Supermarket Income REIT plc
The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
www.supermarketincomereit.com
ANNUAL REPORT 2022
SUPERMARKET INCOME REIT PLC | ANNUAL REPORT 2022
‘Investing in the future of UK
grocery’
INVESTING
IN THE
FUTURE
OF UK
GROCERY
Design and production: theteam.co.uk
Print: Westerham Print
CONTENTS
STRATEGIC REPORT
1 Highlights for the year
2 Chairman’s Statement
3 Financial Highlights
4 SUPR at a glance
10 Q&A with Justin King CBE
12 Investment Adviser’s Report
17 The Company’s Portfolio
20 The UK Grocery Market
23 Key Performance Indicators
24 EPRA Performance Indicators
25 Financial Overview
28 Sustainability and TCFD Aligned Report
34 Our Principal Risks
41 Section 172(1) Statement
CORPORATE GOVERNANCE
42 The Board of Directors
43 The Investment Adviser
44 Chairman’s Letter on
Corporate Governance
45 Our Key Stakeholder Relationships
49 Leadership and Purpose
52 Board Activities During the Year
53 Key Decisions of the Board
During the Year
54 Corporate Governance Statement
56 Nomination Committee Report
59 Audit and Risk Committee Report
62 Directors’ Remuneration Report
66 Directors’ Report
69 Directors’ Responsibilities Statement
70 Alternative Investment Fund
Manager’s Report
72 Independent Auditors’ Report to the
members of Supermarket Income
REIT PLC
FINANCIAL STATEMENTS
78 Consolidated Statements
82 Notes to the Consolidated Financial
Statements
108 Company Financial Statements
110 Notes to the Company Financial
Statements
112 Unaudited Supplementary Information
116 Glossary
117 Contacts Information
A YEAR OF
GROWTH
SUPERMARKET INCOME REIT | ANNUAL REPORT 2022
ANNUAL REPORT 2022 1
STRATEGIC REPORT | HIGHLIGHTS FOR THE YEAR
WE AIM | TO PROVIDE INVESTORS WITH LONG-DATED,
SECURE, INFLATION-LINKED INCOME WITH CAPITAL
APPRECIATION POTENTIAL OVER THE LONGER TERM.
7
%
TOTAL
SHAREHOLDER
RETURN
FY21 – 11%
15yrs
PORTFOLIO WAULT
FY21 – 15YRS
5.94p
DIVIDEND
PER SHARE
FY21 – 5.86P
115p
EPRA NTA
PER SHARE
FY21 – 108P
5.9p
EPRA EPS
FY21 – 5.6P
19
%
NET LTV DIRECT
PORTFOLIO
FY21 – 34%
0
1
2
3
4
5
6
21 22201918
DIVIDEND PAID
PER SHARE
(pence)
0
10
20
30
40
50
60
70
80
21 22201918
NET RENTAL
INCOME
(£m)
0
300
600
900
1200
1500
21 22201918
TOTAL NET
ASSETS
(£m)
0
20
40
60
80
100
120
21 22201918
NTA PER SHARE
(pence)
0
10
20
30
40
50
21 22201918
CUMULATIVE TOTAL
SHAREHOLDER
RETURN (%)
2 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | CHAIRMAN’S STATEMENT
“ THIS HAS BEEN ANOTHER SIGNIFICANT
YEAR OF GROWTH AND ONE IN WHICH WE
ACHIEVED THE IMPORTANT MILESTONES OF
BEING ADDED TO THE PREMIUM SEGMENT
OF THE LONDON STOCK EXCHANGE AND
THE FTSE 250 INDEX”
Dear Shareholder,
I am very pleased to report another year of solid performance
by the Group, one in which we have delivered a 7% Total
Shareholder Return and a cumulative total return of 48% since our
IPO in 2017. The Company has grown its total NTA to £1.4 billion,
a 64% increase on the previous year, and has grown its portfolio of
handpicked supermarket assets to £1.75 billion
1
. We are now the
largest landlord of supermarkets in the UK and our investment
strategy of acquiring top trading omnichannel supermarkets
continues to deliver growth for our shareholders against a
challenging macroeconomic and geopolitical backdrop. During
the year we also achieved a significant milestone for the business,
being admitted to the Premium Segment of the London Stock
Exchange, which due to our size, resulted in us becoming a
constituent of the FTSE 250 as well as gaining membership of the
FTSE EPRA/NAREIT indices. Inclusion in these indices increases
liquidity in the shares and broadens our potential investor base.
The Company continues to benefit from access to capital and this
financial year raised over £500 million through two highly successful,
oversubscribed equity issuances. Post year-end the Company also
arranged a new £412.1 million unsecured credit facility. We are
delighted with the level of financing support, reaffirming the
resilient nature and defensive characteristics of the grocery sector,
particularly given the challenges facing the global economy.
The combination of inflation and sector volume growth has seen
turnover at store level growing ahead of rents. Our estimated
average rent to turnover across the portfolio is now less than
4% meaning that rents are becoming ever more affordable for
our tenants. This combination of sustainable rental growth and
continued investment demand has driven growth in capital values
for our portfolio. As a result, EPRA NTA has increased 6% in the
year to 115 pence per share (2021: 108 pence per share) with net
initial yields remaining resilient despite the challenging backdrop
for the broader real estate market.
Our business model has inflation protection at its core, with over
80% of our rent reviews being inflation-linked. However, rising
interest rates have had a negative impact on earnings due to
higher borrowing costs. In the financial year SONIA rates
increased from 0.05% to 1.7% today. The business is partially
protected from these cost pressures both through its inflation-
linked income and its interest rate hedging policies. Additionally,
the Company’s borrowings are also well diversified across lenders
and maturities. After the balance sheet date, the Company took
the decision to fix its interest rate exposure by entering into new
interest rate swaps. 100% of the Company’s drawn debt is now
hedged and has an effective fixed borrowing cost of 2.6%.
Despite the increase in finance costs, the Company still achieved
an EPRA Dividend Cover Ratio of 1.08x during the year.
Post balance sheet, the Company has also agreed a purchase
price for the 21 stores in the JV portfolio which Sainsbury’s had
exercised an option to acquire. In addition Sainsbury’s agreed
new leases on four of the remaining stores. Combined, this is
estimated to increase the value of our investment in the JV to
£190 million, or a 1.7 times return on purchase cost.
Environment, Social and Governance (“ESG”) remains a key
priority for us. During the year our Investment Adviser recruited
a Head of Sustainability to advance and accelerate our ESG
ambitions. We have become supporters of the Task Force on
Climate-related Financial Disclosures (“TCFD”) and signatories
of the UN Principles for Responsible Investment (“UN PRI”).
In addition, we have defined and published an equivalent tonnes
of CO
2
figure for the Company as part of our commitment to
transparency and environmental stewardship and have now
embarked on a benchmarking process to look for opportunities
to improve further the sustainability of our sites.
We are also delighted to welcome Frances Davies to the Board.
Frances brings a wealth of experience in corporate finance, asset
management and relevant board roles. Frances has agreed to
chair a new committee of the Board that we have established
to deal specifically with sustainability.
We have historically increased our dividend in line with our
annualised rental growth, increasing the dividend from 5.5 pence
per share at IPO to 5.94 pence per share in 2022. Whilst our
annualised contractual rental growth for this year was 1.8% we
recognise the current market uncertainty, especially around interest
rates, and we are therefore targeting a more conservative increase
in the dividend for the next financial year to 6.0 pence per share.
Outlook
While the impact of COVID lockdowns has receded this year,
we are nevertheless faced with another set of macroeconomic
headwinds in the form of higher interest rates, geopolitical
uncertainty and a possible recessionary environment for the UK.
At the same time, our long-dated, substantially inflation linked
leases
2
, together with our strong tenant covenants operating in a
non-discretionary spend sector, positions us well as a business and
we stand ready to take advantage of opportunities which may arise.
Nick Hewson
Chairman
20 September 2022
Nick Hewson Chairman
1 Includes the Company’s investment in the Sainsbury’s Reversion Portfolio
2 Inflation linked leases are subject to annual floors and caps
ANNUAL REPORT 2022 3
STRATEGIC REPORT | FINANCIAL HIGHLIGHTS
3 The alternative performance measures used by the Group have been
defined and reconciled to the IFRS financial statements within the
unaudited supplementary information
4 Calculated as EPRA earnings divided by dividends paid during the year
5 Includes the Q4 2022 interim dividend paid on 22 August 2022
6 Includes property acquisition recognised as financial asset at amortised
cost under IFRS
7 Includes property acquisition recognised as financial asset at amortised
cost under IFRS
8 Inclusive of uncommitted accordion options
12 months to 12 months to
30-June-22 30-June-21 Change in Year
Annualised passing rent
3
£77.6m £57.8m +34%
EPRA Earnings
3
£57.4m £36.8m +56%
Profit before tax £110.3m £82.0m +35%
Dividend per share declared 5.94 pence 5.86 pence +1%
IFRS EPS 11.3 pence 12.6 pence -10%
EPRA EPS
3
5.9 pence 5.6 pence +5%
EPRA dividend cover
3
1.08x
4
1.04x n/a
IFRS net assets £1,432m £871m +64%
EPRA NTA
3
£1,427m £872m +64%
EPRA NTA per share
3
115 pence 108 pence +6%
Net loan to value (Direct Portfolio)
3
19.0% 34.0% n/a
Direct Portfolio net initial yield
3
4.6% 4.7% n/a
Financial Highlights
• 7% Total Shareholder Return for the Year
• 48% Total Shareholder Return since IPO in 2017
5
,
a 9.7% annualised Total Shareholder Return
• EPRA NTA per share increased by 7 pence in the Year to
115 pence, a 6% increase
• Direct Portfolio
6
independently valued at £1.57 billion,
increasing by £423.2 million
– Net initial yield (“NIY”) of 4.6%
– Weighted average unexpired lease term (“WAULT”)
of 15 years
– Annualised passing rent increased by 34% to £77.6 million
– 81% of leases are inflation-linked
– 3.7% rental growth on a like-for-like basis
• Net loan to value (“LTV”) ratio of 19.0% as at 30 June 2022
• 100% of total rent collected during the year
Business Highlights
• Further portfolio growth through deployment of
£506.7 million of equity raised via two upsized and over-
subscribed issuances of new ordinary shares leading to:
– Admission to the Official List of the FCA and to the
Premium Segment of the London Stock Exchange plc’s
Main Market
– Inclusion in the FTSE 250 and FTSE EPRA/NAREIT
Global Real Estate Index Series
• Acquisition of 12 supermarkets for an aggregate purchase price
of £381.0 million (excluding acquisition costs) at a blended net
initial yield of 4.5% and blended WAULT of 19 years
7
• Value of investment in the Sainsbury’s Reversion Portfolio
increased by £46.8 million to £177.1 million, predominantly
due the exercise of purchase options by Sainsbury’s
• Fitch Ratings Limited (“Fitch”) assigned an Investment
Grade credit rating of BBB+ to the Company
Post Balance Sheet Highlights
• Purchase of five further assets for £216.1 million (excluding
acquisition costs) at a blended NIY of 5.1%
• £412.1 million unsecured bank credit facility agreed at a
margin of 1.5% over SONIA and a weighted average term
of 6 years
8
• FY 2023 dividend target increased by 1% to 6 pence per share
• Entered into interest rate swaps, hedging the Company’s
£381 million drawn unsecured debt
– Weighted average fixed rate of 2.8% (including margin)
over an average term of 4 years
– 100% of drawn debt now hedged at an effective fixed rate
of 2.6% (including margin)
– The cost of new hedging instruments were £35.3 million
which will immediately impact EPRA NTA by 2.8 pence
per share
• Agreement with Sainsbury’s on the Joint Venture Reversion
Portfolio
– £1,040 million sales price agreed on 21 option stores
– New 15 year leases agreed on four stores
– Increases joint venture investment value to estimated
£190 million
NICK HEWSON, CHAIRMAN OF SUPERMARKET INCOME
REIT PLC, COMMENTED:
“ I am pleased to be reporting another set of strong full year
results for the Company. This has been another significant
year of growth and one in which we achieved the important
milestones of being added to the Premium Segment of the
London Stock Exchange and the FTSE 250 index.
During the year, our Direct Portfolio has benefitted from
a 3.7% like-for-like increase in valuation delivering a 6%
increase in EPRA NTA to 115 pence per share as at 30 June
2022. Since our IPO in 2017, we have delivered a 48% Total
Shareholder Return.
At a time of considerable unpredictability and uncertainty
especially for our economy, we believe our portfolio of
targeted, sector specific real estate assets will continue
to deliver stable, long-term, and growing income to our
shareholders.”
4 SUPERMARKET INCOME REIT PLC
OMNICHANNEL | THE FUTURE MODEL OF GROCERY
– OVER 80% OF ONLINE GROCERY IN THE UK IS
FULFILLED FROM OMNICHANNEL SUPERMARKETS.
THE SEAMLESS INTEGRATION BETWEEN ONLINE AND OFFLINE
FULFILMENT PROVIDES OUR TENANTS WITH ECONOMIES OF
SCALE AND OPERATIONAL EFFICIENCIES.
STRATEGIC REPORT | SUPR AT A GLANCE
CONSUMERS
OMNICHANNEL
SUPERMARKET
TRADITIONAL
IN-STORE
HOME DELIVERY
FROM STORE
CLICK & COLLECT
AT STORE
4 SUPERMARKET INCOME REIT PLC
OMNICHANN EL AT WORK
ANNUAL REPORT 2022 5 ANNUAL REPORT 2022 5
OMNICHANN EL AT WORK
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 INSTORE PHYSICAL SALES.
* Including post balance sheet acquisitions
DIRECT PORTFOLIO*
Tesco
Sainsbury’s
Waitrose
Morrisons
Aldi
M&S
Asda
Income mix by
rent review type*
RPI 73.2%
CPI 7.7%
FIXED 2.4%
OMV 16.8%
81%
OF THE DIRECT
PORTFOLIO BENEFITS
FROM UPWARD ONLY,
INDEXED-LINKED
RENT REVIEWS*
6 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | SUPR AT A GLANCE
HEADLINE STRATEGY | WE ACQUIRE SUPERMARKET PROPERTY
WITH LONG, INFLATION LINKED LEASES AND AIM TO PROVIDE
INVESTORS WITH A LONG-TERM AND SECURE INCOME STREAM
WHICH IS EXPECTED TO GROW WITH INFLATION.
6 SUPERMARKET INCOME REIT PLC
WITH HIGHLY ATTRACTIVE LEASE TERMS:
TENANTS
ARE UK’S
LEADING
GROCERS
INFLATION-
LINKED
RENT
REVIEWS
LONG
LEASE
LENGTHS
DELIVERING STABLE, LONG-TERM AND
GROWING INCOME TO SHAREHOLDERS:
6.0p
TARGET
DIVIDEND FY 23
7%
TOTAL SHAREHOLDER
RETURN FY 22
5.94p
DIVIDEND PAID FY 22
WE INVEST PRIMARILY IN OMNICHANNEL SUPERMARKETS:
TRADITIONAL
IN-STORE
CLICK &
COLLECT
AT STORE
HOME
DELIVERY
FROM STORE
INVESTING IN THE FUTURE
OF UK G ROCERY
ANNUAL REPORT 2022 7
Washington, Sainsbury’s
This store provided a rare opportunity
to acquire a strong trading Sainsbury’s
supermarket with a 35 year unexpired
lease term and attractive lease
fundamentals. The store has a significant
omnichannel operation forming a key part
of Sainsbury’s online network in the region.
Read more on page 15
1
Prescot, Tesco,
The store has a large omnichannel
operation supporting 12 delivery
vans which form part of Tesco’s
online grocery network in the region.
Read more on page 16
2
Liverpool, Aldi and M&S
The co-located neighbourhood
scheme provides a complementary
retail provision with a high degree
of cross-shopping between the
two stores.
Read more on page 19
3
OUR STRATEGY AT WORK | WE HAVE HAND PICKED A UNIQUE
PORTFOLIO OF SUPERMARKETS WITH ATTRACTIVE TRADING
FUNDAMENTS. WE ARE NOW THE LARGEST LANDLORD OF
SUPERMARKETS IN THE UK AND OUR INVESTMENT STRATEGY
OF ACQUIRING TOP TRADING OMNICHANNEL SUPERMARKETS
CONTINUES TO DELIVER GROWTH FOR OUR SHAREHOLDERS.
ANNUAL REPORT 2022 7
INVESTING IN THE FUTURE
OF UK G ROCERY
8 SUPERMARKET INCOME REIT PLC
OUR SUSTAINABILITY ACTIVITY:
INCREASED
DIVERSITY
OF BOARD
TCFD ALIGNED
ANNUAL REPORT
ESTABLISHED
ESG COMMITTEE
JOINED UN
PRINCIPLES FOR
RESPONSIBLE
INVESTING
NEW HEAD OF
SUSTAINABILITY
AT INVESTMENT
ADVISER
OUR SUSTAINABILITY JOURNEY | ENVIRONMENT, SOCIAL AND
GOVERNANCE (ESG) IS A KEY PRIORITY. THE BOARD HAS COMMITTED
TO THE IMPLEMENTATION OF A WIDER ESG STRATEGY ENGAGING
EXTERNAL CONSULTANTS AND IN PARTICULAR, THE CREATION OF
A NEW ESG COMMITTEE.
STRATEGIC REPORT | SUPR AT A GLANCE
8 SUPERMARKET INCOME REIT PLC
AWARD WINNING GOVERNANCE:
2019 2020 2021 2022
OUR SUSTAINAB ILITY ACTIVITY
ANNUAL REPORT 2022 9
ALDI:
CARBON
NEUTRAL SINCE
JANUARY 2019
MORRISONS,
SAINSBURY’S,
TESCO,
WAITROSE:
NET ZERO
BY 2035
ASDA, M&S:
NET ZERO
BY 2040
AMBITIOUS NET ZERO TARGETS:
81%
DIRECT
SUPERMARKET
PORTFOLIO EPC
RATED C OR
ABOVE*
+11%
INCREASE
IN EPCS A-C
SINCE JUNE 21
IMPROVING SUSTAINABILITY WITH OUR TENANTS:
ANNUAL REPORT 2022 9
REPORTING AND REDUCING CARBON EMISSIONS:
EV CHARGING
INITIATIVE
ANNUAL
REPORT TCFD
ALIGNED
ANNUAL
CALCULATION
OF BASELINE
EMISSIONS
SOLAR PV
ENERGY
GENERATION
INITIATIVE
OUR SUSTAINAB ILITY ACTIVITY
* Including post balance sheet acquisitions
Justin King CBE Senior Adviser
STRATEGIC REPORT | Q&A WITH JUSTIN KING CBE
A conversation with Justin King CBE about the future of the UK grocery sector
Justin King is a senior adviser to Atrato Capital, the Group’s
Investment Adviser. 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 and Asda. He is currently
Non-Executive Director of Marks & Spencer and advises a
series of high-profile consumer-focused companies.
Justin is an advocate for responsible business, has been
instrumental in launching a number of charitable concerns
and also chairs 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: Consumers are facing unprecedented increases
in the cost of living. What can supermarket
operators do to support customers in this current
cost of living crisis?
Well firstly, supermarket operators’ primary role is to
represent their customers in the supply chain. In the current
market that means challenging food manufacturers and
producers on the basis of any price inflation to keep price
rises in check. We see evidence of that with the recent, and
much publicised, row between Tesco and Heinz on the price
of a tin of beans. The retailers are rightly challenging price
rises through tough negotiation with the supply base.
Secondly, operators need to do what they can on their own
cost structure and pass those savings through to consumers
through lower prices. The operators’ ability to limit price
rises is less than many people think, as the sector’s
competitiveness already drives low margins and high
operational efficiencies.
The third aspect operators can change is their product
lines on the shelves. Facilitating customers’ switch from
expensive calories to less expensive calories could actually
be their most impactful contribution. Think of it as giving
the customer the ability to achieve a cut in their pence per
calorie consumed. 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: Looking forward, can we expect operator
profit margins to suffer as customers switch to less
profitable value ranges?
Not necessarily, you need to remember that in a recession
the first change the customer will make is a shift away
from expensive calories and the most expensive are those
consumed out of the home in restaurants and takeaways.
Rarely will a customer’s total calorie consumption change
through the economic cycle, instead what you observe is a
shift in the discretionary additional spend of their calorie
consumption from eating out, to eating in. In a recession,
that favours the supermarket. So, the net impact of a
customer shifting towards perhaps lower margin value
range is often offset via an increase in overall volumes
across all price ranges.
Q: Is there a risk those mechanics are
changing given the growth of the German
discounters in the UK?
It’s worth remembering that the presence of discounters
in the UK grocery market is not new, nor is their business
model. Aldi and Lidl have opened stores and gained
significant market share in recent years, however previous
discounter brands such as Netto (acquired by Asda)
and KwikSave (acquired in-part by Co-Op) have all but
disappeared. The current market share of Aldi and Lidl is
(16%) which is actually the ‘normal’ market share for the UK
grocery discounter channel as far back as the early ‘90s.
In terms of growth, there is no doubt that Aldi and Lidl have
been highly successful in opening smaller format stores
and capturing market share quickly. Combined over the
last five years, they’ve opened around 500 stores, hence the
headlines on growth in sales and market share. In addition,
the discounters have seen dramatic sales increases in
more recent months, bringing more and more customers
through their doors as the pressure of rising costs mounts
and consumers look to greater value ranges to cut costs.
According to data from Kantar, in the four weeks to
4 September 2022 Aldi exceeded Morrisons in becoming
the fourth largest grocer in the UK.
“ IN A POST PANDEMIC ERA, THE
CUSTOMER REQUIRES SEAMLESS
INTEGRATION BETWEEN ONLINE
AND OFFLINE CHANNELS. THE
GROWING INVESTMENT IN THE
PURSUIT OF OMNICHANNEL STORES
IS A SIGNIFICANT DEVELOPMENT
WITHIN THE GROCERY INDUSTRY”
10 SUPERMARKET INCOME REIT PLC
ANNUAL REPORT 2022 11
However, if we look at Aldi and Lidl’s current UK market
share it’s still significantly less than their market share
in Europe and I think this illustrates just how effective
the UK grocers have been in competing on price with
their own value product range. It’s also worth noting that
we cannot look at this in isolation. While the discounter
growth is capturing the headlines, in my view the traditional
grocers are rightly focused on capitalising on the online
and convenience growth opportunity. Over the last three
years, the online channel has grown significantly and the
traditional grocers have been highly successful in capturing
this growth channel, already controlling over 80% of the
online market. Remember most of these online customers
are also physically shopping in their supermarkets too!
Q: Online demand has declined over the last 12
months, does this worry you given the online capex
investment we have seen in the last few years?
We are experiencing a post-COVID-19 normalisation of
consumer shopping patterns as people return to shopping in
stores. The data points to a reduction in online grocery’s
market share from its high point of above 15% during the
height of the pandemic and national lockdown, to its
current post pandemic level of around 12%.
The online channel’s current market share of 12%,
or £22 billion, is up around 80% compared to its pre-COVID
level. That makes online the fastest growing channel in
the UK. I believe this trend will continue, underpinned by
the structural change in working habits towards more work
from home. Working people are at home more often which
means they don’t have to rely on those scarce evening
or weekend online delivery slots to get their
groceries delivered.
The improvements in omnichannel profitability from this
growth are impressive. Economies of scale drive profitability
with both delivery densities and item pick rates per hour
well above pre-pandemic levels. In my view, productivity and
profitability will continue to improve. What this does show is
the importance, flexibility and resilience of the omnichannel
store pick model. The store pick model facilitated a doubling
of online capacity in the height of the pandemic and allowed
the traditional Big Four (Tesco, Sainsbury’s, Asda,
Morrisons) grocers to capture market share and dominate
that channel. As online demand falls back post pandemic,
that capacity is being scaled back at relatively little cost.
In contrast, pure play online operators that rely on heavily
automated warehouses faced capacity constraints during
COVID induced sharp market upturns. The pure play online
operators lost market share to omnichannel operators who
were able to rapidly flex their in-store fulfilment.
I have always believed one should think about customer,
not channel. In a post-pandemic era, the customer requires
seamless integration between online and offline channels.
The growing investment in the pursuit of omnichannel
stores is a significant development within the grocery
industry and empowers the grocer to be truly blind to
channel. The grocers are best advised to be focused purely
on the customer and agnostic to whether the sale takes
place via the front of the store through physical sales or
the back of the store via an online sale.
Q: Given the recent record years for inward
investment into both grocery operators and
supermarket property, do you think the uncertain
economic environment will impact investment
volumes and returns from supermarket property?
During a period of macro-economic uncertainty, the grocery
sector has been a stand-out positive performer. When you
examine supermarket property investment performance
trends over the last 15 years you see the strength and
stability of this asset class.
I have always said that there is no greater retail business
proposition than a large, grocery-led supermarket with
fresh food at its heart, in the right location. Supermarkets
generate significant cash flow and are the core
infrastructure of how and where consumers shop.
Supermarkets represent resilient investments, generally
avoiding the volatile peaks and troughs of the economic
cycle. Investors looking for property assets that offer
consistent returns and low volatility have increasingly
targeted the supermarket property sector.
Having said that, not all supermarket property is equal
and specialists like the Atrato Capital team are essential
to ensure the right asset selection for the long term.
12 SUPERMARKET INCOME REIT PLC12 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT
Ben Green Principal of Atrato Capital Robert Abraham Managing Director
Fund Management
INVESTMENT ADVISER’S INTERVIEW | Atrato Capital Limited is the Investment Adviser to Supermarket
Income REIT (“SUPR”). Ben Green (Principal of Atrato Capital) and Robert Abraham (Managing Director,
Fund Management) answer questions on SUPR’s performance and the long-term outlook for the business.
Q: Summarise the key achievements and
milestones in the year for SUPR?
Ben:
This has been a transformative year for SUPR.
In February 2022 the Company migrated its listing to the
Premium Segment of the London Stock Exchange and
subsequently joined the FTSE 250 and FTSE EPRA NAREIT
indices. This is a significant milestone for the Company
which will bring a number of benefits to shareholders and
reflects how far we have come in a relatively short time.
During the year, we raised over £500 million of equity
through two significantly over-subscribed equity issues.
In addition, Fitch Ratings assigned an Investment Grade
credit rating of BBB+ to the Company in February.
Following this, in July 2022 we announced a new £412.1
million unsecured credit facility. This is the first time
the Company has accessed unsecured debt financing
providing greater flexibility to manage our portfolio
and optimise our capital structure.
The Company now has exposure to 75 UK supermarkets
with a total portfolio value of £2.0 billion and has become
the UK’s largest landlord of omnichannel stores. We are
delivering on our investment strategy of targeting
handpicked, top performing, omnichannel supermarkets,
providing long dated, inflation linked income. The Company’s
carefully selected Portfolio is unique, acquired during the
rapid growth of omnichannel shopping in the space, and is
impossible to replicate.
The market has recognised the success of the investment
model as the Company has outperformed the FTSE All Share
over the period since IPO.
Q: What has this growth done to the profile
of the portfolio?
Rob:
As our Portfolio continues to grow, we benefit from
economies of scale and increased diversification by both
geography and tenant, which is further reinforced by seeking
to achieve representation of the key UK grocery market
participants within the Portfolio.
Including post balance sheet acquisitions, we have deployed
a total of £597.1 million into 19 carefully selected stores at
an accretive blended net initial yield of 4.8%. This has been
accretive to both the quality and geographic diversification of
the Portfolio. We have also been able to maintain the WAULT
at 15 years.
We were pleased to add our first two Asda stores and we
acquired five additional high-quality smaller format stores
including two stores occupied by Aldi in the discounter space
and three M&S Foodhalls as premium range operators.
All our investments go through a rigorous financial, property,
ESG and performance due diligence assessment. A good
example is the top trading Cwmbran, Asda acquired in January
2022 which was a fantastic addition to the Portfolio having a
lease length of 10 years, representing the most dominant store
in the town with strong trading performance and benefiting
from a substantial investment programme by Asda to expand
its home delivery operation from the store.
Our investment strategy is to buy the best performing
supermarkets in the UK and in some cases we will acquire
non-grocery units which are on the same site as the
supermarket. These are complementary to the grocery offering
and often drive greater footfall. We sometimes acquire
additional non-grocery units in order to control the overall site.
As at 30 June 2022 our non-grocery assets accounted for less
than 10% of our Direct Portfolio by value and by rent.
ANNUAL REPORT 2022 13
Q: What is an omnichannel store and why
the focus on omnichannel assets?
Ben:
We have always seen omnichannel stores as the
future model of UK grocery. The pandemic demonstrated
that omnichannel stores are the optimal method of online
fulfilment due to their proximity to consumers. This reduces
delivery time and cost.
Omnichannel is the dominant model for last-mile grocery
fulfilment. Over 80% of all online orders are now fulfilled
from omnichannel supermarkets. These stores are critical
to the operations of the UK’s leading grocers and to the
country as feed the nation infrastructure.
The seamless integration between online and offline
fulfilment provides our tenants with economies of scale
and operational efficiencies. Together with the growing
profitability of online operations, this model is empowering
operators to be truly agnostic to channel. The global themes
of consumers demanding more choice, more quality, faster
fulfilment and all at lower prices, results in omnichannel
supermarkets being ideally placed to serve these desires
whether online or physical.
There is not expected to be a return to historic working
patterns. Greater home working leads to a bigger household
spend on grocery and a larger penetration of online grocery.
We estimate that this combination of enlarged market size
and growing online penetration is driving like-for-like sales
growth of over 13% for omnichannel stores. This makes
omnichannel the fastest growing format in UK grocery and
highly resilient as an asset class.
Q: What impact is inflation having on your
investment portfolio?
Rob:
Our rental income has in-built protection through
the attractive terms of our leases.
All rents are upwards only at the point of review.
We have a mix of review types, with 81% of our reviews
linked to inflation. Consequently, these leases provide a
natural inflation hedge and enable our income to grow in
line with inflation (subject to caps and floors on the reviews).
On a like for like basis, the annualised increase in the
Company’s rental income was 3.7% with most of this rental
growth also captured in our portfolio valuation. During the
year, like-for-like value growth was also up 3.7%, increasing
our Direct Portfolio valuation by £42 million and increasing
our EPRA NTA by 6% to 115 pence per ordinary share as at
30 June 2022. Therefore, the benefits of inflation linked
growth in our rents flow through to both EPRA earnings
and EPRA NTA.
It is common for property leases with inflation linked rent
reviews to be subject to annual caps. Across our Direct
Portfolio our average inflation linked rent review cap is
currently 4%. We are, of course, seeing grocery inflation
above this 4% cap. As such the turnover of our stores is also
growing ahead of rents making our leases more affordable
as a proportion of store turnover. The estimated average
rent to turnover in the Company’s Portfolio is now 3.9%
against an industry benchmark of 4%.
We have strategically increased the proportion of stores in
the Portfolio with open market rent reviews (“OMV”) to 12%
by rental income. OMV rent reviews are typically uncapped
and determined based on market rents in the local area.
With the high growth in grocery revenues, we see value in
these leases given the potential for uncapped future rental
growth in a highly inflationary environment.
FTSE All-Share vs The Company
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14 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
Q: What is the impact from the higher
interest rate environment?
Ben:
The Company has historically hedged its interest rate
risk on annualised borrowings through either fixed rate debt
or fixing variable rates using financial derivatives. At year
end, 60% of the Company’s drawn debt was hedged. After
the balance sheet date, the Company took the decision to fix
its interest rate exposure by entering into new interest rate
swaps. 100% of the Company’s drawn debt is now hedged
and has an effective fixed rate borrowing of 2.6%. We believe
this was a prudent and proactive decision which essentially
de-risks the Company’s interest rate exposure ahead of a
period of extreme uncertainty.
Q: Will you have to invest significant capital into
your existing assets to meet higher environmental
standards?
Ben:
The short answer is “no”. We are well placed in
this regard.
Firstly, our tenants all have genuine and ambitious
commitments to net zero, which means that they have
investment programmes across both freehold and leasehold
stores, for instance rolling out energy efficient lighting
and refrigeration.
Secondly, we own mission critical real estate so whether
a supermarket operator achieves a physical sale or online,
it all goes through the store networks. That means the
operators are continually investing in our stores to keep
them modern and improve the shopping experience,
that also helps to improve energy efficiency.
We have a number of examples of stores which have
improved from a legacy EPC E rating to a B rating simply
through tenant works, at zero cost to the Company.
We have defined and published an equivalent tonnes of
CO
2
figure for our Portfolio as part of our commitment
to transparency and environmental stewardship and have
now embarked on a benchmarking process to look for
opportunities to improve further the sustainability of our
sites. For example, we are undertaking works to seek to
improve the sustainability of our locations, which includes
rooftop solar and working on the rollout of EV charging in
our car parks.
Our Portfolio is now 81% A-C EPC rated and we have asset
management plans in place for all properties which are
D or below.
Q: Will you be acquiring more assets and what is
the priority for 2023?
Rob:
Yes, we plan to continue to grow where we see
attractive acquisition opportunities which are accretive
to our unique Portfolio.
As the UK’s only listed specialist investor in grocery real
estate, we have established unique relationships and
coverage across the sector, coupled with our depth of
experience in UK grocery, providing us with a competitive
advantage in sourcing assets.
We operate with the aim of acquiring the best trading
supermarkets in the UK and identifying further purchases
which would be accretive to our return profile or where we
can add value through active management. Our aim is to
maximise risk-adjusted returns while ensuring we continue
to maintain and grow income.
While we talk a lot about the growth in the portfolio,
in the current economic environment it’s also worth
remembering the highly defensive nature of our Portfolio.
Our supermarkets are held on long, inflation-linked leases
and our tenants are some of the biggest names in the
non-discretionary, UK grocery space.
Ben: 2023 is going to be another very busy year. Continuing
to embed our sustainability agenda across the business is
a huge priority that will continue to make a positive impact
on our local communities and environments. We will also
continue to seek out new opportunities for growth to add
to our already substantial pipeline and we’ll be looking to
drive further value from the existing Portfolio through
active asset management.
We are also optimistic that the current economic uncertainty
may unlock some assets that we have coveted for a long
time and/or offer the opportunity to acquire assets at
attractive yields.
ANNUAL REPORT 2022 15
STRATEGIC REPORT | OUR PORTFOLIO
REINFORCING
RELATIONSHIPS
Omnichannel hub in Washington
This store provided a rare opportunity to acquire
a strong trading Sainsbury’s supermarket with a
35 year unexpired lease term and attractive lease
fundamentals. The store, which was built in the
late 1970s, was extensively refurbished in 2011
and has a significant omnichannel operation
forming a key part of Sainsbury’s online network
in the region.
STRATEGIC REPORT | INVESTMENT ACTIVITY
ANNUAL REPORT 2022 15
Washington,
Sainsbury’s,
Galleries Shopping
Centre, Sunderland
MAXIMISING
POTENTIAL
Expanding home delivery in Prescot
This large format Tesco supermarket was acquired in September 2021 as part of an
off-market transaction. Tesco has operated from the site since the early 1990s and the
store was redeveloped in 2010. The store has a large omnichannel operation supporting
12 delivery vans which form part of Tesco’s online grocery network in the region. The
store was regeared on acquisition with Tesco agreeing to a new 15 year lease with
annual CPI linked rent reviews (subject to a 0% floor and 4% cap).
The asset further increases the proportion of indexation within the Portfolio and
highlights the important relationships that the Company has within the market.
STRATEGIC REPORT | INVESTMENT ACTIVITY
16 SUPERMARKET INCOME REIT PLC
Prescot, Tesco,
Cables Shopping Park,
Liverpool
ANNUAL REPORT 2022 17
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
THE COMPANY’S PORTFOLIO
We have built a unique portfolio of top trading omnichannel
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. The leases on our stores benefit from
long unexpired terms, with the strong covenants of the UK’s
leading and largest grocery operators reinforcing the value of
these assets. As sector specialists we have strong relationships
with the grocery operators and the financial year ended
30 June 2022 saw new grocery tenants added in Asda
and M&S Food.
During the financial year, the Group further strengthened
its Direct Portfolio with the addition of 12 supermarkets
(including supermarket anchored) assets for £381.0 million
(excluding acquisition costs).
These acquisitions have a blended unexpired lease term
of 19 years and a blended net initial yield of 4.5%.
The Group’s investment strategy is to acquire high quality
supermarkets which are sometimes located on sites which
contain non-grocery elements. During the year the Group
acquired 12 non-grocery units on three supermarket sites for
£16.4 million (excluding acquisition costs). This amount is
included in the total site costs, listed above. All of the units
are occupied.
Post balance sheet the Group acquired five assets for a total
acquisition cost of £216.1 million (excluding acquisition costs)
and a blended net initial yield of 5.1%.
The acquisitions were primarily financed by two expanded
and oversubscribed equity raises and the proceeds of new
and existing secured and, post balance sheet, unsecured
banking facilities. For more information on financing
arrangements see the Financial Statement in this document.
A table summarising the properties in the Direct Portfolio of
supermarkets can be found in the Portfolio section on the
Group’s website: www.supermarketincomereit.com
Tenant exposure
Tenant Exposure by rent roll Exposure by valuation
Tesco 47.5% 47.4%
Sainsbury’s 27.9% 29.9%
Morrisons 7.0% 7.6%
Waitrose 5.4% 6.0%
Asda 2.4% 2.1%
Aldi 1.0% 1.0%
M&S 0.8% 0.8%
Non-grocery 8.0% 5.3%
Total 100% 100%
The Direct Portfolio benefits from attractive long term,
inflation linked leases with strong tenant covenants (Tesco,
Sainsbury’s, Morrisons, Waitrose, Aldi, Marks & Spencer
and Asda).
The long-term strength and resilience of the Group’s income
is underpinned by a weighted average unexpired lease term
of 15 years on the Direct Portfolio (including post balance
sheet acquisitions) with a weighted average yield of 4.7%
(including post balance sheet acquisitions). In addition to the
long average length of these leases, our portfolio is heavily
weighted towards fixed and inflation-linked leases which
provide resilience in an inflationary environment. 81% of the
Direct Portfolio benefits from upward only, indexed-linked
rent reviews subject to annual floors and caps (including post
balance sheet acquisitions).
Tenant Income mix by rent review type
RPI 73.2%
CPI 7.7%
Fixed 2.4%
OMV 16.8%
Total 100.0%
As we have continued to acquire high quality assets, our EPC
scores have increased within the portfolio. A breakdown by
rating seen overleaf:
Supermarket EPC breakdown
EPC rating % of portfolio
A 4.2%
B 43.8%
C 33.3%
D 18.8%
Total 100%
Sainsbury’s Reversion Portfolio
In May 2020 the Company formed a 50:50 joint venture
(the “JV”) with British Airways Pension Trustees Limited
to acquire from British Land Plc a 25.5% stake in one of
the UK’s largest portfolios of supermarket properties (the
“Sainsbury’s Reversion Portfolio”) for £102 million, excluding
acquisition costs. Subsequently, in February 2021 the JV
acquired a further 25.5% stake in this portfolio from Aviva
for £115 million, excluding acquisition costs.
The Company’s total contribution to the JV was
£112.0 million, excluding acquisition costs. The equity
interests in the properties are now owned by Sainsbury’s
(49%) and the JV (51%).
The Sainsbury’s Reversion Portfolio comprises a
high-quality portfolio of 26 predominantly omnichannel
Sainsbury’s supermarkets with strong trading histories
and attractive property fundamentals. The stores in the
Sainsbury’s Reversion Portfolio are leased to Sainsbury’s
until 2023. The investment case for acquiring the stakes in
the Sainsbury’s Reversion Portfolio was largely based on the
Company’s conviction that Sainsbury’s would want to
remain in occupation of a large majority of the stores.
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
In September 2021 and in January 2022, Sainsbury’s exercised
options to acquire 21 stores within the Portfolio. This outcome
was in-line with the Company’s initial underwriting of the
transaction and is evidence of the strength of demand for
UK grocery assets. The Company determined at the year
end that the exercise of the purchase options resulted in the
performance obligation being satisfied for a sale of properties
in accordance with IFRS 15. Following the exercise of these
options the JV was deemed to hold a contractual receivable
from Sainsbury’s, the value of which is based on the estimated
purchase price for the assets and has been determined with
reference to a valuation prepared by Cushman & Wakefield
(see below).
After the year end, the Company announced the purchase
price on the 21 option stores was formally agreed at
£1,040 million. The purchase by Sainsbury’s plc is expected
to complete between March 2023 and July 2023 on expiry
of the current leases.
Sainsbury’s has agreed to retain occupation of 4 of the 5
remaining stores within the Portfolio under a new 15-year
lease agreement with five yearly open market rent reviews
and a tenant break at year 10.
This agreement is estimated to increase the value of the
JV to £190 million.
Further details on the valuation of the Sainsbury’s Reversion
Portfolio can be found in Note 14 to the financial statements.
Portfolio valuation
Cushman & Wakefield valued the Direct Portfolio as at
30 June 2022, 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 Portfolio as a whole. The Direct Portfolio market value
was £1.57
9
billion, an increase of £423.2 million following
valuation growth of £42.2 million and new acquisitions of
£381.0 million.
This valuation growth of the Direct Portfolio reflects the
supermarket operators’ covenant strength as tenants, together
with rental growth and overall increased demand in the
investment market for high quality assets.
The properties within the Sainsbury’s Reversion Portfolio
were also independently valued by Cushman & Wakefield,
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 net carrying value of the Company’s
underlying investment was £177.1 million, increasing by
£62.4 million above the Group’s combined investment cost
of £114.7 million (including capitalised acquisition costs),
which arises from the profit generated by the joint venture
in the post-acquisition period.
18 SUPERMARKET INCOME REIT PLC
9 Includes property acquisition recognised as a financial asset
at amortised cost under IFRS
ANNUAL REPORT 2022 19
ANNUAL REPORT 2022 19
BROADENING
OUR PORTFOLIO
Co-located development in Liverpool delivers
first M&S Foodhall
The two stores are co-located on Queens Drive, Liverpool and
were acquired by the Company in August 2021 as part of an off
market transaction. The properties were purpose built in 2016 and
are surrounded by a strong road network helping to drive footfall
into the stores from the densely populated local area. The co-located
neighbourhood scheme provides a complementary retail provision
with a high degree of cross-shopping between the two stores.
STRATEGIC REPORT | INVESTMENT ACTIVITY
Liverpool,
Aldi and M&S
20 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
10 Office for National Statistics
11 Kantar: September 2022
12 Kantar: August 2022
THE UK GROCERY MARKET | Atrato Capital Limited is the Investment Adviser to Supermarket Income
REIT. 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 overall UK grocery market changed?
To understand longer term grocery market trends it’s
important to compare data to the pre-pandemic period.
UK grocery is up 13% since 2019 and IGD estimates the UK
grocery market will now reach £217 billion in 2022 which is
an increase of over £25 billion since 2019.
The legacy of the pandemic has been the emergence of a
permanent shift towards increased home working. This has
increased in-home consumption and the weekly shopping
basket by some 5% to 10%, resulting to a large extent in
this positive 13% shift in grocery sales. Since the start of
2019, average inflation was around 7%
10
so the sector has
experienced significant volume gains.
Looking ahead, inflation continues to rise. According to
the latest data from Kantar, UK grocery inflation reached
12.4% in September 2022, up from 11.6% in August and
9.9% in July and that will drive further growth in the sector.
Unlike other retail sectors, grocery is a non-discretionary
expenditure so price inflation will inevitably translate into
elevated market size. This is one reason why we view
investment in UK grocery real estate as a good long-term
hedge against inflation.
Q: Who are the largest operators in the
UK grocery market?
The UK market is highly concentrated with the seven largest
grocers controlling over 80% of the UK grocery space.
The traditional Big Four boast a combined market share of
approximately 65%
11
. Each of these businesses have multi-
billion-pound revenues, an established consumer brand
and strong credit covenants. Together they serve customers
through more than 7,500 stores in 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.
The second largest group of operators is the lower-price
grocery operators (the “Discounters”) such as Aldi and Lidl
who continue to grow through ambitious store opening plans
which have captured a combined market share of 16%
12
.
Their lower cost, low-margin business model requires
simplicity and standardisation of range which is attractive
to price sensitive customers but at odds with the fulfilment
intricacies and product assortment required
in online grocery.
“ INVESTORS LOOKING FOR PROPERTY
ASSETS THAT OFFER CONSISTENT
RETURNS AND LOW VOLATILITY HAVE
INCREASINGLY TARGETED THE
SUPERMARKET PROPERTY SECTOR”
Steven Noble Atrato Capital
26.9%
14.6%
14.1%
9.3%
9.1%
7.1%
UK grocery market – August 2022
6.5%
4.7%
2.4%
1.7%
2.1%
1.6%
Tesco Sainsbury’s Asda Aldi Morrisons Lidl Co-Op Waitrose Iceland Ocado Others Symbols &
independents
Supermarket Operator
Grocery market share
0
5
10
15
20
25
30
ANNUAL REPORT 2022 21
13 Atrato Capital research
14 Atrato Capital research
Q: What are the largest and fastest growing
channels in the UK?
As illustrated below, the supermarket channel remains
is the dominant sales channel in the UK grocery market,
while online grocery is the fastest growing.
Over the last three years online grocery is up over 73% and
now has a 12% UK market share. This is up from 8% prior to
the pandemic in 2019. Online ordering has now become an
integrated part of the customers’ grocery shopping habits.
Data from IGD shows that online grocery sales contributed
over £10 billion to total UK grocery growth, materially
exceeding the £5 billion growth in the UK discounter channel
which is the second fastest growth channel.
Omnichannel store networks are key in meeting this
increased demand for online fulfilment. The traditional
Big Four dominate the online channel with a combined
85% market share in online grocery. Over 90%
13
of their
online sales are fulfilled from omnichannel supermarkets.
Combining in-store supermarket sales (the most dominant
channel) with online fulfilment (the fastest-growing channel)
sees around 60%
13
of all UK grocery market sales fulfilled
through omnichannel supermarkets. This has resulted
in like-for-like sales growth of 13% for omnichannel
supermarkets. This sales growth means the Company’s
rents are highly affordable and we expect market rents in
the omnichannel asset class will over time exceed wider
supermarket market rents.
In more recent months, the discounters have seen dramatic
sales increases, bringing more and more customers
through their doors as the pressure of rising costs mounts
and consumers transition towards greater value changing
what they buy and how they shop to cut costs. According to
Kantar in the four weeks to 4 September 2022, Aldi market
share of 9.3% exceeded Morrisons’ 9.1% becoming the
fourth largest grocer in that period.
These market share gains reflect consumers’ reaction to
the sudden cost-of-living increase caused by high energy
price inflation as their lower cost, low-margin business
model has been highly successful in attracting price
sensitive consumers. We believe this channel will continue
to grow and expect to see a growing number of discount
supermarket property come to the investment market.
Q: What changes have you seen in the
omnichannel format?
The UK’s traditional Big Four pioneered the development
of an omnichannel business model which seamlessly
integrates both in-store and online fulfilment. Their
dominance in online grocery has only been achievable due to
this network of omnichannel supermarkets and illustrates
the vital role of the omnichannel store operating as last
mile logistics nodes in the nation’s food supply network.
The COVID-19 pandemic generated an 80% increase in
online demand. This increased online penetration has
transformed the profitability of omnichannel grocery
fulfilment. With in-store and online profit margins now
at near parity, omnichannel stores provide operators the
benefit of achieving a seamless integration of customer
experience across all channels
14
.
Recent technology developments mean that smaller
automated micro fulfilment systems, or urban fulfilment
centres (“UFCs”), can now be housed within supermarket
back of house areas. These smaller systems can house
20,000 product lines and automate the picking of dry goods
that require minimal management within the storage
system. Picking of fresh and frozen items that are difficult
and expensive to automate is done in store via physical
store pick. Whilst this technology is new and will take time
to deploy, we believe it represents the next evolution of the
omnichannel store model. This development would enable
stores to meet greater demand and deliver increased
profitability.
Q: What is a typical supermarket lease structure?
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 caps and 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.
12 12
12
24
33
25
47
41
110
102
ConvenienceSupermarkets Discount Online Other retailers
Over 80% of total UK
online grocery sales
are fulfilled direct
from supermarkets
2019
Sales (£bn)
2024
IGD UK channel forecasts
0
20
40
60
80
100
120
22 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED
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.
Q: How have supermarket investment
returns and yields performed?
Supermarket property offers relative stability compared
to the broader UK commercial property market. When you
examine supermarket property investment performance
over the last 15 years you see the strength and stability of
this asset class. During periods of economic uncertainty, the
grocery sector has been a strong and resilient investment,
generally avoiding the volatile peaks and troughs of the
economic cycle. Investors looking for property assets that
offer consistent returns and low volatility have increasingly
targeted the supermarket property sector.
Atrato compiles a yield series of all supermarket property
transactions with lease lengths of greater than 10 years
and larger store format sizes. This provides an accurate
reflection of the segment of the market which the
Company typically targets.
Average investment yields on supermarket property
reached a 20 year low of 4.3% in 2007, during which interest
rates peaked over 6%, before a period of negative yield shift
during the financial crisis. Yields have since strengthened,
tightening to a current average of 4.5% in 2022. In contrast
to other property sectors, supermarket yields have
remained relatively stable and resilient across this time
period. Supermarket yields are currently higher than IPD All
Property yields of 4.0% and Distribution Warehouses of 3.7%
which have seen significant yield compression and valuation
increases in recent years.
Supermarket property will not be entirely immune to
the challenging broader macroeconomic environment.
However, the defensive characteristics displayed by these
assets coupled with ongoing demand for long-term secure
income is expected to make supermarket property yields
highly resilient.
Q: How has supply and demand for
supermarket property performed?
The supermarket sector is a highly attractive asset
class within real estate investment. The improved financial
performance by the UK’s major grocery operators against a
backdrop of growing UK grocery demand and inflation
has attracted domestic and international institutional
investors to supermarket property.
In addition, we are also witnessing an increasing number
of transactions with shorter lease terms. Research shows
that transactions for those assets with an unexpired lease
term of under 20 years accounted for 70% of deals in 2021,
up from 60% in 2020. Meanwhile, more deals are completing
with an open market rent review leasing structure. Both of
these developments illustrate the increased confidence in
rental growth driven by the strong trading performance of
the grocery sector.
There has been some supply of new grocery investment
property opportunities due to the growth in the store
network of the Discounters however, the buyback of
supermarket property by Tesco and Sainsbury’s over the
previous five years has resulted in a net overall contraction
of supply. Since 2017, Tesco has completed over £1.3 billion
of store buybacks.
We expect investment volumes to decline somewhat in
2022 from the £1.8bn annual volumes seen in 2020 and
2021. However, 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.
3
4
5
6
7
8
9
IPD net initial yields 2004-2022 (YTD)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Net initial yields (%)
All UK property Supermarkets Distribution Warehouse
ANNUAL REPORT 2022 23
STRATEGIC REPORT | KEY PERFORMANCE INDICATORS
KPI Definition Performance
1. Total Shareholder Return
Shareholder return is one of the Group’s principal
measures of performance.
Total Shareholder Return (“TSR”) is measured by
reference to the growth in the Company’s share price over
a period, plus dividends declared for that period.
7% for the year to 30 June 2022
(2021:11%)
2. WAULT
WAULT measures the average unexpired lease term
of the Direct Portfolio, weighted by the Direct Portfolio
valuations.
15 years WAULT as at 30 June 2022
(2021:15 years)
3. EPRA NTA per share
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 deem EPRA NTA as the most
meaningful measure. See Note 26 for more information.
115 pence per share as at 30 June
2022 (2021:108 pence per share)
4. Net Loan to Value
The proportion of our Direct Portfolio gross asset value
that is funded by borrowings calculated as balance sheet
borrowings less cash balances divided by total investment
properties valuation.
19% as at 30 June 2022 (2021:34%)
5. EPRA EPS
Earnings attributable to Shareholders adjusted for other
earnings not supported by cash flows and calculated in
accordance with EPRA guidelines.
5.9 pence per share for the year
ended 30 June 2022 (2021:5.6 pence
per share)
Our objective is to provide secure, inflation-protected, long
income from grocery property in the UK.
Set out below are the key performance indicators we use to
track our progress.
The Group uses alternative performance measures, as
disclosed above and including the European Public Real
Estate (“EPRA”) Best Practice Recommendations (“BPR”) to
supplement its IFRS measures as the Board considers that
these measures give users of the Annual Report and financial
statements the best understanding of the underlying
performance of the Group’s property portfolio.
The EPRA measures are widely recognised and used by public
real estate companies and investors and seek to improve
transparency, comparability and relevance of published results
in the sector.
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.
24 SUPERMARKET INCOME REIT PLC
Measure Definition Performance
1. EPRA Earnings per Share
A measure of EPS designed by EPRA to present
underlying earnings from core operating activities.
5.9 pence per share for the year
ended 30 June 2022 (2021:5.6 pence
per share)
2. EPRA Net
Reinstatement Value
(NRV) per share
An EPRA NAV per share metric which assumes that
entities never sell assets and aims to represent the value
required to rebuild the entity.
124 pence per share as at 30 June
2022 (2021:118 pence per share)
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.
115 pence per share as at 30 June
2022 (2021:108 pence per share)
4. EPRA Net Disposal
Value (NDV) per share
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.
116 pence per share as at 30 June
2022 (2021:107 pence per share)
5. EPRA Net Initial Yield
(NIY) & EPRA “Topped-
Up” Net Initial Yield
Annualised rental income based on the cash rents
passing at the balance sheet 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 adjustments for any rent-free
periods or other lease incentives.
4.6% as at 30 June 2022 (2021:4.8%)
6. EPRA Vacancy Rate
Estimated Market Rental Value (ERV) of vacant space
divided by ERV of the whole portfolio.
0.2% as at 30 June 2022 (2021:0.4%)
7. EPRA Cost Ratio
Administrative & operating costs (including costs of direct
vacancy) divided by gross rental income.
16.5% for the year ended 30 June
2022 (2021:16.8%)
8. EPRA LTV*
Net debt divided by total property portfolio and other
eligible assets.
22.2% for the year ended 30 June
2022 (2021:36.3%)
The table below shows additional performance measures,
calculated in accordance with the Best Practice
Recommendations of the European Public Real Estate
Association (EPRA). We provide these measures to aid
comparison with other European real estate businesses. The
Group voluntarily adopted the EPRA issued new best practice
reporting guidelines in the current year, 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.
For a full reconciliation of all EPRA performance indicators,
please see the Notes to EPRA measures within the unaudited
supplementary section of the Annual Report.
STRATEGIC REPORT | EPRA PERFORMANCE INDICATORS
* New measure reported during the year, with prior year comparative stated
in line with new methodology
ANNUAL REPORT 2022 25
Atrato Capital Limited, the Investment Adviser to the Group,
IFRS net rental income for the year to 30 June 2022 increased
by 50% to £72.1 million, up from £47.9 million in the prior
year. Contracted inflation rent reviews in the year, including
a number of five-yearly rent reviews, resulted in average
passing rent increases in the Portfolio of 3.7% compared to
1.4% in the prior year, as a result of the higher inflationary
environment witnessed over the last year, with many reviews
hitting their maximum rental caps. A further £11.5 million of
rental contributions were also recognised from new
acquisitions during the year.
Administrative and other expenses, including management
and advisory fees and other costs of running the Group, were
£14.2 million (2021: £9.5 million), generating an EPRA cost
ratio of 16.5% (2021: 16.8%).
Financing costs for the year were £13.0 million (2021: £8.5
million). The Group’s weighted average cost of finance at
30 June 2022 was 2.6% (2021: 1.9%). The increase in net
financing costs reflects the increase in the quantum of the
Group’s banking facilities increases in sterling borrowing
rates. The Group’s continued conservative leverage policy
maintains a robust interest cover at 668% compared to the
covenant at a minimum of 200%. Further information on
financing and hedging is provided below.
As a result of the above, 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 50.4% to £58.2 million (2021: £38.7 million).
Change in fair value of the Direct Portfolio investment
properties in the year was £21.8 million (2021: £36.3 million),
which is comprised of a £42.3 million increase in valuation
offset by £17.6 million of acquisition costs and £2.9 million of
rent smoothing and guarantee adjustments. The Group’s
EPRA NTA at 30 June 2022 equates to 115 pence per ordinary
share (2021: 108 pence per ordinary share).
The Sainsbury’s Reversion Portfolio continues to be an
accretive investment, with the share of income from joint
venture increasing by 179% to £43.3 million (2021: £15.5
million), the growth in part due to the Group increasing its
stake in the portfolio in February 2021. During the reporting
period, Sainsbury’s exercised purchase options to acquire 21
of the 26 stores in the portfolio.
The Group is a qualifying UK Real Estate Investment Trust
(“REIT”) which exempts the Group’s property rental business
from UK Corporation Tax
15
. The Total Shareholder Return for
the year was 7% (2021: 11%). This is measured as the growth
in share price over the financial year of 1.7% (2021: 5.6%),
plus dividends declared for the year of 5.94 pence per share
(2021: 5.86 pence per share) divided by the share price at the
beginning of the financial year.
Equity raising and debt financing
In October 2021, the Group completed an upsized and
oversubscribed £200 million Placing and Offer for
Subscription in which 173,913,043 new ordinary shares were
issued at 115 pence per share representing a 6.5% premium
to prevailing EPRA NTA at the time of issue. Following a
strong level of support from investors during the marketing
roadshow, the October Placing was increased from the
original target of £100.0 million.
In April 2022, the Company successfully completed a
further oversubscribed Placing of ordinary shares, raising
£306.7 million. A total of 253,492,160 new ordinary shares
were issued at 121 pence per share, representing a 7.1%
premium to the Company’s last reported EPRA NTA at
the time of issue. The April Placing was increased from
an original target of £175 million due to strong levels of
investor support during the marketing roadshow.
“ WE HAVE RAPIDLY SCALED SUPR THROUGH
SELECTIVE ACQUISITIONS OF TOP TRADING
OMNICHANNEL STORES IN A HIGHLY
ACCRETIVE FASHION DELIVERING DIVIDEND
PER SHARE AND NTA PER SHARE GROWTH
EVERY YEAR”
Haffiz Kala Finance Director
STRATEGIC REPORT | FINANCIAL OVERVIEW
15 Profits which are not derived from property rental business would
be subject to corporation tax
26 SUPERMARKET INCOME REIT PLC
The Group has raised in total £506.7 million through its two
equity placing programmes during the year, issuing a total of
427,405,203 shares. A further 1,743,049 shares were issued by
the Group as part of its SCRIP dividend scheme, meaning
1,239,868,420 shares were in issue as at the year end.
During the year, the Group also increased its debt facilities
as follows:
• In August 2021, the Group increased its secured term loan
with Deka by £20.0 million to £96.6 million for the
remaining three-year term. The new tranche of the secured
term has a fixed rate of 1.72%.
• In August 2021 the Group also completed a one-year
extension alongside a £10.0 million increase to its now
£150.0 million Revolving Credit Facility with HSBC, priced
at a margin of 1.75% above SONIA.
• In September 2021, the Group exercised its accordion
option under the Wells Fargo credit facility by £61.3 million.
The tranche was priced at a margin of 1.40% above SONIA
and was refinanced shortly after the year end with the
proceeds of the new unsecured facility of which Wells
Fargo participated as part of the wider bank syndicate
(see below).
• In January 2022, the Group arranged a £136.5 million
increase to its Revolving Credit Facility with Barclays and
Royal Bank of Canada. This facility was priced at a margin of
1.50% above SONIA and was also refinanced after the year
end through the proceeds of the new unsecured facility, of
which Barclays and Royal Bank of Canada both participated
as part of the wider bank syndicate (see below).
After the year end, the Group secured a new £412 million
unsecured borrowing facility at 1.5% above SONIA, which was
the first time the Group accessed unsecured debt financing. The
proceeds of the new facility were used to refinance a portion of
the Group’s existing secured debt and to fund further
supermarket acquisitions which completed after the year end.
The Group also completed in September 2022, a further
two-year extension (inclusive of a one-year accordion option at
lender’s discretion) on its £150 million Revolving Credit Facility
with HSBC, where all other terms of the facility remained
unchanged.
A summary of the Group’s credit facilities as at the year end
and after the balance sheet date is provided below:
Lender Facility Maturity* Interest cost**
Loan commitment
30 June £m*
Loan commitment
(Post balance sheet)
£m
Amount drawn at
30 June 2022
£m
Barclays/RBC Revolving Credit Facility Jan-26 1.50% plus SONIA 300.0 77.5 138.75
Bayerische
Landesbank
Term Loan Jul-23 2.56% 52.1 52.1 52.1
Bayerische
Landesbank
Additional Term Loan A Jul-23 1.98% 7.3 7.3 7.3
Bayerische
Landesbank
Additional Term Loan B Aug-25 2.03% 27.5 27.5 27.5
Deka Bank Term Loan Aug-26 1.89% 47.6 47.6 47.6
Deka Bank Term Loan Aug-26 2.05% 28.9 28.9 28.9
Deka Bank Term Loan Aug-26 1.72% 20.0 20.0 20.0
HSBC Revolving Credit Facility Aug-25 1.65% plus SONIA 100.0 100.0 –
HSBC Revolving Credit Facility Aug-25 1.75% plus SONIA 50.0 50.0 –
Wells Fargo Revolving Credit Facility Sep-23 1.4% plus SONIA 100.0 – –
Wells Fargo Revolving Credit Facility Jul-27 2.19% 30.0 30.0 30.0
Wells Fargo Revolving Credit Facility Jul-27 2.11% plus SONIA 30.0 9.0 –
Total 793.4 449.9 352.2
Post Balance Sheet Events
Unsecured Bank
Syndicate
Revolving Credit Facility Jun-29 2.84% N/A 250.0 N/A
Unsecured Bank
Syndicate
Term Loan Jun-27 2.84% N/A 100.0 N/A
Unsecured Bank
Syndicate
Term Loan Jan-25 2.84% N/A 30.6 N/A
Unsecured Bank
Syndicate
Term Loan Jan-25 1.50% plus SONIA N/A 31.5 N/A
Total 793.4 862.0 352.2
* Inclusive of uncommitted accordion options
**Interest cost is inclusive of hedging arrangements where applicable. Amounts stated do not include unamortised arrangement fees.
STRATEGIC REPORT | FINANCIAL OVERVIEW CONTINUED
ANNUAL REPORT 2022 27
The new and increased debt facilities combined (including
post balance sheet events) have a weighted debt maturity of
4.5 years (including extension options) (2021: 4.0 years) and
a cost of borrowing of 2.8% (2021: 1.9%).
The Group continues to have a conservative leverage policy,
with a medium term LTV target of 30%-40%. At the end of the
year, total net debt was £297.3 million, resulting in a net
loan-to-value (“LTV”) ratio of 19% (2021: 34%). Including post
balance sheet acquisitions, the Group’s Gross LTV currently
stands at 33%. The Group has further balance sheet capacity to
utilise for opportunities which may come to market.
Each loan drawn under the credit facilities requires interest
payments only until maturity and is secured against both the
subject properties and the shares of the property-owning
entities. This is with the exception of the new unsecured
facilities completed after the year end where the loans are
not secured against any of the Group’s properties. Each
property-owning entity is either directly or ultimately
owned by the Group.
The Group continues to maintain significant headroom on its
LTV covenants which contain a maximum 60% LTV threshold
and a minimum 200% interest cover ratio for each asset in the
Portfolio. As at 30 June 2022, the Group could afford to suffer a
fall in property values of 54% before being in breach of its LTV
covenants. With current hedging arrangements in place the
Group has significant interest cover headroom. Within the
Going Concern period of 12 months from the signing of the
accounts £59.4 million of the BLB loan falls due, as per the
Going Concern Note 1 of the financial statements this is
expected to be refinanced.
After the year end date, the Company took the decision to fix
its interest rate exposure by entering into interest rate swaps to
hedge the Company’s £381 million of drawn unsecured debt
for a weighted average term of 4 years. 100% of the Company’s
drawn debt is now hedged at an effective fixed rate of 2.6%
(including margin). The cost of acquiring the hedges was
£35.2 million which will immediately impact EPRA NTA by
2.8 pence per share.
Further 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 23 September 2021, a first interim dividend of 1.485
pence per share, which was paid on 16 November 2021
• On 10 January 2022, a second interim dividend of 1.485
pence per share, which was paid on 25 February 2022
• On 6 April 2022, a third interim dividend of 1.485 pence
per share, which was paid on 27 May 2022
• On 8 July 2022, a fourth interim dividend of 1.485 pence
per share, which was paid on 22 August 2022
The Group’s EPRA dividend cover ratio was 1.08x for the year
(2021: 1.04x). The increase reflects the level of deployment of the
equity proceeds resulting in an increase in the EPRA earnings
available to cover the dividends paid in the financial year.
The Company has increased the quarterly dividend payable
from October 2022 by 1.0% from 1.485 to 1.50 pence per
share, which will be the fifth consecutive year of annual
dividend increases.
The Company is targeting a dividend for the year to
30 June 2023 of 6.0 pence per share.
Atrato Capital Limited
Investment Adviser
20 September 2022
28 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | SUSTAINABILITY AND TCFD ALIGNED REPORT
Introduction
During the reporting period, the Company has continued
to develop its sustainability strategy. As part of the
implementation of this strategy the Investment Adviser has
recruited a Head of Sustainability, Christoph Scaife. Christoph
took up this role in February 2022 and will take the lead in
further developing and implementing the Company’s
sustainability strategy with the Company’s investment team.
A key element of the Company’s ESG strategy focuses on
defining the Company’s investment impact. This includes
environmental, social and governance risk management, as
well as quantifying positive and negative impacts from its
investment activities. These actions are designed to ensure that
investments are made having assessed all aspects of risks and
opportunities to preserve and grow capital for the long term.
ESG Impact Long-term investing Sustainability
As part of the work undertaken by the Investment Advisers,
board in 2021 and 2022 several sustainability related priorities
have been identified as key to delivering value for the
Company’s stakeholders. These were based on an in-depth
materiality assessment which highlighted four key elements,
namely: i) mitigation of environmental impact, ii) introducing
the highest standards of governance and reporting, iii)
engagement with tenants and wider stakeholders, and iv)
responsible citizenship and support for communities.
Task-Force on Climate Related Financial
Disclosures (TCFD)
During the reporting year the Company has commenced
reporting climate related disclosures using the four pillars from
the TCFD framework. This includes the calculation of the
Company’s carbon emissions. The Company has interpreted
these disclosures below.
Governance
An outline of The Company’s and Board’s
Governance developments are laid out below.
The Board had started its strategy in the
previous year and the Investment Adviser
continues to work on refining that strategy.
Strategy
The impacts of climate-related risks and
opportunities on the investments and the
organization’s operations. Key developments in
refining the strategy are mentioned below.
Risk Management
Due to the unique nature of the asset class the
Company has developed a stakeholder
engagement approach that will identify,
assess, and work with clients to manage
climate-related risks.
Metrics & Targets
Disclose the metrics and targets used to
assess and manage relevant climate-related
risks and opportunities where such
information is material.
Governance
Refining our Approach
Building on work such as the detailed materiality assessment
undertaken in 2021, the Company continues to refine its
strategy to deliver more sustainable business practices. We
have also started to develop an operational framework that
drives continuous focus on safeguarding of the environment
and society.
In May 2022 SUPR joined the United Nations Principles for
Responsible Investing (PRI). This introduction of a best-in-
class sector related governance standard was an important step
in bringing the Company in line with international best
practice as a Responsible Investor. The PRI defines responsible
investment as a strategy and practice to incorporate ESG
factors in investment decisions and active ownership. With a
strong emphasis on stewardship, and close contact between
our investors and Company Board, the Group is well suited to
fulfil the role of a responsible investor. In 2022/3 the Company
will focus on refining its approach to identifying and managing
ESG issues across the Portfolio.
ANNUAL REPORT 2022 29
The Nomination Committee recommended the appointment
of Frances Davies with effect from 1 June 2022. Frances’ depth
of experience in corporate finance and asset management
will allow her to contribute to the development and
implementation of our strategy and the long-term
sustainable success of the Group. Frances is currently a
partner of Opus Corporate Finance, a corporate finance
advisory business, and is a Non-Executive Director at HICL
Infrastructure Plc and JP Morgan Smaller Companies
Investment Trust. Frances will be the Sustainability Champion
for the Board and will ensure that Sustainability matters are
taken into account at all levels.
During the financial year, the Board has worked to
implement a more formal sustainability approach by
reviewing the reporting and governance framework under
which it operates. The Terms of Reference of the Audit
Committee were updated to include the responsibilities of
ESG oversight in relation to the Company’s internal processes
and the investment activities carried out by the Investment
Adviser. Subsequently it was agreed that the Board would
convene a dedicated ESG Committee which will be Chaired by
Frances Davies as part of her role as Sustainability Champion
for the Board. We have outlined our approach to responsible
investment on our website, and, prior to the end of 2022, we
will publish our commitments to implement goals
and targets for the period ahead.
The Board continues to review updates to the business
strategy, ensuring performance, policy and fund objectives
meet the changing requirements for Sustainability in the
sector. By the end of 2022 the Investment Adviser has and
will continue to focus on refining and developing their ESG
evaluation methodologies and impact measurement
frameworks to address the incoming legislation and climate
change disclosure requirements. The Investment Adviser
will draw upon the highest governance standards and best
practices to ensure that the fund achieves its long-term goals.
These commitments will be met with tangible steps to drive
performance. Consequently, we have primarily focused our
initial actions on the following areas:
• Strengthening oversight of ESG and sustainability
• Integration of ESG and sustainability criteria into
the evaluation of asset acquisition
• Ensuring our assets enhance the communities in
which they are located
• Commitment to enhance the sustainability of our buildings
• Engagement and partnership with tenants
MEES
Continuous
evaluation and
improvement of
investment process
SUPR
SUPR
Waste
management
sustainability
project
EV charging
project
Gender
empowerment in
selected Sector
Site Performance
disclosure by
tenants
Opportunities for
Environmental
performance
Partnering with
associations
EPS Ratings are
being tracked by
SUPR with action
where necessary/
possible
Risk Matrix
and evaluation
New: Sustainability
Committee
Sustainable
Investment
Management
Systems
Site specific risk
mitigation plans
NED Appointed to
ensure oversight
Accurate portfolio
evaluation for future
compliance
Independent
site evaluation
Engagement
with Tenants
Responsible
citizenship and
Community Support
Incorporation of
Atrato Charitable
Foundation
Social Inclusion
and upliftment
in deprived
communities
Key theme of SUPR Board
Completed/continuous process
Commenced 2022
Legal Requirement
Evaluated current
landlord-controlled
energy contracts
Green lease
riders
Mitigation of
Environmental
Impact
Good Governance
and Reporting
UNPRI Signatory
Reporting
requirements and
disclosures to be
developed
Progress on Key Sustainability Themes
30 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | SUSTAINABILITY AND TCFD ALIGNED REPORT CONTINUED
Good Governance and Reporting
As a first step, we have formalised our ESG commitments
into policies, updated the Terms of Reference of the Board’s
committees, and refined our overall reporting framework.
During the year to 30 June 2022, we commenced a rigorous
assessment of our approach to oversight and governance of
sustainability, which is central to the development of an
effective strategy. This review resulted in integrating
sustainability criteria into the remit of the newly appointed
ESG Committee, under the oversight of Frances Davies, the
Chair. The Terms of Reference of the Committee were updated
to reflect this change and to ensure a focus on sustainability
factors on a par with the financial aspects of our business.
Simultaneously, Steve Windsor, Principal at Atrato Group,
undertook responsibility for the monitoring and managing of
ESG risks and opportunities at our Investment Adviser.
This decision was guided by an internal analysis of the skills,
knowledge, experience of our directors, which identified the
most appropriate framework to address and oversee ESG
factors. In line with the recommendations of the AIC Code of
Corporate Governance, during the past year, the Board also
carried out an assessment of the current structure and
operation of the Board. That assessment evaluated the balance
of skills, knowledge, experience, independence and diversity of
the Board. The results of this evaluation helped us to identify
areas we can strengthen. The process is detailed in full in the
Nomination Committee report.
Under the strengthened governance structure, the Board has
approved the Group’s Sustainability Strategy, Sustainability
Policy and other relevant policies. Quarterly updates are sent
from the Investment Adviser. The Board also oversees the
Investment Adviser’s policies to ensure that environmental and
social priorities are incorporated into the investment strategy.
In line with the increased focus on sustainability at the
Company and across our stakeholders, the Atrato Group
recently finalised and published its own ESG policy, which
can be found on its website.
Our Strategy
Materiality Risk Assessment
The Company completed its risk evaluation matrix in 2021,
which highlighted the need to address climate related issues
from a sustainability point of view, as well as from a
compliance aspect. As the UK government has finalised its
Minimum Energy Efficiency Standard (MEES), an industry goal
to achieving a 2oC world and Net Zero target, with increased
energy efficiency at the heart of achieving these goals. As the
assets held within the Portfolio are managed though the
tenants, an engagement strategy has been developed by the
Company to collaborate with tenants on how to tackle these
issues, including climate related factors such as flooding, power
purchasing and carbon reduction commitments from the
tenant’s supply chain.
Labour standards and the minimum wage levels have
become a major risk for operators as the cost of living has
risen dramatically in 2022. These issues have a knock-on
effect for tenants and consumers alike and the need to reduce
operational costs throughout the supply chain needs to be
addressed. The need to be aware of consumer habits and
satisfaction is more material than ever, with a renewed focus
on the consumer and the cost of supply as well as disposal or
end of useful life for products.
Opportunity Identification
A key route to delivering positive impact are the possibilities
arising from the growth of the electric vehicles industry, and its
need for electric charging points. The Company is looking at
where there is a viable demand for charging stations, both on
assets that are directly managed and those where tenants have
the capacity to install charging points.
The Company is looking at where there is a viable demand for
charging stations and parking capacity and rights for
installation. The Company is also keen to support tenant led
installations, where possible. This initiative aligns with the UK
government’s intention to reduce subsidies for private home
charging connections and focus on providing charging points
that are accessible to the wider public.
Investment Adviser
AIFMPLC Board
Company Secretary
Administrator
Advice
Risk Management
Fund Administration
Portfolio Management
Sustainability
Responsibilities
Funding
Asset Management
Acquisition & Disposals
Sustainability Oversight
Delegated responsibilities
The Investment Adviser cannot make
commitments on behalf of its clients
Governance framework
SUPR who is Atrato’s client has a prescribed governance framework structured around
key service provision relationships. Sustainability is implemented by the AIFM, however,
oversight is provided by the Board based on the advice of the Investment Adviser.
Policies and standards are set by the Groups.
Roles undertaken by Atrato
•••Structure chart shows only material relationships. It does
not illustrate all service provider relationships for the clients.
ANNUAL REPORT 2022 31
Tenant engagement
The majority of the Company’s tenants are leading
supermarket retailers who have already committed to
implementing high standard sustainability practices.
However, as these clients have large portfolios and varying
sustainability agendas the focus of these groups may not
align with the Company’s priorities. As a result, the portfolio
management team will draft an engagement strategy to
address key sustainability aspects to ensure the Company
meets its sustainability agenda. One focus of the Company’s
engagement strategy includes obtaining data on how tenants
are capturing and reporting their emissions data as well as
their actions to reduce greenhouse gas emissions and lower
energy usage. The Company will focus engagement efforts
over the coming year with tenants to obtain accurate data
on energy performance, looking at what energy sources
tenants are drawing their power from, and whether they have
considered purchasing renewable energy. Tenants are strongly
considering how to reduce energy costs and emissions and
these efforts also include roof top solar.
Environmental
Establishing responsible practices throughout the Company’s
landlord controlled operations and supply chain is a key
part of the Company’s engagement strategy. During 2022
the Company will continue to focus on the responsible
disposal of waste and green energy contracts. A key focus
area of engagement between the Company and the tenants
is the energy performance of assets. The Company has set
out a target to ensure the Portfolio remains in line with the
Government’s requirements and selected assets have been
identified as medium risks to not achieving compliance with
these standards in 2023. Collaborating with our tenants
to address major environmental risks through the use of
independent assessments is being introduced by the
Company and will continue as part of a monitoring and
assurance programme.
Social
As a result of the growth of electric vehicles, the need for a
greater quantity of electric charging points has arisen. EV
charging points improve accessibility for customers who drive
EV vehicles, and may encourage others to move to this type of
vehicle. Supermarkets offer a compelling opportunity to
include EV charging points for shoppers, as this is an efficient
use of consumers’ time to charge their vehicles while they
shop. We articulate this further below.
Governance
The Company continues to keep EPC assessments up-to-date
to understand the environmental performance of its assets.
Included in these assessments are possible opportunities for
energy efficiency improvements which we assess on a
case-by-case basis. This assurance process allows the portfolio
management team to focus their engagement efforts on
those assets most at risk of underperforming against key
sustainability metrics, as well as highlighting possible high
impact energy efficiency opportunities that can maximise
shareholder value.
Responsible Citizenship and Community Support
The Board firmly believes that the Company can achieve a
positive impact in its communities. The Company, through
its Investment Adviser, is in the process of incorporating the
Atrato Charitable Foundation which plans to use capital from
the fund to support various charities whose values align with
that of the Group. These charities may include community
development, educational support and gender inclusivity.
Risks
Mitigation of Environmental Risks
Climate change is one of the defining issues of our time and
we realise that actions taken today will have repercussions for
the future. While decoupling the economy from emission
generation is a complex task, requiring major policy and
behaviour changes, we believe that there is a role to play for
all sectors and especially investors such as the Company. New
technology now forms a part of the investment consideration,
where assets can provide their own routes to positive impact
and reduce their own carbon footprint, for example, through
the use of solar PV panels, waste management and reduced
water consumption, to name a few. As these solutions become
more cost effective and accessible, we are engaging with our
tenants to look at possibilities to optimise their positive impact
opportunities and look beyond what are the current normal
conventions of day-to-day business.
As identified in the risk materiality assessment undertaken in
2021, and evaluated on a rolling basis since then, the risk of
downgrading energy inefficient assets is material for some
assets. The Company is conducting third party evaluations of
its sites to monitor changes in risks. These independent
reviews will provide the Group with reliable and up to date
EPC assessments of the performance of its assets. Included in
these assessments are possible opportunities for impact
improvements, energy savings and key asset improvements.
This assurance allows the asset management team to focus
their engagement efforts on those assets most at risk on
underperforming as well as highlighting possible impact
opportunities that can maximise shareholders value. It is
expected that these corrective measures will ensure that the
Company maintains its compliance with MEES while also
reducing possible exposure to other environmental risks,
and in some cases the exposure to volatile energy costs.
32 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | SUSTAINABILITY AND TCFD ALIGNED REPORT CONTINUED
Metrics and Targets
During the reporting period, we continued to assess the EPC
ratings of our Portfolio and benchmark current performance
against historic performance, as well against the future
Minimum Energy Efficiency Standards that came into effect in
2016. The overall value weighted portfolio rating is C-56, as at
30 June 2022. There were eight properties with an EPC rating
of ‘D’ on that date representing 19% of the Portfolio by number
and 18% by value. This compares to 14 properties which had a
D or E rating at the end of the prior financial year, showing
progressive improvement in the energy rating of our assets
year-on-year.
We make a conscious effort to acquire assets with stronger
EPC ratings or where we are able to identify opportunities to
improve the EPC rating through active engagement with the
occupier.
In addition to enabling the Company to drive improvements in
its existing Portfolio, a deeper understanding and assessment
of the EPC profile of the Portfolio also provides additional
detail to help inform future investment strategy. We are also
actively looking at how lease renewals on existing properties
can be structured to add incentives that would encourage
tenants to undertake improvements to reduce emissions,
energy and resource use.
Company Emissions
2022 marks the first year in which the Company has calculated
its emissions at the Company and at the Investment Adviser
level. Following this exercise, it was concluded that the total
emissions, mostly due to electricity and refrigerants, account
for 97% of the Company’s total emissions. No refrigerants
were included in the analysis for Petrol Filling Stations (PFS)
or non-grocery sites, as tenants do not disclose their air
conditioning reports, and as such certain adjustments and
assumptions had to be made to include these assets in the
overall total. The reporting sample covers 105 supermarket
sites and PFS, which were counted separately.
The Company’s total emissions for the reporting period are
87,715 tonnes of CO
2
equivalent. The classification of these
emissions is categorised as Scope 3 Category 13 Downstream
Leased Assets, since any asset that a company owns but does
not have control over must be included in its Scope 3 indirect
emissions. The Company leases properties to tenants, which
means it must include the tenants’ Scope 1 and 2 emissions
within the Company’s Scope 3 Category 13 emissions. The
main heating fuel type according to the data from the EPC
assessments of our supermarket portfolio was natural gas,
whereas non-grocery and PFS sites were mainly heated using
electricity. As per GHG Protocol guidelines, the emissions from
biomass are out of scope and, therefore, not included in the
total Scope 1,2, and 3 emissions. Natural gas accounts for 77%
of emissions and it should be noted that if tenants switched to
non-fossil fuel heating, this would represent a significant
opportunity to decrease emissions for the Company and
tenants alike. The Company does not have any offices or
employees, as such only the emissions of its tenants are
included in the GHG inventory. The Investment Adviser will
report separately on its emissions in its annual report.
SUPR GHG Inventory Methodology
SUPR accounts for the emissions of commercial buildings that
it is directly owns and leases out to various tenants, some of
whom do not record their emissions or have a strategic plan to
reduce their emissions. In the first year of Greenhouse Gas
(GHG) accounting, no activity data was available, so
estimations were required throughout. Scope 1 (heating and
refrigerants) and scope 2 (electricity) was estimated for each
site using publicly available data from Energy Performance
Certificates (EPCs). CIBSE data was used to provide intensity
estimates based on floor area for the different commercial
building types. Certain data assumptions have been made to
estimate the size of petrol filling stations, since this data was
not provided.
Scope 1 (Heating)
The main heating fuel type was taken from the EPC. Some
gaps existed and it was assumed that, in these cases, sites at
the same location used the same heating fuel types. CIBSE
data was used to provide intensity estimates (kWh/m
2
) of the
fossil fuel heating use. For sites that used electricity as their
main heating fuel type, the fossil fuel heating consumption
was given a value of 0 (nil). CIBSE provides intensity estimates
for typical and good practice energy use. The EPC rating was
used to assume whether a site had typical practice energy
use (EPC rating of D or below) or good practice energy use
(EPC rating of C or above).
When petrol filling stations are counted as their own site,
five sites used biomass heating and 53 used natural gas.
The remaining 47 sites were heated using electricity.
The latest DEFRA emission factors were applied to the
kWh of consumption for heating to calculate the emissions
at a site level.
April 1st 2020
MEES Regulations
applied to all rented residential
properties. All new or existing
rentals must have an E grade.
April 2023
MEES Regulations
will be extended to include ALL
COMMERCIAL leases,
including existing leases.
April 2030
In order for the Government
to hit their carbon targets, MEES
standards will rise to C.
April 2025
The UK government has
declared their intention to
raise MEES standards, so the
minimum will rise to a D.
MEES
ANNUAL REPORT 2022 33
Scope 1 (Refrigerants)
Publicly available air conditioning (AC) certificates were used
to determine the type and amount of refrigerants used by
supermarkets. Where this data was not available for certain
sites, other sites that were similar in terms of size and tenant
were used as a proxy.
As per EPA data, the size of the air conditioning equipment
used was dependent on the amount of refrigerant used and
the floor area. It was assumed that air conditioning was used
for 6 months of the year in the UK. Loss rates were taken from
DEFRA data. Supermarket refrigeration was estimated as no
activity data was available. An intensity estimate (refrigerant
charge per square foot) was taken from EPA data and the
refrigerant used was the most common for this activity
according to UNEP. Refrigerant loss rate for refrigeration was
taken from DEFRA data.
No refrigerants were estimated for non-grocery or petrol filling
station sites.
Scope 2 (Electricity)
CIBSE data was used to provide intensity estimates (kWh/m
2
)
of the electricity use. The EPC rating was used to assume
whether a site had typical practice energy use (EPC rating
of D or below) or good practice energy use (EPC rating of
C or above).
Five supermarket sites have solar photovoltaic (PV)
panels on their roofs. Google Maps was used to identify the
number of solar panels on the roofs. An estimate was made as
to the amount of energy produced per panel and that was
applied to the total solar panels for each site. The amount of
electricity generated from the solar panels at these five sites
was subtracted from the estimate for the total electricity
consumption. It was assumed that the five supermarkets
receive the full generation from the panels, meaning the
electricity generated from them is attributed solely
to the supermarkets.
The latest DEFRA emission factors were applied to the
kWh of consumption for electricity to calculate the emissions
at a site level.
The calculations and evaluations have been calculated by
The Anthesis Group, a third party contractor who was
contracted out by the Company.
External Recommendation on Emissions
The Company contracted Anthesis Consulting to undertake its
emissions calculations, as well as provide recommendations to
improve the emissions and reporting quality for future reports.
Selected recommendations include the setting of targets, and
to validate emissions through an external organisation such as
the SBTi.
As the majority of our tenants publicise their GHG emissions,
the Company should use its position to encourage tenants
to provide more detailed data and communicate it publicly
to show stakeholder groups their improvements on
sustainability practices.
The Company is required to meet emissions reductions and
future MEES legislation, and this will influence the focus of the
Investment Adviser’s efforts to ensure that all investments
meet these requirements.
The Investment Adviser will develop training for key staff
members on the importance of climate action and their
role in it.
34 SUPERMARKET INCOME REIT PLC
High
High
Moderate
Low
Low
Moderate
Rare
Rare
IMPACT
PROBABILITY
8
1
3
9
5
13
6
4
12
7
2
10
The Board considers these risks have increased since last year
4 Our use of floating rate debt will expose the business to underlying interest
rate movements as interest rates continue to rise
10 The assets within the Group’s portfolio that are less energy efficient may be
exposed to downward pressure on valuation
11 Volatile changes in the weather systems may deem the Group’s properties no
longer viable to tenants.
12 The rise in cyber risks arising from recent geopolitical tensions has increased
the risk for listed companies being targets for market manipulation
14 Inflationary pressures on the valuation of the portfolio may result in a fall in
valuations
15 Impact of war in Ukraine could lead to a global recession
The Board considers these risks to be broadly unchanged since last year
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
2 Our ability to source assets may be affected by competition for investment
properties in the supermarket sector
3 The default of one or more of our lessees would reduce revenue and may affect
our ability to pay dividends
5 A lack of debt funding at appropriate rates may restrict our ability to grow
6 We must be able to operate within our banking covenants
7 There can be no guarantee that we will achieve our investment objectives
8 We are reliant on the continuance of the Investment Adviser
9 We operate as a UK REIT and have a tax-efficient corporate structure,
with advantageous consequences for UK Shareholders
13 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
11
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.
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 removed in the current year and
are no longer shown on the matrix:
• Impact of COVID-19: The Company has not experienced
any material adverse impacts from the COVID pandemic,
which warrants the removal of this as a principal risk.
However, we continue to monitor the impact closely
• European Union exit without EU trade deal (“Brexit”):
The Company has not experienced any material adverse
impacts from Brexit. However, we are keeping this under
constant review given the recent news of plans to amend
parts of the NI protocol
The following risks have been added in the current year and
are discussed in detail below:
• A reduction in the energy efficiency of the portfolio
• Volatile changes to weather systems
• The rise in cyber risks
• Inflationary pressures on the valuation of the portfolio
• Impact of the war in Ukraine
STRATEGIC REPORT | OUR PRINCIPAL RISKS
14
15
ANNUAL REPORT 2022 35
PROPERTY RISK
1
The lower-than-expected performance of the Portfolio could reduce property valuations and/or revenue,
thereby affecting our ability to pay dividends or lead to a breach of our banking covenants
Probability:
Low
Impact:
Moderate
Mitigation
An adverse change in our property valuations
may lead to breach of our banking covenants.
Market conditions may also reduce the
revenues we earn from our property assets,
which may affect our ability to pay dividends to
Shareholders. A severe fall in values may
result in us selling assets to repay our loan
commitments, resulting in a fall in our net
asset value.
Our Direct Portfolio is 99.9% 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, 81% are inflation linked, 17% 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:
Low
Impact:
Moderate
Mitigation
The Company faces competition from other
property investors. Competitors may have
greater financial resources than the Company
and a greater ability to borrow funds to
acquire properties.
The supermarket investment market
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.
3
The default of one or more of our lessees would reduce revenue and may affect our ability to pay dividends
Probability:
Low
Impact:
High
Mitigation
Our focus on supermarket property means
we directly rely on the performance of UK
supermarket operators. Insolvencies could
affect our revenues earned and property
valuations.
Our investment policy requires the Group to derive at least 60% of its rental income
from a Portfolio let to the largest four supermarket operators in the UK by market
share. Focusing our investments on assets let to tenants with strong financial
covenants and limiting exposure to smaller operators in the sector decreases the
probability of a tenant default.
Before investing, we undertake a thorough due diligence process with emphasis on
the strength of the underlying covenant and receive a recommendation on any
proposed investment from the AIFM.
We select assets that have strong property fundamentals (good location, large sites
with low site cover) and which should be attractive to other occupiers or have strong
alternative use value should the current occupier fail.
FINANCIAL RISK
4
Our use of floating rate debt will expose the business to underlying interest rate movements as interest rates continue to rise
Probability:
Moderate
(from Low)
Impact:
Moderate
Mitigation
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.
36 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | OUR PRINCIPAL RISKS CONTINUED
5
A lack of debt funding at appropriate rates may restrict our ability to grow
Probability:
Low
Impact:
Low
Mitigation
Without sufficient debt funding we may
be unable to pursue suitable investment
opportunities in line with our investment
objectives.
If we cannot source debt funding at
appropriate rates, this will impair our ability to
maintain our targeted level of dividend.
Before we contractually commit to buying an asset, we enter discussions with our
lenders to get uncommitted approvals (where borrowings are secured), which
ensures that we can borrow against the asset and maintain our borrowing policy.
The Board keeps our liquidity and gearing levels under review. We have recently
broadened our capital structure by starting to transition our balance sheet to an
unsecured structure, reducing our reliance on a single source of funding.
Supermarket property has remained popular with lenders, owing to long leases
and letting to single tenants with strong financial covenants and being seen as a
safe asset class in times of market uncertainty. We have seen increased appetite
from lenders to provide financing for future acquisitions albeit that some of our
existing lenders have indicated that they are close to reaching capacity in some
asset classes.
The Company has had two oversubscribed capital raises during the year ended
30 June 2022 which has provided increased liquidity and enabled the continuation
of the Company’s growth. We believe that this indicates that alternative credit
sources will become available in the short to medium term and we will become
less reliant on bank funding.
6
We must be able to operate within our banking covenants
Probability:
Low
Impact:
Moderate
Mitigation
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.
CORPORATE RISK
7
There can be no guarantee that we will achieve our investment objectives
Probability:
Low
Impact:
Low
Mitigation
Our investment objectives include achieving
the dividend and total returns targets. The
amount of any dividends paid or total return
we achieve will depend, among other things,
on successfully pursuing our investment policy
and the performance of our assets.
Future dividends are subject to the Board’s
discretion and will depend on our earnings,
financial position, cash requirements, level
and rate of borrowings, and available
distributable reserves.
The Board uses its expertise and experience to set our investment strategy and
seeks external advice to underpin its decisions, for example independent asset
valuations. There are complex controls and detailed due diligence arrangements
in place around the acquisition of assets, designed to ensure that investments will
produce the expected results.
Significant changes to the Portfolio, both acquisitions and disposals, require
specific Board approval.
The Investment Adviser’s significant experience in the sector should continue to
provide us with access to assets that meet our investment criteria going forward.
Rental income from our current Portfolio, coupled with our hedging policy,
supports the current 6.00 pence per share dividend target. Movement in capital
value is subject to market yield movements and the ability of the Investment
Adviser to execute asset management strategies.
8
We are reliant on the continuance of the Investment Adviser
Probability:
Low
Impact:
Moderate
Mitigation
We rely on the Investment Adviser’s services
and reputation to execute our investment
strategy. Our performance will depend to
some extent on the Investment Adviser’s
ability and the retention of its key staff.
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.
ANNUAL REPORT 2022 37
TAXATION RISK
9
We operate as a UK REIT and have a tax-efficient corporate structure, with advantageous consequences for UK Shareholders.
Any change to our tax status or in UK tax legislation could affect our ability to achieve our investment objectives and provide
favourable returns to Shareholders
Probability:
Low
Impact:
Moderate
Mitigation
If the Company fails to remain a REIT for UK
tax purposes, our profits and gains will be
subject to UK corporation tax.
The Board uses its expertise to maintain adherence 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.
CLIMATE RISKS
10
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:
Low
Impact:
Moderate
Mitigation
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 roadmap for an energy efficient
property portfolio including an appropriate policy for minimum energy
performance across the Group’s assets.
The Company has engaged with external experts to assess the work required and
the respective costs of implementation.
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 the Company’s Portfolio.
11
.
Volatile changes in the weather systems may deem the Group’s properties no longer viable to tenants
Probability:
Low
Impact:
Moderate
Mitigation
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.
The Company obtains environmental surveys on all acquisitions, which address
the short-term risk of climate related damage to group properties.
The Investment Adviser’s asset management team will continue to monitor
the changing physical risk as it develops through regular site visits to the
Group’s assets.
CYBER RISKS
12
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:
Low
Impact:
Moderate
Mitigation
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 which has
robust IT security and data protection policies in place. These are reviewed
frequently, alongside business continuity plans in the event of major disruption
to the organisation.
For all other key service providers appropriate policies are sought and reviewed
in respect of cyber security and data protection.
38 SUPERMARKET INCOME REIT PLC
MARKET PRICE RISK
13
Shareholders may not be able to realise their shares at a price above or the same as they paid for the shares or at all
Probability:
Moderate
Impact:
Moderate
Mitigation
Although the Company’s ordinary shares
have to date traded in a relatively narrow
range closely related to the price at which they
were issued, this is largely a function of supply
and demand for the ordinary shares in the
market and cannot therefore be controlled by
the Board. The Company’s recent move to the
premium list of the London Stock Exchange
will increase 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 EPRA 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% of the ordinary shares in issue as at IPO; being 1.21%
of the total shares in issue as at 30 June 2022.
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.
MACROECONOMIC RISKS
14
Inflationary pressures on the valuation of the portfolio
Probability:
Low
Impact:
Moderate
Mitigation
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.
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.
15
Impact of the war in Ukraine
Probability:
Low
Impact:
Moderate
Mitigation
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 broader
regional or 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.
STRATEGIC REPORT | OUR PRINCIPAL RISKS CONTINUED
ANNUAL REPORT 2022 39
Going concern
In light of the current macroeconomic backdrop, the Directors
have continued to place significant 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 2022. In assessing the going concern
basis of accounting the Directors have had regard to the
guidance issued by the Financial Reporting Council.
The Board regularly monitors the Group’s ability to continue as
a going concern. Included in the information reviewed at
quarterly Board meetings are summaries of the Group’s
liquidity position, compliance with loan covenants and the
financial strength of its tenants. Based on this information, the
Directors are satisfied that the Group and Company are able to
continue in business for the foreseeable future, being a period
of at least twelve months from the date of approval of the
financial statements, and therefore have adopted the going
concern basis in the preparation of these financial statements.
In light of the Group’s current position and principal risks, the
Board has assessed the prospects of the Group for the period
to 30 September 2023, reviewing the Group’s liquidity position,
compliance with loan covenants and the financial strength of
its tenants, together with forecasts of the Group’s future
performance under various scenarios. The Board has concluded
there is a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities over that period.
The Board has also assessed the prospects of the Group over a
longer period than the going concern review and has a
reasonable expectation that the Group will be able to continue
in business over the five-year period examined in that
assessment.
During the year covered by this report, the Group has raised a
total of £506.7 million from the issue of equity shares and a
further £180.0 million under the various banking facilities. All
financial covenants have been met to date; at the year end,
there was significant headroom in our covenants including
property values needing to fall by 54.3% for a breach of
covenants to occur. £59.4 million of the Group’s BLB loan
facility falls due in July 2023. The Directors’ expect this facility
to be refinanced in advance of its expiry however it is also
noted that the Group has sufficient headroom in its existing
facilities to repay this facility in full if required.
After the year end, the Group secured a new £412 million
unsecured borrowing facility at 1.5% above SONIA, which was
the first time the Group accessed unsecured debt financing.
The Group also completed in August 2022, a further two-year
extension (inclusive of a one-year accordion option at lender’s
discretion) on its £150 million Revolving Credit Facility with
HSBC, where all other terms of the facility remained
unchanged. Further details are set out in the notes to the
financial statements.
The Group generated net cash flow from operating activities in
the year of £63.0 million, with its cash balances at 30 June 2022
totalling £51.2 million and available debt facilities at 30 June
2022 of £705.0 million. The available debt facilities post year
end were £862.0 million. The Group had no capital
commitments or contingent liabilities as at the balance sheet
date. 100% of contractual grocery rent for the Year has been
collected in full.
The Group benefits from a secure income stream from its
property assets that are let to tenants with excellent covenant
strength, and are critical to the UK grocery infrastructure,
under long leases that are subject to upward only rent reviews.
The WAULT at the year-end was 15 years (2021: 15 years).
As a result, the Directors believe that the Group is well placed
to manage its financing and other business risks and that the
Group will remain viable, continuing to operate and meeting
its liabilities as they fall due over the assessment period. The
Directors are therefore of the opinion that the going concern
basis adopted in the preparation of the financial statements is
appropriate.
Assessment of viability
The period over which the Directors consider it feasible and
appropriate to report on the Group’s viability is the five-year
period to 30 June 2027. 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 34 to 40 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.
40 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT | OUR PRINCIPAL RISKS CONTINUED
Viability Statement
The Board has assessed the prospects of the Group over the
five years from the balance sheet date to 30 June 2027, 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:
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
report on pages 12 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 20 to 22. Disclosures
in relation to environmental and social issues have been
included within the Sustainability section on pages 28 to 33.
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
23 and 24.
Nick Hewson
Chairman
20 September 2022
Risk Assumption
Borrowing risk
The Group continues to comply with all relevant
loan covenants. The Group was able to extend the
£150.0 million RCF falling due in August 2023 on
acceptable terms. 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 a reduction of variable debt from cash inflows
and by hedges enacted after the year end.
Liquidity risk
The Group continues to generate sufficient cash to
cover its costs while retaining the ability to make
distributions.
Tenant risk
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.
ANNUAL REPORT 2022 41
The Directors consider that in conducting the business of the
Company over the course of the year ended 30 June 2022,
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 45 to 48. Further details of
the Board activities and principal decisions are set out on
pages 52 and 53 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 Act has been noted as follows:
STRATEGIC REPORT | SECTION 172(1) STATEMENT
s172 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 these strategic discussions involve careful considerations of the
longer-term consequences of any decisions and their implications on
Shareholders and other stakeholders and the risk to the 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 53
Our Key Stakeholder relationships on
pages 45 to 48
Board activities during the year on
page 52
B The interests of
the Company’s
employees
The Group does not have any employees as a result of its external
management structure.
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.
Our Key stakeholders on pages 45 to 48
Culture on page 49
C The need to foster
the Company’s
business
relationships
with suppliers,
customers and
others
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 Key stakeholders on pages 45 to 48
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 its 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.
Our Key stakeholders on pages 45 to 48
Details of the ESG policy and strategy are
included on pages 28 to 33
The Board’s approach to sustainability is
explained on pages 28 to 33
E The desirability
of the Company
maintaining a
reputation for
high standards of
business conduct
The Board is mindful that the ability of the Company to continue to
conduct its investment business and to finance its activities depends in
part on the reputation of the Board, the 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.
Chairman’s letter on corporate
governance on page 44
Principal risks and uncertainties on
pages 34 to 40
Our culture on page 49
F The need to act
fairly as between
members of the
Company
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.
Chairman’s letter on corporate
governance on page 44
Our Key stakeholders on pages 45 to 48
42 SUPERMARKET INCOME REIT PLC
CORPORATE GOVERNANCE | BOARD OF DIRECTORS
DIRECTORS
Relevant skills and experience: Career Highlights:
NICK HEWSON
CHAIRMAN OF THE BOARD
AND CHAIR OF MANAGEMENT
ENGAGEMENT COMMITTEE
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
• Co-Founder, CEO and then Chairman 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
VINCE PRIOR
CHAIR OF THE NOMINATION
COMMITTEE AND SENIOR
INDEPENDENT DIRECTOR
Date of appointment: June 2017
• Over 35 years’ experience in the retail
property sector; over 20 years as a
senior advisor 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
• 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
JON AUSTEN
CHAIR OF AUDIT AND RISK
COMMITTEE
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
• 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
CATHRYN VANDERSPAR
CHAIR OF THE REMUNERATION
COMMITTEE
Date of appointment: February 2020
• Lawyer with over 30 years’ experience
(over 20 of these as a tax partner).
Specialist in direct and indirect real
estate structuring, including REITs
• Active member of HMRC, HMT and
industry working groups and
committees
• 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
(Formerly CBRE Global Investors (UK Funds) Limited)
• Head of London Tax at Eversheds Sutherland
• Tax Partner at Berwin Leighton Paisner (now BCLP)
FRANCES DAVIES
CHAIR OF THE
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE 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 Committee
• Head of Global Institutional Business at Gartmore Investment
Management
• Non-Executive Director of JP Morgan Smaller Companies
Investment Trust plc.
• Previously held directorships at SG Warburg, Morgan Grenfell
Asset Management and Dalton Strategic Partnership
ANNUAL REPORT 2022 43
INVESTMENT ADVISER
Relevant skills and experience: Career Highlights:
BEN GREEN PRINCIPAL
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
STEVE WINDSOR PRINCIPAL
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
STEVEN NOBLE CHIEF
INVESTMENT OFFICER
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
NATALIE MARKHAM CHIEF
FINANCIAL OFFICER
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
• 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
ROBERT ABRAHAM MANAGING
DIRECTOR – FUND MANAGEMENT
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, commercial
banking, and loans
• Chartered Financial Analyst
• 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
HAFFIZ KALA FINANCE
DIRECTOR
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 15 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
44 SUPERMARKET INCOME REIT PLC
CORPORATE GOVERNANCE | CHAIRMAN’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 2022.
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 and establishment of new committees
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 12 new
acquisitions, supported by two highly successful equity raises
in October 2021 and April 2022 raising in total £506.7 million
of gross proceeds. 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 decided to create a
separate Environmental, Social and Governance Committee,
highlighting the ever-increasing importance of this topic on
our agenda. I am pleased to report that during the year we
also became supporters of the Task Force on Climate-related
Financial Disclosures (“TCFD”) and signatories of the UN
Principles for Responsible Investment (“UN PRI”). Further
information on our sustainability strategy can be found on
pages 28 to 33.
As an externally managed company, review of the performance
and fees of our supplier relationships is vital to ensure that
we are able to deliver the best value for our Shareholders.
We look to partner with suppliers who share our values and
ethos, and managing these relationships is key. In particular,
we rely on the Investment Adviser’s services and reputation,
to execute our investment strategy. Regular monitoring of its
performance and review of its resources to deliver satisfactory
investment performance, is crucial to the future success of the
Company. Whilst this has historically been addressed as a full
Board agenda item, a separate Management Engagement
Committee has been established in the year to review these
matters in greater depth. I chair that committee.
Further information on the new committees can be found
on page 49.
Board composition and succession planning
Succession planning is an important part of our governance
process. In June 2022, we were delighted to welcome Frances
Davies as a Non-Executive Director to the Board. Frances
brings together experience from her various Non-Executive
roles at listed companies, together with a wealth of
experience in her career in capital markets and ESG. I am
certain that her breadth of knowledge will be an invaluable
addition to the Board. It is the intention of the Board to
further strengthen our resources over the coming year with
the appointment of a further non-executive director.
Board effectiveness
During the year we carried out an external Board
effectiveness review. I am pleased to report that the review
concluded that the Board’s functions and activities were
working well. The high level of personal and professional
respect amongst the Directors contributed to the strong
working relationships at both Board and Committee levels.
The review further observed that Board discussions strike a
good balance between constructiveness and challenge and
offered some good suggestions for improvement. More
details on the review process and recommendations are
presented on pages 56 and 57.
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 both the Code and AIC
Code can be found on pages 54 and 55.
Shareholder Engagement
The AGM process has been somewhat disrupted over the
last couple of years with a closed meeting necessary in 2020
and a hybrid arrangement in 2021. We very much look
forward to having a fully physical Annual General Meeting
this year and to welcoming and engaging with Shareholders
at this meeting.
Priorities for 2023
Looking ahead to 2023, the Board is focused on continuing to
live up to the highest standards of corporate governance, as
well as continuing to progress the Company’s sustainability
strategy, whilst continuing to encourage the delivery of strong
financial performance.
Nick Hewson
Chairman
20 September 2022
ANNUAL REPORT 2022 45
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.
Investor engagement
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, investment thesis as well as the wider market
in which we operate. The Board oversees the Investment
Adviser’s formal investor relations programme which is
supported by the Company’s brokers and public relations
consultants, providing Shareholders with frequent business
updates as well as facilitating regular meetings both in person
and on-line. The Board aims to be open with Shareholders
and available to them, subject to compliance with relevant
securities and laws.
How did we engage?
• The 2021 AGM was held as a physical meeting and was
attended by all of the Board. All Board members are
available to meet with Shareholders and to answer any
questions at the Company’s AGM and otherwise as
reasonably required. Recognising that some Shareholders
may not have been comfortable attending in person, we
also provided opportunities for Shareholders to submit
questions to the Board via a live link and to attend via
conference call
• Our FY22 interim results presentation to analysts in March
2022 was shown through a live audio webcast with replay
facilities made available on our website
• The Board approves all resolutions and related
documentation to be put to Shareholders at the AGM,
together with circulars, prospectuses, listing particulars and
regulatory announcements concerning the Company
• Our website contains comprehensive information about
our business, regulatory news and press releases alongside
information about our approach to ESG issues
• This year we were pleased, once again, to be represented
by the Investment Adviser at the Investor Meet Company
presentation, providing individual and wealth managers
with direct access to the Company
• The formal investor relations programme 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. The Investment Adviser also
held multiple virtual meetings with prospective and new
investors as part of the two equity raises which occurred in
October 2021 and April 2022
Topics discussed
• Financial performance of the Company and disclosures
contained within the annual and interim report
• The Sainsbury’s Reversion Portfolio including the exercise
of Sainsbury’s option to acquire 21 stores within the
Portfolio
• Challenges and opportunities for the Big Four operators,
including the increased prominence of discounters
• Macroeconomic themes including the impact of inflation
on grocery operators
How did we respond?
• Investor feedback has helped shape our disclosures,
providing additional supplementary information provided
in annual and interim results materials
• Positive feedback through the use of virtual meetings has
improved accessibility to our international and regional
based shareholders. We anticipate that on-line 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 28 to 33.
Lender engagement
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. These relationships have been particularly key
in recent months, with the Company accessing unsecured
financing for the first time in July 2022, having announced a
new £412.1 million unsecured facility with a syndicate of four
relationship banks.
How did we engage?
• 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
• The Board was engaged throughout the year when
authorisations were required in order to enter into a new
unsecured facility and extend or upsize existing secured
facilities with HSBC and Barclays and Royal Bank of Canada
CORPORATE GOVERNANCE | OUR KEY STAKEHOLDER RELATIONSHIPS
46 SUPERMARKET INCOME REIT PLC
Topics discussed
• Investment Grade credit rating and access to unsecured
capital
• Deployment pipeline and future borrowing needs
• Debt maturity profile
• Interest rate environment
How did we respond?
• In August 2021, the Group increased its secured term loan
with Deka by £20.0 million to £96.6 million and also
completed a one-year extension alongside a £10.0 million
increase to its Revolving Credit Facility with HSBC
• In September 2021, the Group exercised its accordion
option under the Wells Fargo credit facility by £61.3 million.
The total size of the facility increased to £121.3 million
• In January 2022, the Group announced an increase of its
revolving credit facility of £136.5 million with Barclays and
Royal Bank of Canada. The total size of the facility
increased to £250.2 million
• In February 2022 Fitch Ratings assigned an Investment
Grade credit rating of BBB+ with stable outlook to the
Company
• 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
The Investment Adviser
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.
Whilst the Group has no employees, the Board has regard
to the interests of the individuals who are responsible for
delivery of investment advisory services to the Company to
the extent that they are able to do so. The Board does not
have direct responsibility for any employees.
The Board and the Investment Adviser maintain a positive
and transparent relationship to ensure alignment of values
and business objectives.
How did we engage?
• The Board engage with the Investment Adviser at a
minimum on a quarterly basis which follows the Company
corporate calendar. In addition to the scheduled quarterly
meetings, the Board will also have separate unscheduled
Board meetings to approve recommendations for all
acquisitions and disposals, approval of asset management
opportunities, approval of new financing arrangements and
appointment of advisers
• The Board created a newly formed Management
Engagement Committee to monitor and evaluate the
Investment Adviser’s performance as well as oversee the
relationship between the Board and the Investment Adviser
• The Independent Directors seek to obtain and assess
feedback from investors, advisers and other market
participants, where appropriate, in order to monitor
standards of conduct, including the conduct and reputation
of the Investment Adviser and the reputation of the business
• The Board also engage with the Investment Adviser
through the annual strategy day in addition to informal
meetings as and when required
Topics discussed
• Appropriateness of staffing levels and staff qualifications as
part of the Board’s review of the internal control environment
• Employee focussed initiatives undertaken by the Investment
Adviser to attract and retain key members of staff
How did we respond?
• The Investment Advisory Agreement was renewed during
July 2021, in advance of the expiry of the initial agreement
in July 2022
• Expansion of key named individuals within the renewed
Investment Advisory Agreement executed in July 2021
Tenants
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.
How did we engage?
• 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
• Review of published operator data, such as annual
accounts, trading updates and analysts’ reports to identify
mutually beneficial opportunities
Topics discussed
• Renegotiations for any leases approaching maturity
• Improvements in Energy Performance Ratings (‘EPC’)
of our buildings
• Repurposing existing space
How did we respond
• Our Leicester and Prescot Tesco stores were both regeared
during the financial year for 15-year terms with annual
CORPORATE GOVERNANCE | OUR KEY STAKEHOLDER RELATIONSHIPS CONTINUED
ANNUAL REPORT 2022 47
indexation, which ensures the rental levels remain
affordable for our tenants
• We continue to support Tesco with the rollout of
photovoltaic solar panels, with the plans to initially pilot
in one store, to a total of nine stores across our estate
• The Investment Adviser has initiated conversations with
our tenants on environmental and sustainability strategies,
including enhanced data collection around on-site energy
consumption in order to meet the grocers’ net zero targets
• The Investment Adviser continues to work with our tenants
on repurposing of space that allows all of our operators to
maximise the value of their building and, potentially, increase
underlying footfall or revenues per square foot by adding
new customer offerings or facilities in or around the store
Our Suppliers
The Company’s key suppliers include professional firms such
as property agents, accounting and law firms and transaction
counterparties which are generally large, sophisticated
businesses or global institutions.
Whilst most engagements are subject to a tender process to
ensure the Company continues to obtain value for money, we
aim to partner with suppliers 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.
Where material counterparties are new to the business,
checks, including anti money laundering checks, are
conducted prior to transacting any business to ensure that no
reputational or legal issues would arise from engaging with
that counterparty. The Company also reviews the compliance
of all material counterparties with relevant laws and
regulations such as the Criminal Finances Act 2017.
All Group entities have a policy of paying suppliers in
accordance with pre agreed terms as reported in the
Supplier Payment Policies on page 48.
How did we engage?
• Key suppliers such as our property agent, Morgan Williams
and the Company broker, Stifel, are invited to attend the
quarterly Board meetings in order for the Board to be kept
informed of the current market within which we operate
• The Board and Committees speak with accounting and law
firms on an informal or one-to-one basis to discuss specific
issues relating to the Company
• The Board are also provided with access to external adviser
reports on all workstreams and transactions
Topics discussed
• Service levels and annual performance
• Fees charged during the year for key suppliers engaged
during the year
• Relationship management
How did we respond?
• There is direct engagement between the Investment
Adviser and the Board in respect of suppliers engaged
during the year. Most professional firms and advisers acting
for the business have had relationships with the Company
and the Investment Adviser since the IPO in July 2017.
Feedback has continued to be positive on all of our key
supplier arrangements
• The Board has established a Management Engagement
Committee, where the supplier performance and fees
are reviewed on an annual basis to ensure that the
Company continues to obtain best value for money
on services procured
Our Communities
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 supermarkets, be good neighbours to
our communities, and partner with our tenants to support
local causes.
The Company’s tenants are primarily leading supermarket
retailers who have already committed to high standards on
improving the local communities within which they operate.
Such characteristics make our tenants ideal partners in
driving greater engagement of the local catchments of our
assets and operations.
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
• Tenant engagement is managed in line with the preferences
of individual tenants, and ranges from regular scheduled
meetings to more informal discussions as needed
Topics discussed
• Supermarket surroundings
• Environmental impacts
How did we respond?
• We aim to ensure our buildings and their surroundings
provide safe and comfortable environments for all users.
CBRE act as the asset manager on all of our sites, who aim
to address any site management issues in a timely fashion
• 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
• The Board has always approached transactions and
operational activities in a manner which seeks to minimise
detrimental impacts to the environment and local
communities, and has, over the past 12 months, taken a more
formalised approach to this process. The Investment Adviser
has also strengthened its responsible investment strategy by
drafting an investment policy grounded on responsible
investment principles and defining a scorecard focused on
key ESG-related criteria to guide investment decisions
48 SUPERMARKET INCOME REIT PLC
• The Board has committed to implementation of a wider
ESG strategy engaging external consultants and in
particular, the creation of a new ESG committee, with
greater integration of ESG-related factors into property
evaluation, and updates to the Board on the evolution of
ESG practice
The Board’s approach to sustainability is explained on
pages 28 to 33.
Supplier payment policies
Neither the Company nor any of its subsidiary undertakings
exceeds the thresholds for reporting payment practices and
performance.
The following voluntary disclosures relate to
the Group:
• the Group does not have standard or maximum payment
terms, but seeks to settle supplier invoices in accordance
with pre-agreed terms
• invoices may be submitted electronically but as the volume
of payments is relatively low, the Group does not operate
electronic tracking for suppliers
• the Group does not offer supply chain finance
• there are no arrangements for participation on supplier lists
and no charges for being on such a list
• the Group is not a member of a payment code of conduct
Modern slavery and human trafficking policy
The Group is committed to maintaining the highest
standards of ethical behaviour and expects the same of its
business partners. Slavery and human trafficking are entirely
incompatible with the Group’s business ethics. We believe
that every effort should be made to eliminate slavery and
human trafficking in the Group’s supply chain. The Board has
considered and approved our Modern Slavery Statement,
which demonstrates our commitment to seeking to ensure
that there is no slavery, forced labour or human trafficking
within any part of our business or suppliers. A copy of
our Modern Slavery Statement is available at
https://www.supermarketincomereit.com/about.
CORPORATE GOVERNANCE | OUR KEY STAKEHOLDER RELATIONSHIPS CONTINUED
ANNUAL REPORT 2022 49
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 of the Chairman and four
independent Non-Executive Directors and is supported by
JTC (UK) Limited who act as the Company Secretary. Nick
Hewson is the Chairman 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.
Nick Hewson also serves as Chair of the newly created
Management Engagement Committee.
Vince Prior is the Senior Independent Director (‘SID’) and
acts as a sounding board for the Chairman 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 Chairman present, to evaluate
the performance of the Chairman, 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 External Counsel
and the Company Secretary, who are responsible to the
Chairman on matters of corporate governance. Further
details of each Director’s experience can be found in the
biographies on page 42.
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 absolutely fundamental to the
Company’s strategy, as summarised in the outline of the
Group’s business model on pages 12 to 22 and on the
Company’s website: www.supermarketincomereit.com/, and
the Company’s investment strategy is described in the
Strategic Report on pages 1 to 41.
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 Manger’), under which it is responsible for
overall portfolio management and compliance with the
Group’s investment policy, ensuring compliance with the
requirements of the Alternative Investment Fund Manager
Directive (‘AIFMD’) that apply to the Group and undertaking
risk management. The AIFM has delegated certain services in
relation to the Group and its Portfolio, which include advising
in relation to financing and asset management opportunities
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.
Conflicts of interest
All of 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 advisors to the Company. Whilst the
Company has no employees, the Board pays close attention
to the 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.
CORPORATE GOVERNANCE | LEADERSHIP AND PURPOSE
50 SUPERMARKET INCOME REIT PLC
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 (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 is 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 are used to
purchase further shares in the Company
CORPORATE GOVERNANCE | LEADERSHIP AND PURPOSE CONTINUED
• The structure of and rationale behind the Investment
Adviser’s fees are explained in note 28 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.
The Board’s attendance in 2021/2022
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
Chairman, 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 Chairman, 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
Nominations
Committee
Remuneration
Committee
4
Scheduled
meetings
100%
Attendance
3
Scheduled
meetings
100%
Attendance
4
Scheduled
meetings
100%
Attendance
2
Scheduled
meetings
100%
Attendance
Nick Hewson
4/4
3/3*
4/4
2/2
Vince Prior
4/4
3/3
4/4
2/2
Jon Austen
4/4
3/3
4/4
2/2
Cathryn Vanderspar
4/4
3/3
4/4
2/2
Frances Davies** n/a n/a n/a
1/1
* Nick Hewson as Chair of the Board is not a member of the audit committee but attended by invitation
** Frances Davies was appointed to the Board and all other committees from 1 June 2022.
The newly formed ESG and Management Engagement committees were yet to meet during the period.
ANNUAL REPORT 2022 51
OUR OPERATING MODEL
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.
Environmental, Social &
Governance Committee
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.
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
Marketing Asset Management
Funding
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. The AIFM is
responsible for the running of the fund.
Responsibilities
Portfolio
Marketing Fund Administration
Risk Management
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.
52 SUPERMARKET INCOME REIT PLC
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 recommendations for:
• All potential acquisitions and disposals, including
appointment of principal advisers and cost budgets
• Asset management initiatives
• New financing or refinancing arrangements
• Equity raises.
Board meetings
The quarterly Board meetings follow a formal agenda, which
is approved by the Chairman and circulated by the Company
Secretary in advance of the meeting. The Chairman leads the
Board by presiding over Board meetings; agreeing the
agendas, ensuring, among other matters, that appropriate
weight is given to topics such as strategy, asset allocation
Discussion
Strategy and
operational
• Update by the Company’s broker 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 period end
CORPORATE GOVERNANCE | BOARD ACTIVITIES DURING THE YEAR
In addition to formal Board meetings, there is also an
ongoing informal interaction between the Directors, the
AIFM and the Adviser. The annual evaluation of the Board’s
effectiveness always considers the performance of the
Chairman, and whether he has performed his role effectively.
In recent years, the Directors, led by the Senior Independent
Director, have concluded that the Chairman has fulfilled his
role and supported effective functioning of the Board.
and financial performance. He ensures that Board debates
are balanced, open and inclusive and promotes behaviours
and attributes that make up our culture.
The Chairman ensures that the Board is provided with
information of appropriate quality and form, in a timely
manner. 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 the Company’s broker.
A summary of typical matters discussed by the Board at
each quarterly Board meeting are noted below:
ANNUAL REPORT 2022 53
Decision Stakeholders
Board rationale and
considerations Impact
Long term effects
of decision
Equity raises in October
2021 and April 2022
Shareholders
Lenders
Tenants
The Investment Adviser
The equity raises in October
2021 and April 2022 were
underpinned by an accretive
pipeline, resulting in an
improved earnings per
share and increasing the
diversity of the Company’s
tenant base
The Board approved the
decision to conduct two
equity raises in October
2021 and April 2022,
successfully raising £506.7
million at a premium to
NTA which has been
accretive to existing
shareholders
The equity raises supported
the continued growth of
the Company. Both equity
raises were significantly
oversubscribed. A further
427,405,203 new shares
were issued in relation to
the equity raise
Unsecured financing Shareholders
Lenders
The Investment Adviser
The new unsecured debt
facility was competitively
tendered with a panel of
banks to ensure best
pricing was achieved
for shareholders.
The new unsecured debt
facility was split equally
amongst the bank syndicate
with all parties signing up to
the same conditions
The Board approved the
decision to sign 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 the first time
the Company accessed
unsecured debt financing
The new unsecured debt
facility allows the Company
to continue to grow, with
attractive pricing which is
accretive to shareholders
Migration of Company
shares to the Premium
Segment of the London
Stock Exchange plc’s
Main Market
Shareholders
The Investment Adviser
The decision for the shares
to be admitted to the main
market increases liquidity of
shares for shareholders and
broadens the long-term
potential investor base
The Board approved the
decision for the entire
issued ordinary share
capital of the Company to
be admitted to the Official
List of the FCA and for a
transfer of the shares from
trading on the Specialist
Fund Segment to the
Premium Segment of the
London Stock Exchange
plc’s Main Market
The Migration allowed
the company to be eligible
for inclusion in the FTSE
UK and FTSE EPRA
NAREIT Index Series
which occurred on
23 February 2022
Appointment of
Non-Executive Director
Shareholders
Communities
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 and ESG will
enhance the Board’s
decision-making process
on such issues
The Board approved the
decision following the
recommendation of the
Nominations Committee to
appoint Frances Davies as
a Non-Executive Director
from 1 June 2022
The Board now has 60% of
Directors who have served
for five or more years.
The Board has a 40%
representation of female
members appointed in the
last four years, meaning
the Company has achieved
the 33% female Board
representation target as
set out by the Hampton-
Alexander initiative
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
2021/22 are set out below and in “Board activities during the
year” on page 52. Further details on our stakeholder
engagement, and our response, can also be found on
pages 45 to 48.
54 SUPERMARKET INCOME REIT PLC
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 of the Company’s day-to-day
management and administrative functions are outsourced to
third parties. As a result, the Company has no executive
directors, employees or internal operations. The Company has
therefore not reported further in respect of these provisions.
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 the majority 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.
CORPORATE GOVERNANCE | CORPORATE GOVERNANCE STATEMENT
AIC
Code Principle
Evidence of compliance/
explanation of departure from the AIC Code
A 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.
Section 172(1) Statement on page 41
Leadership and Purpose on pages 49 to 51
Strategic report on pages 1 to 41
B 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.
Strategic report on pages 1 to 41
Leadership and Purpose on pages 49 to 51
C 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.
Our Principal Risks on pages 34 to 40
Audit and Risk Committee report on pages 59 to 61
Nomination Committee report on pages 56 to 58
Directors’ report on pages 66 to 68
D In order for the company to meet its responsibilities to Shareholders and
stakeholders, the board should ensure effective engagement with, and
encourage participation from, these parties.
Section 172 Statement on page 41
Our Key Stakeholders on pages 45 to 48
F 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.
Board activities during the year on page 52
G 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.
Leadership and Purpose on pages 49 to 51
Nomination Committee Report on pages 56 to 58
H 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
Leadership and Purpose on pages 49 to 51
Nomination Committee report on pages 56 to 58
I 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 56 to 58
Board Activities during the year on page 52
Leadership and Purpose on pages 49 to 51
J 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.
Nomination Committee report on pages 56 to 58
ANNUAL REPORT 2022 55
AIC
Code Principle
Evidence of compliance/
explanation of departure from the AIC Code
K 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 page 42
Nomination Committee report on pages 56 to 58
L 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.
Nomination Committee report on pages 56 to 58
M 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.
Audit and Risk Committee report on pages 59 to 61
N The board should present a fair, balanced and understandable assessment of
the company’s position and prospects.
Audit and Risk Committee report on pages 59 to 61
O 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.
Audit and Risk Committee report on pages 59 to 61
Alternative Investment Fund Manager’s report
on pages 70 to 71
P Remuneration policies and practices should be designed to support strategy
and promote long-term sustainable success.
Remuneration Committee report on pages 62 to 65
Q A formal and transparent procedure for developing a remuneration policy
should be established. No Director should be involved in deciding their own
remuneration outcome.
Remuneration Committee report on pages 62 to 65
R 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 62 to 65
Requirement Board statement Where to find further information
Going concern basis The Board is of the opinion that the going concern basis
adopted in the preparation of the Annual Report is appropriate.
Further details are set out on page 1 to 41 of the
Strategic Report
Viability Statement The Board is of the opinion that the viability statement
adopted in the preparation of the Annual Report is
appropriate.
Further details are set out on page 1 to 41 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 Audit, Risk and Internal
Controls on page 61 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.
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 34 to 40 of the Strategic Report
Fair, balanced and
understandable
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 pages 59 to 61
Appointment of
the Adviser
The Directors consider the continuing appointment of the
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 28 to the
Consolidated Financial Statements
s172 The Directors have considered the requirements of s172
when making strategic decisions.
Section 172 Statement on page 41
56 SUPERMARKET INCOME REIT PLC
Dear Shareholders
I am pleased to present the Nomination Committee report
for the year ended 30 June 2022. The main focus of the
Committee over the past year has been on Board recruitment
and we were delighted to welcome Frances Davies to the
Board in June 2022.
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.
Our Committee comprises of five Independent Non-
Executive Directors of the Company, none of which are
connected to the AIFM or Investment Adviser.
Committee Members
Vince Prior: Committee Chair
Nick Hewson
Jon Austen
Cathryn Vanderspar
Frances Davies (appointed 1 June 2022)
All of the Committee members served for the full year, unless
otherwise stated.
During the year the Nomination Committee held four 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. JTC (UK) Limited as Company
Secretary 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 the
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 role of Chairman. Source suitable
candidates for the role of Senior Independent Director
• Membership of the Audit and Risk and Remuneration
Committees and any other Board committees as
appropriate, 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
• Any matters relating to the continuation in office of any
Director at any time
Board Independence and Tenure
The Board currently comprises five 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 which has
seen a material increase in acquisition activity and two
successful fund raises. 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, particularly
in relation to Directors being re-elected for a term beyond
six years and will implement succession planning accordingly.
In October 2020, we recommended to the Board that Nick
Hewson, Jon Austen and Vince Prior serve a second three-
year term, subject to annual re-election at the AGM. In
accordance with the principles of the AIC Code, we do not
consider it necessary to mandatorily replace a Director after a
predetermined period of tenure. We are, however, mindful of
the circumstances of each Director and implement succession
planning accordingly.
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. Following the
skills matrix exercise undertaken in the prior year, the
Committee evaluated the current skills and experience on
the Board and identified the need to appoint an additional
Non-Executive Director with capabilities in capital markets
and ESG.
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 advisors.
The criteria was based solely on merit, taking into account
the candidates’ experience to date as well as their cognitive
and personal strengths. Open advertising was not used. In
undertaking the process the Board had regard to both the
AIC and FRC Guidance on Board effectiveness.
CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT
ANNUAL REPORT 2022 57
As part of this, the Investment Adviser identified a long list of
external candidates and arranged a series of interviews with
the Board as well as members of the Investment Adviser.
Following a detailed selection process, the Committee
recommended the appointment of Frances Davies with effect
from 1 June 2022. Frances’ depth of experience in corporate
finance and asset management will allow her to contribute
to the development and implementation of our strategy and
the long-term sustainable success of the Group. Frances is
currently a partner of Opus Corporate Finance, a corporate
finance advisory business, and is a Non-Executive Director at
HICL Infrastructure Plc and JP Morgan Smaller Companies
Investment Trust.
The Committee is wholly satisfied that 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 that in order to best
utilise the existing skills and experience of the Board, that
all Board members shall be members of all committees
for the next financial year (apart from Nick Hewson, as
Chairman of the Board not being a member of the
Audit Committee). The Board also established a new
Environmental, Social and Governance Committee and
a Management Engagement Committee from 1 July 2022.
Nick Hewson will chair the Management Engagement
Committee, whilst Frances Davies will chair the
Environmental, Social and Governance Committee.
Director training programme
The Chairman is responsible for ensuring that any ongoing
training and development needs of the Directors that are
relevant for their role in the Company are met. All Directors
are provided with an appropriate induction at the time of
appointment. The remit of the Nomination Committee
includes monitoring the skills and knowledge of the Directors
and, where necessary, further support is provided. Frances
Davies received a formal induction upon the 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.
Our 2021/22 Board evaluation programme
During August 2021, the Chairman, a senior member of the
Investment Adviser’s team and I met with three potential
providers to undertake an external Board evaluation.
Following this process, BoardAlpha were selected to
undertake a Board effectiveness review which occurred in
November 2021. The evaluation process was led by Richard
Clarke. Neither BoardAlpha or Richard Clarke have any
connection with the Company apart from conducting the
Board evaluation. The aim of the review was to assess the
effectiveness of the Board, its Committees and individual
Directors in order to identify any actions to improve how
Directors fulfil their duties and become a more effective Board.
The Board evaluation took the form of individual, structured,
in-depth interviews with each of the Directors, including the
Chairman. Discussions were also held with key staff at the
Investment Adviser, as well as the Company’s broker, the
Company Secretary, external counsel and the AIFM.
BoardAlpha also attended meetings of the Board and
Audit committee, to further inform the assessment.
The process also considered the effectiveness of individual
Directors and one-to-one performance feedback was given
by the Senior Independent Director to the Chairman and by
the Chairman to the other Directors at the end of the process.
The review concluded that the Board, its Committees and
individual Directors continue to operate effectively. Some
of the key strengths identified included:
• The Board appears to have an open and positive
relationship with the investment adviser whilst also
appropriately scrutinising and challenging their
decision-making processes
• Directors appear to have a good balance of complementary
skills and are highly engaged and communicate frequently,
both with each other and with their advisers
• Directors appear to receive high-quality and
comprehensive information from the Investment Adviser,
particularly on acquisitions
• Well-managed Board and Committee meetings with
effective leadership from their respective Chairs and
a clear focus on priorities
The review identified some recommendations and
opportunities and the key actions for 2022/23, all of which
are currently underway.
58 SUPERMARKET INCOME REIT PLC
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 at Board level and encourage
candidates from all educational backgrounds and walks of
life. We commit to diversity and inclusion with respect to all
protected characteristics, including gender. No candidate will
face discrimination due to their race, ethnicity, country of
origin, nationality, cultural background, gender or any other
protected characteristic in the Board nomination process.
What is important is professional achievement and the ability
to be a successful Director based on the individual’s skill set
and experience.
Qualifications are considered when necessary to ensure
compliance with regulation such as in relation to appointments
to the Audit and Risk Committee. The Company’s Diversity
Policy is reviewed regularly and it is believed that the Board
has a balance of skills, qualifications and experience which
are relevant to the Company. The Board adopted a formal
diversity policy at its meeting on 3 September 2018.
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 two
female members who have both been appointed in the last
four years, meaning we have achieved the 33% female Board
representation target as set out by the Hampton-Alexander
initiative. The Nomination Committee recognises that
diversity extends beyond gender and is committed to
continuing to review Board composition from that perspective.
The Board does not currently have any Directors from an ethnic
minority background and we are therefore giving specific focus
to ethnic diversity in ongoing Board recruitment. Diversity and
inclusion remain a key priority and the Board and its Committees
continue to drive and oversee our progress in these areas.
Senior Independent Director (SID)
The Committee is responsible for the recommendation to the
Board of a Senior Independent Director. The role of the SID
is, among other things, to act as a sounding board for the
Chairman and as an intermediary for other Directors and
Shareholders. No Director has a say in their own nomination
to the role of Senior Independent Director.
I was appointed as the Company’s Senior Independent
Director on 7 February 2018 to serve for a term that runs
consecutively with my Non-Executive Directorship. In
addition, I meet with the other Non-Executive Directors
annually, without the Chairman present, to evaluate the
performance of the Chairman, in line with good practice.
Signed on behalf of the Nomination Committee
Vince Prior
Nomination Committee Chair
20 September 2022
CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT CONTINUED
Number Recommendation How this is being addressed
1 The Board agreed to spend more time formalising the
strategic review process
An annual strategy day with the Investment Adviser, the Board and
key advisors in attendance has been scheduled, with the first having
taken place during January 2022
2 Increased engagement between the Board and
Shareholders
This has already been initiated through planned investor events and
the AGM and we can see immediate benefits from encouraging and
developing this dialogue
3 Ensure that the working risk register is reviewed regularly A working risk register is included in Board or Audit and Risk
Committee packs and placed as a standing agenda item
4 Management Engagement Committee The Board voted to establish a Management Engagement
Committee with effect from 1 July 2022
5 Extending the Board Frances Davies was appointed during the year and we will continue
to keep the composition of the Board under continuing review
40%
60%
Gender balance at the year end
Male Female
Length of Directors’ tenure at the year end
Less than 1 year – 20%
Between 2 and 5 years – 20%
Over 5 years – 60%
ANNUAL REPORT 2022 59
Dear Shareholders,
I am pleased to present the Audit and Risk Committee
Report for the year ended 30 June 2022. 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 Frances Davies to
the Committee during the year and 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.
Our Committee consists of four Independent Non-Executive
Directors of the Company, none of which are connected to
the AIFM or Investment Adviser.
Committee Members
Jon Austen: Committee Chair
Vince Prior
Cathryn Vanderspar
Frances Davies (appointed 1 June 2022)
All of the Committee members served for the full year, unless
otherwise stated. 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
page 42.
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 that it receives full information in a
timely manner to allow it to fulfil its obligations.
Members of the Investment Adviser and the Group’s Auditor
were invited to attend the Committee meetings. JTC (UK)
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
the 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 during the year
Relationship with the auditor
The Committee has primary responsibility for managing the
relationship with the Auditor, including assessing their
performance, effectiveness and independence annually and
recommending to the Board their reappointment or removal.
BDO LLP (“BDO”) were appointed as the Group’s Auditor in
2017 and we are recommending that they be 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.
Thomas Edward Goodworth continues to remain as audit
partner and, in line with the policy on lead partner rotation,
he is expected to rotate off the audit ahead of the 2026 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 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.
Effectiveness and independence
We meet with the Auditor and the Investment Adviser before
the preparation of each of the Annual and Interim results, to
plan and discuss the scope of the audit or review as
appropriate, and challenge where necessary to ensure its rigour.
At these meetings the Auditor prepares a detailed audit or
review plan which is discussed and questioned by us and the
Investment Adviser to ensure that all areas of the business are
adequately reviewed and that 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.
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
review or audit 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 that the
Auditor has met the agreed audit plan.
CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT
60 SUPERMARKET INCOME REIT PLC
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 £167,500 in fees to the Auditor
for non-audit services during the year ended 30 June 2022.
These fees are set out below.
• Corporate finance services in connection with the October
2021 and April 2022 equity raises – £77,500
• Financial Position and Prospects Procedures review in
connection with the migration of the Company to the
Premium Segment of the London Stock Exchange –
£45,000
• ICMA Comfort Letter – £15,000
• Review of the Group’s interim report – £30,000
• Total Audit Fees for the year ended 30 June 2022 – £252,000
• The ratio of non-audit fees to audit fees for the year ended
30 June 2021 was 66%
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.
Of the £167,500 paid to BDO during the year, £32,500 relate
to services which were in relation to work on public
prospectus opinions and therefore fell outside of the 70% fee
cap. The Committee was therefore satisfied that the non-
audit fees paid during the year did not exceed 70% of the
average audit fees paid within 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 issue considered by the Committee in respect
of the year ended 30 June 2022, which contained a significant
degree of estimation uncertainty, is set out in the table below.
CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT CONTINUED
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 2022 was £1.57
billion (30 June 2021: £1.1 billion) reflecting a valuation uplift,
net of costs, of 3.7% 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.
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 2022 and September 2022 in respect of the
interim and annual valuations.
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
ANNUAL REPORT 2022 61
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 satisfactory ISAE 3402 control report produced by
the Company Secretary for the year ended 31 March 2022,
which has been reviewed and reported upon by the
Company Secretary’s external auditor, to verify the
effectiveness of the Company Secretary’s internal controls
over cash management
• The Investment Adviser have 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 2022, 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.
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.
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 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.
ESG
The Committee’s terms of reference were amended during
the year to 30 June 2021 to include responsibility for ESG.
During the year the Committee received a presentation from
FTI on the outputs of the ESG strategy review and materiality
review. The Committee worked closely with the Investment
Adviser on a dedicated ESG strategy session which was held
during March 2022. During this session the longer term
sustainability strategy was discussed and the implementation
plan for 2023 agreed. As a result of the increased importance
of ESG for the Company the Board voted to approve the
establishment of a dedicated ESG committee chaired by
Frances Davies with effect from 1 July 2022.
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 pages 57 and 58.
Signed on behalf of the Audit and Risk Committee on
20 September 2022.
Jon Austen
Audit and Risk Committee Chair
20 September 2022
62 SUPERMARKET INCOME REIT PLC
Dear Shareholders
I am pleased to present the Remuneration Committee report
for the year ended 30 June 2022.
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 comprises of five Independent Non-
Executive Directors of the Company, none of which are
connected to the AIFM, or Investment Adviser.
Committee Members
Cathryn Vanderspar: Committee Chair
Vince Prior
Nick Hewson
Jon Austen
Frances Davies (appointed 1 June 2022)
All of the Committee members served for the full year,
unless otherwise stated.
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. JTC (UK) Limited as Company
Secretary acts as secretary to the Committee.
The Committee determines the level of Non-Executive
Directors’ remuneration. No remuneration changes have
taken place during the year, however following a
benchmarking exercise undertaken the remuneration
has been increased from 1 July 2022.
Full details of the Group’s policy with regards to Directors’
remuneration paid during the year ended 30 June 2022 are
shown below.
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 Chairman
• 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 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.
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.
CORPORATE GOVERNANCE | DIRECTORS’ REMUNERATION REPORT
ANNUAL REPORT 2022 63
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.
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. As Chair of the
Remuneration Committee, I will attend 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
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
2022. The Committee considered fee levels this year and
considered that amendments were necessary and, therefore,
fees will be increased with effect from 1 July 2022.
report for the year ended 30 June 2021 was approved by the
Shareholders at the 2021 AGM with 99.98% of the votes cast
being in favour. The Remuneration Policy is subject to a
binding vote at the 2024 AGM.
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.
Base fees have been increased to reflect the increased
frequency of Board meetings and complexity of matters to
be considered. The fee for the role of the Audit and Risk
Committee Chair has been increased by £1,500 to reflect that
this position has become more involved with the increased
responsibility for risk management. The increase in the fee
for the role of Nomination Committee Chair reflects the
additional work undertaken in relation to the external Board
evaluation process and the appointment of new members to
the Board. In aggregate total fees remain under the limit set
out in the Governing documents as set out below.
Date of Most recent Latest due
original date of date of
Director appointment election re-election
Nick Hewson 20 June 2017 24 November 2021 31 December 2022
Jon Austen 20 June 2017 24 November 2021 31 December 2022
Vince Prior 20 June 2017 24 November 2021 31 December 2022
Cathryn Vanderspar 5 February 2020 24 November 2021 31 December 2022
Frances Davies 1 June 2022 n/a n/a
Revised fee Fee per annum
per annum from year ended
1 July 2022 30 June 2022
Chairman £75,000 £70,000
Non-Executive Directors (‘NEDs’) £52,500 £50,000
Senior Independent Director (‘SID’)* £5,000 £5,000
Audit Committee Chair* £9,000 £7,500
Remuneration Committee Chair* £5,000 £5,000
Nomination Committee Chair* £4,000 £2,500
Management Engagement Committee Chair* – –
Environmental, Social, and Governance Committee Chair* £5,000 –
* No additional fee is payable for Committee Chair positions undertaken by the Chairman of the Board
64 SUPERMARKET INCOME REIT PLC
Annual Report on Remuneration
Directors’ emoluments – single total figure table (audited)
The Directors who served during the year received the following emoluments, all of which was in the form of fees:
No Directors received any expenses.
Annual
Fixed percentage
Year ended Year ended Remuneration change since
30 June 2022 30 June 2021 (both years) 30 June 2021
(1)
£’000 £’000 % %
Nick Hewson 70 70 100 0
Jon Austen 58 58 100 0
Vince Prior 58 58 100 0
Cathryn Vanderspar 55 55 100 0
Frances Davies* 4.2 – n/a n/a
(1) Or date of appointment, if later.
* Appointed 1 June 2022
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
CORPORATE GOVERNANCE | DIRECTORS’ REMUNERATION REPORT CONTINUED
Relative importance of spend on pay
The table below sets out, in respect of the year ended
30 June 2022:
a) The remuneration paid to the Directors
Year ended Year ended Variance
30 June 2022 30 June 2021 year on year
£’000 £’000 %
Directors’ fees 245 240 2.1
Management fee and expenses 9,405 6,255 50
Dividends paid 53,190 35,481 50
Year ended Year ended
30 June 2022 30 June 2021
Directors’ fees as a percentage of % %
Management fee and expenses 2.6 3.8
Dividends paid 0.46 0.68
Directors’ shareholdings (audited)
The Directors of the Company had the following beneficial
interests in the issued ordinary share capital of the Company
as at 30 June 2022 and at the date of this report:
As at the date As at
Directors of this report 30 June 2022
Nick Hewson 1,086,670 661,670
Jon Austen 305,339 279,779
Vince Prior 151,923 134,886
Cathryn Vanderspar 108,645 91,738
Frances Davies 0 0
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 2022, 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 2022 is given in the
Strategic Report.
ANNUAL REPORT 2022 65
It is a company law requirement to compare the performance
of the Group’s share price to a single broad equity market
index on a total return basis. However, it should be noted that
constituents of the comparative index used above are larger
in size than the Group. The Group does not have a
benchmark index.
Voting at Annual General Meeting
An Ordinary Resolution to approve the 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
20 September 2022
FTSE All-Share vs The Company
60
70
80
90
100
110
120
130
140
150
160
The Company FTSE All-Share
JUN17 SEP17 DEC18 MAR19SEP18DEC17 JUN19 SEP19MAR18 JUN18 DEC19 JUN20 SEP20 DEC20 MAR21 JUN21 SEP21 DEC21 MAR22 JUN22MAR20
Relative performance
FTSE 100 All-Share vs The Company
90
80
70
60
100
110
120
130
140
The Company FTSE 100 All-Share
JUN17 SEP17 DEC18 MAR19SEP18DEC17 JUN19 SEP19MAR18 JUN18 DEC19 JUN20 SEP20 DEC20 MAR21 JUN21MAR20
Relative performance
FTSE All Share Total Return vs SUPR
90
60
70
80
100
110
120
130
JUL19 JAN20NOV19
Supermarket REIT FTSE All Share Total return
AUG19 MAR20OCT19 APR20 JUN20
Relative performance
66 SUPERMARKET INCOME REIT PLC
CORPORATE GOVERNANCE | DIRECTORS’ REPORT
The Directors present their report together with the audited
financial statements for the year ended 30 June 2022. The
Corporate Governance Statement pages 54 to 55 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 until
22 February 2022 on the Specialist Fund Segment of the
London Stock Exchange’s Main Market. On the 23 February
2022, the Company migrated to the Premium List of the
London Stock Exchange’s Main Market and the Company’s
shares were traded on the Premium List from this date. The
Group has entered the Real Estate Investment Trust (REIT)
regime for the purposes of UK taxation.
The Company is a member of the Association of Investment
Companies (the “AIC”).
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 2022 financial year, the company has
declared interim dividends amounting to aggregate 5.94 pence
per share (2021: 5.9 pence per share). The following dividends
were declared during the year and subsequently:
Date declared Amount per share (pence) Date paid
8 July 2021 1.465 7 August 2021
23 September 2021 1.485 16 November 2021
10 January 2022 1.485 25 February 2022
6 April 2022 1.485 27 May 2022
8 July 2022 1.485 22 August 2022
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 Directors who served throughout the year unless
otherwise stated otherwise, are detailed below:
Director Service in the year to 30 June 2022
Nick Hewson Served throughout the year
Jon Austen Served throughout the year
Frances Davies Appointed 1 June 2022
Vince Prior Served throughout the year
Cathryn Vanderspar Served throughout the year
All of the above Directors remain in office at the date of
this report.
Biographical details of the current Directors of the Company
are shown on page 42.
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 any directions given by the Company by
special resolution.
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 page 49.
Directors’ interests
The beneficial interests of the Directors and their closely
connected persons in the ordinary shares of the Company as
at 30 June 2022 were as follows:
Percentage
Number of of issued
shares share capital
Nick Hewson 661,670 0.05%
Jon Austen 279,779 0.02%
Vince Prior 134,886 0.01%
Cathryn Vanderspar 91,738 0.01%
Frances Davies 0 0.00%
Appointment and replacement of Directors
All Directors retired and were re-elected at the AGM on
24 November 2021, with the exception of Frances Davies who
was appointed to the Board on 1 June 2022. 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.
ANNUAL REPORT 2022 67
Directors’ indemnification and insurance
The Company maintains £25 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 £30 million on 19 July 2022 and continues
in effect at the date of this report.
Political contributions
The Group made no political contributions during the year
(2021: none).
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 2022.
Percentage
Number of of issued
shares share capital
Evelyn Partners
(formerly Smith & Williamson) 91,946,704 7.42%
Quilter Cheviot Investment
Management 78,092,320 6.30%
Close Brothers Asset Management 72,417,780 5.84%
Waverton Investment Management 50,822,795 4.10%
BMO Global Asset
Management (UK) 48,242,334 3.89%
Cazenove Capital Management 43,230,456 3.49%
Since the year end, and up to 20 September 2022, the
Company has been notified of the following interests in its
ordinary shares in accordance with DTR 5. The information
provided is correct as at the date of notification:
Percentage
Number of of issued
shares share capital
BlackRock Inc 64,767,491 5.21%
Columbia Threadneedle
Investments 61,728,272 4.98%
Waverton Investment Management 49,926,559 4.02%
Branches outside the UK
The Company has no branches outside the UK.
Financial instruments
The Group’s exposure to, and management of, capital risk,
market risk and liquidity risk is set out in note 22 to the
Group’s financial statements.
Employees
The Group has no employees and therefore no employee
share scheme or policies for the employment of disabled
persons or employee engagement.
Greenhouse gas emissions
The Group is considered to be a low energy user due to the
fact it has no Scope 1 or Scope 2 emissions and therefore is
not required to make any disclosures under the Streamlined
Energy and Carbon Reporting Framework. Information
regarding Scope 3 emissions arising from the Group’s
activities are included within the TCFD aligned report on
pages 28 to 33.
Other disclosures
Disclosures of financial risk management objectives and
policies and exposure to financial risks are included in
note 22 to the financial statements. Details of future
developments are included in the Strategic Report.
No additional disclosures are required in accordance with
Listing Rule (LR) 9.8.4C R.
68 SUPERMARKET INCOME REIT PLC
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.
Auditor
BDO LLP was appointed as auditor by the Directors in June
2017 and was last re-appointed as auditor by the Company’s
Shareholders at the AGM held on 7 November 2021. BDO
LLP have expressed their willingness to continue as auditor
for the financial year ending 30 June 2023. A resolution to
appoint BDO LLP as auditor of the Company will be
proposed at the forthcoming AGM.
Change of control – 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.
Share capital structure
As at 30 June 2022, the Company’s issued share capital
consisted of 1,239,868,420 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 23 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 2021, Shareholders authorised the Company to make
market purchases of up to 147,641,558 Ordinary Shares or
14.99 per cent of the Ordinary Shares in issue at that time.
The Company has not repurchased any of its ordinary shares
under this authority, which is due to expire at the AGM in
2022 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 29 of the consolidated financial statements.
Corporate Governance
The Company’s statement on corporate governance can be
found in the Corporate Governance Report on pages 54 to 55
of this Annual Report. The Corporate Governance Report
forms part of this directors’ report and is incorporated into it
by cross-reference.
Signed by order of the Board on 20 September 2022.
Nick Hewson
Chairman
20 September 2022
CORPORATE GOVERNANCE | DIRECTORS’ REPORT CONTINUED
ANNUAL REPORT 2022 69
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.
The Company is required to make the Annual Report and
Accounts available on a website. The Company’s website
address is www.SupermarketIncomeREIT.co.uk. Financial
statements are published on the Company’s website in
accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements,
which may vary from such legislation in other jurisdictions.
The maintenance and integrity of the Company’s website
is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Responsibility Statement
The Directors confirm to the best of their knowledge:
• The Group financial statements prepared in accordance
with 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
Chairman
20 September 2022
CORPORATE GOVERNANCE | DIRECTORS’ RESPONSIBILITIES STATEMENT
70 SUPERMARKET INCOME REIT PLC
Background
The Alternative Investment Fund Manager’s Directive (the
“AIFMD”) came into force on 22 July 2013. The objective of
the AIFMD was to ensure a common regulatory regime for
funds marketed in or into the EU which are not regulated
under the UCITS regime. This was primarily for investors’
protection and also to enable European regulators to obtain
adequate information in relation to funds being marketed in
or into the EU to assist their monitoring and control of
systemic risk issues.
The AIFM is a non-EU 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
and as disclosed below and in certain sections of the Strategic
Report, those being the Chairman’s Statement, Investment
Adviser’s Report, The UK Grocery Market, Sustainability
and TCFD Aligned Report, the Directors’ Report and Our
Principal Risks sections 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 Directors’ Report
and in notes 20 and 22 to the financial statements.
3. Leverage and borrowing
The Company is entitled to employ leverage in accordance
with its investment policy and as described in the section
entitled “POST BALANCE SHEET HIGHLIGHTS”, the
Chairman’s Statement, the section entitled “FINANCIAL
OVERVIEW” in the Strategic Report, and in notes 2, 20, 21
and 28 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
(the “ESG Framework”) and a copy of the ESG Framework
can be viewed on the AIFM’s website at https://www.jtcgroup.
com/wp-content/themes/jtcgroup/dist/img/review-2019/pdfs/esg.pdf.
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, a copy of which can
be found at 174243 Project Charlie – Online Guide
(supermarketincomereit.com), as updated by SUPR’s
supplementary prospectus dated 7 April, 2022,
a copy of which can be found at
77d474_705dd82df0b94e56b563d2685573b7ae.pdf
(supermarketincomereit.com).
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 Sustainability and TCFD
Aligned Report included in the Strategic Report this annual
financial report.
CORPORATE GOVERNANCE | ALTERNATIVE INVESTMENT FUND MANAGER’S REPORT
ANNUAL REPORT 2022 71
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.
As at the date of this report, one subsidiary of JTC Plc is
currently a U.N. Principles for Responsible Investment
signatory. During the remainder of 2022 a project is
underway to extend this across the JTC Group.
The AIFM is also 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
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 its executive directors,
Graham Taylor, Gregory Kok and James Tracey, because they
were all employees of the JTC group of companies, of which
the AIFM forms part. Matthew Tostevin is a non-executive
director and is paid a fixed fee of £10,000 for acting as a
director, attendance at all Board meetings and work
performed as a director of the Company in the ordinary
course of business. Subject to the prior approval of the Board
of directors on each occasion, Mr Tostevin is paid additional
remuneration on a time spent basis for services rendered to
the Company which are not in the ordinary course of
business. 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 Company paid £10,000 in fixed fees and £20,982.50 in
variable remuneration to its directors.
During the Company’s financial year, Messrs Kok and Tracey
resigned as directors of the AIFM and Mr Kobus Cronje was
appointed as a director. Mr Cronje is not paid any separate
remuneration for acting as a director of the AIFM, because
he is an employee of the JTC group of companies.
6. Remuneration of the AIFM Payable by the Company
The AIFM was during the year under review until 31 March,
2022 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 £327,413.15.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
20 September, 2022
72 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 2022 and of the Group’s profit 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.
(the ‘Group’) for the year ended 30 June 2022 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 and notes to the financial
statements, including a summary of significant accounting
policies. The financial reporting framework that has been
applied in the preparation of the Group financial statements
is applicable law and 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 is 5 years, covering the periods
ended 30 June 2018 to 30 June 2022. 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:
We have reviewed the Directors’ going concern assessment.
Our work 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 2023, 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:
– Assessing the Group’s forecast cash flows with reference
to budgeted and historic performance and challenging
management’s forecast assumptions in comparison to
the current performance of the Group;
– Agreeing the inputs into the forecasts to supporting
documentation for reasonableness based on contractual
agreements, where available;
– Agreeing the Group’s available borrowing facilities and
the related covenants to supporting financing
documentation and calculations;
• Analysing the sensitivities applied by the Directors’ stress
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;
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC
ANNUAL REPORT 2022 73
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.
one segment, investment property, structured through a
number of subsidiary entities and a joint venture. None of
the subsidiaries or the joint venture were considered to be
significant components and as such the audit approach
included undertaking audit work on the key risks of material
misstatements identified for the Group across the subsidiary
entities and joint venture. The Group audit engagement team
performed 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.
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. This matter was
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 this matter.
• 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;
• Reviewing the disclosures in the financial statements
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
13
100% (2021: 100%) of Group profit before tax
100% (2021: 100%) of Group revenue
100% (2021: 100%) of Group total assets
100% (2021: 100%) of Group investment property
Key audit matters
2022 2021
Valuation of investment properties ✓ ✓
Materiality
Group financial statements as a whole
£18 million (2021:£12.8 million) based on
1% of Group total assets (2021: 1% of Group
total assets)
13 These are areas which have been subject to a full scope audit by the
Group engagement team
74 SUPERMARKET INCOME REIT PLC
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:
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC
CONTINUED
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of
investment
properties
As detailed in notes
12 and 14, the
Group, directly or
indirectly through
its joint venture,
owns a portfolio
of investment
properties which,
as described in the
accounting policy in
note 2.8, are held at
fair value in the
Group financial
statements. As
described within
Note 14, the Group’s
joint venture also
holds a contractual
receivable, the value
of which is
calculated with
reference to the fair
value of associated
investment
properties.
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.
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.
• 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 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.
• We consulted with internal RICS-qualified experts as part of setting our expectations.
They also attended the audit 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
ANNUAL REPORT 2022 75
Group financial statements Parent Company financial statements
2022
£m
2021
£m
2022
£m
2021
£m
Materiality 18
12.8
13.3
9.0
Basis for determining
materiality
Materiality for the Group and Parent Company’s financial statements was set at 1% of total assets (2021: 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
Rationale for the
benchmark applied
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.
Performance materiality 13.5
9.6
10
6.7
Basis for determining
performance materiality
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% (2021: 75%) of
materiality. We determined that the same measure as the Group was appropriate for the Parent Company.
Specific materiality
We also determined that for other account balances and
classes of transactions that impact the calculation of
European Public Real Estate Association (“EPRA”) 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 £2.9 million
(2021: £1.9 million), being 5% (2021: 5%) of EPRA earnings.
EPRA earnings excludes the impact of the net surplus on
revaluation of investment properties, including those held
through joint ventures. We further applied a performance
materiality level of 75% (2021: 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 £145,000
(2021: £95,000). 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.
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.
76 SUPERMARKET INCOME REIT PLC
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.
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:
• As part of the audit we gained an understanding of the
legal and regulatory framework applicable to the Group and
the industry in which it operates, and considered the risk of
acts by the Group that were contrary to applicable laws and
regulations, including fraud. We considered the Group’s
compliance with laws and regulations that have a direct
impact on the financial statements including, but not limited
to, UK company law, UK tax legislation (including the REIT
regime requirements) and the UK Listing Rules, and we
considered the extent to which non-compliance might have
a material effect on the Group financial statements.
• In order to address the risk of non-compliance with the
REIT regime, we considered a report from the Group’s
external adviser, detailing the actions that the Group
has undertaken to ensure compliance. This paper was
reviewed, and the assumptions challenged, by our own
internal expert.
CORPORATE GOVERNANCE | INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC
CONTINUED
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 set out on page 39; and
• The Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment
covers and why the period is appropriate set out on pages 39 and 40.
Other Code provisions
• Directors’ statement on fair, balanced and understandable set out on pages 60 and 61;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out
on page 55;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal
control systems set out on page 61; and
• The section describing the work of the Audit Committee set out on pages 59 to 61.
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.
ANNUAL REPORT 2022 77
• We addressed the risk of management override of
internal controls by the testing of unusual journals
and evaluating whether there was evidence of bias by
management 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
• The fraud risk around revenue recognition was addressed
by inspecting signed lease agreements to recalculate the
annual turnover and agreeing cash receipts to bank
statement to check customers exist and that the
management information did agree for a sample of tenants.
• We agreed all bank balances and loans to direct bank
confirmations and agreements.
• Our tests included agreeing the financial statement
disclosures to underlying supporting documentation where
relevant, review of Board and Committee meeting minutes,
enquiries with management and the Directors as to the
risks of non-compliance and any instances thereof, and
we considered the appropriateness of the design and
implementation of controls around procurement fraud.
• We made enquiries of the Directors as to whether there
were any known or suspected instances of fraud in the
year, or since the year end.
There is also a risk of fraud in relation to the valuation of
the investment property portfolio where the Directors may
influence the significant judgements and estimates in respect
of investment property valuations in order to achieve
property valuation and other performance targets (as set
out in the Key audit matter section above).
We communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members
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.
Thomas Edward Goodworth (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
20 September 2022
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
78 SUPERMARKET INCOME REIT PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2022
As at Year to
30 June 2022 30 June 2021
Notes £000 £000
Gross rental income 3 72,363 48,156
Service charge income 3 2,086 830
Service charge expense 4 (2,338 ) (1,044 )
Net Rental Income 72,111 47,942
Administrative and other expenses 5 (13,937 ) (9,262 )
Operating profit before changes in fair value of
investment properties and share of income from joint venture 58,174 38,680
Changes in fair values of investment properties and associated rent guarantees 12 21,820 36,288
Share of income from joint venture 14 43,301 15,506
Total share of income from joint venture 43,301 15,506
Operating profit 123,295 90,474
Finance expense 8 (12,992 ) (8,518 )
Profit before taxation 110,303 81,956
Tax charge for the year 9 – –
Profit for the year 110,303 81,956
Items to be reclassified to profit or loss in subsequent periods
Fair value movements in interest rate derivatives 20 5,566 1,569
Total comprehensive income for the year 115,869 83,525
Total comprehensive income for the year attributable to ordinary Shareholders 115,869 83,525
Earnings per share – basic and diluted 10 11.3 12.6
ANNUAL REPORT 2022 79
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
As at As at
30 June 2022 30 June 2021
Notes £000 £000
Non-current assets
Property, plant and equipment 129 129
Investment properties 12 1,561,590 1,148,380
Investment in joint ventures 14 177,140 130,321
Contract fulfilment asset 17 93 85
Financial asset at amortised cost 16 10,626
Interest rate derivatives 20 5,114 763
Total non-current assets 1,754,692 1,279,678
Current assets
Financial assets held at fair value through profit and loss 15 283 237
Trade and other receivables 18 1,863 3,140
Cash and cash equivalents 51,200 19,579
Total current assets 53,346 22,956
Total assets 1,808,038 1,302,634
Non-current liabilities
Bank borrowings 21 348,546 409,684
Interest rate derivatives 20 – 1,210
Total non-current liabilities 348,546 410,894
Current liabilities
Deferred rental income 16,360 12,061
Trade and other payables 19 10,677 8,369
Total current liabilities 27,037 20,430
Total liabilities 375,583 431,324
Net assets 1,432,455 871,310
Equity
Share capital 23 12,399 8,107
Share premium reserve 23 494,174 778,859
Capital reduction reserve 23 778,859
Retained earnings 141,909 84,796
Cash flow hedge reserve 5,114 (452 )
Total equity 1,432,455 871,310
Net asset value per share – basic and diluted 27 116 108
EPRA NTA per share 27 115 pence 108 pence
The consolidated financial statements were approved and authorised for issue by the Board of Directors on 20 September 2022
and were signed on its behalf by:
Nick Hewson
Chairman
20 September 2022
80 SUPERMARKET INCOME REIT PLC
Share Cash flow Capital
Share premium hedge reduction Retained
capital reserve reserve reserve earnings Total
£000 £000 £000 £000 £000 £000
As at 1 July 2021 8,107 778,859 (452 ) – 84,796 871,310
Comprehensive income for the year
Profit for the year – – – – 110,303 110,303
Other comprehensive income – – 5,566 – – 5,566
Total comprehensive income
for the year – – 5,566 – 110,303 115,869
Transactions with owners
Ordinary shares issued at a
premium during the year 4,292 504,539 – – – 508,831
Share premium cancellation to
capital reduction reserve – (778,859 ) – 778,859 – –
Share issue costs (10,365 ) – – – (10,365 )
Interim dividends paid – – – – (53,190 ) (53,190 )
As at 30 June 2022 12,399 494,174 5,114 778,859 141,909 1,432,455
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
Share Cash flow Capital
Share premium hedge reduction Retained
capital reserve reserve reserve earnings Total
£000 £000 £000 £000 £000 £000
As at 1 July 2020 4,735 436,126 (2,021 ) – 38,321 477,161
Comprehensive income for the year
Profit for the year – – – – 81,956 81,956
Other comprehensive income – – 1,569 – – 1,569
Total comprehensive income
for the year – – 1,569 – 81,956 83,525
Transactions with owners
Ordinary shares issued at a
premium during the year 3,372 350,132 – – – 353,504
Share issue costs – (7,399 ) – – – (7,399 )
Interim dividends paid – – – – (35,481 ) (35,481 )
As at 30 June 2021 8,107 778,859 (452 ) – 84,796 871,310
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
ANNUAL REPORT 2022 81
Year to Year to
30 June 2022 30 June 2021
Notes £000 £000
Operating activities
Profit for the year (attributable to ordinary Shareholders) 110,303 81,956
Adjustments for:
Changes in fair value of investment properties and associated rent guarantees 12 (21,820 ) (36,288 )
Movement in rent smoothing adjustments 3 (2,654 ) (1,998 )
Finance expense 8 12,992 8,518
Share of income from joint venture 14 (43,301 ) (15,506 )
Cash flows from operating activities before changes
in working capital 55,520 36,682
Decrease/(increase) in trade and other receivables 1,277 (1,437 )
(Increase)/decrease in rent guarantee receivables (87 ) 185
Increase in deferred rental income 4,299 6,858
Increase in trade and other payables 2,004 516
Net cash flows from operating activities 63,013 42,804
Investing activities
Acquisition of contract fulfilment assets 17 (8 ) (85 )
Acquisition of investment properties 12 (371,093 ) (541,210 )
Acquisition of other financial assets 16 (10,626 ) (766 )
Investment in joint venture 14 (3,518 ) (58,734 )
Capitalised acquisition costs (17,603 ) (28,752 )
Net cash flows used in investing activities (402,848 ) (629,547 )
Financing activities
Proceeds from issue of Ordinary Share Capital 23 506,727 352,956
Costs of share issues 23 (10,366 ) (7,399 )
Bank borrowings drawn 21 402,922 582,961
Bank borrowings repaid 21 (464,029 ) (298,300 )
Loan arrangement fees paid (2,187 ) (3,211 )
Bank interest paid (9,846 ) (5,578 )
Bank commitment fees paid (681 ) (527 )
Dividends paid to equity holders (51,084 ) (34,933 )
Net cash flows from financing activities 371,456 585,969
Net movement in cash and cash equivalents in the year 31,621 (774 )
Cash and cash equivalents at the beginning of the year 19,579 20,353
Cash and cash equivalents at the end of the year 51,200 19,579
CONSOLIDATED CASH FLOW
FOR THE YEAR ENDED 30 JUNE 2022
82 SUPERMARKET INCOME REIT PLC
1. Basis of preparation
General information
The Scalpel 18th Floor, 52 Lime Street, London, United Kingdom EC3M 7AF. The principal activity of the Company and its
subsidiaries (the “Group”) is to provide its Shareholders with an attractive level of income together with the potential for
capital growth by investing in a diversified portfolio of supermarket real estate assets in the UK.
At 30 June 2022 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 2022, including comparative figures relating to the year
to 30 June 2021, 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.
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted
international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group
transitioned to UK-adopted international accounting standards in its consolidated financial statements for the year commencing
1 July 2021. There was no impact or changes in accounting policies from the transition.
Going concern
In light of the significant impact of rising inflation, the energy crisis, the Ukrainian conflict and supply-chain issues on the UK
economy, and the retail sector, the Directors have placed a particular focus on the appropriateness of adopting the going concern
basis in preparing the Group’s and Company’s financial statements for the year ended 30 June 2022. In assessing the going concern
basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.
During the period covered by this report, the Group raised a total of £506.7 million from the issue of equity shares and a further
£180.0 million of debt; being £150.0 million under the Barclays/RBC Bank facility and increases to the existing HSBC RCF and
Deka loan facility of £10.0 million and £20.0 million respectively (see note 21 for further information). All financial covenants have
been met to date.
In July 2022, the Company arranged a new £412.1 million unsecured with a bank syndicate comprising Barclays, Royal Bank of
Canada, Wells Fargo and Royal Bank of Scotland International, of which £255 million was used to refinance existing secured
commitments (See note 29 for further information).
In September 2022, the HSBC RCF facility that was due to mature in August 2023 was extended by a further two years to mature in
August 2025.
The Group generated net cash flow from operating activities in the period of £63.0 million, with its cash balances at 30 June 2022
totalling £51.2 million. The Group had no capital commitments or contingent liabilities as at the year-end date.
As at the date of issuance of these consolidated financial statements, all contractual grocery rent for the March and June quarters
has been collected in full; similarly, over 99.5% from non-grocery units has been collected or recovered under vendor provided
rental guarantees.
The Group benefits from a secure income stream from its property assets that are let to tenants with excellent covenant strength,
and are critical to the UK grocery infrastructure, under long leases that are subject to upward only rent reviews.
£59.4 million of the Group’s BLB loan facility falls due in July 2023. The Directors expect this facility to be refinanced in advance of
its expiry however it is also noted that the Group has sufficient headroom in its existing facilities to repay this facility in full if
required. As mentioned above the Group successfully raised additional debt financing in July 2022.
As a result, the Directors believe that the Group is well placed to manage its financing and other business risks and that the Group
will remain viable, continuing to operate and meet its liabilities for the foreseeable future, being the period to 30 September 2023,
which is at least a period of 12 months from the date of approval of the financial statements. The Directors are therefore of the
opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.
Accounting convention and currency
The consolidated financial statements (the “financial statements”) have been prepared on a historical cost basis, except that
investment properties, 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT 2022 83
1. Basis of preparation continued
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, none of which have had a material impact on the Group.
The Interest Rate Benchmark Reform – IBOR ‘phase 2’ amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 provide a
practical expedient to account for changes in the basis for determining contractual cash flows of financial assets and financial
liabilities as a result of IBOR reform. Under the practical expedient, entities will account for these changes by updating the effective
interest rate using the guidance in paragraph B5.4.5 of IFRS 9 without the recognition of an immediate gain or loss. This practical
expedient applies only to such a change and only to the extent that it is necessary as a direct consequence of interest rate
benchmark reform, and the new basis is economically equivalent to the previous basis.
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. The Group will review the further amendments when they
are issued (expected November 2022), at this stage, based on communications from the IASB to date there is not expected to
be a material impact on the classification of liabilities as current or non-current on the Statement of Financial Position
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 amendments were originally effective for periods beginning on or after 1 January 2022 which was then deferred to 1 January 2023.
The IASB has proposed further amendments in an exposure draft that was issued in November 2021, as part of these further
amendments the effective date is proposed to be deferred to 1 January 2024. The Group will review the further amendments when
they are issued (expected November 2022), at this stage, based on communications from the IASB to date there is not expected to
be a material impact on the classification of liabilities as current or non-current on the Statement of Financial Position.
• Amendments to IFRS 3 Business Combinations and IAS 8 Accounting policies (effective for periods beginning on or after
1January 2022)
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 2022 or 30 June 2021.
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.
84 SUPERMARKET INCOME REIT PLC
1. Basis of preparation continued
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 Joint Venture is deemed to hold a contractual receivable from Sainsbury’s plc in
respect of these 21 properties, with the cash proceeds expected to be received during the course of 2023. The remaining five stores
continue to be held as Investment Properties within the Joint Venture.
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.
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 10 acquisitions. In 10 cases the concentration test was applied and met, resulting in the
acquisitions being accounted for as asset purchases.
All £371.1 million of acquisitions during the year were accounted for as asset purchases.
Key judgement: Acquisition of financial assets at amortised cost
The Group has acquired properties under a sale and leaseback arrangement. 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.
During the year, the Group acquired a property under a sale and leaseback arrangement with a Big Four 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 2022.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 85
2. Summary of significant accounting policies continued
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.
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 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.
2.5 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.
2.6 Dividends payable to Shareholders
Dividends to the Company’s Shareholders are recognised when they become legally payable, as a reduction in equity in the
financial statements. Interim equity dividends are recognised when paid. Final equity dividends will be recognised when approved
by Shareholders at an AGM.
2.7 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.
Current tax is tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the
end of the relevant period.
Entry to the UK-REIT regime
The Group obtained its UK-REIT status effective from 21 December 2017. Entry to the regime results in, subject to continuing
relevant UK-REIT criteria being met, the profits of the Group’s property rental business, comprising both income and capital gains,
being exempt from UK taxation.
The Group intends to ensure that it complies with the UK-REIT regulations on an on-going basis and regularly monitors the
conditions required to maintain REIT status.
86 SUPERMARKET INCOME REIT PLC
2. Summary of significant accounting policies continued
2.8 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.
2.9 Joint ventures
Interests in joint ventures are accounted for using the equity method of accounting. 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.
2.10 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.
2.11 Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant Group entity becomes a party to the unconditional contractual
terms of an instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities are considered by the
Directors to be reasonable estimates of their fair values.
Financial assets
Financial assets are recognised initially at their fair value. All of the Group’s financial assets, except interest rate derivatives, are
held at amortised cost using the effective interest method, less any impairment.
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.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 87
2. Summary of significant accounting policies continued
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. These are designated as hedging instruments
for which hedge accounting is being applied as under IAS 39. These instruments are used to manage the Group’s cash flow interest
rate risk.
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.
2.12 Equity instruments
Equity instruments issued by the Company are recorded at the amount of the proceeds received, net of directly attributable issue
costs. Costs not directly attributable to the issue are immediately expensed in profit or loss.
Further details of the accounting for the proceeds from the issue of shares in the period are disclosed in note 23.
2.13 Fair value measurements and hierarchy
Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes
place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market.
It is based on the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic
best interest. A fair value measurement of a non-financial asset takes into account the best and highest value use for that asset.
The fair value hierarchy to be applied under IFRS 13 is as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are carried at fair value and which will be recorded in the financial information on a recurring basis,
the Group will determine whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end
of each reporting period.
88 SUPERMARKET INCOME REIT PLC
3. Gross rental income
Year to Year to
30 June 2022 30 June 2021
£000 £000
Rental income - freehold property 44,332 29,679
Rental income - long leasehold property 28,031 18,477
Gross rental income 72,363 48,156
Year to Year to
30 June 2022 30 June 2021
£000 £000
Property insurance recoverable 449 251
Service charge recoverable 1,637 579
Total property insurance and service charge income 2,086 830
Total property income 74,449 48,986
Included within rental income is a £2,654,000 (2021: £1,998,000) rent smoothing adjustment that arises as a result of IFRS 16
‘Leases’ requiring that rental income in respect of leases with rents increasing by a fixed percentage be accounted for on straight-
line basis over the lease term. During the year this resulted in an increase in rental income and an offsetting entry being recognised
in profit or loss as an adjustment to the investment property revaluation.
On an annualised basis, rental income comprises £34,420,000 (2021: £27,012,000) relating to the Group’s largest tenant, £24,265,000
(2021: £17,271,000) relating to the Group’s second largest tenant and £6,272,000 (2021: £5,340,000) relating to the Group’s third
largest tenant. There were no further tenants representing more than 10% of annualised gross rental income during either year.
4. Service charge expense
Year to Year to
30 June 2022 30 June 2021
£000 £000
Property insurance expenses 639 379
Service charge expenses 1,699 665
Total property insurance and service charge expense 2,338 1,044
5. Administrative and other expenses
Year to Year to
30 June 2022 30 June 2021
£000 £000
Investment Adviser fees (Note 28) 9,405 6,255
Directors’ remuneration (Note 7) 269 260
Corporate administration fees 893 676
Legal and professional fees 2,249 916
Other administrative expenses 1,121 1,155
Total administrative and other expenses 13,937 9,262
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 profit
Operating profit is stated after charging fees for:
Year to Year to
30 June 2022 30 June 2021
£000 £000
Audit of the Company’s consolidated and individual financial statements 190 155
Audit of subsidiaries, pursuant to legislation 64 78
Total audit services 254 233
Audit related services: interim review 32 31
Total audit and audit related services 286 264
The Group’s auditor also provided the following services in relation to the placing of share capital, the fees for which have been
recognised within equity as a deduction from share premium:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 89
6. Operating profit continued
Year to Year to
30 June 2022 30 June 2021
£000 £000
Other non-audit services: corporate finance services in
connection with the October 2021 and April 2022 placings 78
–
Other non-audit services: corporate finance services in
connection with the transition to premium segment of LSE 45
–
Other non-audit services: corporate finance services in
connection with the October 2020 and May 2021 placings – 90
Total other non-audit services 123 90
Total fees charged by the Group’s auditor 409 354
7. Directors’ remuneration
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:
Year to Year to
30 June 2022 30 June 2021
£000 £000
Directors’ fees 245 240
Employer’s National Insurance Contribution 24 20
Total Directors’ remuneration 269 260
The highest paid Director received £70,000 (2021: £70,000) for services during the year.
8. Finance expense
Year to Year to
30 June 2022 30 June 2021
£000 £000
Interest payable on bank borrowings and hedging arrangements 9,565 5,810
Fair value adjustment of interest rate derivatives (Note 20) 296 706
Commitment fees payable 969 532
Amortisation of loan arrangement fees 2,157 1,442
Amortisation of interest rate derivative premium (Note 20) 5 28
Total finance expense 12,992 8,518
The above finance expense includes the following in respect of liabilities not classified as fair value through profit and loss:
Year to Year to
30 June 2022 30 June 2021
£000 £000
Total interest expense on financial liabilities held at amortised cost 11,723 7,252
Fee expense not part of effective interest rate for financial liabilities held at amortised cost 969 532
Total finance expense 12,692 7,784
90 SUPERMARKET INCOME REIT PLC
9. Taxation
A) Tax charge in profit or loss
Year to Year to
30 June 2022 30 June 2021
£000 £000
Corporation tax – –
B) Total tax expense
Year to Year to
30 June 2022 30 June 2021
£000 £000
Tax charge in profit and loss as per the above – –
Share of tax expense of equity accounted joint ventures 987 511
Total tax expense 987 511
The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the UK REIT
regime exempts the profits of the Group’s property rental business from UK corporation tax. To operate as a UK Group REIT a
number of conditions had to be satisfied in respect of the Company, the Group’s qualifying activity and the Group’s balance of
business. Since the 21 December 2017 the Group has met all such applicable conditions.
The reconciliation of the profit before tax multiplied by the standard rate of corporation tax for the period of 19% to the total tax
charge is as follows:
C) Reconciliation of the total tax charge for the year
Year to Year to
30 June 2022 30 June 2021
£000 £000
Profit on ordinary activities before taxation 110,303 81,956
Theoretical tax at UK standard corporation tax rate of 19% 20,958 15,572
Effects of:
Investment property revaluation not taxable (4,146) (6,895)
REIT exempt income (16,812) (8,677)
Share of tax expense of equity accounted joint ventures 987 511
Total tax expense for the year 987 511
UK REIT exempt income includes property rental income that is exempt from UK corporation tax in accordance with Part 12 of
CTA 2010.
10. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing the profit or loss for the year attributable to ordinary equity holders
of the Company by the weighted average number of ordinary shares in issue during the year. As there are no dilutive instruments
outstanding, basic and diluted earnings per share are identical.
The European Public Real Estate Association (“EPRA”) publishes guidelines for calculating adjusted earnings on a comparable
basis. EPRA EPS is a measure of EPS designed by EPRA to enable entities to present underlying earnings from core operating
activities, which excludes fair value movements on investment properties and negative goodwill.
The calculation of basic, diluted and EPRA EPS is as follows:
1 Based on the weighted average number of ordinary shares in issue
Weighted
Net profit average
attributable number of
to ordinary ordinary Earnings/
Shareholders shares
1
per share
For the year ended 30 June 2022 £000 Number Pence
Basic and diluted EPS 110,303 975,233,858 11.3
Adjustments to remove:
Changes in fair value of investment properties and rent guarantees (21,820) – (2.2)
Group share of changes in fair value of joint venture investment properties 6,021 – 0.6
Group share of gain on disposal of joint venture investment properties (37,102) – (3.8)
EPRA EPS 57,402 975,233,858 5.9p
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 91
10. Earnings per share continued
Weighted
Net profit average
attributable number of
to ordinary ordinary Earnings/
Shareholders shares
1
per share
For the year ended 30 June 2021 £000 Number Pence
Basic and diluted EPS 81,956 652,828,945 12.6
Adjustments to remove:
Changes in fair value of investment properties and rent guarantees (36,288) – (5.6)
Group share of changes in fair value of joint venture investment properties (5,619) – (0.9)
Group share of negative goodwill from joint venture investment (3,265) – (0.5)
EPRA EPS 36,784 652,828,945 5.6p
1 Based on the weighted average number of ordinary shares in issue.
11. Dividends
Year to Year to
30 June 2022 30 June 2021
£000 £000
Amounts recognised as a distribution to ordinary Shareholders in the year:
Dividends paid 53,190 35,481
On 8 July 2021, the Board declared a fourth interim dividend for the year ended 30 June 2021 of 1.465 pence per share, which was
paid on 7 August 2021 to Shareholders on the register on 16 July 2021.
On 23 September 2021 the Board declared a first interim dividend for the year ended 30 June 2022 of 1.485 pence per share,
which was paid on 16 November 2021 to Shareholders on the register on 8 October 2021.
On 10 January 2022, the Board declared a second interim dividend for the year ended 30 June 2022 of 1.485 pence per share,
which was paid on 25 February 2022 to Shareholders on the register on 21 January 2022.
On 6 April 2022, the Board declared a third interim dividend for the year ended 30 June 2022 of 1.485 pence per share, which was
paid on 27 May 2022 to Shareholders on the register on 22 April 2022.
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. This has not been included as a liability as at 30 June 2022.
12. Investment properties
In accordance with IAS 40 “Investment Property”, the Group’s investment properties have been independently valued at fair value
by Cushman & Wakefield, an accredited independent valuer with a recognised and relevant professional qualification and with
recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared in
accordance with the RICS Valuation – Global Standards (the “Red Book”) and incorporate the recommendations of the International
Valuation Standards Committee which are consistent with the principles set out in IFRS 13.
The independent valuer in forming its opinion on valuation makes a series of assumptions. As explained in note 2, all the valuations
of the Group’s investment property at 30 June 2022 are classified as ‘level 3’ in the fair value hierarchy defined in IFRS 13.
The valuations are ultimately the responsibility of the Directors. Accordingly, the critical assumptions used in establishing the
independent valuation are reviewed by the Board.
Long
Freehold Leasehold Total
£000 £000 £000
At 1 July 2021 723,540 424,840 1,148,380
Property additions 150,363 220,447 370,810
Capitalised acquisition costs 7,825 9,778 17,603
Revaluation movement 22,122 2,675 24,797
Valuation at 30 June 2022 903,850 657,740 1,561,590
92 SUPERMARKET INCOME REIT PLC
12. Investment properties continued
Long
Freehold Leasehold Total
£000 £000 £000
At 1 July 2020 244,030 295,380 539,410
Property additions 438,710 102,500 541,210
Capitalised acquisition costs 23,331 5,799 29,130
Revaluation movement 17,469 21,161 38,630
Valuation at 30 June 2021 723,540 424,840 1,148,380
There were 10 property acquisitions during the period, 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.
Included within the carrying value of investment properties at 30 June 2022 is £6,212,000 (2021: £3,558,000) 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 for the period is as follows:
Year to Year to
30 June 2022 30 June 2021
£000 £000
Revaluation movement per above 24,797 38,630
Rent smoothing adjustment (note 3) (2,654) (1,998)
Movements in associated rent guarantees (note 15) (323) (344)
Change in fair value recognised in profit or loss 21,820 36,288
Valuation techniques and key unobservable inputs
Valuation techniques used to derive fair values
The valuations have been prepared on the basis of market value which is defined in the RICS Valuation Standards as ‘the estimated
amount for which an asset or liability should exchange on the date of the valuation between a willing buyer and a willing seller in
an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without
compulsion’. Market value as defined in the RICS Valuation Standards is the equivalent of fair value under IFRS.
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
Net initial yields of the Group’s investment properties at 30 June 2022 range from 3.8% to 6.6% (2021: 3.9% to 6.2%). Rental values
(being passing rents or ERV as relevant) on the Group’s investment properties at 30 June 2022 range from £0.3 million to
£4.2 million (2021: £0.4 million to £4.8 million).
The table below analyses the sensitivity on the fair value of investment properties for changes in rental values and net initial yields:
+1% –1% +0.25% Net –0.25% Net
Rental value Rental value Initial Yield Initial Yield
£m £m £m £m
(Decrease)/increase in the fair value of
investment properties as at 30 June 2022 15.6 (15.6) (81.1) 90.7
(Decrease)/increase in the fair value of
investment properties as at 30 June 2021 11.5 (11.5) (58.8) 65.6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 93
13. Subsidiaries
The entities listed in the following table were the subsidiary undertakings of the Company at 30 June 2022 all of which are wholly
owned. All but one subsidiary undertakings are incorporated in England with their registered office at The Scalpel 18th Floor,
52 Lime Street, London, United Kingdom EC3M 7AF. The remaining Company as stated below is incorporated in Jersey and has
a registered office of 28 Esplanade, St. Helier, JE2 3QA, Jersey.
Company name Holding type Nature of business
Supermarket Income Investments UK Limited Direct Intermediate parent company
Supermarket Income Investments (Midco2) UK Limited Direct Intermediate parent company
Supermarket Income Investments (Midco3) UK Limited Direct Intermediate parent company
Supermarket Income Investments (Midco4) UK Limited Direct Intermediate parent company
SII UK Halliwell (MIDCO) LTD Direct Intermediate parent company
Supermarket Income Investments (Midco6) UK Limited Direct Intermediate parent company
SUPR Green Energy Limited Direct Energy provision company
Supermarket Income Investments UK (NO1) Limited Indirect Property investment
Supermarket Income Investments UK (NO2) Limited Indirect Property investment
Supermarket Income Investments UK (NO3) Limited Indirect Property investment
Supermarket Income Investments UK (NO4) Limited Indirect Property investment
Supermarket Income Investments UK (NO5) Limited Indirect Property investment
Supermarket Income Investments UK (NO6) Limited Indirect Property investment
Supermarket Income Investments UK (NO7) Limited Indirect Property investment
Supermarket Income Investments UK (NO8) Limited Indirect Property investment
Supermarket Income Investments UK (NO9) Limited Indirect Property investment
Supermarket Income Investments UK (NO10) Limited Indirect Property investment
Supermarket Income Investments UK (NO11) Limited Indirect Property investment
Supermarket Income Investments UK (NO12) Limited Indirect Property investment
Supermarket Income Investments UK (NO16) Limited Indirect Property investment
Supermarket Income Investments UK (NO16a) Limited Indirect Property investment
Supermarket Income Investments UK (NO16b) Limited Indirect Property investment
Supermarket Income Investments UK (NO16c) Limited Indirect Property investment
Supermarket Income Investments UK (NO17) Limited Indirect Property investment
TPP Investments Limited Indirect Property investment
T (Partnership) Limited Indirect Property investment
The TBL Property Partnership Indirect Property investment
Supermarket Income Investments UK (NO19) Limited Indirect Property investment
Supermarket Income Investments UK (NO20) Limited Indirect Property investment
Supermarket Income Investments UK (NO21) Limited Indirect Property investment
Supermarket Income Investments UK (NO22) Limited Indirect Property investment
Supermarket Income Investments UK (NO23) Limited Indirect Property investment
Supermarket Income Investments UK (NO24) Limited Indirect Property investment
Supermarket Income Investments UK (NO25) Limited Indirect Property investment
Supermarket Income Investments UK (NO26) Limited Indirect Property investment
Supermarket Income Investments UK (NO27) Limited Indirect Property investment
Supermarket Income Investments UK (NO28) Limited Indirect Property investment
Supermarket Income Investments UK (NO29) Limited Indirect Property investment
Supermarket Income Investments UK (NO30) Limited Indirect Property investment
Supermarket Income Investments UK (NO31) Limited* Indirect Property investment
Supermarket Income Investments UK (NO32) Limited** Indirect Property investment
Supermarket Income Investments UK (NO33) Limited* Indirect Property investment
Supermarket Income Investments UK (NO34) Limited* Indirect Property investment
Supermarket Income Investments UK (NO35) Limited**^ Indirect Property investment
Supermarket Income Investments UK (NO36) Limited* Indirect Property investment
Supermarket Income Investments UK (NO37) Limited* Indirect Property investment
Supermarket Income Investments UK (NO38) Limited* Indirect Property investment
SII UK Halliwell (No1) LTD Indirect Investment in Joint venture
SII UK Halliwell (No2) LTD Indirect Investment in Joint venture
SII UK Halliwell (No3) LTD Indirect Investment in Joint venture
SII UK Halliwell (No4) LTD Indirect Investment in Joint venture
SII UK Halliwell (No5) LTD Indirect Investment in Joint venture
SII UK Halliwell (No6) LTD Indirect Investment in Joint venture
* New subsidiaries incorporated during the year ended 30 June 2022 ** Subsidiaries acquired during the year ended 30 June 2022 ^ Jersey registered entity
94 SUPERMARKET INCOME REIT PLC
13. Subsidiaries continued
The following subsidiaries are 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
Company name Registration Number
SII UK Halliwell (MIDCO) LTD 12473355
SUPR Green Energy Limited 12890276
SII UK Halliwell (No1) LTD 12475261
SII UK Halliwell (No2) LTD 12475599
SII UK Halliwell (No3) LTD 12478141
SII UK Halliwell (No4) LTD 12604032
SII UK Halliwell (No5) LTD 12605175
SII UK Halliwell (No6) LTD 12606144
14. Investment in joint ventures
As at 30 June 2022 the Group has one joint venture investment. On the 28 May 2020, the Group entered into a 50:50 joint venture
with the British Airways Pension Trustees Limited to acquire 100% of the issued share capital in Horndrift Limited for a combined
total consideration of £102 million plus costs.
On the 17 February 2021, the joint venture also acquired 100% of the issued share capital in Cornerford Limited for a combined
total consideration of £115 million plus costs. Further amounts have been advanced in the year 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 mature in 2023 (the “Structure”). Rental surpluses
generated by the Structure are required to be applied in the repayment of the bonds and not therefore capable of being transferred
to the joint venture or Group until those bonds have been repaid.
The Group deems this to be a joint venture, as through the Group’s interest in Horndrift Limited and Cornerford Limited it indirectly
has joint control of the structure.
Under the terms of the Horner (Jersey) LP (the “JV”) Limited Partnership Agreement (“LPA”), an affiliate of the Investment Adviser,
Atrato Halliwell Limited (the “Carry Partner”), has a carried interest entitlement over the investment returns from the JV’s
investment in the Structure. Under the terms of the LPA, once the Group and its JV partner have received a return equal to their
total investment in the JV plus an amount equivalent to a 10% per annum preferred return on that investment, the Carry Partner is
entitled to share in any further cash returns to be distributed by the JV. The Carry Partner’s entitlement to share in cash returns in
excess of the preferred return increases depending on the extent of those cash returns, up to a maximum entitlement of £15,000,000.
The Group has estimated the value of the Carry Partner’s interest in the Group’s share of the JV as at 30 June 2022 to be £7,500,000
(2021: £2,200,000). This has been determined by reference to the expected returns from the JV’s investment in the Structure,
assuming that the proceeds realised from the future sale of the properties held by within the Structure are equal to the independent
valuations of those properties as at 30 June 2022. Accordingly, the Group’s beneficial interest in the JV, and therefore the Group’s
share of the JV’s net assets as at 30 June 2022, is estimated to amount to 47.9%.
The carried interest payments are only payable upon cash distributions from the JV to the Group. To date there have been no cash
distributions received by the Group and therefore no carried interest payment has yet become payable.
Entity Partner Address and principal place of business Ownership
Jersey
Horner (Jersey) LP British Airways Pensions Third Floor, Liberation House, 50% owned by
Trustees Limited Castle Street, St Helier, Jersey, the Group
JE1 2LH
Horner REIT Limited Third Floor, Liberation House, 100% owned by
Castle Street, St Helier, Jersey, Horner (Jersey) LP
JE1 2LH
United Kingdom
Horndrift Limited Langham Hall UK LLP, 100% owned by
1 Fleet Street, London, Horner REIT Limited
E4M 7RA
Cornerford Limited Langham Hall UK LLP, 100% owned by
1 Fleet Street, London, Horner REIT Limited
E4M 7RA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 95
14. Investment in joint ventures continued
Year to Year to
30 June 2022 30 June 2021
£000 £000
Opening balance 130,321 56,081
Acquired in the year 3,518 58,734
Negative goodwill arising on acquisition –
–
Group’s share of profit after tax 43,301 15,506
Closing balance 177,140 130,321
The joint venture entities have a 31 March year end. For accounting purposes consolidated management accounts have been
prepared for the joint venture for the periods from acquisition to 30 June 2022 using accounting policies that are consistent with
those of the Group.
The financial statements of Horner (Jersey) LP prepared on this basis would be as follows:
Year to Year to
30 June 2022 30 June 2021
Statement of comprehensive income £000 £000
Share of income from joint venture 97,464 28,885
Negative goodwill – 6,530
Profit for the period and total comprehensive income 97,464 35,415
Group’s share of profit for the period 43,301 15,506
Year to Year to
30 June 2022 30 June 2021
Statement of financial position £000 £000
Investment in joint venture 369,280 265,045
Net assets 369,280 265,045
Group’s share of net assets 177,140 130,320
Horner (Jersey) LP’s share of the aggregate amounts recognised in the consolidated statement of comprehensive income and
statement of financial position of the Structure are as follows:
Year to Year to
30 June 2022 30 June 2021
£000 £000
Rental income 12,878 19,886
Finance income 15,988 –
Administrative and other expenses (190) (585)
Change in fair value of investment properties (11,336) 13,259
Gain on disposal of investment properties 84,095
–
Operating profit 101,435 32,560
Finance expense (1,996) (2,470)
Profit before taxation 99,439 30,090
Tax charge for the period (1,974) (1,205)
Profit for the year 97,465 28,885
96 SUPERMARKET INCOME REIT PLC
14. Investment in joint ventures continued
As at As at
30 June 2022 30 June 2021
Non-current assets £000 £000
Investment properties 37,005 477,447
Total non-current assets 37,005 477,447
Current assets
Contractual receivable 530,481 –
Trade and other receivables 2,897 15,163
Cash and cash equivalents – –
Total current assets 533,378 15,163
Total assets 570,383 492,610
Non-current liabilities
Debt securities in issue 176,243 190,788
Interest rate derivative 3,451 8,836
Deferred tax 4,196 11,048
Other liabilities 9,883 9,188
Total non-current liabilities 193,773 219,860
Current liabilities
Trade and other payables 7,329 7,705
Total current liabilities 7,329 7,705
Total liabilities 201,102 227,565
Net assets 369,281 265,045
During the year, Sainsbury’s exercised options to acquire 21 stores within the Structure. The purchase price under the options is
determined based on the assumption of a new 20-year lease term at the higher of passing or open market rent, subject to upward-
only, five yearly market rent reviews. The purchase price is subject to contractual negotiations and as at the year-end had not been
agreed.
As the year end, the Group determined that the exercise of the purchase options by Sainsbury’s Plc resulted in the performance
obligation being satisfied for a sale of the properties in accordance with IFRS 15. The JV is deemed to hold a contractual receivable
from Sainsbury’s plc, with the cash proceeds expected to be received during the course of 2023 as noted above.
In arriving at the valuation of the contractual receivable, the fair value of the 21 properties subject to option exercise were valued as
at 30 June 2022 by the Group’s independent valuer in accordance with the RICS Valuation - Global Standards (the ‘Red Book’) given
the absence of an agreed purchase option price. This amount was adjusted based on future expected rental receipts from the
properties together with an indexation adjustment of the property valuation over the last years based on the MSCI Supermarket
Property Index as per the terms of the contractual documents. The total of all these amounts was then discounted to present value.
After the year end, the Company announced the purchase price on the 21 option stores was formally agreed at £1,040 million.
The purchase by Sainsbury’s plc is expected to complete between March 2023 and July 2023 on expiry of the current leases.
Sainsbury’s has agreed to retain occupation of 4 of the 5 remaining stores within the Portfolio under a new 15-year lease
agreement with five yearly open market rent reviews and a tenant break at year 10. The JV has exclusivity to purchase these stores
for £68 million (excluding acquisition costs), reflecting a net initial yield of 6%, which can be exercised upon expiry of the current
leases between March and July 2023. The remaining store is expected to be sold in March 2023 subject to vacant possession.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 97
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:
Year to Year to
30 June 2022 30 June 2021
£000 £000
At start of year 237 –
Additions 283 766
Fair value changes (including changes in estimated cash flows) (326) (344)
Collected during the year 89 (185)
Total financial assets held at fair value through profit and loss at end of year 283 237
16. Financial assets held at amortised cost
Year to Year to
30 June 2022 30 June 2021
£000 £000
At start of year – –
Additions 10,626 –
Amortisation – –
Impairment – –
Total financial asset held at amortised cost 10,626 –
On 8 June 2022, the Group acquired an Asda store in Carcroft, via a sale and leaseback transaction for £10.6 million, this has been
recognised in the Statement of Financial Position as a Financial asset in accordance with IFRS 9. The financial asset is measured
using the amortised cost model, which recognises the rental payments as financial income and reductions of the asset value based
on the implicit interest rate in the lease. The carrying value of financial assets held at amortised cost approximates fair value.
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 2022. 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. Contract fulfilment assets
In the prior year, the Group was chosen to provide renewable electricity to one of its tenants through the use of its acquired rooftop
solar panels under the terms of a Purchasing Power Agreement (“PPA”). It is intended that under the terms of the PPA, the tenant
will acquire 100% of the system’s generated power with a maximum 75% contracted under a take or pay arrangement and 25%
under a purchase option. The term of the PPA will be 20 years with a break option coterminous with the occupational lease expiry.
As at the year end, no electricity under the PPA was provided to its tenant.
Under IFRS 15, the incremental costs of obtaining a contract with a customer are recognised as a contract fulfilment asset if the
costs are expected to be recoverable. The Group has determined that the following costs may be capitalised as contract fulfilment
assets: i) legal fees to draft a contract (once the Group has been selected as a preferred supplier for a bid) and ii) any commissions
payable that are directly related to winning a specific contract.
98 SUPERMARKET INCOME REIT PLC
17. Contract fulfilment assets continued
Costs incurred prior to selection as preferred supplier are not capitalised but are expensed as incurred.
Year to Year to
30 June 2022 30 June 2021
£000 £000
At start of year 85 –
Additions 8 85
Amortisation – –
Total contract fulfilment assets at end of year 93 85
In preparing these consolidated financial statements, a review was undertaken to identify indicators of impairment of contract
fulfilment assets. As at the year-end no such indicators were noted.
18. Trade and other receivables
As at As at
30 June 2022 30 June 2021
£000 £000
Other receivables 1,430 2,624
Prepayments and accrued income 433 516
Total trade and other receivables 1,863 3,140
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 2022. 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.
19. Trade and other payables
As at As at
30 June 2022 30 June 2021
£000 £000
Corporate accruals 8,958 6,153
VAT payable 1,719 2,216
Total trade and other payables 10,677 8,369
20. Interest rate derivatives
As at As at
30 June 2022 30 June 2021
£000 £000
Non-current asset: Interest rate swaps 5,114 763
Non-current liability: Interest rate swaps – (1,210)
The rate swaps are remeasured to fair value by the counterparty bank on a quarterly basis.
Year to Year to
30 June 2022 30 June 2021
The fair value at the end of year comprises: £000 £000
At start of year (net) (447) (1,988)
Amortisation of cap premium in the year (note 8) (5) (28)
Changes in fair value of interest rate derivative in the year 5,270 863
Charge to the profit or loss (note 8) 296 706
Fair value at end of year (net) 5,114 (447)
To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note
20, the Group has entered derivative interest rate swaps in relation to the loan facilities with Bayerische Landesbank (‘the BLB
swaps’) and Wells Fargo Bank (‘the Wells swap’).
The total notional value of the BLB swaps was £86.9 million, which is equal to the total amounts drawn under Bayerische
Landesbank loan facility. The terms of the BLB swaps coincide with the maturity of the respective Bayerische Landesbank loan
facility. The fixed interest rate of £52.1 million of the swap exposure as at 30 June 2022 was 1.305%. The fixed interest rate of the
swaps of £27.5 million and £7.3 million for the remaining exposure of £34.8 million were 0.178% and 0.128% respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 99
20. Interest rate derivatives continued
The total notional value of the Wells swap was £30.0 million with its term coinciding with the maturity of the Wells Fargo loan
facility. The fixed interest rate of the swap as at 30 June 2022 was 0.189%.
61% of the Group’s outstanding debt as at 30 June 2022 was hedged through the use of fixed rate debt or financial instruments as
at 30 June 2022 (2021: 63%). 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.
In accordance with the Group’s treasury risk policy, the Group applies cash flow hedge accounting in partially hedging the interest
rate risks arising on its variable rate linked loans. Changes in the fair values of derivatives that are designated as cash flow hedges
and are effective are recognised directly in the cash flow hedge reserve and included in other comprehensive income. Any
ineffectiveness that may arise in this hedge relationship will be included in profit or loss.
All floating rate loans and interest rate derivatives are contractually linked to the Sterling Overnight Index Average (“SONIA”).
After the year end date, the Company took the decision to fix its interest rate exposure by entering into interest rate swaps to hedge
the Company’s £381 million of drawn unsecured debt for a weighted average term of 4 years. 100% of the Company’s drawn debt is
now hedged at an effective fixed rate of 2.6% (including margin). The cost of acquiring the hedges was £35.2 million which will
immediately impact EPRA NTA by 2.8 pence per share.
21. Bank borrowings
As at As at
30 June 2022 30 June 2021
£000 £000
Amounts falling due after more than one year:
Secured debt 352,213 413,320
Less: Unamortised finance costs (3,667) (3,636)
Bank borrowings per the consolidated statement of financial position 348,546 409,684
A summary of the Group’s borrowing facilities as at 30 June 2022 are shown below:
Amount
drawn
Loan 30 June
Credit commitment 2022
Lender Facility Expiry margin Variable £m^ £m
HSBC Revolving credit facility Aug 2025* 1.65% SONIA £100.0 Nil
HSBC Revolving credit facility Aug 2025* 1.75% SONIA £50.0 Nil
Deka Term Loan Aug 2026* 1.89% £47.6 £47.6
Deka Term Loan Aug 2026* 2.05% £28.9 £28.9
Deka Term Loan Aug 2026* 1.72% £20.0 £20.0
BLB Term Loan Jul 2023 1.25% SWAP (Note 20) £52.1 £52.1
BLB Term Loan Aug 2025 1.85% SWAP (Note 20) £27.5 £27.5
BLB Term Loan Jul 2023 1.85% SWAP (Note 20) £7.3 £7.3
Wells Fargo Revolving credit facility Jul 2027* 2.00% SWAP (Note 20) £30.0 £30.0
Wells Fargo Revolving credit facility Jul 2027* 2.00% SONIA £30.0 Nil
Wells Fargo Revolving credit facility Sep 2023 1.40% SONIA £100.0 Nil
Barclays Revolving credit facility Jan 2026* 1.50% SONIA £300.0 £138.8
Total £793.4 £352.2
*Includes extension options
^Includes uncommitted accordions
100 SUPERMARKET INCOME REIT PLC
21. Bank borrowings continued
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.
As disclosed in note 1, the Group has adopted Interest Rate Benchmark Reform – IBOR ‘phase 2’. Applying the practical expedient
introduced by the amendments, when the benchmarks affecting the credit facility and the BLB loan facility were transitioned from
LIBOR to SONIA the adjustments to the contractual cash flows have been reflected as an adjustment to the effective interest rate.
Therefore, the replacement of the loans’ benchmark interest rate has not result in an immediate gain or loss recorded in profit or loss.
Each of the Group’s facilities impacted by the changes resulting from interest rate benchmark reform transitioned during the period
and the Group does not consider that the transition from LIBOR to SONIA within the Group’s floating rate facilities gives rise to a
significant change in market risk.
22. Categories of financial instruments
As at As at
30 June 2022 30 June 2021
£000 £000
Financial assets
Financial assets at amortised cost:
Lease Receivables 10,626 –
Cash and cash equivalents 51,200 19,579
Trade and other receivables 1,430 2,624
Financial assets at fair value:
Rent guarantees 283 237
Derivatives in effective hedges:
Interest rate derivative 5,114 763
Total financial assets 68,653 23,203
Financial liabilities
Financial liabilities at amortised cost:
Secured debt 348,546 409,684
Trade and other payables 8,958 6,153
Derivatives in effective hedges:
Interest rate derivative – 1,210
Total financial liabilities 357,504 417,047
At the year end, all financial assets and liabilities were measured at amortised cost except for the interest rate derivatives and
rental guarantees 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.
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 20.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 101
22. Categories of financial instruments continued
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 20 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 LIBOR and the SONIA daily rate, was as follows:
Year to Year to
30 June 2022 30 June 2021
£000 £000
Effect on profit 413 356
Effect on other comprehensive income and equity (223) (376)
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 2022 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 resulting from any upward
rent reviews.
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.
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 2022 rate. Interest rate
derivatives are shown at fair value and not at their gross undiscounted amounts.
102 SUPERMARKET INCOME REIT PLC
22. Categories of financial instruments continued
Less than One to two Two to five More than
one year years years five years Total
As at 30 June 2022 £000 £000 £000 £000 £000
Financial assets:
Cash and cash equivalents 51,200 – – – 51,200
Trade and other receivables 1,430 – – – 1,430
Amortised cost asset 290 290 870 76,415 77,865
Rent guarantees 283 – – – 283
Interest rate derivatives – 843 4,271 – 5,114
Total financial assets 53,203 1,133 5,141 76,415 135,892
Financial liabilities:
Bank borrowings 9,335 205,679 156,510 – 371,524
Trade payables and other payables 8,958 – – – 8,958
Interest rate derivatives – – – – –
Total financial liabilities 18,293 205,679 156,510 – 380,482
As at 30 June 2021
Financial assets:
Cash and cash equivalents 19,579 – – – 19,579
Trade and other receivables 2,624 – – – 2,624
Rent guarantees 237 – – – 237
Interest rate derivatives – – 763 – 763
Total financial assets 22,440 – 763 – 23,203
Financial liabilities:
Bank borrowings 6,153 111,962 312,366 – 430,481
Trade payables and other payables 6,153 – – – 6,153
Interest rate derivatives – – 1,210 – 1,210
Total financial liabilities 12,306 111,962 313,576 – 437,844
Capital risk management
The Board’s primary objective when monitoring capital is to preserve the Group’s ability to continue as a going concern, while
ensuring it remains within its debt covenants so as to safeguard secured assets and avoid financial penalties.
Bank borrowings are secured on the Group’s property portfolio by way of fixed charges over property assets and over the shares in
the property-owning subsidiaries and any intermediary holding companies of those subsidiaries. The Group does not provide any
cross-group guarantees nor does the Company act as a guarantor to the lending bank.
At 30 June 2022, the capital structure of the Group consisted of bank borrowings (note 21), 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 23 and 24).
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 103
22. Categories of financial instruments continued
Reconciliation of financial liabilities relating to financing activities
Bank
borrowings due Interest and
in more than commitment Interest rate
one year fees payable derivatives Total
£000 £000 £000 £000
As at 1 July 2021 409,684 1,634 447 411,765
Cash flows:
Debt drawdowns in the year 402,922 – – 402,922
Debt repayments in the year (464,029) – – (464,029)
Interest and commitment fees paid – (10,527) – (10,527)
Loan arrangement fees paid (2,188) – – (2,188)
Non-cash movements:
Finance costs in the statement of comprehensive income 2,157 10,832 5 12,994
Fair value changes – – (5,566) (5,566)
As at 30 June 2022 348,546 1,939 (5,114) 345,371
Bank
borrowings due Interest and
in more than commitment Interest rate
one year fees payable derivatives Total
£000 £000 £000 £000
As at 1 July 2020 126,791 692 1,988 129,471
Cash flows:
Debt drawdowns in the year 582,961 – – 582,961
Debt repayments in the year (298,300) – – (298,300)
Interest and commitment fees paid – (6,105) – (6,105)
Loan arrangement fees paid (3,211) – – (3,211)
Non-cash movements:
Finance costs in the statement of comprehensive income 1,443 7,047 28 8,518
Fair value changes – – (1,569) (1,569)
At 30 June 2021 409,684 1,634 447 411,765
Movements in respect to share capital are disclosed in note 23 below.
The interest and commitment fees payable are included within the corporate accruals balance in note 19. 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 20.
104 SUPERMARKET INCOME REIT PLC
23. Share capital
Share Capital
Ordinary Shares Share premium reduction
of 1 pence capital reserve reserve Total
Number £000 £000 £000 £000
As at 1 July 2021 810,720,168 8,107 778,859 – 786,966
Scrip Dividends issued and fully paid –
20 August 2021 300,468 3 348 – 351
Ordinary shares issued and fully paid –
22 October 2021 173,913,043 1,740 198,261 – 200,001
Scrip dividends issued and fully paid –
16 November 2021 500,750 5 578 – 583
Share premium cancelled during the year and
transferred to capital reduction reserve – – (778,859) 778,859 –
Scrip dividends issued and fully paid –
25 February 2022 111,233 1 136 – 137
Ordinary shares issued and fully paid –
29 April 2022 253,492,160 2,535 304,191 – 306,726
Scrip dividends issued and fully paid –
27 May 2022 830,598 8 1,026 – 1,034
Share issue costs – – (10,366) – (10,366)
As at 30 June 2022 1,239,868,420 12,399 494,174 778,859 1,285,432
Share Capital
Ordinary Shares Share premium reduction
of 1 pence capital reserve reserve Total
Number £000 £000 £000 £000
As at 1 July 2020 473,620,462 4,735 436,126 – 440,861
Ordinary shares issued and fully paid –
9 October 2020 192,307,692 1,923 198,077 – 200,000
Scrip dividends issued and fully paid –
26 February 2021 124,795 2 132 – 134
Ordinary shares issued and fully paid –
23 March 2021 144,297,503 1,443 151,513 – 152,956
Scrip dividends issued and fully paid –
21 May 2021 369,716 4 410 – 414
Share issue costs – – (7,399) – (7,399)
As at 30 June 2021 810,720,168 8,107 778,859 – 786,966
Share allotments and other movements in relation to the capital of the Company in the year:
On 22 October 2021 the Company completed an equity fundraising and issued an additional 173,913,043 ordinary shares of one
pence each at a price of £1.15 per share. The consideration received in excess of the par value of the ordinary shares issued, net of
total capitalised issue costs, of £193.8 million was credited to the share premium reserve.
Following a successful application to the High Court and lodgement of the Company’s statement of capital with the Registrar of
Companies, the Company was permitted to reduce the capital of the Company by an amount of £778.9 million. This was effected
on 15 December 2021 by a transfer of that amount from the share premium reserve to the capital reduction reserve. The capital
reduction reserve is classed as a distributable reserve.
On 29 April 2022 the Company completed an equity fundraising and issued an additional 253,492,160 ordinary shares of one pence
each at a price of £1.21 per share. The consideration received in excess of the par value of the ordinary shares issued, net of total
capitalised issue costs, of £298.3 million was credited to the share premium reserve.
Scrip dividends were issued on 20 August 2021, 16 November 2021, 25 February 2021 and 27 May 2022 at a reference price of £1.17,
£1.16, £1.23 and £1.25 per share respectively. The Company issued a combined total of 1,743,049 shares under the scrip dividend
programme during the year. The consideration received in excess of the par value of the ordinary shares issued, of £2.1 million was
credited to the share premium reserve.
Ordinary Shareholders are entitled to all dividends declared by the Company and to all the Company’s assets after repayment of its
borrowings and ordinary creditors. Ordinary Shareholders have the right to vote at meetings of the Company. All ordinary shares
carry equal voting rights. The aggregate ordinary shares in issue at 30 June 2022 total was 1.24 billion.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
ANNUAL REPORT 2022 105
24. Reserves
The nature and purpose of each of the reserves included within equity at 30 June 2022 are as follows:
• Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value of the shares,
net of the direct costs of equity issues
• Cash flow hedge reserve: represents cumulative gains or losses, net of tax, on effective cash flow hedging instruments
• Capital reduction reserve: represents a distributable reserve created following a Court approved reduction in capital less
dividends paid
• Retained earnings represent cumulative net gains and losses recognised in the statement of comprehensive income.
The only movements in these reserves during the period are disclosed in the consolidated statement of changes in equity.
25. Capital commitments
The Group had no capital commitments outstanding as at 30 June 2022 and 30 June 2021.
26. 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 2022 is 15.1 years (2021: 14.8 years). The leases contain predominately
fixed or inflation-linked uplifts.
The future minimum lease payments receivable under the Group’s leases, are as follows:
As at As at
30 June 2022 30 June 2021
£000 £000
Within one year 77,438 57,348
Between one year and five years 307,774 231,448
More than five years 834,128 612,471
Total 1,219,340 901,267
27. 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:
As at As at
30 June 2022 30 June 2021
£000 £000
Net assets per the consolidated statement of financial position 1,432,455 871,310
Intangibles (93) (85)
Fair value of financial assets at amortised cost (666)
–
Fair value of interest rate derivatives (5,114) 447
EPRA NTA 1,426,582 871,672
Ordinary shares in issue at 30 June 1,239,868,420 810,720,168
NAV per share – Basic and diluted (pence) 116p 108p
EPRA NTA per share (pence) 115p 108p
106 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
28. Transactions with related parties
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, Chairman of the Board of Directors of the Company, is paid fees of £70,000 per annum, with the other Directors each
being paid fees of £50,000 per annum. Jon Austen is paid an additional £7,500 per annum for his role as chair of the Company’s
Audit Committee, Vince Prior is paid an additional £2,500 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.
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 2022 were as follows:
• Nick Hewson: 661,670 shares (0.05% of issued share capital)
• Jon Austen: 279,779 shares (0.02% of issued share capital)
• Vince Prior: 134,886 shares (0.01% of issued share capital)
• Cathryn Vanderspar: 91,738 (0.01% 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: 1,086,670 shares (0.09% of issued share capital)
• Jon Austen: 305,339 shares (0.02% of issued share capital)
• Vince Prior: 151,923 shares (0.01% of issued share capital)
• Cathryn Vanderspar: 108,645 (0.01% 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 2022 the total advisory fees payable to the Investment Adviser were £9,404,938 (2021: £6,255,423) of which
£1,446,246 (2021: £1,463,898) 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: £51,500; plus (i) £4,175 for
any indirect subsidiary of the Company and (ii) £1,620 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 2022 the total accounting and administration service fee payable to the Investment Adviser was £237,559
(2021: £64,920) of which £81,833 (2021: £52,646) 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 period to 30 June 2022 the total introducer fees payable to the affiliate of the Investment Adviser were £271,239
(2021: £269,172).
ANNUAL REPORT 2022 107
28. 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 2022 were as follows:
• Ben Green: 1,199,938 shares (0.10% of issued share capital)
• Steve Windsor: 1,319,486 shares (0.11% of issued share capital)
• Steven Noble: 204,130 shares (0.02% of issued share capital)
• Natalie Markham: 52,529 shares (0.00% of issued share capital)
Carried interest held in the Group’s joint venture
Under the terms of the Horner (Jersey) LP (the “JV”) Limited Partnership Agreement (“LPA”), an affiliate of the Investment Adviser,
Atrato Halliwell Limited (the “Carry Partner”), has a carried interest entitlement over the investment returns from the JV’s investment
in the Structure. Further details regarding the estimated value of the Carry Partner’s interest in the JV are included in note 14.
The carried interest payments are only payable to the extent that distributions are made from the JV to the Group. To date there
have been no cash distributions received by the Group and therefore no carried interest payment has yet become payable.
29. Subsequent events
Debt financing
• 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. This consists of:
– A £250 million five-year revolving credit facility at a margin of 1.5% over SONIA, with two further one-year extension options;
– A £100 million three-year term loan at a margin of 1.5% over SONIA, with two further one-year extension options;
– A £62.1 million eighteen-month term loan at a margin of 1.5% over SONIA, with one further eighteen-month extension option.
• In July 2022, the new unsecured facility was used to refinance the following existing secured facilities:
– A reduction of the Barclays/RBC facility of £300.0 million including uncommitted accordion options to £77.5 million;
– A reduction of the Wells Fargo facility of £160.0 million including uncommitted accordion options to £39.0 million.
• In September 2022, the Group announced a two-year extension to its revolving credit facility with HSBC, inclusive of a one-year
accordion option at lender’s discretion..
Hedging
• After the year end date, the Company took the decision to fix its interest rate exposure by entering into interest rate swaps to
hedge the Company’s £381 million of drawn unsecured debt for a weighted average term of 4 years. 100% of the Company’s
drawn debt is now hedged at an effective fixed rate of 2.6% (including margin). The cost of acquiring the hedges was £35.2 million
which will immediately impact EPRA NTA by 2.8 pence per share.
Acquisitions
• In July 2022, the Group announced the acquisition of a Tesco superstore, M&S Foodhall and an Iceland in Chineham, Basingstoke
with non-grocery units for £72.9 million (excluding acquisition costs). The Tesco superstore has a 12-year unexpired lease term
and is subject to 5-yearly open market rent reviews.
• In August 2022, the Group announced the acquisition of a Sainsbury’s supermarket and an M&S Foodhall in Glasgow with
non-grocery units for £34.5 million (excluding acquisition costs). The unexpired lease terms of the two stores are 10 and 4 years
respectively and are both subject to 5-yearly upwards only, open market rent reviews.
• In August 2022, the Group announced the acquisition of a Tesco in Newton-le-Willows, Merseyside for £16.6 million (excluding
acquisition costs). The store has a 12-year unexpired lease term and is subject to annual RPI-linked rental uplifts.
• In August 2022, the Group announced the acquisition of a Tesco in Bishops Cleeve, Cheltenham for £25.4 million (excluding
acquisition costs). The store has a 12-year unexpired lease term and is subject to annual RPI-linked rental uplifts.
• In September 2022, the Group announced the acquisition of a Tesco supermarket in Llanelli, South Wales for £66.8 million
(excluding acquisition costs). The store has a 12-year unexpired lease term and is subject to annual, upwards only RPI linked
rent reviews.
Joint Venture investment
• After the year end, the Company announced the purchase price on the 21 option stores was formally agreed at £1,040 million.
The purchase by Sainsbury’s plc is expected to complete between March 2023 and July 2023 on expiry of the current leases.
• Sainsbury’s has agreed to retain occupation of 4 of the 5 remaining stores within the Portfolio under a new 15-year lease
agreement with five yearly open market rent reviews and a tenant break at year 10.
• The JV has exclusivity to purchase these stores for £68 million (excluding acquisition costs), reflecting a net initial yield of 6%,
which can be exercised upon expiry of the current leases between March and July 2023. The remaining store is expected to be
sold in March 2023 subject to vacant possession.
108 SUPERMARKET INCOME REIT PLC
Registered number: 10799126 As at As at
30 June 2022 30 June 2021
Notes £000 £000
Fixed assets
Investments in subsidiaries D 1,329,108 760,767
Total non-current assets 1,329,108 760,767
Current assets
Trade and other receivables E 41,201 141,620
Cash and cash equivalents 23,413 1,207
Total current assets 64,614 142,827
Total assets 1,393,722 903,594
Current liabilities
Trade and other payables F 44,603 67,162
Total current liabilities 44,603 67,162
Total liabilities 44,603 67,162
Total net assets 1,349,119 836,432
Equity
Share capital G 12,399 8,107
Share premium reserve 494,174 778,859
Capital reduction reserve 778,859 –
Retained earnings 63,687 49,466
Total equity 1,349,119 836,432
The notes on pages 110 to 111 form part of these financial statements.
The Company has taken advantage of the exemption within section 408 of the Companies Act 2006 not to present its own profit
and loss account. The accumulated profit for the year dealt with the financial statements of the Company was £67,411,000
(2021: £62,992,000). As at 30 June 2022 the Company has distributable reserves of £842.5 million (2021: £49.5 million).
The Company financial statements were approved and authorised for issue by the Board of Directors on 20 September 2022
and were signed on its behalf by:
Nick Hewson
Chairman
20 September 2022
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
ANNUAL REPORT 2022 109
Share Capital
Share premium reduction Retained
capital reserve reserve earnings Total
£000 £000 £000 £000 £000
As at 1 July 2021 8,107 778,859 - 49,466 836,432
Profit and total comprehensive Income for the year – – – 67,411 67,411
Transactions with owners
Ordinary shares issued at a premium during the year 4,292 504,540 – – 508,832
Transfer to capital reduction reserve – (778,859) 778,859 – –
Share issue costs – (10,366) – – (10,366)
Interim dividends paid – – – (53,190) (53,190)
As at 30 June 2022 12,399 494,174 778,859 63,687 1,349,119
Share Capital
Share premium reduction Retained
capital reserve reserve earnings Total
£000 £000 £000 £000 £000
As at 1 July 2020 4,735 436,126 – 21,955 462,816
Profit and total comprehensive Income for the year – – – 62,992 62,992
Transactions with owners
Ordinary shares issued at a premium during the year 3,372 350,132 – – 353,504
Share issue costs – (7,399) – – (7,399)
Interim dividends paid – – (35,481) (35,481)
As at 30 June 2021 8,107 778,859 49,466 836,432
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
110 SUPERMARKET INCOME REIT PLC
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
• n o 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 2023, the Company intends to continue to use these disclosure exemptions unless objections are received
from Shareholders.
B. Significant accounting judgements, estimates and assumptions
In preparing the financial statements of the Company, the Directors have made the following judgements:
• Determine whether there are any indicators of impairment of the investments in subsidiary undertakings. Factors taken into
consideration in reaching such a decision include the financial position and expected future performance of the subsidiary entity.
C. 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 £190,000 (2021: £155,000). 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 and SUPR Green
Energy Limited, all of which are incorporated and operating in England with a registered address of The Scalpel 18th Floor,
52 Lime Street, London, United Kingdom EC3M 7AF. The full list of subsidiary entities directly and indirectly owned by the
Company is disclosed in note 13 to the Group financial statements.
The movement in the year was as follows:
Year to
30 June 2022
£000
Opening balance 760,767
Additions 871,692
Closing balance 1,632,459
Impairments of investments in subsidiaries (303,351)
As at 30 June 2022 1,329,108
Year to
30 June 2021
£000
Opening balance 337,256
Additions 525,918
Closing balance 863,174
Impairments of investments in subsidiaries (102,407)
As at 30 June 2021 760,767
NOTES TO THE COMPANY FINANCIAL STATEMENTS
ANNUAL REPORT 2022 111
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
Year to Year to
30 June 2022 30 June 2021
£000 £000
Intercompany receivables 40,380 141,411
Prepayments and accrued income 163 114
Corporation tax receivable –
–
VAT receivable – 95
Other receivables 658
–
Total trade and other receivables 41,201 141,620
F. Trade and other payables
Year to Year to
30 June 2022 30 June 2021
£000 £000
Trade creditors 898 –
Corporate accruals 525 2,245
VAT payable 28
–
Intercompany payables 43,152 64,917
Total trade and other payables 44,603 67,162
G. Share capital
Details of the share capital of the Company are disclosed in note 23 to the Group financial statements.
H. Related party transactions
Details of related party transactions are disclosed in note 29 to the Group financial statements.
112 SUPERMARKET INCOME REIT PLC
Notes to EPRA and other Key Performance Indicators
1. EPRA Earnings per Share
Net profit Weighted
attributable average number
to ordinary of ordinary Earnings
Shareholders shares
1
per share
For the period from 1 July 2021 to 30 June 2022 £000 Number Pence
Net profit/(loss) attributable to ordinary Shareholders 115,869 975,233,858 11.9p
Adjustments to remove:
Changes in fair value of interest rate derivatives (5,566) – (0.6p)
Changes in fair value of investment properties and associated rent guarantees (21,820) – (2.2p)
Group share of changes in fair value of joint venture investment properties 6,021 – (0.6p)
Group share of gain on disposal of joint venture investment properties (37,102) – (3.8p)
EPRA EPS 57,402 975,233,858 5.9p
1 Based on the weighted average number of ordinary shares in issue in the year ended 30 June 2022.
Net profit Weighted
attributable average number
to ordinary of ordinary Earnings
Shareholders shares
2
per share
For the period from 1 July 2020 to 30 June 2021 £000 Number Pence
Net profit/(loss) attributable to ordinary Shareholders 83,526 652,858,945 12.8p
Adjustments to remove:
Changes in fair value of interest rate derivatives (1,570) – (0.2p)
Changes in fair value of investment properties and associated rent guarantees (36,288) – (5.6p)
Group share of changes in fair value of joint venture investment properties (5,619) – (0.9p)
Group share of negative goodwill from joint venture investment (3,265) – (0.5p)
EPRA EPS 36,784 652,858,945 5.6p
2 Based on the weighted average number of ordinary shares in issue in the year ended 30 June 2021.
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.
EPRA NTA EPRA NRV EPRA NDV
30 June 2022 £000 £000 £000
IFRS NAV attributable to ordinary Shareholders 1,432,455 1,432,455 1,432,455
Fair value of interest rate derivatives (5,114) (5,114) –
Fair value of Financial asset held at amortised cost (666) (666) (666)
Intangibles (93) – –
Purchasers’ costs – 113,935 –
Fair value of debt – – 4,320
EPRA metric 1,426,582 1,540,610 1,436,109
EPRA metric per share 115p 124p 116p
EPRA NTA EPRA NRV EPRA NDV
30 June 2021 £000 £000 £000
IFRS NAV attributable to ordinary Shareholders 871,310 871,310 871,310
Fair value of interest rate derivatives 447 447 447
Intangibles (85) – –
Purchasers’ costs – 83,787 –
Fair value of debt – – (2,111)
EPRA metric 871,672 955,544 869,646
EPRA metric per share 108p 118p 107p
UNAUDITED SUPPLEMENTARY INFORMATION
ANNUAL REPORT 2022 113
3. EPRA Net Initial Yield (NIY) and EPRA “topped up” NIY
As at As at
30 June 2022 30 June 2021
£000 £000
Investment Property – wholly owned (note 12) 1,561,590 1,148,380
Investment Property – share of joint ventures 266,500 233,125
Completed Property Portfolio 1,828,090 1,381,505
Allowance for estimated purchasers’ costs 133,380 100,797
Grossed up completed property portfolio valuation (B) 1,961,470 1,482,302
Annualised passing rental income – wholly owned 77,230 57,754
Annualised passing rental income – share of joint venture 13,372 13,239
Annualised non-recoverable property outgoings (400) (482)
Less: contracted rent under rent free periods –
–
Annualised net rents (A) 90,202 70,511
Rent expiration of rent-free periods and fixed uplifts 56
–
Topped up annualised net rents (C) 90,258 70,511
EPRA NIY (A/B) 4.60% 4.76%
EPRA “topped up” NIY (C/B) 4.60% 4.76%
4. EPRA Vacancy Rate
As at As at
30 June 2022 30 June 2021
EPRA Vacancy Rate £000 £000
Estimated rental value of vacant space 188 238
Estimated rental value of the whole portfolio 77,237 57,762
EPRA Vacancy Rate 0.2% 0.4%
5. EPRA Cost Ratio
As at As at
30 June 2022 30 June 2021
£000 £000
Administration expenses per IFRS 13,937 9,262
Service charge income (2,086) (830)
Service charge costs 2,338 1,044
Net Service charge costs 252 214
Share of joint venture expenses 95 292
Total costs (including direct vacant property costs) (A) 14,284 9,768
Vacant property costs (99) (187)
Total costs (excluding direct vacant property costs) (B) 14,185 9,581
Gross rental income per IFRS 72,363 48,156
Less: service charge components of gross rental income –
–
Add: Share of Gross rental income from Joint Ventures 14,423 9,944
Gross rental income (C) 86,786 58,100
EPRA Cost ratio (including direct vacant property costs) (A/C) 16.46% 16.81%
EPRA Cost ratio (excluding vacant property costs) (B/C) 16.34% 16.49%
114 SUPERMARKET INCOME REIT PLC
6. EPRA LTV
The Group voluntarily adopted the EPRA issued new best practice reporting guidelines in the year ending 30 June 2022,
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.
As at As at
30 June 2022 30 June 2021
£000 £000
Group Net Debt
Borrowings from financial institutions 348,546 409,684
Net payables 24,893 17,053
Less: Cash and cash equivalents (51,200) (19,579)
Group Net Debt Total (A) 322,239 407,158
Group Property Value
Investment properties at fair value 1,561,590 1,148,380
Intangibles 93 85
Financial assets 10,626 –
Total Group Property Value (B) 1,572,309 1,148,465
Group LTV (A-B) 20.49% 35.45%
Share of Joint Ventures Debt
Bond loans 88,121 95,394
Net payables 822 865
JV Net Debt Total (A) 88,943 96,259
Group Property Value
Owner-occupied property
Investment properties at fair value 277,407 238,724
Total JV Property Value (B) 277,407 238,724
JV LTV (A-B) 32.06% 40.32%
Combined Net Debt (A) 411,182 503,417
Combined Property Value (B) 1,849,717 1,387,189
Combined LTV (A-B) 22.23% 36.29%
7. Total Shareholder Return
Year to Year to
30 June 2022 30 June 2021
Total Shareholder Return
Pence per share Pence per share
Share price at start of the year 117.50 111.4
Share price at the end of the year 119.50 117.5
Increase in share price 2.00p 6.1p
Dividends declared for the year 5.94p 5.86p
Increase in share price plus dividends 7.94p 11.96p
Share price at start of year 117.50p 111.4p
Total Shareholder Return 7% 11%
UNAUDITED SUPPLEMENTARY INFORMATION CONTINUED
ANNUAL REPORT 2022 115
8. 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.
As at As at
30 June 2022 30 June 2021
Net loan to value £000 £000
Bank borrowings 348,546 409,684
Less cash and cash equivalents (51,200) (19,579)
Net borrowings 297,346 390,105
Investment properties valuation 1,561,590 1,148,380
Net loan to value ratio 19% 34%
9. Annualised passing rent
Annualised passing rent is the annualised cash rental income being received as at the stated date.
116 SUPERMARKET INCOME REIT PLC
GLOSSARY
AGM Annual General Meeting
AIFMD Alternative Investment Fund Managers Directive
Direct Portfolio Wholly Owned Properties held by the Group
EPRA European Public Real Estate Association
EPS 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
FRI 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
IFRS International accounting standards in conformity with the requirements of the
Companies Act 2006
IPO An initial public offering (IPO) refers to the process of offering shares of a corporation
to the public in a new stock issuance
LTV Loan to Value: the outstanding amount of a loan as a percentage of property value
NAV Net Asset Value
Net Initial Yield Annualised net rents on investment properties as a percentage of the investment
property valuation, less assumed purchaser’s costs of 6.8%
Net Loan to Value or Net LTV LTV calculated on the gross loan amount less cash balances
Omnichannel Stores offering both instore picking and online fulfilment
REIT Real Estate Investment Trust
Running yield The anticipated Net Initial Yield at a future date, taking account of any rent reviews in
the intervening period
Sainsbury’s Reversionary Portfolio A portfolio consisting of the freehold interest in 26 geographically diverse high quality
Sainsbury’s supermarkets
Total Shareholder Return The movement in share price over a period plus dividends declared for the same period
expressed as a percentage of the share price at the start of the Period
WAULT Weighted Average Unexpired Lease Term. It is used by property companies as an
indicator of the average remaining life of the leases within their portfolios
ANNUAL REPORT 2022 117
COMPANY INFORMATION
Directors Nick Hewson (Non-Executive Chairman)
Vince Prior (Chair of Nomination Committee & Senior Independent Director)
Jon Austen (Chair of Audit Committee)
Cathryn Vanderspar (Chair of Remuneration Committee)
Frances Davies (Chair of ESG Committee)
Company Secretary JTC (UK) Limited
The Scalpel
52 Lime Street, 18th Floor
London
EC3M 7AF
Registrar Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
AIFM JTC Global AIFM Solutions Limited
Ground floor, Dorey Court
Admiral Park
St Peter Port
Guernsey
Channel Islands
GY1 2HT
Investment Adviser Atrato Capital Limited
36 Queen Street
London
EC4R 1BN
Financial adviser, Broker and
Placing Agent
Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET
Auditors BDO LLP
55 Baker Street
London
W1U 7EU
Property Valuers Cushman & Wakefield
125 Old Broad Street
London
EC2N 1AR
Financial PR Advisers FTI
200 Aldersgate Street
London
EC1A 4HD
Website
www.supermarketincomereit.com
Stock exchange ticker
ISIN
SUPR
GB00BF345X11
This report will be available on the Company’s website.
118 SUPERMARKET INCOME REIT PLC
Design and production: theteam.co.uk
Print: Westerham Print
CONTENTS
STRATEGIC REPORT
1 Highlights for the year
2 Chairman’s Statement
3 Financial Highlights
4 SUPR at a glance
10 Q&A with Justin King CBE
12 Investment Adviser’s Report
17 The Company’s Portfolio
20 The UK Grocery Market
23 Key Performance Indicators
24 EPRA Performance Indicators
25 Financial Overview
28 Sustainability and TCFD Aligned Report
34 Our Principal Risks
41 Section 172(1) Statement
CORPORATE GOVERNANCE
42 The Board of Directors
43 The Investment Adviser
44 Chairman’s Letter on
Corporate Governance
45 Our Key Stakeholder Relationships
49 Leadership and Purpose
52 Board Activities During the Year
53 Key Decisions of the Board
During the Year
54 Corporate Governance Statement
56 Nomination Committee Report
59 Audit and Risk Committee Report
62 Directors’ Remuneration Report
66 Directors’ Report
69 Directors’ Responsibilities Statement
70 Alternative Investment Fund
Manager’s Report
72 Independent Auditors’ Report to the
members of Supermarket Income
REIT PLC
FINANCIAL STATEMENTS
78 Consolidated Statements
82 Notes to the Consolidated Financial
Statements
108 Company Financial Statements
110 Notes to the Company Financial
Statements
112 Unaudited Supplementary Information
116 Glossary
117 Contacts Information
A YEAR OF
GROWTH
WHO WE ARE | SUPERMARKET INCOME REIT PLC
(LSE: SUPR) IS A REAL ESTATE INVESTMENT TRUST
DEDICATED TO INVESTING IN PROPERTY WHICH
ENABLES THE FUTURE MODEL OF UK GROCERY.
SUPERMARKET INCOME REIT | ANNUAL REPORT 2022
The Scalpel
18th Floor
52 Lime Street
London
EC3M 7AF
www.supermarketincomereit.com
ANNUAL REPORT 2022
SUPERMARKET INCOME REIT PLC | ANNUAL REPORT 2022
‘Investing in the future of UK
grocery’
INVESTING
IN THE
FUTURE
OF UK
GROCERY