and Accounts, significantly enhancing the Company’s
sustainability reporting and environmental commitments.
We are pleased to present this report in full in this year’s
Annual Report and Accounts and the accompanying
Sustainability Report. In addition, the Company has also
made a commitment to submit a greenhouse gas emissions
reduction target to the Science Based Target Initiative
(“SBTi”) by Q4 2023. The Company supports the Investment
Including uncommitted extension options
Adviser’s signatory status of the Net Zero Asset Managers
Initiative (“NZAM”) and the United Nations Principles
for Responsible Investment (“UNPRI”). At the asset level
we are working with our tenants on initiatives such as
the installation of solar photovoltaic (“PV”) panels and
electric vehicle charging to further enhance the Company’s
sustainability performance.
Outlook
While economic conditions look set to remain challenging
in the near term, our unique high-quality portfolio of
omnichannel supermarkets, let on long-term, predominantly
inflation-linked leases, with strong tenant covenants, in the
non-discretionary spend sector of grocery, continues to offer
a compelling investment case.
The stabilisation of valuations in the short term and strong
sector dynamics in the medium to long-term mean that the
Board is confident of the growth prospects for the Company.
However, we remain cautious given the uncertain economic
backdrop and accordingly, the Company is targeting
a conservative dividend increase to 6.06 pence per share for
the next financial year.
Nick Hewson
Chair
September
4 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT| FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
12 months to
30 June 23
12 months to
30 June 22Change in Year
Annualised passing rent
.m.m+%
Operating profit
.m.m+%
Adjusted earnings
,,
.m.m+%
Changes in fair value of investment properties(.m).mn/a
Dividend per share declared. pence. pence+%
Adjusted EPS
,
. pence. pence-%
Dividend cover
,
.x
.xn/a
30 June 2330 June 22Change in Year
IFRS net assets,m,m-%
EPRA NTA
,m,m-%
EPRA NTA per share
pence pence-%
EPRA LTV
.%.%n/a
Direct Portfolio net initial yield
.%.%n/a
The alternative performance measures used by the Group have been defined and reconciled to the IFRS financial statements within the unaudited
supplementary information
Operating profit before changes in fair value of properties and share of income and profit on disposal from joint venture
Adjusted Earnings and Adjusted EPS are calculated as EPRA Earnings and EPRA EPS adjusted for finance income from derivatives held at fair value through
profit and loss, loan arrangement fee for Joint Venture acquisition and non-recurring debt restructuring costs. For further information please see the Key
Performance Indicators and EPRA Performance Indicators sections on pages and
New financial highlight for the year, expected to be included in future financials as they provide a more comprehensive understanding of core
business performance
Calculated as Adjusted EPRA earnings divided by dividends paid during the year
GROCERY SECTOR STRENGTH UNDERPINS DEMAND FOR MISSION CRITICAL SUPERMARKETS
Supermarket Income REIT plc (LSE: SUPR), the UK supermarket real estate investment trust providing secure,
inflation-linked, long income from grocery property in the UK, reports its audited consolidated results for the
Group for the year ended June (the “Year”).
ANNUAL REPORT 2023 5
Resilient financial performance with strong income growth
• 30% increase in annualised passing rent to £100.6 million
–100% occupancy
–100% of rent collected
–4.1% average rental uplift
• 26% increase in adjusted earnings to £72.4 million
• FY 2023 dividend of 6 pence per share, target dividend
of 6.06 pence per share for FY 2024
Grocery sector strength and resilience driving elevated
property investment volumes
• UK grocery market grew 11% during the period
9
• 30% increase in UK grocery market since IPO to
£242 billion
10
• Supermarket store revenues growing much faster than
rents, improving affordability and rental values
• UK supermarket property investment volumes exceeded
£1.7 billion during the year
11
Active portfolio management – accretive asset sales and
capital recycling
• Sale of interest in 21 supermarket properties held in the
SRP at a NIY of 4.3%
12
and a total consideration of £430.9
million
13
, delivering a:
–30% IRR
–1.9x money-on-money multiple
• Purchase of eleven supermarket properties at a NIY of
5.5%
14
for a total consideration of £399.0 million
High-quality portfolio of mission-critical supermarkets
• Future-proofed portfolio of omnichannel stores
• Capturing elevated online grocery demand, which is up
+80% since 2019
16
• 14 years, weighted average unexpired lease
term (“WAULT”)
• Strong performing tenant covenants; 77% of income from
Sainsbury’s and Tesco
• 78% of rental income is inflation-linked, subject to caps of
**Interest cost is inclusive of hedging arrangements where applicable. Amounts stated do not include unamortised arrangement fees
34 SUPERMARKET INCOME REIT PLC
STRATEGIC REPORT| FINANCIAL OVERVIEW CONTINUED
The overall facilities and hedging arrangements (including
post balance sheet events) have a weighted average
debt maturity of 4 years (including extension options)
(30 June 2022: 4 years) and a cost of borrowing of 3.1%
(30 June 2022: 2.8%).
The Group continues to have a conservative leverage policy,
with a medium-term LTV target of 30%-40%. At the year
end, total net debt was £630.0 million, resulting in a net
loan to value (LTV) ratio of 37.4% (30 June 2022: 19.0%).
Including post balance sheet events, the Group’s Gross LTV
currently stands at 34.0%. The Group has further balance
sheet capacity to utilise for opportunities which may
come to market.
Each of the loans under the secured credit facilities requires
interest payments only until maturity and are secured
against both the subject properties and the shares of the
property-owning entities. Each property-owning entity is
either directly or ultimately owned by the Group.
Each of the loans under the unsecured credit facilities
requires interest payments only until maturity.
The Group continues to maintain significant headroom on
its LTV covenants which contain a maximum 60% LTV
threshold and a minimum 190% interest cover ratio for each
asset in the Portfolio. As at 30 June 2023, the Group could
afford to suffer a fall in secured property values of 48%
before being in breach of its LTV covenants. With current
hedging arrangements in place the Group has significant
interest cover headroom.
Further analysis on the Group’s liquidity and banking
covenant compliance strength is set out in note 1 of the
financial statements. Details of the Group’s debt and
interest rate hedging can be found in Notes 20 and 21
to the financial statements.
Dividends
The Company has declared four interim dividends for the
year as follows:
• On 21 September 2022, a first interim dividend of 1.5
pence per share, which was paid on 16 November 2022.
• On 12 January 2023, a second interim dividend of 1.5
pence per share, which was paid on 23 February 2023.
• On 11 April 2023, a third interim dividend of 1.5 pence
per share, which was paid on 26 May 2023.
• On 6 July 2023, a fourth interim dividend of 1.5 pence per
share, which was paid on 4 August 2023.
The Group’s adjusted dividend cover ratio was 0.97x for the
year (30 June 2022: 1.08x).The decrease is reflective of the
increased debt levels of the Group for the year, interest rate
increases and the timing of the receipt of the SRP proceeds
to reinvest into increasing the earnings of the Group.
The Company is targeting to increase the dividend for the
year to 30 June 2024 to 6.06 pence per share, which will be
the sixth consecutive year of annual dividend increases.
Atrato Capital Limited
Investment Adviser
September
ANNUAL REPORT 2023 35
ESG Statement
The UK is targeting Net Zero emissions by 2050. Achieving
this will require the full commitment of the real estate
sector, among many others. Supermarket Income REIT
plc acknowledges that it has a role to play within that
commitment and therefore must identify and manage its
sustainability risks accordingly. The Company believes
that this approach aligns with the interests of its key
stakeholders.
Enhanced collaboration between landlords and tenants is
necessary if zero carbon initiatives are to be successful and
the Company is especially focused on this, given the (full
repairing and insuring) nature of the majority of its leases.
The Company’s sector has proved itself to be agile in times
of hardship through the “feed the nation” enterprises; now
is the time to deliver on zero carbon initiatives throughout
its operations.
In addition to the Company’s disclosures in line with the
Task Force on Climate-related Financial Disclosures (TCFD)
recommended disclosures, the Company will publish
its first Sustainability Report in 2023. The Sustainability
Report contains disclosures on other environmental,
social and governance (ESG) topics, including outlining
the Company’s work to consolidate its approach, by
integrating sustainability into all levels of the fund and its
investment process.
Highlights from the Sustainability Report, beyond the
Company’s climate-related activities and commitments,
will include environmental asset management initiatives to
benefit occupiers and communities, further improvements
to its ESG Governance following the establishment of
the ESG Committee during FY 2022, and community
engagement through charitable giving and community
partnerships.
The Company’s approach to ESG is underpinned by the
Board’s commitment to good stewardship and long-term
value creation for our stakeholders. Our aim is to continue
to enhance and refine our sustainability strategy and
reporting moving forward.
Streamlined Energy and Carbon Reporting (“SECR”)
The below table and supporting narrative summarise
the Streamlined Energy and Carbon Reporting (SECR)
disclosure. As a listed entity, the Company is required to
comply with the Streamlined Energy and Carbon Reporting
(SECR) regulations under the Companies (Directors’ Report)
and Limited Liability Partnerships (Energy and Carbon
Report) Regulations 2018. Only data for the year ended
30 June 2023 is included as this is the Company’s first
year of SECR.
STRATEGIC REPORT| TCFD COMPLIANT REPORT
Emissions not calculated due to lack of data and immateriality (<% of total emissions). SUPR does not have an office or employees. The only travel is quarterly
travel by non-exec directors, the majority of which is local travel in London
Values have been rounded
Tenant energy consumption only
Reporting year
Current reporting year:
1st July 2022 – 30th June 2023
LocationUK
Emissions from the combustion of fuel and operation of facilities (tCO
e) (Scope )
Emissions from purchase of electricity (location-based) (tCO
e) (Scope )
Emissions from business travel in rental cars or employee-owned vehicles where company
is responsible for purchasing the fuel (tCO
e) (Scope )
N/A
Voluntary: Emissions from Fuel and Energy related activity (tCO
e) (Scope )
Voluntary: Emissions from Purchased Goods and Services (tCO
e) (Scope ),
Voluntary: Emissions from Capital Goods (tCO
e) (Scope )
Voluntary: Emissions from Downstream Leased Assets (tCO
e) (Scope ),
Total gross emissions based on the above (tCO
e)
,
Energy consumption used to calculate Scope emissions (kWh),
Energy consumption used to calculate Scope emissions (kWh),
Energy consumption used to calculate Scope emissions (kWh)
,,
Total energy consumption based on above (kWh)187,832,009
Intensity ratio: tCO
e (gross Scope 1 + 2) per m
of floor area0.00045
Intensity ratio: tCO
e (gross Scope 1, 2 + 3) per m
of floor area0.13
36 SUPERMARKET INCOME REIT PLC
Methodology
The 2022/23 SECR footprint is equivalent to 81,017 tCO
2
e,
with the largest portion being made up of emissions from
downstream leased assets at 77,273 tCO
2
e.
The Company has calculated the above greenhouse gas
(GHG) emissions to cover all material sources of emissions
for which the Company is responsible. The methodology
used was that of the Greenhouse Gas Protocol: A Corporate
Accounting and Reporting Standard (revised edition, 2015).
Responsibility for emissions sources was determined using
the operational control approach. All emissions sources
required under The Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 are included.
Raw data captured in spreadsheets including energy
spend and consumption data has been collected from the
Company. Where actual consumption data was available
for natural gas and electricity use, this was used. To address
data gaps, the most appropriate proxy was applied by
using either previous year’s data, actual data to calculate
average monthly consumption, or by applying the average
floor area intensity from sites with actual data. Fuel oil was
estimated by applying the average 2022 UK fuel oil price to
the budgeted spend for fuel oil. Energy was then converted
to GHG emissions using the UK Government’s GHG
Conversion Factors for Company Reporting 2022.
Scope 3 emissions have been calculated for relevant
material categories using consumption data, spend data,
floor area and EPC data. Fuel and Energy related activities
includes well-to-tank (“WTT”) and transmission and
distribution (“T&D”) upstream emissions from Scope 1&2.
For Purchased Goods and Services, Environmentally
Extended Input Output (“EEIO”) has been used. Spend
data was provided per supplier by the Company’s Finance
team and mapped to 2022 DEFRA Input/Output (“IO”)
categories. Embodied emissions from two newly built sites
were estimated for Capital Goods, based on LETI factors.
Where actual data was not available for Downstream Leased
Assets, a combination of CIBSE benchmarks were used
against EPC data on energy use and heating type. Publicly
available air conditioning (“AC”) certificates were used to
determine the type and amount of refrigerants, where this
was not available other similar sites were used as proxies.
As per EPA data, the size of the air conditioning equipment
used was dependent on the amount of refrigerant used and
the floor area. Supermarket refrigeration and non-food air
conditioning was estimated using an intensity estimate from
EPA data as no activity data was available. Refrigerant loss
rate for refrigeration was taken from Direct Emissions from
Use of Refrigeration, Air Conditioning Equipment and Heat
Pumps from DEFRA.
Energy Efficiency Action
The Company has made efforts to improve energy efficiency
across landlord-controlled areas between 1 July 2022 and
30 June 2023. The car park and communal lighting has
been upgraded to LED at Winchester, West End Retail
Park (50% complete), Willow Brook Centre (99% complete)
and Wisbech sites. Further upgrades to LED lighting are
planned for other sites. The Company is also in the process
of replacing the Air Handling Unit at the Beaumont Leys
site and implementing a sustainable heating solution for the
mall. A Battery Management System upgrade, PIR controls
and monitoring and education has also been put in place at
the Willow Brook Centre.
Task Force on Climate-Related Financial
Disclosures (TCFD)
Introduction
The effects of climate change are impacting countries,
businesses and society in many ways. Such impacts will
continue to increase if significant mitigation measures
are not taken by all contributors. The UK commercial real
estate industry is not immune from these effects and faces
numerous risks associated with climate change that could
impact the industry in the near and long-term. These risks
include, but are not limited to, flooding and heat waves,
impacting tenant operations and supply chains, as well
as regulatory actions requiring emissions reductions and
energy efficiency improvements. Along with these risks also
come opportunities for improving the industry’s readiness,
which could offer valuable contributions to mitigation of
climate change’s impacts and associated risks.
Supermarket Income REIT plc is dedicated to mitigating
climate-related risks, reducing its environmental impact and
managing its climate-related risk exposure. In anticipation
of, and in response to, the impacts that these risks pose to
the Company, its tenants and stakeholders, the Company
continues to build out an effective governance structure
and put measures in place to enhance its climate risk
management strategy. The Company is supported by
Atrato Capital Limited (the “Investment Adviser”) which, as
a signatory of the United Nations’ Principles for Responsible
Investment (UNPRI) and the Net Zero Asset Managers
(NZAM) Initiative, is committed to assisting the Company
achieve its sustainability and climate goals to combat the
climate crisis.
STRATEGIC REPORT| TCFD COMPLIANT REPORT CONTINUED
ANNUAL REPORT 2023 37
The Company continues to build on its voluntary reporting
in line with the taskforce on Climate-related Financial
Disclosure (TCFD) recommendations and enhance its
climate-related strategy to advance the development and
implementation of a comprehensive risk management
framework. This strategy, developed by the Investment
Adviser, in conjunction with the Board of the Company, will
include a roadmap derived from climate risk identification,
scenario analysis and a financial impact assessment of
material risks. This collaboration between the Investment
Adviser and the Board helps to ensure that the Company’s
investments will continue to be guided by a comprehensive
risk management strategy that incorporates climate risks.
In 2022, the Company reported against the four TCFD
pillars in its TCFD-aligned report. In 2023 the Company
is voluntarily disclosing for the first time on a basis
consistent with all 11 of the TCFD recommendations and
recommended disclosures.
Table 1 summarises the 2023 disclosures and areas
identified for improvement in future years.
Table : The Company’s TCFD Statement of the Extent of Consistency with the TCFD Framework
responsibility for implementation and alignment with the
Investment Adviser’s sustainability systems and controls,
co-ordination of third-party service providers, and delivery
of the Company’s sustainability strategy.
Where the Company has appointed a specialist service
provider, the Investment Adviser will require and hold
regular project progress meetings with the service provider,
where delivery is tracked against an agreed project timeline.
The results of the progress will be communicated to the ESG
Committee by the Investment Adviser in the context of its
progress against the agreed sustainability strategy.
Reporting – The Investment Adviser has reviewed its
reporting obligations to the Company over the year. With
the introduction of the ESG Committee, key topics such
as strategic developments, occupational health and safety
events, and potentially material adverse impacts will be
reported under a more consistent framework.
Certain topics will be included as standing items in the
quarterly information pack provided to the ESG Committee.
These are designed to:
1. Provide Committee members with the ability to directly
monitor management of the identified climate-related
risks and opportunities. This will include Energy
Performance Certificate (“EPC”) ratings and progress
against the delivery of the sustainability plans for the
higher risk assets, flood risk assessments and updates on
and feedback from the tenant engagement plan;
2. Oversee the Investment Adviser’s performance against
the agreed deliverables under the sustainability strategy as
well as holding it to account for non-performance.
The Investment Adviser has also sought to expand its
external reporting, having become a signatory to both
UNPRI and NZAM. It will be making the necessary reports
required under these commitments over the next reporting
period. Finally, the Investment Adviser has improved its
data collection in relation to its own activities to support the
public disclosures of the Company, in particular the social
and governance aspects.
40 SUPERMARKET INCOME REIT PLC
risks, as well as corresponding opportunities. Relevant
and potentially material risks and opportunities were
identified through a review of existing risk assessments and
consultation with the Investment Adviser. These risks were
given a ‘First Stage Rating’, based on the judgement of the
Investment Advisers, to enable the higher priority risks to be
taken forward for a more detailed review.
The short-, medium-, and long-term time horizons were
chosen to align with specific climate risks and risk
management strategies. The short-term time horizon
(2023-2030) aligns to the anticipated compliance deadline
for Minimum Energy Efficiency Standards (“MEES”). The
Investment Adviser anticipates 2030 as the target year for
a minimum B-rating across qualifying sites. Due to the
14-year WAULT of its portfolio, the Company expects few
changes to the existing leases arrangements during this
time period. The medium time horizon (2030-2040) aligns
with a period of current lease renewals for the majority of
Company’s tenants, during which physical and transition
risks associated with the Company’s portfolio may have
greater influence on lease agreements with existing and
new tenants. Finally, the long-term horizon (2040-2050)
coincides with a potential increase in the likelihood and
severity of physical climate risks impacting the Company’s
portfolio and allows for the creation of long-term strategies
and planning regarding portfolio management in response
to these risks. The Company expects that the short-,
medium-, and long-term horizons will align with those of the
Company’s forthcoming climate targets, which will be set in
the next reporting period.
Strategy
Describe the climate-related risks and opportunities the
organisation has identified over the short-, medium-,
and long-term:
During the reporting period, the ESG Committee approved
an updated climate risk strategy for the Company in
line with its continual improvement ethos. In addition
to the review and revision of the Company’s previous
sustainability commitments, the strategy identified three key
aims for the 2022/23 reporting period.
– Expansion of reporting in-line with TCFD
application guidance.
– Introduction of climate-related performance targets for the
Investment Adviser.
– Further review and development of the Investment
Adviser’s systems and controls.
The Board and ESG Committee recognise that to ensure
successful implementation of the Company’s sustainability
strategy, and specifically the integration of sustainability
factors into the investment process, appropriate training
and communication of sustainability considerations must
be provided to the Investment Adviser’s employees. The
Investment Adviser will therefore expand its training
programs over the course of the year to more fully
incorporate climate risk topics, which it will continue to
develop in line with stakeholder expectations and sector
developments.
For this reporting period, a first stage risk screening
was conducted to identify and assess the impact of the
Company’s climate-related transition and physical
STRATEGIC REPORT| TCFD COMPLIANT REPORT CONTINUED
ANNUAL REPORT 2023 41
Table | Scenario analysis results for the Company’s climate risks and opportunities and First Stage risk rating
Risk descriptionScenario
(a)
Impact
(b)
Likelihood
(c)
Overall Rating
(d)
by Time Horizon
Short
(2023-2030)
Medium
(2030-2039)
Long
(2040-2050)
Physical Risk – Flooding (Acute
& Chronic): Increased insurance
premiums and increased capital
expenditure required on adaptative or
remediation measures.
First
Stage Rating
HigherHigherModerateHigherHigher
Below
ºC Scenario
ModerateHigherModerateModerateModerate
Above
ºC Scenario
ModerateHigherModerateModerateModerate
Physical Risk – Extreme Heat
(Acute): Increasing operating costs
for tenants through increased energy
demand required for cooling; supply
chain disruption, stock damage and
write off. This may increase capital
expenditure, repairs and maintenance,
and reduced tenant demand and/or
rent premiums for less energy efficient
buildings.
First
Stage Rating
ModerateHigherModerateHigherHigher
Below
ºC Scenario
ModerateLowerLowerLowerLower
Above
ºC Scenario
ModerateLowerLowerLowerModerate
Transition Risk – Policy and Legal
Risk: Currently represented by
Minimum Energy Efficiency Standards
(MEES), but could also include, new,
future, additional regulations. Any
properties not compliant with MEES
could reduce tenant demand, reduce
rent premiums or result in fines.
First
Stage Rating
(e)
ModerateHigherHigherHigherModerate
Below
ºC Scenario
HigherModerateModerateModerateModerate
Above
ºC Scenario
HigherLowerLowerLowerLower
Transition Risk – Market: Energy
Costs may increase for tenants,
shifting preferences for more energy
efficient buildings and renewables.
First
Stage Rating
ModerateModerateModerateModerateModerate
Below
ºC Scenario
n/a – scenario analysis not performed for this risk type
Above
ºC Scenario
Transition Risk – Reputation:
Tenants demand preferences may
shift to lower carbon, highly energy
efficient buildings, due to Net Zero
commitments and their customer
demands, reducing tenant demand
and/or rent premiums.
First
Stage Rating
ModerateModerateModerateModerateLower
Below
ºC Scenario
n/a – scenario analysis not performed for this risk type
Above
ºC Scenario
Opportunity – Market: By accelerating
deployment of energy efficient
measures, setting a Science Based
Target (SBT) and better aligning with
tenant preferences, the Company
could gain a competitive advantage
relative to other commercial landlords
who are not as progressive on in their
climate and sustainability related
ambitions. This could enable increased
tenant demand and rent premiums.
First
Stage Rating
ModerateModerateModerateModerateLower
Below
ºC Scenario
n/a – scenario analysis not performed for this risk type
Above
ºC Scenario
Notes:
a) The IPPC Atlas’ RCP. scenario and the NGFS’s Net Zero scenario are assumed to represent “Below °C scenarios” for physical and transition risks
respectively. Above ºC scenarios were included voluntarily for prudent, comparative purposes, and are based on the IPPC Atlas’ RCP. scenario and the
NGFS’s Current Policies scenarios for physical and transition risks respectively
b) Impact represents assumed, inherent financial exposure and/or vulnerability of the Company
c) Likelihood represents the probability and/or frequency of occurrence
d) Overall Rating represents the product of Impact and Likelihood
e) First Stage ratings were based on initial internal discussions and comparison with peer organisations. The top three risk types with relatively higher ratings for
impact and likelihood were then taken forward for more detailed scenario analysis in . Please see Appendix A for further details on the methodology
Subsidence was not selected to be included in scenario analysis this year, but it was identified as a climate risk alongside Flooding and Extreme Heat.
42 SUPERMARKET INCOME REIT PLC
against these plans is reviewed monthly with the Head of
Sustainability and at asset management planning meetings
with site managers.
Financial planning – The majority of the Company’s assets
are on long-term full repairing and insuring (FRI) leases.
The maintenance and operation of the assets, including
improvements necessary to achieve the required EPC
improvements and the tenant’s own Net Zero targets are
therefore the responsibility of the tenant during the term of
the lease. The Company’s approach to financial planning is
reflective of this and includes the following activities.
–Assessment of the costs of improving all assets to an
EPC B. This is currently underway and has not yet been
formally reflected in the Company’s financial planning
as it is likely that the asset improvement costs may be
shared, at least in part, with its tenants, which requires
further engagement.
–On-going monitoring of the likelihood of potential asset
level risks. This may prompt a future change to asset
values, provisions for increased insurance premiums
and/or increased future rectification costs.
–Updates to the future budgeting process to incorporate
the costs of appointing suitable advisers to support its risk
assessment and reporting requirements.
–Updates to the future budgeting process to incorporate
additional acquisitions costs to support the more
detailed due diligence around climate-related risks and
opportunities.
Access to Capital – Access to both debt and equity capital
will increasingly require the Company to align with the
financial community’s requirements for robust climate risk
and opportunity management and activities relating to Net
Zero. The Company’s sustainability strategy is designed to
address this through:
–Regular engagement via the Investment Adviser with
Shareholders to understand their requirements and
to ensure timely responses to their own sustainability
due diligence.
–Increased transparency over risks and opportunities
and how they are being managed; which includes this
TCFD report.
–Independent review and support in the preparation of
climate-related disclosures by third-party advisers.
–Horizon scanning for sustainability initiatives to be
implemented by relevant regulators.
–Ongoing dialogue with debt funders around their
sustainability policies including relevant lending
exclusions and funding incentives linked to green
lending criteria.
The three climate risks and/or opportunities judged to be
the most material and assigned the highest overall risk
or opportunity rating in the initial risk screening were
evaluated using climate scenario analysis. The results of this
analysis are shown in Table 2. The scope of this detailed
analysis will be expanded in future years to evaluate
more risk and opportunity types and to better quantify the
financial impacts associated with these risks. Additional
risks to be evaluated include energy costs and customer
and tenant demand for lower carbon buildings, while
opportunities include gaining a competitive advantage
over peers by offering assets with higher energy efficiency
ratings. Quantitative financial values at risk have not been
published this year, as the corresponding costs of managing
the risks require further research and greater access to and
engagement with tenants. This research and engagement
will be performed over the next 12 months. This is
considered to be a transitional challenge as the Company’s
scenario analysis methodology is developed and embedded.
Describe the impact of climate-related risks and
opportunities on the organisation’s businesses, strategy,
and financial planning:
The Company’s ability to evolve its commercial strategies to
reflect the relevant climate-related risks and opportunities
identified, will be fundamental to its continued success. This
will include considering the risks and opportunities within
specific activities, such as:
Acquisitions – The Investment Adviser has already
adapted its asset sourcing criteria and approach to
acquiring new assets.
–No asset with an EPC below C can be acquired unless
a demonstrable EPC improvement plan is developed, the
cost of which is reflected in the investment case for the
asset acquisition.
–Consideration is given to the costs required to improve
all assets to EPC B, based on current anticipated
legislative changes.
–A sustainability review is completed for all assets.
–Opportunities for the installation of energy efficiency
and renewables technology in support of the Net Zero
transition are considered as part of the investment case.
–The credit standing of the Company’s tenants is assessed
in the context of their ability to manage climate-related
risks and opportunities.
As the Investment Adviser continues to embed the SIMS it
will also undertake additional due diligence including future
flood risk assessments under alternative climate scenarios.
Asset Management – The Investment Adviser already
maintains records relating to the delivery of sustainability
initiatives across the Company’s portfolio. Priority
initiatives will be defined through this risk and opportunity
identification process and combined with initiatives
previously identified through to the Company’s engagement
with tenants, the acquisition due diligence process. Current
example initiatives include feasibility assessments for
installation of renewable energy solutions or electric
charging points. The Investment Adviser’s progress
STRATEGIC REPORT| TCFD COMPLIANT REPORT CONTINUED
ANNUAL REPORT 2023 43
Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related
scenarios, including a °C or lower scenario:
Each risk type with Moderate-Higher First Stage Ratings
have been considered under two future scenarios.
The future scenarios are the IPCC’s Representative
Concentration Pathway (RCP) 2.6 IPCC RCP8.5. The RCP2.6
scenario describes a scenario where global temperature
increases remain below 2°C as a result of sharp decreases in
emissions, whilst the RCP8.5 scenario describes a scenario
commensurate with much higher emissions and subsequent
temperature increases (around 4°C of warming). These
scenarios have been included in analysis on the basis that
they represent a low-emissions future scenario as well as
a high-emissions future scenario.
Policy and Legal
The Company’s current, key regulatory risk is associated
with the MEES. MEES impacts the Company’s portfolio
of assets by requiring that each asset achieves minimum
EPC ratings in order to be leased. It is acknowledged that
within the RCP2.6 scenario, other policy and legal changes
may be introduced in addition to, or in-place of the current
MEES regulation. Therefore, this risk is intended to
represent a broader suite of future climate Policy and Legal
interventions. Current MEES readiness and EPC ratings
serve as only one indicator for how vulnerable the Company
is to the broader risk of climate-related Policy and Legal
changes. Other vulnerability indicators include tenant lease
term. The likelihood rating is based on the proxy of global
carbon price data, on the rationale that in future scenarios
with higher carbon prices, there is an increased likelihood
of policies, such as MEES, that discourage emissions. In the
RCP2.6 scenario, carbon prices increase more rapidly in the
short-term than under the RCP8.5 scenario. Further details
of this approach have been included in Appendix A.
Currently, the MEES regulation sees compliance as
a landlord responsibility, is applied to all commercial leases
(subject to some exemptions) and dictates that a property
with an EPC lower than an ‘E’ cannot be let to new tenants
or renewed with existing tenants. Revisions to the legislation
are currently under consultation, but it is widely anticipated
that landlords, including the Company, will be required to
ensure their properties are rated at C or better by 2028 and
B or better by 2030 to continue to lease the properties to
tenants. Although, as aforementioned, these regulations are
subject to exclusions.
The Company’s leased supermarket assets in England
currently achieve an average rating of C, with 8 of 50 (16%)
rated at D or worse. The Company has undertaken an
exercise to understand the capital expenditure required
to bring the portfolio up to a lettable standard, should
the legislation progress as is anticipated (i.e. B by 2030).
Based on the Investment Adviser’s initial analysis of the
upgrade costs, these are not expected to be material for the
Company. However, the Company is actively engaging with
tenants to improve asset energy efficiency, where possible,
since an asset with a lower rating could invite lower demand
and rental income relative to an asset with a comparatively
higher rating. This is likely to be of greater concern to the
Company over the medium term when the majority of its
leases will be due for renewal. While the landlord is not
able to make change without consent from the tenants, the
landlord may register an exemption should the tenant not
permit access and alterations to facilitate improvement.
As a result of this analysis, the Company will be evaluating
the capital refurbishment plans on those sites with lower
EPC ratings and ensuring that robust plans are in place
to comply with, if not exceed, future MEES regulations.
The financial impact of this risk will be assessed in
future analysis.
Extreme Heat
Heat waves have increasingly impacted businesses in the
UK and across Europe, with average impacts estimated
as high as 0.5% of GDP in the last decade (www.nature.
com/articles/). The heat wave in July 2022 saw UK
temperatures rise above 40°C in some areas, impacting
grocery store refrigeration capability, energy supply,
supply chains and operations. Such events impact store
profitability as they lead to increased energy consumption
and associated costs to facilitate greater levels of cooling.
Other impacts include stock loss and the cost of newer,
more efficient refrigeration technology. If this were to
disproportionately impact the Company’s stores this could
reduce their attractiveness to the operators, leading to
impacts on rental income.
The results of the scenario analysis show that heat waves
are generally a low risk for the Company’s portfolio in the
RCP2.6 scenario, with temperatures rising above 35°C fewer
than one day per year on the short-, medium-, and long-term
horizon. In the RCP8.5 scenario, this risk increases but
remains low compared to global risk levels, with the number
of days with temperatures of 35°C or greater increasing
to over three days per year on average. Higher risk sites
were mainly located in the South West, with the remaining
located in the Midlands and the South East of England.
Informed by this analysis, the Company will engage
with tenants of higher risk sites through site visits and
engagement to better understand the operational impacts
as a result of extreme heat, if and how it has affected asset
operations at these locations in the past, and the extent to
which it may influence a tenant’s decision to renew its lease.
Tenants are continuing to advance their own refrigeration
and supply chain technology alongside the changing
environment, with refrigeration upgrades at stores where
the equipment is aged, reducing any stock loss associated
with inadequate refrigeration.
Flooding
While there have been no instances of flooding across
the Company’s portfolio during its period of ownership,
flooding has in some locations impacted other supermarket
properties across the UK. This impact is expected to
increase over time due to climate change (see WWF Water
Risk Filter). Scenario analysis results for the Company’s
portfolio show flood risk to be moderate on the short
and medium-term time horizons in the RCP8.5 scenario.
This risk level is reflective of the higher risk level that the
44 SUPERMARKET INCOME REIT PLC
Describe the organisation’s processes for managing
climate-related risks:
The Investment Adviser undertakes an assessment of each
asset against a set of sustainability criteria, incorporating
metrics such as a flood risk assessment into each transaction
review. The Company will not recommend the acquisition
of assets with an Energy Performance Certificate (EPC)
of D or below unless a deliverable EPC improvement
plan is in place, prior to acquisition, to improve an asset
to an EPC rating of C or better. The cost of delivering
the EPC Improvement plan forms part of the acquisition
investment case.
Materiality and prioritisation determinations are made
through impact, likelihood, and risk scoring as a part of the
risk register. Inherent and residual probabilities are assigned
to each risk, from which a risk score is derived. Mitigating
actions are described in detail in the risk register, laying
out governance structure and processes in place aimed at
mitigating each risk. Finally, actions taken to mitigate risks
are tracked and recorded in the register.
Regulatory transition risks associated with the Company’s
portfolio are assessed and included in the risk register.
EPC ratings and scoring are updated on a rolling basis
when there are known sustainable improvements
to assets, on expiry or following a change to EPC
calculation methodology. These ratings, as the Company’s
responsibility, are undertaken by the Company’s consultants
when required. The Company strives to acquire assets with
higher EPC ratings in order to mitigate exposure to this
risk. This is reflected in the Investment Adviser’s systems
and controls.
Describe how processes for identifying, assessing, and
managing climate-related risks are integrated into the
organisation’s overall risk management:
The Company’s approach to risk assessment is as set out in
the Our Principal Risks Section on pages 51 to 60.
The Company manages its risk related to emissions
regulations by monitoring, measuring, and disclosing its
Scope 1, 2, and 3 GHG emissions. Emissions mitigation
strategies, including specific emissions targets, are being
developed to reduce the Company’s emissions and to reduce
exposure to this regulatory risk.
Rising energy costs are a key transition risk, as tenants
facing rising energy, or other, costs would put downward
pressure on rent revenue. To manage this risk, the
Investment Adviser prioritises energy efficiency and
alternative energy sources, such as renewable energy, in
communications with tenants. Energy efficiency and energy
sources are tracked as part of the EPC assessments and this
information is used to inform risk exposure related to rising
energy costs.
The Company’s identified physical climate risks include
flooding, heat waves, and subsidence. Flood risk across
the UK has historically been high and this risk is expected
to increase, per the UK’s Third Climate Change Risk
Assessment. Should there be an incidence of flood, it is
anticipated that a flooding report would be submitted by the
UK faces relative to many other countries. The scenario
analysis highlighted regional differences in risk levels
within the Company’s portfolio, with higher risk sites
distributed equally across the South East, South West and
Midlands, with Wales, the North East and North West
comparatively lower risk.
These results will inform tenant engagement across
the portfolio regarding flood risk, including enhanced
communication for any higher risk sites identified.
Furthermore, the Company has undertaken a closer review
of past flood risk assessments to understand what adaptation
measures are available and the capital investment required
for such measures. Detailed financial impacts of this risk
will be quantified over the next 12 months. The Investment
Adviser will be reviewing its investment due diligence and
exploring if more detailed analysis of acute and chronic
flood risk impacts can be embedded into its investment
strategy and decisions.
Risk Management
Describe the organisation’s processes for identifying and
assessing climate-related risks:
The Company’s approach to risk assessment is as set out in
the Our Principal Risks Section on pages 51 to 60.
The Board and JTC Global AIFM Solutions Limited, the
Company’s Alternative Investment Fund Manager (the
AIFM), together have joint overall responsibility for the
Company’s risk management and internal controls, with
the Audit and Risk Committee reviewing the effectiveness
of the Board’s risk management processes on its behalf.
The ESG Committee is responsible under the delegated
authority of the Board for the identification and monitoring
of climate-related risks which are incorporated into the risk
management process.
The ESG Committee will consider both physical risk
factors such as flood risk as well as existing and future,
emerging regulatory risks, including the implications of
the introduction of MEES. Additionally, the Investment
Adviser seeks to ensure climate-related risks are a standing
item when engaging with the Company’s tenants. Such
engagement occurs multiple times per year and more
frequently with larger site tenants. Where relevant to do so,
it will formally incorporate any risks identified through that
engagement channel into the Company’s risk register over
the next 12 months.
Materiality of climate-related risks and opportunities is
determined based on their relative likelihood and potential
financial impact. This is a process that has been reviewed
and will continue to be enhanced over the course of 2023.
At present, the Company’s finance team have fed into
a ‘First Stage Rating’, which has enabled the process of
financial quantification to commence via the scenario
analysis for selected risks. Once the risk quantification
is complete, it will allow a more robust assessment of
materiality to be made.
STRATEGIC REPORT| TCFD COMPLIANT REPORT CONTINUED
ANNUAL REPORT 2023 45
Table | Climate-related metrics and targets
TargetMetric
Progress (as of June
2023)
52
All supermarkets
B or above by
EPC rating of (%)
All supermarkets
C or above by
EPC rating of (%)
All ancillary units
B or above by
EPC rating of (%)
All ancillary units
C or above by
EPC rating of (%)
Five sites with
Company-owned
and managed
car parks with
electronic
vehicle charging
Number of vehicle
charging stations
of (%)
% of
Investment
Adviser staff
received training
on climate risks
and opportunities
by end of
Percentage of
staff trained
In progress.
Training for staff
due in Q .
Reduction in the
Company’s Scope
& GHG emissions
Absolute
emissions
Science-based
target (SBT)
currently being
developed. SBT to
be submitted by
the end of 2023.
Reduction in
the Company’s
Scope &
energy emissions
(kgCO
e/m
)
Emissions
intensity
Science-based
target (SBT)
currently being
developed. SBT to
be submitted by
the end of 2023.
Reduction in
tenant energy
emissions
(kgCO
e/m
)
Emissions
intensity
Science-based
target (SBT)
currently being
developed.
Metrics and targets are not currently linked to remuneration
policies for the Investment Adviser or other personnel. This
will be considered by the Company over the next 12 months.
Disclose Scope , Scope and, if appropriate, Scope
greenhouse gas (GHG) emissions and the related risks:
The Company completed its first full Scope 1, 2 & 3 GHG
inventory in 2023 based on FY 2023 (July 2022 – June 2023)
data. The GHG inventory was calculated following the GHG
Protocol Guidance and all relevant scopes and categories
have been included. The Company defines its organisational
boundary using the operational control approach. This
means that consumption relating to areas where the
Company has operational control, such as the communal
areas of certain sites, are included in its direct Scope 1 & 2
is the first year of reporting the majority of metrics, so no prior year
comparisons have been included in this table. The Annual report will
allow for trend analysis and compare metrics disclosed in
Excludes three supermarkets and seven ancillary units located in
Scotland, due to differing EPC calculation methodology used, making the
sites non-comparable
“Ancillary units” are units not used as a supermarket
tenants to the Investment Adviser. These can be consulted to
inform the Company’s risk and investment strategy.
The Company’s tenants maintain their own risk registers
related to their site’s facilities and property. As part of
building on its risk management processes, the Investment
Adviser plans to link the material site-specific risks of the
Company’s tenants to the Company’s own risk register.
In addition, as part of their Scope 3 emissions initiatives,
the Investment Adviser plans to engage tenants through this
process in order to enhance dialogue related to emissions
reductions strategies.
Metrics and Targets
Disclose the metrics used by the organisation to assess
climate-related risks and opportunities in line with
its strategy and risk management process. Describe
the targets used by the organisation to manage
climate-related risks and opportunities and performance
against targets:
The Company uses EPC ratings of its properties to assess its
progress towards meeting and exceeding the MEES. In line
with anticipated legislation, the Company targets an EPC
rating of C or better on all owned properties by 2028 and
a rating of B or better by 2030.
The Company has defined nine metrics, including asset EPC
ratings, against which it can measure progress towards its
climate targets. These metrics, their associated targets, and
progress to date are shown in Table 3.
46 SUPERMARKET INCOME REIT PLC
Table | Greenhouse Gas Emissions
Scope and CategoryDescription
FY23 Emissions
(tCO
2
e)
FY22 Emissions
(tCO
2
e)
Scope Fuels used in the communal areas of sites where the Company as
the landlord is responsible for procuring the energy on behalf of
the tenants.
N/A
Scope (location-based)Electricity use in the communal areas of sites where the Company
as the landlord is responsible for procuring the energy on behalf
of the tenants.
N/A
Scope (market-based)N/A
Total Scope & Emissions (market-based)N/A
Scope
(. Purchased Goods & Services)
The Company’s purchased goods and services, including
emissions relating to the Investment Adviser, Atrato Capital.
,N/A
Scope (. Capital Goods)Embodied emissions of newly built properties added to the
portfolio in the reporting period.
N/A
Scope
(. Fuel-and Energy-
Related Activities)
Upstream emissions of energy use included in Scope & .N/A
Scope
(. Downstream Leased Assets)
Scope & energy use of tenants, including fugitive emissions
arising from refrigeration and air conditioning.
Scope & energy use of communal areas where the Company is
not responsible for procuring the energy (included in FY only).
,,
Total Scope Emissions,,
Total Scope , & Emissions (market-based),,
Out-of-scopeTenant emissions relating to biomass used to heat some
tenant sites.
,
Table | Energy Consumption
Energy ConsumptionFY23FY22
Scope & Company (landlord) Energy Consumption
(electricity and fuels) (kWh),N/A
Scope Tenant Energy Consumption (electricity and fuels) (kWh),,,,
Scope Tenant Energy Consumption (refrigerant losses) (kg),,
Table | Intensity Metrics
Intensity MetricFY23FY22
Scope & Company (landlord) Emissions Intensity (kgCO
e/m
).N/A
Scope Tenant Energy Emissions Intensity (tCO
e/m
).
Scope & Company (landlord) Energy Intensity (kWh/m
).N/A
Scope Tenant Energy Intensity (electricity and fuels) (kWh/m
).
emissions. Meanwhile, consumption relating to areas where
the Company has limited operational control, such as sites
controlled by its tenants, are included in its indirect Scope
3 emissions. Given that most of the Company’s portfolio is
let on full repairing and insuring leases, Scope 3 forms the
largest proportion of its emissions at 99.7% of total Scope 1,
2 & 3 emissions, largely due to tenants’ energy use.
FY 2023 represented a normal year of business for the
Company. FY 2023 is the reporting period that will be used
as the baseline year for the Company’s Science-based Target
(SBT), which is currently in development. A target is due to
be submitted to the Science Based Targets initiative (SBTi)
by the end of 2023.
STRATEGIC REPORT| TCFD COMPLIANT REPORT CONTINUED
Data Improvements
The FY 2023 GHG inventory improved upon the Company’s
initial measure of tenant emissions in 2022, which were
estimated due to a lack of activity data. In 2023, the
Investment Adviser worked with the Company’s tenants
to source activity data to improve the accuracy of the
emissions. This resulted in the percentage of tenant
emissions that were estimated reducing from 100% in
2022 to 86% in 2023. In 2023, the Company was also able
to provide more data for its direct emissions, such as the
energy use in the communal areas of its sites where the
Company has operational control, and its operational
Scope 3 emissions, which enabled the Company to compile
a complete GHG inventory. The details of this GHG
inventory are provided in Table 4 (see Appendix B for
details of the methodology).
ANNUAL REPORT 2023 47
higher risk sites that are outliers relative to the average
value as explored in the accompanying text. Inherent risks
and the Company response will continue to be refined and
understood following this assessment.
A quantitative, value at risk or value of opportunity figure
can be subsequently assigned to the overall risk score in
GBP (£), however this has not been undertaken for the FY
2023 reporting. The corresponding costs of managing the
risks require further research and greater access to and
engagement with tenants. To publish only the value of
inherent risks without the associated costs of managing
the risks, in the reasonable opinion of the Company, was
felt to present a reporting risk of misleading users of this
information, at this point in time. Therefore, research and
engagement will be performed over the next 12 months to
progress this area of subsequent analysis. This is considered
to be a transitional challenge as the Company’s scenario
analysis methodology is developed and embedded.
Likelihood
A 1-5 likelihood score is assigned to each location for each
risk type. This score represents the probability of the risk
occurring in a given location and is based on generic climate
scenario data. Here likelihood scores are calculated based
on the IPPC Atlas and Network for Greening the Financial
System (NGFS) transition variables available in the NGFS
Scenarios Database. A specific ‘sub-data set’ is assigned
to each risk type to act as a proxy for the likelihood of
that risk occurring. The ‘raw unit’ values are converted to
a continuous score between 1-5 as described below.
Appendix A: Methodology notes for scenario analysis
Overview
The scenario analysis described in this report is
underpinned by a standard, recognised formula for risk:
Likelihood x Impact = Risk
This taxonomy is considered best practice and is informed
by approaches taken in major financial risk, climate risk and
transitional planning frameworks.
This approach goes beyond many generic climate models
which focus more on the likelihood scores and ratings,
by considering company specific inputs, as part of
impact scoring.
First Stage ratings are based on the Investment Adviser’s
initial judgement. This considered previously performed
risk assessment activities and secondary research (including
peer review). More formally defined materiality thresholds
will be defined in the next 12 months as a result of this
inaugural 2023 scenario analysis process.
For scenario analysis ratings, the likelihood and impact are
each scored on a scale of 1-5 and are multiplied together
to give a risk score between 1-25 for each time horizon.
An overall risk score (Overall Rating) is calculated for all
scenarios and time periods. Moderate-higher risk scores rate
between 15-20, whilst higher risk scores rate between 21
and 25. The Overall Rating and Impact gradings in Table 2
are based on the average across all sites within the portfolio.
The Likelihood grading in Table 2 is based on the average
across all time horizons under a given scenario and risk
type. Consideration is still made for moderate-higher and
Risk Type
IPPC or NGFS
sub-data setRaw UnitJustification
Policy and LegalCarbon
Price (NGFS)
US/tCO
The NGFS presents the shadow carbon price as a proxy for government
policy intensity. In reality, governments are pursuing a range of
fiscal and regulatory policies which have varying costs and benefits.
Carbon price is considered a good proxy to emerging regulation and is
sensitive to the country’s level of ambition to mitigate climate change,
timing of policy implementation and distribution of policy measures
across sectors.
Scores are relative to policy across other countries internationally.
Extreme heatCMIP – Days
above ºC
(IPCC Atlas)
ºCDays above ºC are judged to be extreme. While thresholds for Met
Office warnings and ‘heat wave’ definitions are variable across the
UK, over degrees Celsius appears to meet the historical thresholds
required for a Met Office ‘heat wave’ classification and amber or red
weather warning being issued.
Sites are scored relative to all other UK locations, with a representing
the highest % of frequencies (over . or more days per year), and
a representing the lowest % of frequencies (fewer than . days
per year).
FloodingWWF’s Water
Risk Filter
Bespoke WWF
risk score
number (-.)
This database specifically considers the physical flood risk indicator
within the tool. Scores are relative to all countries internationally.
‘Optimistic case’ scores selected for RCP ., ‘Pessimistic case’ for RCP
. scenario.
48 SUPERMARKET INCOME REIT PLC
Impact
Impact assesses the Company’s current sensitivity or
vulnerability to specific risks and opportunities, based on
current or historic company insight. Similar to likelihood,
a 1-5 score is assigned to each indicator, by a relevant
location (e.g. activity, customer, supplier etc.), for each Risk
Type. There are a number of considerations here.
• Impact Pathway: An ‘impact pathway’ is defined for each
risk type. An impact pathway is a financial statement
line item (FSLI) that we would expect to be materially
affected by a risk type e.g. revenue, cost of sales, operating
costs, fixed assets, cash etc. A risk type may have multiple
impact pathways; however, the scope of this assessment
considers only one impact pathway. The impact pathway
that is judged to be most significantly impacted is selected.
The impact pathways in focus were selected following
consultation with the Investment Adviser’s finance team.
• Impact indicator: Multiple impact indicators can combine
to give an overall impact score and can be a combination
of the Company’s own data points and secondary sources.
STRATEGIC REPORT| TCFD COMPLIANT REPORT CONTINUED
There are no limits on the nature and extent of indicators
used; we have used one per risk type for the current year
reporting, however two, three or 10 could be used as the
risk screening evolves.
• Weighting: Each indicator used is combined to give an
overall impact score. The ‘weight’ each impact indicator
carries is judgmental. At present, because only one
indicator has been used per risk, they all carry a weighting
of 100%, but should more indicators be added over time,
the Company will reflect on the weighting these carry and
can adjust these within the Excel model as they see fit.
• Financial materiality alignment: Where possible; we
have aligned the upper impact score (a ‘5 rating’) with
a financially material impact.
ANNUAL REPORT 2023 49
The below table details the impact scores and justifications for the Company’s impact ratings:
Risk TypeImpact Indicator
Impact
bandingRaw unitJustification
Policy and LegalEPC Certificate
ratings per site –
% weighting
EPC EAs of June , it is anticipated that Minimum Energy Efficiency
Standards (MEES) will require asset EPC ratings to be raised to C by
and to B by . This means that the landlord of any properties
not meeting these requirements could incur a fine (exemptions
do apply – for example where there is a tenant in situ who will not
allow the landlord to make changes to improve building energy
performance). EPC ratings are an indicator of energy efficiency, so as
the UK transitions to Net Zero, higher energy intensity will indicate
a greater risk exposure.
The landlord of any asset currently at a E or below is more vulnerable
to incurring fines as a result of current regulation, as they are not
compliant. Given the direction of change, D or below would also
be most vulnerable to any other future regulation changes that
may arise. Moderate-Higher and Higher impact (bandings &
respectively) assets may also harm the Company’s reputation and
reduce the marketability of the individual asset.
While it is anticipated that an EPC C will not be judged as compliant
in , the Company has judged this impact remains as a moderate
risk due to the following factors: there is felt to be sufficient time to
upgrade to EPC B by and plans are already underway to achieve
this, many of the Company’s tenants are on long-term leases, and
so are less able and/or likely to terminate or not renew lease if
there were any MEES compliance issues. In addition, the majority of
the grocery tenants have clear plans they are actioning in order to
improve the energy performance of their store as this leads to cost
savings, as well as contributing towards their own sustainability and
Net Zero targets.
EPC D
EPC C
EPC B
EPC A
Extreme heatEnergy Intensity
per site
(kWh/m
2
per year)
– % weighting
-This is a more specific indicator of energy use and is not related to
regulation like in the case of EPCs. In instances of extreme heat, it
is assumed that properties will consume more energy for cooling.
Therefore, less efficient or more energy intense assets are deemed
more vulnerable as they are likely already incurring higher than
average energy costs. The higher energy consumption will also be
putting pressure on the specific tenant’s Net Zero targets and could
indicate assets that are more vulnerable to that tenant not renewing /
applying pressure for the Company to improve these buildings.
The highest impact banding () represents the highest energy
intensity % of the range. The range is (- = kWh/m
),
therefore anything over kWh/m
is assigned a .
This scores each site relative to each other – we cannot yet validate
whether the increase in cooling requirements at a more energy
intense site is material for the tenant; however, this will be explored
in the future years SA.
-
-
-
-
FloodingRevenue per site –
% weighting
>% (>.m)Annual rent collected (revenue) was used as an indicator for impact.
The rationale being that the greater the rent, the more material the
impact if a site was damaged by a flood, which resulted in a tenant
defaulting/deferring on lease payment.
Bandings are based on a % of total supermarket revenue where an
individual site generating over % of revenue is deemed financially
material. Bandings are not linear but logarithmic (% of the banding
above), in order to align with the approach commonly applied in
financial auditing.
>.% (>.m)
>.% (>.m)
>.% (>.m)
<.% (<.m)
50 SUPERMARKET INCOME REIT PLC
Limitations of this analysis
–EPCs are only one means of assessing the overall energy
efficiency of a site and it may be the case that dynamic
TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC CONTINUED
ANNUAL REPORT 2023 105
We also communicated relevant identified laws and
regulations and potential fraud risks to all engagement
team members who were all deemed to have appropriate
competence and capabilities and remained alert to any
indications of fraud or non-compliance with laws and
regulations throughout the audit.
Our audit procedures were designed to respond to risks
of material misstatement in the financial statements,
recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely we are to become aware of it.
A further description of our responsibilities is available
on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent Company’s
members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Parent Company’s
members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company
and the Parent Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Charles Ellis (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
September
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC
305127).
106 SUPERMARKET INCOME REIT PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2023
Notes
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Gross rental income395,82372,363
Service charge income35,9392,086
Service charge expense4(6,518)(2,338)
Net Rental Income95,24472,111
Administrative and other expenses5(15,429)(13,937)
Operating profit before changes in fair value of investment properties and share of
income and profit on disposal from joint venture79,81558,174
Changes in fair value of investment properties12(256,066)21,820
Total changes in fair value of investment properties(256,066)21,820
Share of income from joint venture1423,23243,301
Profit on disposal of joint venture1419,940–
Operating (loss)/profit(133,079)123,295
Finance income814,626–
Finance expense8(39,315)(12,992)
Changes in fair value on interest rate derivatives1910,024–
Profit on disposal of interest rate derivatives2,878–
(Loss)/Profit before taxation(144,866)110,303
Tax charge for the year9––
(Loss)/Profit for the year(144,866)110,303
Items to be reclassified to profit or loss in subsequent periods
Fair value movements in interest rate derivatives191,0685,566
Total comprehensive (loss)/income for the year(143,798)115,869
Total comprehensive (loss)/income for the year attributable to ordinary Shareholders(143,798)115,869
Earnings per share – basic and diluted10(11.7) pence11.3 pence
ANNUAL REPORT 2023 107
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2023
Notes
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Non-current assets
Property, plant and equipment–129
Investment properties121,685,6901,561,590
Investment in joint ventures14–177,140
Contract fulfilment asset–93
Financial asset at amortised cost1610,81910,626
Interest rate derivatives1937,1985,114
Total non-current assets1,733,7071,754,692
Current assets
Interest rate derivatives1920,384–
Financial assets held at fair value through profit and loss15–283
Trade and other receivables17142,1551,863
Cash and cash equivalents37,48151,200
Total current assets200,02053,346
Total assets1,933,7271,808,038
Non-current liabilities
Bank borrowings20605,609348,546
Total non-current liabilities605,609348,546
Current liabilities
Bank borrowings due within one year2061,856–
Deferred rental income21,55716,360
Trade and other payables1826,97910,677
Total current liabilities110,39227,037
Total liabilities716,001375,583
Net assets1,217,7261,432,455
Equity
Share capital2212,46212,399
Share premium reserve22500,386494,174
Capital reduction reserve22704,531778,859
Retained earnings(2,957)141,909
Cash flow hedge reserve3,3045,114
Total equity1,217,7261,432,455
Net asset value per share – basic and diluted2698 pence116 pence
EPRA NTA per share2693 pence115 pence
The consolidated financial statements were approved and authorised for issue by the Board of Directors on 19 September 2023 and
were signed on its behalf by
Nick Hewson
Chair
19 September 2023
108 SUPERMARKET INCOME REIT PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2023
Share
capital
£’000
Share
premium
reserve
£’000
Cash flow
hedge
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
£’000
As at 1 July 202212,399494,1745,114778,859141,9091,432,455
Comprehensive income for the year
Loss for the year––––(144,866)(144,866)
Cash flow hedge reserve to profit for
the year on disposal of interest rate
derivatives––(2,878)––(2,878)
Other comprehensive income––1,068––1,068
Total comprehensive loss for the year––(1,810)–(144,866)(146,676)
Transactions with owners
Ordinary shares issued at a
premium during the year636,301–––6,364
Share issue costs–(89)–––(89)
Interim dividends paid–––(74,328)–(74,328)
As at 30 June 202312,462500,3863,304704,531(2,957)1,217,726
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Share
capital
£’000
Share
premium
reserve
£’000
Cash flow
hedge
reserve
£’000
Capital
reduction
reserve
£’000
Retained
earnings
£’000
Total
£’000
As at 1 July 20218,107778,859(452)–84,796871,310
Comprehensive income for the year
Profit for the year––––110,303110,303
Other comprehensive income––5,566––5,566
Total comprehensive income for the year––5,566–110,303115,869
Transactions with owners
Ordinary shares issued at a
premium during the year4,292504,539–––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 202212,399494,1745,114778,859141,9091,432,455
ANNUAL REPORT 2023 109
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2023
Notes
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Operating activities
(Loss)/Profit for the year (attributable to ordinary Shareholders)(144,866)110,303
Adjustments for:
Changes in fair value of interest rate derivatives measured at fair value through
profit and loss19(10,024)–
Changes in fair value of investment properties and associated rent guarantees12256,066(21,820)
Movement in rent smoothing and lease incentive adjustments3(2,763)(2,654)
Finance income8(14,626)–
Finance expense839,28112,992
Share of income from joint venture14(23,232)(43,301)
Profit on disposal of interest rate derivative19(2,878)–
Profit on disposal of Joint Venture14(19,941)–
Cash flows from operating activities before changes
in working capital77,01755,520
(Increase)/decrease in trade and other receivables(548)1,277
Decrease/(increase) in rent guarantee receivables191(87)
Increase in deferred rental income5,1984,299
Increase in trade and other payables2,4612,004
Net cash flows from operating activities84,31963,013
Investing activities
Acquisition of contract fulfilment assets–(8)
Disposal of Property, Plant & Equipment222–
Acquisition of investment properties12(362,630)(371,093)
Capitalised acquisition costs(14,681)(17,603)
Decrease/(Increase) in other financial assets16–(10,626)
Receipts from other financial assets16290–
Investment in joint venture14(189,528)(3,518)
Proceeds from disposal of Joint Venture14292,636–
Net cash flows used in investing activities(273,691)(402,848)
Financing activities
Proceeds from issue of Ordinary Share Capital22–506,727
Costs of share issues22(89)(10,366)
Bank borrowings drawn20912,114402,922
Bank borrowings repaid20(598,486)(464,029)
Loan arrangement fees paid(5,010)(2,187)
Bank interest paid(22,408)(9,846)
Settlement of interest rate derivatives8,646–
Settlement of Joint Venture Carried Interest(8,066)–
Sale of interest rate derivatives192,878–
Purchase of interest rate derivative19(44,255)–
Bank commitment fees paid(1,708)(681)
Dividends paid to equity holders(67,963)(51,084)
Net cash flows from financing activities175,653371,456
Net movement in cash and cash equivalents in the year(13,719)31,621
Cash and cash equivalents at the beginning of the year51,20019,579
Cash and cash equivalents at the end of the year37,48151,200
110 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
General information
Supermarket Income REITplc (the Company) is a company registered in England and Wales with its registered office at 1 King William
Street, London, United Kingdom, EC4N 7AF. The principal activity of the Company and its subsidiaries (the Group) is to provide its
Shareholders with an attractive level of income together with the potential for capital growth by investing in a diversified portfolio of
supermarket real estate assets in the UK.
At 30 June 2023 the Group comprised the Company and its wholly owned subsidiaries as set out in Note 13.
Basis of preparation
These consolidated financial statements cover the year to 30 June 2023, including comparative figures relating to the year to
30 June 2022, and include the results and net assets of the Group.
The consolidated financial statements have been prepared in accordance with:
• UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards,
• The Disclosure and Transparency Rules of the Financial Conduct Authority
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all years presented, other than where new policies that were not previously relevant to the
Group’s operations have been adopted.
Going concern
In light of the current Macroeconomic backdrop, the Directors have placed a particular focus on the appropriateness of adopting the
going concern basis in preparing the Group’s and Company’s financial statements for the year ended 30 June 2023. In assessing the
going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.
Liquidity
At 30 June 2023, the Group generated net cash flow from operating activities of £84.3 million, held cash of £37.5 million and undrawn
committed facilities totalling £189.9 million with no capital commitments or contingent liabilities.
From the sale of its interest in the Sainsburys Reversion Portfolio (SRP), the Group received proceeds of £135.1 million post year
end. £97.1 million of this was used for working capital and debt repayment and £38.0 million towards acquiring two stores (including
acquisition costs). As at the date of signing the annual report the Gross LTV of the group was 34.0%. The remainder of the receivable
of £1.5 million is conditional on the sale of the remaining store in the SRP.
After the year end, the Group also reduced its debt capacity from £862.1 million to £680.5 million (see Note 20 for more information),
leaving undrawn committed facilities of over £100 million available.
The Directors are of the belief that the Group continues to be well funded during the going concern period with no concerns over
its liquidity.
Refinancing events
At the date of signing the financial statements, the Deka facility falls due for repayment during the going concern period
(August 2024). It is intended that the facility will be refinanced prior to maturity, or if required, it will be paid down in full the Group’s
available undrawn committed facilities of over £100 million. All lenders have been supportive during the year and have expressed
commitment to the long-term relationship they wish to build with the Company.
Covenants
The Group’s debt facilities include covenants in respect of LTV and interest cover, both projected and historic. All debt facilities, except
for the unsecured facilities, are ring-fenced with each specific lender.
The Directors have evaluated a number of scenarios as part of the Group’s going concern assessment and considered the impact of
these scenarios on the Group’s continued compliance with secured debt covenants. The key assumptions that have been sensitised
within these scenarios are falls in rental income and increases in administrative cost inflation.
As at the date of issuance of this Annual report 100% of contractual rent for the period has been collected. The Group benefits from
a secure income stream from its property assets that are let to tenants with excellent covenant strength under long leases that are
subject to upward only rent reviews.
ANNUAL REPORT 2023 111
1. Basis of preparation continued
The list of scenarios are below and are all on top of the base case model which includes prudent assumptions on valuations and cost
inflation. No sensitivity for movements in interest rates have been modelled as the Group is fully hedged during the going concern
assessment period.
ScenarioRental IncomeCosts
Base case scenario (Scenario 1)100% contractual rent received when due
and rent reviews based on forward looking
inflation curve, capped at the contractual
rate of the individual leases.
Investment adviser fee based on terms of
the signed agreement (percentage of NAV
as per note 27), other costs 0.35% of NAV.
Scenario 2Rental income to fall by 25%.Costs expected to remain the same as
the base case.
Scenario 3Rental income expected to remain the
same as the base case.
10% increases on base case costs to all
administrative expenses.
The Group continues to maintain covenant compliance for its LTV and ICR thresholds throughout the going concern assessment
period under each of the scenarios modelled. One of the secured facilities in the Group has a debt yield covenant, which is calculated
as the passing rent divided by the loan balance for the properties secured against the lender. The debt yield covenant only would be
breached for this facility if rental income is reduced by 6% during the going concern assessment period. The Board considers this
scenario highly unlikely given the underlying covenant strength of the tenants. Furthermore, there are remedies available at the
Group’s disposal which includes reducing a portion of the outstanding debt from available undrawn facilities or providing additional
security over properties that are currently unencumbered. The lowest amount of ICR headroom experienced in the worst-case stress
scenarios was 22%. Based on the latest bank commissioned valuations, property values would have to fall by more than 21% before
LTV covenants are breached, and 10% against 30 June 2023 Company valuations. Similarly, the strictest interest cover covenant
within each of the ring-fenced banking groups is 225%, where the portfolio is forecast to have an average interest cover ratio of 572%
during the going concern period.
Having reviewed and considered three modelled scenarios, the Directors consider that the Group has adequate resources in place for
at least 12 months from the date of these results and have therefore adopted the going concern basis of accounting in preparing the
Annual Report.
Assessment of viability
The period over which the Directors consider it feasible and appropriate to report on the Group’s viability is the five-year period to
30 June 2028. This period has been selected because it is the period that is used for the Group’s medium-term business plans and
individual asset performance forecasts. The assumptions underpinning these forecast cash flows and covenant compliance forecasts
were sensitised to explore the resilience of the Group to the potential impact of the Group’s significant risks, or a combination of those
risks. The principal risks on pages 51 to 60 summarise those matters that could prevent the Group from delivering on its strategy.
A number of these principal risks, because of their nature or potential impact, could also threaten the Group’s ability to continue in
business in its current form if they were to occur. The Directors paid particular attention to the risk of a deterioration in economic
outlook which could impact property fundamentals, including investor and occupier demand which would have a negative impact on
valuations, and give rise to a reduction in the availability of finance.
The sensitivities performed were designed to be severe but plausible; and to take full account of the availability of mitigating actions
that could be taken to avoid or reduce the impact or occurrence of the underlying risks.
112 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1. Basis of preparation continued
Viability Statement
The Board has assessed the prospects of the Group over the five years from the balance sheet date to 30 June 2028, which is the
period covered by the Group’s longer-term financial projections. The Board considers five years to be an appropriate forecast period
since, although the Group’s contractual income extends beyond five years, the availability of most finance and market uncertainty
reduces the overall reliability of forecast performance over a longer period.
The Board considers the resilience of projected liquidity, as well as compliance with secured debt covenants and UK REIT rules, under
a range of RPI and property valuation assumptions.
The principal risks and the key assumptions that were relevant to this assessment are as follows:
Risk Assumption
Borrowing risk The Group continues to comply with all relevant loan covenants. The Group is able to refinance all debt
falling due within the viability assessment period on acceptable terms.
Interest Rate risk The increase in variable interest rates are managed by reduction of variable debt from cash inflows and
utilising interest rate derivatives to limit the exposure to variable debt.
Liquidity risk 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.
Based on the work performed, the Board has a reasonable expectation that the Group will be able to continue in business over the
five-year period of its assessment.
Accounting convention and currency
The consolidated financial statements (the “financial statements”) have been prepared on a historical cost basis, except that
investment properties, rental guarantees and interest rate derivatives are measured at fair value.
The financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£’000), except where
otherwise indicated. Pounds Sterling is the functional currency of the Company and the presentation currency of the Group.
Adoption of new and revised standards
In the current financial year, the Group has adopted a number of minor amendments to standards effective in the year issued by the
IASB as adopted by the UK Endorsement Board, none of which have had a material impact on the Group.
There was no material effect from the adoption of other amendments to IFRS effective in the year. They have no significant impact on
the Group as they are either not relevant to the Group’s activities or require accounting which is consistent with the Group’s current
accounting policies.
Standards and interpretations in issue not yet adopted
The following are new standards, interpretations and amendments, which are not yet effective, and have not been early adopted in
this financial information, that will or may have an effect on the Group’s future financial statements:
• Amendments to IAS 1 which are intended to clarify the requirements that an entity applies in determining whether a liability is
classified as current or non-current. The amendments are intended to be narrow-scope in nature and are meant to clarify the
requirements in IAS 1 rather than modify the underlying principles (effective for periods beginning on or after 1 January 2024).
The amendments include clarifications relating to:
–How events after the end of the reporting period affect liability classification
–What the rights of an entity must be in order to classify a liability as non-current
–How an entity assesses compliance with conditions of a liability (e.g. bank covenants)
–How conversion features in liabilities affect their classification
The amendment is not expected to have an impact on the presentation or classification of the liabilities in the Group based on rights
that are in existence at the end of the reporting period.
• IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. IFRS S1 sets out general requirements
for the disclosure of material information about sustainability-related financial risks and opportunities and other general reporting
requirements (periods beginning after 1 January 2024).
• IFRS S2 Climate-related Disclosures. IFRS S2 sets out disclosure requirements that are specific to climate-related matters (periods
beginning after 1 January 2024).
The Group acknowledges the issue of these new standards by the International Sustainability Standards Board’s (ISSB) will monitor
the consultation and decision process being undertaken by the UK Government and FCA in determining how these standards are
implemented by UK companies.
ANNUAL REPORT 2023 113
1. Basis of preparation continued
There are other new standards and amendments to standards and interpretations which have been issued that are effective in future
accounting periods, and which the Group has decided not to adopt early. None of these are expected to have a material impact on the
condensed consolidated financial statements of the Group.
Significant accounting judgements, estimates and assumptions
The preparation of these financial statements in accordance with IFRS requires the Directors of the Company to make judgements,
estimates and assumptions that affect the reported amounts recognised in the financial statements.
Key estimate: Fair value of investment properties
The fair value of the Group’s investment properties is determined by the Group’s independent valuer on the basis of market value
in accordance with the RICS Valuation – Global Standards (the ‘Red Book’). Recognised valuation techniques are used by the
independent valuer which are in accordance with those recommended by the International Valuation Standard Committee and
compliant with IFRS 13 “Fair Value Measurement”.
The independent valuer did not include any material valuation uncertainty clause in relation to the valuation of the Group’s investment
property for 30 June 2023 or 30 June 2022.
The independent valuer is considered to have sufficient current local and national knowledge of the supermarket property market and
the requisite skills and understanding to undertake the valuation competently.
In forming an opinion as to fair value, the independent valuer makes a series of assumptions, which are typically market-related,
such as those in relation to net initial yields and expected rental values. These are based on the independent valuer’s professional
judgement. Other factors taken into account by the independent valuer in arriving at the valuation of the Group’s investment
properties include the length of property leases, the location of the properties and the strength of tenant covenants.
The fair value of the Group’s investment properties as determined by the independent valuer, along with the significant methods and
assumptions used in estimating this fair value, are set out in note 12.
Key estimate: Fair value of interest rate derivatives
Derivatives are valued in accordance with IFRS 13 “Fair Value Measurement” by reference to interbank bid market rates as at the close
of business on the last working day prior to each reporting date. The fair values are calculated using the present values of future cash
flows, based on market forecasts of interest rates and adjusted for the credit risk of the counterparties. The amounts and timing of
future cash flows are projected on the basis of the contractual terms.
The fair value of the Group’s interest rate derivatives, along with further details of the valuation methods used, are detailed in note 19.
Key judgement: Joint ventures – joint control
In prior years, the Group entered into a 50:50 joint venture with the British Airways Pension Trustees Limited to acquire 100% of the
issued share capital in Horndrift Limited for a combined total consideration of £102 million plus costs. The joint venture also acquired
100% of the issued share capital in Cornerford Limited for a combined total consideration of £115 million plus costs (together “the
Joint Venture Interest”).
Horndrift Limited and Cornerford Limited each hold a 25.2% beneficial interest in a property trust arrangement / bond securitisation
structure (the “Structure”) which previously held a portfolio of 26 Sainsbury’s supermarket properties funded by bonds which mature
in 2023. During the year, Sainsbury’s exercised options to acquire 21 of these stores within the Structure and it has been determined
that the exercise of the purchase options by Sainsbury’s resulted in the performance obligation being satisfied for a sale of the
properties in accordance with IFRS 15. The JV is deemed to hold a contractual receivable from Sainsbury’s plc in respect of these
21 properties.
During the year, the Group acquired the British Airways Pension Trustees Limited stake in the joint venture, meaning the Group had
a beneficial interest in over 50% of the underlying property pool, via its 100% ownership in Horndrift and Cornerford.
The classification and accounting treatment of the Joint Venture Interest in the property trust arrangement in the Group’s consolidated
financial statements is subject to significant judgement. By reference to the contractual arrangements and deeds that regulate the
Structure, it was necessary to determine whether the Joint Venture Interest, together with the other key parties of the Structure had
the ability to jointly control the Structure through their respective rights as defined by the contractual arrangements and deeds of
the Structure. The review of the Joint Venture Interest and the other key parties’ rights required significant judgement in assessing
whether the rights identified were substantive as defined by IFRS 10 Consolidated Financial Statements, principally in respect of
whether there were any economic barriers that prevent the joint venture investment or the other key parties from exercising their
rights. Through assessing the expected possible outcomes either before or upon maturity of the Structure it was determined that
there were no significant economic barriers that would prevent Horndrift Limited, Cornerford Limited or the other key parties from
exercising their rights under the contractual arrangements and deeds of the Structure.
The Directors therefore concluded that through its Joint Venture Interest, the Group indirectly has joint control of the Structure as
defined by IFRS 10 Consolidated Financial Statements. As such the Group’s interest in the Structure is accounted for using the equity
method of accounting under IAS 28.
114 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1. Basis of preparation continued
Following the additional Joint Venture interest acquired during the year, the Group was deemed to still jointly control the Structure as
any change to the contractual arrangements and deeds that regulate the Structure, requires unanimous consent from all beneficial
holders. Therefore, the equity method of accounting continued to be used until the disposal of the investment in joint venture which
occurred during the year (see Note 14).
Key judgement: Acquisition of Joint Venture stake
During the year the Group acquired an additional 50% interest in the Group’s existing joint venture, Horner (Jersey) LP, from British
Airways Pension Trustees Limited for total consideration of £188.8 million. At the time of the purchase the Directors assess whether
the acquisition represents the acquisition of an asset or the acquisition of a business.
Under the Definition of a Business (Amendments to IFRS 3 “Business Combinations”), to be considered as a business, an acquired
set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to
the ability to create outputs. The optional ‘concentration test’ is also applied, where if substantially all of the fair value of gross assets
acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business.
The concentration test was applied confirming that substantially all of the fair value of the assets acquired were concentrated in an
investment in joint venture, being the Structure and was therefore accounted as an asset purchase.
Key judgement: Acquisition of investment properties
The Group has acquired and intends to acquire further investment properties. At the time of each purchase the Directors assess
whether an acquisition represents the acquisition of an asset or the acquisition of a business.
Under the Definition of a Business (Amendments to IFRS 3 “Business Combinations”), to be considered as a business, an acquired
set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to
the ability to create outputs. The optional ‘concentration test’ is also applied, where if substantially all of the fair value of gross assets
acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business.
During the year, the group completed nine acquisitions. In nine cases the concentration test was applied and met, resulting in the
acquisitions being accounted for as asset purchases.
All £362.6 million of acquisitions during the year were accounted for as asset purchases.
Key judgement: Acquisition of financial assets at amortised cost
The Group acquires properties under a sale and leaseback arrangements. At the time of the purchase the Directors assess whether the
acquisition represents the acquisition of an investment property or a financial asset.
Under IFRS 15, for the transfer of an asset to be accounted for as a true sale, satisfying a performance obligation of transferring
control of an asset must be met for this to be deemed a property transaction and accounted for under IFRS 16. If not, it is accounted for
as an asset under IFRS 9.
The Group acquired a property in the prior year under a sale and leaseback arrangement with a larger multi-channel supermarket
operator. In this case, it was deemed that as the lease was for a significant part of the asset’s useful economic life, control was not
passed and the asset was therefore accounted for under IFRS 9 as an amortised cost asset.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of the consolidated financial statements are set out below.
2.1 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to
30 June 2023.
Subsidiaries are those entities including special purpose entities, directly or indirectly controlled by the Company. Control exists
when the Company is exposed or has rights to variable returns from its investment with the investee and has the ability to affect those
returns through its power over the investee. In assessing control, potential voting rights that presently are exercisable are taken
into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences
until the date that control ceases.
In preparing the consolidated financial statements, intra group balances, transactions and unrealised gains or losses are
eliminated in full.
Uniform accounting policies are adopted for all entities within the Group.
ANNUAL REPORT 2023 115
2. Summary of significant accounting policies continued
2.2 Segmental information
The Directors are of the opinion that the Group is currently engaged in a single segment business, being investment in United
Kingdom in supermarket property assets; the non-supermarket properties are ancillary in nature to the supermarket property assets
and are therefore not segmented.
2.3 Rental income
Rental income arising on investment properties is accounted for in profit or loss on a straight-line basis over the lease term, as
adjusted for the following:
• Any rental income from fixed and minimum guaranteed rent review uplifts is recognised on a straight-line basis over the lease term,
variable lease uplift calculations are not rebased when a rent review occurs and the variable payment becomes fixed;
• Lease incentives are spread evenly over the lease term, even if payments are not made on such a basis. The lease term is the
non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where,
at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.
Contingent rents, such as those arising from indexed-linked rent uplifts or market-based rent reviews, are recognised in the period in
which they are earned.
Where income is recognised in advance of the related cash flows due to fixed and minimum guaranteed rent review uplifts or lease
incentives, an adjustment is made to ensure that the carrying value of the relevant property, including the accrued rent relating to
such uplifts or lease incentives, does not exceed the external valuation.
Rental income is invoiced in advance with that element of invoiced rental income that relates to a future period being included within
deferred rental income in the consolidated statement of financial position.
Leases classified under IFRS 9 as financial assets recognise income received from the tenant between finance income and a reduction
of the asset value, based on the interest rate implicit in the lease.
2.4 Service charge income
Service charge income represents amounts billed to tenants for services provided in conjunction with leased properties based on
budgeted service charge expenditure for a given property over a given service charge year. The Company recognises service charge
income on a straight-line basis over the service charge term.
2.5 Service charge expense
Service charge expense represents a wide range of costs related to the operation and upkeep of the leased properties. These costs
are allocated and charged to tenants based on agreed terms and calculations as outlined in the lease agreements with a portion being
borne by the landlord where agreed.
2.6 Finance income
Finance income consists principally of interest receivable from interest rate derivatives and income from financial assets held at
amortised cost. An adjustment is applied to reclassify amounts received upon periodic settlement of interest rate derivatives assets
from change in fair value to interest income.
2.7 Finance expense
Finance expenses consist principally of interest payable and the amortisation of loan arrangement fees.
Loan arrangement fees are expensed using the effective interest method over the term of the relevant loan. Interest payable and
other finance costs, including commitment fees, which the Group incurs in connection with bank borrowings, are expensed in the
period to which they relate.
2.8 Administrative and other expenses
Administrative and other expenses, including the investment advisory fees payable to the Investment Adviser, are recognised as
a profit or loss on an accruals basis.
2.9 Dividends payable to Shareholders
Dividends to the Company’s Shareholders are recognised when they become legally payable, as a reduction in equity in the financial
statements. Interim equity dividends are recognised when paid. Final equity dividends will be recognised when approved by
Shareholders at an AGM.
2.10 Taxation
Non-REIT taxable income
Taxation on the Group’s profit or loss for the year that is not exempt from tax under the UK-REIT regulations comprises current
and deferred tax, as applicable. Tax is recognised in profit or loss except to the extent that it relates to items recognised as direct
movements in equity, in which case it is similarly recognised as a direct movement in equity.
116 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of significant accounting policies continued
Non-REIT taxable income continued
Current tax is tax payable on any non-REIT taxable income for the year, using tax rates enacted or substantively enacted at the end of
the relevant period.
Entry to the UK-REIT regime
The Group obtained its UK-REIT status effective from 21 December 2017. Entry to the regime results in, subject to continuing relevant
UK-REIT criteria being met, the profits of the Group’s property rental business, comprising both income and capital gains, being
exempt from UK taxation.
The Group intends to ensure that it complies with the UK-REIT regulations on an on-going basis and regularly monitors the conditions
required to maintain REIT status.
2.11 Investment properties
Investment properties consist of land and buildings which are held to earn income together with the potential for capital growth.
Investment properties are recognised when the risks and rewards of ownership have been transferred and are measured initially at
cost, being the fair value of the consideration given, including transaction costs. Where the purchase price (or proportion thereof)
of an investment property is settled through the issue of new ordinary shares in the Company, the number of shares issued is such
that the fair value of the share consideration is equal to the fair value of the asset being acquired. Transaction costs include transfer
taxes and professional fees for legal services. Any subsequent capital expenditure incurred in improving investment properties is
capitalised in the period incurred and included within the book cost of the property. All other property expenditure is written off in
profit or loss as incurred.
After initial recognition, investment properties are measured at fair value, with gains and losses recognised in profit or loss in the
period in which they arise.
Gains and losses on disposals of investment properties will be determined as the difference between the net disposal proceeds and
the carrying value of the relevant asset. These will be recognised in profit or loss in the period in which they arise.
Initially, rental guarantees are recognised at their fair value and separated from the purchase price on initial recognition of the
property being purchased. They are subsequently measured at their fair value at each reporting date with any movements recognised
in the profit or loss.
2.12 Joint ventures
Interests in joint ventures, including the additional interest acquired during the year, are accounted for using the equity method
of accounting as per IAS 28. The Group’s joint ventures are arrangements in which the partners have joint control and rights to the
net assets of the arrangement. Investments in joint ventures are carried in the statement of financial position at cost as adjusted
by post-acquisition changes in the Group’s share of the net assets of the joint venture, less any impairment or share of income
adjusted for dividends. In assessing whether a particular entity is controlled, the Group considers the same principles as control over
subsidiaries as described in note 2.1.
2.13 Property, plant and equipment
Property, plant and equipment comprises of rooftop solar panels. Rooftop solar panels are stated at cost less accumulated
depreciation and any recognised impairment loss. Depreciation is recognised over the useful lives of the equipment, using the
straight-line method at a rate of between 25- 30 years depending on the useful economic life.
Residual value is reviewed at least at each financial year and there is no depreciable amount if residual value is the same as, or
exceeds, book value. Any gain or loss arising on the disposal of the rooftop solar panels are determined as the difference between the
sales proceeds and the carrying amount of the asset.
2.14 Financial assets and liabilities
Financial assets and liabilities are recognised when the relevant Group entity becomes a party to the unconditional contractual terms
of an instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities are considered by the Directors to
be reasonable estimates of their fair values.
Financial assets
Financial assets are recognised initially at their fair value. All of the Group’s financial assets, except interest rate derivatives, are held
at amortised cost using the effective interest method, less any impairment.
For assets where changes in cash flows are linked to changes in an inflation index, the Group updates the effective interest rate
at the end of each reporting period and this is reflected in the carrying amount of the asset each reporting period until the asset is
derecognised.
Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three months or less.
ANNUAL REPORT 2023 117
2. Summary of significant accounting policies continued
Trade and other receivables
Trade and other receivables, including rents receivable, are recognised and carried at the lower of their original invoiced value and
recoverable amount. Provisions for impairment are calculated using an expected credit loss model. Balances will be written-off in
profit or loss in circumstances where the probability of recovery is assessed as being remote.
Trade and other payables
Trade and other payables are recognised initially at their fair value and subsequently at amortised cost.
Bank borrowings
Bank borrowings are initially recognised at fair value net of attributable transaction costs. After initial recognition, bank borrowings
are subsequently measured at amortised cost, using the effective interest method. The effective interest rate is calculated to include
all associated transaction costs.
In the event of a modification to the terms of a loan agreement, the Group considers both the quantitative and qualitative impact of the
changes. Where a modification is considered substantial, the existing facility is treated as settled and the new facility is recognised.
Where the modification is not considered substantial, the carrying value of the liability is restated to the present value of the cash
flows of the modified arrangement, discounted using the effective interest rate of the original arrangement. The difference is
recognised as a gain or loss on refinancing through the statement of comprehensive income.
Derivative financial instruments and hedge accounting
The Group’s derivative financial instruments currently comprise of interest rate swaps/caps. Derivatives designated as hedging
instruments utilise hedge accounting under IAS 39. Derivatives not designated under hedge accounting are accounted for
under IFRS 9.
These instruments are used to manage the Group’s cash flow interest rate risk.
The instruments are initially recognised at fair value on the date that the derivative contract is entered into, being the cost of any
premium paid at inception, and are subsequently re-measured at their fair value at each reporting date.
Fair value measurement of derivative financial instruments
The fair value of derivative financial instruments is the estimated amount that the Group would receive or pay to terminate the
agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the relevant
group entity and its counterparties.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value
measurement as a whole.
A number of assumptions are used in determining the fair values including estimations over future interest rates and therefore future
cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contract rate and
the valuation rate.
Hedge accounting
At the inception of a hedging transaction, the Group documents the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking the hedging transaction.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Assuming the criteria for applying hedge accounting continue to be met the effective portion of gains and losses on the revaluation of
such instruments are recognised in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective
portion of such gains and losses will be recognised in profit or loss within finance income or expense as appropriate. The cumulative
gain or loss recognised in other comprehensive income is reclassified from the cash flow hedge reserve to profit or loss (finance
expense) at the same time as the related hedged interest expense is recognised.
Interest rate derivatives that do not qualify under hedge accounting are carried in the Group Statement of Financial Position at fair
value, with changes in fair value recognised in the Group Statement of Comprehensive Income, net of interest receivable/payable
from the derivatives shown in the finance income or expense line.
2.15 Equity instruments
Equity instruments issued by the Company are recorded at the amount of the proceeds received, net of directly attributable issue
costs. Costs not directly attributable to the issue are immediately expensed in profit or loss.
Further details of the accounting for the proceeds from the issue of shares in the period are disclosed in note 22.
118 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of significant accounting policies continued
2.16 Fair value measurements and hierarchy
Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes
place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous
market. It is based on the assumptions that market participants would use when pricing the asset or liability, assuming they act in
their economic best interest. A fair value measurement of a non-financial asset takes into account the best and highest value use
for that asset.
The fair value hierarchy to be applied under IFRS 13 is as follows:
Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are carried at fair value and which will be recorded in the financial information on a recurring basis, the
Group will determine whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of
each reporting period.
3. Gross rental income
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Rental income – freehold property53,11944,332
Rental income – long leasehold property42,66928,031
Lease surrender income35–
Gross rental income95,82372,363
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Property insurance recoverable585449
Service charge recoverable5,3541,637
Total property insurance and service charge income5,9392,086
Total property income101,76274,449
Included within rental income is a £2,512,000 (2022: £2,654,000) rent smoothing adjustment that arises as a result of IFRS 16 ‘Leases’
requiring that rental income in respect of leases with rents increasing by a fixed percentage be accounted for on a straight-line basis
over the lease term. During the year this resulted in an increase in rental income and an offsetting entry being recognised in profit or
loss as an adjustment to the investment property revaluation.
On an annualised basis, rental income comprises £49,620,000 (2022: £34,420,000) relating to the Group’s largest tenant and
£27,194,000 (2022: £24,265,000) relating to the Group’s second-largest tenant. There were no further tenants representing more
than 10% of annualised gross rental income during either year.
4. Service charge expense
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Property insurance expenses715639
Service charge expenses5,8031,699
Total property insurance and service charge expense6,5182,338
ANNUAL REPORT 2023 119
5. Administrative and other expenses
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Investment Adviser fees (Note 27)10,2929,405
Directors’ remuneration (Note 7)364269
Corporate administration fees1,108893
Legal and professional fees1,6262,249
Other administrative expenses2,0391,121
Total administrative and other expenses15,42913,937
The fees relating to the issue of shares in the year have been treated as share issue expenses and offset against the share
premium reserve.
6. Operating (loss)/profit
Operating (loss)/profit is stated after charging fees for:
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Audit of the Company’s consolidated and individual financial statements260190
Audit of subsidiaries, pursuant to legislation9564
Total audit services355254
Audit related services: interim review3832
Total audit and audit-related services393286
The Group’s auditor also provided the following services in relation to corporate finance services:
Year to
30 June 2023
£’000
Year to
30 June 2022
£’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 services65–
Total other non-audit services65123
Total fees charged by the Group’s auditor458409
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
30 June 2023
£’000
Year to
30 June 2022
£’000
Directors’ fees330245
Employer’s National Insurance Contribution3424
Total Directors’ remuneration364269
The highest paid Director received £75,000 (2022: £70,000) for services during the year.
120 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
8. Finance income and expense
Finance income
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Interest received on bank deposits53–
Income from financial assets held at amortised cost (note 16)483–
Finance income on unwinding of discounted receivable (note 17)2,376–
Finance income on settlement of interest rate derivatives (note 19)11,714–
Total finance income14,626–
Finance expense
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Interest payable on bank borrowings and hedging arrangements29,7079,565
Finance expense on settlement of interest rate derivatives (note 19)–296
Commitment fees payable on bank borrowings1,571969
Amortisation of loan arrangement fees*8,0372,157
Amortisation of interest rate derivative premium (Note 19)–5
Total finance expense39,31512,992
*This includes a one-off exceptional charge in the year to 30 June 2023 of £1.52 million, relating to the acceleration of unamortised
arrangement fees in respect of the modification of the Wells Fargo and Barclays/RBC facilities under IFRS 9. It also includes a one-off
loan arrangement fee for the short-term J.P. Morgan loan of £4.0 million.
The above finance expense includes the following in respect of liabilities not classified as fair value through profit and loss:
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Total interest expense on financial liabilities held at amortised cost37,74411,723
Fee expense not part of effective interest rate for financial liabilities held at amortised cost1,571969
Total finance expense39,31512,692
9. Taxation
Tax charge in profit or loss
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Corporation tax––
B) Total tax expense
Tax charge in profit and loss as per the above––
Share of tax expense of equity accounted joint ventures(400)987
Total tax (credit)/expense(400)987
The Company and its subsidiaries operate as a UK Group REIT. Subject to continuing compliance with certain rules, the UK REIT
regime exempts the profits of the Group’s property rental business from UK corporation tax. To operate as a UK Group REIT a number
of conditions had to be satisfied in respect of the Company, the Group’s qualifying activity and the Group’s balance of business. Since
the 21 December 2017 the Group has met all such applicable conditions.
ANNUAL REPORT 2023 121
9. Taxation continued
The reconciliation of the (Loss)/profit before tax multiplied by the blended rate of corporation tax for the year of 20.4% (2022: 19%) to
the total tax charge is as follows:
C) Reconciliation of the total tax charge for the year
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
(Loss)/Profit on ordinary activities before taxation(144,866)110,303
Theoretical tax at UK standard corporation tax rate of 20.4% (2022: 19%)(29,553)20,958
Effects of:
Investment property and derivative revaluation not taxable49,680(4,146)
Disposal of interest rate derivative(587)–
Residual business losses4,428–
Other non-taxable items(8,807)–
REIT exempt income(15,161)(16,812)
Share of tax expense of equity accounted joint ventures(400)987
Total tax (credit)/expense for the year(400)987
UK REIT exempt income includes property rental income that is exempt from UK corporation tax in accordance with Part 12
of CTA 2010.
No deferred tax asset has been recognised in respect of the Group’s residual carried forward tax losses of £36.2 million as, given the
Group’s REIT status, it is considered unlikely that these losses will be utilised.
10. Earnings per share
Earnings per share (EPS) amounts are calculated by dividing the profit or loss for the period attributable to ordinary equity holders
of the Company by the weighted average number of ordinary shares in issue during the period. As there are no dilutive instruments
outstanding, basic and diluted earnings per share are identical.
The European Public Real Estate Association (EPRA) publishes guidelines for calculating adjusted earnings on a comparable basis.
EPRA EPS is a measure of EPS designed by EPRA to enable entities to present underlying earnings from core operating activities,
which excludes fair value movements on investment properties.
The Company has also included an additional earnings measure called “Adjusted Earnings” and “Adjusted EPS”. Adjusted earnings
56
is a performance measure used by the Board to assess the Group’s financial performance and dividend payments. The metric adjusts
EPRA earnings by deducting one-off items such as debt restructuring costs and the Joint Venture acquisition loan arrangement fee
which are non-recurring in nature and adding back finance income on derivatives held at fair value through profit and loss. Adjusted
Earnings is considered a better reflection of the measure over which the Board assesses the Group’s trading performance and
dividend cover.
Finance income received from derivatives held at fair value through profit and loss are added back to EPRA earnings as this reflects
the cash received from the derivatives in the period and therefore gives a better reflection of the Group’s net finance costs.
Debt restructuring costs relate to the acceleration of unamortised arrangement fees following the partial transition of the Group’s
debt structure from secured to unsecured.
The Joint Venture acquisition loan arrangement fee relates to the upfront amount payable to J.P. Morgan in respect of the short-term
facility taken out in January 2023 to fund the Group’s purchase of BAPTL’s 50% interest in the joint venture. This was specific debt
taken out to finance the transaction to acquire and then dispose of the joint venture, whilst protecting the Group from any recourse
on unwind of the joint venture’s financial asset. This adjustment reflects the arrangement fee only, as the Group largely had other
committed undrawn facilities that it could have utilised.
The reconciliation of IFRS Earnings, EPRA Earnings and Adjusted Earnings is shown below:
56 The Directors have identified certain measures that they believe will assist the understanding of the performance of the business. The measures are not
defined under IFRS and they may not be directly comparable with other companies’ adjusted measures. The non-GAAP measures are not intended to be
a substitute for, or superior to, any IFRS measures of performance, but they have been included as the Directors consider them to be important comparable
and key measures used within the business for assessing performance. The key non-GAAP measures identified by the Group have been defined in the
supplementary information and, where appropriate, reconciliation to the nearest IFRS measure has been given.
122 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10. Earnings per share continued
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Net (loss) / profit attributable to ordinary shareholders(144,866)110,303
EPRA adjustments:
Changes in fair value of investment properties and rental guarantees256,066(21,820)
Changes in fair value of interest rate derivatives measured at fair value through profit and loss(10,024)–
Profit on disposal of interest rate derivatives(2,878)–
Group share of changes in fair value of joint venture investment properties(11,486)6,021
Group share of gain on disposal of joint venture investment properties–(37,102)
Gain on disposal of investments in joint venture(19,940)–
Finance income received on interest rate derivatives held at fair value through profit and loss(9,671)–
EPRA earnings57,20157,402
Adjustments for:
Finance income received on interest rate derivatives held at fair value through profit and loss9,671–
One-off restructuring costs in relation to the acceleration of unamortised arrangement fees1,518–
The following subsidiaries will be exempt from the requirements of the Companies Act 2006 relating to the audit of individual accounts
by virtue of Section 479A of that Act.
Company name
Companies House
Registration Number
SII UK Halliwell (MIDCO) LTD12473355
SUPR Green Energy Limited12890276
SII UK Halliwell (No1) LTD12475261
SII UK Halliwell (No2) LTD12475599
SII UK Halliwell (No3) LTD12478141
SII UK Halliwell (No4) LTD12604032
SII UK Halliwell (No5) LTD12605175
SII UK Halliwell (No6) LTD12606144
SUPR Finco Limited14292760
ANNUAL REPORT 2023 127
14.Investment in joint ventures
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Opening balance177,140130,321
Additions*206,6563,518
Group’s share of profit after tax23,23243,301
Disposal(407,028)–
Closing balance–177,140
*Included within additions are £190.7 million of further investments made in the joint venture during the year and £15.9 million of net liabilities acquired on
acquisition of Horner (Jersey) LP
In May 2020, the Group and British Airways Pension Trustees Limited (BAPTL) formed a 50:50 joint venture (the “joint venture”),
Horner (Jersey) LP. Horner (Jersey) LP owns 100% of the shares in Horner REIT, which acquired 100% of the issued share capital in
Horndrift Limited for a combined total consideration of £102m plus costs on this date.
In February 2021, Horner REIT acquired 100% of the issued share capital in Cornerford Limited for a combined total consideration of
£115m plus costs. Further amounts have been advanced since this date to fund operating costs and taxation liabilities on a pro-rata
basis with the other parties.
Horndrift and Cornerford Limited each hold a 25.2% share of certain beneficial interests in a property trust arrangement that holds
a portfolio of 26 Sainsbury’s supermarket properties funded by bonds which matured in 2023 (the “Structure”). Rental surpluses
generated by the Structure are required to be applied in the repayment of the bonds and not therefore capable of being transferred to
the joint venture or Group until those bonds have been repaid.
On 12 January 2023, the Group purchased British Airways Pension Trustees Limited’s (BAPTL) 50% interest in the joint venture for
£188.8 million which resulted in the Group consolidating the following entities:
EntityAddress and principal place of businessOwnership
Jersey
Horner (Jersey) LP
Third Floor, Liberation House, Castle Street, St Helier,
Jersey, JE1 2LH
100% owned by the Group
Horner GPThird Floor, Liberation House, Castle Street, St Helier,
Jersey, JE1 2LH
100% owned by the Group
Horner REIT LimitedThird Floor, Liberation House, Castle Street, St Helier,
Jersey, JE1 2LH
100% owned by Horner (Jersey) LP
United Kingdom
Horndrift Limited
Langham Hall UK LLP, 1 Fleet Street,
London, E4M 7RA
Previously owned 100% by Horner REIT
Limited and disposed in March-23
Cornerford LimitedLangham Hall UK LLP, 1 Fleet Street,
London, E4M 7RA
Previously owned 100% by Horner REIT
Limited and disposed in March-23
128 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14.Investment in joint ventures continued
The assets and liabilities recognised on acquisition were as follows:
Current assets
Fair value
12 Jan 2023
£’000
Investment in joint venture200,887
Cash and cash equivalents565
Trade and other receivables19
Total current assets201,471
Total assets201,471
Current liabilities
Trade and other payables(9,078)
Total current liabilities(9,078)
Total liabilities(9,078)
Net assets192,393
Negative goodwill on acquisition(3,565)
Purchase consideration188,828
Transaction related costs of £451,000 were incurred in respect of the above acquisition and were capitalised as part of the Group’s
carrying amount in the joint venture.
Horner (Jersey) LP’s share of the aggregate amounts recognised in the statement of financial position of the Structure are as follows:
Non-current assets
Fair value
12 Jan 2023
£’000
Investment properties–
Total non-current assets–
Current assets
Contractual receivable277,379
Trade and other receivables1,683
Investment properties held for sale16,888
Cash and cash equivalents–
Total current assets295,950
Total assets295,950
Current liabilities
Debt securities in issue(85,349)
Interest rate derivative(351)
Deferred tax(139)
Trade and other payables(4,097)
Other liabilities(5,127)
Total current liabilities(95,063)
Total liabilities(95,063)
Net assets200,887
ANNUAL REPORT 2023 129
14. Investment in joint ventures continued
The acquisition of BAPTL’s 50% interest in the joint venture, increased the Group’s beneficial interest in the structure to 51%.
Following the additional joint venture interest acquired during the year, the Group was deemed to control the Structure jointly, as
any change to the contractual arrangements and deeds that regulate the Structure, required unanimous consent from all beneficial
holders. Therefore, the equity method of accounting continued to be used until the disposal of the investment in joint venture which
occurred during the year. Further detail is included in Note 2 of the financial statements.
Atrato Halliwell Limited, affiliate of the Investment Adviser, has a carried interest entitlement over the investment returns from the
Group’s investment in the joint venture. Under the terms of the Limited Partnership Agreement, (“LPA”), once the Group and BAPTL
received a return equal to their total investment in the joint venture plus an amount equivalent to a 10% per annum preferred return on
that investment, Atrato Halliwell is entitled to share in any further cash returns to be distributed by the joint venture. Atrato Halliwell’s
entitlement to share in cash returns in excess of the preferred return increases depending on the extent of those cash returns, up to
a maximum entitlement of £15,000,000.
Following the acquisition of BAPTL’s 50% interest in the joint venture, BAPTL’s £7.5 million share of carried interest to Atrato Halliwell
crystalised and was paid at the point of acquisition, together with other deferred arrangement fees payable by BAPTL amounting to
£0.6 million. The remaining £7.5 million is included within trade and other payables within Note 18 and was paid after the year end.
On 13 March 2023, the Group sold its interests in Horndrift and Cornerford Limited to Sainsbury’s for gross proceeds of £430.8 million.
which was structured in three separate tranches:
• The first tranche of £279.3 million was paid in cash on 17 March 2023
• The second tranche of £116.9 million was paid in cash after the balance sheet date on 10 July 2023
• The third tranche of £34.7 million was conditional on the sale of the remaining five stores in the portfolio.
During the year, the Group purchased two of the five stores for a gross purchase price of £25.2 million and received total proceeds
from Sainsbury’s of £15.0 million.
After the year end, the Group purchased two of the remaining three stores in the portfolio for a gross purchase price of £36.4 million
and received proceeds from Sainsbury’s of £18.2 million. It is expected that the one remaining store will be sold at vacant
possession value.
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
Total disposal consideration430,797–
Fair value adjustment to contractual receivable(2,579)–
Carrying amount of net assets sold(407,029)–
Transaction related costs(1,249)–
Profit on disposal of joint venture interest19,940–
Horndrift and Cornerford Limited’s share of the aggregate amounts recognised in the consolidated statement of comprehensive
income and statement of financial position for the period ending 13 March 2023 are as follows:
Period to
13 March 2023
£’000
Year to
30 June 2022
£’000
Rental income3,90412,878
Finance income18,14215,988
Administrative and other expenses(1,844)(190)
Change in fair value of investment properties(4,256)(11,336)
Gain on disposal of investment properties27,22884,095
Operating profit43,174101,435
Finance expense(1,585)(1,996)
Profit before taxation41,58999,439
Tax charge for the period833(1,974)
Profit for the period/year42,42297,465
Group share of profit for the period / year23,23243,301
130 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14. Investment in joint ventures continued
Non-current assets
As at
13 March 2023
£’000
As at
30 June 2022
£’000
Investment properties–37,005
Total non-current assets–37,005
Current assets
Contractual receivable559,268530,481
Trade and other receivables8,7432,897
Investment properties held for sale33,794–
Cash and cash equivalents––
Total current assets601,805533,378
Total assets601,805570,383
Current liabilities
Debt securities in issue169,901176,243
Interest rate derivative4673,451
Deferred tax3534,196
Other liabilities10,2599,883
Trade and other payables10,2317,329
Total current liabilities191,211201,102
Total liabilities191,211201,102
Net assets410,594369,281
Negative goodwill on acquisition(3,565)–
Carrying amount of net assets at disposal407,029369,281
15. Financial assets held at fair value through profit or loss
Rental guarantees provided by the seller of an investment property are recognised as a financial asset when there is a valid
expectation that the Group will utilise the guarantee over the contractual term. Rental guarantees are classified as financial assets at
fair value through profit and loss in accordance with IFRS 9.
In determining the fair value of the rental guarantee, the Group makes an assessment of the expected future cash flows to be derived
over the term of the rental guarantee and discounts these at the market rate. A review is performed on a periodic basis based on
payments received and changes in the estimation of future cash flows.
The fair value of rental guarantees held by the Group are as follows:
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
At start of year283237
Additions1,000283
Fair value changes (including changes in estimated cash flows)92(326)
Collected during the year(1,375)89
Total financial assets held at fair value through profit and loss at end of year–283
ANNUAL REPORT 2023 131
16.Financial assets held at amortised cost
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
At start of year10,626–
Additions–10,626
Interest income recognised in profit and loss (note 8)483–
Lease payments received during the period(290)–
At end of period10,81910,626
On 8 June 2022, the Group acquired an Asda store in Carcroft, via a sale and leaseback transaction for £10.6 million, this has been
recognised in the Statement of Financial Position as a Financial asset in accordance with IFRS 9. The financial asset is measured using
the amortised cost model, which recognises the rental payments as financial income and reductions of the asset value based on the
implicit interest rate in the lease. As at 30 June 2023 the market value of the property was estimated at £7.2 million.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on
similar credit risk and ageing. The expected loss rates are based on the Group’s historical credit losses experienced over the period
from incorporation to 30 June 2023. The historical loss rates are then adjusted for current and forward-looking information on
macro-economic factors affecting the Group’s customers. Both the expected credit loss provision and the incurred loss provision in
the current year is immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss provision
would give rise to a material expected credit loss.
17.Trade and other receivables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Other receivables4,7231,430
Receivable from joint venture disposal136,582–
Prepayments and accrued income850433
Total trade and other receivables142,1551,863
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on
similar credit risk and ageing. The expected loss rates are based on the Group’s historical credit losses experienced over the period
from incorporation to 30 June 2023. The historical loss rates are then adjusted for current and forward-looking information on
macro-economic factors affecting the Group’s customers. Both the expected credit loss provision and the incurred loss provision in
the current and prior year are immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss
provision would give rise to a material expected credit loss.
The receivable following the disposal of the Joint venture receivable has been initially recognised at fair value which resulted in
a discount of £2.6 million to the gross amounts to be received of £136.6 million and which is being amortised and recognised within
finance income over the period to the receipt of cash from Sainsbury’s. £135.1 million was received post year end and the remainder of
the consideration is expected to be received on sale of the final property.
18.Trade and other payables
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Corporate accruals22,4698,958
VAT payable4,5101,719
Total trade and other payables26,97910,677
132 SUPERMARKET INCOME REIT PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19. Interest rate derivatives
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Non-current asset: Interest rate swaps35,6015,114
Non-current asset: Interest rate cap1,597–
Current Asset: Interest rate swaps16,800–
Current Asset: Interest rate cap3,584–
The rate swaps are remeasured to fair value by the counterparty bank on a quarterly basis.
The fair value at the end of year comprises:
Year to
30 June 2023
£’000
Year to
30 June 2022
£’000
At start of year (net)5,114(447)
Interest rate derivative premium paid on inception44,255–
Amortisation of cap premium in the period (note 8)–(5)
Disposal of interest rate derivatives(2,878)–
Changes in fair value of interest rate derivative in the year (P&L)19,6955,270
Changes in fair value of interest rate derivative in the year (OCI)3,111–
(Credit)/Charge to the income statement (P&L) (note 8)(9,671)–
(Credit)/Charge to the income statement (OCI) (note 8)(2,043)296
Fair value at end of year (net)57,5835,114
To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note 21,
the Group has entered into derivative interest rate swaps in relation to the drawn Unsecured bank syndicate facilities (‘the Unsecured
swaps’) and loan facilities with Bayerische Landesbank (‘the BLB swaps’) and Wells Fargo Bank (‘the Wells swaps’). The Group has
also entered into a derivative interest rate cap in relation to the drawn HSBC loan facility (‘the HSBC cap’).
A summary of these derivatives as at 30 June 2023 are shown in the table below:
Rent expiration of rent-free periods and fixed uplifts44756
Topped up annualised net rents (C)99,24090,258
EPRA NIY (A/B)5.46%4.60%
EPRA "topped up" NIY (C/B)5.49%4.60%
All rent free periods expire within the year to 30 June 2024
4. EPRA Vacancy Rate
EPRA Vacancy Rate
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Estimated rental value of vacant space439188
Estimated rental value of the whole portfolio100,79777,237
EPRA Vacancy Rate0.4%0.2%
The EPRA vacancy rate is calculated as the ERV of the unrented, lettable space as a proportion of the total rental value of the direct Investment Property portfolio.
This is expected to continue to be a highly immaterial percentage as the majority of the portfolio is let to the largest supermarket operators in the UK.
148 SUPERMARKET INCOME REIT PLC
UNAUDITED SUPPLEMENTARY INFORMATION CONTINUED
5. EPRA Cost Ratio
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Administration expenses per IFRS15,42913,937
Service charge income(5,939)(2,086)
Service charge costs6,5182,338
Net Service charge costs579252
Share of joint venture expenses93895
Total costs (including direct vacant property costs) (A)16,94614,284
Vacant property costs(328)(99)
Total costs (excluding direct vacant property costs) (B)16,61814,185
Gross rental income per IFRS95,82372,363
Less: service charge components of gross rental income––
Add: Share of Gross rental income from Joint Ventures13,52914,423
Gross rental income (C)109,35286,786
EPRA Cost ratio (including direct vacant property costs) (A/C)15.50%16.46%
EPRA Cost ratio (excluding vacant property costs) (B/C)15.20%16.34%
1. The Company does not have any overhead costs capitalised as it has no assets under development.
ANNUAL REPORT 2023 149
6. EPRA LTV
The Group voluntarily adopted the EPRA issued new best practice reporting guidelines in the year ending 30 June 2023, incorporating
the new measure of loan to value: EPRA Loan-to-Value (EPRA LTV) and is defined as net debt divided by total property market value.
The table below illustrates the reconciliation of the numbers under the new measures, where prior year comparative figures have also
been restated in line with the new EPRA methodology.
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Group Net Debt
Borrowings from financial institutions667,465348,546
Net payables–24,893
Less: Cash and cash equivalents(37,481)(51,200)
Group Net Debt Total (A)629,984322,239
Group Property Value
Investment properties at fair value1,685,6901,561,590
Intangibles–93
Net receivables93,620–
Financial assets10,81910,626
Total Group Property Value (B)1,790,1291,572,309
Group LTV (A-B)35.19%20.49%
Share of Joint Ventures Debt
Bond loans–88,121
Net payables–822
JV Net Debt Total (A)–88,943
Group Property Value
Owner-occupied property
Investment properties at fair value–277,407
Total JV Property Value (B)–277,407
JV LTV (A-B)0.00%32.06%
Combined Net Debt (A)629,984411,182
Combined Property Value (B)1,790,1291,849,717
Combined LTV (A-B)35.19%22.23%
7. EPRA Like-for-Like Rental Growth
Sector
Year ended
30 June 2023
£’000
Year ended
30 June 2022
£’000
Like-for-Like
rental growth
%
UK62,68861,0592.7%
The like-for-like rental growth is based on changes in net rental income for those properties which have been held for the duration of both the current and
comparative reporting. This represents a portfolio valuation, as assessed by the valuer of £ 1.03 billion (30 June 2022: £1.19 billion).
150 SUPERMARKET INCOME REIT PLC
UNAUDITED SUPPLEMENTARY INFORMATION CONTINUED
8. EPRA Property Related Capital Expenditure
Group
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Acquisitions377,311388,696
Development
Investment properties
Group Total CapEx377,311388,696
Joint Venture
Acquisitions––
Development––
Investment properties––
Joint Venture CapEx––
Total CapEx377,311388,696
Acquisitions relate to purchase of investment properties in the year and includes capitalised acquisition costs. There has been no capital expenditure on the
investment properties within the portfolio and no capitalised development expenditure has been incurred in the year or prior year.
9. Total Shareholder Return
Total Shareholder Return
Year to
30 June 2023
Pence per share
(‘p’)
Year to
30 June 2022
Pence per share
(‘p’)
Share price at the start of the year119.50117.50
Share price at the end of the year73.00119.50
Increase in share price(46.50)2.00
Dividends declared for the year6.005.94
Increase in share price plus dividends(40.50)7.94
Share price at start of year119.50117.50
Total Shareholder Return(34%)7%
10. Net loan to value ratio
The proportion of our gross asset value that is funded by borrowings calculated as statement of financial position borrowings less
cash balances divided by total investment properties valuation.
Net loan to value
As at
30 June 2023
£’000
As at
30 June 2022
£’000
Bank borrowings667,465348,546
Less cash and cash equivalents(37,481)(51,200)
Net borrowings629,984297,346
Investment properties valuation1,685,6901,561,590
Net loan to value ratio37%19%
11. Annualised passing rent
Annualised passing rent is the annualised cash rental income being received as at the stated date.
ANNUAL REPORT 2023 151
GLOSSARY
AGMAnnual General Meeting
AIFMDAlternative Investment Fund Managers Directive
Direct PortfolioWholly Owned Properties held by the Group
EPRAEuropean Public Real Estate Association
EPSEarnings 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
FRIA 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
IFRSUK adopted accounting standards in conformity with the requirements of the
Companies Act 2006
IPOAn initial public offering (IPO) refers to the process of offering shares of a corporation to the
public in a new stock issuance
LTVLoan to Value: the outstanding amount of a loan as a percentage of property value
NAVNet Asset Value
Net Initial YieldAnnualised 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 LTVLTV calculated on the gross loan amount less cash balances
OmnichannelStores offering both instore picking and online fulfilment
REITReal Estate Investment Trust
Running yieldThe anticipated Net Initial Yield at a future date, taking account of any rent reviews in the
intervening period
Sainsbury’s Reversion Portfolio (SRP)A portfolio consisting of the freehold interest in 26 geographically diverse high-quality
Sainsbury’s supermarkets
Total Shareholder Return (TSR)The movement in share price over a period plus dividends declared for the same period
expressed as a percentage of the share price at the start of the Period
WAULTWeighted Average Unexpired Lease Term. It is used by property companies as an indicator of
the average remaining life of the leases within their portfolios
152 SUPERMARKET INCOME REIT PLC
CONTACTS INFORMATION
DirectorsNick Hewson (Non-Executive Chair)
Vince Prior (Chair of Nomination Committee & Senior Independent Director)
Jon Austen (Chair of Audit Committee)
Cathryn Vanderspar (Chair of Remuneration Committee)
Frances Davies (Chair of ESG Committee)
Sapna Shah (Chair of Management Engagement Committee)
Company SecretaryHanway Advisory
1 King William Street,
London, EC4N 7AF
RegistrarLink Asset Services
The Registry,
34 Beckenham Road,
Beckenham,
Kent, BR3 4TU
AIFMJTC Global AIFM Solutions Limited
Ground floor, Dorey Court,
Admiral Park,
St Peter Port,
Guernsey,
Channel Islands,
GY1 2HT
Investment AdviserAtrato Capital Limited
36 Queen Street,
London,
EC4R 1BN
Financial adviser,
Joint Corporate Broker and
Placing Agent
Stifel Nicolaus Europe Limited
150 Cheapside,
London,
EC2V 6ET
Joint Corporate BrokerGoldman Sachs International
Plumtree Court,
25 Shoe Lane,
London,
EC4A 4AU
AuditorsBDO LLP
55 Baker Street,
London,
W1U 7EU
Property ValuersCushman & Wakefield
125 Old Broad Street,
London,
EC2N 1AR
Financial PR AdvisersFTI
200 Aldersgate Street,
London,
EC1A 4HD
Websitewww.supermarketincomereit.com
Registered Office1 King William Street,
London,
United Kingdom,
EC4N 7AF
Stock exchange ticker ISINSUPR
GB00BF345X11
This report will be available on the Company’s website.
Design and production: theteam.co.uk
Print: Westerham Print
SUPERMARKET INCOME REIT | ANNUAL REPORT 2023
FEEDING THE UK
Who we are |Supermarket Income REIT plc (LSE: SUPR) is dedicated
to investing in supermarket property forming a key part of the future
model of UK grocery.
SUPR invests in grocery properties which are an essential part of
the UK’s feed the nation infrastructure and are mission critical to the