed facilities of over £100 million. All lenders
have been supportive during the year and have expressed
commitment to the long-term relationship they wish to build
with the Company.
Covenants
The Group’s debt facilities include covenants in respect of
LTV and interest cover, both projected and historic. All debt
facilities, except for the unsecured facilities, are ring-fenced
with each specific lender.
The Directors have evaluated a number of scenarios
as part of the Group’s going concern assessment and
considered the impact of these scenarios on the Group’s
continued compliance with secured debt covenants. The
key assumptions that have been sensitised within these
scenarios are falls in rental income and increases in
administrative cost inflation.
As at the date of this Annual Report, 100% of contractual
rent for the period has been collected. The Group benefits
from a secure income stream from its property assets that
are let to tenants with excellent covenant strength under
long leases that are subject to upward only rent reviews.
The list of scenarios are below and are all on top of the
base case model which includes prudent assumptions on
valuations and cost inflation. No sensitivity for movements
in interest rates have been modelled as the Group has fixed
its interest cost through the use of interest rate derivatives
throughout the going concern assessment period.
Rental Income
Scenario
Costs
Base case
scenario
(Scenario 1)
100% contractual
rent received when
due and rent reviews
based on forward
looking inflation
curve, capped at the
contractual rate of the
individual leases.
Investment adviser
fee based on terms of
the signed agreement
(percentage of NAV
as per note 27), other
costs 0.35% of NAV.
Scenario 2
Rental income to
fall by 25%
Costs expected to
remain the same as
the base case.
Scenario 3
Rental Income
expected to remain
the same as the
base case.
10% increases on
base case costs to
all administrative
expenses
The Group continues to maintain covenant compliance for
its LTV and ICR thresholds throughout the going concern
assessment period under each of the scenarios modelled.
One of the secured facilities in the Group has a debt yield
covenant, which is calculated as the passing rent divided
by the loan balance for the properties secured against the
lender. The debt yield covenant only would be breached
for this facility if rental income is reduced by 6% during
the going concern assessment period. The Board considers
this scenario highly unlikely given the underlying covenant
strength of the tenants. Furthermore, there are remedies
available at the Group’s disposal which includes reducing
a portion of the outstanding debt from available undrawn
facilities or providing additional security over properties
that are currently unencumbered. The lowest amount of ICR
headroom experienced in the worst-case stress scenarios
was 22%. Based on the latest bank commissioned valuations,
property values would have to fall by more than 21% before
LTV covenants are breached, and 10% against 30 June 2023
Company valuations. Similarly, the strictest interest cover
covenant within each of the ring-fenced banking groups
is 225%, where the portfolio is forecast to have an average
interest cover ratio of 572% during the going concern period.
Having reviewed and considered three modelled scenarios,
the Directors consider that the Group has adequate
resources in place for at least 12 months from the date of
these results and have therefore adopted the going concern
basis of accounting in preparing the Annual Report.
Assessment of viability
The period over which the Directors consider it feasible
and appropriate to report on the Group’s viability is the
five-year period to 30 June 2028. 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
A N N U A L R E P O R T 2 0 2 3 5 9
STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED
Based on the work performed, the Board has a reasonable
expectation that the Group will be able to continue in
business over the five-year period of its assessment.
Other disclosures
Disclosures in relation to the Company’s business model and
strategy have been included within the Investment Adviser’s
Interview on pages 15 to 22. Disclosures in relation to the
main industry trends and factors that are likely to affect the
future performance and position of the business have been
included within The UK Grocery Market on pages 26 to 28.
Disclosures in relation to environmental and social issues
have been included within the TCFD Report on pages 35 to
50. Employee diversity disclosures have not been included
as the Directors do not consider these to be relevant to
the Company.
Key Performance Indicators (KPIs)
The KPIs and EPRA performance measures used by the
Group in assessing its strategic progress have been included
on pages 29 to 30.
Nick Hewson
Chair
19 September 2023
the potential impact of the Group’s significant risks, or
a combination of those risks. The principal risks on pages 51
to 60 summarise those matters that could prevent the Group
from delivering on its strategy. A number of these principal
risks, because of their nature or potential impact, could
also threaten the Group’s ability to continue in business in
its current form if they were to occur. The Directors paid
particular attention to the risk of a deterioration in economic
outlook which could impact property fundamentals,
including investor and occupier demand which would have
a negative impact on valuations, and give rise to a reduction
in the availability of finance.
The sensitivities performed were designed to be severe
but plausible; and to take full account of the availability of
mitigating actions that could be taken to avoid or reduce the
impact or occurrence of the underlying risks.
Viability Statement
The Board has assessed the prospects of the Group over
the five years from the balance sheet date to 30 June 2028,
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 most 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
Borrowing risk
The Group continues to comply with
all relevant loan covenants. The Group
is able to refinance all debt falling due
within the viability assessment period on
acceptable terms.
Interest Rate risk The increase in variable interest rates are
Liquidity risk
Tenant risk
managed by reduction of variable debt
from cash inflows and utilising interest
rate derivatives to limit the exposure to
variable debt.
The Group continues to generate sufficient
cash to cover its costs while retaining the
ability to make distributions.
Tenants (or guarantors where relevant)
comply with their rental obligations over
the term of their leases and no key tenant
suffers an insolvency event over the term of
the review.
6 0 S U P E R M A R K E T I N C O M E R E I T P L C
STRATEGIC REPORT | SECTION 172(1) STATEMENT
The Directors consider that in conducting the business
of the Company over the course of the year ended
30 June 2023, they have acted to promote the long-term
success of the Company for the benefit of shareholders,
whilst having regard to the matters set out in section 172(1)
(a-f) of the Companies Act 2006 (the “Act”).
Details of our key stakeholders and how the Board engages
with them can be found on pages 62 to 64. Further details
of the Board activities and principal decisions are set out on
pages 74 to 75 providing insight into how the Board makes
decisions and their link to strategy.
Other disclosures relating to our consideration of the
matters set out in s172(1)(a-f) of the Act have been
noted as follows:
s.172 Factor
Our approach
Relevant disclosures
A The likely
consequences
of any decision
in the long-term
The Board has regard to its wider obligations under Section 172 of the
Act. As such 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 longer-term
success of the business. Any recommendation is 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.
Key decisions of the Board during the
year on page 75.
Our Key Stakeholder Relationships on
pages 62 to 64.
Board Activities during the year on
page 74.
The Group does not have any employees as a result of its external
management structure.
Our Key Stakeholder Relationships on
pages 62 to 64.
The Board’s main working relationship is with the Investment Adviser.
Consequently, 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 do so.
The Company’s key service providers and customers include 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.
Our Culture on page 71.
Our Key Stakeholder Relationships on
pages 62 to 64.
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
As an owner of assets located in communities across the UK, we aim
to ensure that our buildings and their surroundings provide safe and
comfortable environments for all users.
The Board and the Investment Adviser have committed to limiting the
impact of the business on the environment where possible and engage
with tenants to seek to improve the ESG credentials of the properties
owned by the Company.
E The desirability
of the Company
maintaining
a reputation for
high standards
of business
conduct
F The need to act
fairly as between
members of
the Company
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 Investment Adviser and
Investment Advisory Team.
The risk of falling short of the high standards expected and thereby risking
business reputation is included in the Audit and Risk Committee’s review
of the Company’s risk register, which is conducted at least annually.
The Board recognises the importance of treating all members fairly and
oversees investor relations initiatives to ensure that views and opinions
of shareholders can be considered when setting strategy.
Our Key Stakeholder Relationships on
pages 62 to 64.
Details of the ESG policy and strategy
are included on pages 35 to 50.
The Board’s approach to sustainability
is also explained in the Company’s
first standalone sustainability report
available on the Company website.
Chair’s Letter on Corporate Governance
on page 65.
Our Principal Risks and Uncertainties on
pages 51 to 60.
Our Culture on page 71.
Chair’s Letter on Corporate Governance
on page 65.
Our Key Stakeholder Relationships on
pages 62 to 64.
A N N U A L R E P O R T 2 0 2 3 6 1
CORPORATE GOVERNANCE | OUR KEY STAKEHOLDER RELATIONSHIPS
Building strong relationships with our key stakeholders is a critical element to our success. The Board recognises that
the foundation underpinning effective corporate governance is determined on how it aligns the strategic decisions of
the Company with the views of its various stakeholders. We aim to build long lasting relationships with all of our key
stakeholders based on professionalism and integrity.
The Board regularly consults with the Investment Adviser, who in turn manage and foster the relationships with our tenants,
key partners and advisers.
Stakeholder
Shareholders
Why is it important to engage?
How did we engage?
The Company’s shareholders are an incredibly important stakeholder group and the ultimate owners
of the business. In order to deliver our strategy, it is vital that shareholders continue to understand and
support the Company’s performance and investment thesis, as well as the wider market in which we
operate. The Board aims to be open with shareholders and available to them, subject to compliance with
relevant securities and laws.
The way in which the Board engages with the Company’s shareholders is detailed on this page in the
Corporate Governance Report.
The Board oversees the Investment Adviser’s formal investor relations programme, which is designed to
promote 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
or other significant announcements.
Our website contains comprehensive information about our business, regulatory news and press releases
alongside information about our approach to ESG issues. Additionally, recordings of our interim and
annual results presentations are available to watch on the website.
What were the key topics discussed? The key topics of discussion included: the Company’s financial performance, macroeconomic themes, the
sale of the Sainsbury’s Reversion Portfolio interest, refinancing and the Company’s ESG efforts.
What was the feedback obtained
and/or the outcome of the
engagement?
Feedback from investor meetings has played an important role in shaping Company disclosures at Interim
Results, Full Year results and other regulatory disclosures. Increasing investor interest in sustainability
has informed the publication of the Company’s first standalone sustainability report available on the
Company website.
The use of virtual meetings has improved accessibility to our international and regional based
shareholders. We anticipate that online engagement will continue to play an important part in
engagement with our shareholders in addition to helping to reduce associated carbon emissions in line
with our sustainability strategy. Further details on our sustainability strategy can be found on pages 35 to
50 and in the Company’s first standalone sustainability report available on the Company website.
Stakeholder
Lenders
Why is it important to engage?
How did we engage?
We have strong working relationships with our lender group who in turn help provide financing to
facilitate our continued growth.
As part of this, we are in regular dialogue with our banks to ensure they understand the Company’s
strategy and long-term ambition.
The Investment Adviser has regular meetings with both existing and prospective lenders to ensure that
they are kept up to date with business strategy, developments and performance.
Debt structure and future debt requirements are considered by the Board at a minimum on a quarterly
basis as part of the Investment Adviser’s review.
What were the key topics discussed? During the year, the Group, aided by the Investment Adviser, discussed with the lenders various
What was the feedback obtained
and/or the outcome of the
engagement?
refinancing options and future borrowing needs to ensure the appropriate financing for the Group was put
in place.
In July 2022, the Company announced it had arranged a new £412.1 million unsecured credit facility with
a bank syndicate comprising of Barclays, Royal Bank of Canada, Royal Bank of Scotland International and
Wells Fargo. This was the first time the Company had accessed unsecured debt financing.
In September 2022, the Company announced a two-year extension on our Revolving Credit Facility with
HSBC to August 2025.
In March 2023, the Company announced that it had refinanced its existing loan facilities with Bayerische
Landesbank with a new three-year £86.9 million term loan.
6 2 S U P E R M A R K E T I N C O M E R E I T P L C
Stakeholder
Investment Adviser
Why is it important to engage?
How did we engage?
The Board’s main working relationship is with the Investment Adviser. The Investment Adviser brings
a depth of experience in the Supermarket Property sector. This gives the Company a competitive
advantage through its knowledge, specialist focus and network of industry and occupier contacts. The
Investment Adviser has a crucial role in the performance and long-term success of the Company.
It is important for the Board and Investment Adviser to maintain a positive and transparent relationship to
ensure alignment of values and business objectives.
The Board engage with the Investment Adviser at the scheduled quarterly Board meetings as a minimum.
Ad-hoc Board meetings are held to approve matters including acquisitions and disposals, asset
management opportunities, new financing arrangements and appointment of advisers.
What were the key topics discussed? Key topics discussed between the Investment Adviser and the Board were strategic decisions which
included the decision to buy the BAPTL stake in the SRP joint venture and the subsequent sale of the
Group’s interest in the SRP to Sainsbury’s. Further financial topics included entering into hedges at
a significant premium. Finally, discussions were had on Board governance and whether to establish an
ESG Committee and appoint an additional non-executive director.
What was the feedback obtained
and/or the outcome of the
engagement?
Outcomes included the establishment of a new ESG Committee and the appointment of a new
non-executive director to strengthen the Board’s composition. The newly appointed non-executive
director was also appointed Chair of the Management Engagement Committee.
Stakeholder
Tenants
Why is it important to engage?
How did we engage?
We recognise that the success of the Company relies on the continued success of our operators, who in
turn rely on quality stores in order to help them succeed. This is why we place particular onus on having
a strong relationship with the grocery operators to better understand the challenges and opportunities
facing their business.
Regular meetings are held between the Investment Adviser and our key occupiers to understand their
future needs, including views on market sentiment, performance and sustainability initiatives. Any
potential opportunities or risks facing the Company are fed back to the Board to inform future strategy.
The Investment Adviser will visit every site within the Portfolio at least once a year, with feedback
reported to the Board of any material issues.
We conduct a review of published operator data, such as annual accounts, trading updates and analysts’
reports to identify mutually beneficial opportunities.
What were the key topics discussed? During the year, key topics included trading performance, site queries and asset performance
enhancement. ESG was also a topic of discussion with the tenants, including ways in which the Company
could further enhance the sustainability of the buildings and in communal areas.
What was the feedback obtained
and/or the outcome of the
engagement?
The Investment Adviser introduced a new green lease rider in all new lease negotiations and agreed the
clauses in as many leases as possible. The riders, among other things, enable us to request that tenants
provide environmental performance data.
Stakeholder
Service Providers
Why is it important to engage?
How did we engage?
As an externally managed Company, we are reliant upon our service providers to conduct our core
activities. We recognise the importance of partnering with service providers who share our values and
ethos and work to secure the best people with an established track record and, where possible, retain key
partners on successive transactions and workstreams.
Having strong relationships with our service providers promotes the overall success of the Company.
The Board maintains regular contact with the Company’s service providers, at its quarterly Board
meetings, and otherwise as required. For example, the Company’s brokers and property agent attend the
Board meetings to keep the Company informed of the current market within which we operate.
The Board established a Management Engagement Committee in the year to evaluate the performance of
the Company’s service providers.
What were the key topics discussed? During the year the Board, in consultation with the Investment Adviser, discussed the appointment of new
service providers.
At the Management Engagement Committee, a review of the Company’s service providers was
undertaken, considering the fees charged in the year and the quality of service received.
What was the feedback obtained
and/or the outcome of the
engagement?
In January 2023, the Company announced the appointment of Goldman Sachs International as its joint
broker with Stifel Nicolaus Europe Limited.
In May 2023, the Company announced the appointment of Hanway Advisory Limited as its Company
Secretary.
A N N U A L R E P O R T 2 0 2 3 6 3
CORPORATE GOVERNANCE | OUR KEY STAKEHOLDER RELATIONSHIPS C ON TI NUED
Stakeholder
Communities
Why is it important to engage?
As an owner of assets located in communities across the UK, we intend to support initiatives to enhance
the lives of the people close to our assets and be good neighbours to our communities.
How did we engage?
Ongoing tenant engagement provides the opportunity to discuss how the Company can support our
tenants on community initiatives, as well as their own efforts to mitigate the impact of their operations.
Supermarket anchor tenants are heavily involved in their local communities and many stores have
a community champion with whom to engage.
On schemes where we have communal area control (on assets we manage that are not solely occupied by
one tenant), the Company is engaging with the communities it services in a huge number of ways.
What were the key topics discussed? During the year, the key topics of discussion regarded the way in which the Company could enhance its
involvement within the local communities. This included supporting site teams to utilise local suppliers,
employ local people and collaborate with local stakeholders.
What was the feedback obtained
and/or the outcome of the
engagement?
Establishing an ESG Committee to discuss, review and sign off on sustainability matters, ensuring
sustainability remains at the top of the Company's agenda.
6 4 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | CHAIR’S LETTER ON CORPORATE GOVERNANCE
Dear Shareholders
I have pleasure in introducing this year’s Corporate
Governance report for the financial year ended
30 June 2023. The Board recognises that the way in which
we conduct our business is just as important as what we
do. A strong governance framework with an appropriate
tone from the Board, is a key factor in being able to deliver
sustainable business performance, whilst at the same time
being able to deliver value for our shareholders.
Board priorities
A key part of the Board’s focus during the year was to
oversee the successful implementation of the Company’s
strategy and ensure it is positioned for long-term success.
The Company has continued to grow throughout the year
with nine new acquisitions, and two further acquisitions
which completed shortly after the year end, supported by
a £412.1 million unsecured credit facility completed in
July 2022. During the year, the Company also successfully
acquired BAPTL’s 25.5% beneficial interest in the SRP
JV for £188.8 million (excluding acquisition costs) and
subsequently executed the sale of its interest in the JV to
Sainsbury’s, for a total consideration of £430.9 million55.
At a time of considerable macroeconomic uncertainty, we
believe our exposure to the defensive nature of grocery
real estate will allow us to continue delivering stable and
long-term income to our shareholders.
Sustainability continues to remain an important focus for
the Board, and with the support of the Investment Adviser,
we continue to make good progress in implementing this
within our overall strategy. During the year, we held the
inaugural meeting of our ESG Committee. The Committee
was established to serve as an independent and objective
party to monitor the integrity and quality of the Company’s
ESG strategy. Additionally, the Committee was established
to ensure that the strategy is integrated into the Company’s
business plan and values and to foster a culture of
responsibility and transparency. Further information on
our sustainability strategy can be found on pages 35 to 50
and in the Company’s first standalone sustainability report,
available on the Company website.
Board composition and succession planning
In March 2023, we were delighted to welcome Sapna
Shah as a Non-Executive Director to the Board. Sapna was
also appointed Chair of the Management Engagement
Committee, effective 1 July 2023. Sapna has extensive
experience in investment banking advising UK companies,
including listed REITs and investment companies, on IPOs,
equity capital market transactions as well as mergers and
acquisitions. She brings with her a wealth of knowledge
which further strengthens the Board. Succession planning
is an important part of our governance process and will be
a key focus for the Nomination Committee in 2024.
55 SRP investment: the Sainsbury’s Reversion Portfolio held in a joint
venture arrangement. See note 14 for further information
AIC Code of Corporate Governance (2019)
This report demonstrates how we have applied the
principles and complied with the provisions of the AIC
Code of Corporate Governance (February 2019) (“AIC
Code”) during the year, as well as our approach to corporate
governance in practice. 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.
Details of how the Board has discharged its duty under the
AIC Code can be found on pages 76 to 77.
Shareholder engagement
We very much look forward to welcoming shareholders
to our 2023 AGM due to be held on 7 December 2023.
The Board attend the Company’s AGM to answer any
shareholder questions and I make myself available
as necessary outside those meetings to speak with
shareholders.
The Board oversees the Investment Adviser’s formal
investor relations programme, which is designed to
promote engagement.
Priorities for 2024
Looking ahead to 2024, the Board is focused on continuing
to maintain the highest standards of corporate governance
with a focus on succession planning, as well as continuing
to progress the Company’s sustainability strategy, whilst
ensuring the delivery of strong financial performance.
Nick Hewson
Chair
19 September 2023
A N N U A L R E P O R T 2 0 2 3 6 5
CORPORATE GOVERNANCE | THE BOARD OF DIRECTORS
DIRECTORS
Director
Relevant skills and experience:
Career Highlights:
Date of appointment: June 2017
• Over 35 years’ experience as a property developer
and investor
• Founded a UK retail warehousing business
• Invested in businesses covering bio-tech, digital
imaging, geo-thermal ground source energy and
corporate finance and fund management
• Experienced Non-Executive Director for both listed
and private businesses
• Fellow of the Institute of Chartered Accountants of
England and Wales
NICK HEWSON
Chair of the Board
Date of appointment: June 2017
• Over 35 years’ experience in the retail property
sector; over 20 years as a senior adviser and
consultant
• Key areas of expertise include supermarket real
estate, business strategy, investment property
financing and real estate development
• Experienced Executive and Non-Executive Director
Date of appointment: June 2017
• Over 30 years’ experience in the UK property sector
• Board member of privately owned business, which
specialises in land development and promotion,
and renewable energy
• Fellow of the Institute of Chartered Accountants of
England and Wales
VINCE PRIOR
Chair of The Nomination Committee
and Senior Independent Director
JON AUSTEN
Chair of The Audit and Risk
Committee
• Co-Founder, CEO and then Chair of Grantchester
Holdings plc, a specialist LSE listed developer
of and investor in UK retail warehouse property
assets, where he worked from 1990 until 2002
• Senior Independent Director, Chair of the Audit
Committee, former Chair of the Nomination
Committee, Member of the Placemaking and
Sustainability Committee, Member of the
Remuneration Committee, at Redrow plc, a FTSE 250
company and one of the UK’s leading housebuilders
• Chair of the Executive Committee of Pradera AM
plc, a European retail property fund management
business, managing significant portfolios of retail
properties located in Europe and the Near East
• Co-Founder, Investor and Non-Executive Director
of Going Green Limited for 10 years to 2012, a firm
founded with the mission to minimise the effects of
carbon emissions in cities by encouraging electric
vehicle commuting, pioneering the G-Wiz electric
vehicle
• Founding partner of City Centre Partners LP, a
business specialising in converting office properties
to residential in Central London
• Head of Property Investment at Sainsbury’s. Over a
five-year period to 2014, the property portfolio grew
from £7.5 billion to £12 billion
• Head of Retail Advisory Services at Jones Lang
LaSalle (“JLL”) providing strategic advice to a range
of high-profile supermarket and retail operators
• COO of European Retail Group at Jones Lang
LaSalle, overseeing growth and development of
JLL’s retail business across Europe
• Corporate Planning and Manager of Site Research
Unit for Tesco Stores, involved in set up of the
location planning team and developing the group’s
first five-year strategic plan
• Chief Financial Officer at Audley Court Limited,
which develops retirement villages in the UK
• Senior Independent Director and Chair of the Audit
Committee of McKay Securities plc, a fully listed
REIT specialising in office and industrial property,
until its takeover by Workspace plc in May 2022
• Group Finance Director at Urban&Civic plc, the UK’s
leading Master Developer
• Also held senior finance roles at London and
Edinburgh Trust plc, Pricoa Property plc and
Goodman Limited
6 6 S U P E R M A R K E T I N C O M E R E I T P L C
Director
Relevant skills and experience:
Career Highlights:
Date of appointment: February 2020
• Lawyer with over 30 years’ experience (over
20 of these as a tax partner), including active
participation in HMRC and HMT working groups
• Specialist in direct and indirect real estate
structuring, including REITs
• Author of the tax chapter on REITs in Tolleys
Taxation of Collective Investment
• Head of Real Estate Tax at Travers Smith LLP
• Non-Executive Director of CBRE Investment
Management (UK Funds) Limited (formerly CBRE
Global Investors (UK Funds) Limited)
• Head of London Tax at Eversheds Sutherland
• Tax Partner at Berwin Leighton Paisner (now BCLP)
CATHRYN VANDERSPAR
Chair of The Remuneration
Committee
FRANCES DAVIES
Chair of The Environmental, Social
and Governance Committee
SAPNA SHAH
Chair of The Management
Engagement Committee
Date of appointment: June 2022
• Over 30 years’ experience in corporate finance and
asset management
• Partner at Opus Corporate Finance
• Non-Executive Director at Aegon Investments
Limited and HICL Infrastructure plc
• Independent Member of Aviva With-Profits
• Head of Global Institutional Business at Gartmore
Investment Management
• Non-Executive Director of J.P. Morgan Smaller
Companies Investment Trust plc
• Previously held directorships at SG Warburg,
Morgan Grenfell Asset Management and Dalton
Strategic Partnership
Committee
Date of appointment: March 2023
• Over 20 years’ investment banking experience
advising UK companies, including REITs and
investment companies
• Extensive experience advising companies on IPOs,
equity capital market transactions and mergers and
acquisitions
• Previously served on the advisory committee for a
private solar energy company
• Non-executive Director of the AIC and Biopharma
Credit PLC
• Senior Adviser at Panmure Gordon Limited
• Previously held senior investment banking roles
at UBS AG, Oriel Securities (now Stifel Nicolaus
Europe) and Cenkos Securities
A N N U A L R E P O R T 2 0 2 3 6 7
CORPORATE GOVERNANCE | THE INVESTMENT ADVISER
THE INVESTMENT ADVISER
Adviser
Relevant skills and experience:
Career Highlights:
Date of appointment: Nov 2016
Ben is a principal at Atrato and is responsible for
leading the development and execution of the firm’s
long-term strategy. Ben is a member of the Atrato
Group Leadership Team and a member of the firm’s
Investment Committee.
• Over 20 years’ experience structuring and executing
real estate transactions
• Completed more than £3.5 billion of sale and
leaseback transactions, with major occupiers
including Tesco, Barclays and the BBC
• Expert in executing transactions for grocery real
estate and real estate corporate finance
• Qualified Lawyer
• Co-founded Atrato and led the IPO of Supermarket
Income REIT
• Managing Director Lloyds Bank Commercial
Banking, where he ran the team providing
corporate finance services to corporates,
infrastructure and real estate clients
• Managing Director and Head of European
Structured Finance at Goldman Sachs from 2007 to
2013
• Director Barclays Capital
Date of appointment: Jan 2017
Steve is a principal at Atrato and is responsible for
leading the development and execution of the firm’s
long-term strategy. Steve is a member of the Atrato
Group Leadership Team and a member of the firm’s
Investment Committee.
• Over 20 years’ experience specialising in finance
and risk management
• Expert in capital markets, risk management and
financing
• Highly experienced in senior management positions
• Co-founded Atrato and led the IPO of Supermarket
Income REIT
• Partner and Head of EMEA Debt Capital Markets
and Risk Solutions at Goldman Sachs
• Held various roles across both Trading and Banking
divisions at Goldman Sachs from 2000 to 2016
• Member of Goldman Sachs Investment Banking
Risk Committee
• Advised numerous FTSE 100 firms on managing risk
and financing their business
Date of appointment: Apr 2017
Steven is responsible for overseeing all investments
for the Group. Steven is a member of the Atrato
Group Leadership Team and a member of the firm’s
Investment Committee.
• Over 20 years’ experience specialising in finance,
risk management and real estate
• Extensive supermarket property transaction
experience
• Specialist in corporate finance, with a primary focus
on commercial real estate
• Chartered Financial Analyst and Chartered
Accountant
• Co-founded Atrato and led the IPO of Supermarket
Income REIT
• Transacted over 30 supermarket property
transactions, growing Supermarket Income REIT’s
portfolio to £1.2 billion
• Senior Manager at Lloyds Bank in Corporate
Finance
BEN GREEN
Principal
STEVE WINDSOR
Principal
STEVEN NOBLE
Chief Investment Officer
6 8 S U P E R M A R K E T I N C O M E R E I T P L C
Adviser
Relevant skills and experience:
Career Highlights:
• European CFO Macquarie Global Property Advisors,
member of MGPA European Management Team
and Director of the MGPA European advisory
business
• Manager RSM Robson Rhodes, audit and assurance
Date of appointment: Nov 2017
Natalie is responsible for the management of the
finance function for Atrato Group, including the
supermarkets investment fund. Natalie is a member
of the Atrato Group Leadership Team and a member
of the firm’s Investment Committee.
• Over 20 years’ experience in finance, specialising in
real estate investment funds
• Experienced in senior management positions and
financial management positions of real estate
investment companies
• Leading the SUPR ESG project with the Atrato COO
• Fellow of the Chartered Institute of Accountants
Date of appointment: May 2019
Robert is responsible for managing the supermarkets
investment fund for the Group.
• Over 10 years of real estate investment and loan
origination/syndication experience
• Key areas of expertise include property investment,
• Origination of over £1 billion of supermarket
acquisitions
• Execution of over £750 million of debt facilities for
the group
• Coordination and execution of debt facilities whilst
in the Loan Markets team at Lloyds Bank
commercial banking, and loans
• Chartered Financial Analyst
Date of appointment: Nov 2020
Haffiz is the Finance Director at Atrato and is
responsible for the finance, tax and operations of the
supermarkets investment fund.
• Over 17 years’ experience within the investment
management industry with a sector focus on real
estate and private equity
• Fellow of the Institute of Chartered Accountants in
England and Wales
• Vice President, Alternative Funds at PIMCO
• Senior manager within the assurance practice
at PriceWaterhouseCoopers, performing audit
and advisory services within the investment
management industry
NATALIE MARKHAM
Chief Financial Officer
ROBERT ABRAHAM
Managing Director – Fund
Management
HAFFIZ KALA
Finance Director
A N N U A L R E P O R T 2 0 2 3 6 9
CORPORATE GOVERNANCE | LEADERSHIP AND PURPOSE
Role of the Board
The Board has a duty to promote the long-term sustainable
success of the Company for its shareholders. 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 Board currently comprises the Chair and five
independent Non-Executive Directors and is supported
by Hanway Advisory Limited who act as the Company
Secretary. Nick Hewson is the Chair of the Company and
is responsible for leading the Board and for setting the tone
in respect of the Company’s purpose, values and culture.
As part of his role in leading the Board, he ensures that the
Board provides constructive input into the development
of strategy, understands the views of the Company’s key
stakeholders and provides appropriate oversight, challenge
and support.
Vince Prior is the Senior Independent Director (“SID”)
and acts as a sounding board for the Chair as well as an
intermediary to the other Directors and shareholders as
required. The SID also meets with the other Non-Executive
Directors annually, without the Chair present, to evaluate
the performance of the Chair, in line with good practice.
In addition to his role as the SID, Vince Prior serves as Chair
of the Nomination Committee.
The Board is well balanced and possesses a sufficient
breadth of skills, variety of backgrounds, relevant
experience and knowledge to ensure it functions effectively
and promotes the long-term sustainable success of the
Company. All Directors have access to the advice and
services of the Company Secretary, who are responsible
to the Chair on matters of corporate governance. Further
details of each Director’s experience can be found in the
biographies on pages 66 to 67.
How we operate
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 and operations have 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 fundamental to the Company’s
strategy, as summarised in the outline of the Group’s
business model on page 8 and on the Company’s website:
www.supermarketincomereit.com, and the Company’s
investment strategy is described in the Strategic Report on
pages 15 to 28.
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 the
“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, which include advising in relation to financing
and asset management opportunities, to the Investment
Adviser. 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 Management Engagement Committee keeps the
appropriateness of the Investment Adviser’s appointment
under review. In doing so the Committee 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 services provided by key suppliers to
the Company.
7 0 S U P E R M A R K E T I N C O M E R E I T P L C
Conflicts of interest
All the Directors are considered by the Board to be
independent of the AIFM and of 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.
Each Director has a duty to avoid a situation in which he or
she has a direct or indirect interest that may conflict with
the interests of the Company. The Board may authorise any
potential conflicts, where appropriate, in accordance with
the Articles of Association. Where a potential conflict of
interest arises, a Director will declare their interest at the
relevant Board meeting and not participate in the decision
making in respect of the relevant business.
Culture
The culture and ethos of the Company are integral to its
success. The Board promotes open dialogue and frequent,
honest and open communication between the Investment
Adviser and other key advisers to the Company. Whilst the
Company has no employees, the Board pays close attention
to culture of the Investment Adviser and its employees
and believes that its forward thinking and entrepreneurial
approach, combined with its rigour and discipline, is the
right fit for delivering our strategy and purpose.
The Board believes that its positive engagement and
working relationship with the Investment Adviser helps
the business achieve its objectives by creating an open
and collaborative culture, whilst allowing for constructive
challenge. The Non-Executive Directors speak regularly
with members of the Investment Adviser outside of Board
meetings to discuss various key issues relating to Company
matters. The Company’s success is based upon the effective
implementation of its strategy by the Investment Adviser
and third-party providers under the leadership of the Board.
The Board’s culture provides a forum for constructive and
robust debate, and the Board believes that this has been
fundamental to the success of the Company to date.
Investment Advisory Agreement
A revised Investment Advisory Agreement was entered
into in July 2021, prior to the expiry of the initial agreement
in July 2022. The terms of the revised agreement have not
materially changed other than the extension of the notice
period to a rolling two-year term and the introduction
of a new lower fee tier when NAV exceeds £2 billion.
In reviewing the terms of the Investment Advisory
Agreement (the material terms of which are summarised
in note 27 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 are achieved by way of the
structure of the Investment Advisory Agreement which
compensates the Investment 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 at the
discretion of the Board can be used to purchase shares in
the Company.
• The structure of and rationale behind the Investment
Adviser’s fees are explained in note 27 to the financial
statements and are designed to be simple and not to
require subjectivity in their calculation. Given the simple
arithmetic underlying the fee calculations, the range of
potential outcomes is 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.
• 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.
A N N U A L R E P O R T 2 0 2 3 7 1
CORPORATE GOVERNANCE | LEADERSHIP AND PURPOSE C ON TI NUED
Our operating model
The Supermarket Income REIT PLC Board (The “Board”)
The Board is responsible for promoting the long-term sustainable
success of the Company, working towards strategic objectives and
generating value for Shareholders and other stakeholders.
Environmental, Social &
Governance Committee
Oversee the
development of the
Company’s ESG strategy
Monitor impact of
current and emerging
ESG trends on the
Company
Oversee engagement
with the broader
stakeholder community
on ESG matters.
Nominations Committee
Audit and Risk
Committee
Management
Engagement Committee
Remuneration
Committee
Reviews Board
composition
Succession planning
requirements of the
Group
Board and Committee
evaluations.
Monitors the
effectiveness of the audit
process
Monitors Group’s risk
management processes
Reviews integrity of
the Group’s financial
statements.
Overseeing new tenders
and appointments
Reviewing performance
of key suppliers
including the Investment
Adviser.
Implements
remuneration policy of
the Group
Ensures Directors‘
remuneration is set so
as to continue to attract,
retain and motivate
Agree the policy for
authorising claims
for expenses for the
Directors.
JTC Global AIFM Solutions Limited (The “AIFM”)
The AIFM, together with the Board, makes investment decisions following
recommendations from the Investment Adviser. The AIFM is responsible
for the oversight of the portfolio management activities and undertakes
the risk management function of the Company.
Responsibilities
Portfolio
Risk Management
Marketing
Atrato Capital (The “Investment Adviser”)
The Investment Adviser’s activities comprise of sourcing opportunities,
conducting due diligence, providing investment recommendations,
assisting with carrying out transactions and reporting on the
management of the investments. The Investment Adviser will also make
recommendations on financing decisions and strategy which is approved
by the Investment Manager and Board.
Delegated responsibilities
Acquisitions & Disposals
Funding
Marketing
Asset Management
7 2 S U P E R M A R K E T I N C O M E R E I T P L C
The Board’s attendance in 2022/2023
All Directors are expected to devote sufficient time to
the Company’s affairs to fulfil their duties as Directors
and to attend all scheduled meetings of the Board and of
the Committees on which they serve. Where Directors
are unable to attend a meeting, they will provide their
comments on the Board papers received in advance of the
meeting to the Chair, who will share such input with the
rest of the Board and the AIFM. The Nomination Committee
is satisfied that all the Directors, including the Chair, have
sufficient time to meet their commitments.
Attendance at scheduled Board and Committee meetings
during the year was as follows:
Quarterly Board
meetings
Audit and Risk
Committee
4 Scheduled
meetings
3 Scheduled
meetings
Nominations
Committee
2 Scheduled
meetings
Remuneration
Committee
2 Scheduled
meetings
Management
Engagement
Committee
1 Scheduled
meeting
ESG Committee
1 Scheduled
meeting
100% attendance
100% attendance
100% attendance
100% attendance
100% attendance
100% attendance
Nick Hewson
4/4
N/A*
Vince Prior
Jon Austen
Cathryn
Vanderspar
4/4
4/4
4/4
Frances Davies 4/4
Sapna Shah** 2/2
3/3
3/3
3/3
3/3
1/1
2/2
2/2
2/2
2/2
2/2
1/1
2/2
2/2
2/2
2/2
2/2
1/1
1/1
1/1
1/1
1/1
1/1
1/1
*Nick Hewson as Chair of the Board is not a member of The Audit and Risk Committee
** Sapna Shah was appointed to the Board on 1 March 2023 and to all other committees from 29 March 2023
1/1
1/1
1/1
1/1
1/1
1/1
A N N U A L R E P O R T 2 0 2 3 7 3
CORPORATE GOVERNANCE | BOARD ACTIVITIES DURING THE YEAR
The Board typically meets for scheduled Board meetings
four times a year in addition to an annual strategy day. The
Board will also have separate unscheduled Board meetings
to approve matters including, but not limited to:
• All potential acquisitions and disposals, including
appointment of principal advisers and cost budgets
• Asset management initiatives
• New financing or refinancing arrangements
• Hedging strategy
• Equity raises
Board meetings
The quarterly Board meetings follow a formal agenda,
which is approved by the Chair and circulated by the
Company Secretary in advance of the meeting. The
Chair 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. The Chair ensures
that Board debates are balanced, open and inclusive
and promotes behaviours and attributes that make up
the culture.
The Chair ensures that the Board is provided with
information of appropriate quality and form, in a timely
manner. The Board is kept fully informed of potential
investment opportunities, along with wider property
market intelligence, through a comprehensive set of Board
papers prepared by the Investment Adviser prior to each
meeting. Representatives of the Investment Adviser are
invited to attend the Board meetings, as are representatives
of the Company’s other advisers as required, particularly
representatives from the Company’s property agent, external
legal counsel and brokers.
A summary of typical matters discussed by the Board at
each quarterly Board meeting are noted below:
Discussion
Strategy and
operational
• Update by the Company’s joint brokers on the
public markets and capital market activity of the
Company’s peers
• Supermarket property sector update by the
Company’s property agent
• Review of movements within the Direct Portfolio,
including recent acquisitions and rent reviews
which have taken place during the year
• Review of the Joint Venture Portfolio
• Grocery sector overview, including financial
update on key tenants
• Leasing activity, major developments and
longer-term pipeline
• Future asset management initiatives
Finance and
financing
• Quarterly financial statements review
• Actuals vs budgets analysis
• Review of the Company’s key performance
indicators
• Analysis of current debt facilities, including any
impending facility renewals
• Review of current cost of capital
• Approval of the financial budget (annual basis)
Environmental • Update on the sustainability agenda and targets
• EPC summary of the Portfolio
Governance
• Update by the Company’s external legal counsel
on matters which have been actioned during
the year
• Committee chairs will report on items discussed
at the Board Committees
• Review and discussion of the quarterly AIFM
report presented by the AIFM
• The Company Secretary will report on corporate
governance developments including any changes
required to Terms of References
• Stakeholder feedback from shareholders and
research analysts
• Review of significant shareholdings at the
year end
In addition to formal Board meetings, there is also an
ongoing informal interaction between the Directors, the
AIFM and the Investment Adviser. The annual evaluation of
the Board’s effectiveness always considers the performance
of the Chair, and whether he has performed his role
effectively. In recent years, the Directors, led by the Senior
Independent Director, have concluded that the Chair
has fulfilled his role and supported effective functioning
of the Board.
7 4 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | KEY DECISIONS OF THE BOARD DURING THE YEAR
Some examples of how the Board has considered stakeholder interests and s.172(1) matters in its decision making in 2022/23
are set out below and in “Board Activities during the year” on page 74. Further details on our stakeholder engagement, and
our response, can also be found on pages 62 to 64.
Decision
Stakeholders
Consent to the business
plan for the disposal and
financing of the various
SRP transactions
Shareholders
Investment Adviser
Board rationale and
considerations
Disposal to Sainsbury’s
Hedging
Shareholders
Investment Adviser
Establishment of the
ESG Committee and
Management
Engagement Committee
Shareholders
Communities
Investment Adviser
Service Providers
Appointment of
Non-Executive
Director
Shareholders
Communities
The Board recognised the
potential risk to earnings
volatility given current
market conditions.
The Board were keen to
protect the Company from
this risk in the near term
The Board were keen to
improve governance of the
Company and given the
Company’s commitments
to ESG, wanted to ensure
sufficient time could be
dedicated.
In addition, the Board
wanted to ensure there
was a rigorous and
thorough approach taken
to review the Investment
Adviser and other service
providers
Succession planning
ensures a smooth and
orderly transfer of
responsibilities by the
Board reducing future
business risk.
A Board member with
capabilities in capital
markets will enhance the
Board’s decision-making
process on such issues
Impact
Long-term effects of decision
Efficient unwind of the
joint venture structure
maximised returns for the
Company and successful
conclusion strengthened
relationship with key
tenant Sainsbury’s
New hedging was entered
into, so as to fix 100% of the
Company’s drawn debt
Improved ESG reporting,
including full TCFD
reporting
Proceeds generated
were used to de-lever the
Company’s balance sheet
This removed earnings
volatility relating to
financing costs, allowing
the Company to target
paying a covered dividend
into the future
The establishment
of these Committees
allows sufficient time
to be dedicated to ESG
considerations and the
review of the Investment
Adviser and other service
providers, strengthening
the Company’s governance
The Board approved the
decision following the
recommendation of the
Nominations Committee
to appoint Sapna Shah as
a Non-Executive Director
from 1 March 2023
The appointment supports
the Board’s commitment
to diversity, in line with the
FCA’s targets under the
Listing Rules, whilst also
allowing some flexibility
for determining succession
for key committees into
the future
A N N U A L R E P O R T 2 0 2 3 7 5
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 the Company’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 for
the three provisions set out below:
• The role of the chief executive
• Executive directors’ remuneration
• 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 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.
The Group does not have an internal audit function. The
need for this is reviewed annually by the Audit and Risk
Committee. Due to the relative lack of complexity and the
outsourcing of most of the day to-day operational functions,
the Audit and Risk Committee continues to be satisfied that
there is no requirement for such a function.
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.
AIC
Code Principle
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 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.
Evidence of compliance /
explanation of departure from the AIC Code
Section 172(1) Statement on page 61.
Leadership and Purpose on pages 70 to 73.
Strategic Report on pages 1 to 61.
Strategic Report on pages 1 to 61.
Leadership and Purpose on pages 70 to 73.
Our Principal Risks on pages 51 to 60.
Audit and Risk Committee Report on pages 81 to 84.
Nomination Committee Report on pages 78 to 80.
Management Engagement Committee Report on pages
85 to 86.
ESG Committee Report on page 87.
Directors’ Report on pages 92 to 93.
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.
Section 172 Statement on page 61.
Our Key Stakeholder Relationships on pages 62 to 64.
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.
Board Activities during the year on page 74.
Leadership and Purpose on pages 70 to 73.
Nomination Committee Report on pages 78 to 80.
Leadership and Purpose on pages 70 to 73.
Nomination Committee Report on pages 78 to 80.
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.
Nomination Committee Report on pages 78 to 80.
Board Activities during the year on page 74.
Leadership and Purpose on pages 70 to 73.
7 6 S U P E R M A R K E T I N C O M E R E I T P L C
A
B
C
D
F
G
H
I
AIC
Code Principle
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.
Evidence of compliance /
explanation of departure from the AIC Code
Nomination Committee Report on pages 78 to 80.
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.
Board of Directors Biographies on pages 66 to 67.
Nomination Committee Report on pages 78 to 80.
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.
Nomination Committee Report on pages 78 to 80.
Audit and Risk Committee Report on pages 81 to 84.
The Board should present a fair, balanced and understandable assessment
of the Company’s position and prospects.
Audit and Risk Committee Report on pages 81 to 84.
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.
Audit and Risk Committee Report on pages 81 to 84.
Alternative Investment Fund Manager’s Report on pages
95 to 96.
Remuneration Committee Report on pages 88 to 91.
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.
Remuneration Committee Report on pages 88 to 91.
Remuneration Committee Report on pages 88 to 91.
J
K
L
M
N
O
P
Q
R
Requirement
Board statement
Where to find further information
Going concern basis
Viability Statement
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 pages
59 to 60 of the Strategic Report.
The Board is of the opinion that the viability statement made in the
Annual Report is appropriate.
Further details are set out on pages
59 to 60 of the Strategic Report.
Annual review of systems of risk
management and internal control
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.
Further details are set out in
the Audit and Risk Committee
Report on pages 81 to 84 of this
Governance Report.
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
Investment Adviser
The Audit and Risk Committee and the Board undertake a full
risk review annually where all the emerging, principal risks and
uncertainties facing the Company and the Group are considered.
Further details can be found in Our
Principal Risks on pages 51 to 60 of
the Strategic Report.
The Directors confirm that to the best of their knowledge the
Annual Report and Accounts 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.
Further details of the fair, balanced
and understandable statement
can be found in the Audit and Risk
Committee Report on page 83.
The Directors consider the continuing appointment of the
Investment Adviser on the terms agreed in the Investment
Advisory Agreement dated 14 September 2020 and the subsequent
renewal dated 14 July 2021 to be in the best interests of the
Company.
Further details are set out in
Note 27 to the Consolidated
Financial Statements.
s.172
The Directors have considered the requirements of s.172 when
making strategic decisions.
Section 172 Statement on page 61.
A N N U A L R E P O R T 2 0 2 3 7 7
CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT
Dear Shareholders
I am pleased to present the Nomination Committee
report for the year ended 30 June 2023. The main focus
of the Committee over the past year has been on Board
recruitment and we were delighted to welcome Sapna Shah
to the Board in March 2023.
How the Committee operates
The Nomination Committee Terms of Reference are
available on the Company’s website and on request from the
Company’s registered office.
During the period to 30 June 2023, the Committee
comprised of six Independent Non-Executive Directors of
the Company, none of which are connected to the AIFM or
Investment Adviser.
Committee Members
Vince Prior: Committee Chair
Jon Austen
Frances Davies
Nick Hewson
Sapna Shah (appointed 29 March 2023)
Cathryn Vanderspar
All the Committee members served for the full year, unless
otherwise stated.
Following a review of Committee membership post year
end, effective 1 July 2023, the Committee now comprises
Vince Prior as Chair, Nick Hewson and Sapna Shah.
During the year the Nomination Committee held two formal
meetings. The Company Secretary and I ensure that the
meetings are of sufficient length to allow the Committee
to consider all important matters and the Committee is
satisfied that it receives full information in a timely manner
to allow it to fulfil its obligations.
Members of the Investment Adviser were invited to attend
the Committee meetings. The Company Secretary, Hanway
Advisory Limited, acts as secretary to the Committee.
Committee Responsibilities
The Committee is responsible for reviewing the structure,
size and composition of the Board to ensure that it has the
appropriate skills, experience and knowledge to enable to
Company to fulfil its strategic objectives. The Committee is
also responsible for effective Board succession planning.
Specifically, the Committee is required to determine and
make recommendations to the Board concerning:
• Plans for succession for Non-Executive Directors, in
particular for the key roles of Chair and the Senior
Independent Director
• Membership of the Audit and Risk, Remuneration,
Management Engagement and ESG Committees, in
consultation with the Chairs of those committees
• 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
7 8 S U P E R M A R K E T I N C O M E R E I T P L C
• Any matters relating to the continuation in office of any
Director at any time.
Board Independence and Tenure
The Board currently comprises six Non-Executive Directors
all of whom are deemed independent. In accordance
with the provisions of the AIC Code, all Directors offer
themselves for annual re-election by shareholders at
the AGM. We considered whether this was appropriate
having due regard to each Directors’ performance and
ability to continue to contribute to the Board in the light
of the knowledge, skills and experience required. We also
considered other external appointments held by Directors
and the amount of time each Director has devoted to
the Company.
The Committee is satisfied that each Director has devoted
sufficient time to the Company over the past year. Following
the advice of the Committee and in line with the AIC Code
the Board will recommend the re-election of each Director at
the forthcoming AGM.
Directors are appointed for an initial term of three years
with an expectation that they will serve at least two
three-year terms, but they may be invited to serve for
an additional period. The Board is subject to an annual
evaluation and while we do not believe it is necessary to
mandatorily replace a Director after a fixed term, we do
have regard for the need for progressive Board refreshment
and renewal, and will implement succession planning
accordingly. In May 2023, the Committee recommended to
the Board that Nick Hewson, Jon Austen and Vince Prior
serve a third three-year term, subject to annual re-election at
the Company’s AGMs.
Activities during the year
Succession planning
The Committee is responsible for considering succession
planning for the Directors, taking into account the
challenges and opportunities facing the Company, and the
skills and expertise expected to be needed in the future. The
Committee evaluated the current skills and experience on
the Board and identified the need to appoint an additional
Non-Executive Director with capital markets experience.
Additionally, in support of the FCA’s diversity targets, the
Board ensured a diverse pool of candidates were considered.
The Board undertook a formal, rigorous and transparent
process, shortlisting a pool of candidates who were known
by either the Investment Adviser or the Company’s advisers.
This method was considered effective in place of using an
external search consultancy or open advertising, which
are steps typically taken for the appointment of the chair
and non-executive directors. The criteria was based solely
on merit, taking into account the candidates’ experience
to date as well as their cognitive and personal strengths.
In undertaking the process, the Board had regard to both the
AIC and FRC Guidance on Board effectiveness.
Following a detailed selection process, the Committee
recommended the appointment of Sapna Shah with effect
from 1 March 2023. Sapna was also appointed Chair
of the Management Engagement Committee effective
1 July 2023. Sapna has 20 years of investment banking
experience advising UK companies, including listed REITs
and investment companies, on IPOs, equity capital market
transactions and mergers and acquisitions. Sapna was
appointed as a non-executive director of The Association
of Investment Companies (“AIC”) in January 2021 and is
a member of the AIC remuneration committee and was
appointed as a non-executive director of Biopharma Credit
PLC in March 2023. Sapna is a Senior Adviser at Panmure
Gordon Limited and prior to this held senior investment
banking roles at UBS AG, Oriel Securities (now Stifel
Nicolaus Europe) and Cenkos Securities. She has previously
served on the advisory committee for a private solar
energy company.
The Committee is wholly satisfied the Directors devoted
sufficient time to their duties over the past year and that
the Board comprised the necessary skills and experience
to discharge its obligations to the Company’s shareholders
and other stakeholders. Consequently, there were no other
changes to the composition of the Board this year. Looking
ahead, the Committee recognises the benefits that new
and diverse thinking may bring to the Board and will keep
composition under continuing review.
Committee membership
During the year, we also reviewed the composition of
the Board’s committees and recommended a number of
changes to Committee membership, effective 1 July 2023,
to improve the efficiency of the board committees of which
all Directors were previously members (apart from Nick
Hewson, as Chair of the Board not being a member of the
Audit Committee). Details of Committee membership can be
found on pages 78, 81, 85, 87 and 88.
Director training programme
The Chair 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 Nomination Committee
includes monitoring the skills and knowledge of the
Directors and, where necessary, further support is provided.
Sapna Shah received a formal induction upon joining
the Board which consisted of meetings with the Chair,
Investment Adviser and Company Secretary.
We recognise that it is essential to keep abreast of regulatory
and compliance changes including Corporate Governance
and ESG-related issues. Accordingly, training programmes
are arranged as and when the need arises.
In addition to the bespoke training sessions, each Director
is expected to maintain their individual professional skills
and is responsible for identifying any training needs to help
them ensure that they maintain the requisite knowledge
to be able to consider and understand the Company’s
responsibilities, business and strategy. All Directors have
access to the advice and services of the Company Secretary.
The Directors are also entitled to take independent advice at
the Company’s reasonable expense at any time.
Performance Evaluation
The Directors recognise that an evaluation process is
a significant opportunity to review the practices and
performance of the Board, its Committees and its individual
Directors in order to implement actions to improve the
Board’s effectiveness and contribute to its overall success.
In last year’s Board evaluation, a number of key actions
were identified, all of which were completed within the
year. This evaluation was externally facilitated and an
external board evaluation is expected to happen at least
every three years.
During the year, the Nomination Committee carried out
an internal process to evaluate performance. The Directors
were asked to complete a questionnaire considering
matters such as: board composition, diversity, leadership,
stakeholder engagement and efficiency of Board processes.
The results of the performance evaluation demonstrated
that the Board was operating effectively.
In the evaluation, the Board identified areas of improvement
and agreed next steps. The Nomination Committee will
monitor progress against those areas of improvement.
Recommendation
How this is being addressed
Improvement to the induction
process for new Directors
Monitoring of training and
development
Use of a recruitment specialist for
future Director appointments
Sapna Shah received a full formal
induction, including meetings
with the Company’s key advisers.
The Company Secretary has
developed a CPD tracker to
monitor training and personal
development undertaken by the
Directors.
The Nomination Committee will
consider using a recruitment
specialist at the appropriate time.
Board diversity and inclusion
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 and as such recruitment
processes promote diversity of all kinds including gender,
ethnicity, sexual orientation, disability or educational,
professional and socioeconomic backgrounds and
neurodiversity. This will ensure that any such appointment
will develop and enhance the operation of the Board to best
serve the Company’s strategy.
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.
The Board supports the recommendations set out in the
Hampton-Alexander Review on gender diversity and the
Parker Review on ethnic diversity and recognise the value
and importance of cognitive diversity in the boardroom.
As at the date of this report, the Board consisted of three
male and three female members, meaning we have achieved
the 33% female Board representation target as set out by the
A N N U A L R E P O R T 2 0 2 3 7 9
CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT C ON TI NUED
The Company has reported against the Listing Rules on
diversity and has complied with the targets or otherwise
explained non-compliance below.
Requirement
Explanation
At least one senior board position
(Chair, CEO, CFO or SID) is
a woman.
Given the Company is an
Investment Trust, there are
limited roles to satisfy this
criteria (being only the Chair or
SID). The Remuneration, ESG
and Management Engagement
Committee are all Chaired by
women, and the Board consider
these to be senior roles. The
Board will aim to meet this
requirement for the year ending
30 June 2024.
Committee effectiveness
Details of the performance evaluation conducted during the
year can be found on page 79.
Signed on behalf of the Nomination Committee by
Vince Prior
Nomination Committee Chair
19 September 2023
Hampton-Alexander initiative, and the 40% female Board
representation target as set out in the FCA listing rules on
diversity. The Board is committed to maintaining that the
Board, as a whole, will have at least 40% representation of
either gender. The Board is also committed to maintaining at
least one female member on each of its Committees.
FCA Listing Rule requirements
The following table sets out the gender and ethnic diversity
of the Board as at 30 June 2023 in accordance with the
FCA’s Listing Rules, the disclosure of which in this report
having been approved by each of the Directors:
Number
of Board
Members
Percentage
of the Board
Number
of Senior
Positions on
the Board*
Gender Diversity
Men
Women
Prefer not to say
Ethnic Diversity
White British or other
White (including minority
white groups)
3
3
–
5
Mixed/Multiple Ethnic Groups –
Asian/Asian British
Black/African/Caribbean/
Black British
Other ethnic group,
including Arab
1
–
–
50%
50%
–
83%
–
17%
–
–
2
0
–
2
–
0
–
–
*In accordance with the Listing Rules, as an externally managed investment
Company, we do not have any executive management, including the roles
of CEO or CFO, who are Directors of the Company. The Company considers
the SID and Chair to be the only applicable roles with the business and have
reported against these.
8 0 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT
Dear Shareholders,
I am pleased to present the Audit and Risk Committee
Report for the year ended 30 June 2023. The Audit and
Risk Committee’s role is to oversee the Group’s financial
reporting process, including the risk management and
internal financial controls in place within the AIFM and the
Investment Adviser, the valuation of the property portfolio,
the Group’s compliance with accepted accounting standards
and other regulatory requirements, as well as the activities
of the Group’s Auditor. I was pleased to welcome Sapna
Shah to the Committee during the year and I am certain
her breadth of experience will be a welcome addition
to the Board.
How the Committee operates
The Audit and Risk Committee Terms of Reference are
available on the Company’s website and on request from the
Company’s registered office.
During the period to 30 June 2023, the Committee
comprised of five Independent Non-Executive Directors of
the Company, none of which are connected to the AIFM or
Investment Adviser.
Committee Members
Jon Austen: Committee Chair
Frances Davies
Vince Prior
Sapna Shah (appointed 29 March 2023)
Cathryn Vanderspar
All the Committee members served for the full year,
unless otherwise stated. Following a review of Committee
membership post year end, effective 1 July 2023, the
Committee now comprises myself as Chair, together with
Vince Prior and Sapna Shah. It should be noted the fees for
the Audit and Risk Committee were not increased for the
year from 1 July 2023. Further information on Directors’
Remuneration can be found in Annual Report on Directors’
Remuneration on pages 90 to 91.
Members of the Investment Adviser and the Group’s Auditor
were invited to attend the Committee meetings. Hanway
Advisory Limited as Company Secretary acts as secretary
to the Committee. The Chair of the Board, Nick Hewson,
whilst not a member of the Audit and Risk Committee
attends meetings during the year by invitation.
As the Committee Chair, I have had regular
communications with the Auditor and senior members
of the Investment Adviser. In addition, the Committee
has discussions throughout the year outside of the formal
Committee meetings.
Activities
Relationship with the Auditor
The Committee has primary responsibility for managing
the relationship with the Auditor, including assessing
their performance, effectiveness and independence
annually as well as recommending to the Board their
reappointment or removal.
BDO LLP (“BDO”) were appointed as the Group’s Auditor in
2017 and we are recommending they are re-appointed at the
forthcoming AGM. Under the Company’s interpretation of
the transitional arrangements for mandatory audit rotation,
the Company will be required to put the external audit out
for tender in the financial year ended 30 June 2028.
Charles Ellis has taken on the role as audit partner from
Thomas Edward Goodworth for the current year end and, in
line with the policy on lead partner rotation, is expected to
rotate off the audit ahead of the 2028 audit.
The Committee has met with the key members of the audit
team over the course of the year and BDO has formally
confirmed its independence as part of the reporting
process. As Chair of the Committee, I regularly speak with
the external audit partner without the Investment Adviser
present to ascertain if there are any concerns, to discuss the
audit reports and to ensure that the Auditor has received
the support and information requested from management.
There have been no concerns identified to date.
The Committee believes that its members have the right
balance of skills and experience within the real estate sector
to be able to function effectively. The Board considers
that I have recent and relevant financial expertise to chair
the Audit and Risk Committee. Further details of each
Director’s experience can be found in the biographies on
pages 66 to 67.
The Company became a constituent of the FTSE 350
on 20 June 2022 and confirms that it has complied with
the terms of The Statutory Audit Services for Large
Companies Market Investigation (Mandatory User
of Competitive Tender Processes and Audit and Risk
Committee Responsibilities) Order 2014 (the “Order”)
throughout the year.
During the year, the Audit and Risk Committee held three
formal meetings following the Company’s corporate
calendar, which ensures that the meetings are aligned to
the Company’s financial reporting timetable. The Company
Secretary and I ensure that the meetings are of sufficient
length to allow the Committee to consider all important
matters and the Committee is satisfied it receives full
information in a timely manner to allow it to fulfil its
obligations.
Effectiveness and independence
We meet with the Auditor and the Investment Adviser
before the preparation of the Annual results, to plan
and discuss the scope of the audit, and challenge where
necessary to ensure its rigour. At these meetings the Auditor
prepares a detailed audit plan which is discussed and
questioned by us and the Investment Adviser to ensure that
all areas of the business are adequately reviewed and the
materiality thresholds are set at the appropriate level, which
varies depending on the matter in question. We also discuss
with the Auditor its views over significant risk areas and
why it considers these to be risk areas.
A N N U A L R E P O R T 2 0 2 3 8 1
CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT C ON TI NUED
The ratio of non-audit fees to audit fees for the year ended
30 June 2023 was 29%.
The Committee periodically monitors the ratio to ensure that
any fees for permissible non-audit services do not exceed
70% of the average audit fees paid in the last three years.
In addition to ensuring compliance with the Group’s policy
in respect of non-audit services, the Committee also receives
confirmation from BDO that it remains independent and has
maintained internal safeguards to ensure its objectivity.
Financial reporting and significant judgements
We monitor the integrity of the financial information
published in the Interim and Annual Reports and any other
formal announcement relating to financial performance. We
consider whether suitable and appropriate estimates and
judgements have been made in respect of areas which could
have a material impact on the financial statements.
A variety of financial information and reports were
prepared by the Investment Adviser and provided to the
Board and to the Committee over the course of the year.
These included budgets, periodic re-forecasting following
acquisitions or corporate activity, papers to support raising
of additional finance and general compliance.
We also regularly review the Company’s ability to continue
to pay a progressive dividend. All financial information
was fully reviewed and debated both at Committee and
Board level across a number of meetings. The Investment
Adviser and the Auditor update us on changes to accounting
policies, legislation and best practice and areas of significant
judgement by the Investment Adviser. They pay particular
attention to transactions which they deem important due to
size or complexity.
The significant issues considered by the Committee in
respect of the year ended 30 June 2023, which contained
a significant degree of estimation uncertainty, are set out in
the table below.
The Audit and Risk Committee, where appropriate,
continues to challenge and seek comfort from the Auditor
over those areas which drive audit quality. The timescale
for the delivery of the audit or review is also set at these
meetings. We meet with the Auditor again just prior to the
conclusion of the audit or review to consider, challenge and
evaluate findings in depth.
We have considered the objectivity and effectiveness of
the Auditor and we consider that the audit team assigned
to the Company by BDO has the necessary experience,
qualifications and understanding of the business to enable
it to produce a detailed, high-quality, in-depth audit and
permits the team to scrutinise and challenge the Company’s
financial procedures and significant judgements. We ask the
Auditor to explain the key audit risks and how these have
been addressed. We also considered BDO’s internal quality
control procedures and transparency report and found them
to be sufficient. Overall, the Committee is satisfied that the
audit process is transparent and of good quality and the
Auditor has met the agreed audit plan.
Audit and non-audit fees
We continue to believe that, in some circumstances,
the external Auditor’s understanding of the Company’s
business can be beneficial in improving the efficiency and
effectiveness of advisory work. For this reason, we continue
to engage BDO as reporting accountants on the Company’s
issues of equity and debt capital in the normal course of
the Company’s business. Other reputable firms have been
engaged during the year to assist with financial and tax due
diligence on corporate acquisitions as well as general tax
compliance advice.
The Non-Audit Services Policy requires approval by the
Committee above a certain threshold before the external
Auditor is engaged to provide any permitted non-audit
services. The Company paid £103,000 in fees to the Auditor
for non-audit services during the year ended 30 June 2023.
These fees are set out below.
Service
Corporate finance services in connection with
work performed on prospectus opinions
Interim Review
Total
Fee (£)
65,000
38,000
103,000
8 2 S U P E R M A R K E T I N C O M E R E I T P L C
Significant issue
How the issue was addressed
Valuation of property portfolio
Cushman and Wakefield have been engaged to value, on a bi-annual
basis, both the Company’s direct property investments and the
underlying properties within the joint venture. The Group’s Direct
Portfolio value as at 30 June 2023 was £1.69 billion (30 June 2022: £1.57
billion) reflecting a valuation decline, net of costs, of 14% for the year on
a like-for-like basis.
The valuation of the Group’s property portfolio is a key determinant of
the Group’s net asset value as well as directly impacting the fee payable
to the Investment Adviser.
The valuation is conducted externally by independent valuers,
however, the nature of the valuation process is inherently subjective
due to the assumptions made in determining market comparable yields
and estimated rental values.
Acquisition and disposal of Joint Venture Interests
In January 2023 the Group acquired an additional interest in its joint
venture, Horner (Jersey) LP. In acquiring this additional interest, the
Group increased its joint venture interest in the Sainsbury’s Reversion
Portfolio to 51%.
The evaluation of whether the acquisition should be accounted for as an
asset acquisition or a business combination was an area of significant
judgement.
In March 2023, the Group subsequently disposed of its entire
interest in the Sainsbury’s Reversion Portfolio for gross proceeds of
£430.9 million, of which £136.8 million remained outstanding at the year
end as shown in Note 17.
The determination of the fair value of the contractual receivable at the
point of disposal was an additional area of judgement in accounting for
the disposal transaction.
Internal audit function
The Group does not have an internal audit function. The
need for this is reviewed annually by the Committee. Due
to the relative lack of complexity and the outsourcing
of the majority of the day to-day operational functions,
the Committee continues to be satisfied that there is no
requirement for such a function.
Fair, balanced and understandable financial statements
The production and audit of the Group’s Annual Report is
a comprehensive process, requiring input from a number of
contributors. To reach a conclusion on whether the Annual
Report is fair, balanced and understandable, as required
under the AIC Code, the Board has requested that the
Committee advise on whether it considers that the Annual
Report fulfils these requirements. In outlining our advice,
we have considered the following:
• The comprehensive documentation that outlines the
controls in place for the production of the Annual Report,
including the verification processes to confirm the
factual content
• The detailed reviews undertaken at various stages of the
production process by the Investment Adviser, AIFM,
Company Secretary, Financial Advisers, Auditor and the
Committee, which are intended to ensure consistency and
overall balance
• Controls enforced by the Investment Adviser, Company
Secretary and other third-party service providers, to
ensure complete and accurate financial records and
security of the Company’s assets
The Audit and Risk Committee met with the valuer on two occasions,
together with the Investment Adviser and external auditor in January
and August to review the valuation included within the half-year and
year-end financial statements. This review included the valuation
process undertaken, changes in market conditions, recent transactions
in the market and how these impacted our Portfolio and the valuer’s
expectations in relation to future rental growth and yield movement.
The Committee asked the valuer to highlight significant judgements
or disagreements with the Investment Adviser during the valuation
process to ensure a robust and independent valuation had taken place.
The Auditor, BDO, reviewed the underlying assumptions using its
real estate experts and provided the Audit and Risk Committee with
a summary of its work as part of its report on the half-year and year
end results.
As a result of these reviews, the Committee concluded that the
valuation had been carried out appropriately and independently. The
Board approved the valuations in February 2023 and September 2023 in
respect of the interim and annual valuations.
The Audit and Risk Committee reviewed the Investment Adviser’s
assessment of the accounting for the acquisition transaction which
included the basis for treating the acquisition as an asset acquisition.
As Audit and Risk Chair, I had a meeting with the Investment Adviser,
where we discussed the appropriateness of the calculation of the fair
value applied in arriving at the fair value of the contractual receivable.
The discount rate used was considered appropriate given the
underlying facts and circumstances of the transaction.
The Auditor, BDO, has also reviewed the key judgements applied and
provided the Audit and Risk Committee with a summary of its work as
part of its report on the year end results.
Following the above reviews, the Committee concluded that the
acquisition and disposal had been appropriately accounted for.
• The Investment Adviser has a highly experienced
team who have a strong proficiency in producing
financial statements
As a result of the work performed, we have concluded and
reported to the Board that the Annual Report for the year
ended 30 June 2023, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company’s performance,
business model and strategy.
Risk management and internal controls
The Board oversees the Group’s risk management and
internal controls and determines the Group’s risk appetite.
The Board has, however, delegated responsibility for review
of the risk management methodology and the effectiveness
of internal controls to the Audit and Risk Committee. The
Group’s system of internal controls includes financial,
operational and compliance controls and risk management.
Policies and procedures, including clearly defined
levels of delegated authority, have been communicated
throughout the Group.
Internal controls are implemented by the Investment
Adviser in respect of the key operational and financial
processes of the business. These policies are designed to
ensure the accuracy and reliability of financial reporting
and govern the preparation of the financial statements.
A N N U A L R E P O R T 2 0 2 3 8 3
CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT C ON TI NUED
Committee effectiveness
I believe that the quality of discussion and level of challenge
by the Committee with the Investment Adviser, the external
audit teams and the valuer, together with the timeliness and
quality of papers received by the Committee, ensures the
Committee is able to perform its role effectively.
Details of the performance evaluation conducted during the
year can be found on page 79.
Signed on behalf of the Audit and Risk Committee by
Jon Austen
Audit and Risk Committee Chair
19 September 2023
As part of the migration of the Company to the Premium
Segment of the London Stock Exchange, a Board
Memorandum was prepared that documented the financial
position and prospects procedures (“FPPP”) of the Company.
This Memorandum was independently reviewed by an
external accountancy firm and no major deficiencies
were identified, which provided the Committee with
additional comfort that the Group’s system of internal
controls remained fit for purpose and robust. We have
confirmed with the Investment Adviser that there have
been no changes to controls since those documented within
that report.
During the year, I also performed a review and walk through
of the key systems and controls in place at the Investment
Adviser which I found to be suitable for a Company
of our size.
Risk register
During the year, the Audit and Risk Committee reviewed
the Group’s risk register, which is maintained by the AIFM
in conjunction with the Investment Adviser and is subject to
the supervision and oversight of the Committee. A summary
of the risk register is also reviewed at least bi-annually
by the Board.
We have reviewed and approved all statements included
in the Annual Report concerning internal controls and risk
management taking into consideration the review of the risk
register and our assessment of the Group’s internal controls
and knowledge of the business.
We have also 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 and the
procedures of both the Company’s AIFM and Investment
Adviser for detecting fraud and preventing bribery. We
consider that they are appropriate.
8 4 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | MANAGEMENT ENGAGEMENT COMMITTEE REPORT
Dear Shareholders
I am pleased to present the Management Engagement
Committee report for the year ended 30 June 2023.
How the Committee operates
The Management Engagement Committee Terms of
Reference are available on the Company’s website and on
request from the Company’s registered office.
During the period to 30 June 2023, the Committee
comprised of six Independent Non-Executive Directors of
the Company, none of which are connected to the AIFM or
Investment Adviser.
Committee Members
Nick Hewson, Committee Chair
Jon Austen
Frances Davies
Vince Prior
Sapna Shah (appointed 29 March 2023)
Cathryn Vanderspar
All of the Committee members served for the full year,
unless otherwise stated. Following a review of Committee
membership post year end, effective 1 July 2023, Sapna
Shah was appointed as Committee Chair, with the
membership otherwise remaining unchanged. Sapna’s
knowledge and experience positions her well to act as Chair
of the Management Engagement Committee.
During the year, the Management Engagement Committee
held one formal meeting. The Company Secretary and
I ensure that the meetings are of sufficient length to allow
the Committee to consider all important matters and the
Committee is satisfied that it receives full information in
a timely manner to allow it to fulfil its obligations.
Members of the Investment Adviser were invited to attend
the Committee meetings. Hanway Advisory Limited as
Company Secretary acts as secretary to the Committee.
Responsibilities
The main function of the Management Engagement
Committee is to review the compliance, by the Investment
Adviser and the AIFM with the Company’s investment
policy and their performance of the duties detailed in their
agreements with the Company.
The Committee will regularly review the composition
of the key executives performing the services on behalf
of the Investment Adviser and monitor and evaluate the
performance of other key service providers to the Company.
The Management Engagement Committee has been in
operation throughout the period and operates within clearly
defined terms of reference.
Activities
During the year the Committee reviewed the performance
of the Investment Adviser and AIFM and recommended to
the Board, the continued appointment of the Investment
Adviser and AIFM. The Committee also considered the
performance of key service providers to the Company.
Where appropriate, feedback was provided to the
Investment Adviser, AIFM and key service providers to
enhance the level of service provided to the Company.
Management Arrangements
The Company operates an externally managed alternative
investment fund for the purposes of the AIFMD. In its role
as AIFM, JTC Global AIFM Solutions Limited is responsible
for the portfolio management and risk management of the
Company pursuant to the AIFMD, subject to the overall
control and supervision of the Board. Atrato Capital Limited
acts as the Company’s Investment Adviser.
Under the Investment Advisory Agreement, the Investment
Adviser is entitled to receive advisory fees on the
following basis:
The entitlement of the Investment Adviser to advisory fees
is by way of what are termed ‘Monthly Management Fees’
and ‘Semi-Annual Management Fees’, both of which are
calculated by reference to the net asset value of the Group
at particular dates, as adjusted for the financial impact
of certain investment events and after deducting any
uninvested proceeds from share issues up to the date of the
calculation of the relevant fee (these adjusted amounts are
referred to as ‘Adjusted Net Asset Value’ for the purpose of
calculation of the fees in accordance with the Agreement).
Until the Adjusted Net Value of the Group exceeds
£1,500 million, the entitlements to advisory fees can be
summarised as follows:
• Monthly Management Fee payable monthly in arrears:
1/12th of 0.7125% per calendar month of Adjusted Net
Asset Value up to or equal to £500 million, 1/12th of
0.5625% per calendar month of Adjusted Net Asset Value
above £500 million and up to or equal to £1,000 million
and 1/12th of 0.4875% per calendar month of Adjusted
Net Asset Value above £1,000 and up to or equal to
£1,500 million.
• Semi-Annual Management Fee payable semi-annually
in arrears: 0.11875% of Adjusted Net Asset Value up
to or equal to £500 million, 0.09375% of Adjusted Net
Asset Value above £500 million and up to or equal to
£1,000 million and 0.08125% of Adjusted Net Asset Value
above £1,000 million and up to or equal to £1,500 million.
A N N U A L R E P O R T 2 0 2 3 8 5
CORPORATE GOVERNANCE | MANAGEMENT ENGAGEMENT COMMITTEE REPORT C ON TI NUED
Continuing Appointment of the Investment
Adviser and AIFM
The Management Engagement Committee has reviewed
the continuing appointment of the Investment Adviser and
AIFM and are satisfied that their appointment remained in
the best interests of shareholders as a whole.
Committee effectiveness
Given that the Management Engagement Committee
was established at the beginning of the financial year, its
effectiveness was not reviewed as part of the performance
evaluation undertaken. A review will be undertaken this
year, as part of the performance evaluation process.
Signed on behalf of the Management Engagement
Committee by
Nick Hewson
Management Engagement Committee Chair
19 September 2023
The annual fee paid to the Investment Adviser under
the Investment Advisory Agreement for the year ended
30 June 2023 was £10.3 million (30 June 2022: £9.4 million).
The Investment Advisory Agreement may be terminated by
the Investment Adviser or the Company with no less than
two years written notice.
During the year under review the AIFM was 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. With effect from 1 April 2022,
the AIFM reduced its fees on the net asset value of the
Company over £1 billion to 0.03% of the net asset value over
£1 billion. The total fees paid to the AIFM during the year
under review were £480,763.62.
During the financial year under review, no separate
remuneration was paid by the AIFM to two of its executive
directors, Graham Taylor and Kobus Cronje, because they
were both employees of the JTC group of companies, of
which the AIFM forms part. The third executive director,
Matthew Tostevin, is paid a fixed fee of £10,000 for acting
as a director. Mr Tostevin is paid additional remuneration
on a time spent basis for services rendered to the AIFM
and its clients. Other than the directors, the AIFM has no
employees. The Company has no agreement to pay any
carried interest to the AIFM. During the year under review,
the AIFM paid £10,000 in fixed fees and £43,478.75 in
variable remuneration to Mr Tostevin.
Further information on the AIFM’s remuneration can be
found in the Alternative Investment Fund Manager’s Report
on pages 95 to 96.
8 6 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | ESG COMMITTEE REPORT
Dear Shareholders
I am pleased to present the ESG Committee report for the
year ended 30 June 2023.
How the Committee operates
The ESG Committee Terms of Reference are available on
the Company’s website and on request from the Company’s
registered office.
The Committee comprised of six Independent
Non-Executive Directors of the Company, none of which are
connected to the AIFM, or Investment Adviser.
Committee Members
Frances Davies, Chair of the Committee
Jon Austen
Nick Hewson
Vince Prior
Sapna Shah (appointed 29 March 2023)
Cathryn Vanderspar
All of the Committee members served for the full year,
unless otherwise stated. Following a review of Committee
membership post year end, effective 1 July 2023, the
Committee now comprises Frances Davies as Chair, Cathryn
Vanderspar and Nick Hewson.
Members of the Investment Adviser and AIFM were
invited to attend the Committee meetings. Hanway
Advisory Limited as Company Secretary acts as secretary to
the Committee.
During the year, the ESG Committee held its inaugural
meeting. The Company Secretary and I ensure that the
meetings are of sufficient length to allow the Committee
to consider all important matters and the Committee is
satisfied that it receives full information in a timely manner
to allow it to fulfil its obligations.
Committee effectiveness
As the Committee was established on 1 July 2022, an
evaluation of the Committee’s effectiveness has not yet
been conducted and will be completed in the year ending
30 June 2024.
Responsibilities
The Committee serves as an independent and objective
party to monitor the integrity and quality of the Company’s
ESG strategy, to ensure that the Company’s ESG strategy
is integrated into its business plan, corporate values and
objectives and serves to foster a culture of responsibility and
transparency and to review and approve the Company’s
annual reporting in relation to ESG.
The Committee’s other key responsibilities include:
• Overseeing the establishment and implementation of
policies and codes of practice
• Set KPI’s related to ESG matters and oversee the
performance against those KPI’s
• Identify the required resourcing and funding of
ESG-related activity
• Oversee the Company’s engagement with its broader
stakeholder community
• Ensure the Company monitors and reviews current and
emerging ESG trends, relevant international standards
and legislative requirements and identify how those are
likely to impact upon the Company
The Committee focuses on the following three areas:
Environmental: the Company’s impact on the natural
environment and its response to the challenge of climate
change including; greenhouse gas emissions, energy
consumption, generation and use of renewable energy,
biodiversity and habitat, impact on water resources and
deforestation, pollution, efficient use of resources, the
reduction and management of waste, and the environmental
impact of the Company’s supply chain.
Social: the Company’s interaction with stakeholders
and the communities in which it operates and the role
of the Company in society including; board policies (e.g.
stakeholder engagement, diversity, non-discrimination
and equality of treatment, health safety and well-being),
ethical/responsible sourcing and social aspects and labour
standards of the supply chain (including child labour and
modern slavery), and engagement with and contribution
to the broader community through social projects and
charitable donations.
Corporate Governance and Behaviour: the ethical conduct of
the Company’s business including its corporate governance
framework, business ethics, policies, and codes of conduct
(e.g. related to donations and political lobbying, bribery and
corruption), and the transparency of non-financial reporting.
Activities
During the year we held our inaugural meeting at which
we considered the Company’s progress against the
commitments we made last year.
Further details on the Company’s progress against these and
its commitments for the next financial year are provided
in the TCFD report on pages 35 to 50 and the Company’s
Sustainability report.
I look forward to updating you on our progress with our
sustainability strategy in our next report.
Signed on behalf of the ESG Committee by
Frances Davies
ESG Committee Chair
19 September 2023
A N N U A L R E P O R T 2 0 2 3 8 7
CORPORATE GOVERNANCE | REMUNERATION COMMITTEE REPORT
Dear Shareholders
I am pleased to present the Remuneration Committee report
for the year ended 30 June 2023.
How the Committee operates
The Remuneration Committee Terms of Reference are
available on the Company’s website and on request from the
Company’s registered office.
Our Committee comprised of six Independent
Non-Executive Directors of the Company, none of which are
connected to the AIFM, or Investment Adviser.
Committee Responsibilities
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 Chair
• Review the ongoing appropriateness and relevance of the
remuneration policy
• 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 AIC 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. Directors' other interests
have been disclosed. 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.
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. Directors are typically expected to serve
two three-year terms but may be invited by the Board to
serve for an additional period. 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.
Committee effectiveness
Details of the performance evaluation conducted during the
year can be found on page 79.
Signed on behalf of the Remuneration Committee by
Cathryn Vanderspar
Remuneration Committee Chair
19 September 2023
Committee Members
Cathryn Vanderspar: Committee Chair
Jon Austen
Frances Davies
Nick Hewson
Vince Prior
Sapna Shah (appointed 29 March 2023)
All the Committee members served for the full year,
unless otherwise stated. Following a review of Committee
membership post year end, effective 1 July 2023, the
Committee now comprises Cathryn Vanderspar as Chair,
Frances Davies and Jon Austen.
During the year, the Remuneration Committee held two
formal meetings. The Company Secretary and I ensure that
the meetings are of sufficient length to allow the Committee
to consider all important matters and the Committee is
satisfied that it receives full information in a timely manner
to allow it to fulfil its obligations.
Members of the Investment Adviser were invited to attend
the Committee meetings. Hanway Advisory Limited
as Company Secretary also attended as secretary to
the Committee.
The Committee determines the level of Non-Executive
Directors’ remuneration. A benchmarking exercise was
undertaken in the year. The Committee reviewed the
benchmarking and, taking into account also the wider
market considerations, in consultation with the Investment
Adviser and the brokers, concluded that there would be
no changes to Directors’ remuneration for the year ending
30 June 2024, with the exception of the introduction of
a fee of £5,000 per annum for the Chair of the Management
Engagement Committee, to reflect the time commitment
required for that role. As discussed on page 63 of the 2022
Annual Report, the Directors’ remuneration was increased
from 1 July 2022, following a benchmarking exercise
undertaken in the prior year.
Full details of the Group’s policy with regards to Directors’
remuneration paid during the year ended 30 June 2023 are
shown below.
8 8 S U P E R M A R K E T I N C O M E R E I T P L C
DIRECTORS’ REMUNERATION POLICY
The Company’s policy is to determine the level of Directors’
fixed annual fees in accordance with its Articles of
Association.
When setting the level of Directors’ fees, the Company will
have due regard to the experience of the Board as a whole,
the time commitment required, the responsibilities of
the role and to be fair and comparable to non-executive
directors of similar companies.
Furthermore, the level of remuneration should be sufficient
to attract and retain the Directors needed to oversee the
Company properly and to reflect its specific circumstances.
The Company may also periodically choose to benchmark
Directors’ fees with an independent review, to ensure they
remain fair and reasonable.
Directors’ fees are reviewed annually and will be adjusted
from time to time, as may be determined by the board
under the Articles of Association and this policy. In terms
of the Company’s Articles of Association, the aggregate
remuneration of all the directors shall not exceed
£500,000 per annum but this may be changed by way of
ordinary resolution.
The Directors are also entitled to be paid their reasonable
expenses incurred in undertaking their duties.
Additional Directors’ fees may be paid by the Company
where Directors are involved in duties beyond those
normally expected as part of the Directors’ appointment.
In such instances, where additional remuneration is paid,
the Board will provide details of the events, duties and
responsibilities that gave rise to any additional directors’
fees in the Company’s annual report.
No element of the Directors’ remuneration is performance
related, nor does any director have any entitlement to
pensions, share options or any long-term incentive plans
from the Company. Directors’ fees are payable in cash,
monthly in arrears.
The Directors hold their office in accordance with the
Articles of Association and their appointment letters. No
Director has a service contract with the Company, nor are
any such contracts proposed. The directors’ appointments
can be terminated in accordance with the Articles of
Association and without compensation.
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 with
Provision 23 of the AIC Code requiring all Directors to
be subject to annual election. All Directors retire at each
Annual General Meeting and those eligible and wishing to
serve again offer themselves for election.
A N N U A L R E P O R T 2 0 2 3 8 9
CORPORATE GOVERNANCE | REMUNERATION COMMITTEE REPORT C ON TI NUED
ANNUAL REPORT ON DIRECTORS’ REMUNERATION
Directors’ Fees
The Committee 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 2023. Following consultation with the Investment
Adviser and the brokers, the Committee concluded that
the Directors’ remuneration remains unchanged with the
exception of the introduction of a fee of £5,000 per annum
for the Chair of the Management Engagement Committee
to reflect the time commitment required for that role. There
are no further changes to the Director’s remuneration for
this year. In aggregate, total fees remain under the limit set
out in the governing documents as set out below.
Revised fee per
annum from
1 July 2023
Fee per annum
year ended
30 June 2023
£75,000
£75,000
£52,500
£52,500
£5,000
£9,000
£5,000
£4,000
£5,000
£9,000
£5,000
£4,000
Chair
Non-Executive
Directors (“NED”s)
Senior Independent
Director (SID)*
Audit
Committee Chair*
Remuneration
Committee Chair*
Nomination
Committee Chair*
Management
Engagement
Committee Chair*
Environmental, Social,
and Governance
Committee Chair*
Year ended
30 June
2023
£’000
Year ended
30 June
2022
£’000
Fixed
Remuneration
(both years)
%
Annual
percentage
change since
30 June
2022(1)
%
Nick Hewson
Jon Austen
Vince Prior
Cathryn
Vanderspar
Frances
Davies
Sapna Shah*
75
62
62
58
58
18
70
58
58
55
4
N/A
100
100
100
100
N/A
N/A
7
7
7
5
N/A
N/A
(1) Or date of appointment, if later.
* Appointed 1 March 2023
Relative importance of spend on pay
The table below sets out, in respect of the year ended
30 June 2023:
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
c) Distributions to shareholders by way of dividend to
provide a comparison of the shareholders’ returns against
Directors’ remuneration
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Variance year
on year %
£5,000
–
£5,000
£5,000
Directors’ fees
330
245
Management fee
and expenses
Dividends paid
10,292
74,328
9,405
53,190
36%
9%
40%
*No additional fee is payable for Committee Chair positions undertaken by the
Chair of the Board
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.
No Directors received any expenses.
Directors’ fees as a percentage of
Management fee and expenses
Dividends paid
Year ended
30 June 2023
%
Year ended
30 June 2022
%
3.2
0.44
2.6
0.46
9 0 S U P E R M A R K E T I N C O M E R E I T P L C
Directors’ shareholdings (audited)
The Directors (and their PCA’s) had the following beneficial
interests in the issued ordinary share capital of the Company
as at 30 June 2023 and at the date of this report:
Directors
Nick Hewson
Jon Austen
Vince Prior
Cathryn Vanderspar
Frances Davies
Sapna Shah
As at the date
of this report
As at
30 June 2023
1,263,309
1,263,309
305,339
213,432
125,802
36,774
28,951
305,339
213,432
125,802
24,774
28,951
The Company does not oblige the Directors to hold shares
in the Company, but this is encouraged to ensure the
appropriate alignment of interests.
Group performance – Total Shareholder Return
The Board is responsible for the Group’s investment strategy
and performance, whilst the management of the investment
portfolio is delegated to the AIFM. The AIFM has, in turn,
delegated certain services, including but not limited to
advice on acquisitions and financing, to the Investment
Adviser. The graph below compares, for the period from our
IPO in June 2017 to 30 June 2023, the total return (assuming
all dividends are reinvested) to ordinary shareholders
compared to the FTSE All-Share Index. This index was
chosen as it is considered an indicative measure of the
expected return from an equity stock. An explanation of the
performance of the Group for the year ended 30 June 2023
is given in the Strategic Report.
FTSE All Share vs The Company
Consideration of shareholder views
The Company is committed to engagement with
shareholders and will seek major shareholders’ views in
advance of making significant changes to its remuneration
policy and how it is implemented. The Chair of the
Remuneration Committee attends the AGM to hear the
views of shareholders on remuneration and to answer
any questions.
The Directors’ Remuneration Policy was approved by
shareholders at the 2021 AGM with 99.98% of the votes
cast being in favour of the resolution. The Directors’
remuneration report for the year ended 30 June 2022 was
approved by the shareholders at the 2022 AGM with 99.99%
of the votes cast being in favour. The Remuneration Policy is
subject to a binding vote at the 2024 AGM.
Voting at Annual General Meeting
An Ordinary Resolution to approve the Director’s
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 Director’s Remuneration Report at
this meeting.
This Directors’ Remuneration Report is approved on behalf
of the Board by
Cathryn Vanderspar
Remuneration Committee Chair
19 September 2023
160
140
120
100
80
e
c
n
a
m
r
o
f
r
e
p
e
v
i
t
a
l
e
R
60
Jun 17
Oct 17 Feb 18 Jun 18 Oct 18 Feb 19 Jun 19 Oct 19 Feb 20 Jun 20 Oct 20 Feb 21 Jun 21 Oct 21 Feb 22 Jun 22 Oct 22 Feb 23 Jun 23
The Company
FTSE All Share
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.
A N N U A L R E P O R T 2 0 2 3 9 1
CORPORATE GOVERNANCE | DIRECTORS’ REPORT
The Directors present their report together with the audited
financial statements for the year ended 30 June 2023. The
Corporate Governance Statement on pages 76 to 77 forms
part of this report.
Principal activities and status
The Company is registered as a UK public limited company
under the Companies Act 2006. It is an Investment
Company as defined by Section 833 of the Companies Act
2006 and has been established as a closed-ended investment
company with an indefinite life. The Company has a single
class of shares in issue which were traded during the year
on the Premium List of the London Stock Exchange’s Main
Market. The Group has entered the Real Estate Investment
Trust regime for the purposes of UK taxation.
The Company is a member of the Association of Investment
Companies (the AIC).
Results and dividends
The results for the year are set out in the attached financial
statements. It is the policy of the Board to declare and pay
dividends as quarterly interim dividends.
In respect of the 30 June 2023 financial year, the Company
has declared the following interim dividends amounting to
6.00 pence per share (2022: 5.94 pence per share).
Relevant Period
Quarter ended
30 September 2022
Quarter ended
31 December 2022
Quarter ended
31 March 2023
Quarter ended
30 June 2023
Dividend
per share
(pence)
Ex-dividend
date Record date
Date paid
1.50 6 Oct 2022
7 Oct 2022 16 Nov 2022
1.50 19 Jan 2023 20 Jan 2023 23 Feb 2023
1.50 20 Apr 2023
21 Ap 2023 26 May 2023
1.50 13 Jul 2023 14 Jul 2023 4 Aug 2023
Dividend policy
Subject to market conditions and performance, financial
position and outlook, it is the Directors’ intention to pay
an attractive level of dividend income to shareholders
on a quarterly basis. The Company intends to grow
the dividend progressively through investment in
supermarket properties with upward-only, predominantly
inflation-protected, long-term lease agreements.
Directors
The names of the Directors who served in the year ended
30 June 2023 are set out in the Board of Directors section on
pages 66 to 67 together with their biographical details and
principal external appointments.
Powers of Directors
The Board will manage the Company’s business and may
exercise all the Company’s powers, subject to the Articles,
the Companies Act and in certain circumstances, are subject
to the authority being given to the Directors by shareholders
in general meeting.
9 2 S U P E R M A R K E T I N C O M E R E I T P L C
The Board’s role is to provide entrepreneurial leadership of
the Company within a framework of prudent and effective
controls which enables risk to be assessed and managed.
It also sets up the Group’s strategic aims, ensuring that the
necessary resources are in place for the Group to meet its
objectives and review investment performance. The Board
also sets the Group’s values, standards and culture. Further
details on the Board’s role can be found in the Corporate
Governance Report on pages 70 to 73.
Appointment and replacement of Directors
All Directors were elected or re-elected at the AGM on
17 November 2022, with the exception of Sapna Shah who
was appointed to the Board on 1 March 2023. In accordance
with the AIC Corporate Governance Code, all the Directors
will retire and those who wish to continue to serve will offer
themselves for election or re-election at the forthcoming
Annual General Meeting.
Directors’ indemnity
The Company maintains £30 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 £35 million on 17 July 2023 and
continues in effect at the date of this report.
Significant shareholdings
The table below shows the interests in shares notified to the
Company in accordance with Chapter 5 of the Disclosure
Guidance and Transparency Rules issued by the Financial
Conduct Authority who have a disclosable interest of
3% or more in the ordinary shares of the Company as at
30 June 2023.
Number of shares
Percentage of issued
share capital
Blackrock Inc.
Schroders Plc
Quilter Plc
Ameriprise Financial, Inc.
Waverton Investment
Management Limited
68,196,517
63,131,941
62,058,617
61,728,272
46,422,935
5.46%
5.08%
4.99%
4.98%
3.79%
Since the year end, and up to 19 September 2023, the
Company has not received any further notifications of
changes of interest in its ordinary shares in accordance with
DTR 5. The information provided is correct as at the date of
notification.
Donations and contributions
The Group made no political or charitable donations during
the year (2022: none).
Branches outside the UK
The Company has no branches outside the UK.
Financial risk management
The Group’s exposure to, and management of, capital risk,
market risk and liquidity risk is set out in note 21 to the
Group’s financial statements.
Share capital structure
As at 30 June 2023, the Company’s issued share capital
consisted of 1,246,239,185 ordinary shares of one penny
each, all fully paid and listed on the Premium List of the
London Stock Exchange’s Main Market. Further details of
the share capital, including changes throughout the year are
summarised in note 22 of the financial statements.
Subject to authorisation by Shareholder resolution, the
Company may purchase its own shares in accordance with
the Companies Act 2006. At the Annual General Meeting
held in 2022, shareholders authorised the Company to make
market purchases of up to 186,140,810 Ordinary Shares.
The Company has not repurchased any of its ordinary
shares under this authority, which is due to expire at the
AGM in 2023 and appropriate renewals will be sought.
There are no restrictions on transfer or limitations on the
holding of the ordinary shares. None of the shares carry any
special rights with regard to the control of the Company.
There are no known arrangements under which financial
rights are held by a person other than the holder of the
shares and no known agreements on restrictions on share
transfers and voting rights.
Post balance sheet events
For details of events since the year end date, please refer to
note 28 of the consolidated financial statements.
Corporate Governance
The Company’s statement on corporate governance can be
found in the Corporate Governance Report on pages 76 to
77 of this Annual Report. The Corporate Governance Report
forms part of this directors’ report and is incorporated into it
by cross-reference.
Information included in the strategic report
The information that fulfils the reporting requirements
relating to the following matters can be found on the
pages identified.
Subject matter
Page reference
Likely future developments
15 to 22
Signed by order of the Board on 19 September 2023
Nick Hewson
Chair
19 September 2023
Amendments to the Articles
The Articles may only be amended with shareholders’
approval in accordance with the relevant legislation.
Employees
The Group has no employees and therefore no employee
share scheme or policies for the employment of disabled
persons or employee engagement.
Anti-bribery policy
The Company has a zero-tolerance policy towards bribery
and is committed to carrying out its business fairly, honestly
and openly. The anti-bribery policies and procedures apply
to all its Directors and to those who represent the Company.
Human Rights
The Company has a zero-tolerance approach to modern
slavery and human trafficking and is committed to
ensuring its organisation and business partners operate
with the same values. The Company’s modern slavery
and human trafficking statement can be found on the
Company’s website.
Research and development
No expenditure on research and development was made
during the period.
Related party transactions
Related party transactions for the year ended 30 June 2023
can be found in note 27 of the financial statements.
Annual General Meeting
The Annual General Meeting of the Company will be held
on 7 December 2023.
Greenhouse gas emissions
As a listed entity, the Company is required to comply with
the Streamlined Energy and Carbon Reporting (SECR)
regulations under the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018. Information regarding emissions arising
from the Group's activities are included within the TCFD
aligned report on pages 35 to 50.
Disclosure of information to auditor
All of the Directors have taken all the steps that they ought
to have taken to make themselves aware of any information
needed by the auditor for the purposes of their audit and to
establish that the auditor is aware of that information. The
Directors are not aware of any relevant audit information of
which the auditor is unaware.
Significant agreements
The Company entered into a new unsecured borrowing
facility on 1 July 2022 provided by a syndicate of lenders.
The facility includes provisions that may require any
outstanding borrowings to be repaid or the alteration or
termination of the facilities in the event of a change of
control at the ultimate parent company level.
There are no agreements with the Company or a subsidiary
in which a Director is or was materially interested or to
which a controlling shareholder was party.
A N N U A L R E P O R T 2 0 2 3 9 3
CORPORATE GOVERNANCE | DIRECTORS’ RESPONSIBILITIES STATEMENT
The Company is required to make the Annual Report and
Accounts available on a website. The Company’s website
address is www.supermarketincomereit.com. 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 UK adopted international accounting standards and
the Company financial statements prepared 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 give a true
and fair view of the assets, liabilities, financial position
and profit or loss of the Group
• The Annual Report and Accounts include a fair review
of the development and performance of the business
and the position of the Group and Company, together
with a description of the principal risks and uncertainties
that they face
• The Annual Report and Accounts taken as whole, is
fair, balanced and understandable and the information
provided to shareholders is sufficient to allow them
to assess the Group’s performance, business model
and strategy
This Responsibility Statement was approved by the Board of
Directors and is signed on its behalf by
Nick Hewson
Chair
19 September 2023
The Directors are responsible for preparing the Annual
Report and Accounts 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 UK adopted
international accounting standards 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
• Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and Company will continue in business
• Prepare a Directors’ Report, a Strategic Report, Directors’
Remuneration Report and Corporate Governance
Statement which comply with the requirements of the
Companies Act 2006
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.
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 ensuring that the Annual
Report and Accounts, taken as a whole, are fair, balanced,
and understandable and provides the information necessary
for shareholders to assess the Group’s performance,
business model and strategy.
9 4 S U P E R M A R K E T I N C O M E R E I T P L C
CORPORATE GOVERNANCE | ALTERNATIVE INVESTMENT FUND MANAGER’S REPORT
Background
The Alternative Investment Fund Managers Directive (the
AIFMD) came into force on 22 July 2013. The objective of
the AIFMD was to ensure a common regulatory regime for
funds marketed in or into the EU which are not regulated
under the UCITS regime. This was primarily for investors’
protection and also to enable European regulators to obtain
adequate information in relation to funds being marketed
in or into the EU to assist their monitoring and control of
systemic risk issues.
The AIFM is a non-EU Alternative Investment Fund
Manager (a “Non-EU AIFM”), the Company is a non-EU
Alternative Investment Fund (a “Non-EU AIF”) and the
Company is marketed primarily into the UK, but also into
the EEA. Although the AIFM is a non-EU AIFM, so the
depositary rules in Article 21 of the AIFMD do not apply, the
transparency requirements of Articles 22 (Annual report)
and 23 (Disclosure to investors) of the AIFMD do apply to
the AIFM and therefore to the Company. In compliance
with those articles, the following information is provided to
the Company’s shareholders by the AIFM.
1. Material Changes in the Disclosures to Investors
During the financial year under review, there were no
material changes to the information required to be made
available to investors before they invest in the Company
under Article 23 of the AIFMD from that information set
out in the Company’s prospectus dated 1 October, 2021,
save as updated in the supplementary prospectus dated
7 April, 2022, as disclosed below and in certain sections
of the Strategic Report, those being the Chair’s Statement,
Investment Adviser’s Interview, The UK Grocery Market,
TCFD Compliant Report, Our Principal Risks and the
Section 172(1) Statement, together with the Corporate
Governance Reports in this annual financial report.
2. Risks and Risk Management Policy
The current principal risks facing the Company and the
main features of the risk management systems employed by
AIFM and the Company to manage those risks are set out
in the Strategic Report (Our Principal Risks), the Audit and
Risk Committee Report and in the Directors’ Report.
3. Leverage and borrowing
The Company is entitled to employ leverage in accordance
with its investment policy and as described in the Chair’s
Statement, the sections entitled “Financial Highlights” and
“Financial Overview” in the Strategic Report and in the
notes to the financial statements. Other than as disclosed
therein, there were no changes in the Company’s borrowing
powers and policies.
4. Environmental, Social and Governance (ESG) Issues
and Regulation (EU) 2019/2099 on Sustainability-Related
Disclosures in the Financial Services Sector (the “SFDR”)
As a member of the JTC group of Companies, the AIFM’s
ultimate beneficial owner and controlling party is JTC
Plc, a Jersey-incorporated company whose shares have
been admitted to the Official List of the UK’s Financial
Conduct Authority and to trading on the London Stock
Exchange’s Main Market for Listed Securities (mnemonic
JTC LN, LEI 213800DVUG4KLF2ASK33). In the conduct
of its own affairs, the AIFM is committed to best practice
in relation to ESG matters and has therefore adopted JTC
Plc’s ESG framework, which can be viewed online at
https://www.jtcgroup.com/esg/. JTC Plc’s sustainability
report can also be viewed online at https://www.jtcgroup.
com/investor-relations/annual-review/.
As at the date of this report, JTC Plc is a signatory of the
U.N. Principles for Responsible Investment. The JTC group
is also carbon neutral and works to support the achievement
of ten of the U.N.’s Sustainable Development Goals. JTC Plc
reports under TCFD and under the SASB framework.
From the perspective of the SFDR, although the AIFM is
a non-EU AIFM, the Company is marketed into the EEA, so
that the AIFM is required to comply with the SFDR in so far
as it applies to the Company and the AIFM’s management
of the Company, which the Company has classified as being
within the scope of Article 6 of the SFDR.
The AIFM and Atrato Capital Limited (“Atrato”) as
the Company’s Alternative Investment Fund Manager
and Investment Adviser respectively do consider ESG
matters in their respective capacities, as explained in
SUPR’s prospectus dated 1 October, 2021, as updated
by SUPR’s supplementary prospectus dated 7 April,
2022. Copies of both of those documents can be viewed
on the AIFM’s website at https://jtcglobalaifmsolutions.
com/clients/supermarket-income-reit-plc/.
Since the publication of those documents, the AIFM,
Atrato and the Company have continued to enhance their
collective approach to ESG matters and detailed reporting
on (a) enhancements made to each party’s policies,
procedures and operational practices and (b) our collective
future intentions and aspirations is included in the TCFD
Compliant Report included in the Strategic Report and the
ESG Committee Report in this annual financial report. The
Company is also publishing a separate Sustainability Report
on its website.
A N N U A L R E P O R T 2 0 2 3 9 5
CORPORATE GOVERNANCE | ALTERNATIVE INVESTMENT FUND MANAGER’S REPORT C ON TI NUED
The AIFM also has a comprehensive risk matrix (the
“Matrix”), which is used to identify, monitor and manage
material risks to which the Company is exposed,
including ESG and sustainability risks, the latter being an
environmental, social or governance event or condition that,
if it occurred, could cause an actual or a potential material
negative impact on the value of an investment. We also
consider sustainability factors, those being environmental,
social and employee matters, respect for human rights,
anti-corruption and anti-bribery matters.
The AIFM is cognisant of the announcement published by
H.M. Treasury in the UK of its intention to make mandatory
by 2025 disclosures aligned with the recommendations of
the Task Force on Climate-related Financial Disclosures,
with a significant proportion of disclosures mandatory by
2023. The AIFM also notes the roadmap and interim report
of the UK’s Joint Government-Regulator TCFD Taskforce
published by H.M. Treasury on 9 November, 2020. The
AIFM continues to monitor developments and intends to
comply with the UK’s regime to the extent either mandatory
or desirable as a matter of best practice.
5. Remuneration of the AIFM’s Directors and Employees
During the financial year under review, no separate
remuneration was paid by the AIFM to two of its executive
directors, Graham Taylor and Kobus Cronje, because they
were both employees of the JTC group of companies, of
which the AIFM forms part. The third executive director,
Matthew Tostevin, is paid a fixed fee of £10,000 for acting
as a director. Mr Tostevin is paid additional remuneration
on a time spent basis for services rendered to the AIFM
and its clients. Other than the directors, the AIFM has no
employees. The Company has no agreement to pay any
carried interest to the AIFM. During the year under review,
the AIFM paid £10,000 in fixed fees and £43,478.75 in
variable remuneration to Mr Tostevin.
6. Remuneration of the AIFM Payable by the Company
The AIFM was during the year under review paid a fee of
0.04% per annum of the net asset value of the Company up
to £1 billion and 0.03% of the Company’s net asset value in
excess of £1 billion, subject to a minimum of £50,000 per
annum, such fee being payable quarterly in arrears. The
total fees paid to the AIFM during the year under review
were £480,763.62.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
19 September 2023
9 6 S U P E R M A R K E T I N C O M E R E I T P L C
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC
Opinion on the financial statements
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 2023 and of the Group’s loss for the
year then ended;
• the Group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
• 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.
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 2023 which comprise
the consolidated statement of comprehensive income, the
consolidated and company statements of financial position,
the consolidated and company statements of changes in
equity, the consolidated cash flow statement and notes to
the financial statements, including a summary of significant
accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law
and UK adopted international accounting standards. 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).
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 believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion. Our audit
opinion is consistent with the additional report to the
audit committee.
Independence
Following the recommendation of the Audit Committee,
we were appointed by the Directors in June 2017 to audit
the financial statements for the 13-month period ended
30 June 2018 and subsequent financial periods. The period
of total uninterrupted engagement including retenders
and reappointments is 6 years, covering the years ended
2018 to 2023. We remain 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. The non-audit services prohibited
by that standard were not provided to the Group or the
Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that
the Directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group
and the Parent Company’s ability to continue to adopt the
going concern basis of accounting included:
• Using our knowledge of the Group and its market sector
together with the current economic environment to assess
the Directors’ identification of the inherent risks to the
Group’s business and how these might impact the Group’s
ability to remain a going concern for the going concern
period, being the period to 30 September 2024, which is
at least 12 months from when the financial statements are
authorised for issue;
• Obtaining an understanding of the Directors’ process for
assessing going concern including an understanding of
the key assumptions used;
• We have reviewed the forecasts that support the Directors’
going concern assessment and:
– Challenging the Investment Adviser’s forecast
assumptions in comparison to the current performance
of the Group;
– Agreeing the inputs into the forecasts to supporting
documentation for consistency with contractual
agreements, where available;
– Agreeing the Group’s available borrowing facilities
and the related covenants to supporting financing
documentation and calculations;
A N N U A L R E P O R T 2 0 2 3 9 7
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC C ON TI NUED
• Analysing the sensitivities applied by the Directors’ stress
• Reviewing the disclosures in the financial statements
testing calculations and challenging the assumptions
made using our knowledge of the business and of the
current economic climate, to assess the reasonableness of
the downside scenarios selected;
• Obtaining covenant calculations and forecast calculations
to test for any potential future covenant breaches;
• Considering the covenant compliance headroom for
sensitivity to both future changes in property valuations
and the Group’s future financial performance;
• Reviewing the agreements for extensions or modifications
of loan agreements since the year end up to the date of the
signed financial statements;
• Considering board minutes, and evidence obtained
through the audit and challenging the Directors on
the identification of any contradictory information
in the forecasts and the resultant impact to the going
concern assessment;
relating to going concern to check that the disclosure is
consistent with the circumstances
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the Group and the Parent Company’s
ability to continue as a going concern for a period of at least
twelve months from when the financial statements are
authorised for issue.
In relation to the Parent Company’s reporting on how it
has applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to
the Directors’ statement in the financial statements about
whether the Directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Coverage
100% (2022: 100%) of Group profit before tax
100% (2022: 100%) of Group revenue
100% (2022: 100%) of Group total assets
100% (2022: 100%) of Group investment property
Key audit matters
Valuation of investment property
Acquisition and disposal of investments in joint ventures
2023
ü
ü
2022
ü
The acquisition and disposal of investments in joint ventures is a new KAM as this pertains to specific
transactions which have taken place during the current financial year.
Materiality
Group financial statements as a whole £19.3m (2022: £18.0m) based on 1% of Group total assets
(2022: 1% of Group total assets).
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding
of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material
misstatement in the financial statements. We also addressed
the risk of management override of internal controls,
including assessing whether there was evidence of bias by
the Directors that may have represented a risk of material
misstatement.
9 8 S U P E R M A R K E T I N C O M E R E I T P L C
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 individually
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 full scope audits
in order 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 below. 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.
Climate change
Our work on the assessment of potential impacts on
climate-related risks on the Group’s operations and financial
statements included:
• Enquiries and challenge of the Investment Adviser and
the Group’s independent property valuer to understand
the actions they have taken to identify climate-related
risks and their potential impacts on the financial
statements and adequately disclose climate-related risks
within the annual report;
• Our own qualitative risk assessment taking into
consideration the sector in which the Group operates,
including the specific property asset class in which
the Group invests, and how climate change affects this
particular sector and property asset class;
• Review of the minutes of Board, Audit Committee and
ESG Committee meetings and other papers related to
climate change and performed a risk assessment as to
how the impact of the Group’s risk assessment as set
out in the Group’s Sustainability and TCFD Compliance
Report may affect the financial statements and our audit;
• We challenged the extent to which climate-related
considerations, including the expected cash flows from
the initiatives and commitments have been reflected,
where appropriate, in the Investment Adviser’s going
concern assessment and viability assessment;
• We also assessed the consistency of the disclosures
included as ‘Statutory Other Information’ within the
Strategic Report and with our knowledge obtained
from the audit.
Based on our risk assessment procedures, we did not
identify there to be any key audit matters materially
impacted by climate-related risks.
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.
A N N U A L R E P O R T 2 0 2 3 9 9
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC C ON TI NUED
Key audit matter
Valuation of
investment properties
As detailed in
note 12, the Group
owns a portfolio of
investment properties
which, as described in
the accounting policy
in note 2.11, are held at
fair value in the Group
financial statements.
As described in the
significant accounting
judgements, estimates
and assumptions
section of note 1,
determination of the
fair value of investment
properties is a key area
of estimation.
The valuation of investment property and
related disclosures requires significant
judgement and estimates by the Directors
and the independent valuer and is
therefore considered a key audit matter
due to the subjective nature of certain
assumptions inherent in each valuation.
Any input inaccuracies or unreasonable
bases used in the valuation judgements
(such as in respect of estimated rental
value and yield profile applied) could
result in a material misstatement of the
income statement and statement of
financial position.
There is also a risk of fraud in relation to
the valuation of the property portfolio
where the Directors may influence the
significant judgements and estimates in
respect of property valuations in order
to achieve property valuation and other
performance targets to meet market
expectations.
The valuation of investment properties
was therefore considered to be a key
audit matter.
How the scope of our audit addressed the key audit matter
Our audit work included, but was not restricted to, the following:
Experience of the valuer and relevance of its work
• 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,
limitations in the scope of their work or evidence of Management bias.
• Real estate experts within our team 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.
Data provided to the valuer
• We validated the underlying data provided to the valuer by the
Investment Adviser.
• This data included key observable inputs such as current rent and lease
term, which we agreed to the executed lease agreements as part of our
audit work covering 100% of the population.
Assumptions and estimates used by the valuer
• We developed yield expectations for each property using available
independent industry data, reports and comparable transactions in the
market around the period end. This was undertaken with assistance of
our real estate experts
• We evaluated the other key valuation assumptions, being the market
rental values, by reference to industry data, taking into account the
location and specifics of each property.
• We then discussed both the assumptions used and the valuation
movement in the period with the Investment Adviser, the Chair of the
Audit Committee and the independent valuer.
• Where the valuation yield was outside of our expected range we
challenged the independent valuer on specific assumptions and
reasoning for the yields and/or market rents applied and corroborated
their explanations where relevant, including agreeing to third-party
documentation and market comparisons
• While we consulted with internal RICS-qualified experts as part of
setting our expectations, our expert also attended the meetings with the
Group’s valuers to assist us in assessing that explanations provided were
appropriate and in line with market knowledge.
Related disclosures in the financial statements
• We reviewed the appropriateness of the Group’s disclosures within the
financial statements in relation to valuation methodology, key valuation
assumptions and valuation sensitivity.
Key observations:
Based on our work we have not noted any material instance which may
indicate that the assumptions adopted by the Directors in the valuation
were not reasonable or that the methodology applied was inappropriate.
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 L C
The accounting entries and judgement
regarding the accounting treatment
for the acquisition of the additional
50% interest in Horner (Jersey) LP and
subsequent disposal of the Group’s
interest in the property trust arrangement
joint venture, together with the related
disclosures is considered a key audit
matter given the key judgments made
by the Directors as to whether the
acquisition is accounted for as a business
combination or an asset acquisition and
in the determination of any fair value
adjustments to the acquired assets and
liabilities.
An incorrect judgement with regards to
the accounting treatment, or incorrect
estimate as to the fair values of the assets
or liabilities acquired, could result in
a material misstatement of the financial
statements.
Key audit matter
Acquisition
and disposal of
investments in joint
ventures
As detailed in note
14, during the year
the Group acquired
an additional interest
in its previously held
joint venture, Horner
(Jersey) LP, making
this a 100% owned
subsidiary within the
Group. In acquiring this
additional interest, the
Group in turn increased
its interest in a property
trust arrangement Joint
Venture.
During the year, the
Group subsequently
disposed of its entire
interest in the property
trust arrangement
Joint Venture, part of
the consideration for
which was deferred as
detailed within Note 17.
As described in the
significant accounting
judgements, estimates
and assumptions
section of note 1,
determination of the
acquisition transaction
as asset acquisition
was a key judgement.
How the scope of our audit addressed the key audit matter
Our audit work included, but was not restricted to, the following:
Acquisition transaction:
• We obtained the Investment Adviser’s formal assessment of the
accounting for the acquisition transaction which included the basis for
treating the acquisition as an asset acquisition.
• We assessed the key judgements made by the Directors on specific
points within the accounting requirements of IFRS 3 Business
Combinations relating to the treatment of the acquisition, including
whether the conditions of the optional concentration test under
IFRS 3 Business Combinations applied to the acquisition or not, and
subsequently, whether the optional concentration test was met.
• We verified the consideration paid to the relevant acquisition
documentation, including the sale and purchase agreement, the
J.P. Morgan loan facility agreement entered into by the Group in order to
finance the acquisition, cash transactions within relevant lawyer client
accounts and other supporting documentation.
• We also verified a sample of acquisition costs capitalised to supporting
documentation and assessed whether these were directly attributable to
the acquisition transaction.
• We obtained the balance sheet for both Horner (Jersey) LP and the
property trust arrangement Joint Venture at the date of acquisition
and we assessed the accuracy of any fair value gains and losses and
trading results in the period up to acquisition, noting that the significant
majority of net assets held by Horner (Jersey) LP were represented by
the investment in the property trust arrangement Joint Venture, and
that the significant amount of the net assets held by the property trust
arrangement Joint Venture were represented by a contractual receivable
in respect of the sale of 21 properties.
• With the use of our internal valuation experts we assessed the adequacy
of the fair value adjustments made in respect of contractual receivable
within the property trust arrangement Joint Venture for the purpose of
assessing the fair value of the investment at acquisition.
Disposal transaction:
• We verified the consideration received to the relevant sale
documentation, including the sale and purchase agreement,
bank statements in respect of cash received and other supporting
documentation.
• We recalculated the deferred consideration receivable under the terms
of the sale and purchase agreement and, with the use of our internal
valuation experts, we assessed the accuracy of the calculation of the fair
value of the deferred consideration upon initial recognition.
• We traced the subsequent settlement of the receivable to bank
statements post year end where paid.
• We recalculated the gain on disposal of the investment in joint ventures
and confirmed the accuracy of the amounts disclosed in the statement of
comprehensive income.
Disclosures:
• We considered the adequacy of the disclosures made by the Directors
in relation to the acquisition and subsequent disposal with regards to
the requirements of the applicable accounting standard. This included
the disclosures relating to the key judgments in respect of the treatment
of the acquisition as an asset acquisition as opposed to a business
combination, as well as the fair value of the receivable recognised upon
the disposal of the joint venture interest.
Key observations:
Based on our work we have not noted any material instance which may
indicate that the judgements made by the Directors in the accounting
treatment of the acquisition were unreasonable or inappropriate, or that
the assumptions adopted by the Directors in the determination of fair
values within the acquisition and disposal transactions are not reasonable
or that the methodology applied was inappropriate.
A N N U A L R E P O R T 2 0 2 3 1 0 1
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC C ON TI NUED
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.
Based on our professional judgement, we determined
materiality for the financial statements as a whole and
performance materiality as follows:
Materiality
Basis for determining
materiality
Rationale for the
benchmark applied
Performance materiality
Basis for determining
performance materiality
Group financial statements
Parent Company financial statements
2023
£m
19.3
2022
£m
18.0
2023
£m
16.2
2022
£m
13.3
Materiality for the Group and Parent Company’s financial statements was set at 1% of total assets (2022: 1%).
This provides a basis for determining the nature and extent of our risk assessment procedures, identifying and
assessing the risk of material misstatement and determining the nature and extent of further audit procedures.
We determined that total assets would be the most appropriate basis for determining overall materiality as we
consider it to be the principal considerations for the users of the financial statements in assessing the financial
performance of the Group.
14.5
13.5
12.2
10.0
Performance materiality is set at an amount to reduce to an appropriate low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk
assessment, together with our assessment of the Group’s overall control environment, our judgement was that
overall performance materiality for the Group should be 75% (2022: 75%) of materiality. We determined that
the same measure as the Group was appropriate for the Parent Company.
Rationale for the percentage
applied for performance
materiality
We determined that 75% of materiality would be appropriate based on our risk assessment, together with our
assessment of the Group’s and Parent Company’s overall control environment, the low number of components,
the low value of brought forward adjustments impacting the current year and low value of expected
misstatements, based on past experience.
Specific materiality
We also determined that for other account balances and
classes of transactions that impact the calculation of
Adjusted Earnings, a misstatement of less than materiality
for the financial statements as a whole, specific materiality,
could influence the economic decisions of users. As a result,
we determined that specific materiality for these items
should be £3.2 million (2022: £2.9 million), being 5%
(2022: 5%) of Adjusted Earnings. Adjusted Earnings
excludes the impact of the net loss on revaluation of
investment properties, including those held through joint
ventures. We further applied a performance materiality
level of 75% (2022: 75%) of specific materiality to ensure
that the risk of errors exceeding specific materiality was
appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report
to them all individual audit differences in excess of £160,000
(2022: £145,000). We also agreed to report differences below
this threshold that, in our view, warranted reporting on
qualitative grounds.
Other information
The Directors are responsible for the other information.
The other information comprises the information included
in the Annual Report 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. Our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the course of 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 this gives rise
to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
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 L C
Corporate governance statement
The Listing Rules require us to review the Directors’
statement in relation to going concern, longer-term viability
and that part of the Corporate Governance Statement
relating to the parent company’s compliance with the
provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent
with the financial statements or our knowledge obtained
during the audit.
Going concern and
longer-term viability
• The Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting
and any material uncertainties identified as set out in the “Going concern” section of the Strategic Report; and
• The Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers
and why the period is appropriate as set out in the “Assessment of viability” section of the Strategic Report.
Other Code provisions
• Directors’ statement on fair, balanced and understandable as set out in the Audit and Risk Committee Report;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks as set out in
the “Our Principal Risks” section of the Strategic Report;
• The section of the annual report that describes the review of effectiveness of risk management and internal
control systems as set out in the Audit and Risk Committee Report; and
• The section describing the work of the Audit Committee as set out in the Audit and Risk Committee Report.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by
the Companies Act 2006 and ISAs (UK) to report on certain
opinions and matters as described below.
Strategic report and
Directors’ report
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.
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.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Matters on which we
are required to report by
exception
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, 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.
A N N U A L R E P O R T 2 0 2 3 1 0 3
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC C ON TI NUED
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of
non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above,
to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures
are capable of detecting irregularities, including fraud is
detailed below:
Non-compliance with laws and regulations
Based on:
• Our understanding of the Group and the industry in
Fraud
We assessed the susceptibility of the financial statements to
material misstatement, including fraud. Our risk assessment
procedures included:
• Enquiry with the Investment Adviser, AIFM and those
charged with governance regarding any known or
suspected instances of fraud;
• Obtaining an understanding of the Group’s policies and
procedures relating to:
∘ Detecting and responding to the risks of fraud; and
∘ Internal controls established to mitigate risks
related to fraud.
which it operates;
• Review of Board and Committee meeting minutes for any
• Discussion with the Investment Adviser and those
known or suspected instances of fraud;
charged with governance; and
• Obtaining and understanding of the Group’s policies
and procedures regarding compliance with laws and
regulations.
We considered the significant laws and regulations to be
applicable accounting standards, the Companies Act 2006,
UK Listing Rules and the UK Real Estate Investment Trust
(REIT) regime.
The Group is also subject to laws and regulations where the
consequence of non-compliance could have a material effect
on the amount or disclosures in the financial statements,
for example through the imposition of fines or litigations.
We identified such laws and regulations to be UK VAT
regulations.
Our procedures in respect of the above included:
• Review of Board and Committee meeting minutes for any
instances of non-compliance with laws and regulations;
• Review of a report from the Group’s Investment Adviser,
detailing the actions that the Group has undertaken
to ensure compliance. With the assistance of our
internal tax experts, this paper was reviewed, and the
assumptions challenged;
• Review of correspondence with regulatory and tax
authorities for any instances of non-compliance with laws
and regulations;
• Review of financial statement disclosures and agreeing to
supporting documentation; and
• Review of legal expenditure accounts to understand the
nature of expenditure incurred.
• Discussion amongst the engagement team as to how and
where fraud might occur in the financial statements; and
• Performing analytical procedures to identify any unusual
or unexpected relationships that may indicate risks of
material misstatement due to fraud;
Based on our risk assessment, we considered the areas most
susceptible to fraud to be revenue recognition (existence
and accuracy of rent smoothing adjustments), revenue
recognition (existence and accuracy of rental receipts),
investment property valuations and management override
of controls.
Our procedures in respect of the above included:
• Testing a sample of journal entries throughout the
year, which met a defined risk criteria, by agreeing to
supporting documentation;
• We agreed to bank and loan balances to direct bank
confirmations and agreements;
• We also addressed the risk of management override
of internal controls by evaluating whether there was
evidence of bias by the Investment Adviser and the
Directors that represented a risk of material misstatement
due to fraud. This included evaluating any management
bias within the valuation of investment property, as
mentioned under the key audit matters subheading;
• To address the fraud risk in relation to calculation of
rent smoothing adjustments, we agreed all critical inputs
to the calculations to lease agreements and performed
a recalculation of the adjustment to rental income,
investigating any variances.
• To address the fraud risk in relation to the existence
and accuracy of rental receipts, for a sample of rental
periods (i.e. quarter or month) under each lease, we
set expectations for the rental income to be received
under the terms of lease agreement and compared this
to the cash receipts identified per the bank statements,
investigating any variances.
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 L C
We also communicated relevant identified laws and
regulations and potential fraud risks to all engagement
team members who were all deemed to have appropriate
competence and capabilities and remained alert to any
indications of fraud or non-compliance with laws and
regulations throughout the audit.
Our audit procedures were designed to respond to risks
of material misstatement in the financial statements,
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,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely we are to become aware of it.
A further description of our responsibilities is available
on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
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.
Charles Ellis (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
19 September 2023
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 3 1 0 5
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 J U NE 2 02 3
Gross rental income
Service charge income
Service charge expense
Net Rental Income
Administrative and other expenses
Operating profit before changes in fair value of investment properties and share of
income and profit on disposal from joint venture
Changes in fair value of investment properties
Total changes in fair value of investment properties
Share of income from joint venture
Profit on disposal of joint venture
Operating (loss)/profit
Finance income
Finance expense
Changes in fair value on interest rate derivatives
Profit on disposal of interest rate derivatives
(Loss)/Profit before taxation
Tax charge for the year
(Loss)/Profit for the year
Items to be reclassified to profit or loss in subsequent periods
Fair value movements in interest rate derivatives
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Notes
3
3
4
5
12
14
14
8
8
19
95,823
5,939
(6,518)
95,244
(15,429)
79,815
(256,066)
(256,066)
23,232
19,940
72,363
2,086
(2,338)
72,111
(13,937)
58,174
21,820
21,820
43,301
–
(133,079)
123,295
14,626
(39,315)
10,024
2,878
–
(12,992)
–
–
(144,866)
110,303
9
–
–
(144,866)
110,303
19
1,068
5,566
Total comprehensive (loss)/income for the year
(143,798)
115,869
Total comprehensive (loss)/income for the year attributable to ordinary Shareholders
(143,798)
115,869
Earnings per share – basic and diluted
10
(11.7) pence
11.3 pence
1 0 6 S U P E R M A R K E T I N C O M E R E I T P L C
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2 02 3
Non-current assets
Property, plant and equipment
Investment properties
Investment in joint ventures
Contract fulfilment asset
Financial asset at amortised cost
Interest rate derivatives
Total non-current assets
Current assets
Interest rate derivatives
Financial assets held at fair value through profit and loss
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Non-current liabilities
Bank borrowings
Total non-current liabilities
Current liabilities
Bank borrowings due within one year
Deferred rental income
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 NTA per share
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Notes
12
14
16
19
19
15
17
–
129
1,685,690
1,561,590
–
–
10,819
37,198
177,140
93
10,626
5,114
1,733,707
1,754,692
20,384
–
142,155
37,481
200,020
–
283
1,863
51,200
53,346
1,933,727
1,808,038
20
605,609
348,546
605,609
348,546
20
18
22
22
22
26
26
61,856
21,557
26,979
110,392
–
16,360
10,677
27,037
716,001
375,583
1,217,726
1,432,455
12,462
500,386
704,531
(2,957)
3,304
12,399
494,174
778,859
141,909
5,114
1,217,726
1,432,455
98 pence
116 pence
93 pence
115 pence
The consolidated financial statements were approved and authorised for issue by the Board of Directors on 19 September 2023 and
were signed on its behalf by
Nick Hewson
Chair
19 September 2023
A N N U A L R E P O R T 2 0 2 3 1 0 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 J U NE 2 02 3
As at 1 July 2022
12,399
494,174
5,114
778,859
141,909
1,432,455
Share
capital
£’000
Share
premium
reserve
£’000
Cash flow
hedge
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
£’000
Comprehensive income for the year
Loss for the year
Cash flow hedge reserve to profit for
the year on disposal of interest rate
derivatives
Other comprehensive income
Total comprehensive loss 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 2023
–
–
–
–
63
–
–
–
–
–
–
–
(2,878)
1,068
(1,810)
6,301
(89)
–
–
–
–
–
–
–
–
–
–
(74,328)
(144,866)
(144,866)
–
–
(2,878)
1,068
(144,866)
(146,676)
–
–
–
6,364
(89)
(74,328)
12,462
500,386
3,304
704,531
(2,957)
1,217,726
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 J U NE 2 02 2
Share
capital
£’000
8,107
–
–
–
Share
premium
reserve
£’000
778,859
–
–
–
Cash flow
hedge
reserve
£’000
(452)
–
5,566
5,566
4,292
504,539
–
–
–
(778,859)
(10,365)
–
–
–
–
–
Capital
reduction
reserve
£’000
–
–
–
–
–
778,859
Retained
earnings
£’000
Total
£’000
84,796
871,310
110,303
–
110,303
5,566
110,303
115,869
–
–
508,831
–
(10,365)
(53,190)
–
–
–
(53,190)
12,399
494,174
5,114
778,859
141,909
1,432,455
As at 1 July 2021
Comprehensive income for the year
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 premium cancellation to
capital reduction reserve
Share issue costs
Interim dividends paid
As at 30 June 2022
1 0 8 S U P E R M A R K E T I N C O M E R E I T P L C
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR EN DED 3 0 J UN E 20 2 3
Operating activities
(Loss)/Profit for the year (attributable to ordinary Shareholders)
Adjustments for:
Changes in fair value of interest rate derivatives measured at fair value through
profit and loss
Changes in fair value of investment properties and associated rent guarantees
Movement in rent smoothing and lease incentive adjustments
Finance income
Finance expense
Share of income from joint venture
Profit on disposal of interest rate derivative
Profit on disposal of Joint Venture
Cash flows from operating activities before changes
in working capital
(Increase)/decrease in trade and other receivables
Decrease/(increase) in rent guarantee receivables
Increase in deferred rental income
Increase in trade and other payables
Net cash flows from operating activities
Investing activities
Acquisition of contract fulfilment assets
Disposal of Property, Plant & Equipment
Acquisition of investment properties
Capitalised acquisition costs
Decrease/(Increase) in other financial assets
Receipts from other financial assets
Investment in joint venture
Proceeds from disposal of Joint Venture
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
Settlement of interest rate derivatives
Settlement of Joint Venture Carried Interest
Sale of interest rate derivatives
Purchase of interest rate derivative
Bank commitment fees paid
Dividends paid to equity holders
Net cash flows from financing activities
Net movement in cash and cash equivalents in the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Notes
(144,866)
110,303
19
12
3
8
8
14
19
14
12
16
16
14
14
22
22
20
20
19
19
(10,024)
256,066
(2,763)
(14,626)
39,281
(23,232)
(2,878)
(19,941)
77,017
(548)
191
5,198
2,461
–
(21,820)
(2,654)
–
12,992
(43,301)
–
–
55,520
1,277
(87)
4,299
2,004
84,319
63,013
–
222
(8)
–
(362,630)
(371,093)
(14,681)
(17,603)
–
290
(189,528)
292,636
(10,626)
–
(3,518)
–
(273,691)
(402,848)
–
(89)
912,114
(598,486)
(5,010)
(22,408)
8,646
(8,066)
2,878
(44,255)
(1,708)
(67,963)
175,653
(13,719)
51,200
37,481
506,727
(10,366)
402,922
(464,029)
(2,187)
(9,846)
–
–
–
–
(681)
(51,084)
371,456
31,621
19,579
51,200
A N N U A L R E P O R T 2 0 2 3 1 0 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 1 King William
Street, London, United Kingdom, EC4N 7AF. The principal activity of the Company and its subsidiaries (the Group) is to provide its
Shareholders with an attractive level of income together with the potential for capital growth by investing in a diversified portfolio of
supermarket real estate assets in the UK.
At 30 June 2023 the Group comprised the Company and its wholly owned subsidiaries as set out in Note 13.
Basis of preparation
These consolidated financial statements cover the year to 30 June 2023, including comparative figures relating to the year to
30 June 2022, and include the results and net assets of the Group.
The consolidated financial statements have been prepared in accordance with:
• UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards,
• The Disclosure and Transparency Rules of the Financial Conduct Authority
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 that were not previously relevant to the
Group’s operations have been adopted.
Going concern
In light of the current Macroeconomic backdrop, the Directors have placed a particular focus on the appropriateness of adopting the
going concern basis in preparing the Group’s and Company’s financial statements for the year ended 30 June 2023. In assessing the
going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.
Liquidity
At 30 June 2023, the Group generated net cash flow from operating activities of £84.3 million, held cash of £37.5 million and undrawn
committed facilities totalling £189.9 million with no capital commitments or contingent liabilities.
From the sale of its interest in the Sainsburys Reversion Portfolio (SRP), the Group received proceeds of £135.1 million post year
end. £97.1 million of this was used for working capital and debt repayment and £38.0 million towards acquiring two stores (including
acquisition costs). As at the date of signing the annual report the Gross LTV of the group was 34.0%. The remainder of the receivable
of £1.5 million is conditional on the sale of the remaining store in the SRP.
After the year end, the Group also reduced its debt capacity from £862.1 million to £680.5 million (see Note 20 for more information),
leaving undrawn committed facilities of over £100 million available.
The Directors are of the belief that the Group continues to be well funded during the going concern period with no concerns over
its liquidity.
Refinancing events
At the date of signing the financial statements, the Deka facility falls due for repayment during the going concern period
(August 2024). It is intended that the facility will be refinanced prior to maturity, or if required, it will be paid down in full the Group’s
available undrawn committed facilities of over £100 million. All lenders have been supportive during the year and have expressed
commitment to the long-term relationship they wish to build with the Company.
Covenants
The Group’s debt facilities include covenants in respect of LTV and interest cover, both projected and historic. All debt facilities, except
for the unsecured facilities, are ring-fenced with each specific lender.
The Directors have evaluated a number of scenarios as part of the Group’s going concern assessment and considered the impact of
these scenarios on the Group’s continued compliance with secured debt covenants. The key assumptions that have been sensitised
within these scenarios are falls in rental income and increases in administrative cost inflation.
As at the date of issuance of this Annual report 100% of contractual rent for the period has been collected. The Group benefits from
a secure income stream from its property assets that are let to tenants with excellent covenant strength under long leases that are
subject to upward only rent reviews.
1 1 0 S U P E R M A R K E T I N C O M E R E I T P L C
1. Basis of preparation continued
The list of scenarios are below and are all on top of the base case model which includes prudent assumptions on valuations and cost
inflation. No sensitivity for movements in interest rates have been modelled as the Group is fully hedged during the going concern
assessment period.
Scenario
Rental Income
Costs
Base case scenario (Scenario 1)
Scenario 2
Scenario 3
100% contractual rent received when due
and rent reviews based on forward looking
inflation curve, capped at the contractual
rate of the individual leases.
Rental income to fall by 25%.
Investment adviser fee based on terms of
the signed agreement (percentage of NAV
as per note 27), other costs 0.35% of NAV.
Costs expected to remain the same as
the base case.
Rental income expected to remain the
same as the base case.
10% increases on base case costs to all
administrative expenses.
The Group continues to maintain covenant compliance for its LTV and ICR thresholds throughout the going concern assessment
period under each of the scenarios modelled. One of the secured facilities in the Group has a debt yield covenant, which is calculated
as the passing rent divided by the loan balance for the properties secured against the lender. The debt yield covenant only would be
breached for this facility if rental income is reduced by 6% during the going concern assessment period. The Board considers this
scenario highly unlikely given the underlying covenant strength of the tenants. Furthermore, there are remedies available at the
Group’s disposal which includes reducing a portion of the outstanding debt from available undrawn facilities or providing additional
security over properties that are currently unencumbered. The lowest amount of ICR headroom experienced in the worst-case stress
scenarios was 22%. Based on the latest bank commissioned valuations, property values would have to fall by more than 21% before
LTV covenants are breached, and 10% against 30 June 2023 Company valuations. Similarly, the strictest interest cover covenant
within each of the ring-fenced banking groups is 225%, where the portfolio is forecast to have an average interest cover ratio of 572%
during the going concern period.
Having reviewed and considered three modelled scenarios, the Directors consider that the Group has adequate resources in place for
at least 12 months from the date of these results and have therefore adopted the going concern basis of accounting in preparing the
Annual Report.
Assessment of viability
The period over which the Directors consider it feasible and appropriate to report on the Group’s viability is the five-year period to
30 June 2028. 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 51 to 60 summarise those matters that could prevent the Group from delivering on its strategy.
A number of these principal risks, because of their nature or potential impact, could also threaten the Group’s ability to continue in
business in its current form if they were to occur. The Directors paid particular attention to the risk of a deterioration in economic
outlook which could impact property fundamentals, including investor and occupier demand which would have a negative impact on
valuations, and give rise to a reduction in the availability of finance.
The sensitivities performed were designed to be severe but plausible; and to take full account of the availability of mitigating actions
that could be taken to avoid or reduce the impact or occurrence of the underlying risks.
A N N U A L R E P O R T 2 0 2 3 1 1 1
1. Basis of preparation continued
Viability Statement
The Board has assessed the prospects of the Group over the five years from the balance sheet date to 30 June 2028, 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 most 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
Borrowing risk
The Group continues to comply with all relevant loan covenants. The Group is able to refinance all debt
falling due within the viability assessment period on acceptable terms.
Interest Rate risk
The increase in variable interest rates are managed by reduction of variable debt from cash inflows and
utilising interest rate derivatives to limit the exposure to variable debt.
Liquidity risk
Tenant risk
The Group continues to generate sufficient cash to cover its costs while retaining the ability to make
distributions.
Tenants (or guarantors where relevant) comply with their rental obligations over the term of their leases
and no key tenant suffers an insolvency event over the term of the review.
Based on the work performed, the Board has a reasonable expectation that the Group will be able to continue in business over the
five-year period of its assessment.
Accounting convention and currency
The consolidated financial statements (the “financial statements”) have been prepared on a historical cost basis, except that
investment properties, rental guarantees and interest rate derivatives are measured at fair value.
The financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£’000), except where
otherwise indicated. Pounds Sterling is the functional currency of the Company and the presentation currency of the Group.
Adoption of new and revised standards
In the current financial year, the Group has adopted a number of minor amendments to standards effective in the year issued by the
IASB as adopted by the UK Endorsement Board, none of which have had a material impact on the Group.
There was no material effect from the adoption of other amendments to IFRS effective in the year. They have no significant impact on
the Group as they are either not relevant to the Group’s activities or require accounting which is consistent with the Group’s current
accounting policies.
Standards and interpretations in issue not yet adopted
The following are new standards, interpretations and amendments, which are not yet effective, and have not been early adopted in
this financial information, that will or may have an effect on the Group’s future financial statements:
• Amendments to IAS 1 which are intended to clarify the requirements that an entity applies in determining whether a liability is
classified as current or non-current. The amendments are intended to be narrow-scope in nature and are meant to clarify the
requirements in IAS 1 rather than modify the underlying principles (effective for periods beginning on or after 1 January 2024).
The amendments include clarifications relating to:
– How events after the end of the reporting period affect liability classification
– What the rights of an entity must be in order to classify a liability as non-current
– How an entity assesses compliance with conditions of a liability (e.g. bank covenants)
– How conversion features in liabilities affect their classification
The amendment is not expected to have an impact on the presentation or classification of the liabilities in the Group based on rights
that are in existence at the end of the reporting period.
• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. IFRS S1 sets out general requirements
for the disclosure of material information about sustainability-related financial risks and opportunities and other general reporting
requirements (periods beginning after 1 January 2024).
• IFRS S2 Climate-related Disclosures. IFRS S2 sets out disclosure requirements that are specific to climate-related matters (periods
beginning after 1 January 2024).
The Group acknowledges the issue of these new standards by the International Sustainability Standards Board’s (ISSB) will monitor
the consultation and decision process being undertaken by the UK Government and FCA in determining how these standards are
implemented by UK companies.
1 1 2 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 1. Basis of preparation continued
There are other new standards and amendments to standards and interpretations which have been issued that are effective in future
accounting periods, and which the Group has decided not to adopt early. None of these are expected to have a material impact on the
condensed consolidated financial statements of the Group.
Significant accounting judgements, estimates and assumptions
The preparation of 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 fair value of the Group’s investment properties is determined by the Group’s independent valuer on the basis of market value
in accordance with the RICS Valuation – Global Standards (the ‘Red Book’). Recognised valuation techniques are used by the
independent valuer which are in accordance with those recommended by the International Valuation Standard Committee and
compliant with IFRS 13 “Fair Value Measurement”.
The independent valuer did not include any material valuation uncertainty clause in relation to the valuation of the Group’s investment
property for 30 June 2023 or 30 June 2022.
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 estimate: Fair value of interest rate derivatives
Derivatives are valued in accordance with IFRS 13 “Fair Value Measurement” by reference to interbank bid market rates as at the close
of business on the last working day prior to each reporting 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.
The fair value of the Group’s interest rate derivatives, along with further details of the valuation methods used, are detailed in note 19.
Key judgement: Joint ventures – joint control
In prior years, 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 £102 million plus costs. The joint venture also acquired
100% of the issued share capital in Cornerford Limited for a combined total consideration of £115 million plus costs (together “the
Joint Venture Interest”).
Horndrift Limited and Cornerford Limited each hold a 25.2% beneficial interest in a property trust arrangement / bond securitisation
structure (the “Structure”) which previously held a portfolio of 26 Sainsbury’s supermarket properties funded by bonds which mature
in 2023. During the year, Sainsbury’s exercised options to acquire 21 of these stores within the Structure and it has been determined
that the exercise of the purchase options by Sainsbury’s resulted in the performance obligation being satisfied for a sale of the
properties in accordance with IFRS 15. The JV is deemed to hold a contractual receivable from Sainsbury’s plc in respect of these
21 properties.
During the year, the Group acquired the British Airways Pension Trustees Limited stake in the joint venture, meaning the Group had
a beneficial interest in over 50% of the underlying property pool, via its 100% ownership in Horndrift and Cornerford.
The classification and accounting treatment of the Joint Venture Interest in the property trust arrangement in the Group’s consolidated
financial statements is subject to significant judgement. By reference to the contractual arrangements and deeds that regulate the
Structure, it was necessary to determine whether the Joint Venture Interest, 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 the Joint Venture Interest 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 the joint venture investment 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 Limited, Cornerford Limited or the other key parties from
exercising their rights under the contractual arrangements and deeds of the Structure.
The Directors therefore concluded that through its Joint Venture Interest, 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 accounted for using the equity
method of accounting under IAS 28.
A N N U A L R E P O R T 2 0 2 3 1 1 3
1. Basis of preparation continued
Following the additional Joint Venture interest acquired during the year, the Group was deemed to still jointly control the Structure as
any change to the contractual arrangements and deeds that regulate the Structure, requires unanimous consent from all beneficial
holders. Therefore, the equity method of accounting continued to be used until the disposal of the investment in joint venture which
occurred during the year (see Note 14).
Key judgement: Acquisition of Joint Venture stake
During the year the Group acquired an additional 50% interest in the Group’s existing joint venture, Horner (Jersey) LP, from British
Airways Pension Trustees Limited for total consideration of £188.8 million. At the time of the purchase the Directors assess whether
the acquisition represents the acquisition of an asset or the acquisition of a business.
Under the Definition of a Business (Amendments to IFRS 3 “Business Combinations”), to be considered as a business, an acquired
set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to
the ability to create outputs. The optional ‘concentration test’ is also applied, where if substantially all of the fair value of gross assets
acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business.
The concentration test was applied confirming that substantially all of the fair value of the assets acquired were concentrated in an
investment in joint venture, being the Structure and was therefore accounted as an asset purchase.
Key judgement: Acquisition of investment properties
The Group has acquired and intends to acquire further investment properties. At the time of each purchase the Directors assess
whether an acquisition represents the acquisition of an asset or the acquisition of a business.
Under the Definition of a Business (Amendments to IFRS 3 “Business Combinations”), to be considered as a business, an acquired
set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to
the ability to create outputs. The optional ‘concentration test’ is also applied, where if substantially all of the fair value of gross assets
acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business.
During the year, the group completed nine acquisitions. In nine cases the concentration test was applied and met, resulting in the
acquisitions being accounted for as asset purchases.
All £362.6 million of acquisitions during the year were accounted for as asset purchases.
Key judgement: Acquisition of financial assets at amortised cost
The Group acquires properties under a sale and leaseback arrangements. At the time of the purchase the Directors assess whether the
acquisition represents the acquisition of an investment property or a financial asset.
Under IFRS 15, for the transfer of an asset to be accounted for as a true sale, satisfying a performance obligation of transferring
control of an asset must be met for this to be deemed a property transaction and accounted for under IFRS 16. If not, it is accounted for
as an asset under IFRS 9.
The Group acquired a property in the prior year under a sale and leaseback arrangement with a larger multi-channel supermarket
operator. In this case, it was deemed that as the lease was for a significant part of the asset’s useful economic life, control was not
passed and the asset was therefore accounted for under IFRS 9 as an amortised cost asset.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of the consolidated financial statements are set out below.
2.1 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to
30 June 2023.
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 statements from the date that control commences
until the date that control ceases.
In preparing the consolidated financial statements, intra group balances, transactions and unrealised gains or losses are
eliminated in full.
Uniform accounting policies are adopted for all entities within the Group.
1 1 4 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. Summary of significant accounting policies continued
2.2 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; the non-supermarket properties are ancillary in nature to the supermarket property assets
and are therefore not segmented.
2.3 Rental income
Rental income arising on investment properties is accounted for in profit or loss on a straight-line basis over the lease term, as
adjusted for the following:
• Any rental income from fixed and minimum guaranteed rent review uplifts is recognised on a straight-line basis over the lease term,
variable lease uplift calculations are not rebased when a rent review occurs and the variable payment becomes fixed;
• 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.
Leases classified under IFRS 9 as financial assets recognise income received from the tenant between finance income and a reduction
of the asset value, based on the interest rate implicit in the lease.
2.4 Service charge income
Service charge income represents amounts billed to tenants for services provided in conjunction with leased properties based on
budgeted service charge expenditure for a given property over a given service charge year. The Company recognises service charge
income on a straight-line basis over the service charge term.
2.5 Service charge expense
Service charge expense represents a wide range of costs related to the operation and upkeep of the leased properties. These costs
are allocated and charged to tenants based on agreed terms and calculations as outlined in the lease agreements with a portion being
borne by the landlord where agreed.
2.6 Finance income
Finance income consists principally of interest receivable from interest rate derivatives and income from financial assets held at
amortised cost. An adjustment is applied to reclassify amounts received upon periodic settlement of interest rate derivatives assets
from change in fair value to interest income.
2.7 Finance expense
Finance expenses consist principally of interest payable and the amortisation of loan arrangement fees.
Loan arrangement fees are expensed using the effective interest method over the term of the relevant loan. Interest payable and
other finance costs, including commitment fees, which the Group incurs in connection with bank borrowings, are expensed in the
period to which they relate.
2.8 Administrative and other expenses
Administrative and other expenses, including the investment advisory fees payable to the Investment Adviser, are recognised as
a profit or loss on an accruals basis.
2.9 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.
2.10 Taxation
Non-REIT taxable income
Taxation on the Group’s profit or loss for the year that is not exempt from tax under the UK-REIT regulations comprises current
and deferred tax, as applicable. Tax is recognised in profit or loss except to the extent that it relates to items recognised as direct
movements in equity, in which case it is similarly recognised as a direct movement in equity.
A N N U A L R E P O R T 2 0 2 3 1 1 5
2. Summary of significant accounting policies continued
Non-REIT taxable income continued
Current tax is tax payable on any non-REIT taxable income for the year, using tax rates enacted or substantively enacted at the end of
the relevant period.
Entry to the UK-REIT regime
The Group obtained its UK-REIT status effective from 21 December 2017. Entry to the regime results in, subject to continuing relevant
UK-REIT criteria being met, the profits of the Group’s property rental business, comprising both income and capital gains, being
exempt from UK taxation.
The Group intends to ensure that it complies with the UK-REIT regulations on an on-going basis and regularly monitors the conditions
required to maintain REIT status.
2.11 Investment properties
Investment properties consist of land and buildings which are held to earn income together with the potential for capital growth.
Investment properties are recognised when the risks and rewards of ownership have been transferred and are measured initially at
cost, being the fair value of the consideration given, including transaction costs. Where the purchase price (or proportion thereof)
of an investment property is settled through the issue of new ordinary shares in the Company, the number of shares issued is such
that the fair value of the share consideration is equal to the fair value of the asset being acquired. Transaction costs include transfer
taxes and professional fees for legal services. Any subsequent capital expenditure incurred in improving investment properties is
capitalised in the period incurred and included within the book cost of the property. All other property expenditure is written off in
profit or loss as incurred.
After initial recognition, investment properties are measured at fair value, with gains and losses recognised in profit or loss in the
period in which they arise.
Gains and losses on disposals of investment properties will be determined as the difference between the net disposal proceeds and
the carrying value of the relevant asset. These will be recognised in profit or loss in the period in which they arise.
Initially, rental guarantees are recognised at their fair value and separated from the purchase price on initial recognition of the
property being purchased. They are subsequently measured at their fair value at each reporting date with any movements recognised
in the profit or loss.
2.12 Joint ventures
Interests in joint ventures, including the additional interest acquired during the year, are accounted for using the equity method
of accounting as per IAS 28. The Group’s joint ventures are arrangements in which the partners have joint control and rights to the
net assets of the arrangement. Investments in joint ventures are carried in the statement of financial position 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 2.1.
2.13 Property, plant and equipment
Property, plant and equipment comprises of rooftop solar panels. Rooftop solar panels are stated at cost less accumulated
depreciation and any recognised impairment loss. Depreciation is recognised over the useful lives of the equipment, using the
straight-line method at a rate of between 25- 30 years depending on the useful economic life.
Residual value is reviewed at least at each financial year and there is no depreciable amount if residual value is the same as, or
exceeds, book value. Any gain or loss arising on the disposal of the rooftop solar panels are determined as the difference between the
sales proceeds and the carrying amount of the asset.
2.14 Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant Group entity becomes a party to the unconditional contractual terms
of an instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities are considered by the Directors to
be reasonable estimates of their fair values.
Financial assets
Financial assets are recognised initially at their fair value. All of the Group’s financial assets, except interest rate derivatives, are held
at amortised cost using the effective interest method, less any impairment.
For assets where changes in cash flows are linked to changes in an inflation index, the Group updates the effective interest rate
at the end of each reporting period and this is reflected in the carrying amount of the asset each reporting period until the asset is
derecognised.
Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three months or less.
1 1 6 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. Summary of significant accounting policies continued
Trade and other receivables
Trade and other receivables, including rents receivable, are recognised and carried at the lower of their original invoiced value and
recoverable amount. Provisions for impairment are calculated using an expected credit loss model. Balances will be written-off in
profit or loss in circumstances where the probability of recovery is assessed as being remote.
Trade and other payables
Trade and other payables are recognised initially at their fair value and subsequently at amortised cost.
Bank borrowings
Bank borrowings are initially recognised at fair value net of attributable transaction costs. After initial recognition, bank borrowings
are subsequently measured at amortised cost, using the effective interest method. The effective interest rate is calculated to include
all associated transaction costs.
In the event of a modification to the terms of a loan agreement, the Group considers both the quantitative and qualitative impact of the
changes. Where a modification is considered substantial, the existing facility is treated as settled and the new facility is recognised.
Where the modification is not considered substantial, the carrying value of the liability is restated to the present value of the cash
flows of the modified arrangement, discounted using the effective interest rate of the original arrangement. The difference is
recognised as a gain or loss on refinancing through the statement of comprehensive income.
Derivative financial instruments and hedge accounting
The Group’s derivative financial instruments currently comprise of interest rate swaps/caps. Derivatives designated as hedging
instruments utilise hedge accounting under IAS 39. Derivatives not designated under hedge accounting are accounted for
under IFRS 9.
These instruments are used to manage the Group’s cash flow interest rate risk.
The instruments are initially recognised at fair value on the date that the derivative contract is entered into, being the cost of any
premium paid at inception, and are subsequently re-measured at their fair value at each reporting date.
Fair value measurement of derivative financial instruments
The fair value of derivative financial instruments is the estimated amount that the Group would receive or pay to terminate the
agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the relevant
group entity and its counterparties.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value
measurement as a whole.
A number of assumptions are used in determining the fair values including estimations over future interest rates and therefore future
cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contract rate and
the valuation rate.
Hedge accounting
At the inception of a hedging transaction, the Group documents the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking the hedging transaction.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Assuming the criteria for applying hedge accounting continue to be met the effective portion of gains and losses on the revaluation of
such instruments are recognised in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective
portion of such gains and losses will be recognised in profit or loss within finance income or expense as appropriate. The cumulative
gain or loss recognised in other comprehensive income is reclassified from the cash flow hedge reserve to profit or loss (finance
expense) at the same time as the related hedged interest expense is recognised.
Interest rate derivatives that do not qualify under hedge accounting are carried in the Group Statement of Financial Position at fair
value, with changes in fair value recognised in the Group Statement of Comprehensive Income, net of interest receivable/payable
from the derivatives shown in the finance income or expense line.
2.15 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 22.
A N N U A L R E P O R T 2 0 2 3 1 1 7
2. Summary of significant accounting policies continued
2.16 Fair value measurements and hierarchy
Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes
place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous
market. It is based on the assumptions that market participants would use when pricing the asset or liability, assuming they act in
their economic best interest. A fair value measurement of a non-financial asset takes into account the best and highest value use
for that asset.
The fair value hierarchy to be applied under IFRS 13 is as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are carried at fair value and which will be recorded in the financial information on a recurring basis, the
Group will determine whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of
each reporting period.
3. Gross rental income
Rental income – freehold property
Rental income – long leasehold property
Lease surrender income
Gross rental income
Property insurance recoverable
Service charge recoverable
Total property insurance and service charge income
Total property income
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
53,119
42,669
35
95,823
44,332
28,031
–
72,363
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
585
5,354
5,939
449
1,637
2,086
101,762
74,449
Included within rental income is a £2,512,000 (2022: £2,654,000) rent smoothing adjustment that arises as a result of IFRS 16 ‘Leases’
requiring that rental income in respect of leases with rents increasing by a fixed percentage be accounted for on a straight-line basis
over the lease term. During the year this resulted in an increase in rental income and an offsetting entry being recognised in profit or
loss as an adjustment to the investment property revaluation.
On an annualised basis, rental income comprises £49,620,000 (2022: £34,420,000) relating to the Group’s largest tenant and
£27,194,000 (2022: £24,265,000) relating to the Group’s second-largest tenant. There were no further tenants representing more
than 10% of annualised gross rental income during either year.
4. Service charge expense
Property insurance expenses
Service charge expenses
Total property insurance and service charge expense
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
715
5,803
6,518
639
1,699
2,338
1 1 8 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 5. Administrative and other expenses
Investment Adviser fees (Note 27)
Directors’ remuneration (Note 7)
Corporate administration fees
Legal and professional fees
Other administrative expenses
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
10,292
364
1,108
1,626
2,039
9,405
269
893
2,249
1,121
Total administrative and other expenses
15,429
13,937
The fees relating to the issue of shares in the year have been treated as share issue expenses and offset against the share
premium reserve.
6. Operating (loss)/profit
Operating (loss)/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
The Group’s auditor also provided the following services in relation to corporate finance services:
Other non-audit services: corporate finance services in
connection with the October 2021 and April 2022 placings
Other non-audit services: corporate finance services in
connection with the transition to premium segment of LSE
Other non-audit services: corporate finance services
Total other non-audit services
Total fees charged by the Group’s auditor
7. Directors’ remuneration
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
260
95
355
38
393
190
64
254
32
286
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
–
–
65
65
458
78
45
–
123
409
The Group had no employees in the current or prior year. The Directors, who are the key management personnel of the Company,
are appointed under letters of appointment for services. Directors’ remuneration, all of which represents fees for services provided,
was as follows:
Directors’ fees
Employer’s National Insurance Contribution
Total Directors’ remuneration
The highest paid Director received £75,000 (2022: £70,000) for services during the year.
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
330
34
364
245
24
269
A N N U A L R E P O R T 2 0 2 3 1 1 9
8. Finance income and expense
Finance income
Interest received on bank deposits
Income from financial assets held at amortised cost (note 16)
Finance income on unwinding of discounted receivable (note 17)
Finance income on settlement of interest rate derivatives (note 19)
Total finance income
Finance expense
Interest payable on bank borrowings and hedging arrangements
Finance expense on settlement of interest rate derivatives (note 19)
Commitment fees payable on bank borrowings
Amortisation of loan arrangement fees*
Amortisation of interest rate derivative premium (Note 19)
Total finance expense
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
53
483
2,376
11,714
14,626
–
–
–
–
–
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
29,707
–
1,571
8,037
–
9,565
296
969
2,157
5
39,315
12,992
*This includes a one-off exceptional charge in the year to 30 June 2023 of £1.52 million, relating to the acceleration of unamortised
arrangement fees in respect of the modification of the Wells Fargo and Barclays/RBC facilities under IFRS 9. It also includes a one-off
loan arrangement fee for the short-term J.P. Morgan loan of £4.0 million.
The above finance expense includes the following in respect of liabilities not classified as fair value through profit and loss:
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
Tax charge in profit or loss
Corporation tax
B) Total tax expense
Tax charge in profit and loss as per the above
Share of tax expense of equity accounted joint ventures
Total tax (credit)/expense
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
37,744
1,571
39,315
11,723
969
12,692
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
–
–
(400)
(400)
–
–
987
987
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.
1 2 0 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. Taxation continued
The reconciliation of the (Loss)/profit before tax multiplied by the blended rate of corporation tax for the year of 20.4% (2022: 19%) to
the total tax charge is as follows:
C) Reconciliation of the total tax charge for the year
(Loss)/Profit on ordinary activities before taxation
Theoretical tax at UK standard corporation tax rate of 20.4% (2022: 19%)
Effects of:
Investment property and derivative revaluation not taxable
Disposal of interest rate derivative
Residual business losses
Other non-taxable items
REIT exempt income
Share of tax expense of equity accounted joint ventures
Total tax (credit)/expense for the year
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
(144,866)
(29,553)
110,303
20,958
49,680
(587)
4,428
(8,807)
(15,161)
(400)
(4,146)
–
–
–
(16,812)
987
(400)
987
UK REIT exempt income includes property rental income that is exempt from UK corporation tax in accordance with Part 12
of CTA 2010.
No deferred tax asset has been recognised in respect of the Group’s residual carried forward tax losses of £36.2 million as, given the
Group’s REIT status, it is considered unlikely that these losses will be utilised.
10. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing the profit or loss for the period attributable to ordinary equity holders
of the Company by the weighted average number of ordinary shares in issue during the period. As there are no dilutive instruments
outstanding, basic and diluted earnings per share are identical.
The European Public Real Estate Association (EPRA) publishes guidelines for calculating adjusted earnings on a comparable basis.
EPRA EPS is a measure of EPS designed by EPRA to enable entities to present underlying earnings from core operating activities,
which excludes fair value movements on investment properties.
The Company has also included an additional earnings measure called “Adjusted Earnings” and “Adjusted EPS”. Adjusted earnings56
is a performance measure used by the Board to assess the Group’s financial performance and dividend payments. The metric adjusts
EPRA earnings by deducting one-off items such as debt restructuring costs and the Joint Venture acquisition loan arrangement fee
which are non-recurring in nature and adding back finance income on derivatives held at fair value through profit and loss. Adjusted
Earnings is considered a better reflection of the measure over which the Board assesses the Group’s trading performance and
dividend cover.
Finance income received from derivatives held at fair value through profit and loss are added back to EPRA earnings as this reflects
the cash received from the derivatives in the period and therefore gives a better reflection of the Group’s net finance costs.
Debt restructuring costs relate to the acceleration of unamortised arrangement fees following the partial transition of the Group’s
debt structure from secured to unsecured.
The Joint Venture acquisition loan arrangement fee relates to the upfront amount payable to J.P. Morgan in respect of the short-term
facility taken out in January 2023 to fund the Group’s purchase of BAPTL’s 50% interest in the joint venture. This was specific debt
taken out to finance the transaction to acquire and then dispose of the joint venture, whilst protecting the Group from any recourse
on unwind of the joint venture’s financial asset. This adjustment reflects the arrangement fee only, as the Group largely had other
committed undrawn facilities that it could have utilised.
The reconciliation of IFRS Earnings, EPRA Earnings and Adjusted Earnings is shown below:
56 The Directors have identified certain measures that they believe will assist the understanding of the performance of the business. The measures are not
defined under IFRS and they may not be directly comparable with other companies’ adjusted measures. The non-GAAP measures are not intended to be
a substitute for, or superior to, any IFRS measures of performance, but they have been included as the Directors consider them to be important comparable
and key measures used within the business for assessing performance. The key non-GAAP measures identified by the Group have been defined in the
supplementary information and, where appropriate, reconciliation to the nearest IFRS measure has been given.
A N N U A L R E P O R T 2 0 2 3 1 2 1
10. Earnings per share continued
Net (loss) / profit attributable to ordinary shareholders
EPRA adjustments:
Changes in fair value of investment properties and rental guarantees
Changes in fair value of interest rate derivatives measured at fair value through profit and loss
Profit on disposal of interest rate derivatives
Group share of changes in fair value of joint venture investment properties
Group share of gain on disposal of joint venture investment properties
Gain on disposal of investments in joint venture
Finance income received on interest rate derivatives held at fair value through profit and loss
EPRA earnings
Adjustments for:
Finance income received on interest rate derivatives held at fair value through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised arrangement fees
Joint Venture acquisition loan arrangement fee
Adjusted Earnings
Weighted average number of ordinary shares
1 Based on the weighted average number of ordinary shares in issue
Basic and Diluted EPS
EPRA adjustments:
Changes in fair value of interest rate derivatives measured at FVTPL
Changes in fair value of investment properties and rent guarantees
Group share of changes in fair value of joint venture investment properties
Profit on disposal of interest rate derivatives
Group share of gain on disposal of joint venture investment properties
Finance income received on interest rate derivatives held at fair value through profit and loss
EPRA EPS
Adjustments for:
Finance income received on interest rate derivatives held at fair value through profit and loss
One-off restructuring costs in relation to the acceleration of unamortised arrangement fees
Joint Venture acquisition loan arrangement fee
Adjusted EPRA EPS
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
(144,866)
110,303
256,066
(10,024)
(2,878)
(11,486)
–
(19,940)
(9,671)
(21,820)
–
–
6,021
(37,102)
–
–
57,201
57,402
9,671
1,518
4,009
–
–
–
72,399
57,402
Number1
Number1
1,242,574,505
975,233,858
Year to
30 June 2023
Pence per share
(‘p’)
Year to
30 June 2022
Pence per share
(‘p’)
(11.7)
11.3
(0.8)
20.6
(0.9)
(0.2)
(1.6)
(0.8)
4.6
0.8
0.1
0.3
5.8
–
(2.2)
0.6
–
(3.8)
–
5.9
–
–
–
5.9
1 2 2 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
11. Dividends
Amounts recognised as a distribution to ordinary Shareholders in the year:
Dividends paid
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
74,328
53,190
On 8 July 2022, the Board declared a fourth interim dividend for the year ended 30 June 2022 of 1.485 pence per share, which was paid
on 22 August 2022 to Shareholders on the register on 15 July 2022.
On 21 September 2022 the Board declared a first interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was
paid on 16 November 2022 to shareholders on the register on 7 October 2022.
On 12 January 2023, the Board declared a second interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was
paid on 23 February 2023 to shareholders on the register on 20 January 2023.
On 11 April 2023, the Board declared a third interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was paid
on 26 May 2023 to shareholders on the register on 21 April 2023.
On 6 July 2023, the Board declared a fourth interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was paid
on 4 August 2023 to shareholders on the register on 13 July 2023. This has not been included as a liability as at 30 June 2023.
12. Investment properties
In accordance with IAS 40 “Investment Property”, the Group’s investment properties have been independently valued at fair value
by Cushman & Wakefield, an accredited independent valuer with a recognised and relevant professional qualification and with
recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared in
accordance with the RICS Valuation – Global Standards (the “Red Book”) and incorporate the recommendations of the International
Valuation Standards Committee which are consistent with the principles set out in IFRS 13.
The independent valuer in forming its opinion on valuation makes a series of assumptions. As explained in note 2, all the valuations of
the Group’s investment property at 30 June 2023 are classified as ‘level 3’ in the fair value hierarchy defined in IFRS 13.
The valuations are ultimately the responsibility of the Directors. Accordingly, the critical assumptions used in establishing the
independent valuation are reviewed by the Board.
At 1 July 2022
Property additions
Capitalised acquisition costs
Revaluation movement
Valuation at 30 June 2023
At 1 July 2021
Property additions
Capitalised acquisition costs
Revaluation movement
Valuation at 30 June 2022
Reconciliation of Investment Property to Independent Property Valuation
Investment Property at fair value per Group Statement of Financial Position
Market Value of Property classified as Financial Assets held at amortised cost (Note 16)
Total Independent Property Valuation
Freehold
£’000
903,850
131,600
4,132
(140,142)
Long
Leasehold
£’000
657,740
231,030
10,549
(113,069)
Total
£’000
1,561,590
362,630
14,681
(253,211)
899,440
786,250
1,685,690
723,540
150,363
7,825
22,122
424,840
220,447
9,778
2,675
1,148,380
370,810
17,603
24,797
903,850
657,740
1,561,590
Year to
30 June 2023
£’000
1,685,690
7,210
Year to
30 June 2022
£’000
1,561,590
9,960
1,692,900
1,571,550
There were nine property acquisitions during the year, of which two were purchased through the acquisition of a corporate structure,
rather than acquiring the asset directly. All corporate acquisitions during the year have been treated as asset purchases rather than
business combinations because they are considered to be acquisitions of properties rather than businesses.
A N N U A L R E P O R T 2 0 2 3 1 2 3
12. Investment properties continued
Included within the carrying value of investment properties at 30 June 2023 is £8,724,000 (2022: £6,212,000) in respect of the
smoothing of fixed contractual rent uplifts as described in note 3. 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 during the year is as follows:
Revaluation movement per above
Rent smoothing adjustment (note 3)
Movements in associated rent guarantees and lease incentives
Change in fair value recognised in profit or loss
Valuation techniques and key unobservable inputs
Year to
30 June 2023
£’000
Year to
30 June 2022
£'000
(253,211)
(2,512)
(343)
24,797
(2,654)
(323)
(256,066)
21,820
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of market value which is defined in the RICS Valuation Standards as ‘the estimated
amount for which an asset or liability should exchange on the date of the valuation between a willing buyer and a willing seller
in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without
compulsion’. Market value as defined in the RICS Valuation Standards is the equivalent of fair value under IFRS.
The yield methodology approach is used when valuing the Group’s properties which uses market rental values capitalised with
a market capitalisation rate. This is sense-checked against the market comparable method (or market comparable approach) where
a property’s fair value is estimated based on comparable transactions in the market.
Unobservable inputs
Significant unobservable inputs include: the estimated rental value (“ERV”) based on market conditions prevailing at the valuation
date and net initial yield. Other unobservable inputs include but are not limited to the future rental growth – the estimated average
increase in rent based on both market estimations and contractual situations, and the physical condition of the individual properties
determined by inspection.
A decrease in ERV would decrease the fair value. A decrease in net initial yield would increase the fair value.
Sensitivity of measurement of significant valuation inputs
As described in note 2 the determination of the valuation of the Group’s investment property portfolio is open to judgement and is
inherently subjective by nature.
Sensitivity analysis – impact of changes in net initial yields and rental values
Range of Net Initial Yields
Range of Rental values (passing rents or ERV as relevant) of Group’s Investment Properties
Weighted average of Net Initial Yields
Weighted average of Rental values (passing rents or ERV as relevant) of Group’s Investment
Properties
Year to
30 June 2023
Year to
30 June 2022
4.7% - 7.4% 3.8% - 6.6%
£0.3m - £5.1m £0.3m - £4.2m
4.6%
5.6%
£2.8m
£2.6m
The table below analyses the sensitivity on the fair value of investment properties for changes in rental values and net initial yields:
(Decrease)/increase in the fair value of
investment properties as at 30 June 2023
(Decrease)/increase in the fair value of
investment properties as at 30 June 2022
+2%
Rental value
£m
-2%
Rental value
£m
+0.5% Net
Initial Yield
£m
-0.5% Net
Initial Yield
£m
33.7
(33.7)
(139.9)
168.1
31.2
(31.2)
(81.1)
90.7
1 2 4 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 13. Subsidiaries
The entities listed in the following table were the subsidiary undertakings of the Company at 30 June 2023 all of which are wholly
owned. All but those noted as Jersey entities below are subsidiary undertakings incorporated in England.
Company name
Holding type
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 (Midco6) Limited+
Supermarket Income Investments UK (Midco7) Limited+
SUPR Green Energy Limited+
SUPR Finco Limited+
Supermarket Income Investments UK (NO1) Limited+
Supermarket Income Investments UK (NO2) Limited+
Supermarket Income Investments UK (NO3) Limited+
Supermarket Income Investments UK (NO4) Limited+
Supermarket Income Investments UK (NO5) Limited+
Supermarket Income Investments UK (NO6) Limited+
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+
TPP Investments Limited+
T (Partnership) Limited+
The TBL Property Partnership
Supermarket Income Investments UK (NO19) Limited+
Supermarket Income Investments UK (NO20) Limited+
Supermarket Income Investments UK (NO21) Limited+
Supermarket Income Investments UK (NO22) Limited+
Supermarket Income Investments UK (NO23) Limited+
Supermarket Income Investments UK (NO24) Limited+
Supermarket Income Investments UK (NO25) Limited+
Supermarket Income Investments UK (NO26) Limited+
Supermarket Income Investments UK (NO27) Limited+
Supermarket Income Investments UK (NO28) Limited+
Supermarket Income Investments UK (NO29) Limited+
Supermarket Income Investments UK (NO30) Limited+
Supermarket Income Investments UK (NO31) Limited+
Supermarket Income Investments UK (NO32) Limited+
Supermarket Income Investments UK (NO33) Limited+
Supermarket Income Investments UK (NO34) Limited+
Supermarket Income Investments UK (NO35) Limited^–
Supermarket Income Investments UK (NO36) Limited+
Supermarket Income Investments UK (NO37) Limited+
Supermarket Income Investments UK (NO38) Limited+
Supermarket Income Investments UK (NO39) Limited**^–
Direct
Direct
Direct
Direct
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
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
Intermediate parent company
Intermediate parent company
Energy provision company
Holding 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
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
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
A N N U A L R E P O R T 2 0 2 3 1 2 5
13. Subsidiaries continued
Company name
Supermarket Income Investments UK (NO40) Limited*+
Supermarket Income Investments UK (NO41) Limited*+
Supermarket Income Investments UK (NO42) Limited*+
Supermarket Income Investments UK (NO43) Limited*+
Supermarket Income Investments UK (NO44) Limited*+
Supermarket Income Investments UK (NO45) Limited*+
The Brookmaker Unit Trust**^–
Brookmaker Limited Partnership**#
Brookmaker (GP) Limited**#
Brookmaker (Nominee) Limited**#
Supermarket Income Investments UK (NO47) Limited*+
Horner (GP) Limited**^–
Horner (Jersey) Limited Partnership**^–
Horner REIT**^–
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+
Holding type
Nature of business
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
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
* New subsidiaries incorporated during the year ended 30 June 2023
** Subsidiaries acquired during the year ended 30 June 2023
^ Jersey registered entity
+ Registered office: 1 King William Street, London, United Kingdom, EC4N 7AF
- Registered office: 3rd Floor, Gaspe House, 66-72 Esplanade, St Helier, Jersey, JE1 2LH
# Registered office: 8th Floor, 1 Fleet Place, London, United Kingdom, EC4M 7RA
The following subsidiaries will be exempt from the requirements of the Companies Act 2006 relating to the audit of individual accounts
by virtue of Section 479A of that Act.
Companies House
Registration Number
12473355
12890276
12475261
12475599
12478141
12604032
12605175
12606144
14292760
Company name
SII UK Halliwell (MIDCO) LTD
SUPR Green Energy 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
SUPR Finco Limited
1 2 6 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 14. Investment in joint ventures
Opening balance
Additions*
Group’s share of profit after tax
Disposal
Closing balance
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
177,140
206,656
23,232
(407,028)
130,321
3,518
43,301
–
–
177,140
*Included within additions are £190.7 million of further investments made in the joint venture during the year and £15.9 million of net liabilities acquired on
acquisition of Horner (Jersey) LP
In May 2020, the Group and British Airways Pension Trustees Limited (BAPTL) formed a 50:50 joint venture (the “joint venture”),
Horner (Jersey) LP. Horner (Jersey) LP owns 100% of the shares in Horner REIT, which acquired 100% of the issued share capital in
Horndrift Limited for a combined total consideration of £102m plus costs on this date.
In February 2021, Horner REIT acquired 100% of the issued share capital in Cornerford Limited for a combined total consideration of
£115m plus costs. Further amounts have been advanced since this date to fund operating costs and taxation liabilities on a pro-rata
basis with the other parties.
Horndrift and Cornerford Limited each hold a 25.2% share of certain beneficial interests in a property trust arrangement that holds
a portfolio of 26 Sainsbury’s supermarket properties funded by bonds which matured 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.
On 12 January 2023, the Group purchased British Airways Pension Trustees Limited’s (BAPTL) 50% interest in the joint venture for
£188.8 million which resulted in the Group consolidating the following entities:
Entity
Address and principal place of business
Ownership
Jersey
Horner (Jersey) LP
Third Floor, Liberation House, Castle Street, St Helier,
Jersey, JE1 2LH
100% owned by the Group
Horner GP
Third Floor, Liberation House, Castle Street, St Helier,
Jersey, JE1 2LH
100% owned by the Group
Horner REIT Limited
Third Floor, Liberation House, Castle Street, St Helier,
Jersey, JE1 2LH
100% owned by Horner (Jersey) LP
United Kingdom
Horndrift Limited
Cornerford Limited
Langham Hall UK LLP, 1 Fleet Street,
London, E4M 7RA
Langham Hall UK LLP, 1 Fleet Street,
London, E4M 7RA
Previously owned 100% by Horner REIT
Limited and disposed in March-23
Previously owned 100% by Horner REIT
Limited and disposed in March-23
A N N U A L R E P O R T 2 0 2 3 1 2 7
14. Investment in joint ventures continued
The assets and liabilities recognised on acquisition were as follows:
Current assets
Investment in joint venture
Cash and cash equivalents
Trade and other receivables
Total current assets
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Negative goodwill on acquisition
Purchase consideration
Fair value
12 Jan 2023
£’000
200,887
565
19
201,471
201,471
(9,078)
(9,078)
(9,078)
192,393
(3,565)
188,828
Transaction related costs of £451,000 were incurred in respect of the above acquisition and were capitalised as part of the Group’s
carrying amount in the joint venture.
Horner (Jersey) LP’s share of the aggregate amounts recognised in the statement of financial position of the Structure are as follows:
Non-current assets
Investment properties
Total non-current assets
Current assets
Contractual receivable
Trade and other receivables
Investment properties held for sale
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Debt securities in issue
Interest rate derivative
Deferred tax
Trade and other payables
Other liabilities
Total current liabilities
Total liabilities
Net assets
1 2 8 S U P E R M A R K E T I N C O M E R E I T P L C
Fair value
12 Jan 2023
£’000
–
–
277,379
1,683
16,888
–
295,950
295,950
(85,349)
(351)
(139)
(4,097)
(5,127)
(95,063)
(95,063)
200,887
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 14. Investment in joint ventures continued
The acquisition of BAPTL’s 50% interest in the joint venture, increased the Group’s beneficial interest in the structure to 51%.
Following the additional joint venture interest acquired during the year, the Group was deemed to control the Structure jointly, as
any change to the contractual arrangements and deeds that regulate the Structure, required unanimous consent from all beneficial
holders. Therefore, the equity method of accounting continued to be used until the disposal of the investment in joint venture which
occurred during the year. Further detail is included in Note 2 of the financial statements.
Atrato Halliwell Limited, affiliate of the Investment Adviser, has a carried interest entitlement over the investment returns from the
Group’s investment in the joint venture. Under the terms of the Limited Partnership Agreement, (“LPA”), once the Group and BAPTL
received a return equal to their total investment in the joint venture plus an amount equivalent to a 10% per annum preferred return on
that investment, Atrato Halliwell is entitled to share in any further cash returns to be distributed by the joint venture. Atrato Halliwell’s
entitlement to share in cash returns in excess of the preferred return increases depending on the extent of those cash returns, up to
a maximum entitlement of £15,000,000.
Following the acquisition of BAPTL’s 50% interest in the joint venture, BAPTL’s £7.5 million share of carried interest to Atrato Halliwell
crystalised and was paid at the point of acquisition, together with other deferred arrangement fees payable by BAPTL amounting to
£0.6 million. The remaining £7.5 million is included within trade and other payables within Note 18 and was paid after the year end.
On 13 March 2023, the Group sold its interests in Horndrift and Cornerford Limited to Sainsbury’s for gross proceeds of £430.8 million.
which was structured in three separate tranches:
• The first tranche of £279.3 million was paid in cash on 17 March 2023
• The second tranche of £116.9 million was paid in cash after the balance sheet date on 10 July 2023
• The third tranche of £34.7 million was conditional on the sale of the remaining five stores in the portfolio.
During the year, the Group purchased two of the five stores for a gross purchase price of £25.2 million and received total proceeds
from Sainsbury’s of £15.0 million.
After the year end, the Group purchased two of the remaining three stores in the portfolio for a gross purchase price of £36.4 million
and received proceeds from Sainsbury’s of £18.2 million. It is expected that the one remaining store will be sold at vacant
possession value.
Total disposal consideration
Fair value adjustment to contractual receivable
Carrying amount of net assets sold
Transaction related costs
Profit on disposal of joint venture interest
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
430,797
(2,579)
(407,029)
(1,249)
19,940
–
–
–
–
–
Horndrift and Cornerford Limited’s share of the aggregate amounts recognised in the consolidated statement of comprehensive
income and statement of financial position for the period ending 13 March 2023 are as follows:
Rental income
Finance income
Administrative and other expenses
Change in fair value of investment properties
Gain on disposal of investment properties
Operating profit
Finance expense
Profit before taxation
Tax charge for the period
Profit for the period/year
Group share of profit for the period / year
Period to
13 March 2023
£’000
Year to
30 June 2022
£’000
3,904
18,142
(1,844)
(4,256)
27,228
43,174
(1,585)
41,589
833
42,422
23,232
12,878
15,988
(190)
(11,336)
84,095
101,435
(1,996)
99,439
(1,974)
97,465
43,301
A N N U A L R E P O R T 2 0 2 3 1 2 9
14. Investment in joint ventures continued
Non-current assets
Investment properties
Total non-current assets
Current assets
Contractual receivable
Trade and other receivables
Investment properties held for sale
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Debt securities in issue
Interest rate derivative
Deferred tax
Other liabilities
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Negative goodwill on acquisition
Carrying amount of net assets at disposal
As at
13 March 2023
£’000
As at
30 June 2022
£’000
–
–
37,005
37,005
559,268
530,481
8,743
33,794
–
2,897
–
–
601,805
533,378
601,805
570,383
169,901
176,243
467
353
10,259
10,231
3,451
4,196
9,883
7,329
191,211
201,102
191,211
201,102
410,594
369,281
(3,565)
–
407,029
369,281
15. Financial assets held at fair value through profit or loss
Rental guarantees provided by the seller of an investment property are recognised as a financial asset when there is a valid
expectation that the Group will utilise the guarantee over the contractual term. Rental guarantees are classified as financial assets at
fair value through profit and loss in accordance with IFRS 9.
In determining the fair value of the rental guarantee, the Group makes an assessment of the expected future cash flows to be derived
over the term of the rental guarantee and discounts these at the market rate. A review is performed on a periodic basis based on
payments received and changes in the estimation of future cash flows.
The fair value of rental guarantees held by the Group are as follows:
At start of year
Additions
Fair value changes (including changes in estimated cash flows)
Collected during the year
Total financial assets held at fair value through profit and loss at end of year
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
283
1,000
92
(1,375)
–
237
283
(326)
89
283
1 3 0 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 16. Financial assets held at amortised cost
At start of year
Additions
Interest income recognised in profit and loss (note 8)
Lease payments received during the period
At end of period
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
10,626
–
483
(290)
–
10,626
–
–
10,819
10,626
On 8 June 2022, the Group acquired an Asda store in Carcroft, via a sale and leaseback transaction for £10.6 million, this has been
recognised in the Statement of Financial Position as a Financial asset in accordance with IFRS 9. The financial asset is measured using
the amortised cost model, which recognises the rental payments as financial income and reductions of the asset value based on the
implicit interest rate in the lease. As at 30 June 2023 the market value of the property was estimated at £7.2 million.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on
similar credit risk and ageing. The expected loss rates are based on the Group’s historical credit losses experienced over the period
from incorporation to 30 June 2023. The historical loss rates are then adjusted for current and forward-looking information on
macro-economic factors affecting the Group’s customers. Both the expected credit loss provision and the incurred loss provision in
the current year is immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss provision
would give rise to a material expected credit loss.
17. Trade and other receivables
Other receivables
Receivable from joint venture disposal
Prepayments and accrued income
Total trade and other receivables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
4,723
136,582
850
142,155
1,430
–
433
1,863
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on
similar credit risk and ageing. The expected loss rates are based on the Group’s historical credit losses experienced over the period
from incorporation to 30 June 2023. The historical loss rates are then adjusted for current and forward-looking information on
macro-economic factors affecting the Group’s customers. Both the expected credit loss provision and the incurred loss provision in
the current and prior year are immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss
provision would give rise to a material expected credit loss.
The receivable following the disposal of the Joint venture receivable has been initially recognised at fair value which resulted in
a discount of £2.6 million to the gross amounts to be received of £136.6 million and which is being amortised and recognised within
finance income over the period to the receipt of cash from Sainsbury’s. £135.1 million was received post year end and the remainder of
the consideration is expected to be received on sale of the final property.
18. Trade and other payables
Corporate accruals
VAT payable
Total trade and other payables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
22,469
4,510
26,979
8,958
1,719
10,677
A N N U A L R E P O R T 2 0 2 3 1 3 1
19. Interest rate derivatives
Non-current asset: Interest rate swaps
Non-current asset: Interest rate cap
Current Asset: Interest rate swaps
Current Asset: Interest rate cap
The rate swaps are remeasured to fair value by the counterparty bank on a quarterly basis.
The fair value at the end of year comprises:
At start of year (net)
Interest rate derivative premium paid on inception
Amortisation of cap premium in the period (note 8)
Disposal of interest rate derivatives
Changes in fair value of interest rate derivative in the year (P&L)
Changes in fair value of interest rate derivative in the year (OCI)
(Credit)/Charge to the income statement (P&L) (note 8)
(Credit)/Charge to the income statement (OCI) (note 8)
Fair value at end of year (net)
As at
30 June 2023
£’000
As at
30 June 2022
£’000
35,601
1,597
16,800
3,584
5,114
–
–
–
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
5,114
44,255
–
(2,878)
19,695
3,111
(9,671)
(2,043)
57,583
(447)
–
(5)
–
5,270
–
–
296
5,114
To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note 21,
the Group has entered into derivative interest rate swaps in relation to the drawn Unsecured bank syndicate facilities (‘the Unsecured
swaps’) and loan facilities with Bayerische Landesbank (‘the BLB swaps’) and Wells Fargo Bank (‘the Wells swaps’). The Group has
also entered into a derivative interest rate cap in relation to the drawn HSBC loan facility (‘the HSBC cap’).
A summary of these derivatives as at 30 June 2023 are shown in the table below:
Issuer
Barclays
Barclays
Barclays
HSBC
BLB
BLB
BLB
Derivative Type
Interest Rate Swap
Interest Rate Swap
Interest Rate Swap
Interest Rate Cap
Interest Rate Swap
Interest Rate Swap
Interest Rate Swap
Wells Fargo
Interest Rate Swap
Notional amount
£m
Premium Paid
£m
Mark to Market
30 June 2023
Swap Rate
Maturity Date
£250.0
£100.0
£30.6
£96.5
£37.3
£22.2
£27.4
£30.0
£26.7
£33.5
£7.6
£1.2
£6.0
£1.2
£0.7
£0.9
–
£8.5
£0.7
£5.2
£2.7
£1.6
£2.0
£3.3
1.34%
1.34%
1.34%
1.12%
2.64%
2.64%
2.64%
0.19%
–
Jul-27
Jul-25
Dec-23
Aug-24
Mar-26
Mar-26
Mar-26
Jul-25
–
Total
£594.0
£44.3
£57.5
On 21 March 2023, the Group announced the refinancing of the existing loan facilities with Bayerische Landesbank with a new
three-year £86.9 million term loan replacing the existing tranches of the same amount. The Group closed out swaps on the same date
as these coincided with the previous facility. The Group made a profit on disposal of £2.9 million on the swaps.
100% of the Group’s outstanding debt as at 30 June 2023 was hedged through the use of fixed rate debt or financial instruments as at
30 June 2023 (2022: 61%). It is the Group’s target to hedge at least 50% of the Group’s total debt at any time using fixed rate loans or
interest rate derivatives.
The derivatives have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on
the last working day prior to each reporting date. The fair values are calculated using the present values of future cash flows, based on
market forecasts of interest rates and adjusted for the credit risk of the counterparties. The amounts and timing of future cash flows
are projected on the basis of the contractual terms.
All interest rate derivatives are classified as level 2 in the fair value hierarchy as defined under IFRS 13 and there were no transfers to
or from other levels of the fair value hierarchy during the year.
1 3 2 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 19. Interest rate derivatives continued
In accordance with the Group’s treasury risk policy, the Group applies cash flow hedge accounting in partially hedging the interest rate
risks arising on its Wells Fargo variable rate linked facility. Since the refinancing of the Bayerische Landesbank loan facility the Group
no longer applies hedge accounting to the newly acquired swaps. 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.
All floating rate loans and interest rate derivatives are contractually linked to the Sterling Overnight Index Average (“SONIA”).
Post year end, the Group extended the maturity of the interest rate derivatives by 12 months. The weighted average interest rate
following the derivative changes is 3.1% inclusive of the margin. The Group also entered into a forward starting cap starting in
August 2024 and terminating in July 2025 with a strike rate of 1.4%.
20. Bank borrowings
Amounts falling due within one year:
Secured debt
Unsecured debt
Less: Unamortised finance costs
Bank borrowings per the consolidated statement of financial position
Amounts falling due after more than one year:
Secured debt
Unsecured debt
Less: Unamortised finance costs
Bank borrowings per the consolidated statement of financial position
Total bank borrowings
A summary of the Group’s borrowing facilities as at 30 June 2023 are shown below:
As at
30 June 2023
£’000
As at
30 June 2022
£’000
–
62,090
(234)
61,856
–
–
–
–
291,551
318,508
(4,450)
352,213
–
(3,667)
605,609
348,546
667,465
348,546
Facility
Expiry
Expiry*
Credit
margin
Variable/
hedged
Loan
commitment
£m
Amount drawn
30 June 2023
£m
Lender
HSBC
HSBC
HSBC
Deka
Deka
Deka
BLB
SONIA
SONIA
0.54%
0.70%
0.32%
Revolving credit facility
Aug 2024
Aug 2025
1.65%
Cap – 1.12%
Revolving credit facility
Aug 2024
Aug 2025
1.65%
Revolving credit facility
Aug 2024
Aug 2025
1.75%
Term Loan
Term Loan
Term Loan
Term Loan
Aug 2024
Aug 2026
1.35%
Aug 2024
Aug 2026
1.35%
Aug 2024
Aug 2026
1.40%
Mar 2026
Mar 2026
1.65%
SWAP – 2.64%
Wells Fargo
Revolving credit facility
Jul 2025
Jul 2027
Wells Fargo
Revolving credit facility
Jul 2025
Jul 2027
2.00%
2.00%
Barclays
Revolving credit facility
Jan 2024
Jan 2026
1.50%
SWAP – 0.18%
SONIA
SONIA
Syndicate
Unsecured RCF
Jul 2027
Jul 2029
Syndicate
Unsecured Term Loan
Jul 2025
Jul 2027
1.50%
1.50%
SWAP – 1.34%
SWAP – 1.34%
Syndicate
Unsecured Term Loan
Jan 2024
Jan 2025
1.50%
SWAP – 1.34%
Syndicate
Unsecured Term Loan
Jan 2024
Jan 2025
1.50%
SONIA
£96.5
£3.5
£50.0
£47.6
£28.9
£20.0
£86.9
£30.0
£9.0
£77.5
£250.0
£100.0
£30.6
£31.5
£78.1
Nil
Nil
£47.6
£28.9
£20.0
£86.9
£30.0
Nil
Nil
£218.5
£100.0
£30.6
£31.5
Total
£862.0
£672.1
*Includes extension options that can be utilised following approval from all parties
A N N U A L R E P O R T 2 0 2 3 1 3 3
20. Bank borrowings continued
In July 2022, the Group announced the arrangement of a new £412.1 million unsecured credit facility with a bank syndicate comprising
Barclays, Royal Bank of Canada, Wells Fargo and Royal Bank of Scotland International as summarised above. This was partially used
to reduce the Wells Fargo and Barclays/RBC facilities. This led to loan modifications under IFRS 9 resulting in an acceleration of loan
arrangement fees of £1.52 million.
In January 2023, the Group entered into a short-term debt facility provided by J.P. Morgan of £196.5 million to fund the acquisition of
the additional interest in the Joint Venture. The Facility had a margin of 1.5% over SONIA and an arrangement fee of 2.0%. This facility
was repaid in March 2023.
The Group has been in compliance with all of the financial covenants across the Group’s bank facilities as applicable throughout the
periods covered by these financial statements.
Any associated fees in arranging the bank borrowings that are unamortised as at the end of the year are offset against amounts drawn
under the facility as shown in the table above. The debt is secured by charges over the Group’s investment properties and by charges
over the shares of certain Group undertakings, not including the Company itself. There have been no defaults of breaches of any loan
covenants during the current year or any prior period.
The Group’s borrowings carried at amortised cost are considered to be approximate to their fair value.
Post year end, the Group reduced the HSBC facility to £50.0 million from £150.0 million, cancelled the Barclays/RBC facility and
Unsecured term loan of £77.5 million and £62.1 million respectively and entered into a new £67.0 million facility with SMBC Bank
International PLC, for more information see note 28.
21. Categories of financial instruments
Financial assets
Financial assets at amortised cost:
Lease Receivables
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value:
Rent guarantees
Interest rate derivative
Derivatives in effective hedges:
Interest rate derivative
Total financial assets
Financial liabilities
Financial liabilities at amortised cost:
Secured debt
Unsecured debt
Trade and other payables
Total financial liabilities
As at
30 June 2023
£’000
As at
30 June 2022
£’000
10,819
37,481
141,305
–
54,278
3,304
247,187
10,626
51,200
1,430
283
–
5,114
68,653
289,736
377,729
22,469
348,546
–
8,958
689,934
357,504
At the year end, all financial assets and liabilities were measured at amortised cost except for the interest rate derivatives which are
measured at fair value. The interest rate derivative valuation is classified as ‘level 2’ in the fair value hierarchy as defined in IFRS 13
and its fair value was calculated using the present values of future cash flows, based on market forecasts of interest rates and
adjusted for the credit risk of the counterparties.
1 3 4 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Categories of financial instruments continued
Financial risk management
Through the Group’s operations and use of debt financing it is exposed to certain risks. The Group’s financial risk management
objective is to minimise the effect of these risks, for example by using interest rate cap and interest rate swap derivatives to partially
mitigate exposure to fluctuations in interest rates, as described in note 19.
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 19 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 in the three-month SONIA daily rate, was as follows:
Effect on profit (increase)/decrease
Effect on other comprehensive income and equity (increase)
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
(1,383)
(58)
413
(223)
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.
Inflation risk arises from the impact of inflation on the Group’s income and expenditure. The majority of the Group’s passing rent at
30 June 2023 is subject to inflation-linked rent reviews. Consequently, the Group is exposed to movements in the Retail Prices Index
(“RPI”), which is the relevant inflation benchmark. However, all RPI-linked rent review provisions provide those rents will only be
subject to upwards review and never downwards. As a result, the Group is not exposed to a fall in rent in deflationary conditions.
The Group does not expect inflation risk to have a material effect on the Group’s administrative expenses, with the exception of the
investment advisory fee which is determined as a function of the reported net asset value of the Group.
Credit risk
Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations. The principal
counterparties are the Group’s tenants (in respect of rent receivables arising under operating leases) and banks (as holders of the
Group’s cash deposits).
The credit risk of rent receivables is considered low because the counterparties to the operating leases are considered by the Board
to be high-quality tenants and any lease guarantors are of appropriate financial strength. Rent collection dates and statistics are
monitored to identify any problems at an early stage, and if necessary rigorous credit control procedures will be applied to facilitate
the recovery of rent receivables. The credit risk on cash deposits is limited because the counterparties are banks with credit ratings
which are acceptable to the Board and are kept under review each quarter.
The credit risk of the receivable from the disposal of the Joint Venture is considered low and this is supported by the fact that the
majority of this was received shortly after the year end.
A N N U A L R E P O R T 2 0 2 3 1 3 5
21. Categories of financial instruments continued
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance costs and principal repayments on its secured
debt. It is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group seeks to manage its liquidity risk by ensuring that sufficient cash is available to meet its foreseeable needs. These liquidity
needs are relatively modest and are capable of being satisfied by the surplus available after rental receipts have been applied in
payment of interest as required by the credit agreement relating to the Group’s secured debt.
Before entering into any financing arrangements, the Board assesses the resources that are expected to be available to the Group to
meet its liabilities when they fall due. These assessments are made on the basis of both base case and downside scenarios. The Group
prepares detailed management accounts which are reviewed by the Board at least quarterly to assess ongoing liquidity requirements
and compliance with loan covenants. The Board also keeps under review the maturity profile of the Group’s cash deposits in order to
have reasonable assurance that cash will be available for the settlement of liabilities when they fall due.
The following table shows the maturity analysis for financial assets and liabilities. The table has been drawn up based on the
undiscounted cash flows of non-derivative financial instruments, including future interest payments, based on the earliest date
on which the Group can be required to pay and assuming that the SONIA daily rate remains at the 30 June 2023 rate. Interest rate
derivatives are shown at fair value and not at their gross undiscounted amounts.
Less than
one year
£’000
One to
two years
£'000
Two to
five years
£'000
More than
five years
£'000
As at 30 June 2023
Financial assets:
Cash and cash equivalents
Trade and other receivables
Amortised cost asset
Interest rate derivatives
Total financial assets
Financial liabilities:
Bank borrowings
Trade payables and other payables
Total financial liabilities
As at 30 June 2022
Financial assets:
Cash and cash equivalents
Trade and other receivables
Amortised cost asset
Rent guarantees
Interest rate derivatives
Total financial assets
Financial liabilities:
Bank borrowings
Trade payables and other payables
Interest rate derivatives
37,481
141,305
290
20,384
199,460
81,545
22,469
104,014
Less than
one year
£’000
51,200
1,430
290
283
–
–
–
290
20,564
20,854
94,080
–
94,080
One to
two years
£'000
–
–
290
–
843
53,203
1,133
–
–
908
16,635
17,543
549,575
–
549,575
Two to
five years
£'000
–
–
870
–
4,271
5,141
9,335
8,958
–
205,679
156,510
–
–
–
–
Total
£’000
37,481
141,305
76,418
57,583
312,787
725,200
22,469
747,669
Total
£’000
51,200
1,430
77,865
283
5,114
–
–
74,930
–
74,930
–
–
–
More than
five years
£'000
–
–
76,415
–
–
76,415
135,892
–
–
–
–
371,524
8,958
–
380,482
Total financial liabilities
18,293
205,679
156,510
1 3 6 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Categories of financial instruments continued
Capital risk management
The Board’s primary objective when monitoring capital is to preserve the Group’s ability to continue as a going concern, while ensuring
it remains within its debt covenants so as to safeguard secured assets and avoid financial penalties.
Bank borrowings on secured facilities are secured on the Group’s property portfolio by way of fixed charges over property assets and
over the shares in the property-owning subsidiaries and any intermediary holding companies of those subsidiaries.
At 30 June 2023, the capital structure of the Group consisted of bank borrowings (note 20), cash and cash equivalents, and equity
attributable to the Shareholders of the Company (comprising share capital, retained earnings and the other reserves referred to in
notes 22 and 23).
In managing the Group’s capital structure, the Board considers the Group’s cost of capital. In order to maintain or adjust the capital
structure, the Group keeps under review the amount of any dividends or other returns to Shareholders and monitors the extent to
which the issue of new shares or the realisation of assets may be required.
Reconciliation of financial liabilities relating to financing activities
As at 1 July 2022
Cash flows:
Debt drawdowns in the year
Debt repayments in the year
Interest and commitment fees paid
Loan arrangement fees paid
Interest rate premium paid
Interest rate derivative disposal
Non-cash movements:
Finance costs in the statement of comprehensive income
Fair value changes
As at 30 June 2023
As at 1 July 2021
Cash flows:
Debt drawdowns in the year
Debt repayments in the year
Interest and commitment fees paid
Loan arrangement fees paid
Non-cash movements:
Total bank
borrowings
£’000
Interest and
commitment
fees payable
£’000
Interest rate
derivatives
£’000
Total
£’000
348,546
1,939
(5,114)
345,371
912,114
(598,486)
–
–
–
(24,116)
(5,010)
–
–
10,301
–
667,465
–
–
–
29,014
–
6,837
–
–
–
–
(44,255)
2,878
(22,806)
11,714
912,114
(598,486)
(24,116)
(5,010)
(44,255)
2,878
16,509
11,714
(57,583)
616,719
409,684
1,634
447
411,765
402,922
(464,029)
–
–
–
(10,527)
(2,188)
–
–
–
–
–
402,922
(464,029)
(10,527)
(2,188)
Finance costs in the statement of comprehensive income
Fair value changes
At 30 June 2022
2,157
–
348,546
10,832
–
1,939
5
(5,566)
12,994
(5,566)
(5,114)
345,371
Movements in respect to share capital are disclosed in note 22 below.
The interest and commitment fees payable are included within the corporate accruals balance in note 18. 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 liabilities can be found in note 19.
A N N U A L R E P O R T 2 0 2 3 1 3 7
22. Share capital
Ordinary Shares
of 1 pence
Number
Share capital
£’000
Share
premium
reserve
£’000
Capital
reduction
reserve
£’000
Total
£’000
As at 1 July 2022
1,239,868,420
12,399
494,174
778,859
1,285,432
Scrip Dividends issued and fully paid – 22 August 2022
1,898,161
Scrip Dividends issued and fully paid – 16 November 2022
Scrip Dividends issued and fully paid – 23 February 2023
866,474
729,198
Scrip Dividends issued and fully paid – 26 May 2023
2,876,932
Share issue costs
Dividend paid in the period (note 11)
–
–
19
9
7
28
–
–
2,316
869
721
2,395
(89)
–
–
–
–
–
–
2,335
878
728
2,423
(89)
(74,328)
(74,328)
As at 30 June 2023
1,246,239,185
12,462
500,386
704,531
1,217,379
As at 1 July 2021
810,720,168
Scrip Dividends issued and fully paid – 20 August 2021
300,468
Ordinary shares issued and fully paid – 22 October 2021
173,913,043
Scrip dividends issued and fully paid – 16 November 2021
500,750
Share premium cancelled during the year and
transferred to capital reduction reserve
–
Scrip dividends issued and fully paid – 25 February 2022
111,233
8,107
3
1,740
5
–
1
Ordinary shares issued and fully paid – 29 April 2022
Scrip dividends issued and fully paid – 27 May 2022
253,492,160
830,598
2,535
8
778,859
348
198,261
578
–
–
–
–
(778,859)
778,859
136
304,191
1,026
–
–
–
–
786,966
351
200,001
583
–
137
306,726
1,034
(10,366)
Share issue costs
As at 30 June 2022
–
–
(10,366)
1,239,868,420
12,399
494,174
778,859
1,285,432
Share allotments and other movements in relation to the capital of the Company in the year:
Scrip dividends were issued on 22 August 2022, 16 November 2022, 23 February 2023 and 26 May 2023 at a reference price of £1.23,
£1.01, £1.00 and £0.84 per share respectively. The Company issued a combined total of 6,370,765 shares under the scrip dividend
programme during the year. The consideration received (net of share issue costs) in excess of the par value of the ordinary shares
issued of £6.3 million was credited to the share premium reserve.
Ordinary Shareholders are entitled to all dividends declared by the Company and to all of the Company’s assets after repayment of its
borrowings and ordinary creditors. Ordinary Shareholders have the right to vote at meetings of the Company. All ordinary shares carry
equal voting rights. The aggregate ordinary shares in issue at 30 June 2023 total was 1.25 billion.
23. Reserves
The nature and purpose of each of the reserves included within equity at 30 June 2023 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 year are disclosed in the consolidated statement of changes in equity.
24. Capital commitments
The Group had no capital commitments outstanding as at 30 June 2023 and 30 June 2022.
1 3 8 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 25. 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 2023 is 13.6 years (2022: 15.1 years). The leases contain predominately fixed or
inflation-linked uplifts.
The future minimum lease payments receivable under the Group’s leases, are as follows:
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6-10
Year 11-15
Year 16-20
Year 21-25
More than 25 years
Total
As at
30 June 2023
£’000
As at
30 June 2022
£’000
100,156
98,941
98,614
97,552
97,177
452,219
310,150
94,875
23,358
12,743
77,438
77,831
77,088
76,861
75,994
375,951
290,613
127,574
25,144
14,846
1,385,785 1,219,340
26. Net asset value per share
NAV per share is calculated by dividing the Group’s net assets as shown in the consolidated statement of financial position, by the
number of ordinary shares outstanding at the end of the year. As there are no dilutive instruments outstanding, basic and diluted NAV
per share are identical.
The European Public Real Estate Association (EPRA) publishes guidelines for the calculation of three measures of NAV to enable
consistent comparisons between property companies, which were updated in the prior year and took effect from 1 January 2020.
The Group uses EPRA Net Tangible Assets (“EPRA NTA”) as the most meaningful measure of long-term performance and the measure
which is being adopted by the majority of UK REITs, establishing it as the industry standard benchmark. It excludes items that are
considered to have no impact in the long-term, such as the fair value of derivatives.
NAV and EPRA NTA per share calculation are as follows:
Net assets per the consolidated statement of financial position
Contractual fulfilment intangible assets
Fair value of financial assets at amortised cost
Fair value of interest rate derivatives
EPRA NTA
Ordinary shares in issue at 30 June
NAV per share – Basic and diluted (pence)
EPRA NTA per share (pence)
27. Transactions with related parties
As at
30 June 2023
£’000
As at
30 June 2022
£’000
1,217,726
–
(3,609)
(57,583)
1,432,455
(93)
(666)
(5,114)
1,156,534
1,426,582
1,246,239,185 1,239,868,420
116p
115p
98p
93p
Details of the related parties to the Group in the year and the transactions with these related parties were as follows:
a. Directors
Directors’ fees
Nick Hewson, Chair of the Board of Directors of the Company, is paid fees of £75,000 per annum, with the other Directors each
being paid fees of £52,500 per annum. Jon Austen is paid an additional £9,000 per annum for his role as chair of the Company’s
Audit Committee, Vince Prior is paid an additional £4,000 per annum for his role as chair of the Company’s Nomination Committee
and £5,000 for his role as Senior Independent Director. Cathryn Vanderspar is paid an additional £5,000 for her role as Chair of the
Remuneration Committee. Frances Davies is paid an additional £5,000 for her role as Chair of the ESG Committee.
The total remuneration payable to the Directors in respect of the current year and previous year are disclosed in note 7.
A N N U A L R E P O R T 2 0 2 3 1 3 9
27. Transactions with related parties continued
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 2023 were as follows:
• Nick Hewson: 1,263,309 shares (0.11% of issued share capital)
• Jon Austen: 305,339 shares (0.02% of issued share capital)
• Vince Prior: 213,432 shares (0.02% of issued share capital)
• Cathryn Vanderspar: 125,802 (0.01% of issued share capital)
• Frances Davies: 24,774 (0.00% of issued share capital)
• Sapna Shah: 28,951 (0.00% of issued share capital)
Details of the direct and indirect interest of the Directors and their close families in the ordinary shares of one pence each in the
Company at the date of signing the accounts were as follows:
• Nick Hewson: 1,263,309 shares (0.11% of issued share capital)
• Jon Austen: 305,339 shares (0.02% of issued share capital)
• Vince Prior: 213,432 shares (0.02% of issued share capital)
• Cathryn Vanderspar: 125,802 (0.01% of issued share capital)
• Frances Davies: 36,774 (0.00% of issued share capital)
• Sapna Shah: 28,951 (0.00% of issued share capital)
b. Investment Adviser
Investment advisory and accounting fees
The investment adviser to the Group, Atrato Capital Limited (the Investment Adviser), is entitled to certain advisory fees under the
terms of the Investment Advisory Agreement (the ‘Agreement’) dated 14 July 2021.
The entitlement of the Investment Adviser to advisory fees is by way of what are termed ‘Monthly Management Fees’ and
‘Semi-Annual Management Fees’ both of which are calculated by reference to the net asset value of the Group at particular dates, as
adjusted for the financial impact of certain investment events and after deducting any uninvested proceeds from share issues up to
the date of the calculation of the relevant fee (these adjusted amounts are referred to as ‘Adjusted Net Asset Value’ for the purpose of
calculation of the fees in accordance with the Agreement).
Until the Adjusted Net Value of the Group exceeds £1,500 million, the entitlements to advisory fees can be summarised as follows:
• Monthly Management Fee payable monthly in arrears: 1/12th of 0.7125% per calendar month of Adjusted Net Asset Value up
to or equal to £500 million, 1/12th of 0.5625% per calendar month of Adjusted Net Asset Value above £500 million and up to or
equal to £1,000 million and 1/12th of 0.4875% per calendar month of Adjusted Net Asset Value above £1,000 and up to or equal to
£1,500 million.
• Semi-Annual Management Fee payable semi-annually in arrears: 0.11875% of Adjusted Net Asset Value up to or equal to
£500 million, 0.09375% of Adjusted Net Asset Value above £500 million and up to or equal to £1,000 million and 0.08125% of
Adjusted Net Asset Value above £1,000 million and up to or equal to £1,500 million.
For the year to 30 June 2023 the total advisory fees payable to the Investment Adviser were £10,292,302 (2022: £9,404,938) of which
£1,845,144 (2022: £1,446,246) is included in trade and other payables in the consolidated statement of financial position.
The Investment Adviser is also entitled to an annual accounting and administration service fee equal to: £52,788; plus (i) £4,279 for
any indirect subsidiary of the Company and (ii) £1,661 for each direct subsidiary of the Company. A full list of the Company and its
direct and indirect subsidiary undertakings is listed in Note 13 of these financial statements.
For the year to 30 June 2023 the total accounting and administration service fee payable to the Investment Adviser was £297,475
(2022: £237,559) of which £83,614 (2022: £81,833) is included in trade and other payables in the consolidated statement of
financial position.
Introducer Services
Atrato Partners, an affiliate of the Investment Adviser, is entitled to fees in relation to the successful introduction of prospective
investors in connection with subscriptions for ordinary share capital in the Company.
The entitlement of the Investment Adviser to introducer fees is by fees and/or commission which can be summarised as follows:
• Commission basis: 1% of total subscription in respect of ordinary shares subscribed for by any prospective investor introduced by
Atrato Partners.
For the year to 30 June 2023 the total introducer fees payable to the affiliate of the Investment Adviser were £nil (2022: £271,239).
1 4 0 S U P E R M A R K E T I N C O M E R E I T P L C
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 27. Transactions with related parties continued
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 2023 were as follows:
• Ben Green: 1,876,376 shares (0.15% of issued share capital)
• Steve Windsor: 1,698,928 shares (0.14% of issued share capital)
• Steven Noble: 232,255 shares (0.02% of issued share capital)
• Natalie Markham: 62,679 shares (0.01% of issued share capital)
Carried interest held in the Group’s joint venture
Under the terms of the Horner (Jersey) LP (the “JV”) Limited Partnership Agreement (“LPA”), an affiliate of the Investment Adviser,
Atrato Halliwell Limited (the “Carry Partner”), had a carried interest entitlement over the investment returns from the JV’s investment
in the Structure. Further details regarding the estimated value of the Carry Partner’s interest in the JV are included in note 14.
Carried interest payments are only payable to the extent that distributions are made from the JV to the Group. On the acquisition of
the additional Joint Venture interest during the year, the carried interest was considered to have crystalised and became payable.
£7.5 million was paid in relation to the settlement of the carry interest of the additional joint venture interest acquired during the year
and was recognised as a financing cashflow within the cashflow statement. The existing interest of £7.5 million payable is included in
corporate accruals within Note 18 and was settled subsequent to the year end.
c. Other related parties
During the year, SUPR Green Energy Limited received a credit note from Evo Energy Limited for solar panels purchased in June 2021
of £155,142.52. These panels that were being held by Evo Energy Limited were sold to Sonne Solar Limited, a subsidiary of Atrato
Onsite Energy PLC, a company is advised by an affiliate of the Investment Adviser. As 30 June 2023, the balance was still outstanding,
and was received in cash after the year end.
28. Subsequent events
Debt financing
• In July 2023, the Group cancelled its £62.1 million unsecured term loan with the unsecured banking syndicate.
• In September 2023, the Group announced that its £150.0 million revolving credit facility with HSBC was refinanced with a new
£50.0 million, secured three-year RCF with a £75 million accordion option. The new facility has two one-year extension options and
a margin of 170 bps over SONIA.
• In September 2023, the Group announced the cancellation of the Barclays/RBC facility of £77.5 million.
• In September 2023, the Group announced the arrangement of a new £67.0 million unsecured term loan facility with SMBC
Bank International PLC at a margin of 1.4% over SONIA. The term of the loan is for three-years with two further one-year
extension options.
• In September 2023, the Group extended £50.0 million of its £100.0 million unsecured term loan with the unsecured banking
syndicate by one year to July 2026.
Hedging
In September 2023, the Group adjusted its interest rate derivatives held at the year end to extend the maturity of the derivatives by
12 months. The Group’s drawn debt is fully hedged at an interest rate of 3.1% (including margin) with a weighted average debt term
of 4 years (including extension options).
Acquisitions
In July 2023, the Group announced the acquisition of two Sainsbury’s stores from the SRP for £36.4 million (excluding acquisition
costs). Sainsbury’s entered into new 15-year leases on these stores with five-yearly open market rent reviews and a tenant break
option at year 10.
A N N U A L R E P O R T 2 0 2 3 1 4 1
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2 023
Registered number: 10799126
Non-current assets
Investments in subsidiaries
Interest rate derivatives
Total non-current assets
Current assets
Interest rate derivatives
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Bank Borrowings
Trade and other payables
Total current liabilities
Current liabilities
Bank borrowings
Total liabilities
Total net assets
Equity
Share capital
Share premium reserve
Capital reduction reserve
Retained earnings
Total equity
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Notes
D
E
1,564,226
29,318
1,329,108
–
1,593,544
1,329,108
13,397
11,412
2,928
27,737
–
41,201
23,413
64,614
1,621,281
1,393,722
G
F
61,856
127,027
188,883
–
44,603
44,603
G
315,873
–
504,756
44,603
1,116,525
1,349,119
H
12,462
500,386
704,531
(100,854)
12,399
494,174
778,859
63,687
1,116,525
1,349,119
The notes on pages 144-145 form part of these financial statements.
The Company has taken advantage of the exemption within section 408 of the Companies Act 2006 not to present its own profit and
loss account. The accumulated loss for the year dealt with the financial statements of the Company was £164,541,000 (2022: profit
£67,411,000). As at 30 June 2023 the Company has distributable reserves of £603.7 million (2022: £842.5 million).
The Company financial statements were approved and authorised for issue by the Board of Directors on 19 September 2023 and were
signed on its behalf by
Nick Hewson
Chair
19 September 2023
1 4 2 S U P E R M A R K E T I N C O M E R E I T P L C
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR EN DED 3 0 J UN E 20 2 3
Share
capital
£’000
Share
premium
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
£’000
As at 1 July 2022
12,399
494,174
778,859
63,687
1,349,119
Loss and total comprehensive loss for the year
Transactions with owners
Ordinary shares issued at a premium during the year
Transfer to capital reduction reserve
Share issue costs
Interim dividends paid
As at 30 June 2023
–
63
–
–
–
6,301
–
–
(89)
–
–
(74,328)
(164,541)
(164,541)
–
–
–
6,364
(89)
(74,328)
12,462
500,386
704,531
(100,635)
1,116,525
As at 1 July 2021
Profit and total comprehensive income for the year
Transactions with owners
Share
capital
£’000
8,107
–
Share
premium
reserve
£’000
778,859
–
Ordinary shares issued at a premium during the year
4,292
504,540
Capital
reduction
reserve
£’000
–
–
–
Transfer to capital reduction reserve
Share issue costs
Interim dividends paid
As at 30 June 2022
Retained
earnings
£’000
49,466
67,411
–
–
Total
£’000
836,432
67,411
508,832
–
(10,366)
(53,190)
–
–
–
(778,859)
778,859
(10,366)
–
–
–
–
(53,190)
12,399
494,174
778,859
63,687
1,349,119
A N N U A L R E P O R T 2 0 2 3 1 4 3
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 22 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 7 to the Group financial statements.
In the year to 30 June 2024, the Company intends to continue to use these disclosure exemptions unless objections are received
from Shareholders.
B. Significant accounting judgements, estimates and assumptions
In preparing the financial statements of the Company, the Directors have made the following judgements:
• Determine whether there are any indicators of impairment of the investments in subsidiary undertakings. Factors taken into
consideration in reaching such a decision include the financial position and expected future performance of the subsidiary
entity. Where indicators of impairment are identified the carrying value of investments in subsidiaries will be compared to their
recoverable amount and an impairment charge recognised where this is lower than carrying value. The net asset value of the
individual subsidiary entities is considered to be a reasonable proxy for fair value less costs to sell as the underlying investment
properties held within these entities is carried at fair value.
C. Auditor’s remuneration
The remuneration of the auditor in respect of the audit of the Company’s consolidated and individual financial statements for the year
was £260,000 (2022: £190,000). 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 Group financial statements.
D. Investment in subsidiary undertakings
The Company’s wholly owned direct subsidiaries are Supermarket Income Investments UK Limited, Supermarket Income Investments
(Midco2) UK Limited, Supermarket Income Investments (Midco3) UK Limited, Supermarket Income Investments (Midco4) UK
Limited, Supermarket Income Investments (Midco6) UK Limited, SII UK Halliwell (Midco) Limited, SUPR Finco Limited and SUPR
Green Energy Limited, all of which are incorporated and operating in England with a registered address of 1 King William Street,
London, United Kingdom, EC4N 7AF. The full list of subsidiary entities directly and indirectly owned by the Company is disclosed in
note 13 to the Group financial statements.
The movement in the year was as follows:
Opening balance
Additions
Closing balance
Impairments of investments in subsidiaries
As at 30 June 2023
1 4 4 S U P E R M A R K E T I N C O M E R E I T P L C
Year to
30 June 2023
£’000
1,329,108
1,066,634
2,395,742
(831,516)
1,564,226
Opening balance
Additions
Closing balance
Impairments of investments in subsidiaries
As at 30 June 2022
Year to
30 June 2022
£’000
760,767
871,692
1,632,459
(303,351)
1,329,108
An impairment of investments in subsidiaries was recognised during both the current and previous year following the payment of
upstream dividends to the Company. Following the payment of dividends, the net assets of certain dividend-paying subsidiaries no
longer support the carrying value of the Company’s investment in those entities and thus an impairment charge was recognised to
bring the carrying value of the investments in line with the recoverable amount, which was also considered to be its value in use.
E. Trade and other receivables
Intercompany receivables
Prepayments and accrued income
Corporation tax receivable
VAT receivable
Other receivables
Total trade and other receivables
F. Trade and other payables
Trade creditors
Corporate accruals
VAT payable
Intercompany payables
Total trade and other payables
G. Bank Borrowings
Amounts falling due within one year:
Unsecured debt
Less: Unamortised finance costs
Bank borrowings per the Company’s statement of financial position
Amounts falling due after more than one year:
Unsecured debt
Less: Unamortised finance costs
Bank borrowings per the Company’s statement of financial position
Total bank borrowings
As at
30 June 2023
£’000
As at
30 June 2022
£’000
9,345
223
–
–
1,844
40,380
163
–
–
658
11,412
41,201
2,235
5,122
114
119,556
127,027
898
525
28
43,152
44,603
As at
30 June 2023
£’000
As at
30 June 2022
£’000
62,090
(234)
61,856
318,508
(2,635)
315,873
377,729
–
–
–
–
–
–
–
Any associated fees in arranging the bank borrowings that are unamortised as at the end of the year are offset against amounts drawn
under the facility as shown in the table above.
Details of the bank borrowings of the Company are disclosed in note 20 to the Group financial statements.
H. Share capital
Details of the share capital of the Company are disclosed in note 22 to the Group financial statements.
I. Related party transactions
Details of related party transactions are disclosed in note 27 to the Group financial statements.
A N N U A L R E P O R T 2 0 2 3 1 4 5
Notes to EPRA and other Key Performance Indicators
1. EPRA Earnings and Adjusted Earnings per Share
For the period from 1 July 2022 to 30 June 2023
Net (loss)/profit attributable to ordinary Shareholders
Adjustments to remove:
Changes in fair value of investment properties and associated rent guarantees
Changes in fair value of interest rate derivatives measured at FVTPL
Profit on disposal of interest rate derivatives
Group share of changes in fair value of joint venture investment properties
Profit on disposal of groups interest in joint venture
Finance income received on interest rate derivatives held at fair value through profit
and loss
EPRA earnings
Add finance income received on interest rate derivatives held at fair value through
profit and loss
Add accelerated finance costs
Add Joint Venture acquisition loan arrangement fee
Adjusted EPRA earnings
1 Based on the weighted average number of ordinary shares in issue in the year ended 30 June 2023.
For the period from 1 July 2021 to 30 June 2022
Net profit
attributable
to ordinary
Shareholders
£’000
Weighted
average number
of ordinary
shares1
Number
Earnings/
per share
Pence
(144,866) 1,242,574,505
(11.7)
256,066
(10,024)
(2,878)
(11,486)
(19,940)
(9,671)
–
–
–
–
–
–
57,201 1,242,574,505
9,671
1,518
4,009
–
–
–
72,399 1,242,574,505
20.6
(0.8)
(0.2)
(0.9)
(1.6)
(0.8)
4.6
0.8
0.1
0.3
5.8
Net profit
attributable
to ordinary
Shareholders
£’000
Weighted
average number
of ordinary
shares2
Number
Earnings/
per share
Pence
Net profit attributable to ordinary Shareholders
115,869
975,233,858
11.9p
Adjustments to remove:
Changes in fair value of interest rate derivatives
Changes in fair value of investment properties and associated rent guarantees
Group share of changes in fair value of joint venture investment properties
Group share of negative goodwill from joint venture investment
EPRA EPS
2 Based on the weighted average number of ordinary shares in issue in the year ended 30 June 2022.
(5,566)
(21,820)
6,021
(37,102)
–
–
–
–
57,402
975,233,858
(0.6p)
(2.2p)
0.6p
(3.8p)
5.9p
2. EPRA NTA per share
EPRA NTA is considered to be the most relevant measure for the Group and is now the primary measure of net assets, replacing the
previously reported EPRA Net Asset Value metric. For the current period EPRA NTA is calculated as net assets per the consolidated
statement of financial position excluding the fair value of interest rate derivatives.
1 4 6 S U P E R M A R K E T I N C O M E R E I T P L C
UNAUDITED SUPPLEMENTARY INFORMATION 30 June 2023
IFRS NAV attributable to ordinary Shareholders
Fair value of Financial asset held at amortised cost
Fair value of interest rate derivatives
Intangibles
Purchasers’ costs
Fair value of debt
EPRA metric
EPRA metric per share
30 June 2022
IFRS NAV attributable to ordinary Shareholders
Fair value of interest rate derivatives
Fair value of Financial asset held at amortised cost
Intangibles
Purchasers’ costs
Fair value of debt
EPRA metric
EPRA metric per share
3. EPRA Net Initial Yield (NIY) and EPRA “topped up” NIY
Investment Property – wholly owned (note 12)
Investment Property – share of joint ventures
Completed Property Portfolio
Allowance for estimated purchasers’ costs
Grossed up completed property portfolio valuation (B)
Annualised passing rental income – wholly owned
Annualised passing rental income – share of joint venture
Annualised non-recoverable property outgoings
Less: contracted rent under rent free periods
Annualised net rents (A)
Rent expiration of rent-free periods and fixed uplifts
Topped up annualised net rents (C)
EPRA NIY (A/B)
EPRA "topped up" NIY (C/B)
All rent free periods expire within the year to 30 June 2024
4. EPRA Vacancy Rate
EPRA Vacancy Rate
Estimated rental value of vacant space
Estimated rental value of the whole portfolio
EPRA Vacancy Rate
EPRA NTA
£’000
EPRA NRV
£’000
EPRA NDV
£’000
1,217,726
1,217,726
1,217,726
(3,609)
(57,583)
–
–
–
(3,609)
(57,583)
–
122,990
–
(3,609)
–
–
–
4,876
1,156,534
1,279,524
1,218,993
93p
103p
98p
EPRA NTA
£’000
EPRA NRV
£’000
EPRA NDV
£’000
1,432,455
1,432,455
1,432,455
(5,114)
(666)
(93)
–
–
(5,114)
(666)
–
113,935
–
(666)
–
–
–
4,320
1,426,582
1,540,610
1,436,109
115p
124p
116p
As at
30 June 2023
£’000
As at
30 June 2022
£’000
1,685,690
–
1,561,590
266,500
1,685,690
1,828,090
122,990
133,380
1,808,680
1,961,470
99,910
–
(1,117)
–
77,230
13,372
(400)
–
98,793
90,202
447
99,240
5.46%
5.49%
56
90,258
4.60%
4.60%
As at
30 June 2023
£’000
As at
30 June 2022
£’000
439
100,797
0.4%
188
77,237
0.2%
The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space as a proportion of the total rental value of the direct Investment Property portfolio.
This is expected to continue to be a highly immaterial percentage as the majority of the portfolio is let to the largest supermarket operators in the UK.
A N N U A L R E P O R T 2 0 2 3 1 4 7
5. EPRA Cost Ratio
Administration expenses per IFRS
Service charge income
Service charge costs
Net Service charge costs
Share of joint venture expenses
Total costs (including direct vacant property costs) (A)
Vacant property costs
Total costs (excluding direct vacant property costs) (B)
Gross rental income per IFRS
Less: service charge components of gross rental income
Add: Share of Gross rental income from Joint Ventures
Gross rental income (C)
EPRA Cost ratio (including direct vacant property costs) (A/C)
EPRA Cost ratio (excluding vacant property costs) (B/C)
1. The Company does not have any overhead costs capitalised as it has no assets under development.
As at
30 June 2023
£’000
As at
30 June 2022
£’000
15,429
13,937
(5,939)
6,518
579
938
(2,086)
2,338
252
95
16,946
14,284
(328)
(99)
16,618
14,185
95,823
–
13,529
109,352
15.50%
15.20%
72,363
–
14,423
86,786
16.46%
16.34%
1 4 8 S U P E R M A R K E T I N C O M E R E I T P L C
UNAUDITED SUPPLEMENTARY INFORMATION CONTINUED 6. EPRA LTV
The Group voluntarily adopted the EPRA issued new best practice reporting guidelines in the year ending 30 June 2023, incorporating
the new measure of loan to value: EPRA Loan-to-Value (EPRA LTV) and is defined as net debt divided by total property market value.
The table below illustrates the reconciliation of the numbers under the new measures, where prior year comparative figures have also
been restated in line with the new EPRA methodology.
Group Net Debt
Borrowings from financial institutions
Net payables
Less: Cash and cash equivalents
Group Net Debt Total (A)
Group Property Value
Investment properties at fair value
Intangibles
Net receivables
Financial assets
Total Group Property Value (B)
Group LTV (A-B)
Share of Joint Ventures Debt
Bond loans
Net payables
JV Net Debt Total (A)
Group Property Value
Owner-occupied property
Investment properties at fair value
Total JV Property Value (B)
JV LTV (A-B)
Combined Net Debt (A)
Combined Property Value (B)
Combined LTV (A-B)
7. EPRA Like-for-Like Rental Growth
Sector
UK
As at
30 June 2023
£’000
As at
30 June 2022
£’000
667,465
–
348,546
24,893
(37,481)
629,984
(51,200)
322,239
1,685,690
1,561,590
–
93,620
10,819
1,790,129
93
–
10,626
1,572,309
35.19%
20.49%
–
–
–
–
–
88,121
822
88,943
277,407
277,407
0.00%
32.06%
629,984
1,790,129
411,182
1,849,717
35.19%
22.23%
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Like-for-Like
rental growth
%
62,688
61,059
2.7%
The like-for-like rental growth is based on changes in net rental income for those properties which have been held for the duration of both the current and
comparative reporting. This represents a portfolio valuation, as assessed by the valuer of £ 1.03 billion (30 June 2022: £1.19 billion).
A N N U A L R E P O R T 2 0 2 3 1 4 9
8. EPRA Property Related Capital Expenditure
Group
Acquisitions
Development
Investment properties
Group Total CapEx
Joint Venture
Acquisitions
Development
Investment properties
Joint Venture CapEx
Total CapEx
As at
30 June 2023
£’000
As at
30 June 2022
£’000
377,311
388,696
377,311
388,696
–
–
–
–
–
–
–
–
377,311
388,696
Acquisitions relate to purchase of investment properties in the year and includes capitalised acquisition costs. There has been no capital expenditure on the
investment properties within the portfolio and no capitalised development expenditure has been incurred in the year or prior year.
9. Total Shareholder Return
Total Shareholder Return
Share price at the 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 year
Total Shareholder Return
Year to
30 June 2023
Pence per share
(‘p’)
Year to
30 June 2022
Pence per share
(‘p’)
119.50
73.00
(46.50)
6.00
(40.50)
117.50
119.50
2.00
5.94
7.94
119.50
117.50
(34%)
7%
10. Net loan to value ratio
The proportion of our gross asset value that is funded by borrowings calculated as statement of financial position borrowings less
cash balances divided by total investment properties valuation.
Net loan to value
Bank borrowings
Less cash and cash equivalents
Net borrowings
Investment properties valuation
Net loan to value ratio
11. Annualised passing rent
Annualised passing rent is the annualised cash rental income being received as at the stated date.
As at
30 June 2023
£’000
As at
30 June 2022
£’000
667,465
(37,481)
348,546
(51,200)
629,984
1,685,690
297,346
1,561,590
37%
19%
1 5 0 S U P E R M A R K E T I N C O M E R E I T P L C
UNAUDITED SUPPLEMENTARY INFORMATION CONTINUED
AGM
AIFMD
Annual General Meeting
Alternative Investment Fund Managers Directive
Direct Portfolio
Wholly Owned Properties held by the Group
EPRA
EPS
FRI
IFRS
IPO
LTV
NAV
European Public Real Estate Association
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
UK adopted accounting standards in conformity with the requirements of the
Companies Act 2006
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
REIT
Running yield
Stores offering both instore picking and online fulfilment
Real Estate Investment Trust
The anticipated Net Initial Yield at a future date, taking account of any rent reviews in the
intervening period
Sainsbury’s Reversion Portfolio (SRP) A portfolio consisting of the freehold interest in 26 geographically diverse high-quality
Sainsbury’s supermarkets
Total Shareholder Return (TSR)
The movement in share price over a period plus dividends declared for the same period
expressed as a percentage of the share price at the start of the Period
WAULT
Weighted Average Unexpired Lease Term. It is used by property companies as an indicator of
the average remaining life of the leases within their portfolios
A N N U A L R E P O R T 2 0 2 3 1 5 1
GLOSSARY CONTACTS INFORMATION
Directors
Company Secretary
Registrar
AIFM
Investment Adviser
Financial adviser,
Joint Corporate Broker and
Placing Agent
Joint Corporate Broker
Auditors
Property Valuers
Financial PR Advisers
Website
Registered Office
Stock exchange ticker ISIN
Nick Hewson (Non-Executive Chair)
Vince Prior (Chair of Nomination Committee & Senior Independent Director)
Jon Austen (Chair of Audit Committee)
Cathryn Vanderspar (Chair of Remuneration Committee)
Frances Davies (Chair of ESG Committee)
Sapna Shah (Chair of Management Engagement Committee)
Hanway Advisory
1 King William Street,
London, EC4N 7AF
Link Asset Services
The Registry,
34 Beckenham Road,
Beckenham,
Kent, BR3 4TU
JTC Global AIFM Solutions Limited
Ground floor, Dorey Court,
Admiral Park,
St Peter Port,
Guernsey,
Channel Islands,
GY1 2HT
Atrato Capital Limited
36 Queen Street,
London,
EC4R 1BN
Stifel Nicolaus Europe Limited
150 Cheapside,
London,
EC2V 6ET
Goldman Sachs International
Plumtree Court,
25 Shoe Lane,
London,
EC4A 4AU
BDO LLP
55 Baker Street,
London,
W1U 7EU
Cushman & Wakefield
125 Old Broad Street,
London,
EC2N 1AR
FTI
200 Aldersgate Street,
London,
EC1A 4HD
www.supermarketincomereit.com
1 King William Street,
London,
United Kingdom,
EC4N 7AF
SUPR
GB00BF345X11
This report will be available on the Company’s website.
1 5 2 S U P E R M A R K E T I N C O M E R E I T P L C
SUPERMARKET INCOME REIT | ANNUAL REPORT 2023
Who we are | Supermarket Income REIT plc (LSE: SUPR) is dedicated
to investing in supermarket property forming a key part of the future
model of UK grocery.
FEEDING THE UK
SUPR invests in grocery properties which are an essential part of
the UK’s feed the nation infrastructure and are mission critical to the
operations of the UK’s leading grocers.
CONTENTS
Investment Adviser’s Report
Financial Highlights
SUPR at a glance
STRATEGIC REPORT
1 Highlights for the year
2 Chair’s Statement
4
6
12 Q&A with Justin King CBE
15
22 The Company’s Portfolio
26 The UK Grocery Market
29 Key Performance Indicators
30 EPRA Performance Indicators
31 Financial Overview
35 TCFD Compliant Report
51 Our Principal Risks
61 Section 172(1) Statement
FINANCIAL STATEMENTS
97
Independent Auditors’ Report to the
members of Supermarket Income
REIT PLC
106 Consolidated Financial Statements
110 Notes to the Consolidated
Financial Statements
142 Company Financial Statements
144 Notes to the Company
Financial Statements
146 Unaudited Supplementary Information
151 Glossary
152 Contacts Information
CORPORATE GOVERNANCE
62 Our Key Stakeholder Relationships
65 Chair’s Letter on Corporate Governance
66 The Board of Directors
68 The Investment Adviser
70 Leadership and Purpose
74 Board Activities during the year
Key Decisions of the Board
75
during the year
76 Corporate Governance Statement
78 Nomination Committee Report
81 Audit and Risk Committee Report
Management Engagement
85
Committee Report
87 ESG Committee Report
88 Remuneration Committee Report
92 Directors’ Report
94 Directors’ Responsibilities Statement
95
Alternative Investment Fund
Manager’s Report
Design and production: theteam.co.uk
Print: Westerham Print
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INVESTING
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FUTURE
OF UK
GROCERY
Supermarket Income REIT plc
1 King William Street,
London,
United Kingdom,
EC4N 7AF
www.supermarketincomereit.com
ANNUAL REPORT 2023