Untitled

ANNUAL REPORT 2023

INVESTING

IN THE

FUTURE

OF UK

GROCERY

Supermarket Income REIT plc

 King William Street,

London,

United Kingdom,

ECN AF

www.supermarketincomereit.com

SUPERMARKET INCOME REIT PLC | ANNUAL REPORT 2023

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

operations of the UK’s leading grocers.

CONTENTS

STRATEGIC REPORT

1 Highlights for the year

2 Chair’s Statement

4 Financial Highlights

6 SUPR at a glance

12 Q&A with Justin King CBE

15 Investment Adviser’s Report

22 The Company’s Portfolio

26 The UK Grocery Market

29 Key Performance Indicators

30 EPRA Performance Indicators

31 Financial Overview

35 TCFD Compliant Report

51 Our Principal Risks

61 Section 172(1) Statement

CORPORATE GOVERNANCE

62 Our Key Stakeholder Relationships

65 Chair’s Letter on Corporate Governance

66 The Board of Directors

68 The Investment Adviser

70 Leadership and Purpose

74 Board Activities during the year

75 Key Decisions of the Board

during the year

76 Corporate Governance Statement

78 Nomination Committee Report

81 Audit and Risk Committee Report

85 Management Engagement

Committee Report

87 ESG Committee Report

88 Remuneration Committee Report

92 Directors’ Report

94 Directors’ Responsibilities Statement

95 Alternative Investment Fund

Manager’s Report

FINANCIAL STATEMENTS

97 Independent Auditors’ Report to the

members of Supermarket Income

REIT PLC

106 Consolidated Financial Statements

110 Notes to the Consolidated

Financial Statements

142 Company Financial Statements

144 Notes to the Company

Financial Statements

146 Unaudited Supplementary Information

151 Glossary

152 Contacts Information

We aim | To provide investors with a combination of attractive, secure

and growing income with potential for long-term capital growth.

STRATEGIC REPORT | HIGHLIGHTS FOR THE YEAR

ANNUAL REPORT 2023 1

8.2

DIVIDEND YIELD

(AS AT 30 JUNE 2023)

14yrs

PORTFOLIO WAULT

DIVIDEND PER SHARE

93p

EPRA NTA

PER SHARE

5.8p

ADJUSTED EPS

EPRA LTV

300

600

900

1200

1500

21 22201918

TOTAL NET

ASSETS

(£m)

NET RENTAL

INCOME

(£m)

21 22 23

18 19

100

ACQUISITIONS

TO DATE

(stores)

21 22 23

18 19

21 22 232019

CUMULATIVE TOTAL

SHAREHOLDER

RETURN (%)

DIVIDEND PAID

PER SHARE

(pence)

21 22 23

18 19

SUPERMARKET TENANT

MIX BY VALUE

● Tesco

●

Sainsbury’s

●

Morrisons

●

Waitrose

●

Asda

●

Aldi

●

M&S

2 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | CHAIR’S STATEMENT

Dear Shareholder,

I am pleased to report a resilient operational performance

for the Company, in what has been an challenging year for

the broader economy and the real estate investment market.

Despite the economic volatility, the UK grocery market has

grown by 11% during the year and 30% since our IPO to

a £242 billion market today. This highlights the strength

and resilience of grocery spending through the peaks and

troughs of the economic cycle.

Throughout the year, we have focused on our investment

strategy of building and managing a unique high-quality

portfolio of omnichannel supermarkets, which gives us

exposure to the fastest growing segment of the expanding

UK grocery market. Growth in the grocery market is

enhancing the strength of our tenants and the affordability

of our rents, providing positive tailwinds for future rental

growth across the portfolio.

The robust performance of the supermarket operators is in

stark contrast to the valuation declines experienced by the

broader property investment market. The scale and pace

of interest rate hikes since September 2022 has triggered

a rapid decline in property values, with the MSCI UK All

Property Capital Values Index declining by over 19% for

the year to 30 June 2023. Supermarket property has been

less volatile, but not immune, with a 14% like-for-like

decline in our portfolio value resulting in a net initial

yield of 5.6% as at 30 June 2023 (30 June 2022: 4.6%,

31 December 2022: 5.5%).

The property market experienced an initial rapid repricing

to December 2022. We have since observed a stabilisation

of pricing in recent transactions and our 30 June 2023

valuations are essentially flat to our last reported valuation

as at 31 December 2022. It is also noteworthy that we have

seen significant investment volumes in UK supermarket

property which have exceeded £1.7 billion

. This total

includes £483 million of leasehold store buybacks by

operators; a unique feature of the grocery real estate market.

This elevated interest in grocery property highlights the

positive long-term outlook for the sector. We are cautiously

optimistic on the outlook for supermarket property

valuations, though we recognise the general correlation

of these values to Bank of England policy and interest

rate movements.

The Company owns and manages a unique and high-quality

portfolio of mission-critical omnichannel supermarkets.

Our sector specialism and information advantage allow us

to identify and deliver value through actively managing the

portfolio. During the year, our tenant Sainsbury’s purchased

our interest in the Sainsbury’s Reversion Portfolio (“SRP”)

Joint Venture (“JV”), buying back 21 stores at a 4.3% Net

Initial Yield (“NIY”), for which the Company received

proceeds of £430.9 million. The proceeds from these

disposals, received during the year and post balance sheet,

were recycled into higher-yielding acquisitions

that met

our strict investment criteria, and utilised to pay down debt.

As a result, drawn debt has reduced from £672.2 million

in June 2023, to £584.8 million today. During the year we

acquired nine stores and a further two shortly after year end

for a combined total consideration of £399.0 million at an

average NIY of 5.5%.

 Knight Frank, Savills, MSCI and Atrato Capital research.

Year ending  June 

 Average weighted NIY for the stores at acquisition, including post balance

sheet acquisitions of .m (excluding acquisition costs)

“ The quality of our unique omnichannel

supermarket portfolio and the increasing

affordability of grocery rents, together

with our robust balance sheet means we

are well positioned to continue delivering

long-term value for our shareholders.”

Nick Hewson Chair

ANNUAL REPORT 2023 3

We continue to focus on maintaining balance sheet strength

and at year end our European Public Real Estate (“EPRA”)

Loan to Value (“LTV”) was 35%, which has further reduced

post year end, following the further receipt of monies

from the sale of the SRP interest. Our debt is provided by

a well-diversified group of relationship banks. Post the year

end, we have expanded our banking group and extended

the term of our debt facilities to in excess of four years

We also took the prudent decision to fix the cost of 100% of

our drawn debt. All our borrowings are either fixed rate or

hedged to a fixed rate via interest rate derivatives with an

average cost of debt of 3.1%.

During the year, we strengthened our governance

credentials with the appointment of Sapna Shah to the

Board. Sapna brings extensive corporate finance and

governance experience having advised listed REITs

and investment companies as a senior investment

banker. Sapna has agreed to chair the new Management

Engagement Committee which is tasked with the job

of ensuring that we receive best value from our key

service providers.

Sustainability continues to be a key focus of both the Board

and the Investment Adviser. Having established an ESG

committee, chaired by Frances Davies, we have this year

voluntarily published a Task Force on Climate-related

Financial Disclosures (“TCFD”) compliant Annual Report

and Accounts, significantly enhancing the Company’s

sustainability reporting and environmental commitments.

We are pleased to present this report in full in this year’s

Annual Report and Accounts and the accompanying

Sustainability Report. In addition, the Company has also

made a commitment to submit a greenhouse gas emissions

reduction target to the Science Based Target Initiative

(“SBTi”) by Q4 2023. The Company supports the Investment

 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 22 Change in Year

Annualised passing rent



.m .m +%

Operating profit



.m .m +%

Adjusted earnings

,,

.m .m +%

Changes in fair value of investment properties (.m) .m n/a

Dividend per share declared . pence . pence +%

Adjusted EPS

,

. pence . pence -%

Dividend cover

,

.x



.x n/a

30 June 23 30 June 22 Change 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

• 30% increase in UK grocery market since IPO to

£242 billion

• 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

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%

and a total consideration of £430.9

million

, delivering a:

– 30% IRR

– 1.9x money-on-money multiple

• Purchase of eleven supermarket properties at a NIY of

5.5%

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

• 14 years, weighted average unexpired lease

term (“WAULT”)

• Strong performing tenant covenants; 77% of income from

Sainsbury’s and Tesco

• 78% of rental income is inflation-linked, subject to caps of

4% per annum on average

Lower supermarket property valuations reflect higher

interest rates with encouraging indications that valuations

are stabilising

• Direct Portfolio independently valued at £1.69 billion

(30 June 2022: £1.56 billion), reflecting a NIY of 5.6% as

at 30 June 2023 (30 June 2022: 4.6%)

• Direct Portfolio value stable versus last reported valuation

(31 December 2022: £1.63 billion reflecting a NIY of 5.5%)

 IGD growth from  to  (forecast), June 

 IGD channel data  to  actuals,  forecast

 Knight Frank, Savills, MSCI and Atrato Capital research.

Year ending  June 

 Blended NIY across the  properties

 SRP investment: the Sainsbury’s Reversion Portfolio held in a joint

venture arrangement. See Note  in the financial statements for

further information

 Average weighted NIY for the stores at acquisition, including post balance

sheet acquisitions of .m (excluding acquisition costs)

 Portfolio statistics include Post balance sheet acquisitions

 Kantar grocery channel report June 

Strong balance sheet with % of drawn debt hedged

• Fitch Ratings Limited (“Fitch”) investment grade credit

rating of BBB+ reaffirmed in February 2023

• Total debt further reduced post balance sheet with current

LTV of 34%

• Refinancing of facilities during the year and post balance

sheet extending weighted average debt maturity by

12 months to four years

(30 June 2022: four years)

• Unsecured debt increased to 61% of debt commitments

(30 June 2022: Nil)

• 100% of drawn debt hedged and interest rate hedging

extended by 12 months:

– Weighted average finance cost fixed at 3.1%

(30 June 2022: 2.6%)

– Existing in-the-money hedges restructured to extend

hedge term at zero net upfront cost

Continued progress on sustainability and

governance programme

• Supported the responsible investment commitments

made by our Investment Adviser as a signatory of the

Net Zero Asset Managers Initiative and United Nations

Principles for Responsible Investment

• Published our first voluntary, fully TCFD compliant

annual report, consistent with all 11 of the TCFD

recommendations and recommended disclosures

• Committed to submit a target to the Science Based Target

Initiative by Q4 2023

Nick Hewson,

Chair of Supermarket Income REIT plc, commented:

“The UK grocery sector has again demonstrated resilience

despite the challenging macroeconomic environment we

have experienced during the year. We remain focused on our

investment strategy of acquiring and managing a high-quality

portfolio of omnichannel supermarkets. These give us exposure

to the fastest-growing segment of the UK grocery market which

itself is experiencing strong growth.

During the year, Sainsbury’s purchased our interest in the

Sainsbury’s Reversion Portfolio joint venture for £430.9 million

which we redeployed into higher-yielding supermarkets that

met our strict investment criteria alongside reducing our debt,

materially strengthening our balance sheet.

This purchase by one of our own tenants of 21 of its own stores

highlights the attractiveness of UK supermarket property, which

is further illustrated by the fact that the year has seen in excess

of £1.7 billion of investment volume in our property sub-sector,

driven by the positive long-term outlook for UK grocery. This

activity has contributed to stabilising property valuations in the

UK supermarket property sub-sector.

As we look forward, the quality of our unique omnichannel

supermarket portfolio and the increasing affordability of grocery

rents, together with our robust balance sheet means we are

well positioned to continue delivering long-term value for our

shareholders.”

 Inclusive of uncommitted extension options

STRATEGIC REPORT | SUPR AT A GLANCE

6 SUPERMARKET INCOME REIT PLC

OMNICHANNEL – THE FUTURE MODEL OF UK GROCERY | Over 80% of online grocery

in the UK is fulfilled from omnichannel supermarkets.

OMNICHANNEL AT WORK

CONSUMERSOMNICHANNEL

SUPERMARKET

TRADITIONAL

IN-STORE

HOME DELI

VERY

FROM STORE

CLICK & COLLECT

AT STORE

THE OMNICHANNEL MODEL:

The seamless integration between online and

offline fulfilment provides our tenants with

economies of scale and operational efficiencies.

THE OMNICHANNEL VIRTUOUS CIRCLE:

The combination of in-store and online

fulfilment help to deliver increased sales and

customer satisfaction.

INCREASED

PRODUCT

TURNOVER

BIGGER

BETTER

RANGE

MATERIAL

JUMP IN STORE

TURNOVER

INCREASED

IN-STORE

SALES

IMPROVED

CUSTOMER

EXPERIENCE

FRESHER

PRODUCT

THE OMNICHANNEL

VIRTUOUS CIRCLE

ANNUAL REPORT 2023 7

OUR PORTFOLIO | We have built a unique portfolio of supermarkets, diversified both

by geography and tenant. Our properties are ‘mission critical’ to our grocery tenants,

operating as key online fulfilment hubs as well as generating in-store physical sales.

Supermarket

exposure by value

Tesco 49%

Sainsbury’s 30%

Morrisons 6%

Waitrose 5%

Asda 2%

Aldi 1%

M&S 1%

Iceland <1%

Portfolio weighted by value

based on 30 June 2023

valuation plus acquisitions

at cost.

Indexation

Income mix by

rent review type*

RPI

71.2%

CPI

6.7%

Fixed

2.1%

OMV

20.0%

Total

100.0%

78% of the Direct Portfolio benefits from upward

only, indexed-linked rent reviews.

SUPERMARKETS*

3.8

RENT TO

TURNOVER

OMNICHANNEL

STORES

100

OCCUPANCY

SINCE IPO

100

RENT COLLECTION

SINCE IPO

*including post balance sheet acquisitions.

A NATIONWIDE PORTFOLIO

STRATEGIC REPORT | SUPR AT A GLANCE CONTINUED

INVESTING IN THE

FUTURE OF UK GROCERY

HEADLINE STRATEGY | We acquire supermarket property with long, inﬂation-linked

leases and aim to provide sustainable, long-term income and value growth for shareholders.

8 SUPERMARKET INCOME REIT PLC

WE INVEST PRIMARILY IN OMNICHANNEL SUPERMARKETS:

TRADITIONAL

IN-STORE

CLICK & COLLECT

AT STORE

HOME DELIVERY

FROM STORE

TENANTS ARE UK’S

LEADING GROCERS

INFLATION-LINKED

RENT REVIEWS

LONG LEASE

LENGTHS

WITH HIGHLY ATTRACTIVE LEASE TERMS:

LONG-TERM GROWTH DRIVERS IN THE STRUCTURALLY SUPPORTED UK GROCERY SECTOR:

19.2

PEAK GROCERY

PRICE INFLATION*

NON-DISCRETIONARY

GROCERY

EXPENDITURE

56bn

GROWTH OVER

LAST 5 YEARS

*Office for National Statistics,

year to March 2023

OUR STRATEGY AT WORK | We have handpicked a unique portfolio of supermarkets

with attractive trading fundamentals. We are the largest landlord of supermarkets in

the UK. Our investment strategy of acquiring top trading omnichannel supermarkets

provides investors exposure to leading future proofed stores in the growing UK

grocery market.

ANNUAL REPORT 2023 9

Tesco, Bishop’s Cleeve

Standalone supermarket

serving the local residential

population acquired as

part of an oﬀ-market

transaction.

Read more on page 23

SECTOR

SPECIALISM

10 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | SUPR AT A GLANCE CONTINUED

OUR SUSTAINABILITY

JOURNEY

OUR SUSTAINABILITY JOURNEY | Environment, social and governance (ESG) is a

key priority for the Company. The Board is committed to delivering the Company’s

ambitious sustainability goals.

OUR SUSTAINABILITY ACTIVITY:

PUBLISHED A

SUSTAINABILITY REPORT

COMMITTED TO SUBMIT

A TARGET TO THE

SCIENCE BASED TARGET

INITIATIVE (SBTI) BY Q4

2023

PUBLISHED FIRST

FULLY TCFD COMPLIANT

ANNUAL REPORT

COMMUNITY

ENGAGEMENT THROUGH

CHARITABLE GIVING

AND COMMUNITY

PARTNERSHIPS

SUPPORTED THE

RESPONSIBLE

INVESTMENT

COMMITMENTS MADE

BY OUR INVESTMENT

ADVISER AS A SIGNATORY

OF THE NET ZERO ASSET

MANAGERS INITIATIVE

(NZAM) AND UNITED

NATIONS PRINCIPLES

FOR RESPONSIBLE

INVESTMENT (UNPRI)

ENVIRONMENTAL

ASSET MANAGEMENT

INITIATIVES

2019 2020 2021 2022 2023

AWARD WINNING GOVERNANCE:

ANNUAL REPORT 2023 11

IMPROVING SUSTAINABILITY WITH OUR TENANTS:

Supermarket EPC breakdown

EV CHARGING

INITIATIVE

FULLY TCFD

COMPLIANT

ANNUAL

REPORT

ANNUAL

CALCULATION

OF BASELINE

EMISSIONS USING

KEY TENANT DATA

SOLAR PV

ENERGY

GENERATION

INITIATIVE

REPORTING AND REDUCING CARBON EMISSIONS:

EPC rating % of supermarket Portfolio (June 2023)

4.2%

46.2%

33.7%

15.8%

Total

100.0%

*Including post balance sheet events (Excluding Scottish EPCs)

AMBITIOUS NET ZERO TARGETS:

Grocer Net Zero target

Tesco

Net Zero in the UK by 2035

Sainsbury’s

Net Zero by 2035

Waitrose & Partners

Net Zero by 2035

Morrisons

Net Zero by 2035

ASDA

Net Zero by 2040

12 SUPERMARKET INCOME REIT PLC

We are seeing clear evidence that the operators have not

‘passed through’ to consumers all the cost increases that

they have incurred as evidenced from falling operating

margins from 3.2% to around 1.8% on average

. It is

worth noting that a grocer’s power to implement price

rises is less than many people think, as the sector’s intense

competitiveness drives low margins and high operational

efficiencies.

However, I believe that the most impactful contribution

operators are making is the change to their product lines

and promotional strategies on the shelves to help their

customers switch from expensive calories to less expensive

calories. Think of it as giving the customer the ability to

achieve a cut in their pence per calorie consumed or ‘dial

out’ inflation. In previous recessions we have seen the

effectiveness of supporting the customer through value

alternatives. That’s why the traditional supermarkets carry

an extensive range of products to ensure their mix can cater

for the changing needs of the customers’ shopping basket.

Q: You mention the reduction in profit margins

for operators. Does that give you any concerns

about the sector and by extension supermarket

property values?

A: If you take the longer-term view, historical net profit

margins of the incumbent operators range between 3% and

5% and that will typically wax and wane depending on how

much pressure there is from competition and costs. Over

time, changes in productivity, operational efficiencies and

pricing eventually restores margins to a more normal long-

run level of around 4%.

 Competition and Markets Authority, “Competition and Markets Authority

updates on action to contain cost of living pressures in groceries sector”,

 July 

Justin King is a senior adviser to Atrato Partners. Justin

is recognised as one of the UK’s most successful grocery

sector leaders, having served as CEO of Sainsbury’s for

over a decade and previously held senior roles at Marks &

Spencer, Asda, PepsiCo and Mars.

Justin is currently a Non-Executive Director of Marks &

Spencer and Chair of Allwyn Entertainment, leading its

transition to operating the National Lottery licence. Justin

also advises a series of high-profile consumer-focused

companies including Itsu Grocery, where he chairs the

grocery business, and is the Chair of Dexters Real Estate.

Justin is an advocate for responsible business and has

been instrumental in launching several charitable concerns

including the charity Made by Sport, which champions

the power of sport to change young lives. Justin brings an

unrivalled wealth of grocery sector experience and a deep

understanding of grocery property strategy.

Q: How have the supermarket operators been

reacting to unprecedented increases in the cost of

living faced by many consumers, especially given

the impact from recent grocery price inflation?

A: Clearly the high rate of food price inflation is having a

major impact on consumers’ budgets, although it has started

to decline from its peak of 19% with many analysts expecting

it to fall to around 8-10% by the end of 2023. While the rate

of increase is likely to slow, I expect actual food prices to

continue to rise at least until mid-2024.

Several factors are contributing to this high food price

inflation, mainly significant rises in the cost of food

commodities, increased energy costs and the depreciation

of Sterling, all of which have raised the domestic price of

inputs into the food supply chain and for the most part are

outside the control of operators. Perhaps the most persistent

pressure will be labour costs, which makes up in excess of

20% of the cost of the average basket of groceries if you

take a full supply chain view.

STRATEGIC REPORT | Q&A WITH JUSTIN KING CBE

“ In the next phase of the cycle I think we will

start to see market rents inflating above

passing rents on most existing stores given

the high levels of inflation driving store

turnovers above rental cap levels. In addition,

rising construction costs on developing new

stores are making supermarket store leases

look increasingly good value.”

Justin King CBE Senior Adviser

A conversation with Justin King about the future of the UK grocery sector

ANNUAL REPORT 2023 13

Given the current high yield on offer as a function of higher

rates, it is not surprising to see increased investment interest

in the asset class. Having said that, not all supermarket

property is equal and specialists like the Atrato team are

critical to ensure the right asset selection for the long-term.

Q: Digitalisation of business models and the

opportunities from artificial intelligence are

generating significant headlines. Do you believe

supermarket operators have embraced this and how

do you see its application to the UK grocery market?

A: The digitalisation of the economy has generated

turbulent change across many industries. We saw this first in

the media sector, followed by retail and then moving rapidly

into all other sectors. Digitalisation is an ever-changing

force that many businesses understandably struggle to

keep up with.

However, the idea that incumbent grocers have not

embraced digitalisation is a false one. In fact, the reality is

very different. The incumbent grocers transitioned from

an analogue to digital business model around the early

2000’s following the introduction of Clubcard by Tesco and

Nectar by Sainsbury’s. The data from these loyalty card

systems meant that we could see what people were buying

and, for the first time, who was buying it. This was coupled

with an ability to process that data in close to real time. It is

staggering to think that the Clubcard today is held by over

20 million households in the UK.

These loyalty programmes provide powerful insights for

operators looking to tailor the range, mix and price of

products to meet the needs of the consumer, as well as

an appreciation of how to serve customers better in the

future. Additionally, operators are able to understand the

differences between when customers shop, what they buy

and through which channel. The insights gained from these

systems were key factors behind UK grocers becoming early

adopters of omnichannel strategies. Operators recognised

the value of seamless integration between online and offline

fulfilment, empowering them to become truly blind to

channel. Of course, today, this is fashionably characterised

as big data technology, however it’s been operating for over

20 years in UK grocery.

I’m a firm believer that the potential of this information will

grow, especially when overlaid with the processing power

of artificial intelligence. However, grocery will always

remain a people-facing sector and in the new omnichannel

environment, digital technology will continue to provide a

valuable complementary tool in serving the customer better

through a network of physical stores.

The supermarkets have clearly taken a view that squeezing

net profit margins today is the right thing to do to help

their customers in this current environment. In time that

will of course correct, though not necessarily result in an

increased cost to the customer. Part of that correction will

naturally come from running the business as efficiently

as possible and there will also be some challenging cost

of goods conversations with suppliers who have perhaps

over-inflated. So, in time, I believe we will see profit margins

coming back to a more normal level.

I don’t believe this current cycle of lower net margins will

impact supermarket property values. Supermarket rents

represent a very small proportion of total costs – this is in

significant contrast to other sectors. Short-term changes in

profitability will not affect an operator’s ability to pay rent,

especially on their best sites, demonstrating the resilience

of these large scale, well positioned, supermarkets. In fact,

with the top line inflating and rent increases lagging, rent as

a percentage of sales (which is the key metric for operators)

is actually reducing.

Of course, supermarket property has not been immune

to the outward yield shift experienced across all property

investment markets. However, these declines in values

are reflecting the outward shift in property yields applied

by valuers because of higher interest rates and the overall

macroeconomic environment.

Q: Why have transaction volumes in supermarket

real estate remained high relative to other real

estate sectors, especially against the backdrop of

higher interest rates?

A: It is worth noting that when you examine performance

trends over the last 15 years, the supermarket property

investment market has been less volatile than the broader

UK property market. In fact, the sector has been a stand-

out positive performer in contrast to others, illustrating the

long-term strength and stability of this somewhat unique

asset class.

Investors looking for property assets that offer consistent

income are increasingly targeting the supermarket property

sector. Research from Atrato on property investment

volumes clearly shows that this trend continues with

transaction liquidity in supermarket property investments

remaining high relative to the declines seen in other

property markets.

In the next phase of the cycle, I think we will start to

see market rents inflating above passing rents on most

existing stores given the high levels of inflation driving

store turnovers above rental cap levels. In addition, rising

construction costs on developing new stores are making

supermarket store leases look increasingly good value.

This is one of the drivers of the store buyback activity that

we are seeing from Tesco and Sainsbury’s.

14 SUPERMARKET INCOME REIT PLC

Of course, centralised, online-only distribution units or

warehouses will still have a role to play in providing a

solution to store capacity constraints in metropolitan areas

or as a solution to operators with limited store networks.

However, I think this will be a smaller role than the market

would have previously perceived.

Q: Environmental sustainability is in the spotlight,

given the impact of climate change seen across

multiple countries this year. What role do you think

supermarkets as retailers have to play in this area?

A: Supermarkets have generally been ahead of other

sectors in understanding the full supply chain and

management of farm-to-fork strategies. A key role of the

supermarket is to represent the consumer in the supply

chain and given the heightened consumer concern around

environmental sustainability when shopping for groceries,

supermarket operators are becoming a driving force for a

more sustainable supply chain.

According to a recent report from Cushman & Wakefield,

26% of global green-house gas emissions are attributable

to the food supply chain with around 83% derived from

production

. The supermarket operators are therefore

naturally placed to centralise and coordinate this drive

towards the decarbonisation of the wider food supply chain.

When we launched the 20 by 20 Sustainability Plan at

Sainsbury’s in 2011, we set ambitious goals for a more

sustainable footprint, which today has developed even

further to reduce scope 1 & 2 emissions to Net Zero by

2035 and reduce Scope 3 emissions to Net Zero by 2050.

In fact, Sainsbury’s has now reduced its absolute greenhouse

gas (“GHG”) emissions within its operations to 461,692

tCO

e, a reduction of 38% year-on-year and 51% per cent

from its 2019 baseline, keeping it on course to achieve its

2035 Net Zero target

. It’s also encouraging to see the

grocery industry taking a lead in implementing substantive

governance frameworks around reporting progress against

these vitally important sustainability objectives too.

Many problems however can also be opportunities in

disguise. A route to being transparent on environmental

sustainability provides a platform for the grocers to build

another conversation with the customer, in marketing terms,

around assessing the environmental impact of their basket

of groceries in a way which can differentiate brand and add

value to consumers.

All together, these are important building blocks that are

compounding at an increasing rate. Over time, I believe

we will look back and see grocers as an industry leader in

improving how to measure, report and reduce the carbon

footprint of the food that we consume.

 Cushman & Wakefield, Future of Food Chains, 

 Sainsbury’s Plan for Better Report, / Sustainability Update

Q: Valuations within pure play online and ultra-

convenience platforms such as Ocado and Getir

have declined over the last 24 months. What do you

think is behind that and do you think the market is

less convinced on the potential of online grocery

post the pandemic highs?

A: In the last five years we have seen a dramatic change

in the online grocery landscape, including a step change

in demand. Online accounted for 8% market share in 2018,

a figure which subsequently peaked at 15% in 2021 at the

height of the pandemic, and which is around 12% today.

Online grocery is set to remain the fastest growth channel

proportionately, but still behind the volumes seen in the

physical supermarket and convenience channels.

I think pure play online operators had been considered by

some as a route to overcome the barriers to entry into the

wider £242 billion UK grocery market and an opportunity to

capture much of the online growth in the space. However,

technology in the form of very large, centralised warehouses

with automated picking operations have failed to provide

any substantive cost or flexibility advantage. In fact, a better

understanding of the true economics points to the global

convergence of an omnichannel model with stores acting as

last mile fulfilment centres. Automated picking technology

is increasingly being deployed inside the physical store via

micro-fulfilment solutions as a more productive alternative

to manual store pick.

What the pandemic period has shown is the importance,

flexibility and resilience of the omnichannel store pick

model. This has allowed the incumbents to take a leading

market share in online grocery, with the large multi-channel

grocers now controlling over 80%

of the online market

in the UK. This is in contrast to the market belief that new

technology players would capture that online market. I

have always believed that we should “think customer, not

channel”. In a post-pandemic era, the customer requires

seamless integration between online and offline channels

offered by omnichannel supermarkets.

In addition, rapid grocery delivery platforms such as

Deliveroo and Just-Eat have increasingly been partnering

with supermarkets including Sainsbury’s, Waitrose and

Aldi as a more effective way of addressing the ultra-

convenience grocery market than the dark store model

of Getir and others.

 Kantar grocery update, June 

STRATEGIC REPORT | Q&A WITH JUSTIN KING CBE CONTINUED

ANNUAL REPORT 2023 15

Key achievements

• Sale of 21 properties

for £430.9 million reflecting

a 4.3%

NIY

• Purchasing £399.0 million new properties at a 5.5% NIY

• Reduced EPRA LTV to 35.2%

SRP investment: the Sainsbury’s Reversion Portfolio held in a joint venture arrangement. See Note  for further information

Blended NIY across the  properties

Key figures

• 5.6% portfolio NIY

• Portfolio grown to 55 stores

• 100% occupancy and rent collection since IPO

• £1.7 billion of total investment market volumes

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT

100

110

120

130

Tesco & Sainsbury’s SUPR LN Equity

July 22 October 22 January 23 April 23

July 23

Sahre price (indexed)

The Company’s share price performance vs Tesco & Sainsbury’s (indexed)

Ben Green Principal of Atrato Capital Robert Abraham Managing Director

Fund Management

“ Stores are vital to grocers’

operations. Whether sales

are achieved through

traditional in-store shopping

or online, the store network

and associated supply chain

infrastructure is critical to

generating revenue.”

Atrato is the Company’s Investment Adviser. Ben Green

(Principal) and Robert Abraham (Managing Director, Fund

Management) discuss SUPR’s performance and the long-

term outlook for the business.

Fund Report

Q: In a year of significant macroeconomic

headwinds, how has SUPR fared?

A: Commercial property is a cyclical asset class that

typically underperforms during the interest rate hike phase

of an economic cycle. What has been different during the

current cycle was the pace and magnitude of interest rate

rises which triggered a rapid repricing of the cost of capital

and therefore the yields demanded by commercial property

investors. This property yield repricing was reflected

by valuers quickly and arguably more efficiently than in

previous cycles.

During an economic downturn, the key concern for most

property companies is the ability of their tenants to pay their

rent. This is not a concern for SUPR given the strength of the

underlying tenants and is evidenced by the Company’s 100%

rent collection. The supermarket assets that SUPR owns are

mission critical to its tenants and that essentiality ensures

100% occupancy.

On a relative basis, markets generally expect supermarket

property to be less volatile than broader property markets

given the defensive nature of the underlying grocery sector.

This has again played out during this cycle with SUPR’s

high-quality asset valuation down 13.7% during the year

compared to broader UK commercial property valuations

which are down 19%

 MSCI UK Quarterly Property Index (June  – June )

16 SUPERMARKET INCOME REIT PLC

CAPITAL LIGHT

ONLINE FULFILMENT

STRATEGIC REPORT | INVESTMENT ACTIVITY

Tesco, Bishop’s Cleeve

The standalone Tesco Supermarket was acquired in

August 2022 in an off-market transaction. The 44k sq.ft.

store was constructed in 1998 and is situated on a 4-acre

site within the town centre. At acquisition, the store had

an unexpired lease term of 12 years, subject to annual

RPI linked reviews (0% floor and 5% cap).

Post-acquisition, Tesco introduced a two bay Click &

Collect operation within the car park, which

demonstrates the ease of omnichannel expansion within

strong, pre-existing grocery locations.

Tesco Click & Collect investment post-acquisition

ANNUAL REPORT 2023 17

Q: How has SUPR’s financing strategy changed in

response to these macroeconomic challenges?

A: We and the Board considered it prudent to repay debt

to reduce the Company’s LTV post balance sheet to 34.0%,

utilising the second tranche of the SRP proceeds and taking

a number of actions to manage debt maturities and hedging

post year end. We also extended the term of our debt by

12 months, maintaining a weighted average debt maturity

of over 4 years

, whilst also broadening our banking

group. Further, we conducted a ‘blend and extend’ hedge

restructure, utilising the significant profit on the pre-existing

hedge arrangements to extend the term of the hedges

by 12 months

. As a result of this treasury management

exercise, SUPR’s cost of debt is now fixed at an average

rate of 3.1%.

A testament to the strength of the investment proposition

is SUPR’s continued access to liquidity, despite concerns

in other commercial real estate sectors. During the year

the Company refinanced its term loan with BLB. This was

achieved during the period following the collapse of Silicon

Valley Bank and Credit Suisse, calling into question the

availability for financing for commercial real estate. We also

added Sumitomo Mitsui Banking Corporation (“SMBC”)

as a new relationship bank, highlighting lender appetite

for supermarkets. Fitch also reaffirmed SUPR’s BBB+

investment grade credit rating in February 2023.

The debt maturity profile below, which includes

uncommitted extension options, highlights the spread of

maturities and diverse relationship lenders which support

the Company.

The Company’s debt maturity profile



FY30 FY29 FY28 FY27 FY26 FY25 FY24 FY23

87 97

100

250

300

240

180

120

■

Deka

■

BLB

■

Wells

■

HSBC

■

Unsecured club facilities

■

SMBC

The Company’s debt maturity profile

Debt amount (£m)

SUPR has covenant headroom across its debt facilities

along with over £100 million of undrawn debt capacity.

The Company is well positioned and importantly, retains

additional capital capacity to be acquisitive if compelling

opportunistic investment propositions arise.

 Including post-balance sheet events

 Including uncommitted accordions and indications of appetite

from lenders

SUPR has understandably been impacted by the challenging

equity markets for real estate companies, which whilst

disappointing, does now present an interesting value

proposition for investors. UK grocery sales have experienced

strong growth over the past 12 months, and our key tenants

Tesco and Sainsbury’s have reported strong free cashflow

growth in the period, underlining their positive performance

in the current economic climate. The disconnect between

the recent fortunes of grocery operators compared with

real estate companies is highlighted by the share price

performance of Tesco and Sainsbury’s during the period

compared with that of Real Estate Investment Trusts and

owners of grocery property such as SUPR.

Our key tenants, Tesco and Sainsbury’s, have reported sales

growth of around 10% in their latest figures

. This growth

has been generated on a like-for-like basis given there

has been no net new floor space for large multi-channel

operators. This sales growth is running ahead of contractual

rental increases, meaning that rents are becoming even

more affordable for operators.

Q: What has been the key commercial focus of the

Investment Adviser during the year?

A: Our focus has been on taking a more active approach

to asset management within the portfolio; rotating capital,

strengthening the balance sheet and delivering progress on

our sustainability goals.

A key milestone was the sale of the joint venture interest in

the SRP, our tenant Sainsbury’s purchased 21 supermarkets

held in the joint venture, at a net initial yield of 4.3%, with the

Company receiving proceeds of £430.9 million. This followed

on from the NTA accretive acquisition of the interest of

our original joint venture partner British Airways Pension

Trustees Limited (“BAPTL”) in January for £188.8 million

(excluding acquisition costs), which was fully funded by a

debt facility provided by J.P. Morgan.

We utilised these proceeds to pay down debt reducing EPRA

LTV from 40.2% to 35.2%. The Company’s LTV was further

reduced post balance sheet and currently stands at 34.0%.

The Company has also been opportunistically deploying into

new acquisitions at attractive net initial yields. In total we

have deployed £399 million during the year including two

properties since the year end at an accretive net initial yield

of 5.5%

. This included four omnichannel stores from the

Sainsbury’s Reversion Portfolio. This recycling of capital into

higher-yielding assets that met our strict investment criteria

has helped offset some of the increased financing costs

incurred as a result of higher interest rates.

 Tesco & Sainsbury’s Q trading updates

 Including post-balance sheet events

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED

18 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED

Investment Market

Q: What impact has the high inflation environment

had on the supermarket investment market?

A: Higher interest rates as a policy response to inflation

have driven a rapid repricing of commercial real estate

assets and supermarkets have not been immune. However,

this now means that supermarkets are in our view one of the

most attractive asset classes in commercial real estate.



Total market volume during the year was £1.7 billion.

As shown below, Tesco and Sainsbury’s store buybacks

represent a substantial share of this volume, alongside

which we see purchasers active in two broad strategies.

Supermarket investment volumes FY -



30 June 202330 June 202230 June 202130 June 202030 June 2019

£0.4bn

£0.6bn

£0.3bn

£1.0bn

£0.1bn

£1.7bn

£0.3bn

£0.2bn

£2.1bn

£1.6bn

£1.4bn

£0.9bn

£0.3bn

£0.4bn

£0.5bn

£0.3bn

£1.2bn

£0.6bn

£1.7bn

£1.1bn

£2.5

£2.0

£1.5

£1.0

£0.5

£0.0

■

Other

■

SUPR

■

Tesco buyback

■

Sainsbury’s buyback

Transaction volumes (£bn)

Supermarket investment volumes FY 2019-2023

Firstly, value oriented, levered purchasers are targeting

higher yielding opportunities at c. 7% NIY. These value

players are opportunistically targeting Asda and Morrisons

stores, buying at historically wide yields due to weaker

levered covenants and in some cases weak store trading.

Secondly there are buyers of high-quality supermarkets at

yields of c. 5%, which is more closely aligned with the type

 Property yields sourced from MSCI for the period March  to June 

 Knight Frank, Savills, MSCI, Atrato Capital research. Years ending  June

Q: What has been the impact on SUPR’s portfolio/

valuation?

A: The total net initial yield moved out on the portfolio by

100bps from 4.6% to 5.6% during the year; a fall in valuation

of 14% on a like-for-like basis. This compares to the MSCI

UK All Property Capital Values Index which fell 19% in the

same period, reflecting the high quality of the Company’s

assets and defensive nature of supermarkets. The portfolio’s

inflation-linked rent reviews also provide an element of

natural hedge to the higher inflation and interest rates

environment, partially offsetting the portfolio yield shift.

The decline in property values occurred quickly during

autumn 2022 and the impact on SUPR’s EPRA NTA was

reflected in the Company’s interim results for the period

to 31 December 2022. During the second half of SUPR’s

financial year valuations stabilised and therefore the

reported June 2023 valuations are essentially flat compared

to those reported as at December 2022. This is supported

by good transactional evidence from a particularly liquid

investment market relative to the UK property market

as a whole. The elevated liquidity observed in the UK

supermarket property market is a result of investors being

attracted to the attractive risk/return profile of grocery

assets following the repricing that has taken place.

Recent transactional evidence would imply that peak cycle

yields in supermarket property may well be behind us, and

further, that yields on high-quality omnichannel stores are

actually starting to tighten. However, we remain acutely

aware that a long-term yield tightening trend can only

occur once the market is convinced that UK base rates

have reached the top of this cycle.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2021

2022 2023

Net Initial Yield (%)

All UK property Supermarkets Logistics

3.2%

3.9%

4.7%

6.3%

7.6%

8.4%

5.9%

4.9%

Investment Property Databank (“IPD”) net initial yields 2006-2023 (YTD)

ANNUAL REPORT 2023 19

OMNICHANNEL

HUB

STRATEGIC REPORT | INVESTMENT ACTIVITY

Tesco, Llanelli

This Tesco supermarket was acquired by the Company in

September 2022 in an off-market transaction. The large

format 120k sq.ft. store was built in the late 1980s and was

extended in 2006. Its strategic location provides omnichannel

capacity for Tesco in South Wales, operating ten delivery vans

and a dedicated three bay Click & Collect facility in the car

park. There is only one alternative Tesco store operating

home delivery within a 25 minute drive time radius.

At acquisition, the store had an unexpired lease term of

12 years, subject to annual RPI linked reviews (0% floor

and 5% cap).

The store adds to the Group’s weighting to inflation-linked

leases within the portfolio and emphasises the Company’s

strategy of acquiring strong trading, omnichannel hubs in

geographically diverse locations.

Omnichannel hub with 10 delivery vans

20 SUPERMARKET INCOME REIT PLC

GROWING OUR

PORTFOLIO

STRATEGIC REPORT | INVESTMENT ACTIVITY

Tesco, Worcester

In April 2023, the Company acquired a strong performing

65k sq.ft. Tesco supermarket in Worcester in an off-market

transaction. Tesco has a long trading history at the store,

having operated at the site since the early 1990s which

was subsequently expanded in 2008. The store is an online

hub for Tesco, operating nine delivery vans and a Click &

Collect facility helping to supply the predominantly

residential local catchment. There is only one alternative

Tesco store operating home delivery within a 25 minute

drive time radius.

At acquisition, the store had an unexpired lease term of 12

years, subject to annual RPI linked rent reviews (0% floor

and 4% cap).

The store further increases rental indexation within the

portfolio and increases the Company’s exposure to the

UK’s strongest grocery tenants.

Long trading history

ANNUAL REPORT 2023 21

Portfolio

Q: What makes supermarket property ‘mission

critical’ to the operators?

A: Stores are vital to grocers’ operations. Whether sales

are achieved through traditional in-store shopping or online,

the store network and associated supply chain infrastructure

is critical to generating revenue.

The flexibility of omnichannel stores, such as those in

SUPR’s portfolio, has been clearly demonstrated in the last

few years, as operators are able to reposition resources to

fulfil orders through consumers’ chosen channel. Pure play

operators, whether solely online or physical, are not able to

flex between channels in the same way.

While online market share is significantly higher than

pre-pandemic levels, as expected, it has come off the peak

of 15%, settling at c. 12%. Whilst we expect growth to revert

to the modest long-term trend from here, the ability of the

grocers to rapidly respond to changing consumer habits is

a key barrier to entry to the market.

Tesco’s latest results highlight how valuable large format

stores are for operators. These stores are Tesco’s largest

growth channel with sales up 9.9%. An element of this

growth is a result of cost-conscious consumers seeking

to achieve better value through the lower price point and

greater promotional activity. However, another attraction

is also the broader product range at large format stores,

providing greater opportunity to shop across product

ranges including premium and value options.

Q: Given the majority of SUPR’s assets are

occupied under full repairing and insuring (“FRI”)

leases, what action is being taken to demonstrate

the Company’s commitment to sustainability?

A: At the asset level, at sites which are not fully demised

to the tenants under FRI leases, we are looking to enhance

sustainability wherever possible. That starts with electric

vehicle charging points, which we are targeting for eight

sites so far, while at the time of writing construction has

begun at two sites.

We have also worked with Tesco and Atrato Onsite Energy

(LSE: ROOF) to support the installation of a rooftop solar

array at our Tesco store in Thetford. This solar array

energised in September 2023. We are looking to roll out

solar installations across as many stores as possible in

the portfolio.

Our grocery tenants have formal Net Zero commitments,

resulting in very good engagement with SUPR on

sustainability initiatives as these are beneficial for both

landlord and tenant alike. We are now receiving energy

consumption data from c. 85% of tenants and are looking to

increase this further. We are delighted to have produced our

first annual report which includes voluntary reporting in-line

with the recommendations of the TCFD.

of assets in the SUPR portfolio. These assets are typically

let to the strong covenants of Sainsbury’s and Tesco on long

leases. Buyers are looking to the attractive returns that

can be achieved, with current valuations representing a

significant value opportunity in our view. This is particularly

the case as higher inflation arguably supports higher market

rental growth.

Significant institutional demand for grocery real estate

is particularly evidenced by the success of the recently

announced Asda sale and leaseback, which is reported

to have achieved a £650 million transaction price despite

challenging market conditions.

Q: Should we expect to see more sale and

leaseback (“SLB”) activity by the operators?

A: Not necessarily, as it depends on the operators’ funding

requirements and strategic objectives.

The more highly levered operators, Asda and Morrisons,

have demonstrated appetite for SLBs. This is likely to

continue as an attractive source of finance compared to

the prospective cost of leveraged finance in the current

environment, given peak leverage for Asda of c. 7x and for

Morrisons c. 9x

. Asda is expected to use the £650 million

proceeds of its SLB at a 6.4% NIY to fund part of the cost

of acquiring EG Group. The cost of the SLB compared

favourably to the debt leverage for the acquisition provided

by Apollo which was priced at c. 11%.

It is worth noting that these operators have historically

preferred to own their stores, with only c. 15% of their stores

being leasehold. That gives both significant capacity for SLB

activity while maintaining a proportion of freehold stores in

line with Tesco and Sainsbury’s.

On the other hand, we have seen Tesco and Sainsbury’s

utilising free cashflow generation for store buybacks,

alongside bond repurchases to de-lever their balance

sheets. They have balanced this with returning cash to

shareholders through share buybacks. Since SUPR’s IPO

in 2017, Tesco has increased the proportion of its store

ownership from 52% to 58%

. The most notable recent

example of operator store buybacks was the sale to

Sainsbury’s of SUPR’s interest in the Sainsbury’s Reversion

Portfolio, with the portfolio of 21 stores acquired by

Sainsbury’s valued at over £1 billion.

Operator buybacks and SLBs on long leases highlight

the mission critical nature of supermarket real estate.

Operators seek to own or secure decades of occupation

of their best performing stores, which are also the stores

targeted by SUPR.

 Net Debt/EBITDA

 Tesco Annual Reports  and , % of net selling space owned

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED

22 SUPERMARKET INCOME REIT PLC

to turnover (“RTO”) is 3.8%

compared to a sector

benchmark RTO of 4.0%. We have high security of income

with 100% rent collection during the year.

The Company’s assets are predominantly let to the leading

UK grocery tenants with Tesco and Sainsbury’s accounting

for 77% of the Company’s rent roll.

As part of the Company’s investment strategy to acquire

high-quality, strong trading supermarkets, it is sometimes

necessary to acquire complementary non-grocery units

that are co-located with the store. These units often form

a retail destination helping to drive further footfall into the

supermarket. Non-grocery assets represent 6.2% of the

Direct Portfolio by value.

The Company disposed of its joint venture interest in the SRP

for a combined total of £430.9

million. The consideration

was based on a blended net initial yield of 4.3% for the

underlying stores. There is further information on the SRP

investment on page 23.

During the year, the Company selectively strengthened its

Direct Portfolio with the addition of nine supermarkets for a

combined total of £362.6 million

at 11 different locations,

including a further two after the year end.

July 2022: A Tesco superstore and M&S Foodhall in

Chineham, Basingstoke, including non-grocery units

for £71.9 million

. The Tesco superstore had a 12-year

unexpired lease term and is subject to 5-yearly, upwards

only open market rent reviews.

August 2022: A Sainsbury’s supermarket and M&S Foodhall

in Glasgow with non-grocery units for £34.5 million

The unexpired lease terms of the two stores were 10 and

15 years respectively and both are subject to 5-yearly

upwards only, open market rent reviews.

August 2022: A Tesco supermarket in Newton-le-Willows,

Merseyside, for £16.6 million

. The store had a 12-year

unexpired lease term and is subject to annual, upwards

only RPI-linked rent reviews.

August 2022: A Tesco in Bishops Cleeve, Cheltenham, for

£25.4 million

. The store had a 12-year unexpired lease

term and is subject to annual, upwards only RPI-linked

rent reviews.

September 2022: A Tesco supermarket in Llanelli, South

Wales, for £66.8 million

. The store had a 12-year unexpired

lease term and is subject to annual, upwards only RPI-linked

rent reviews.

September 2022: A Tesco supermarket, Iceland Food

Warehouse and complementary non-grocery units in

Bradley Stoke, Bristol, for £84.0 million

. The Tesco store

had a 14-year unexpired lease term and is subject to annual,

upwards only RPI-linked rent reviews.

 Turnover: Atrato research based on communication with operators and

store managers, combined with demographic and local competitor

analysis. Store turnover has been inflated based on the time since

last store visit

 Gross consideration, excluding costs

 Excluding acquisition costs

A benefit of the supermarket operator sustainability

commitments coupled with long-dated, FRI leases is that

tenants therefore invest in modernising and decarbonising

stores within our portfolio at their own expense.

In all new leases we do our utmost to negotiate ‘green’

lease provisions, which permit the Company to access

greater sustainability data from tenants, further aligning

the interests of SUPR and its tenants.

Outlook

Q: What will be the key areas of focus for the fund

in FY 2024?

A: Strategically we have positioned the Company to

have a very robust balance sheet thus protecting it from

any further macroeconomic surprises, whilst maintaining

sufficient capital capacity to enable the Company to invest

opportunistically into compelling investment opportunities

that may arise as a result of the challenging broader

market backdrop.

In the near term we will continue to actively manage the

portfolio, seeking to generate value for shareholders.

We have progressed plans to develop complementary retail

units at a number of our larger sites

. We are negotiating

terms to develop discount food stores of c. 20,000 sq.ft.

alongside our strong performing existing supermarkets.

Such development can drive additional footfall, making

a more appealing grocery destination to consumers and

increasing total grocery spend at the site.

Whilst we invest in stores with a long-term hold objective,

the Company regularly receives approaches on individual

assets from potential buyers. As demonstrated by the sale

of the SRP during the year, there may be an opportunity

to selectively dispose of assets. Proceeds can then

be reinvested opportunistically in the current market

environment, which can be value accretive whilst fully

utilising our sector specialism.

THE COMPANY’S PORTFOLIO

The Company has built a handpicked portfolio of strong

trading, ‘mission critical’ omnichannel supermarkets backed

by the UK’s leading grocery operators.

A key pillar of the Company’s investment policy is to acquire

omnichannel supermarkets that form a key part of the UK

grocery network. These stores offer both an online provision

and in-store shopping, helping to capture a greater share of

the UK grocery market. Currently 93% of our supermarket

assets are omnichannel, by value.

The leases on our stores benefit from long, unexpired

lease terms with predominately upwards only, index linked

rent reviews, helping to provide long-term income with

contractual rental growth. The portfolio benefits from

affordable rents. Our Direct Portfolio average rent

 Stores include Sainsbury’s – Newcastle, Tesco – Chineham, Tesco –

Bradley Stoke and Sainsbury’s – Bangor

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED

ANNUAL REPORT 2023 23

SECTOR

SPECIALISM

STRATEGIC REPORT | INVESTMENT ACTIVITY

Sainsbury’s Reversion Portfolio

Between May 2020 and January 2023, the Company built a c. 51%

stake in the Sainsbury’s Reversion Portfolio firstly through a joint

venture with British Airways Pension Trustees Limited (“BAPTL”)

and then through buying out BAPTL’s stake. The SRP consisted of

the freehold interest in 26 geographically diverse high-quality

Sainsbury’s supermarkets, with a London and southeast location

bias. In September 2021 and January 2022, Sainsbury’s exercised

options to acquire 21 stores in the SRP (the “Option Stores”) and

agreed 15-year leases on four stores (the “Non-Option Stores”),

illustrating the strategic importance of physical real estate to the

grocery operators and the strength of the underlying SRP.

Upon the sale of its interest in the SRP to Sainsbury’s in March

2023, the Company generated £430.9 million of gross proceeds,

resulting in an IRR of 30% and money multiple of 1.9x. The

transaction highlights the Company’s ability to identify strong

trading supermarket assets and the value creation from

underwriting a grocer’s ongoing occupation. For more information

please see note 14 of the Financial Statements.

Creating shareholder value

- 30% IRR

- 1.9x money-on-money multiple

24 SUPERMARKET INCOME REIT PLC

upwards only, inflation-linked rent reviews is 78% with

54% reviewing annually (including post balance sheet

acquisitions).

Indexation

Income mix by

rent review type

RPI .%

CPI .%

Fixed .%

OMV .%

Total .%

*Including post balance sheet events

WAULT

Supermarket WAULT

breakdown

- years .%

- years .%

- years .%

- years .%

+ years .%

Total 100.0%

*Including post balance sheet events

The environmental efficiency of our stores continues to be a

key priority through asset management initiatives, selective

acquisitions and is supported by the ongoing investment by

grocery tenants into respective store estates. A breakdown

of supermarket EPC ratings can be seen below:

Supermarket EPC breakdown

EPC rating

% of

supermarket

Portfolio

A .%

B .%

C .%

D .%

Total .%

*Including post balance sheet events

Sainsbury’s Reversion Portfolio

Between May 2020 and January 2023, the Company built a

c. 51% stake in the Sainsbury’s Reversion Portfolio firstly

through a joint venture with BAPTL and then through buying

out BAPTL’s stake. The SRP consisted of the freehold interest

in 26 geographically diverse high-quality Sainsbury’s

supermarkets, with a London and southeast location bias.

Sainsbury’s occupied the stores in the SRP under leases due

to expire during 2023. The investment case for acquiring the

stakes in the SRP was based on the Company’s conviction

that Sainsbury’s would remain in occupation of a large

majority of the stores.

April 2023: A Tesco in Worcester, for £38.3 million

The store had a 12-year unexpired lease term and is

subject to annual, upwards only RPI-linked rent reviews.

May 2023: A Sainsbury’s in Kettering, for £12.0 million

The store has a 10-year unexpired lease term and is subject

to 5-yearly upwards only, open market rent reviews.

May 2023: A Sainsbury’s in Denton, for £13.2 million

The store has a 10-year unexpired lease term and is subject

to 5-yearly upwards only, open market rent reviews.

Post balance sheet, following the receipt of the second

tranche of SRP disposal proceeds the Company announced

that it had acquired a further two supermarkets from

Sainsbury’s that were previously held within the SRP for

a purchase price of £36.4 million

July 2023: A Sainsbury’s in Gloucester, for £17.4 million

The store has a 10-year unexpired lease term and is subject

to 5-yearly upwards only, open market rent reviews.

July 2023: A Sainsbury’s in Derby, for £19.0 million

The store has a 10-year unexpired lease term and is subject

to 5-yearly upwards only, open market rent reviews.

Acquisitions during the year were financed using proceeds

received from the unwind of the SRP, existing headroom

within unsecured debt facilities and the proceeds from the

equity raise in April 2022. For more information on financing

arrangements refer to note 20 of the financial statements.

A table summarising the properties in the Direct Portfolio

can be found in the Portfolio section on the Group’s website:

www.supermarketincomereit.com

Tenant exposure:

Tenant

Exposure by

rent roll

Exposure by

Valuation

Tesco .% .%

Sainsbury’s .% .%

Morrisons .% .%

Waitrose .% .%

Asda .% .%

Aldi .% .%

M&S .% .%

Non-food .% .%

Total 100.0% 100.0%

*Including post balance sheet events

The strength of the Direct Portfolio is underpinned by

long-term, secure income with a weighted average

unexpired lease term of 13 years

. In addition, our portfolio

is heavily weighted towards upwards only inflation-linked

rent reviews which provide protection in the current

inflationary environment and help to reduce the impact of

rising debt costs. The Direct Portfolio’s weighting towards

 Excluding costs

 As at  September 

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED

ANNUAL REPORT 2023 25

This proved to be correct with Sainsbury’s exercising options

to acquire 21 stores within the SRP (the Option Stores) for

£1,040 million from the SRP and entering into new 15-year

leases on four of the five remaining stores within the SRP

(the Non-Option Stores).

In January 2023, the Company acquired BAPTL’s interest

in the SRP for £188.8 million (excluding acquisition costs).

This acquisition was wholly funded by a receivables loan

from J.P. Morgan secured against the Company’s share of

proceeds from the sale of the 21 Option Stores.

In March 2023, the Company sold its 51.0% beneficial

interest in the SRP to Sainsbury’s for a gross consideration

of £430.9 million (excluding costs) payable in tranches.

The first tranche of £279.3 million was received on 17 March

2023 and the second of £116.9 million on 10 July 2023.

The Company received the third tranche when it acquired

the four Non-Option Stores for a total consideration of

£61.6 million. The remaining store will be sold at vacant

possession value and the Company will receive 51.0% of

the net proceeds, which are expected to be approximately

£1.5 million.

The net proceeds from the sale of the Company’s interest in

the SRP have been used to reduce the Company’s existing

debt facilities, providing the Company with balance sheet

flexibility and the ability to take advantage of opportunistic

value add transactions.

Portfolio valuation

Cushman & Wakefield valued the Direct Portfolio as at

30 June 2023, in accordance with the RICS Valuation –

Global Standards which incorporate the International

Valuation Standards and the RICS UK Valuation Standards

edition current at the valuation date.

The properties were valued individually without any

premium/discount applying to the Direct Portfolio as a

whole. The Direct Portfolio market value was £1,685.7

million, an increase of £124.1 million reflecting a valuation

decline of £253.2 million offset by new acquisitions of

£377.3 million. This valuation reflects a net initial yield of

5.6% and a like-for-like valuation decline of 13.7% since

30 June 2022. The benchmark MSCI All Property Capital

Index during the same period was down 19%.

The decline in valuation reflects the outward shift in property

yields applied by valuers across the real estate sector as

a result of higher interest rates and the macroeconomic

environment. This was largely recognised in the first half

of the year, with a like-for-like valuation decline of 13.4%

reported in the Company’s valuation as at 31 December

2022. Valuations remained broadly flat in the second half

of the year.

The valuation decline in the year has however been partially

mitigated by our contractual inflation-linked rental uplifts.

The average annualised increase in rent from rent reviews

performed during the year was 4.1%. 80% of the Company’s

leases benefit from contractual rental uplifts, with 78%

linked to inflation and 2% with fixed uplifts.

26 SUPERMARKET INCOME REIT PLC

This long-term growth has been driving record flows of

investment into the sector from a broad range of institutional

investors, including the £14 billion of net investment from

the sale of Asda in 2021 and Morrisons in 2022. This year

there has also been £1.7 billion

of capital investment into

the supermarket property sector from investors looking for

assets that offer consistent returns, underpinned by solid

corporate covenants and low rent to turnover ratios.

The outlook for the sector remains positive, with structural

long-term growth drivers, which in turn support property

rental growth over the medium to long-term.

Q: What operators have been capturing this growth

and who are the largest operators in the

UK grocery market?

A: Six major supermarket operators fulfil over 83% of UK

grocery demand with the majority fulfilled via a combined

network of over 4,500 stores across the UK.

Symbols & Independent

Ocado

Other outlets

Iceland

Waitrose

Co-op

Lidl

Morrisons

Aldi

Asda

Sainsbury's

Tesco

27.0%

14.8%

13.7%

10.2%

8.7%

7.7%

6.1%

4.4%

2.3%

1.9%

1.7%

1.5%

Kantar Worldpanel June 2023 – UK grocery market share by operator

Tesco, Sainsbury’s, Asda and Morrisons are the larger

multi-channel grocers who boast a combined market share

of approximately 65%. Each of these businesses has multi-

billion-pound revenues, an established consumer brand and

core supermarket locations across the UK. These operators

play an integral role in the UK market, successfully operating

a strategy of price and assortment management through

a multi-channel brand focused strategy. Their combined

market share is largely unchanged since 2019, meeting

demand of the enlarged market through their existing

 Knight Frank, Savills, MSCI and Atrato Capital research.

Year ending  June 

THE UK GROCERY MARKET

Atrato Capital Limited is the Investment Adviser to the

Company. Steven Noble (Chief Investment Officer of Atrato

Capital) discusses the UK grocery market and the outlook for

real estate investment in the sector.

Q: How has the grocery sector performed over

the last few years given the turbulent market

macroeconomic backdrop?

A: The grocery market has demonstrated its defensive

characteristics yet again over the last few years. Total UK

grocery market sales are up 11% in the year, with the

total UK grocery market now expected to generate over

£240 billion in annual sales in 2023

In fact, since IPO, the grocery market will have increased by

over £50 billion from £185 billion in 2017 to an estimated

£242 billion in 2023 representing a compound growth rate

of 5% which exceeds both CPIH inflation and GDP growth

over the same period.

100

150

200

250

300

350

20282027202620252024202320222021202020192018

189

8.5%

11.3%

192

208

210

217

242

250

257

265

276

286

2.3%

1.3%

0.6%

3.7%

3.2%

2.8%

3.3%

4.3%

3.6%

Year-on-year change (%)

Grocery market size (£bn)

IGD UK Grocery Market Value 2018 – 2028 (forecast)

Market value – actual (£bn) Market value – forecast (£bn) YOY% Change

Grocery is non-discretionary expenditure which accounts

for 14%

of household spending. The change in consumer

behaviour towards a greater proportion of time spent

working from home and the increased market penetration

of online grocery has resulted in a long-term structural shift

in grocery demand. This has been achieved against a very

turbulent five-year period for the wider UK economy which

includes Covid lockdowns, supply disruptions, the Ukraine

war, inflation and a sharp increase in interest rates.

 IGD UK grocery market retail forecast -

 Office for National Statistics 

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED

“ The defensive characteristics displayed

by supermarket property coupled with

ongoing demand for long-term secure

income is expected to continue to generate

strong investor demand in this asset class

for the foreseeable future.”

Steven Noble Chief Investment Officer

ANNUAL REPORT 2023 27

network of stores and deep-rooted “farm to fork” supply

chains which provide a significant barrier to entry to the

UK market.

We are seeing some short-term pressure on margins, as the

grocers seek to shield consumers from price rises. However,

these well-established multi-channel operators have been

generating consistent profitability and free cashflows with

net profit margins that typically averaged around 4% over

the long-term.

The second largest group of operators is the lower-price

grocery operators (“Discounters”) such as Aldi and Lidl.

They have grown through ambitious new store opening

programmes which have captured a combined market share

of 18%. However recent significant increases in construction

costs are expected to result in a decline in the number of

new stores in the coming years. The Discounters’ lower

cost, low-margin business model requires simplicity and

standardisation of range which is attractive to price sensitive

customers.

This discount market remains highly competitive and

the sector typically operates a lower net profit margins

of between 1% to 2%. These fine margins mean that the

Discounters are inflating prices quicker than other operators,

having peaked at 26% compared to 15% for Tesco and

Sainsbury’s

. Therefore, we see an element of market share

gain coming simply through higher prices.

Q: What changes have you seen in the various

grocery formats over the last 5 years?

A: As illustrated below, over the last five years the

supermarket channel has remained the dominant sales

channel in the UK grocery market, while online grocery

has been the fastest growing, despite paring back from

pandemic peaks over the last year.

100

125

123

105

ConvenienceSupermarkets Discount Online Other retailers

2019

Sales (£bn)

2024

Institute of Grocery Distribution (“IGD”) UK Grocery Channel forecasts

In the last 5 years we have seen a dramatic change in the

online grocery channel. In 2018 online accounted for 8% of

market share. The channel’s market share rapidly increased,

peaking at 15% in 2021 at the height of the pandemic and

it has since fallen to around 12% today. Online grocery is,

however, set to remain one of the fastest growth channels in

the grocery sector according to IGD’s forecasts.

 Which? supermarket food price inflation tracker //

The larger multi-channel operators have responded rapidly

and effectively to capture this growth, increasing home

delivery and Click & Collect capacity from a network of

stores acting as last mile fulfilment centres. This agility has

pioneered the new omnichannel store model that combines

the largest channel with the fastest growing.

Larger supermarkets with in-store pick capacity have been

well positioned to fulfil this growth with over 80%

of online

grocery sales estimated to now be fulfilled from these

omnichannel stores. At the extreme, our research has shown

that the turnover of some individual omnichannel grocery

stores is now 50% online and 50% physical shopping, and a

25%:75% split is not uncommon.

The UK’s large multi-channel grocers pioneered the

development of the omnichannel business model towards

which we are seeing a global convergence. The seamless

integration between online and offline is a very significant

development within the grocery industry empowering the

operator to be truly blind to channel. Future grocery strategy

can therefore be focussed purely on the customer and be

agnostic to where the sale takes place – in-store, or online

via delivery or Click & Collect.

Our investment strategy is aligned with this future model of

grocery. A key pillar of the Company’s strategy is investing

in omnichannel supermarkets to capitalise on the long-term

structural trend towards growing omnichannel operations.

We believe that our high-quality portfolio of omnichannel

supermarket properties will deliver sustainable income and

capital growth over the long-term.

Q: What is a typical supermarket lease structure?

A: Supermarket lease agreements are often long-dated

and inflation-linked. Original lease tenures range from 15 to

30 years without break options. Rent reviews often link the

growth in rents to an inflation index such as RPI, RPIX or CPI

(with typically 4% caps and 0% floors), or, alternatively, may

have fixed annual growth rates or open market rent reviews.

An open market review means that the rent is adjusted

(usually upwards only) to reflect the rent the landlord could

achieve on a letting in the open market. Such rent reviews

take place either annually or every five years, with the rent

review delivering an increase in the rent at the growth rate,

compounded over the period.

Landlords usually benefit from “full repairing and insuring

leases”. These are lease agreements whereby the tenant

is obligated to pay all taxes, building insurance, other

outgoings and repair and maintenance costs of the property,

in addition to the rent and service charge.

Operators often have the option to acquire the leased

property at the lease maturity date at market value.

Furthermore, to ensure that the operator does not transfer

its lease obligation to other parties, assignment of the lease

by the tenant is restricted.

 Atrato research

28 SUPERMARKET INCOME REIT PLC

Q: How has supply and demand for supermarket

property performed?

A: The supermarket sector is a highly attractive asset class

within real estate investment. The financial performance

by the UK’s major grocery operators against a backdrop

of growing UK grocery market and inflation has attracted

increasing numbers of domestic and international

institutional investors to invest in UK supermarket property.

Supermarkets have been less volatile than the broader UK

property market when you examine investment performance

trends over the last 15 years, illustrating the long-term

strength and stability of this asset class, and underlining its

ability to provide highly attractive and resilient income.

The significant level of grocery market growth and current

high levels of inflation have driven the increase in store

turnovers materially above rental caps making supermarket

store leases look increasingly good value.

In addition, the combination of yields offered by supermarket

properties and the rental review structures from which our

market benefits mean they offer highly attractive long-term

returns. As such, it is not surprising to see over £1.7 billion

level of investment in this asset class over the 12-month

period ending 30 June 2023.

There has been some supply of new grocery investment

property opportunities due to the growth in the store

network of the Discounters and the recent sale and

leaseback activity from Asda and Morrisons, however, the

buyback of supermarket property by Tesco and Sainsbury’s

over the last five years has resulted in a net overall

contraction of leasehold supply. We believe this will be

favourable to long-term yield compression in our sector.

The defensive characteristics displayed by supermarket

property coupled with ongoing demand for long-term secure

income is expected to continue to generate strong investor

demand in this asset class for the foreseeable future.

STRATEGIC REPORT | INVESTMENT ADVISER’S REPORT CONTINUED

ANNUAL REPORT 2023 29

STRATEGIC REPORT | KEY PERFORMANCE INDICATORS

Our objective is to provide secure, inflation-linked, long income from grocery property in the UK. Set out below are the key

performance indicators we use to track our progress.

KPI Definition Performance

1. Total

Shareholder

Return

Total shareholder return (“TSR”) is one of the Group’s

principal measures of performance.

TSR is measured by reference to the growth in the

Company’s share price over a period, plus dividends

declared for that period.

(34%) for the year to 30 June 2023

(31 December 2022: (11.7%), 30

June 2022: 7%)

2. WAULT

WAULT measures the average unexpired lease term

of the Direct Portfolio, weighted by the Direct Portfolio

valuations.

14 years WAULT as at

30 June 2023 (31 December 2022:

14 years, 30 June 2022: 15 years)

3. EPRA NTA per

The value of our assets (based on an independent

valuation) less the book value of our liabilities,

attributable to shareholders and calculated in

accordance with EPRA guidelines. EPRA provides three

recommended measures of NAV, of which the Group

deems EPRA NTA as the most meaningful measure. See

Note 26 for more information.

93 pence per share as at 30 June

2023 (31 December 2022: 92p, 30

June 2022: 115p)

4. Net Loan to

Value

The proportion of our investment property portfolio gross

asset value that is funded by borrowings calculated as

balance sheet borrowings less cash balances divided by

total investment properties valuation.

37% as at 30 June 2023 (31

December 2022: 40%, 30 June

2022: 19%)

5. Adjusted EPS*

EPRA earnings adjusted for company specific items to

reflect the underlying profitability of the business.

5.8 pence per share for the year

ended 30 June 2023 (31 December

2022: 2.9p, 30 June 2022: 5.9p)

*New measure reported during the period, with prior year comparative stated in line with new methodology

  December  figures are extracted from the Group’s Interim Report for the six months ended  December 

Adjusted earnings

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 Directors have identified certain measures that they believe will assist

the understanding of the performance of the business. The measures

are not defined under IFRS and they may not be directly comparable

with other companies’ adjusted measures. The non-GAAP measures are

not intended to be a substitute for, or superior to, any IFRS measures of

performance, but they have been included as the Directors consider them

to be important comparable and key measures used within the business

for assessing performance. The key non-GAAP measures identified by the

Group have been defined in the supplementary information and, where

appropriate, reconciliation to the nearest IFRS measure has been given

The 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.

Adjusted EPS reflects the adjusted earnings defined above

attributable to each shareholder.

The Group uses alternative performance measures, as disclosed

above and including the EPRA Best Practice Recommendations

(“BPR”) to supplement its IFRS measures as the Board

considers that these measures give users of the Annual

Report and financial statements the best understanding of the

underlying performance of the Group’s property portfolio.

The EPRA measures are widely recognised and used by

public real estate companies and investors and seek to

improve transparency, comparability and relevance of

published results in the sector.

The key EPRA performance measures used by the Group

are disclosed on the following page.

Reconciliations between EPRA measures and the IFRS

financial statements can be found in Notes 10 and 27 to the

financial statements.

30 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | EPRA PERFORMANCE INDICATORS

The table below shows additional performance measures, calculated in accordance with the Best Practices Recommendations

of the European Public Real Estate Association (EPRA). We provide these measures to aid comparison with other European

real estate businesses.

For a full reconciliation of all EPRA performance indicators, please see the Notes to EPRA measures within the

supplementary section of the annual report.

Measure Definition Performance

1. EPRA EPS

A measure of EPS designed by EPRA to present

underlying earnings from core operating activities.

4.6 pence per share for the

year ended 30 June 2023

(31 December 2022: 2.6p,

30 June 2022: 5.9p)

2. EPRA Net

Reinstatement Value

(NRV) per share

An EPRA NAV per share metric which assumes that

entities never sell assets and aims to represent the

value required to rebuild the entity.

103 pence per share as at

30 June 2023 (31 December

2022: 102p, June 2022: 124p)

3. EPRA Net Tangible

Assets (NTA) per

An EPRA NAV per share metric which assumes

entities buy and sell assets, thereby crystallising

certain levels of unavoidable deferred tax.

93 pence per share as at

30 June 2023 (31 December

2022: 92p, 30 June 2022: 115p)

4. EPRA Net Disposal

Value (NDV) per

An EPRA NAV per share metric which represents the

shareholders’ value under a disposal scenario, where

deferred tax, financial instruments and certain other

adjustments are calculated to the full extent of their

liability, net of any resulting tax.

98 pence per share as

at 30 June 2023 (31 December

2022: 97p, 30 June 2022: 116p)

5. EPRA Net Initial

Yield (NIY) & EPRA

“Topped-Up” Net

Initial Yield

Annualised rental income based on the cash rents

passing at the balance sheet date, less non-

recoverable property operating expenses, divided by

the market value of the property, increased with

(estimated) purchasers’ costs. The “topped-up” yield is

the same as the standard measure as we do not have

material adjustments for any rent-free periods or other

lease incentives.

5.5% as at 30 June 2023 (31

December 2022: 5.3%, 30 June

2022: 4.6%)

6. EPRA Vacancy Rate

Estimated Market Rental Value (ERV) of vacant space

divided by ERV of the whole portfolio.

0.4% as at 30 June 2023

(31 December 2022: 0.5%,

30 June 2022: 0.2%)

7. EPRA Cost Ratio

(Including direct

vacancy costs)

Administrative & operating costs (including costs of

direct vacancy) divided by gross rental income.

15.5% for the year ended 30

June 2023 (31 December 2022:

16.7%, 30 June 2022: 16.5%)

8. EPRA Cost Ratio

(Excluding direct

vacancy costs)

Administrative & operating costs (excluding costs of

direct vacancy) divided by gross rental income.

15.2% for the year ended 30

June 2023 (31 December 2022:

16.5%, 30 June 2022: 16.4%)

9. EPRA LTV

Net debt divided by total property portfolio and other

eligible assets.

35.2% as at 30 June 2023

(31 December 2022: 40.2%,

30 June 2022: 22.2%)

10. EPRA Like-for-like

rental

growth*

Changes in net rental income for those properties

held for the duration of both the current and

comparative reporting period.

Rental increase of 2.7% for the

year ended 30 June 2023

11. EPRA Capital

Expenditure*

Amounts spent for the purchase of investment

properties (including any capitalised transaction costs).

There has been no other capital expenditure incurred in

relation to the investment property portfolio.

£377.3 million for the year

ended 30 June 2023 (31

December 2022: £310.2 million,

30 June 2022: £388.7 million)

*New measure reported during the year, with prior year comparative stated in line with new methodology

  December  figures are extracted from the Group’s Interim Report for the six months ended  December 

ANNUAL REPORT 2023 31

STRATEGIC REPORT | FINANCIAL OVERVIEW

FINANCIAL OVERVIEW

Atrato Capital Limited, the Investment Adviser to the Group,

is pleased to report the financial results of the Group for the

12 months ended 30 June 2023.

IFRS net rental income for the year to 30 June 2023

increased by 32% to £95.2 million, up from £72.1 million in

the prior year. Contracted inflation rent reviews in the year

resulted in average passing rent increases in the Portfolio

of 4.1% compared to 3.7% in the prior year, with the

majority of reviews hitting their maximum rental caps. The

like-for-like rental growth for properties held for a full year

was 2.7%. A further £15.2 million of rental income was also

recognised from new acquisitions during the year, which

were purchased at an average NIY of 5.4%.

Administrative and other expenses, including management

and advisory fees and other costs of running the Group,

were £15.4 million (30 June 2022: £13.9 million) generating

an EPRA cost ratio (including direct vacancy costs) for the

year of 15.5% (30 June 2022: 16.5%).

Net financing costs for the year were £24.7 million

(30 June 2022: £13.0 million). The increase in net financing

costs reflects higher leverage in the period, with the

weighted average debt for the year being £672.3 million

(30 June 2022: £491.4 million). The Company fixed 100%

of its drawn debt during the year which provided security

during a time of significant interest rate volatility (see

financing and hedging section below). Subsequent to the

year end, the Company completed a debt refinancing

exercise, maintaining its weighted average maturity of debt

to just over four years

. At the same time the Company

extended the term of its hedging by 12 months, fixing 100%

of the Company’s drawn debt at a weighted average cost of

debt of 3.1%.

 Including uncommitted extension options

Net financing costs reflect a one-off non-recurring finance

charge of £1.5 million, resulting from the acceleration of

unamortised arrangement fees as a result of the Company

restructuring 50% of its debt from a secured to an unsecured

debt structure. Financing costs were further impacted by

the upfront amount payable to J.P. Morgan in respect of

the short-term facility taken out in January 2023 to fund

the Group’s purchase of BAPTL’s 50% interest in the

Joint Venture.

The Group’s operating profit, before changes in fair value

of investment properties and share of income from the joint

venture, as reported under IFRS, increased by 37.2% to

£79.8 million (30 June 2022: £58.2 million).

The net decrease in fair value of the Direct Portfolio

investment properties in the year was £256.1 million

(30 June 2022: £21.8 million increase), which comprised

of a £253.2 million valuation reduction in addition to

£2.9 million of rent smoothing, lease incentive and rental

guarantee adjustments. As noted above, the decline in

valuation reflects the outward shift in property valuation

yields due to rising interest rates and the macroeconomic

environment. As at 30 June 2023, the Group’s EPRA NTA

per share was 93 pence (31 December 2022: 92 pence,

30 June 2022: 115 pence).

In January 2023, the Group increased its interest in the

joint venture relating to the SRP, with the acquisition of

an additional 25% stake for £188.8 million (excluding

transaction costs). This was fully funded by a short-term

loan from J.P. Morgan, which was repaid in full on receipt

of the first tranche of proceeds received in March 2023

(see financing and hedging section below).

The Company subsequently sold its stake in the SRP to

Sainsbury’s in March 2023. The share of income from

the joint venture prior to disposal was £23.2 million

(30 June 2022: £43.3 million). However, the share of

income (excluding fair value movements) in the year

was £11.7 million (30 June 2022: £12.2 million).

“ The Company has taken prudent

steps to further strengthen the

balance sheet, by paying down

debt as well as extending the term

of its facilities with both new and

existing lenders.”

Haffiz Kala Finance Director

Key achievements

• Restructuring the balance sheet, transitioning the

Company from a secured to an unsecured debt structure

• Fixed 100% of drawn debt at a weighted average

cost of 3.1%

• Extending and broadening its banking relationships

Key figures

• 30% increase in annualised passing rent to £100.6 million

• Average passing rent increases of 4.1%

• 37% increase in operating profit to £79.8 million

• Delivered FY 2023 dividend of 6p

32 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | FINANCIAL OVERVIEW CONTINUED

During the year, the Group made the decision to fix 100%

of its floating rate debt exposure. This was achieved

by entering into three interest rate swaps. This hedged

£381.0 million of drawn floating unsecured debt for

a weighted average term of four years. The cost of acquiring

the hedges was £35.5 million.

The Group also purchased an interest rate cap to fix the

variable rate of interest on £96.5 million of its Revolving

Credit Facility with HSBC until August 2024 for £6.0 million.

In March 2023, in line with the refinanced Bayerische

Landesbank loan facilities, the Group settled early its

existing in-the-money hedges for this facility for a profit

of £2.9 million. The proceeds were used to enter into

new interest rate swaps that matched the terms of the

new refinanced loan facility of £86.9 million maturing

in May 2026. The cost of acquiring the new hedges was

£2.8 million.

The interest rate derivatives entered into during the year

had a weighted average fixed rate on the associated debt of

3.1% (including margin). The cost of acquiring these interest

rate derivatives was £44.3 million and were valued at year

end at £54.3 million. The effect on the income statement

for the new derivatives for the period are a profit on fair

value of the derivatives of £10.0 million and finance income

received from the quarterly settlement of the derivatives of

£9.7 million.

Post year end, the Group used the value of its existing

in-the-money interest rate hedges to extend the term of its

hedging arrangements by 12 months at no additional cost

to the Company. 100% of the Company’s drawn debt is

now either fixed rate or hedged to a fixed rate, representing

a weighted average all-in cost of debt of 3.1%.

Following the sale of the Company’s interest in the SRP, the

Group generated gross proceeds of £430.9 million, resulting

in a profit on disposal of £19.9 million. The proceeds

were structured in three tranches, where a receivable of

£136.4 million was recognised as at 30 June 2023.

The first tranche of £279.3 million was received on

17 March 2023 and the second tranche of £116.9 million

was received on 10 July 2023. The timing of the third

tranche of £34.7 million was conditional on the sale of the

remaining five stores in the SRP.

Four of the five stores were purchased by the Group

for £61.6 million in March 2023 and July 2023, utilising

£33.3 million of the outstanding receivable.

The Group is a qualifying UK Real Estate Investment

Trust (“REIT”) which exempts the Group’s property rental

business from UK Corporation Tax

Financing and hedging

During the year, the Group extended and broadened its

banking relationships as follows:

• In July 2022, the Group secured a new £412.1 million

unsecured credit facility with a bank syndicate comprising

Barclays, Royal Bank of Canada, Wells Fargo and Royal

Bank of Scotland International. This was priced at 1.5%

above SONIA with a weighted average term of six years

(inclusive of uncommitted extension options).

• In September 2022, the Group agreed a further two-year

extension (inclusive of a one-year accordion option at

the lender’s discretion) of its £150.0 million Revolving

Credit Facility with HSBC. All other terms of the facility

remained unchanged.

• In January 2023, the Group secured a new £202.8 million

secured debt facility provided by J.P. Morgan. The Facility

had an interest rate of 5.3% and was fully repaid in

March 2023 following receipt of £279.3 million in

respect of the first tranche of proceeds from the sale

of the Group’s interest in the SRP to Sainsbury’s.

• In March 2023, the Group refinanced its existing loan

facilities with Bayerische Landesbank, with a new

three-year £86.9 million term loan fixed at an all-in

rate of 4.29%.

• Post year end, the Group completed a comprehensive

debt refinancing exercise securing a new £67.0 million

facility with Sumitomo Mitsui Banking Corporation

(“SMBC”) priced at 1.4% above SONIA, whilst reducing

its HSBC facility from £150.0 million to £50.0 million

and cancelling its Barclays/RBC facility of £77.5 million.

The average maturity of the Group’s facilities (including

extension options) is now over 4 years.

 Profits which are not derived from property rental business would be

subject to corporation tax

ANNUAL REPORT 2023 33

A summary of the Group’s credit facilities as at the year end and after the balance sheet date is provided below:

Lender Facility Maturity

Extended

Maturity* Margin

Sonia/

swap rate**

Loan

commitment

(30-June-23)

£m

Amount drawn

(30-June-23)

£m

Barclays and RBC Revolving

Credit Facility

Jan- Jan- .% SONIA . –

Bayerische Landesbank Term Loan Mar- Mar- .% .% . .

Deka Bank Term Loan Aug- Aug- .% .% . .

Deka Bank Term Loan Aug- Aug- .% .% . .

Deka Bank Term Loan Aug- Aug- .% .% . .

HSBC Revolving

Credit Facility

Aug- Aug- .% .% . .

HSBC Revolving

Credit Facility

Aug- Aug- .% SONIA . –

HSBC Revolving

Credit Facility

Aug- Aug- .% SONIA . –

Wells Fargo Revolving

Credit Facility

Jul- Jul- .% .% . .

Wells Fargo Revolving

Credit Facility

Jul- Jul- .% SONIA . .

Unsecured Syndicate Revolving

Credit Facility

Jul- Jul- .% .% . .

Unsecured Syndicate Term Loan Jul- Jul- .% .% . .

Unsecured Syndicate Term Loan Jan- Jan- .% .% . .

Total 862.1 672.1

Lender Facility Maturity

Extended

Maturity* Margin

Sonia/swap

rate**

Loan

commitment

(Post balance

sheet)

£m

Amount

drawn

(Post balance

sheet)

£m

Bayerische Landesbank Term Loan Mar- Mar- .% .% . .

Deka Bank Term Loan Aug- Aug- .% .% . .

Deka Bank Term Loan Aug- Aug- .% .% . .

Deka Bank Term Loan Aug- Aug- .% .% . .

HSBC Revolving

Credit Facility

Sept- Sept- .% SONIA . –

SMBC Term Loan Sept- Sept- .% .% . .

Unsecured Syndicate Revolving

Credit Facility

Jul- Jul- .% .% . .

Unsecured Syndicate Term Loan Jul- Jul- .% .% . .

Unsecured Syndicate Term Loan Jul- Jul- .% .% . .

Wells Fargo Revolving

Credit Facility

Jul- Jul- .% .% . .

Wells Fargo Revolving

Credit Facility

Jul- Jul- .% SONIA . .

Total 689.4 584.8

* Inclusive of uncommitted extension options

**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

Location UK

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





,

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 area 0.00045

Intensity ratio: tCO



e (gross Scope 1, 2 + 3) per m



of floor area 0.13

36 SUPERMARKET INCOME REIT PLC

Methodology

The 2022/23 SECR footprint is equivalent to 81,017 tCO

with the largest portion being made up of emissions from

downstream leased assets at 77,273 tCO

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

TCFD Category TCFD Recommendation 2023 TCFD compliance Future planned improvements

Governance Describe how the board exercises oversight of

climate-related risks and opportunities.

Consistent – see

Governance section

N/A

Describe management’s role in assessing and

managing climate-related risks and opportunities.

Consistent – see

Governance section

N/A

Strategy Describe the climate-related risks and

opportunities the organisation has identified over

the short-, medium-, and long-term.

Consistent – see

Strategy section

Expand upon risk and opportunity

identification processes to include

engagement with tenants.

Ongoing process 

Describe the impact of climate-related risks and

opportunities on the organisation’s businesses,

strategy, and financial planning.

Consistent –

see Table 

Refine and publish quantitative,

financial impacts.

To be completed by Q 

Describe the resilience of the organisation’s

strategy, taking into consideration different

climate-related scenarios, including a °C or

lower scenario.

Consistent – see

Strategy section

Build upon the Science Based Target

(SBT) road map into a more detailed

Climate Transition Plan.

Q 

Risk Management Describe the organisation’s processes for

identifying and assessing climate-related risks.

Consistent – see Risk

Management section

Expand on climate risk and opportunity

identification.

Q 

Describe the organisation’s processes for

managing climate-related risks.

Consistent – see Risk

Management section

Formalise climate-related

communication channels with tenants.

Q 

Describe how processes for identifying, assessing,

and managing climate–related risks are integrated

into the organisation’s overall risk management.

Consistent – see Risk

Management section

N/A

Metrics and Targets Disclose the metrics used by the organisation

to assess climate-related risks and

opportunities in line with its strategy and risk

management process.

Consistent – see

Metrics and

Targets – Table 

N/A

Disclose Scope , Scope  and, if appropriate

Scope  greenhouse gas (GHG) emissions and

the related risks.

Consistent – see

Greenhouse Gas

Emissions section

N/A

Describe the targets used by the organisation to

manage climate-related risks and opportunities

and performance against targets.

Consistent – see

Metrics and

Targets section

Work is currently ongoing to model

emissions reductions, develop

a roadmap to reduce those emissions

and submit a target to the Science

Based Targets initiative (SBTi).

Q 

38 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | TCFD COMPLIANT REPORT CONTINUED

Governance

Describe how the board exercises oversight of

climate-related risks and opportunities:

The Board and the Alternative Investment Fund Manager

(“AIFM”) are responsible for the investment decisions

of the Company and directing the delivery of services

by the Investment Adviser to ensure that climate-related

priorities are incorporated into the execution of the

investment strategy. In support of this objective, the

Board established the ESG Committee in May 2022 to

ensure that the Company’s climate-related issues are

integrated into its business plan and corporate performance

objectives. Following the 2023 reporting process, the

Board will consider the annual budget implications of the

inaugural climate scenario analysis results and will also

consider updating risk management policies as is deemed

appropriate.

The Board appoints the members of the Committee,

which has the delegated authority of the Board to monitor

the integrity and quality of the Company’s climate risk

strategies, as well as to track progress against climate-related

goals and targets, which will be presented to the Board on

a quarterly basis. Many of these goals and targets are new

to 2023 (documented within Table 3 below) and are in the

process of being embedded within Board presentations.

The Investment Adviser is responsible for advising the

Board and ESG Committee in matters related to climate

risk and the Investment Adviser’s Head of Sustainability is

responsible for delivery of these services on behalf of the

Investment Adviser. The Board also engages with third-party

advisers to develop its understanding of climate-related risks

and how they apply to the Company.

Figure : Governance structure related to climate-related risks and opportunities

Head of

Sustainability

Atrato Capital Atrato Partners JTC Company

Investment

Commitee

Investment

Commitee

Risk

Commitee

ESG

Commitee

Audit and Risk

Commitee

Develops and

executes the

sustainability

strategy, risk

indentification

and oversight

Ensures

sustainability

considerations

and risk

management

are embedded

in IA systems

and controls

Ensures

sustainability

risks and

opportunities

are reﬂected

in investment

advice

Oversight of JTC

sustainability

and policies

including as

they apply to

AIF clients

Ensures

sustainability

risks and

opportunities

are reﬂected

in investment

proposals

Oversees and

executes the

sustainability

strategy.

Develops and

executes risk

identification

and oversight

Climate risk

monitoring

strategy

recommendations

and oversight

Climate risk

monitoring

and mitigation

recommendations

in the context

of overall risk

management

Approval of

sustainability

strategy

and joint

responsibility

for company

risk

management

Board

Company Audit and Risk

Company ESG Committee

Atrato Partners Board

Atrato Partners

Investment Committee

Atrato Capital

Investment Adviser

JTC

Investment

Commitee

JTC

Risk

Commitee

JTC AIFM

AIFM Board

ANNUAL REPORT 2023 39

Sustainability Strategy and Benchmarking –

The sustainability activities of the Investment Adviser are

supplemented by services from third-party providers. During

the financial year, the Company has sought advice from

CEN-ESG on improvements it can make to its sustainability

strategy and framework, as well as undertaking

a benchmarking exercise to assess the Company’s

sustainability strategy delivery against its peer group.

The outcome of this exercise has been the development of

a gap analysis for more holistic, ESG disclosures against

best practices and against the Company’s peer group. The

consultants provided advice on climate and other ESG

disclosure expectations of the independent sustainability

rating agencies, and the consequential improvements

required by the Company and Investment Adviser in this

regard. These recommendations have been reflected in the

Company’s sustainability strategy, against which the ESG

Committee tracks the Investment Adviser’s progress against

the agreed deliverables.

These additions have also been included in the review of the

Company’s Sustainable Investment Management System

(SIMS) which was developed concurrently.

Systems and controls – The Investment Adviser has

appointed specialist sustainability systems experts, Quarter

Penny Consulting Ltd to expand its sustainability systems

and controls to ensure they are effective in delivering

the Company’s sustainability strategy. Identification of

climate-related risks already forms part of the Investment

Adviser’s investment process. However, this has been

expanded to ensure more accurate data collection and asset

level risk analysis. These changes which the Company is in

the process of implementing include:

• Expansion of the existing asset level sustainability

improvement tracking to include asset level plans and the

introduction of greater oversight of their delivery;

• Active analysis and monitoring of flood risk on a location

specific basis under different climate scenarios;

• Formalising a tenant engagement policy with standardised

information request templates;

• Formalising use of the legal risk register to monitor

applicable regulatory and legal changes.

Such systems and controls will continue to be reviewed

and improved in response to the climate scenario analysis

performed in Q2 2023.

Describe management’s role in assessing and managing

climate-related risks and opportunities:

Investment Adviser

The Investment Adviser is responsible for the delivery of

the climate risk strategy on behalf of the Company. Steve

Windsor, Principal and Sustainability Champion at the

Investment Adviser, is responsible for oversight, monitoring

and management of climate-related risks and opportunities.

The Investment Adviser’s Head of Sustainability is

responsible for the operational delivery of climate-related

risks and opportunities measures within the Investment

Adviser’s operations and leads the provision of climate risk

advice to the Company.

The Head of Sustainability is a standing attendee at the

Investment Adviser’s Investment Committee, assuming

responsibility for implementation and alignment with the

Investment Adviser’s sustainability systems and controls,

co-ordination of third-party service providers, and delivery

of the Company’s sustainability strategy.

Where the Company has appointed a specialist service

provider, the Investment Adviser will require and hold

regular project progress meetings with the service provider,

where delivery is tracked against an agreed project timeline.

The results of the progress will be communicated to the ESG

Committee by the Investment Adviser in the context of its

progress against the agreed sustainability strategy.

Reporting – The Investment Adviser has reviewed its

reporting obligations to the Company over the year. With

the introduction of the ESG Committee, key topics such

as strategic developments, occupational health and safety

events, and potentially material adverse impacts will be

reported under a more consistent framework.

Certain topics will be included as standing items in the

quarterly information pack provided to the ESG Committee.

These are designed to:

1. Provide Committee members with the ability to directly

monitor management of the identified climate-related

risks and opportunities. This will include Energy

Performance Certificate (“EPC”) ratings and progress

against the delivery of the sustainability plans for the

higher risk assets, flood risk assessments and updates on

and feedback from the tenant engagement plan;

2. Oversee the Investment Adviser’s performance against

the agreed deliverables under the sustainability strategy as

well as holding it to account for non-performance.

The Investment Adviser has also sought to expand its

external reporting, having become a signatory to both

UNPRI and NZAM. It will be making the necessary reports

required under these commitments over the next reporting

period. Finally, the Investment Adviser has improved its

data collection in relation to its own activities to support the

public disclosures of the Company, in particular the social

and governance aspects.

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 description Scenario

(a)

Impact

(b)

Likelihood

(c)

Overall Rating

(d)

by Time Horizon

Short

(2023-2030)

Medium

(2030-2039)

Long

(2040-2050)

Physical Risk – Flooding (Acute

& Chronic): Increased insurance

premiums and increased capital

expenditure required on adaptative or

remediation measures.

First

Stage Rating

Higher Higher Moderate Higher Higher

Below

ºC Scenario

Moderate Higher Moderate Moderate Moderate

Above

ºC Scenario

Moderate Higher Moderate Moderate Moderate

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

Moderate Higher Moderate Higher Higher

Below

ºC Scenario

Moderate Lower Lower Lower Lower

Above

ºC Scenario

Moderate Lower Lower Lower Moderate

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)

Moderate Higher Higher Higher Moderate

Below

ºC Scenario

Higher Moderate Moderate Moderate Moderate

Above

ºC Scenario

Higher Lower Lower Lower Lower

Transition Risk – Market: Energy

Costs may increase for tenants,

shifting preferences for more energy

efficient buildings and renewables.

First

Stage Rating

Moderate Moderate Moderate Moderate Moderate

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

Moderate Moderate Moderate Moderate Lower

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

Moderate Moderate Moderate Moderate Lower

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

Target Metric

Progress (as of June

2023)

 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 Category Description

FY23 Emissions

(tCO

FY22 Emissions

(tCO

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-scope Tenant emissions relating to biomass used to heat some

tenant sites.

 ,

Table  | Energy Consumption

Energy Consumption FY23 FY22

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 Metric FY23 FY22

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 set Raw Unit Justification

Policy and Legal Carbon

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 heat CMIP – Days

above ºC

(IPCC Atlas)

ºC Days 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).

Flooding WWF’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 Type Impact Indicator

Impact

banding Raw unit Justification

Policy and Legal EPC Certificate

ratings per site –

% weighting

 EPC E As 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 heat Energy Intensity

per site

(kWh/m

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.

 -

 -

 -

 -

Flooding Revenue 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

standards are introduced in the near future.

– Two sites (Sainsbury’s Denton & Sainsbury’s Kettering)

were missing from the data and were assigned an impact

value of 3 by default.

– Non-food assets were not screened in this analysis

due to limited data availability but will look to be

included in next year’s reporting following a data

remediation exercise.

Appendix B: Methodology notes for greenhouse

gas inventory

Methodology and Assumptions

The 2022 Conversion Factors published by the UK

Department for Energy Security and Net Zero (DESNZ)

and Department for Business, Energy, and Industrial

Strategy (BEIS) was the main source used for emission

factors. All relevant categories have been included and

any exclusions are described below.

Scope  & 

For electricity and natural gas, some actual consumption

data was provided. Where there were gaps, estimations

were made using previous year data or floor area intensities

(based on similar sites within the portfolio) as proxies.

For fuel oil, spend was used as a proxy due to a lack of

activity data.

Scope  (. Purchased Goods & Services)

This category was estimated using spend as a proxy and

applying Department for Environment, Food & Rural Affairs

(DEFRA) input-output factors (kgCO

/GBP) to expenditure.

Scope  (. Capital Goods)

There were two sites where development was completed

in the reporting period. For these sites, embodied carbon

emissions were estimated by applying a benchmark

intensity (kgCO

e/m

) to the floor area.

Scope  (. Downstream Leased Assets)

The majority of emissions relate to tenant energy use. Some

tenants provided actual consumption data for electricity

and heating. Where there were gaps, estimations were

made using benchmark intensity data based on floor area.

Refrigerants were estimated for all sites. One small non-food

site was excluded from the calculations due to a lack of

activity data or floor area required for estimations.

A smaller amount of emissions arise from the communal

areas of sites where the Company owns the land but is not

responsible for paying for the energy. These emissions were

estimated using the floor area intensities of similar sites with

actual data.

STRATEGIC REPORT | TCFD COMPLIANT REPORT CONTINUED

ANNUAL REPORT 2023 51

The Board and JTC Global AIFM Solutions Limited, the

Company’s Alternative Investment Fund Manager (the

AIFM), together have joint overall responsibility for the

Company’s risk management and internal controls, with the

Audit Committee reviewing the effectiveness of the Board’s

risk management processes on its behalf.

To ensure that risks are recognised and appropriately

managed, the Board has agreed a formal risk management

framework. This framework sets out the mechanisms

through which the Board identifies, evaluates and monitors

its principal risks and the effectiveness of the controls in

place to mitigate them.

The Board aims to operate in a low-risk environment,

focusing substantially on a single sector of the UK real estate

market. The Board and the AIFM therefore recognise that

effective risk management is key to the Group’s success.

Risk management ensures a defined approach to decision

making that seeks to decrease the uncertainty surrounding

anticipated outcomes, balanced against the objective of

creating value for shareholders.

The Board determines the level of risk it will accept in

achieving its business objectives, and this has not changed

during the year. We have no appetite for risk in relation to

regulatory compliance or the health, safety and welfare of

our tenants, service providers and the wider community in

which we work. We continue to have a moderate appetite

for risk in relation to activities which drive revenues and

increase financial returns for our investors.

STRATEGIC REPORT | OUR PRINCIPLE RISKS

There are a number of potential risks and uncertainties

which could have a material impact on the Group’s

performance over the forthcoming financial year and could

cause actual results to differ materially from expected and

historical results.

The risk management process includes the Board’s

identification, consideration and assessment of those

emerging risks which may impact the Group.

Emerging risks are specifically covered in the risk

framework, with assessments made both during the regular

quarterly risk review and as potentially significant risks

arise. The quarterly assessment includes input from the

Investment Adviser and review of information by the AIFM,

prior to consideration by the Audit Committee.

The matrix below illustrates our assessment of the impact

and the probability of the principal risks identified. The

rationale for the perceived increases and decreases in the

risks identified is contained in the commentary for each

risk category.

The following risks have been added in the current year

and are discussed in detail below:

• The default of one of the supermarket operators would

create an excess supply of supermarket real estate.

• Changes in regulatory policy could lead to our assets

becoming unlettable.

 The Board considers these risks have increased since last year

 The lower-than-expected performance of the Portfolio could reduce

property valuations and/or revenue, thereby affecting our ability to pay

dividends or lead to a breach of our banking covenants.

 The default of one or more of our lessees would reduce revenue and

may affect our ability to pay dividends.

 Our use of floating rate debt will expose the business to underlying

interest rate movements.

 A lack of debt funding at appropriate rates may restrict our

ability to grow.

 There can be no guarantee that we will achieve our

investment objectives.

 The assets within the Group’s portfolio that are less energy efficient may

be exposed to downward pressure on valuation or increased pressure to

invest in the improvement of individual assets.

 Volatile changes in the weather systems may deem the Group’s

properties no longer viable to tenants.

 Shareholders may not be able to realise their shares at a price above or

the same as they paid for the shares or at all.

 Inflationary pressures on the valuation of the portfolio.



The Board considers these risks to be broadly unchanged

since last year

 Our ability to source assets may be affected by competition for

investment properties in the supermarket sector.

 The default of one of the supermarket operators would create an excess

supply of supermarket real estate, thereby putting pressure on ERVs

leading to a breach in our banking covenants.

 We must be able to operate within our banking covenants.

 We are reliant on the continuance of the Investment Adviser.

 We operate as a UK REIT and have a tax-efficient corporate structure,

with advantageous consequences for UK shareholders.

 Changes in regulatory policy could lead to our assets

becoming unlettable.

 The rise in attempted cyber crime and more recently cyber risks

arising from recent geopolitical tensions has increased the risk for

listed companies being targets for market manipulation and/or

insider trading.

 Impact of war in Ukraine.



The Board considers these risks have decreased since last year

High

Moderate

Low

Moderate

Rare

IMPACT

PROBABILITY

52 SUPERMARKET INCOME REIT PLC

PROPERTY RISK

1. The lower-than-expected performance of the Portfolio could reduce property valuations and/or revenue, thereby affecting our

ability to pay dividends or lead to a breach of our banking covenants

Probability: Impact: Mitigation

Moderate

(from Low)

High (from Moderate)

An adverse change in our property

valuations may lead to breach of our

banking covenants. Market conditions

may also reduce the revenues we earn

from our property assets, which may

affect our ability to pay dividends to

shareholders. A severe fall in values may

result in us selling assets to repay our loan

commitments, resulting in a fall in our net

asset value.

Our Portfolio is .% let (% of supermarket assets are let) with long

weighted average unexpired lease terms and an institutional-grade

tenant base.

All the leases contain upward-only rent reviews, % are

inflation-linked, % are open market value and the rest contain fixed

uplifts. These factors help maintain our asset values.

We manage our activities to operate within our banking covenants and

constantly monitor our covenant headroom on loan to value and interest

cover. We are reviewing alternative financing arrangements to lessen any

dependence on the banking sector.

2. Our ability to source assets may be affected by competition for investment properties in the supermarket sector

Probability: Impact: Mitigation

Moderate

The Company faces competition from

other property investors. Competitors

may have greater financial resources

than the Company and a greater ability to

borrow funds to acquire properties.

The supermarket investment market

continues to be considered a safe asset

class for investors seeking long-term

secure cash flows which is maintaining

competition for quality assets. This has

led to increased demand for supermarket

assets without a comparable increase in

supply, which could potentially increase

prices and make it more difficult to

deploy capital.

The Investment Adviser has extensive contacts in the sector and we

often benefit from off-market transactions. They also maintain close

relationships with a number of investors and agents in the sector,

giving us the best possible opportunity to secure future acquisitions for

the Group.

The Company has acquired assets which are anchored by supermarket

properties but which also have ancillary retail on site, and these

acquisitions allow the Company to access quality supermarket assets

whilst providing additional asset management opportunities.

We are not exclusively reliant on acquisitions to grow the Portfolio.

Our leases contain upward-only rent review clauses, which mean we can

generate additional income and value from the current Portfolio. We also

have the potential to add value through active asset management and we

are actively exploring opportunities for all our sites.

We maintain a disciplined approach to appraising and acquiring assets,

engaging in detailed due diligence and do not engage in bidding wars

which drive up prices in excess of underwriting.

Low

STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED

ANNUAL REPORT 2023 53

3. The default of one or more of our lessees would reduce revenue and may affect our ability to pay dividends

Probability: Impact: Mitigation

High

Our focus on supermarket property means

we directly rely on the performance of

UK supermarket operators. Insolvencies

could affect our revenues earned and

property valuations.

Our investment policy requires the Group to derive at least % of

its rental income from a Portfolio let to the largest four supermarket

operators in the UK by market share. Focusing our investments on

assets let to tenants with strong financial covenants and limiting

exposure to smaller operators in the sector decreases the probability of

a tenant default.

As at  June , % of SUPR's income is from assets let to Sainsbury’s

and Tesco who are deemed investment grade credit quality, with % of

rental exposure to Asda and % for Aldi. The portfolio however continues

to be geographically diversified with no individual tenant operating

within more than - minutes of one of the Group's assets in any single

geographical area.

Before investing, we undertake a thorough due diligence process

with emphasis on the strength of the underlying covenant and receive

a recommendation on any proposed investment from the AIFM.

Our investment strategy is to acquire strong trading grocery locations,

which in many cases have been supermarkets for between 

and  years.

Our investment underwriting targets strong tenants with strong property

fundamentals (good location, large sites with low site cover) and which

should be attractive to other occupiers or have strong alternative use

value should the current occupier fail.

Moderate

(from Low)

4. The default of one of the supermarket operators would create an excess supply of supermarket real estate, thereby putting

pressure on ERVs leading to a breach in our banking covenants

Probability: Impact: Mitigation

High

A severe fall in values may result in

us selling assets to repay our loan

commitments, resulting in a fall in our net

asset value

The failure of a single operator in any given town would place strain on

the immediate surrounding retailers as demand previously supplied by

the failed operator would be taken up by existing retailers.

The potential demise of a major supermarket operator would therefore

result in the real estate being potentially acquired by another operator

and would continue to be used as a supermarket.

Our investment strategy is to acquire strong trading grocery locations,

which in many cases have been supermarkets for between 

and  years.

Our investment underwriting targets strong property fundamentals (good

location, large sites with low site cover) and which should be attractive

to other occupiers or have strong alternative use value should the current

occupier fail.

High

54 SUPERMARKET INCOME REIT PLC

FINANCIAL RISK

5. Our use of floating rate debt will expose the business to underlying interest rate movements as interest rates continue to rise

Probability: Impact: Mitigation

High (from Moderate)

Interest on the majority of our debt

facilities is payable based on a margin

over SONIA. Any adverse movements

in SONIA could significantly impair our

profitability and ability to pay dividends to

shareholders.

We have entered into interest rate swaps to partially mitigate our direct

exposure to movements in SONIA, by capping our exposure to SONIA

increases.

We aim to hedge prudently our SONIA exposure, keeping the hedging

strategy under constant review in order to balance the risk of exposure to

rate movements against the cost of implementing hedging instruments.

We selectively utilise hedging instruments with a view to keeping the

overall exposure at an acceptable level.

As at the year end % of SUPR’s drawn debt is fixed.

High (from

Moderate)

6. A lack of debt funding at appropriate rates may restrict our ability to grow

Probability: Impact: Mitigation

Moderate (from Low)

Impacts of both macroeconomic events

and banks’ exposure to offices in the US

has resulted in many lenders reducing

their exposure to real estate globally.

Without sufficient debt funding we may

be unable to pursue suitable investment

opportunities in line with our investment

objectives.

The Board reviews the Group’s financing arrangements and considers

options for refinancing well ahead of maturity.

The Board keeps our liquidity and gearing levels under review. We

have recently broadened our capital structure by starting to transition

our balance sheet to an unsecured structure, reducing our reliance on

a single source of funding.

Supermarket property continues to remain popular with lenders, owing to

long leases and letting to single tenants with strong financial covenants

and being seen as a safe asset class in times of market uncertainty. We

continue to see appetite from both new and existing lenders to provide

financing to SUPR which has been demonstrated by the new facilities

entered during and after the year end.

The Company has had a cash liquidity event from the sale of the SRP

which has provided increased liquidity. We believe that this indicates that

the Company is not reliant in the short to medium-term on bank funding,

however note the recent refinancing events after the year end shows

appetite from banks to lend to SUPR.

Moderate

(from Low)

7. We must be able to operate within our banking covenants

Probability: Impact: Mitigation

Moderate

The Group’s borrowing facilities contain

certain financial covenants relating to

Loan to Value ratio and Interest Cover

ratio, a breach of which would lead to

a default on the loan. The Group must

continue to operate within these financial

covenants to avoid default.

We and the AIFM continually monitor our banking covenant compliance to

ensure we have sufficient headroom and to give us early warning of any

issues that may arise.

We will enter into interest rate caps and swaps to mitigate the risk of

interest rate rises and also invest in assets let to institutional grade

covenants.

Low

STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED

ANNUAL REPORT 2023 55

CORPORATE RISK

8. There can be no guarantee that we will achieve our investment objectives

Probability: Impact: Mitigation

Low

Our investment objectives include

achieving the dividend and total returns

targets. The amount of any dividends paid

or total return we achieve will depend,

among other things, on successfully

pursuing our investment policy and the

performance of our assets.

Future dividends are subject to the

Board’s discretion and will depend

on our earnings, financial position,

cash requirements, level and

rate of borrowings, and available

distributable reserves.

The Board uses its expertise and experience to set our investment

strategy and it seeks external advice to underpin its decisions, for

example independent asset valuations. There are complex controls and

detailed due diligence arrangements in place around the acquisition

of assets, designed to ensure that investments will produce the

expected results.

Significant changes to the Portfolio, both acquisitions and disposals,

require specific Board approval.

The Investment Adviser’s significant experience in the sector should

continue to provide us with access to assets that meet our investment

criteria going forward.

Rental income from our current Portfolio, coupled with our hedging

policy, supports the current dividend target. Movement in capital value

is subject to market yield movements and the ability of the Investment

Adviser to execute asset management strategies.

Moderate

(from Low)

9. We are reliant on the continuance of the Investment Adviser

Probability: Impact: Mitigation

Moderate

We rely on the Investment Adviser’s

services and reputation to execute our

investment strategy. Our performance will

depend to some extent on the Investment

Adviser’s ability and the retention of its

key staff.

A new Investment Advisory Agreement was entered into on  July ;

this revised agreement provides that unless there is a default, either

party may terminate by giving not less than two years, written notice.

This provides additional certainty for the Company. The Board keeps

the performance of the Investment Adviser under continual review and

undertakes a formal review at least annually.

The interests of the Company and the Investment Adviser are aligned

due to (a) key staff of the Investment Adviser having personal equity

investments in the Company and (b) any fees paid to the Investment

Adviser in shares of the Company are to be held for a minimum period of

 months. The Board can pay up to % of the Investment Adviser fee in

shares of the Company.

In addition, the Board has set up a management engagement committee

to assess the performance of the Investment Adviser and ensure we

maintain a positive working relationship.

The AIFM receives and reviews regular reporting from the Investment

Adviser and reports to the Board on the Investment Adviser’s

performance. The AIFM also reviews and makes recommendations to the

Board on any investments or significant asset management initiatives

proposed by the Investment Adviser.

Low

TAXATION RISK

10. We operate as a UK REIT and have a tax-efficient corporate structure, with advantageous consequences for UK shareholders.

Any change to our tax status or in UK tax legislation could affect our ability to achieve our investment objectives and provide

favourable returns to shareholders

Probability: Impact: Mitigation

Low Moderate

If the Company fails to remain a REIT for

UK tax purposes, our profits and gains will

be subject to UK corporation tax.

The Board takes direct responsibility for ensuring we adhere to the UK

REIT regime by monitoring the REIT compliance. The Board has also

engaged third-party tax advisers to help monitor REIT compliance

requirements and the AIFM also monitors compliance by the Company

with the REIT regime.

56 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED

CLIMATE RISKS

11. The assets within the Group’s portfolio that are less energy efficient may be exposed to downward pressure on valuation or

increased pressure to invest in the improvement of individual assets

Probability: Impact: Mitigation

Moderate

(from Low)

Moderate

As investors increase their focus on

climate risk, there is likely to become

a larger pool of capital looking to invest in

energy efficient assets.

Although this represents an opportunity

for those best-in-class assets to achieve

a ‘green premium’, there is likely to be an

impact on yield demanded, and therefore

valuation on assets within the portfolio

which are less energy efficient.

Given the unexpired lease terms across

the portfolio, this trend may impact the

residual values implicit in valuations

and reduce tenant demand for these

properties.

An ESG committee has been created to develop a road map for an energy

efficient property portfolio including an appropriate policy for minimum

energy performance across the Group’s assets.

Many of the supermarket operators have published targets to achieve

net zero and are actively upgrading stores to make them more energy

efficient.

The Company continues to work with its tenants to help them meet this

target and has entered into a framework agreement with Atrato Onsite

Energy to install rooftop solar panels across SUPR’s portfolio.

We are conducting ongoing work to update our physical risk assessments

on an annual basis and integrate the outcomes of the analysis into our

asset and property management activities.

Further detail has been included within the TCFD report on

pages 35 to 50.

12. Changes in regulatory policy could lead to our assets becoming unlettable

Probability: Impact: Mitigation

Moderate Moderate

Changes in regulations (currently

represented by Minimum Energy

Efficiency Standards (MEES)) could lead

to the possibility of our assets becoming

unlettable. Any properties not compliant

with MEES could attract reduced tenant

demand, reduced rental income and/or be

subject to fines.

The ESG committee stays informed about changes in legislation by

working closely with the Investment Adviser and seeks input from

specialist ESG experts where necessary.

Proposed updates to MEES, together with updates on businesses to

develop Net Zero transition plans are being closely monitored.

Further detail has been included within the TCFD report on

pages 35 to 50.

13. Volatile changes in the weather systems may deem the Group’s properties no longer viable to tenants

Probability: Impact: Mitigation

Moderate

(from Low)

Moderate

Given the impact of global warming,

there is likely to be an increased risk of

floods and natural disasters which could

result in physical damage to the Group's

properties.

Rising temperatures may also result in

increased energy demand required for

cooling, reducing tenant demand for less

energy efficient buildings.

The Company obtains environmental surveys on all acquisitions,

which address the short-term risk of climate-related damage to group

properties.

A specialist ESG consultant was engaged during the year to understand

the impacts of climate change on the portfolio, using scenario analysis.

Work is ongoing in this area, where further detail has been included

within the TCFD report on pages 35 to 50.

The Investment Adviser’s asset management team continue to monitor

the changing physical risk as it develops through regular site visits to the

Group’s assets.

ANNUAL REPORT 2023 57

CYBER RISKS

14. The rise in attempted cyber crime and more recently cyber risks arising from recent geopolitical tensions has increased the risk

for listed companies being targets for market manipulation and/or insider trading

Probability: Impact: Mitigation

Low Moderate

Given the increase in remote and

hybrid working, this greater reliance on

technology has resulted in organisations

becoming more vulnerable to cyber

threats and online hacking.

As an externally managed REIT, all

services are contracted with external

third-party service providers. A cyber

attack on any of the Group’s third-party

service providers could lead to wider

business disruption or loss of market

sensitive information.

The Company’s main service provider is the Investment Adviser. The

Investment adviser’s Cyber Security Policy reflects the NCSC’s  steps

to Cyber Security guidance. Robust network security measures have

been implemented, including real time system oversight, combined with

offsite data back-up and access controls based on the principle of least

privilege. The Investment Adviser frequently reviews its cyber security

arrangements, alongside business continuity plans to address a major

disruption to the organisation. Members of the Investment Adviser team

receive regular training on cyber security issues.

When onboarding other service providers, the Investment Adviser

undertakes detailed background checks including a review of data

security when relevant. Additional due diligence is undertaken where

access to the Investment Adviser’s systems is required, with enhanced

controls implemented, again based on the principle of least privilege.

MARKET PRICE RISK

15. Shareholders may not be able to realise their shares at a price above or the same as they paid for the shares or at all

Probability: Impact: Mitigation

High (from

Moderate)

Moderate

The Company’s ordinary shares have

this year traded in a wider range to the

price at which they were issued than they

have in previous years. This is largely

a function of supply and demand for the

ordinary shares in the market and cannot

therefore be controlled by the Board. The

Company’s move to the premium list of

the London Stock Exchange increased

liquidity in shares, thereby reducing the

risk that shareholders will not be able to

sell their shares at all.

The Company may seek to address any significant discount to NTA at

which its ordinary shares may be trading by purchasing its own ordinary

shares in the market on an ad hoc basis. The Directors have the authority

to make market purchases of up to . per cent of the ordinary shares in

issue as at IPO; being .% of the total shares in issue as at  June .

Ordinary shares will be repurchased only at prices below the prevailing

NAV per ordinary share, which should have the effect of increasing the

NAV per ordinary share for remaining shareholders. It is intended that

a renewal of the authority to make market purchases will be sought from

shareholders at each Annual General Meeting of the Company.

Purchases of Ordinary Shares will be made within guidelines established

from time to time by the Board.

Investors should note that the repurchase of ordinary shares is entirely

at the discretion of the Board and no expectation or reliance should be

placed on such discretion being exercised on any one or more occasions

or as to the proportion of ordinary shares that may be repurchased.

The recent sale proceeds from the SRP investment has optionality to be

used for this purpose.

58 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED

MACROECONOMIC RISKS

16. Inflationary pressures on the valuation of the portfolio

Probability: Impact: Mitigation

High

(from low)

Moderate

The UK is experiencing historic price rises

with the highest inflation rate in  years,

and a slowing economy. The Bank of

England has responded by successive

interest rate increases which could lead

to a sharp decline in economic activity,

stock markets and possibly stagflation.

A recessionary environment could impact

real estate valuations.

Continued high inflation may cause rents

to exceed market levels and result in

the softening of valuation yields. Where

leases have capped rental uplifts, high

inflation may cause rent reviews to cap

out at maximum values, causing rental

uplifts to fall behind inflation.

Inflation is monitored closely by the Investment Adviser. The Group’s

portfolio rent reviews include a mixture of fixed, upward only capped

as well as open market rent reviews, to hedge against a variety of

inflationary outcomes.

17. Impact of the war in Ukraine

Probability: Impact: Mitigation

Low Moderate

Russia’s invasion of the Ukraine in

February  has led to a surge in global

energy and food prices. The extent

and impact of military action, resulting

sanctions and further market disruptions

is difficult to predict which increases the

uncertainty, and challenges of tenant

operators as well as consumer confidence

and financial markets.

This could lead to a recession should the

conflict move towards a global one.

Supermarket operators have historically been able to successfully

pass on inflationary increases through increasing price increases to the

end consumer.

Whilst sales volumes may fall in a recessionary environment, the

nature of food means that demand is relatively inelastic, where the

end consumer may decide to substitute luxury brands for supermarket

own-branded products.

Our tenants have strong balance sheets with robust and diversified

supply chains. The tenants are therefore well positioned to deal with any

disruption that may occur. As a result, we believe any adverse impact for

the Group would be minimal.

The Group invests solely in UK properties.

ANNUAL REPORT 2023 59

Going concern

In light of the current macroeconomic backdrop,

the Directors have placed a particular focus on the

appropriateness of adopting the going concern basis in

preparing the Group’s and Company’s financial statements

for the year ended 30 June 2023. In assessing the going

concern basis of accounting the Directors have had regard to

the guidance issued by the Financial Reporting Council.

Liquidity

At 30 June 2023, the Group generated net cash flow

from operating activities of £84.3 million, held cash of

£37.5 million and undrawn committed facilities totalling

£189.9 million with no capital commitments or contingent

liabilities.

From the sale of its interest in the Sainsburys Reversion

Portfolio (SRP), the Group received proceeds of

£135.1 million post year end. £97.1 million of this was used

for working capital and debt repayment and £38.0 million

towards acquiring two stores (including acquisition costs).

As at the date of signing the annual report the Gross LTV

of the group was 34.0%. The remainder of the receivable

of £1.5 million is conditional on the sale of the remaining

store in the SRP.

After the year end, the Group also reduced its debt capacity

from £862.1 million to £689.5 million (see Note 20 for more

information), leaving undrawn committed facilities of over

£100 million available.

The Directors are of the belief that the Group continues to

be well funded during the going concern period with no

concerns over its liquidity.

Refinancing events

At the date of signing the financial statements, the Deka

facility falls due for repayment during the going concern

period (August 2024). It is intended that the facility will

be refinanced prior to maturity, or if required, it will be

paid down in full using the Group’s available undrawn

committed facilities of over £100 million. All lenders

have been supportive during the year and have expressed

commitment to the long-term relationship they wish to build

with the Company.

Covenants

The Group’s debt facilities include covenants in respect of

LTV and interest cover, both projected and historic. All debt

facilities, except for the unsecured facilities, are ring-fenced

with each specific lender.

The Directors have evaluated a number of scenarios

as part of the Group’s going concern assessment and

considered the impact of these scenarios on the Group’s

continued compliance with secured debt covenants. The

key assumptions that have been sensitised within these

scenarios are falls in rental income and increases in

administrative cost inflation.

As at the date of this Annual Report, 100% of contractual

rent for the period has been collected. The Group benefits

from a secure income stream from its property assets that

are let to tenants with excellent covenant strength under

long leases that are subject to upward only rent reviews.

The list of scenarios are below and are all on top of the

base case model which includes prudent assumptions on

valuations and cost inflation. No sensitivity for movements

in interest rates have been modelled as the Group has fixed

its interest cost through the use of interest rate derivatives

throughout the going concern assessment period.

Scenario Rental Income Costs

Base case

scenario

(Scenario )

% 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 ), other

costs .% of NAV.

Scenario  Rental income to

fall by %

Costs expected to

remain the same as

the base case.

Scenario  Rental Income

expected to remain

the same as the

base case.

% 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

60 SUPERMARKET INCOME REIT PLC

STRATEGIC REPORT | OUR PRINCIPLE RISKS CONTINUED

Based on the work performed, the Board has a reasonable

expectation that the Group will be able to continue in

business over the five-year period of its assessment.

Other disclosures

Disclosures in relation to the Company’s business model and

strategy have been included within the Investment Adviser’s

Interview on pages 15 to 22. Disclosures in relation to the

main industry trends and factors that are likely to affect the

future performance and position of the business have been

included within The UK Grocery Market on pages 26 to 28.

Disclosures in relation to environmental and social issues

have been included within the TCFD Report on pages 35 to

50. Employee diversity disclosures have not been included

as the Directors do not consider these to be relevant to

the Company.

Key Performance Indicators (KPIs)

The KPIs and EPRA performance measures used by the

Group in assessing its strategic progress have been included

on pages 29 to 30.

Nick Hewson

Chair

 September 

the potential impact of the Group’s significant risks, or

a combination of those risks. The principal risks on pages 51

to 60 summarise those matters that could prevent the Group

from delivering on its strategy. A number of these principal

risks, because of their nature or potential impact, could

also threaten the Group’s ability to continue in business in

its current form if they were to occur. The Directors paid

particular attention to the risk of a deterioration in economic

outlook which could impact property fundamentals,

including investor and occupier demand which would have

a negative impact on valuations, and give rise to a reduction

in the availability of finance.

The sensitivities performed were designed to be severe

but plausible; and to take full account of the availability of

mitigating actions that could be taken to avoid or reduce the

impact or occurrence of the underlying risks.

Viability Statement

The Board has assessed the prospects of the Group over

the five years from the balance sheet date to 30 June 2028,

which is the period covered by the Group’s longer-term

financial projections. The Board considers five years to

be an appropriate forecast period since, although the

Group’s contractual income extends beyond five years,

the availability of most finance and market uncertainty

reduces the overall reliability of forecast performance over

a longer period.

The Board considers the resilience of projected liquidity,

as well as compliance with secured debt covenants and UK

REIT rules, under a range of RPI and property valuation

assumptions.

The principal risks and the key assumptions that were

relevant to this assessment are as follows:

Risk Assumption

Borrowing risk The Group continues to comply with

all relevant loan covenants. The Group

is able to refinance all debt falling due

within the viability assessment period on

acceptable terms.

Interest Rate risk The increase in variable interest rates are

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.

ANNUAL REPORT 2023 61

STRATEGIC REPORT | SECTION 172(1) STATEMENT

The Directors consider that in conducting the business

of the Company over the course of the year ended

30 June 2023, they have acted to promote the long-term

success of the Company for the benefit of shareholders,

whilst having regard to the matters set out in section 172(1)

(a-f) of the Companies Act 2006 (the “Act”).

Details of our key stakeholders and how the Board engages

with them can be found on pages 62 to 64. Further details

of the Board activities and principal decisions are set out on

pages 74 to 75 providing insight into how the Board makes

decisions and their link to strategy.

s.172 Factor Our approach Relevant disclosures

A The likely

consequences

of any decision

in the long-term

The Board has regard to its wider obligations under Section 172 of the

Act. As such strategic discussions involve careful considerations of the

longer-term consequences of any decisions and their implications on

shareholders and other stakeholders and the risk to the longer-term

success of the business. Any recommendation is supported by detailed

cash flow projections based on various scenarios, which include:

availability of funding; borrowing; as well as the wider economic

conditions and market performance.

Key decisions of the Board during the

year on page 75.

Our Key Stakeholder Relationships on

pages 62 to 64.

Board Activities during the year on

page 74.

B The interests of

the Company’s

employees

The Group does not have any employees as a result of its external

management structure.

The Board’s main working relationship is with the Investment Adviser.

Consequently, the Directors have regard to the interests of the

individuals who are responsible for delivery of the investment advisory

services to the Company to the extent that they are able to do so.

Our Key Stakeholder Relationships on

pages 62 to 64.

Our Culture on page 71.

C The need to

foster the

Company’s

business

relationships

with suppliers,

customers and

others

The Company’s key service providers and customers include the

Investment Adviser, professional firms such as lenders, property

agents, accounting and law firms, tenants with which we have

longstanding relationships and transaction counterparties which are

generally large and sophisticated businesses or institutions.

Our Key Stakeholder Relationships on

pages 62 to 64.

D The impact of

the Company's

operations on

the community

and the

environment

As an owner of assets located in communities across the UK, we aim

to ensure that our buildings and their surroundings provide safe and

comfortable environments for all users.

The Board and the Investment Adviser have committed to limiting the

impact of the business on the environment where possible and engage

with tenants to seek to improve the ESG credentials of the properties

owned by the Company.

Our Key Stakeholder Relationships on

pages 62 to 64.

Details of the ESG policy and strategy

are included on pages 35 to 50.

The Board’s approach to sustainability

is also explained in the Company’s

first standalone sustainability report

available on the Company website.

E The desirability

of the Company

maintaining

a reputation for

high standards

of business

conduct

The Board is mindful that the ability of the Company to continue to

conduct its investment business and to finance its activities depends

in part on the reputation of the Board, the Investment Adviser and

Investment Advisory Team.

The risk of falling short of the high standards expected and thereby risking

business reputation is included in the Audit and Risk Committee’s review

of the Company’s risk register, which is conducted at least annually.

Chair’s Letter on Corporate Governance

on page 65.

Our Principal Risks and Uncertainties on

pages 51 to 60.

Our Culture on page 71.

F The need to act

fairly as between

members of

the Company

The Board recognises the importance of treating all members fairly and

oversees investor relations initiatives to ensure that views and opinions

of shareholders can be considered when setting strategy.

Chair’s Letter on Corporate Governance

on page 65.

Our Key Stakeholder Relationships on

pages 62 to 64.

Other disclosures relating to our consideration of the

matters set out in s172(1)(a-f) of the Act have been

noted as follows:

62 SUPERMARKET INCOME REIT PLC

Building strong relationships with our key stakeholders is a critical element to our success. The Board recognises that

the foundation underpinning effective corporate governance is determined on how it aligns the strategic decisions of

the Company with the views of its various stakeholders. We aim to build long lasting relationships with all of our key

stakeholders based on professionalism and integrity.

The Board regularly consults with the Investment Adviser, who in turn manage and foster the relationships with our tenants,

key partners and advisers.

Stakeholder Shareholders

Why is it important to engage? The Company’s shareholders are an incredibly important stakeholder group and the ultimate owners

of the business. In order to deliver our strategy, it is vital that shareholders continue to understand and

support the Company’s performance and investment thesis, as well as the wider market in which we

operate. The Board aims to be open with shareholders and available to them, subject to compliance with

relevant securities and laws.

How did we engage? The way in which the Board engages with the Company’s shareholders is detailed on this page in the

Corporate Governance Report.

The Board oversees the Investment Adviser’s formal investor relations programme, which is designed to

promote engagement with major investors (generally defined as those holding more than approximately

1% of the shares in the Company). Major investors are offered meetings after each results announcement

or other significant announcements.

Our website contains comprehensive information about our business, regulatory news and press releases

alongside information about our approach to ESG issues. Additionally, recordings of our interim and

annual results presentations are available to watch on the website.

What were the key topics discussed? The key topics of discussion included: the Company’s financial performance, macroeconomic themes, the

sale of the Sainsbury’s Reversion Portfolio interest, refinancing and the Company’s ESG efforts.

What was the feedback obtained

and/or the outcome of the

engagement?

Feedback from investor meetings has played an important role in shaping Company disclosures at Interim

Results, Full Year results and other regulatory disclosures. Increasing investor interest in sustainability

has informed the publication of the Company’s first standalone sustainability report available on the

Company website.

The use of virtual meetings has improved accessibility to our international and regional based

shareholders. We anticipate that online engagement will continue to play an important part in

engagement with our shareholders in addition to helping to reduce associated carbon emissions in line

with our sustainability strategy. Further details on our sustainability strategy can be found on pages 35 to

50 and in the Company’s first standalone sustainability report available on the Company website.

Stakeholder Lenders

Why is it important to engage? We have strong working relationships with our lender group who in turn help provide financing to

facilitate our continued growth.

As part of this, we are in regular dialogue with our banks to ensure they understand the Company’s

strategy and long-term ambition.

How did we engage? The Investment Adviser has regular meetings with both existing and prospective lenders to ensure that

they are kept up to date with business strategy, developments and performance.

Debt structure and future debt requirements are considered by the Board at a minimum on a quarterly

basis as part of the Investment Adviser’s review.

What were the key topics discussed? During the year, the Group, aided by the Investment Adviser, discussed with the lenders various

refinancing options and future borrowing needs to ensure the appropriate financing for the Group was put

in place.

What was the feedback obtained

and/or the outcome of the

engagement?

In July 2022, the Company announced it had arranged a new £412.1 million unsecured credit facility with

a bank syndicate comprising of Barclays, Royal Bank of Canada, Royal Bank of Scotland International and

Wells Fargo. This was the first time the Company had accessed unsecured debt financing.

In September 2022, the Company announced a two-year extension on our Revolving Credit Facility with

HSBC to August 2025.

In March 2023, the Company announced that it had refinanced its existing loan facilities with Bayerische

Landesbank with a new three-year £86.9 million term loan.

CORPORATE GOVERNANCE | OUR KEY STAKEHOLDER RELATIONSHIPS

ANNUAL REPORT 2023 63

Stakeholder Investment Adviser

Why is it important to engage? The Board’s main working relationship is with the Investment Adviser. The Investment Adviser brings

a depth of experience in the Supermarket Property sector. This gives the Company a competitive

advantage through its knowledge, specialist focus and network of industry and occupier contacts. The

Investment Adviser has a crucial role in the performance and long-term success of the Company.

How did we engage? It is important for the Board and Investment Adviser to maintain a positive and transparent relationship to

ensure alignment of values and business objectives.

The Board engage with the Investment Adviser at the scheduled quarterly Board meetings as a minimum.

Ad-hoc Board meetings are held to approve matters including acquisitions and disposals, asset

management opportunities, new financing arrangements and appointment of advisers.

What were the key topics discussed? Key topics discussed between the Investment Adviser and the Board were strategic decisions which

included the decision to buy the BAPTL stake in the SRP joint venture and the subsequent sale of the

Group’s interest in the SRP to Sainsbury’s. Further financial topics included entering into hedges at

a significant premium. Finally, discussions were had on Board governance and whether to establish an

ESG Committee and appoint an additional non-executive director.

What was the feedback obtained

and/or the outcome of the

engagement?

Outcomes included the establishment of a new ESG Committee and the appointment of a new

non-executive director to strengthen the Board’s composition. The newly appointed non-executive

director was also appointed Chair of the Management Engagement Committee.

Stakeholder Tenants

Why is it important to engage? We recognise that the success of the Company relies on the continued success of our operators, who in

turn rely on quality stores in order to help them succeed. This is why we place particular onus on having

a strong relationship with the grocery operators to better understand the challenges and opportunities

facing their business.

How did we engage? Regular meetings are held between the Investment Adviser and our key occupiers to understand their

future needs, including views on market sentiment, performance and sustainability initiatives. Any

potential opportunities or risks facing the Company are fed back to the Board to inform future strategy.

The Investment Adviser will visit every site within the Portfolio at least once a year, with feedback

reported to the Board of any material issues.

We conduct a review of published operator data, such as annual accounts, trading updates and analysts’

reports to identify mutually beneficial opportunities.

What were the key topics discussed? During the year, key topics included trading performance, site queries and asset performance

enhancement. ESG was also a topic of discussion with the tenants, including ways in which the Company

could further enhance the sustainability of the buildings and in communal areas.

What was the feedback obtained

and/or the outcome of the

engagement?

The Investment Adviser introduced a new green lease rider in all new lease negotiations and agreed the

clauses in as many leases as possible. The riders, among other things, enable us to request that tenants

provide environmental performance data.

Stakeholder Service Providers

Why is it important to engage? As an externally managed Company, we are reliant upon our service providers to conduct our core

activities. We recognise the importance of partnering with service providers who share our values and

ethos and work to secure the best people with an established track record and, where possible, retain key

partners on successive transactions and workstreams.

Having strong relationships with our service providers promotes the overall success of the Company.

How did we engage? The Board maintains regular contact with the Company’s service providers, at its quarterly Board

meetings, and otherwise as required. For example, the Company’s brokers and property agent attend the

Board meetings to keep the Company informed of the current market within which we operate.

The Board established a Management Engagement Committee in the year to evaluate the performance of

the Company’s service providers.

What were the key topics discussed? During the year the Board, in consultation with the Investment Adviser, discussed the appointment of new

service providers.

At the Management Engagement Committee, a review of the Company’s service providers was

undertaken, considering the fees charged in the year and the quality of service received.

What was the feedback obtained

and/or the outcome of the

engagement?

In January 2023, the Company announced the appointment of Goldman Sachs International as its joint

broker with Stifel Nicolaus Europe Limited.

In May 2023, the Company announced the appointment of Hanway Advisory Limited as its Company

Secretary.

64 SUPERMARKET INCOME REIT PLC

Stakeholder Communities

Why is it important to engage? As an owner of assets located in communities across the UK, we intend to support initiatives to enhance

the lives of the people close to our assets and be good neighbours to our communities.

How did we engage? Ongoing tenant engagement provides the opportunity to discuss how the Company can support our

tenants on community initiatives, as well as their own efforts to mitigate the impact of their operations.

Supermarket anchor tenants are heavily involved in their local communities and many stores have

a community champion with whom to engage.

On schemes where we have communal area control (on assets we manage that are not solely occupied by

one tenant), the Company is engaging with the communities it services in a huge number of ways.

What were the key topics discussed? During the year, the key topics of discussion regarded the way in which the Company could enhance its

involvement within the local communities. This included supporting site teams to utilise local suppliers,

employ local people and collaborate with local stakeholders.

What was the feedback obtained

and/or the outcome of the

engagement?

Establishing an ESG Committee to discuss, review and sign off on sustainability matters, ensuring

sustainability remains at the top of the Company's agenda.

CORPORATE GOVERNANCE | OUR KEY STAKEHOLDER RELATIONSHIPS CONTINUED

ANNUAL REPORT 2023 65

Dear Shareholders

I have pleasure in introducing this year’s Corporate

Governance report for the financial year ended

30 June 2023. The Board recognises that the way in which

we conduct our business is just as important as what we

do. A strong governance framework with an appropriate

tone from the Board, is a key factor in being able to deliver

sustainable business performance, whilst at the same time

being able to deliver value for our shareholders.

Board priorities

A key part of the Board’s focus during the year was to

oversee the successful implementation of the Company’s

strategy and ensure it is positioned for long-term success.

The Company has continued to grow throughout the year

with nine new acquisitions, and two further acquisitions

which completed shortly after the year end, supported by

a £412.1 million unsecured credit facility completed in

July 2022. During the year, the Company also successfully

acquired BAPTL’s 25.5% beneficial interest in the SRP

JV for £188.8 million (excluding acquisition costs) and

subsequently executed the sale of its interest in the JV to

Sainsbury’s, for a total consideration of £430.9 million

At a time of considerable macroeconomic uncertainty, we

believe our exposure to the defensive nature of grocery

real estate will allow us to continue delivering stable and

long-term income to our shareholders.

Sustainability continues to remain an important focus for

the Board, and with the support of the Investment Adviser,

we continue to make good progress in implementing this

within our overall strategy. During the year, we held the

inaugural meeting of our ESG Committee. The Committee

was established to serve as an independent and objective

party to monitor the integrity and quality of the Company’s

ESG strategy. Additionally, the Committee was established

to ensure that the strategy is integrated into the Company’s

business plan and values and to foster a culture of

responsibility and transparency. Further information on

our sustainability strategy can be found on pages 35 to 50

and in the Company’s first standalone sustainability report,

available on the Company website.

Board composition and succession planning

In March 2023, we were delighted to welcome Sapna

Shah as a Non-Executive Director to the Board. Sapna was

also appointed Chair of the Management Engagement

Committee, effective 1 July 2023. Sapna has extensive

experience in investment banking advising UK companies,

including listed REITs and investment companies, on IPOs,

equity capital market transactions as well as mergers and

acquisitions. She brings with her a wealth of knowledge

which further strengthens the Board. Succession planning

is an important part of our governance process and will be

a key focus for the Nomination Committee in 2024.

 SRP investment: the Sainsbury’s Reversion Portfolio held in a joint

venture arrangement. See note  for further information

AIC Code of Corporate Governance (2019)

This report demonstrates how we have applied the

principles and complied with the provisions of the AIC

Code of Corporate Governance (February 2019) (“AIC

Code”) during the year, as well as our approach to corporate

governance in practice. The AIC Code addresses the

Principles and Provisions set out in the UK Corporate

Governance Code (July 2018) (the “UK Code”), as well

as setting out additional Provisions on issues that are of

specific relevance to the Company. The Board considers that

reporting against the Principles and Provisions of the AIC

Code, which has been endorsed by the Financial Reporting

Council provides more relevant information to shareholders.

Details of how the Board has discharged its duty under the

AIC Code can be found on pages 76 to 77.

Shareholder engagement

We very much look forward to welcoming shareholders

to our 2023 AGM due to be held on 7 December 2023.

The Board attend the Company’s AGM to answer any

shareholder questions and I make myself available

as necessary outside those meetings to speak with

shareholders.

The Board oversees the Investment Adviser’s formal

investor relations programme, which is designed to

promote engagement.

Priorities for 2024

Looking ahead to 2024, the Board is focused on continuing

to maintain the highest standards of corporate governance

with a focus on succession planning, as well as continuing

to progress the Company’s sustainability strategy, whilst

ensuring the delivery of strong financial performance.

Nick Hewson

Chair

 September 

CORPORATE GOVERNANCE | CHAIR’S LETTER ON CORPORATE GOVERNANCE

66 SUPERMARKET INCOME REIT PLC

CORPORATE GOVERNANCE | THE BOARD OF DIRECTORS

DIRECTORS

• Co-Founder, CEO and then Chair of Grantchester

Holdings plc, a specialist LSE listed developer

of and investor in UK retail warehouse property

assets, where he worked from 1990 until 2002

• Senior Independent Director, Chair of the Audit

Committee, former Chair of the Nomination

Committee, Member of the Placemaking and

Sustainability Committee, Member of the

Remuneration Committee, at Redrow plc, a FTSE 250

company and one of the UK’s leading housebuilders

• Chair of the Executive Committee of Pradera AM

plc, a European retail property fund management

business, managing significant portfolios of retail

properties located in Europe and the Near East

• Co-Founder, Investor and Non-Executive Director

of Going Green Limited for 10 years to 2012, a firm

founded with the mission to minimise the effects of

carbon emissions in cities by encouraging electric

vehicle commuting, pioneering the G-Wiz electric

vehicle

• Founding partner of City Centre Partners LP, a

business specialising in converting office properties

to residential in Central London

Date of appointment: June 

• Over 35 years’ experience as a property developer

and investor

• Founded a UK retail warehousing business

• Invested in businesses covering bio-tech, digital

imaging, geo-thermal ground source energy and

corporate finance and fund management

• Experienced Non-Executive Director for both listed

and private businesses

• Fellow of the Institute of Chartered Accountants of

England and Wales

NICK HEWSON

Chair of the Board

Director Relevant skills and experience: Career Highlights:

• Head of Property Investment at Sainsbury’s. Over a

five-year period to 2014, the property portfolio grew

from £7.5 billion to £12 billion

• Head of Retail Advisory Services at Jones Lang

LaSalle (“JLL”) providing strategic advice to a range

of high-profile supermarket and retail operators

• COO of European Retail Group at Jones Lang

LaSalle, overseeing growth and development of

JLL’s retail business across Europe

• Corporate Planning and Manager of Site Research

Unit for Tesco Stores, involved in set up of the

location planning team and developing the group’s

first five-year strategic plan

Date of appointment: June 

• Over 35 years’ experience in the retail property

sector; over 20 years as a senior adviser and

consultant

• Key areas of expertise include supermarket real

estate, business strategy, investment property

financing and real estate development

• Experienced Executive and Non-Executive Director

VINCE PRIOR

Chair of The Nomination Committee

and Senior Independent Director

• Chief Financial Officer at Audley Court Limited,

which develops retirement villages in the UK

• Senior Independent Director and Chair of the Audit

Committee of McKay Securities plc, a fully listed

REIT specialising in office and industrial property,

until its takeover by Workspace plc in May 2022

• Group Finance Director at Urban&Civic plc, the UK’s

leading Master Developer

• Also held senior finance roles at London and

Edinburgh Trust plc, Pricoa Property plc and

Goodman Limited

Date of appointment: June 

• Over 30 years’ experience in the UK property sector

• Board member of privately owned business, which

specialises in land development and promotion,

and renewable energy

• Fellow of the Institute of Chartered Accountants of

England and Wales

JON AUSTEN

Chair of The Audit and Risk

Committee

ANNUAL REPORT 2023 67

Director Relevant skills and experience: Career Highlights:

• Head of Real Estate Tax at Travers Smith LLP

• Non-Executive Director of CBRE Investment

Management (UK Funds) Limited (formerly CBRE

Global Investors (UK Funds) Limited)

• Head of London Tax at Eversheds Sutherland

• Tax Partner at Berwin Leighton Paisner (now BCLP)

Date of appointment: February 

• Lawyer with over 30 years’ experience (over

20 of these as a tax partner), including active

participation in HMRC and HMT working groups

• Specialist in direct and indirect real estate

structuring, including REITs

• Author of the tax chapter on REITs in Tolleys

Taxation of Collective Investment

CATHRYN VANDERSPAR

Chair of The Remuneration

Committee

• Non-executive Director of the AIC and Biopharma

Credit PLC

• Senior Adviser at Panmure Gordon Limited

• Previously held senior investment banking roles

at UBS AG, Oriel Securities (now Stifel Nicolaus

Europe) and Cenkos Securities

Date of appointment: March 

• Over 20 years’ investment banking experience

advising UK companies, including REITs and

investment companies

• Extensive experience advising companies on IPOs,

equity capital market transactions and mergers and

acquisitions

• Previously served on the advisory committee for a

private solar energy company

SAPNA SHAH

Chair of The Management

Engagement Committee

• Head of Global Institutional Business at Gartmore

Investment Management

• Non-Executive Director of J.P. Morgan Smaller

Companies Investment Trust plc

• Previously held directorships at SG Warburg,

Morgan Grenfell Asset Management and Dalton

Strategic Partnership

Date of appointment: June 

• Over 30 years’ experience in corporate finance and

asset management

• Partner at Opus Corporate Finance

• Non-Executive Director at Aegon Investments

Limited and HICL Infrastructure plc

• Independent Member of Aviva With-Profits

Committee

FRANCES DAVIES

Chair of The Environmental, Social

and Governance Committee

68 SUPERMARKET INCOME REIT PLC

CORPORATE GOVERNANCE | THE INVESTMENT ADVISER

THE INVESTMENT ADVISER

Adviser Relevant skills and experience: Career Highlights:

• Co-founded Atrato and led the IPO of Supermarket

Income REIT

• Managing Director Lloyds Bank Commercial

Banking, where he ran the team providing

corporate finance services to corporates,

infrastructure and real estate clients

• Managing Director and Head of European

Structured Finance at Goldman Sachs from 2007 to

2013

• Director Barclays Capital

Date of appointment: Nov 

Ben is a principal at Atrato and is responsible for

leading the development and execution of the firm’s

long-term strategy. Ben is a member of the Atrato

Group Leadership Team and a member of the firm’s

Investment Committee.

• Over 20 years’ experience structuring and executing

real estate transactions

• Completed more than £3.5 billion of sale and

leaseback transactions, with major occupiers

including Tesco, Barclays and the BBC

• Expert in executing transactions for grocery real

estate and real estate corporate finance

• Qualified Lawyer

BEN GREEN

Principal

• Co-founded Atrato and led the IPO of Supermarket

Income REIT

• Partner and Head of EMEA Debt Capital Markets

and Risk Solutions at Goldman Sachs

• Held various roles across both Trading and Banking

divisions at Goldman Sachs from 2000 to 2016

• Member of Goldman Sachs Investment Banking

Risk Committee

• Advised numerous FTSE 100 firms on managing risk

and financing their business

Date of appointment: Jan 

Steve is a principal at Atrato and is responsible for

leading the development and execution of the firm’s

long-term strategy. Steve is a member of the Atrato

Group Leadership Team and a member of the firm’s

Investment Committee.

• Over 20 years’ experience specialising in finance

and risk management

• Expert in capital markets, risk management and

financing

• Highly experienced in senior management positions

STEVE WINDSOR

Principal

• Co-founded Atrato and led the IPO of Supermarket

Income REIT

• Transacted over 30 supermarket property

transactions, growing Supermarket Income REIT’s

portfolio to £1.2 billion

• Senior Manager at Lloyds Bank in Corporate

Finance

Date of appointment: Apr 

Steven is responsible for overseeing all investments

for the Group. Steven is a member of the Atrato

Group Leadership Team and a member of the firm’s

Investment Committee.

• Over 20 years’ experience specialising in finance,

risk management and real estate

• Extensive supermarket property transaction

experience

• Specialist in corporate finance, with a primary focus

on commercial real estate

• Chartered Financial Analyst and Chartered

Accountant

STEVEN NOBLE

Chief Investment Officer

ANNUAL REPORT 2023 69

• European CFO Macquarie Global Property Advisors,

member of MGPA European Management Team

and Director of the MGPA European advisory

business

• Manager RSM Robson Rhodes, audit and assurance

Date of appointment: Nov 

Natalie is responsible for the management of the

finance function for Atrato Group, including the

supermarkets investment fund. Natalie is a member

of the Atrato Group Leadership Team and a member

of the firm’s Investment Committee.

• Over 20 years’ experience in finance, specialising in

real estate investment funds

• Experienced in senior management positions and

financial management positions of real estate

investment companies

• Leading the SUPR ESG project with the Atrato COO

• Fellow of the Chartered Institute of Accountants

NATALIE MARKHAM

Chief Financial Officer

Adviser Relevant skills and experience: Career Highlights:

• Vice President, Alternative Funds at PIMCO

• Senior manager within the assurance practice

at PriceWaterhouseCoopers, performing audit

and advisory services within the investment

management industry

Date of appointment: Nov 

Haffiz is the Finance Director at Atrato and is

responsible for the finance, tax and operations of the

supermarkets investment fund.

• Over 17 years’ experience within the investment

management industry with a sector focus on real

estate and private equity

• Fellow of the Institute of Chartered Accountants in

England and Wales

HAFFIZ KALA

Finance Director

• Origination of over £1 billion of supermarket

acquisitions

• Execution of over £750 million of debt facilities for

the group

• Coordination and execution of debt facilities whilst

in the Loan Markets team at Lloyds Bank

Date of appointment: May 

Robert is responsible for managing the supermarkets

investment fund for the Group.

• Over 10 years of real estate investment and loan

origination/syndication experience

• Key areas of expertise include property investment,

commercial banking, and loans

• Chartered Financial Analyst

ROBERT ABRAHAM

Managing Director – Fund

Management

70 SUPERMARKET INCOME REIT PLC

Role of the Board

The Board has a duty to promote the long-term sustainable

success of the Company for its shareholders. The Board

is responsible for the overall leadership of the Company,

setting its values and standards, including approval of the

Group’s strategic aims and objectives and oversight of

its operations.

The Board currently comprises the Chair and five

independent Non-Executive Directors and is supported

by Hanway Advisory Limited who act as the Company

Secretary. Nick Hewson is the Chair of the Company and

is responsible for leading the Board and for setting the tone

in respect of the Company’s purpose, values and culture.

As part of his role in leading the Board, he ensures that the

Board provides constructive input into the development

of strategy, understands the views of the Company’s key

stakeholders and provides appropriate oversight, challenge

and support.

Vince Prior is the Senior Independent Director (“SID”)

and acts as a sounding board for the Chair as well as an

intermediary to the other Directors and shareholders as

required. The SID also meets with the other Non-Executive

Directors annually, without the Chair present, to evaluate

the performance of the Chair, in line with good practice.

In addition to his role as the SID, Vince Prior serves as Chair

of the Nomination Committee.

The Board is well balanced and possesses a sufficient

breadth of skills, variety of backgrounds, relevant

experience and knowledge to ensure it functions effectively

and promotes the long-term sustainable success of the

Company. All Directors have access to the advice and

services of the Company Secretary, who are responsible

to the Chair on matters of corporate governance. Further

details of each Director’s experience can be found in the

biographies on pages 66 to 67.

How we operate

The Company’s business model and strategy were

established at the time of the IPO in July 2017. Whilst the

business has grown materially since the Company’s listing,

CORPORATE GOVERNANCE | LEADERSHIP AND PURPOSE

its strategy and operations have not changed. The business

continues to generate long-term income with inflation

protection from key operating real estate assets, with

additional potential for capital growth over the medium to

long term. Acquisition opportunities and any related debt

finance are examined by the Board with a view to ensuring

the long-term sustainability of the business. The security

and longevity of returns is fundamental to the Company’s

strategy, as summarised in the outline of the Group’s

business model on page 8 and on the Company’s website:

www.supermarketincomereit.com, and the Company’s

investment strategy is described in the Strategic Report on

pages 15 to 28.

The Company has an outsourced operating model. JTC

Global AIFM Solutions Limited has been appointed by the

Group, pursuant to the AIFM Agreement, to be the Group’s

Alternative Investment Fund Manager (the AIFM or the

“Investment Manager”), under which it is responsible

for overall portfolio management and compliance with

the Group’s investment policy, ensuring compliance

with the requirements of the Alternative Investment

Fund Managers Directive (“AIFMD”) that apply to the

Group and undertaking risk management. The AIFM has

delegated certain services in relation to the Group and its

Portfolio, which include advising in relation to financing

and asset management opportunities, to the Investment

Adviser. The Investment Adviser advises the Group and

the AIFM on the acquisition of its investment portfolio

and on the development, management and disposal of UK

commercial assets in its portfolio pursuant to the Investment

Advisory Agreement.

The Management Engagement Committee keeps the

appropriateness of the Investment Adviser’s appointment

under review. In doing so the Committee considers the past

investment performance of the Group and the capability

and resources of the Investment Adviser to deliver

satisfactory investment performance in the future. It also

reviews the fees payable to the Investment Adviser, together

with the standard of services provided by key suppliers to

the Company.

ANNUAL REPORT 2023 71

Conflicts of interest

All the Directors are considered by the Board to be

independent of the AIFM and of the Investment Adviser.

As such, they are considered to be free from any business or

other relationships that could interfere with the exercise of

their judgements.

Each Director has a duty to avoid a situation in which he or

she has a direct or indirect interest that may conflict with

the interests of the Company. The Board may authorise any

potential conflicts, where appropriate, in accordance with

the Articles of Association. Where a potential conflict of

interest arises, a Director will declare their interest at the

relevant Board meeting and not participate in the decision

making in respect of the relevant business.

Culture

The culture and ethos of the Company are integral to its

success. The Board promotes open dialogue and frequent,

honest and open communication between the Investment

Adviser and other key advisers to the Company. Whilst the

Company has no employees, the Board pays close attention

to culture of the Investment Adviser and its employees

and believes that its forward thinking and entrepreneurial

approach, combined with its rigour and discipline, is the

right fit for delivering our strategy and purpose.

The Board believes that its positive engagement and

working relationship with the Investment Adviser helps

the business achieve its objectives by creating an open

and collaborative culture, whilst allowing for constructive

challenge. The Non-Executive Directors speak regularly

with members of the Investment Adviser outside of Board

meetings to discuss various key issues relating to Company

matters. The Company’s success is based upon the effective

implementation of its strategy by the Investment Adviser

and third-party providers under the leadership of the Board.

The Board’s culture provides a forum for constructive and

robust debate, and the Board believes that this has been

fundamental to the success of the Company to date.

Investment Advisory Agreement

A revised Investment Advisory Agreement was entered

into in July 2021, prior to the expiry of the initial agreement

in July 2022. The terms of the revised agreement have not

materially changed other than the extension of the notice

period to a rolling two-year term and the introduction

of a new lower fee tier when NAV exceeds £2 billion.

In reviewing the terms of the Investment Advisory

Agreement (the material terms of which are summarised

in note 27 to the financial statements) and the fee

arrangements within it, the Board has considered the extent

to which the outcome for shareholders and management

is consistent with the provisions of the UK Corporate

Governance Code.

Specifically:

• Clarity and transparency are achieved by way of the

structure of the Investment Advisory Agreement which

compensates the Investment Adviser through the advisory

fee to cover all overheads and running costs relating to the

Group and which provides strong Shareholder alignment

through the payment of the semi-annual fees, which at the

discretion of the Board can be used to purchase shares in

the Company.

• The structure of and rationale behind the Investment

Adviser’s fees are explained in note 27 to the financial

statements and are designed to be simple and not to

require subjectivity in their calculation. Given the simple

arithmetic underlying the fee calculations, the range of

potential outcomes is straightforward to calculate and

not subject to discretion. While the Code recommends

oversight of the level of reward to individual team

members, this is not appropriate in the case of an

externally managed structure where the Independent

Directors do not control the workforce.

• The Board has sought and received confirmation from the

Investment Adviser that it complies with all governance

requirements relevant to it. Such confirmation will be

sought at least annually.

72 SUPERMARKET INCOME REIT PLC

Our operating model

CORPORATE GOVERNANCE | LEADERSHIP AND PURPOSE CONTINUED

Oversee the

development of the

Company’s ESG strategy

Monitor impact of

current and emerging

ESG trends on the

Company

Oversee engagement

with the broader

stakeholder community

on ESG matters.

Environmental, Social &

Governance Committee

Nominations Committee

Audit and Risk

Committee

Management

Engagement Committee

Remuneration

Committee

Reviews Board

composition

Succession planning

requirements of the

Group

Board and Committee

evaluations.

Monitors the

effectiveness of the audit

process

Monitors Group’s risk

management processes

Reviews integrity of

the Group’s financial

statements.

Overseeing new tenders

and appointments

Reviewing performance

of key suppliers

including the Investment

Adviser.

Implements

remuneration policy of

the Group

Ensures Directors‘

remuneration is set so

as to continue to attract,

retain and motivate

Agree the policy for

authorising claims

for expenses for the

Directors.

Atrato Capital (The “Investment Adviser”)

The Investment Adviser’s activities comprise of sourcing opportunities,

conducting due diligence, providing investment recommendations,

assisting with carrying out transactions and reporting on the

management of the investments. The Investment Adviser will also make

recommendations on financing decisions and strategy which is approved

by the Investment Manager and Board.

Delegated responsibilities

Acquisitions & Disposals

Marketing Asset Management

Funding

JTC Global AIFM Solutions Limited (The “AIFM”)

The AIFM, together with the Board, makes investment decisions following

recommendations from the Investment Adviser. The AIFM is responsible

for the oversight of the portfolio management activities and undertakes

the risk management function of the Company.

Responsibilities

Portfolio

Marketing

Risk Management

The Supermarket Income REIT PLC Board (The “Board”)

The Board is responsible for promoting the long-term sustainable

success of the Company, working towards strategic objectives and

generating value for Shareholders and other stakeholders.

ANNUAL REPORT 2023 73

meeting to the Chair, who will share such input with the

rest of the Board and the AIFM. The Nomination Committee

is satisfied that all the Directors, including the Chair, have

sufficient time to meet their commitments.

Attendance at scheduled Board and Committee meetings

during the year was as follows:

The Board’s attendance in 2022/2023

All Directors are expected to devote sufficient time to

the Company’s affairs to fulfil their duties as Directors

and to attend all scheduled meetings of the Board and of

the Committees on which they serve. Where Directors

are unable to attend a meeting, they will provide their

comments on the Board papers received in advance of the

Quarterly Board

meetings

Audit and Risk

Committee

Nominations

Committee

Remuneration

Committee

Management

Engagement

Committee ESG Committee

 Scheduled

meetings

 Scheduled

meetings

 Scheduled

meetings

 Scheduled

meetings

 Scheduled

meeting

 Scheduled

meeting

% attendance % attendance % attendance % attendance % attendance % attendance

Nick Hewson / N/A* / / / /

Vince Prior / / / / / /

Jon Austen / / / / / /

Cathryn

Vanderspar

/ / / / / /

Frances Davies / / / / / /

Sapna Shah** / / / / / /

*Nick Hewson as Chair of the Board is not a member of The Audit and Risk Committee

** Sapna Shah was appointed to the Board on  March  and to all other committees from  March 

74 SUPERMARKET INCOME REIT PLC

A summary of typical matters discussed by the Board at

each quarterly Board meeting are noted below:

Discussion

Strategy and

operational

• Update by the Company’s joint brokers on the

public markets and capital market activity of the

Company’s peers

• Supermarket property sector update by the

Company’s property agent

• Review of movements within the Direct Portfolio,

including recent acquisitions and rent reviews

which have taken place during the year

• Review of the Joint Venture Portfolio

• Grocery sector overview, including financial

update on key tenants

• Leasing activity, major developments and

longer-term pipeline

• Future asset management initiatives

Finance and

financing

• Quarterly financial statements review

• Actuals vs budgets analysis

• Review of the Company’s key performance

indicators

• Analysis of current debt facilities, including any

impending facility renewals

• Review of current cost of capital

• Approval of the financial budget (annual basis)

Environmental • Update on the sustainability agenda and targets

• EPC summary of the Portfolio

Governance • Update by the Company’s external legal counsel

on matters which have been actioned during

the year

• Committee chairs will report on items discussed

at the Board Committees

• Review and discussion of the quarterly AIFM

report presented by the AIFM

• The Company Secretary will report on corporate

governance developments including any changes

required to Terms of References

• Stakeholder feedback from shareholders and

research analysts

• Review of significant shareholdings at the

year end

In addition to formal Board meetings, there is also an

ongoing informal interaction between the Directors, the

AIFM and the Investment Adviser. The annual evaluation of

the Board’s effectiveness always considers the performance

of the Chair, and whether he has performed his role

effectively. In recent years, the Directors, led by the Senior

Independent Director, have concluded that the Chair

has fulfilled his role and supported effective functioning

of the Board.

The Board typically meets for scheduled Board meetings

four times a year in addition to an annual strategy day. The

Board will also have separate unscheduled Board meetings

to approve matters including, but not limited to:

• All potential acquisitions and disposals, including

appointment of principal advisers and cost budgets

• Asset management initiatives

• New financing or refinancing arrangements

• Hedging strategy

• Equity raises

Board meetings

The quarterly Board meetings follow a formal agenda,

which is approved by the Chair and circulated by the

Company Secretary in advance of the meeting. The

Chair leads the Board by presiding over Board meetings;

agreeing the agendas, ensuring, among other matters, that

appropriate weight is given to topics such as strategy, asset

allocation and financial performance. The Chair ensures

that Board debates are balanced, open and inclusive

and promotes behaviours and attributes that make up

the culture.

The Chair ensures that the Board is provided with

information of appropriate quality and form, in a timely

manner. The Board is kept fully informed of potential

investment opportunities, along with wider property

market intelligence, through a comprehensive set of Board

papers prepared by the Investment Adviser prior to each

meeting. Representatives of the Investment Adviser are

invited to attend the Board meetings, as are representatives

of the Company’s other advisers as required, particularly

representatives from the Company’s property agent, external

legal counsel and brokers.

CORPORATE GOVERNANCE | BOARD ACTIVITIES DURING THE YEAR

ANNUAL REPORT 2023 75

Some examples of how the Board has considered stakeholder interests and s.172(1) matters in its decision making in 2022/23

are set out below and in “Board Activities during the year” on page 74. Further details on our stakeholder engagement, and

our response, can also be found on pages 62 to 64.

Decision Stakeholders

Board rationale and

considerations Impact Long-term effects of decision

Consent to the business

plan for the disposal and

financing of the various

SRP transactions

Shareholders

Investment Adviser

Disposal to Sainsbury’s Efficient unwind of the

joint venture structure

maximised returns for the

Company and successful

conclusion strengthened

relationship with key

tenant Sainsbury’s

Proceeds generated

were used to de-lever the

Company’s balance sheet

Hedging Shareholders

Investment Adviser

The Board recognised the

potential risk to earnings

volatility given current

market conditions.

The Board were keen to

protect the Company from

this risk in the near term

New hedging was entered

into, so as to fix 100% of the

Company’s drawn debt

This removed earnings

volatility relating to

financing costs, allowing

the Company to target

paying a covered dividend

into the future

Establishment of the

ESG Committee and

Management

Engagement Committee

Shareholders

Communities

Investment Adviser

Service Providers

The Board were keen to

improve governance of the

Company and given the

Company’s commitments

to ESG, wanted to ensure

sufficient time could be

dedicated.

In addition, the Board

wanted to ensure there

was a rigorous and

thorough approach taken

to review the Investment

Adviser and other service

providers

Improved ESG reporting,

including full TCFD

reporting

The establishment

of these Committees

allows sufficient time

to be dedicated to ESG

considerations and the

review of the Investment

Adviser and other service

providers, strengthening

the Company’s governance

Appointment of

Non-Executive

Director

Shareholders

Communities

Succession planning

ensures a smooth and

orderly transfer of

responsibilities by the

Board reducing future

business risk.

A Board member with

capabilities in capital

markets will enhance the

Board’s decision-making

process on such issues

The Board approved the

decision following the

recommendation of the

Nominations Committee

to appoint Sapna Shah as

a Non-Executive Director

from 1 March 2023

The appointment supports

the Board’s commitment

to diversity, in line with the

FCA’s targets under the

Listing Rules, whilst also

allowing some flexibility

for determining succession

for key committees into

the future

CORPORATE GOVERNANCE | KEY DECISIONS OF THE BOARD DURING THE YEAR

76 SUPERMARKET INCOME REIT PLC

The Company has complied with the Principles and

Provisions of the AIC Code throughout the year, except for

the three provisions set out below:

• The role of the chief executive

• Executive directors’ remuneration

• The need for an internal audit function

The Board considers that these provisions are not relevant

to Supermarket Income REIT plc, being an externally

managed investment company. All the Company’s

day-to-day management and administrative functions are

outsourced to third parties. As a result, the Company has no

executive directors, employees or internal operations. The

Company has therefore not reported further in respect of

these provisions.

The Group does not have an internal audit function. The

need for this is reviewed annually by the Audit and Risk

Committee. Due to the relative lack of complexity and the

outsourcing of most of the day to-day operational functions,

the Audit and Risk Committee continues to be satisfied that

there is no requirement for such a function.

KEY BOARD STATEMENTS

Statement of Compliance

The Board has considered the Principles and Provisions of

the AIC Code of Corporate Governance (February 2019)

(AIC Code) and that these provide the most appropriate

framework for the Company’s governance and reporting to

shareholders.

The AIC Code addresses the Principles and Provisions set

out in the UK Corporate Governance Code (July 2018) (the

UK Code), as well as setting out additional Provisions on

issues that are of specific relevance to the Company.

The Board considers that reporting against the Principles

and Provisions of the AIC Code, which has been endorsed

by the Financial Reporting Council, provides more relevant

information to shareholders.

CORPORATE GOVERNANCE | CORPORATE GOVERNANCE STATEMENT

A copy of the AIC Code can be obtained via the AIC’s website, www.theaic.co.uk. It includes an explanation of how the AIC

Code adapts the Principles and Provisions set out in the UK Code to make them relevant to investment companies.

This Corporate Governance Statement forms part of the Directors’ Report.

AIC

Code Principle

Evidence of compliance /

explanation of departure from the AIC Code

A A successful company is led by an effective board, whose role is to promote

the long-term sustainable success of the Company, generating value for

shareholders and contributing to wider society.

Section 172(1) Statement on page 61.

Leadership and Purpose on pages 70 to 73.

Strategic Report on pages 1 to 61.

B The Board should establish the Company’s purpose, values and strategy,

and satisfy itself that these and its culture are aligned. All Directors must

act with integrity, lead by example and promote the desired culture.

Strategic Report on pages 1 to 61.

Leadership and Purpose on pages 70 to 73.

C The Board should ensure that the necessary resources are in place for the

Company to meet its objectives and measure performance against them.

The Board should also establish a framework of prudent and effective

controls, which enable risk to be assessed and managed.

Our Principal Risks on pages 51 to 60.

Audit and Risk Committee Report on pages 81 to 84.

Nomination Committee Report on pages 78 to 80.

Management Engagement Committee Report on pages

85 to 86.

ESG Committee Report on page 87.

Directors’ Report on pages 92 to 93.

D In order for the Company to meet its responsibilities to shareholders and

stakeholders, the Board should ensure effective engagement with, and

encourage participation from, these parties.

Section 172 Statement on page 61.

Our Key Stakeholder Relationships on pages 62 to 64.

F The Chair leads the Board and is responsible for its overall effectiveness

in directing the Company. They should demonstrate objective judgement

throughout their tenure and promote a culture of openness and debate.

In addition, the chair facilitates constructive board relations and the

effective contribution of all Non-Executive Directors, and ensures that

Directors receive accurate, timely and clear information.

Board Activities during the year on page 74.

G The Board should consist of an appropriate combination of directors

(and, in particular, independent Non-Executive Directors) such that

no one individual or small group of individuals dominates the Board’s

decision making.

Leadership and Purpose on pages 70 to 73.

Nomination Committee Report on pages 78 to 80.

H Non-Executive Directors should have sufficient time to meet their Board

responsibilities. They should provide constructive challenge, strategic

guidance, offer specialist advice and hold third-party service providers to

account.

Leadership and Purpose on pages 70 to 73.

Nomination Committee Report on pages 78 to 80.

I The Board, supported by the Company Secretary, should ensure that it has

the policies, processes, information, time and resources it needs in order to

function effectively and efficiently.

Nomination Committee Report on pages 78 to 80.

Board Activities during the year on page 74.

Leadership and Purpose on pages 70 to 73.

ANNUAL REPORT 2023 77

AIC

Code Principle

Evidence of compliance /

explanation of departure from the AIC Code

J Appointments to the Board should be subject to a formal, rigorous and

transparent procedure, and an effective succession plan should be

maintained. Both appointments and succession plans should be based

on merit and objective criteria and, within this context, should promote

diversity of gender, social and ethnic backgrounds, cognitive and personal

strengths.

Nomination Committee Report on pages 78 to 80.

K The Board and its committees should have a combination of skills,

experience and knowledge. Consideration should be given to the length of

service of the Board as a whole and membership regularly refreshed.

Board of Directors Biographies on pages 66 to 67.

Nomination Committee Report on pages 78 to 80.

L Annual evaluation of the Board should consider its composition, diversity

and how effectively members work together to achieve objectives.

Individual evaluation should demonstrate whether each Director continues

to contribute effectively.

Nomination Committee Report on pages 78 to 80.

M The Board should establish formal and transparent policies and

procedures to ensure the independence and effectiveness of external

audit functions and satisfy itself on the integrity of financial and narrative

statements.

Audit and Risk Committee Report on pages 81 to 84.

N The Board should present a fair, balanced and understandable assessment

of the Company’s position and prospects.

Audit and Risk Committee Report on pages 81 to 84.

O The Board should establish procedures to manage risk, oversee the

internal control framework, and determine the nature and extent of

the principal risks the Company is willing to take in order to achieve its

long-term strategic objectives.

Audit and Risk Committee Report on pages 81 to 84.

Alternative Investment Fund Manager’s Report on pages

95 to 96.

P Remuneration policies and practices should be designed to support

strategy and promote long-term sustainable success.

Remuneration Committee Report on pages 88 to 91.

Q A formal and transparent procedure for developing a remuneration policy

should be established. No Director should be involved in deciding their

own remuneration outcome.

Remuneration Committee Report on pages 88 to 91.

R Directors should exercise independent judgement and discretion when

authorising remuneration outcomes, taking account of company and

individual performance, and wider circumstances.

Remuneration Committee Report on pages 88 to 91.

Requirement Board statement Where to find further information

Going concern basis The Board is of the opinion that the going concern basis adopted in

the preparation of the Annual Report is appropriate.

Further details are set out on pages

59 to 60 of the Strategic Report.

Viability Statement The Board is of the opinion that the viability statement made in the

Annual Report is appropriate.

Further details are set out on pages

59 to 60 of the Strategic Report.

Annual review of systems of risk

management and internal control

A continuing process for identifying, evaluating and managing the

risks the Company faces has been established and the Board has

reviewed the effectiveness of the internal control systems.

Further details are set out in

the Audit and Risk Committee

Report on pages 81 to 84 of this

Governance Report.

Robust assessment of the Company’s

emerging and principal risks to the

business model, future performance,

solvency and liquidity of the

Company.

The Audit and Risk Committee and the Board undertake a full

risk review annually where all the emerging, principal risks and

uncertainties facing the Company and the Group are considered.

Further details can be found in Our

Principal Risks on pages 51 to 60 of

the Strategic Report.

Fair, balanced and understandable The Directors confirm that to the best of their knowledge the

Annual Report and Accounts taken as a whole is fair, balanced

and understandable and provides the information necessary for

shareholders to assess the Company’s position, performance,

business model and strategy.

Further details of the fair, balanced

and understandable statement

can be found in the Audit and Risk

Committee Report on page 83.

Appointment of the

Investment Adviser

The Directors consider the continuing appointment of the

Investment Adviser on the terms agreed in the Investment

Advisory Agreement dated 14 September 2020 and the subsequent

renewal dated 14 July 2021 to be in the best interests of the

Company.

Further details are set out in

Note 27 to the Consolidated

Financial Statements.

s.172 The Directors have considered the requirements of s.172 when

making strategic decisions.

Section 172 Statement on page 61.

78 SUPERMARKET INCOME REIT PLC

• Any matters relating to the continuation in office of any

Director at any time.

Board Independence and Tenure

The Board currently comprises six Non-Executive Directors

all of whom are deemed independent. In accordance

with the provisions of the AIC Code, all Directors offer

themselves for annual re-election by shareholders at

the AGM. We considered whether this was appropriate

having due regard to each Directors’ performance and

ability to continue to contribute to the Board in the light

of the knowledge, skills and experience required. We also

considered other external appointments held by Directors

and the amount of time each Director has devoted to

the Company.

The Committee is satisfied that each Director has devoted

sufficient time to the Company over the past year. Following

the advice of the Committee and in line with the AIC Code

the Board will recommend the re-election of each Director at

the forthcoming AGM.

Directors are appointed for an initial term of three years

with an expectation that they will serve at least two

three-year terms, but they may be invited to serve for

an additional period. The Board is subject to an annual

evaluation and while we do not believe it is necessary to

mandatorily replace a Director after a fixed term, we do

have regard for the need for progressive Board refreshment

and renewal, and will implement succession planning

accordingly. In May 2023, the Committee recommended to

the Board that Nick Hewson, Jon Austen and Vince Prior

serve a third three-year term, subject to annual re-election at

the Company’s AGMs.

Activities during the year

Succession planning

The Committee is responsible for considering succession

planning for the Directors, taking into account the

challenges and opportunities facing the Company, and the

skills and expertise expected to be needed in the future. The

Committee evaluated the current skills and experience on

the Board and identified the need to appoint an additional

Non-Executive Director with capital markets experience.

Additionally, in support of the FCA’s diversity targets, the

Board ensured a diverse pool of candidates were considered.

The Board undertook a formal, rigorous and transparent

process, shortlisting a pool of candidates who were known

by either the Investment Adviser or the Company’s advisers.

This method was considered effective in place of using an

external search consultancy or open advertising, which

are steps typically taken for the appointment of the chair

and non-executive directors. The criteria was based solely

on merit, taking into account the candidates’ experience

to date as well as their cognitive and personal strengths.

In undertaking the process, the Board had regard to both the

AIC and FRC Guidance on Board effectiveness.

Following a detailed selection process, the Committee

recommended the appointment of Sapna Shah with effect

from 1 March 2023. Sapna was also appointed Chair

of the Management Engagement Committee effective

Dear Shareholders

I am pleased to present the Nomination Committee

report for the year ended 30 June 2023. The main focus

of the Committee over the past year has been on Board

recruitment and we were delighted to welcome Sapna Shah

to the Board in March 2023.

How the Committee operates

The Nomination Committee Terms of Reference are

available on the Company’s website and on request from the

Company’s registered office.

During the period to 30 June 2023, the Committee

comprised of six Independent Non-Executive Directors of

the Company, none of which are connected to the AIFM or

Investment Adviser.

Committee Members

Vince Prior: Committee Chair

Jon Austen

Frances Davies

Nick Hewson

Sapna Shah (appointed 29 March 2023)

Cathryn Vanderspar

All the Committee members served for the full year, unless

otherwise stated.

Following a review of Committee membership post year

end, effective 1 July 2023, the Committee now comprises

Vince Prior as Chair, Nick Hewson and Sapna Shah.

During the year the Nomination Committee held two formal

meetings. The Company Secretary and I ensure that the

meetings are of sufficient length to allow the Committee

to consider all important matters and the Committee is

satisfied that it receives full information in a timely manner

to allow it to fulfil its obligations.

Members of the Investment Adviser were invited to attend

the Committee meetings. The Company Secretary, Hanway

Advisory Limited, acts as secretary to the Committee.

Committee Responsibilities

The Committee is responsible for reviewing the structure,

size and composition of the Board to ensure that it has the

appropriate skills, experience and knowledge to enable to

Company to fulfil its strategic objectives. The Committee is

also responsible for effective Board succession planning.

Specifically, the Committee is required to determine and

make recommendations to the Board concerning:

• Plans for succession for Non-Executive Directors, in

particular for the key roles of Chair and the Senior

Independent Director

• Membership of the Audit and Risk, Remuneration,

Management Engagement and ESG Committees, in

consultation with the Chairs of those committees

• The reappointment of any Director at the conclusion of

their specified term of office, having given due regard to

their performance and ability to continue to contribute

to the Board in the light of knowledge, skills and

experience required

CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT

ANNUAL REPORT 2023 79

Performance Evaluation

The Directors recognise that an evaluation process is

a significant opportunity to review the practices and

performance of the Board, its Committees and its individual

Directors in order to implement actions to improve the

Board’s effectiveness and contribute to its overall success.

In last year’s Board evaluation, a number of key actions

were identified, all of which were completed within the

year. This evaluation was externally facilitated and an

external board evaluation is expected to happen at least

every three years.

During the year, the Nomination Committee carried out

an internal process to evaluate performance. The Directors

were asked to complete a questionnaire considering

matters such as: board composition, diversity, leadership,

stakeholder engagement and efficiency of Board processes.

The results of the performance evaluation demonstrated

that the Board was operating effectively.

In the evaluation, the Board identified areas of improvement

and agreed next steps. The Nomination Committee will

monitor progress against those areas of improvement.

Recommendation How this is being addressed

Improvement to the induction

process for new Directors

Sapna Shah received a full formal

induction, including meetings

with the Company’s key advisers.

Monitoring of training and

development

The Company Secretary has

developed a CPD tracker to

monitor training and personal

development undertaken by the

Directors.

Use of a recruitment specialist for

future Director appointments

The Nomination Committee will

consider using a recruitment

specialist at the appropriate time.

Board diversity and inclusion

The Company does not have any employees. In respect of

appointments to the Board, we consider that each candidate

should be appointed on merit to make sure that the best

candidate for the role is appointed every time. The Board

supports diversity and inclusion and as such recruitment

processes promote diversity of all kinds including gender,

ethnicity, sexual orientation, disability or educational,

professional and socioeconomic backgrounds and

neurodiversity. This will ensure that any such appointment

will develop and enhance the operation of the Board to best

serve the Company’s strategy.

The Company’s Diversity Policy is reviewed regularly

and it is believed that the Board has a balance of skills,

qualifications and experience which are relevant to

the Company.

The Board supports the recommendations set out in the

Hampton-Alexander Review on gender diversity and the

Parker Review on ethnic diversity and recognise the value

and importance of cognitive diversity in the boardroom.

As at the date of this report, the Board consisted of three

male and three female members, meaning we have achieved

the 33% female Board representation target as set out by the

1 July 2023. Sapna has 20 years of investment banking

experience advising UK companies, including listed REITs

and investment companies, on IPOs, equity capital market

transactions and mergers and acquisitions. Sapna was

appointed as a non-executive director of The Association

of Investment Companies (“AIC”) in January 2021 and is

a member of the AIC remuneration committee and was

appointed as a non-executive director of Biopharma Credit

PLC in March 2023. Sapna is a Senior Adviser at Panmure

Gordon Limited and prior to this held senior investment

banking roles at UBS AG, Oriel Securities (now Stifel

Nicolaus Europe) and Cenkos Securities. She has previously

served on the advisory committee for a private solar

energy company.

The Committee is wholly satisfied the Directors devoted

sufficient time to their duties over the past year and that

the Board comprised the necessary skills and experience

to discharge its obligations to the Company’s shareholders

and other stakeholders. Consequently, there were no other

changes to the composition of the Board this year. Looking

ahead, the Committee recognises the benefits that new

and diverse thinking may bring to the Board and will keep

composition under continuing review.

Committee membership

During the year, we also reviewed the composition of

the Board’s committees and recommended a number of

changes to Committee membership, effective 1 July 2023,

to improve the efficiency of the board committees of which

all Directors were previously members (apart from Nick

Hewson, as Chair of the Board not being a member of the

Audit Committee). Details of Committee membership can be

found on pages 78, 81, 85, 87 and 88.

Director training programme

The Chair is responsible for ensuring that any ongoing

training and development needs of the Directors that are

relevant for their role in the Company are met. All Directors

are provided with an appropriate induction at the time

of appointment. The remit of the Nomination Committee

includes monitoring the skills and knowledge of the

Directors and, where necessary, further support is provided.

Sapna Shah received a formal induction upon joining

the Board which consisted of meetings with the Chair,

Investment Adviser and Company Secretary.

We recognise that it is essential to keep abreast of regulatory

and compliance changes including Corporate Governance

and ESG-related issues. Accordingly, training programmes

are arranged as and when the need arises.

In addition to the bespoke training sessions, each Director

is expected to maintain their individual professional skills

and is responsible for identifying any training needs to help

them ensure that they maintain the requisite knowledge

to be able to consider and understand the Company’s

responsibilities, business and strategy. All Directors have

access to the advice and services of the Company Secretary.

The Directors are also entitled to take independent advice at

the Company’s reasonable expense at any time.

80 SUPERMARKET INCOME REIT PLC

The Company has reported against the Listing Rules on

diversity and has complied with the targets or otherwise

explained non-compliance below.

Requirement Explanation

At least one senior board position

(Chair, CEO, CFO or SID) is

a woman.

Given the Company is an

Investment Trust, there are

limited roles to satisfy this

criteria (being only the Chair or

SID). The Remuneration, ESG

and Management Engagement

Committee are all Chaired by

women, and the Board consider

these to be senior roles. The

Board will aim to meet this

requirement for the year ending

30 June 2024.

Committee effectiveness

Details of the performance evaluation conducted during the

year can be found on page 79.

Signed on behalf of the Nomination Committee by

Vince Prior

Nomination Committee Chair

 September 

Hampton-Alexander initiative, and the 40% female Board

representation target as set out in the FCA listing rules on

diversity. The Board is committed to maintaining that the

Board, as a whole, will have at least 40% representation of

either gender. The Board is also committed to maintaining at

least one female member on each of its Committees.

FCA Listing Rule requirements

The following table sets out the gender and ethnic diversity

of the Board as at 30 June 2023 in accordance with the

FCA’s Listing Rules, the disclosure of which in this report

having been approved by each of the Directors:

Gender Diversity

Number

of Board

Members

Percentage

of the Board

Number

of Senior

Positions on

the Board*

Men 3 50% 2

Women 3 50% 0

Prefer not to say – – –

Ethnic Diversity

White British or other

White (including minority

white groups)

5 83% 2

Mixed/Multiple Ethnic Groups – – –

Asian/Asian British 1 17% 0

Black/African/Caribbean/

Black British

– – –

Other ethnic group,

including Arab

– – –

*In accordance with the Listing Rules, as an externally managed investment

Company, we do not have any executive management, including the roles

of CEO or CFO, who are Directors of the Company. The Company considers

the SID and Chair to be the only applicable roles with the business and have

reported against these.

CORPORATE GOVERNANCE | NOMINATION COMMITTEE REPORT CONTINUED

ANNUAL REPORT 2023 81

Members of the Investment Adviser and the Group’s Auditor

were invited to attend the Committee meetings. Hanway

Advisory Limited as Company Secretary acts as secretary

to the Committee. The Chair of the Board, Nick Hewson,

whilst not a member of the Audit and Risk Committee

attends meetings during the year by invitation.

As the Committee Chair, I have had regular

communications with the Auditor and senior members

of the Investment Adviser. In addition, the Committee

has discussions throughout the year outside of the formal

Committee meetings.

Activities

Relationship with the Auditor

The Committee has primary responsibility for managing

the relationship with the Auditor, including assessing

their performance, effectiveness and independence

annually as well as recommending to the Board their

reappointment or removal.

BDO LLP (“BDO”) were appointed as the Group’s Auditor in

2017 and we are recommending they are re-appointed at the

forthcoming AGM. Under the Company’s interpretation of

the transitional arrangements for mandatory audit rotation,

the Company will be required to put the external audit out

for tender in the financial year ended 30 June 2028.

Charles Ellis has taken on the role as audit partner from

Thomas Edward Goodworth for the current year end and, in

line with the policy on lead partner rotation, is expected to

rotate off the audit ahead of the 2028 audit.

The Committee has met with the key members of the audit

team over the course of the year and BDO has formally

confirmed its independence as part of the reporting

process. As Chair of the Committee, I regularly speak with

the external audit partner without the Investment Adviser

present to ascertain if there are any concerns, to discuss the

audit reports and to ensure that the Auditor has received

the support and information requested from management.

There have been no concerns identified to date.

The Company became a constituent of the FTSE 350

on 20 June 2022 and confirms that it has complied with

the terms of The Statutory Audit Services for Large

Companies Market Investigation (Mandatory User

of Competitive Tender Processes and Audit and Risk

Committee Responsibilities) Order 2014 (the “Order”)

throughout the year.

Effectiveness and independence

We meet with the Auditor and the Investment Adviser

before the preparation of the Annual results, to plan

and discuss the scope of the audit, and challenge where

necessary to ensure its rigour. At these meetings the Auditor

prepares a detailed audit plan which is discussed and

questioned by us and the Investment Adviser to ensure that

all areas of the business are adequately reviewed and the

materiality thresholds are set at the appropriate level, which

varies depending on the matter in question. We also discuss

with the Auditor its views over significant risk areas and

why it considers these to be risk areas.

Dear Shareholders,

I am pleased to present the Audit and Risk Committee

Report for the year ended 30 June 2023. The Audit and

Risk Committee’s role is to oversee the Group’s financial

reporting process, including the risk management and

internal financial controls in place within the AIFM and the

Investment Adviser, the valuation of the property portfolio,

the Group’s compliance with accepted accounting standards

and other regulatory requirements, as well as the activities

of the Group’s Auditor. I was pleased to welcome Sapna

Shah to the Committee during the year and I am certain

her breadth of experience will be a welcome addition

to the Board.

How the Committee operates

The Audit and Risk Committee Terms of Reference are

available on the Company’s website and on request from the

Company’s registered office.

During the period to 30 June 2023, the Committee

comprised of five Independent Non-Executive Directors of

the Company, none of which are connected to the AIFM or

Investment Adviser.

Committee Members

Jon Austen: Committee Chair

Frances Davies

Vince Prior

Sapna Shah (appointed 29 March 2023)

Cathryn Vanderspar

All the Committee members served for the full year,

unless otherwise stated. Following a review of Committee

membership post year end, effective 1 July 2023, the

Committee now comprises myself as Chair, together with

Vince Prior and Sapna Shah. It should be noted the fees for

the Audit and Risk Committee were not increased for the

year from 1 July 2023. Further information on Directors’

Remuneration can be found in Annual Report on Directors’

Remuneration on pages 90 to 91.

The Committee believes that its members have the right

balance of skills and experience within the real estate sector

to be able to function effectively. The Board considers

that I have recent and relevant financial expertise to chair

the Audit and Risk Committee. Further details of each

Director’s experience can be found in the biographies on

pages 66 to 67.

During the year, the Audit and Risk Committee held three

formal meetings following the Company’s corporate

calendar, which ensures that the meetings are aligned to

the Company’s financial reporting timetable. The Company

Secretary and I ensure that the meetings are of sufficient

length to allow the Committee to consider all important

matters and the Committee is satisfied it receives full

information in a timely manner to allow it to fulfil its

obligations.

CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT

82 SUPERMARKET INCOME REIT PLC

The ratio of non-audit fees to audit fees for the year ended

30 June 2023 was 29%.

The Committee periodically monitors the ratio to ensure that

any fees for permissible non-audit services do not exceed

70% of the average audit fees paid in the last three years.

In addition to ensuring compliance with the Group’s policy

in respect of non-audit services, the Committee also receives

confirmation from BDO that it remains independent and has

maintained internal safeguards to ensure its objectivity.

Financial reporting and significant judgements

We monitor the integrity of the financial information

published in the Interim and Annual Reports and any other

formal announcement relating to financial performance. We

consider whether suitable and appropriate estimates and

judgements have been made in respect of areas which could

have a material impact on the financial statements.

A variety of financial information and reports were

prepared by the Investment Adviser and provided to the

Board and to the Committee over the course of the year.

These included budgets, periodic re-forecasting following

acquisitions or corporate activity, papers to support raising

of additional finance and general compliance.

We also regularly review the Company’s ability to continue

to pay a progressive dividend. All financial information

was fully reviewed and debated both at Committee and

Board level across a number of meetings. The Investment

Adviser and the Auditor update us on changes to accounting

policies, legislation and best practice and areas of significant

judgement by the Investment Adviser. They pay particular

attention to transactions which they deem important due to

size or complexity.

The significant issues considered by the Committee in

respect of the year ended 30 June 2023, which contained

a significant degree of estimation uncertainty, are set out in

the table below.

The Audit and Risk Committee, where appropriate,

continues to challenge and seek comfort from the Auditor

over those areas which drive audit quality. The timescale

for the delivery of the audit or review is also set at these

meetings. We meet with the Auditor again just prior to the

conclusion of the audit or review to consider, challenge and

evaluate findings in depth.

We have considered the objectivity and effectiveness of

the Auditor and we consider that the audit team assigned

to the Company by BDO has the necessary experience,

qualifications and understanding of the business to enable

it to produce a detailed, high-quality, in-depth audit and

permits the team to scrutinise and challenge the Company’s

financial procedures and significant judgements. We ask the

Auditor to explain the key audit risks and how these have

been addressed. We also considered BDO’s internal quality

control procedures and transparency report and found them

to be sufficient. Overall, the Committee is satisfied that the

audit process is transparent and of good quality and the

Auditor has met the agreed audit plan.

Audit and non-audit fees

We continue to believe that, in some circumstances,

the external Auditor’s understanding of the Company’s

business can be beneficial in improving the efficiency and

effectiveness of advisory work. For this reason, we continue

to engage BDO as reporting accountants on the Company’s

issues of equity and debt capital in the normal course of

the Company’s business. Other reputable firms have been

engaged during the year to assist with financial and tax due

diligence on corporate acquisitions as well as general tax

compliance advice.

The Non-Audit Services Policy requires approval by the

Committee above a certain threshold before the external

Auditor is engaged to provide any permitted non-audit

services. The Company paid £103,000 in fees to the Auditor

for non-audit services during the year ended 30 June 2023.

These fees are set out below.

Service Fee (£)

Corporate finance services in connection with

work performed on prospectus opinions

65,000

Interim Review 38,000

Total ,

CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT CONTINUED

ANNUAL REPORT 2023 83

Significant issue How the issue was addressed

Valuation of property portfolio

Cushman and Wakefield have been engaged to value, on a bi-annual

basis, both the Company’s direct property investments and the

underlying properties within the joint venture. The Group’s Direct

Portfolio value as at 30 June 2023 was £1.69 billion (30 June 2022: £1.57

billion) reflecting a valuation decline, net of costs, of 14% for the year on

a like-for-like basis.

The valuation of the Group’s property portfolio is a key determinant of

the Group’s net asset value as well as directly impacting the fee payable

to the Investment Adviser.

The valuation is conducted externally by independent valuers,

however, the nature of the valuation process is inherently subjective

due to the assumptions made in determining market comparable yields

and estimated rental values.

The Audit and Risk Committee met with the valuer on two occasions,

together with the Investment Adviser and external auditor in January

and August to review the valuation included within the half-year and

year-end financial statements. This review included the valuation

process undertaken, changes in market conditions, recent transactions

in the market and how these impacted our Portfolio and the valuer’s

expectations in relation to future rental growth and yield movement.

The Committee asked the valuer to highlight significant judgements

or disagreements with the Investment Adviser during the valuation

process to ensure a robust and independent valuation had taken place.

The Auditor, BDO, reviewed the underlying assumptions using its

real estate experts and provided the Audit and Risk Committee with

a summary of its work as part of its report on the half-year and year

end results.

As a result of these reviews, the Committee concluded that the

valuation had been carried out appropriately and independently. The

Board approved the valuations in February 2023 and September 2023 in

respect of the interim and annual valuations.

Acquisition and disposal of Joint Venture Interests

In January 2023 the Group acquired an additional interest in its joint

venture, Horner (Jersey) LP. In acquiring this additional interest, the

Group increased its joint venture interest in the Sainsbury’s Reversion

Portfolio to 51%.

The evaluation of whether the acquisition should be accounted for as an

asset acquisition or a business combination was an area of significant

judgement.

In March 2023, the Group subsequently disposed of its entire

interest in the Sainsbury’s Reversion Portfolio for gross proceeds of

£430.9 million, of which £136.8 million remained outstanding at the year

end as shown in Note 17.

The determination of the fair value of the contractual receivable at the

point of disposal was an additional area of judgement in accounting for

the disposal transaction.

The Audit and Risk Committee reviewed the Investment Adviser’s

assessment of the accounting for the acquisition transaction which

included the basis for treating the acquisition as an asset acquisition.

As Audit and Risk Chair, I had a meeting with the Investment Adviser,

where we discussed the appropriateness of the calculation of the fair

value applied in arriving at the fair value of the contractual receivable.

The discount rate used was considered appropriate given the

underlying facts and circumstances of the transaction.

The Auditor, BDO, has also reviewed the key judgements applied and

provided the Audit and Risk Committee with a summary of its work as

part of its report on the year end results.

Following the above reviews, the Committee concluded that the

acquisition and disposal had been appropriately accounted for.

Internal audit function

The Group does not have an internal audit function. The

need for this is reviewed annually by the Committee. Due

to the relative lack of complexity and the outsourcing

of the majority of the day to-day operational functions,

the Committee continues to be satisfied that there is no

requirement for such a function.

Fair, balanced and understandable financial statements

The production and audit of the Group’s Annual Report is

a comprehensive process, requiring input from a number of

contributors. To reach a conclusion on whether the Annual

Report is fair, balanced and understandable, as required

under the AIC Code, the Board has requested that the

Committee advise on whether it considers that the Annual

Report fulfils these requirements. In outlining our advice,

we have considered the following:

• The comprehensive documentation that outlines the

controls in place for the production of the Annual Report,

including the verification processes to confirm the

factual content

• The detailed reviews undertaken at various stages of the

production process by the Investment Adviser, AIFM,

Company Secretary, Financial Advisers, Auditor and the

Committee, which are intended to ensure consistency and

overall balance

• Controls enforced by the Investment Adviser, Company

Secretary and other third-party service providers, to

ensure complete and accurate financial records and

security of the Company’s assets

• The Investment Adviser has a highly experienced

team who have a strong proficiency in producing

financial statements

As a result of the work performed, we have concluded and

reported to the Board that the Annual Report for the year

ended 30 June 2023, taken as a whole, is fair, balanced and

understandable and provides the information necessary

for shareholders to assess the Company’s performance,

business model and strategy.

Risk management and internal controls

The Board oversees the Group’s risk management and

internal controls and determines the Group’s risk appetite.

The Board has, however, delegated responsibility for review

of the risk management methodology and the effectiveness

of internal controls to the Audit and Risk Committee. The

Group’s system of internal controls includes financial,

operational and compliance controls and risk management.

Policies and procedures, including clearly defined

levels of delegated authority, have been communicated

throughout the Group.

Internal controls are implemented by the Investment

Adviser in respect of the key operational and financial

processes of the business. These policies are designed to

ensure the accuracy and reliability of financial reporting

and govern the preparation of the financial statements.

84 SUPERMARKET INCOME REIT PLC

Committee effectiveness

I believe that the quality of discussion and level of challenge

by the Committee with the Investment Adviser, the external

audit teams and the valuer, together with the timeliness and

quality of papers received by the Committee, ensures the

Committee is able to perform its role effectively.

Details of the performance evaluation conducted during the

year can be found on page 79.

Signed on behalf of the Audit and Risk Committee by

Jon Austen

Audit and Risk Committee Chair

 September 

As part of the migration of the Company to the Premium

Segment of the London Stock Exchange, a Board

Memorandum was prepared that documented the financial

position and prospects procedures (“FPPP”) of the Company.

This Memorandum was independently reviewed by an

external accountancy firm and no major deficiencies

were identified, which provided the Committee with

additional comfort that the Group’s system of internal

controls remained fit for purpose and robust. We have

confirmed with the Investment Adviser that there have

been no changes to controls since those documented within

that report.

During the year, I also performed a review and walk through

of the key systems and controls in place at the Investment

Adviser which I found to be suitable for a Company

of our size.

Risk register

During the year, the Audit and Risk Committee reviewed

the Group’s risk register, which is maintained by the AIFM

in conjunction with the Investment Adviser and is subject to

the supervision and oversight of the Committee. A summary

of the risk register is also reviewed at least bi-annually

by the Board.

We have reviewed and approved all statements included

in the Annual Report concerning internal controls and risk

management taking into consideration the review of the risk

and knowledge of the business.

We have also reviewed the adequacy of the Company’s

arrangements for any relevant party to raise concerns,

in confidence, about possible wrongdoing in financial

reporting, regulatory or other relevant matters and the

procedures of both the Company’s AIFM and Investment

Adviser for detecting fraud and preventing bribery. We

consider that they are appropriate.

CORPORATE GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT CONTINUED

ANNUAL REPORT 2023 85

Activities

During the year the Committee reviewed the performance

of the Investment Adviser and AIFM and recommended to

the Board, the continued appointment of the Investment

Adviser and AIFM. The Committee also considered the

performance of key service providers to the Company.

Where appropriate, feedback was provided to the

Investment Adviser, AIFM and key service providers to

enhance the level of service provided to the Company.

Management Arrangements

The Company operates an externally managed alternative

investment fund for the purposes of the AIFMD. In its role

as AIFM, JTC Global AIFM Solutions Limited is responsible

for the portfolio management and risk management of the

Company pursuant to the AIFMD, subject to the overall

control and supervision of the Board. Atrato Capital Limited

acts as the Company’s Investment Adviser.

Under the Investment Advisory Agreement, the Investment

Adviser is entitled to receive advisory fees on the

following basis:

The entitlement of the Investment Adviser to advisory fees

is by way of what are termed ‘Monthly Management Fees’

and ‘Semi-Annual Management Fees’, both of which are

calculated by reference to the net asset value of the Group

at particular dates, as adjusted for the financial impact

of certain investment events and after deducting any

uninvested proceeds from share issues up to the date of the

calculation of the relevant fee (these adjusted amounts are

referred to as ‘Adjusted Net Asset Value’ for the purpose of

calculation of the fees in accordance with the Agreement).

Until the Adjusted Net Value of the Group exceeds

£1,500 million, the entitlements to advisory fees can be

summarised as follows:

• Monthly Management Fee payable monthly in arrears:

1/12th of 0.7125% per calendar month of Adjusted Net

Asset Value up to or equal to £500 million, 1/12th of

0.5625% per calendar month of Adjusted Net Asset Value

above £500 million and up to or equal to £1,000 million

and 1/12th of 0.4875% per calendar month of Adjusted

Net Asset Value above £1,000 and up to or equal to

£1,500 million.

• Semi-Annual Management Fee payable semi-annually

in arrears: 0.11875% of Adjusted Net Asset Value up

to or equal to £500 million, 0.09375% of Adjusted Net

Asset Value above £500 million and up to or equal to

£1,000 million and 0.08125% of Adjusted Net Asset Value

above £1,000 million and up to or equal to £1,500 million.

Dear Shareholders

I am pleased to present the Management Engagement

Committee report for the year ended 30 June 2023.

How the Committee operates

The Management Engagement Committee Terms of

Reference are available on the Company’s website and on

request from the Company’s registered office.

During the period to 30 June 2023, the Committee

comprised of six Independent Non-Executive Directors of

the Company, none of which are connected to the AIFM or

Investment Adviser.

Committee Members

Nick Hewson, Committee Chair

Jon Austen

Frances Davies

Vince Prior

Sapna Shah (appointed 29 March 2023)

Cathryn Vanderspar

All of the Committee members served for the full year,

unless otherwise stated. Following a review of Committee

membership post year end, effective 1 July 2023, Sapna

Shah was appointed as Committee Chair, with the

membership otherwise remaining unchanged. Sapna’s

knowledge and experience positions her well to act as Chair

of the Management Engagement Committee.

During the year, the Management Engagement Committee

held one formal meeting. The Company Secretary and

I ensure that the meetings are of sufficient length to allow

the Committee to consider all important matters and the

Committee is satisfied that it receives full information in

a timely manner to allow it to fulfil its obligations.

Members of the Investment Adviser were invited to attend

the Committee meetings. Hanway Advisory Limited as

Company Secretary acts as secretary to the Committee.

Responsibilities

The main function of the Management Engagement

Committee is to review the compliance, by the Investment

Adviser and the AIFM with the Company’s investment

policy and their performance of the duties detailed in their

agreements with the Company.

The Committee will regularly review the composition

of the key executives performing the services on behalf

of the Investment Adviser and monitor and evaluate the

performance of other key service providers to the Company.

The Management Engagement Committee has been in

operation throughout the period and operates within clearly

defined terms of reference.

CORPORATE GOVERNANCE | MANAGEMENT ENGAGEMENT COMMITTEE REPORT

86 SUPERMARKET INCOME REIT PLC

Continuing Appointment of the Investment

Adviser and AIFM

The Management Engagement Committee has reviewed

the continuing appointment of the Investment Adviser and

AIFM and are satisfied that their appointment remained in

the best interests of shareholders as a whole.

Committee effectiveness

Given that the Management Engagement Committee

was established at the beginning of the financial year, its

effectiveness was not reviewed as part of the performance

evaluation undertaken. A review will be undertaken this

year, as part of the performance evaluation process.

Signed on behalf of the Management Engagement

Committee by

Nick Hewson

Management Engagement Committee Chair

 September 

The annual fee paid to the Investment Adviser under

the Investment Advisory Agreement for the year ended

30 June 2023 was £10.3 million (30 June 2022: £9.4 million).

The Investment Advisory Agreement may be terminated by

the Investment Adviser or the Company with no less than

two years written notice.

During the year under review the AIFM was paid a fee of

0.04% per annum of the net asset value of the Company,

subject to a minimum of £50,000 per annum, such fee being

payable quarterly in arrears. With effect from 1 April 2022,

the AIFM reduced its fees on the net asset value of the

Company over £1 billion to 0.03% of the net asset value over

£1 billion. The total fees paid to the AIFM during the year

under review were £480,763.62.

During the financial year under review, no separate

remuneration was paid by the AIFM to two of its executive

directors, Graham Taylor and Kobus Cronje, because they

were both employees of the JTC group of companies, of

which the AIFM forms part. The third executive director,

Matthew Tostevin, is paid a fixed fee of £10,000 for acting

as a director. Mr Tostevin is paid additional remuneration

on a time spent basis for services rendered to the AIFM

and its clients. Other than the directors, the AIFM has no

employees. The Company has no agreement to pay any

carried interest to the AIFM. During the year under review,

the AIFM paid £10,000 in fixed fees and £43,478.75 in

variable remuneration to Mr Tostevin.

Further information on the AIFM’s remuneration can be

found in the Alternative Investment Fund Manager’s Report

on pages 95 to 96.

CORPORATE GOVERNANCE | MANAGEMENT ENGAGEMENT COMMITTEE REPORT CONTINUED

ANNUAL REPORT 2023 87

The Committee’s other key responsibilities include:

• Overseeing the establishment and implementation of

policies and codes of practice

• Set KPI’s related to ESG matters and oversee the

performance against those KPI’s

• Identify the required resourcing and funding of

ESG-related activity

• Oversee the Company’s engagement with its broader

stakeholder community

• Ensure the Company monitors and reviews current and

emerging ESG trends, relevant international standards

and legislative requirements and identify how those are

likely to impact upon the Company

The Committee focuses on the following three areas:

Environmental: the Company’s impact on the natural

environment and its response to the challenge of climate

change including; greenhouse gas emissions, energy

consumption, generation and use of renewable energy,

biodiversity and habitat, impact on water resources and

deforestation, pollution, efficient use of resources, the

reduction and management of waste, and the environmental

impact of the Company’s supply chain.

Social: the Company’s interaction with stakeholders

and the communities in which it operates and the role

of the Company in society including; board policies (e.g.

stakeholder engagement, diversity, non-discrimination

and equality of treatment, health safety and well-being),

ethical/responsible sourcing and social aspects and labour

standards of the supply chain (including child labour and

modern slavery), and engagement with and contribution

to the broader community through social projects and

charitable donations.

Corporate Governance and Behaviour: the ethical conduct of

the Company’s business including its corporate governance

framework, business ethics, policies, and codes of conduct

(e.g. related to donations and political lobbying, bribery and

corruption), and the transparency of non-financial reporting.

Activities

During the year we held our inaugural meeting at which

we considered the Company’s progress against the

commitments we made last year.

Further details on the Company’s progress against these and

its commitments for the next financial year are provided

in the TCFD report on pages 35 to 50 and the Company’s

Sustainability report.

I look forward to updating you on our progress with our

sustainability strategy in our next report.

Signed on behalf of the ESG Committee by

Frances Davies

ESG Committee Chair

 September 

Dear Shareholders

I am pleased to present the ESG Committee report for the

year ended 30 June 2023.

How the Committee operates

The ESG Committee Terms of Reference are available on

the Company’s website and on request from the Company’s

registered office.

The Committee comprised of six Independent

Non-Executive Directors of the Company, none of which are

connected to the AIFM, or Investment Adviser.

Committee Members

Frances Davies, Chair of the Committee

Jon Austen

Nick Hewson

Vince Prior

Sapna Shah (appointed 29 March 2023)

Cathryn Vanderspar

All of the Committee members served for the full year,

unless otherwise stated. Following a review of Committee

membership post year end, effective 1 July 2023, the

Committee now comprises Frances Davies as Chair, Cathryn

Vanderspar and Nick Hewson.

Members of the Investment Adviser and AIFM were

invited to attend the Committee meetings. Hanway

Advisory Limited as Company Secretary acts as secretary to

the Committee.

During the year, the ESG Committee held its inaugural

meeting. The Company Secretary and I ensure that the

meetings are of sufficient length to allow the Committee

to consider all important matters and the Committee is

satisfied that it receives full information in a timely manner

to allow it to fulfil its obligations.

Committee effectiveness

As the Committee was established on 1 July 2022, an

evaluation of the Committee’s effectiveness has not yet

been conducted and will be completed in the year ending

30 June 2024.

Responsibilities

The Committee serves as an independent and objective

party to monitor the integrity and quality of the Company’s

ESG strategy, to ensure that the Company’s ESG strategy

is integrated into its business plan, corporate values and

objectives and serves to foster a culture of responsibility and

transparency and to review and approve the Company’s

annual reporting in relation to ESG.

CORPORATE GOVERNANCE | ESG COMMITTEE REPORT

88 SUPERMARKET INCOME REIT PLC

Committee Responsibilities

The main responsibilities of the Remuneration Committee,

which apply as necessary to the Company, its subsidiary

undertakings and the Group as a whole, are to:

• Set the remuneration policy for the Board and the

Company’s Chair

• Review the ongoing appropriateness and relevance of the

remuneration policy

• Agree the policy for authorising claims for expenses for

the Directors

In determining Remuneration Policy, the Remuneration

Committee takes into account all factors which it

deems necessary, including the Company’s strategy

and the risk environment in which it operates, relevant

legal and regulatory requirements, the provisions and

recommendations of the AIC Code considered to be

relevant, and associated guidance. In order to obtain

reliable, up to date information about remuneration in

other companies of comparable scale and complexity,

the Remuneration Committee may appoint remuneration

consultants and commission or purchase any reports,

surveys or information which it deems necessary, at

the expense of the Company but within any budgetary

constraints imposed by the Board.

The Committee is responsible for appropriately managing

Directors’ conflicts of interests. Directors' other interests

have been disclosed. No conflicts have been identified

during the year. If a conflict were to be identified, the

Committee would take the appropriate steps to resolve and

manage such conflicts appropriately.

It is the Board’s policy that Directors do not have service

contracts, but each new Director is provided with a letter of

appointment, and these are available for inspection at the

Company’s registered office. Each Director is appointed for

an initial three-year term subject to annual re-election at the

Company’s AGM. Directors are typically expected to serve

two three-year terms but may be invited by the Board to

serve for an additional period. The Directors appointments

can be terminated at no notice in accordance with the terms

of the letters of appointment without compensation for

loss of office.

Committee effectiveness

Details of the performance evaluation conducted during the

year can be found on page 79.

Signed on behalf of the Remuneration Committee by

Cathryn Vanderspar

Remuneration Committee Chair

 September 

Dear Shareholders

I am pleased to present the Remuneration Committee report

for the year ended 30 June 2023.

How the Committee operates

The Remuneration Committee Terms of Reference are

available on the Company’s website and on request from the

Company’s registered office.

Our Committee comprised of six Independent

Non-Executive Directors of the Company, none of which are

connected to the AIFM, or Investment Adviser.

Committee Members

Cathryn Vanderspar: Committee Chair

Jon Austen

Frances Davies

Nick Hewson

Vince Prior

Sapna Shah (appointed 29 March 2023)

All the Committee members served for the full year,

unless otherwise stated. Following a review of Committee

membership post year end, effective 1 July 2023, the

Committee now comprises Cathryn Vanderspar as Chair,

Frances Davies and Jon Austen.

During the year, the Remuneration Committee held two

formal meetings. The Company Secretary and I ensure that

the meetings are of sufficient length to allow the Committee

to consider all important matters and the Committee is

satisfied that it receives full information in a timely manner

to allow it to fulfil its obligations.

Members of the Investment Adviser were invited to attend

the Committee meetings. Hanway Advisory Limited

as Company Secretary also attended as secretary to

the Committee.

The Committee determines the level of Non-Executive

Directors’ remuneration. A benchmarking exercise was

undertaken in the year. The Committee reviewed the

benchmarking and, taking into account also the wider

market considerations, in consultation with the Investment

Adviser and the brokers, concluded that there would be

no changes to Directors’ remuneration for the year ending

30 June 2024, with the exception of the introduction of

a fee of £5,000 per annum for the Chair of the Management

Engagement Committee, to reflect the time commitment

required for that role. As discussed on page 63 of the 2022

Annual Report, the Directors’ remuneration was increased

from 1 July 2022, following a benchmarking exercise

undertaken in the prior year.

Full details of the Group’s policy with regards to Directors’

remuneration paid during the year ended 30 June 2023 are

shown below.

CORPORATE GOVERNANCE | REMUNERATION COMMITTEE REPORT

ANNUAL REPORT 2023 89

Additional Directors’ fees may be paid by the Company

where Directors are involved in duties beyond those

normally expected as part of the Directors’ appointment.

In such instances, where additional remuneration is paid,

the Board will provide details of the events, duties and

responsibilities that gave rise to any additional directors’

fees in the Company’s annual report.

No element of the Directors’ remuneration is performance

related, nor does any director have any entitlement to

pensions, share options or any long-term incentive plans

from the Company. Directors’ fees are payable in cash,

monthly in arrears.

The Directors hold their office in accordance with the

Articles of Association and their appointment letters. No

Director has a service contract with the Company, nor are

any such contracts proposed. The directors’ appointments

can be terminated in accordance with the Articles of

Association and without compensation.

In accordance with the Articles of Association, all Directors

are required to retire and seek re-election at least every three

years. Although not required by the Company’s Articles

of Association, the Company is choosing to comply with

Provision 23 of the AIC Code requiring all Directors to

be subject to annual election. All Directors retire at each

Annual General Meeting and those eligible and wishing to

serve again offer themselves for election.

DIRECTORS’ REMUNERATION POLICY

The Company’s policy is to determine the level of Directors’

fixed annual fees in accordance with its Articles of

Association.

When setting the level of Directors’ fees, the Company will

have due regard to the experience of the Board as a whole,

the time commitment required, the responsibilities of

the role and to be fair and comparable to non-executive

directors of similar companies.

Furthermore, the level of remuneration should be sufficient

to attract and retain the Directors needed to oversee the

Company properly and to reflect its specific circumstances.

The Company may also periodically choose to benchmark

Directors’ fees with an independent review, to ensure they

remain fair and reasonable.

Directors’ fees are reviewed annually and will be adjusted

from time to time, as may be determined by the board

under the Articles of Association and this policy. In terms

of the Company’s Articles of Association, the aggregate

remuneration of all the directors shall not exceed

£500,000 per annum but this may be changed by way of

ordinary resolution.

The Directors are also entitled to be paid their reasonable

expenses incurred in undertaking their duties.

90 SUPERMARKET INCOME REIT PLC

Year ended

30 June

2023

£’000

Year ended

30 June

2022

£’000

Fixed

Remuneration

(both years)

Annual

percentage

change since

30 June

2022

(1)

Nick Hewson 75 70 100 7

Jon Austen 62 58 100 7

Vince Prior 62 58 100 7

Cathryn

Vanderspar

58 55 100 5

Frances

Davies

58 4 N/A N/A

Sapna Shah* 18 N/A N/A N/A

() Or date of appointment, if later.

* Appointed  March 

Relative importance of spend on pay

The table below sets out, in respect of the year ended

30 June 2023:

a) The remuneration paid to the Directors

b) The management fee and expenses which have been

included to give shareholders a greater understanding of

the relative importance of spend on pay

c) Distributions to shareholders by way of dividend to

provide a comparison of the shareholders’ returns against

Directors’ remuneration

Year ended

30 June 2023

£’000

Year ended

30 June 2022

£’000

Variance year

on year %

Directors’ fees 330 245 36%

Management fee

and expenses 10,292 9,405 9%

Dividends paid 74,328 53,190 40%

Directors’ fees as a percentage of

Year ended

30 June 2023

Year ended

30 June 2022

Management fee and expenses 3.2 2.6

Dividends paid 0.44 0.46

ANNUAL REPORT ON DIRECTORS’ REMUNERATION

Directors’ Fees

The Committee considers the level of Directors’ fees at

least annually. Reviews of Directors’ fees take place in

each financial year, with any changes being applicable

from the start of the next financial year. The remuneration

of the Directors was benchmarked during the year ended

30 June 2023. Following consultation with the Investment

Adviser and the brokers, the Committee concluded that

the Directors’ remuneration remains unchanged with the

exception of the introduction of a fee of £5,000 per annum

for the Chair of the Management Engagement Committee

to reflect the time commitment required for that role. There

are no further changes to the Director’s remuneration for

this year. In aggregate, total fees remain under the limit set

out in the governing documents as set out below.

Revised fee per

annum from

1 July 2023

Fee per annum

year ended

30 June 2023

Chair

£75,000 £75,000

Non-Executive

Directors (“NED”s) £52,500 £52,500

Senior Independent

Director (SID)* £5,000 £5,000

Audit

Committee Chair* £9,000 £9,000

Remuneration

Committee Chair* £5,000 £5,000

Nomination

Committee Chair* £4,000 £4,000

Management

Engagement

Committee Chair* £5,000 –

Environmental, Social,

and Governance

Committee Chair* £5,000 £5,000

*No additional fee is payable for Committee Chair positions undertaken by the

Chair of the Board

Directors’ emoluments – single total figure table (audited)

The Directors who served during the year received the

following emoluments, all of which was in the form of fees.

No Directors received any expenses.

CORPORATE GOVERNANCE | REMUNERATION COMMITTEE REPORT CONTINUED

ANNUAL REPORT 2023 91

Consideration of shareholder views

The Company is committed to engagement with

shareholders and will seek major shareholders’ views in

advance of making significant changes to its remuneration

policy and how it is implemented. The Chair of the

Remuneration Committee attends the AGM to hear the

views of shareholders on remuneration and to answer

any questions.

The Directors’ Remuneration Policy was approved by

shareholders at the 2021 AGM with 99.98% of the votes

cast being in favour of the resolution. The Directors’

remuneration report for the year ended 30 June 2022 was

approved by the shareholders at the 2022 AGM with 99.99%

of the votes cast being in favour. The Remuneration Policy is

subject to a binding vote at the 2024 AGM.

Voting at Annual General Meeting

An Ordinary Resolution to approve the Director’s

Remuneration Report will be put to shareholders at

the Company’s AGM and shareholders will have the

opportunity to express their views and raise any queries

in respect of the Director’s Remuneration Report at

this meeting.

This Directors’ Remuneration Report is approved on behalf

of the Board by

Cathryn Vanderspar

Remuneration Committee Chair

 September 

Directors’ shareholdings (audited)

The Directors (and their PCA’s) had the following beneficial

interests in the issued ordinary share capital of the Company

as at 30 June 2023 and at the date of this report:

Directors

As at the date

of this report

As at

30 June 2023

Nick Hewson 1,263,309 1,263,309

Jon Austen 305,339 305,339

Vince Prior 213,432 213,432

Cathryn Vanderspar 125,802 125,802

Frances Davies 36,774 24,774

Sapna Shah 28,951 28,951

The Company does not oblige the Directors to hold shares

in the Company, but this is encouraged to ensure the

appropriate alignment of interests.

Group performance – Total Shareholder Return

The Board is responsible for the Group’s investment strategy

and performance, whilst the management of the investment

portfolio is delegated to the AIFM. The AIFM has, in turn,

delegated certain services, including but not limited to

advice on acquisitions and financing, to the Investment

Adviser. The graph below compares, for the period from our

IPO in June 2017 to 30 June 2023, the total return (assuming

all dividends are reinvested) to ordinary shareholders

compared to the FTSE All-Share Index. This index was

chosen as it is considered an indicative measure of the

expected return from an equity stock. An explanation of the

performance of the Group for the year ended 30 June 2023

is given in the Strategic Report.

100

120

140

160

Jun 17

The Company FTSE All Share

Oct 17 Feb 18 Jun 18 Oct 18 Feb 19 Jun 19 Oct 19 Feb 20 Jun 20 Oct 20 Feb 21 Jun 21 Oct 21 Feb 22 Jun 22 Oct 22 Feb 23 Jun 23

Relative performance

FTSE All Share vs The Company

It is a company law requirement to compare the

performance of the Group’s share price to a single broad

equity market index on a total return basis. However, it

should be noted that constituents of the comparative index

used above are larger in size than the Group. The Group

does not have a benchmark index.

92 SUPERMARKET INCOME REIT PLC

The Board’s role is to provide entrepreneurial leadership of

the Company within a framework of prudent and effective

controls which enables risk to be assessed and managed.

It also sets up the Group’s strategic aims, ensuring that the

necessary resources are in place for the Group to meet its

objectives and review investment performance. The Board

also sets the Group’s values, standards and culture. Further

details on the Board’s role can be found in the Corporate

Governance Report on pages 70 to 73.

Appointment and replacement of Directors

All Directors were elected or re-elected at the AGM on

17 November 2022, with the exception of Sapna Shah who

was appointed to the Board on 1 March 2023. In accordance

with the AIC Corporate Governance Code, all the Directors

will retire and those who wish to continue to serve will offer

themselves for election or re-election at the forthcoming

Annual General Meeting.

Directors’ indemnity

The Company maintains £30 million of Directors’ and

Officers’ Liability Insurance cover for the benefit of the

Directors, which was in place throughout the year. The level

of cover was increased to £35 million on 17 July 2023 and

continues in effect at the date of this report.

Significant shareholdings

The table below shows the interests in shares notified to the

Company in accordance with Chapter 5 of the Disclosure

Guidance and Transparency Rules issued by the Financial

Conduct Authority who have a disclosable interest of

3% or more in the ordinary shares of the Company as at

30 June 2023.

Number of shares

Percentage of issued

share capital

Blackrock Inc. 68,196,517 5.46%

Schroders Plc 63,131,941 5.08%

Quilter Plc 62,058,617 4.99%

Ameriprise Financial, Inc. 61,728,272 4.98%

Waverton Investment

Management Limited 46,422,935 3.79%

Since the year end, and up to 19 September 2023, the

Company has not received any further notifications of

changes of interest in its ordinary shares in accordance with

DTR 5. The information provided is correct as at the date of

notification.

Donations and contributions

The Group made no political or charitable donations during

the year (2022: none).

Branches outside the UK

The Company has no branches outside the UK.

Financial risk management

The Group’s exposure to, and management of, capital risk,

market risk and liquidity risk is set out in note 21 to the

Group’s financial statements.

The Directors present their report together with the audited

financial statements for the year ended 30 June 2023. The

Corporate Governance Statement on pages 76 to 77 forms

part of this report.

Principal activities and status

The Company is registered as a UK public limited company

under the Companies Act 2006. It is an Investment

Company as defined by Section 833 of the Companies Act

2006 and has been established as a closed-ended investment

company with an indefinite life. The Company has a single

class of shares in issue which were traded during the year

on the Premium List of the London Stock Exchange’s Main

Market. The Group has entered the Real Estate Investment

Trust regime for the purposes of UK taxation.

The Company is a member of the Association of Investment

Companies (the AIC).

Results and dividends

The results for the year are set out in the attached financial

statements. It is the policy of the Board to declare and pay

dividends as quarterly interim dividends.

In respect of the 30 June 2023 financial year, the Company

has declared the following interim dividends amounting to

6.00 pence per share (2022: 5.94 pence per share).

Relevant Period

Dividend

per share

(pence)

Ex-dividend

date Record date Date paid

Quarter ended

30 September 2022 1.50 6 Oct 2022 7 Oct 2022 16 Nov 2022

Quarter ended

31 December 2022 1.50 19 Jan 2023 20 Jan 2023 23 Feb 2023

Quarter ended

31 March 2023 1.50 20 Apr 2023 21 Ap 2023 26 May 2023

Quarter ended

30 June 2023 1.50 13 Jul 2023 14 Jul 2023 4 Aug 2023

Dividend policy

Subject to market conditions and performance, financial

position and outlook, it is the Directors’ intention to pay

an attractive level of dividend income to shareholders

on a quarterly basis. The Company intends to grow

the dividend progressively through investment in

supermarket properties with upward-only, predominantly

inflation-protected, long-term lease agreements.

Directors

The names of the Directors who served in the year ended

30 June 2023 are set out in the Board of Directors section on

pages 66 to 67 together with their biographical details and

principal external appointments.

Powers of Directors

The Board will manage the Company’s business and may

exercise all the Company’s powers, subject to the Articles,

the Companies Act and in certain circumstances, are subject

to the authority being given to the Directors by shareholders

in general meeting.

CORPORATE GOVERNANCE | DIRECTORS’ REPORT

ANNUAL REPORT 2023 93

Share capital structure

As at 30 June 2023, the Company’s issued share capital

consisted of 1,246,239,185 ordinary shares of one penny

each, all fully paid and listed on the Premium List of the

London Stock Exchange’s Main Market. Further details of

the share capital, including changes throughout the year are

summarised in note 22 of the financial statements.

Subject to authorisation by Shareholder resolution, the

Company may purchase its own shares in accordance with

the Companies Act 2006. At the Annual General Meeting

held in 2022, shareholders authorised the Company to make

market purchases of up to 186,140,810 Ordinary Shares.

The Company has not repurchased any of its ordinary

shares under this authority, which is due to expire at the

AGM in 2023 and appropriate renewals will be sought.

There are no restrictions on transfer or limitations on the

holding of the ordinary shares. None of the shares carry any

special rights with regard to the control of the Company.

There are no known arrangements under which financial

rights are held by a person other than the holder of the

shares and no known agreements on restrictions on share

transfers and voting rights.

Post balance sheet events

For details of events since the year end date, please refer to

note 28 of the consolidated financial statements.

Corporate Governance

The Company’s statement on corporate governance can be

found in the Corporate Governance Report on pages 76 to

77 of this Annual Report. The Corporate Governance Report

forms part of this directors’ report and is incorporated into it

by cross-reference.

Information included in the strategic report

The information that fulfils the reporting requirements

relating to the following matters can be found on the

pages identified.

Subject matter Page reference

Likely future developments  to 

Signed by order of the Board on 19 September 2023

Nick Hewson

Chair

 September 

Amendments to the Articles

The Articles may only be amended with shareholders’

approval in accordance with the relevant legislation.

Employees

The Group has no employees and therefore no employee

share scheme or policies for the employment of disabled

persons or employee engagement.

Anti-bribery policy

The Company has a zero-tolerance policy towards bribery

and is committed to carrying out its business fairly, honestly

and openly. The anti-bribery policies and procedures apply

to all its Directors and to those who represent the Company.

Human Rights

The Company has a zero-tolerance approach to modern

slavery and human trafficking and is committed to

ensuring its organisation and business partners operate

with the same values. The Company’s modern slavery

and human trafficking statement can be found on the

Company’s website.

Research and development

No expenditure on research and development was made

during the period.

Related party transactions

Related party transactions for the year ended 30 June 2023

can be found in note 27 of the financial statements.

Annual General Meeting

The Annual General Meeting of the Company will be held

on 7 December 2023.

Greenhouse gas emissions

As a listed entity, the Company is required to comply with

the Streamlined Energy and Carbon Reporting (SECR)

regulations under the Companies (Directors’ Report) and

Limited Liability Partnerships (Energy and Carbon Report)

Regulations 2018. Information regarding emissions arising

from the Group's activities are included within the TCFD

aligned report on pages 35 to 50.

Disclosure of information to auditor

All of the Directors have taken all the steps that they ought

to have taken to make themselves aware of any information

needed by the auditor for the purposes of their audit and to

establish that the auditor is aware of that information. The

Directors are not aware of any relevant audit information of

which the auditor is unaware.

Significant agreements

The Company entered into a new unsecured borrowing

facility on 1 July 2022 provided by a syndicate of lenders.

The facility includes provisions that may require any

outstanding borrowings to be repaid or the alteration or

termination of the facilities in the event of a change of

control at the ultimate parent company level.

There are no agreements with the Company or a subsidiary

in which a Director is or was materially interested or to

which a controlling shareholder was party.

94 SUPERMARKET INCOME REIT PLC

CORPORATE GOVERNANCE | DIRECTORS’ RESPONSIBILITIES STATEMENT

The Company is required to make the Annual Report and

Accounts available on a website. The Company’s website

address is www.supermarketincomereit.com. Financial

statements are published on the Company’s website

in accordance with legislation in the United Kingdom

governing the preparation and dissemination of financial

statements, which may vary from such legislation in

other jurisdictions. The maintenance and integrity of the

Company’s website is the responsibility of the Directors. The

Directors’ responsibility also extends to the ongoing integrity

of the financial statements contained therein.

Responsibility Statement

The Directors confirm to the best of their knowledge:

• The Group financial statements prepared in accordance

with UK adopted international accounting standards and

the Company financial statements prepared in accordance

with applicable law and United Kingdom Accounting

Standards (United Kingdom Generally Accepted

Accounting Practice), including Financial Reporting

Standard 102 “The Financial Reporting Standard

applicable in the UK and Republic of Ireland give a true

and fair view of the assets, liabilities, financial position

and profit or loss of the Group

• The Annual Report and Accounts include a fair review

of the development and performance of the business

and the position of the Group and Company, together

with a description of the principal risks and uncertainties

that they face

• The Annual Report and Accounts taken as whole, is

fair, balanced and understandable and the information

provided to shareholders is sufficient to allow them

to assess the Group’s performance, business model

and strategy

This Responsibility Statement was approved by the Board of

Directors and is signed on its behalf by

Nick Hewson

Chair

 September 

The Directors are responsible for preparing the Annual

Report and Accounts in accordance with applicable law and

regulations.

The UK Companies Act 2006 requires the Directors to

prepare financial statements for each financial period.

Under that law, the Directors have elected to prepare the

Group financial statements in accordance with UK adopted

international accounting standards and the Company

financial statements in accordance with applicable law and

United Kingdom Accounting Standards (United Kingdom

Generally Accepted Accounting Practice), including

Financial Reporting Standard 102 “The Financial Reporting

Standard applicable in the UK and Republic of Ireland”.

Under company law the Directors must not approve the

financial statements unless they are satisfied that they

give a true and fair view of the state of affairs of the Group

and Company and of the profit or loss of the Group for

that period.

In preparing these financial statements, the Directors are

required to:

• Select suitable accounting policies and then apply them

consistently

• Make judgements and accounting estimates that are

reasonable and prudent

• State whether applicable accounting standards have been

followed, subject to any material departures disclosed and

explained in the financial statements

• Prepare the financial statements on the going concern

basis unless it is inappropriate to presume that the Group

and Company will continue in business

• Prepare a Directors’ Report, a Strategic Report, Directors’

Remuneration Report and Corporate Governance

Statement which comply with the requirements of the

Companies Act 2006

The Directors are responsible for keeping adequate

accounting records that are sufficient to show and explain

the Company’s transactions and disclose with reasonable

accuracy at any time the financial position of the Company

and enable them to ensure that the financial statements

comply with the requirements of the Companies Act 2006.

They are also responsible for safeguarding the assets of the

Company and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring that the Annual

Report and Accounts, taken as a whole, are fair, balanced,

and understandable and provides the information necessary

for shareholders to assess the Group’s performance,

business model and strategy.

ANNUAL REPORT 2023 95

CORPORATE GOVERNANCE | ALTERNATIVE INVESTMENT FUND MANAGER’S REPORT

4. Environmental, Social and Governance (ESG) Issues

and Regulation (EU) 2019/2099 on Sustainability-Related

Disclosures in the Financial Services Sector (the “SFDR”)

As a member of the JTC group of Companies, the AIFM’s

ultimate beneficial owner and controlling party is JTC

Plc, a Jersey-incorporated company whose shares have

been admitted to the Official List of the UK’s Financial

Conduct Authority and to trading on the London Stock

Exchange’s Main Market for Listed Securities (mnemonic

JTC LN, LEI 213800DVUG4KLF2ASK33). In the conduct

of its own affairs, the AIFM is committed to best practice

in relation to ESG matters and has therefore adopted JTC

Plc’s ESG framework, which can be viewed online at

https://www.jtcgroup.com/esg/. JTC Plc’s sustainability

report can also be viewed online at https://www.jtcgroup.

com/investor-relations/annual-review/.

As at the date of this report, JTC Plc is a signatory of the

U.N. Principles for Responsible Investment. The JTC group

is also carbon neutral and works to support the achievement

of ten of the U.N.’s Sustainable Development Goals. JTC Plc

reports under TCFD and under the SASB framework.

From the perspective of the SFDR, although the AIFM is

a non-EU AIFM, the Company is marketed into the EEA, so

that the AIFM is required to comply with the SFDR in so far

as it applies to the Company and the AIFM’s management

of the Company, which the Company has classified as being

within the scope of Article 6 of the SFDR.

The AIFM and Atrato Capital Limited (“Atrato”) as

the Company’s Alternative Investment Fund Manager

and Investment Adviser respectively do consider ESG

matters in their respective capacities, as explained in

SUPR’s prospectus dated 1 October, 2021, as updated

by SUPR’s supplementary prospectus dated 7 April,

2022. Copies of both of those documents can be viewed

on the AIFM’s website at https://jtcglobalaifmsolutions.

com/clients/supermarket-income-reit-plc/.

Since the publication of those documents, the AIFM,

Atrato and the Company have continued to enhance their

collective approach to ESG matters and detailed reporting

on (a) enhancements made to each party’s policies,

procedures and operational practices and (b) our collective

future intentions and aspirations is included in the TCFD

Compliant Report included in the Strategic Report and the

ESG Committee Report in this annual financial report. The

Company is also publishing a separate Sustainability Report

on its website.

Background

The Alternative Investment Fund Managers Directive (the

AIFMD) came into force on 22 July 2013. The objective of

the AIFMD was to ensure a common regulatory regime for

funds marketed in or into the EU which are not regulated

under the UCITS regime. This was primarily for investors’

protection and also to enable European regulators to obtain

adequate information in relation to funds being marketed

in or into the EU to assist their monitoring and control of

systemic risk issues.

The AIFM is a non-EU Alternative Investment Fund

Manager (a “Non-EU AIFM”), the Company is a non-EU

Alternative Investment Fund (a “Non-EU AIF”) and the

Company is marketed primarily into the UK, but also into

the EEA. Although the AIFM is a non-EU AIFM, so the

depositary rules in Article 21 of the AIFMD do not apply, the

transparency requirements of Articles 22 (Annual report)

and 23 (Disclosure to investors) of the AIFMD do apply to

the AIFM and therefore to the Company. In compliance

with those articles, the following information is provided to

the Company’s shareholders by the AIFM.

1. Material Changes in the Disclosures to Investors

During the financial year under review, there were no

material changes to the information required to be made

available to investors before they invest in the Company

under Article 23 of the AIFMD from that information set

out in the Company’s prospectus dated 1 October, 2021,

save as updated in the supplementary prospectus dated

7 April, 2022, as disclosed below and in certain sections

of the Strategic Report, those being the Chair’s Statement,

Investment Adviser’s Interview, The UK Grocery Market,

TCFD Compliant Report, Our Principal Risks and the

Section 172(1) Statement, together with the Corporate

Governance Reports in this annual financial report.

2. Risks and Risk Management Policy

The current principal risks facing the Company and the

main features of the risk management systems employed by

AIFM and the Company to manage those risks are set out

in the Strategic Report (Our Principal Risks), the Audit and

Risk Committee Report and in the Directors’ Report.

3. Leverage and borrowing

The Company is entitled to employ leverage in accordance

with its investment policy and as described in the Chair’s

Statement, the sections entitled “Financial Highlights” and

“Financial Overview” in the Strategic Report and in the

notes to the financial statements. Other than as disclosed

therein, there were no changes in the Company’s borrowing

powers and policies.

96 SUPERMARKET INCOME REIT PLC

CORPORATE GOVERNANCE | ALTERNATIVE INVESTMENT FUND MANAGER’S REPORT CONTINUED

The AIFM also has a comprehensive risk matrix (the

“Matrix”), which is used to identify, monitor and manage

material risks to which the Company is exposed,

including ESG and sustainability risks, the latter being an

environmental, social or governance event or condition that,

if it occurred, could cause an actual or a potential material

negative impact on the value of an investment. We also

consider sustainability factors, those being environmental,

social and employee matters, respect for human rights,

anti-corruption and anti-bribery matters.

The AIFM is cognisant of the announcement published by

H.M. Treasury in the UK of its intention to make mandatory

by 2025 disclosures aligned with the recommendations of

the Task Force on Climate-related Financial Disclosures,

with a significant proportion of disclosures mandatory by

2023. The AIFM also notes the roadmap and interim report

of the UK’s Joint Government-Regulator TCFD Taskforce

published by H.M. Treasury on 9 November, 2020. The

AIFM continues to monitor developments and intends to

comply with the UK’s regime to the extent either mandatory

or desirable as a matter of best practice.

5. Remuneration of the AIFM’s Directors and Employees

During the financial year under review, no separate

remuneration was paid by the AIFM to two of its executive

directors, Graham Taylor and Kobus Cronje, because they

were both employees of the JTC group of companies, of

which the AIFM forms part. The third executive director,

Matthew Tostevin, is paid a fixed fee of £10,000 for acting

as a director. Mr Tostevin is paid additional remuneration

on a time spent basis for services rendered to the AIFM

and its clients. Other than the directors, the AIFM has no

employees. The Company has no agreement to pay any

carried interest to the AIFM. During the year under review,

the AIFM paid £10,000 in fixed fees and £43,478.75 in

variable remuneration to Mr Tostevin.

6. Remuneration of the AIFM Payable by the Company

The AIFM was during the year under review paid a fee of

0.04% per annum of the net asset value of the Company up

to £1 billion and 0.03% of the Company’s net asset value in

excess of £1 billion, subject to a minimum of £50,000 per

annum, such fee being payable quarterly in arrears. The

total fees paid to the AIFM during the year under review

were £480,763.62.

JTC Global AIFM Solutions Limited

Alternative Investment Fund Manager

 September 

ANNUAL REPORT 2023 97

FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC

Opinion on the financial statements

In our opinion:

• the financial statements give a true and fair view of

the state of the Group’s and of the Parent Company’s

affairs as at 30 June 2023 and of the Group’s loss for the

year then ended;

• the Group financial statements have been properly

prepared in accordance with UK adopted international

accounting standards;

• the Parent Company financial statements have been

properly prepared in accordance with United Kingdom

Generally Accepted Accounting Practice; and

• the financial statements have been prepared

in accordance with the requirements of the

Companies Act 2006.

We have audited the financial statements of Supermarket

Income REIT Plc (the ‘Parent Company’) and its subsidiaries

(the Group) for the year ended 30 June 2023 which comprise

the consolidated statement of comprehensive income, the

consolidated and company statements of financial position,

the consolidated and company statements of changes in

equity, the consolidated cash flow statement and notes to

the financial statements, including a summary of significant

accounting policies. The financial reporting framework

that has been applied in their preparation is applicable law

and UK adopted international accounting standards. The

financial reporting framework that has been applied in the

preparation of the Parent Company financial statements is

applicable law and United Kingdom Accounting Standards,

including Financial Reporting Standard 102 The Financial

Reporting Standard applicable in the United Kingdom and

Republic of Ireland (United Kingdom Generally Accepted

Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (UK) (ISAs (UK)) and applicable

law. Our responsibilities under those standards are further

described in the Auditor’s responsibilities for the audit of

the financial statements section of our report. We believe

that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion. Our audit

opinion is consistent with the additional report to the

audit committee.

Independence

Following the recommendation of the Audit Committee,

we were appointed by the Directors in June 2017 to audit

the financial statements for the 13-month period ended

30 June 2018 and subsequent financial periods. The period

of total uninterrupted engagement including retenders

and reappointments is 6 years, covering the years ended

2018 to 2023. We remain independent of the Group

and the Parent Company in accordance with the ethical

requirements that are relevant to our audit of the financial

statements in the UK, including the FRC’s Ethical Standard

as applied to listed public interest entities, and we have

fulfilled our other ethical responsibilities in accordance

with these requirements. The non-audit services prohibited

by that standard were not provided to the Group or the

Parent Company.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that

the Directors’ use of the going concern basis of accounting

in the preparation of the financial statements is appropriate.

Our evaluation of the Directors’ assessment of the Group

and the Parent Company’s ability to continue to adopt the

going concern basis of accounting included:

• Using our knowledge of the Group and its market sector

together with the current economic environment to assess

the Directors’ identification of the inherent risks to the

Group’s business and how these might impact the Group’s

ability to remain a going concern for the going concern

period, being the period to 30 September 2024, which is

at least 12 months from when the financial statements are

authorised for issue;

• Obtaining an understanding of the Directors’ process for

assessing going concern including an understanding of

the key assumptions used;

• We have reviewed the forecasts that support the Directors’

going concern assessment and:

– Challenging the Investment Adviser’s forecast

assumptions in comparison to the current performance

of the Group;

– Agreeing the inputs into the forecasts to supporting

documentation for consistency with contractual

agreements, where available;

– Agreeing the Group’s available borrowing facilities

and the related covenants to supporting financing

documentation and calculations;

98 SUPERMARKET INCOME REIT PLC

FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC CONTINUED

• Analysing the sensitivities applied by the Directors’ stress

testing calculations and challenging the assumptions

made using our knowledge of the business and of the

current economic climate, to assess the reasonableness of

the downside scenarios selected;

• Obtaining covenant calculations and forecast calculations

to test for any potential future covenant breaches;

• Considering the covenant compliance headroom for

sensitivity to both future changes in property valuations

and the Group’s future financial performance;

• Reviewing the agreements for extensions or modifications

of loan agreements since the year end up to the date of the

signed financial statements;

• Considering board minutes, and evidence obtained

through the audit and challenging the Directors on

the identification of any contradictory information

in the forecasts and the resultant impact to the going

concern assessment;

• Reviewing the disclosures in the financial statements

relating to going concern to check that the disclosure is

consistent with the circumstances

Based on the work we have performed, we have not

identified any material uncertainties relating to events

or conditions that, individually or collectively, may cast

significant doubt on the Group and the Parent Company’s

ability to continue as a going concern for a period of at least

twelve months from when the financial statements are

authorised for issue.

In relation to the Parent Company’s reporting on how it

has applied the UK Corporate Governance Code, we have

nothing material to add or draw attention to in relation to

the Directors’ statement in the financial statements about

whether the Directors considered it appropriate to adopt the

going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors

with respect to going concern are described in the relevant

sections of this report.

Overview

Coverage 100% (2022: 100%) of Group profit before tax

100% (2022: 100%) of Group revenue

100% (2022: 100%) of Group total assets

100% (2022: 100%) of Group investment property

 

Key audit matters Valuation of investment property

ü ü

Acquisition and disposal of investments in joint ventures

The acquisition and disposal of investments in joint ventures is a new KAM as this pertains to specific

transactions which have taken place during the current financial year.

Materiality Group financial statements as a whole £19.3m (2022: £18.0m) based on 1% of Group total assets

(2022: 1% of Group total assets).

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding

of the Group and its environment, including the Group’s

system of internal control, and assessing the risks of material

misstatement in the financial statements. We also addressed

the risk of management override of internal controls,

including assessing whether there was evidence of bias by

the Directors that may have represented a risk of material

misstatement.

ANNUAL REPORT 2023 99

The Group operates solely in the United Kingdom and

in one segment, investment property, structured through

a number of subsidiary entities and a joint venture. None

of the subsidiaries or the joint venture were individually

considered to be significant components and as such

the audit approach included undertaking audit work on

the key risks of material misstatements identified for the

Group across the subsidiary entities and joint venture. The

Group audit engagement team performed full scope audits

in order to issue the Group and Parent Company audit

opinion, including undertaking all of the audit work on the

risks of material misstatement identified in the key audit

matters section below. As a result of our audit approach, we

achieved coverage of 100% of rental income and 100% of

investment property valuations in respect of those property

assets held directly by the Group.

Climate change

Our work on the assessment of potential impacts on

climate-related risks on the Group’s operations and financial

statements included:

• Enquiries and challenge of the Investment Adviser and

the Group’s independent property valuer to understand

the actions they have taken to identify climate-related

risks and their potential impacts on the financial

statements and adequately disclose climate-related risks

within the annual report;

• Our own qualitative risk assessment taking into

consideration the sector in which the Group operates,

including the specific property asset class in which

the Group invests, and how climate change affects this

particular sector and property asset class;

• Review of the minutes of Board, Audit Committee and

ESG Committee meetings and other papers related to

climate change and performed a risk assessment as to

how the impact of the Group’s risk assessment as set

out in the Group’s Sustainability and TCFD Compliance

Report may affect the financial statements and our audit;

• We challenged the extent to which climate-related

considerations, including the expected cash flows from

the initiatives and commitments have been reflected,

where appropriate, in the Investment Adviser’s going

concern assessment and viability assessment;

• We also assessed the consistency of the disclosures

included as ‘Statutory Other Information’ within the

Strategic Report and with our knowledge obtained

from the audit.

Based on our risk assessment procedures, we did not

identify there to be any key audit matters materially

impacted by climate-related risks.

Key audit matters

Key audit matters are those matters that, in our professional

judgement, were of most significance in our audit of the

financial statements of the current period and include the

most significant assessed risks of material misstatement

(whether or not due to fraud) that we identified, including

those which had the greatest effect on: the overall audit

strategy, the allocation of resources in the audit, and

directing the efforts of the engagement team. These matters

were addressed in the context of our audit of the financial

statements as a whole, and in forming our opinion thereon,

and we do not provide a separate opinion on these matters.

100 SUPERMARKET INCOME REIT PLC

FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC CONTINUED

Key audit matter How the scope of our audit addressed the key audit matter

Valuation of

investment properties

As detailed in

note 12, the Group

owns a portfolio of

investment properties

which, as described in

the accounting policy

in note 2.11, are held at

fair value in the Group

financial statements.

As described in the

significant accounting

judgements, estimates

and assumptions

section of note 1,

determination of the

fair value of investment

properties is a key area

of estimation.

The valuation of investment property and

related disclosures requires significant

judgement and estimates by the Directors

and the independent valuer and is

therefore considered a key audit matter

due to the subjective nature of certain

assumptions inherent in each valuation.

Any input inaccuracies or unreasonable

bases used in the valuation judgements

(such as in respect of estimated rental

value and yield profile applied) could

result in a material misstatement of the

income statement and statement of

financial position.

There is also a risk of fraud in relation to

the valuation of the property portfolio

where the Directors may influence the

significant judgements and estimates in

respect of property valuations in order

to achieve property valuation and other

performance targets to meet market

expectations.

The valuation of investment properties

was therefore considered to be a key

audit matter.

Our audit work included, but was not restricted to, the following:

Experience of the valuer and relevance of its work

• We assessed the competency, qualifications, independence and

objectivity of the independent external valuer engaged by the Group and

reviewed the terms of their engagement for any unusual arrangements,

limitations in the scope of their work or evidence of Management bias.

• Real estate experts within our team read the valuation reports and

confirmed that all valuations had been prepared in accordance with

applicable valuation guidelines and were therefore appropriate for

determining the carrying value in the Group’s financial statements.

Data provided to the valuer

• We validated the underlying data provided to the valuer by the

Investment Adviser.

• This data included key observable inputs such as current rent and lease

term, which we agreed to the executed lease agreements as part of our

audit work covering 100% of the population.

Assumptions and estimates used by the valuer

• We developed yield expectations for each property using available

independent industry data, reports and comparable transactions in the

market around the period end. This was undertaken with assistance of

our real estate experts

• We evaluated the other key valuation assumptions, being the market

rental values, by reference to industry data, taking into account the

location and specifics of each property.

• We then discussed both the assumptions used and the valuation

movement in the period with the Investment Adviser, the Chair of the

Audit Committee and the independent valuer.

• Where the valuation yield was outside of our expected range we

challenged the independent valuer on specific assumptions and

reasoning for the yields and/or market rents applied and corroborated

their explanations where relevant, including agreeing to third-party

documentation and market comparisons

• While we consulted with internal RICS-qualified experts as part of

setting our expectations, our expert also attended the meetings with the

Group’s valuers to assist us in assessing that explanations provided were

appropriate and in line with market knowledge.

Related disclosures in the financial statements

• We reviewed the appropriateness of the Group’s disclosures within the

financial statements in relation to valuation methodology, key valuation

assumptions and valuation sensitivity.

Key observations:

Based on our work we have not noted any material instance which may

indicate that the assumptions adopted by the Directors in the valuation

were not reasonable or that the methodology applied was inappropriate.

ANNUAL REPORT 2023 101

Key audit matter How the scope of our audit addressed the key audit matter

Acquisition

and disposal of

investments in joint

ventures

As detailed in note

14, during the year

the Group acquired

an additional interest

in its previously held

joint venture, Horner

(Jersey) LP, making

this a 100% owned

subsidiary within the

Group. In acquiring this

additional interest, the

Group in turn increased

its interest in a property

trust arrangement Joint

Venture.

During the year, the

Group subsequently

disposed of its entire

interest in the property

trust arrangement

Joint Venture, part of

the consideration for

which was deferred as

detailed within Note 17.

As described in the

significant accounting

judgements, estimates

and assumptions

section of note 1,

determination of the

acquisition transaction

as asset acquisition

was a key judgement.

The accounting entries and judgement

regarding the accounting treatment

for the acquisition of the additional

50% interest in Horner (Jersey) LP and

subsequent disposal of the Group’s

interest in the property trust arrangement

joint venture, together with the related

disclosures is considered a key audit

matter given the key judgments made

by the Directors as to whether the

acquisition is accounted for as a business

combination or an asset acquisition and

in the determination of any fair value

adjustments to the acquired assets and

liabilities.

An incorrect judgement with regards to

the accounting treatment, or incorrect

estimate as to the fair values of the assets

or liabilities acquired, could result in

a material misstatement of the financial

statements.

Our audit work included, but was not restricted to, the following:

Acquisition transaction:

• We obtained the Investment Adviser’s formal assessment of the

accounting for the acquisition transaction which included the basis for

treating the acquisition as an asset acquisition.

• We assessed the key judgements made by the Directors on specific

points within the accounting requirements of IFRS 3 Business

Combinations relating to the treatment of the acquisition, including

whether the conditions of the optional concentration test under

IFRS 3 Business Combinations applied to the acquisition or not, and

subsequently, whether the optional concentration test was met.

• We verified the consideration paid to the relevant acquisition

documentation, including the sale and purchase agreement, the

J.P. Morgan loan facility agreement entered into by the Group in order to

finance the acquisition, cash transactions within relevant lawyer client

accounts and other supporting documentation.

• We also verified a sample of acquisition costs capitalised to supporting

documentation and assessed whether these were directly attributable to

the acquisition transaction.

• We obtained the balance sheet for both Horner (Jersey) LP and the

property trust arrangement Joint Venture at the date of acquisition

and we assessed the accuracy of any fair value gains and losses and

trading results in the period up to acquisition, noting that the significant

majority of net assets held by Horner (Jersey) LP were represented by

the investment in the property trust arrangement Joint Venture, and

that the significant amount of the net assets held by the property trust

arrangement Joint Venture were represented by a contractual receivable

in respect of the sale of 21 properties.

• With the use of our internal valuation experts we assessed the adequacy

of the fair value adjustments made in respect of contractual receivable

within the property trust arrangement Joint Venture for the purpose of

assessing the fair value of the investment at acquisition.

Disposal transaction:

• We verified the consideration received to the relevant sale

documentation, including the sale and purchase agreement,

bank statements in respect of cash received and other supporting

documentation.

• We recalculated the deferred consideration receivable under the terms

of the sale and purchase agreement and, with the use of our internal

valuation experts, we assessed the accuracy of the calculation of the fair

value of the deferred consideration upon initial recognition.

• We traced the subsequent settlement of the receivable to bank

statements post year end where paid.

• We recalculated the gain on disposal of the investment in joint ventures

and confirmed the accuracy of the amounts disclosed in the statement of

comprehensive income.

Disclosures:

• We considered the adequacy of the disclosures made by the Directors

in relation to the acquisition and subsequent disposal with regards to

the requirements of the applicable accounting standard. This included

the disclosures relating to the key judgments in respect of the treatment

of the acquisition as an asset acquisition as opposed to a business

combination, as well as the fair value of the receivable recognised upon

the disposal of the joint venture interest.

Key observations:

Based on our work we have not noted any material instance which may

indicate that the judgements made by the Directors in the accounting

treatment of the acquisition were unreasonable or inappropriate, or that

the assumptions adopted by the Directors in the determination of fair

values within the acquisition and disposal transactions are not reasonable

or that the methodology applied was inappropriate.

102 SUPERMARKET INCOME REIT PLC

Our application of materiality

We apply the concept of materiality both in planning

and performing our audit, and in evaluating the effect of

misstatements. We consider materiality to be the magnitude

by which misstatements, including omissions, could

influence the economic decisions of reasonable users that

are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the

probability that any misstatements exceed materiality, we

use a lower materiality level, performance materiality,

to determine the extent of testing needed. Importantly,

misstatements below these levels will not necessarily be

evaluated as immaterial as we also take account of the

nature of identified misstatements, and the particular

circumstances of their occurrence, when evaluating their

effect on the financial statements as a whole.

Based on our professional judgement, we determined

materiality for the financial statements as a whole and

performance materiality as follows:

Group financial statements Parent Company financial statements

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m



m



m



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Materiality . . . .

Basis for determining

materiality

Materiality for the Group and Parent Company’s financial statements was set at 1% of total assets (2022: 1%).

This provides a basis for determining the nature and extent of our risk assessment procedures, identifying and

assessing the risk of material misstatement and determining the nature and extent of further audit procedures.

Rationale for the

benchmark applied

We determined that total assets would be the most appropriate basis for determining overall materiality as we

consider it to be the principal considerations for the users of the financial statements in assessing the financial

performance of the Group.

Performance materiality 14.5 13.5 12.2 10.0

Basis for determining

performance materiality

Performance materiality is set at an amount to reduce to an appropriate low level the probability that the

aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk

assessment, together with our assessment of the Group’s overall control environment, our judgement was that

overall performance materiality for the Group should be 75% (2022: 75%) of materiality. We determined that

the same measure as the Group was appropriate for the Parent Company.

Rationale for the percentage

applied for performance

materiality

We determined that 75% of materiality would be appropriate based on our risk assessment, together with our

assessment of the Group’s and Parent Company’s overall control environment, the low number of components,

the low value of brought forward adjustments impacting the current year and low value of expected

misstatements, based on past experience.

Specific materiality

We also determined that for other account balances and

classes of transactions that impact the calculation of

Adjusted Earnings, a misstatement of less than materiality

for the financial statements as a whole, specific materiality,

could influence the economic decisions of users. As a result,

we determined that specific materiality for these items

should be £3.2 million (2022: £2.9 million), being 5%

(2022: 5%) of Adjusted Earnings. Adjusted Earnings

excludes the impact of the net loss on revaluation of

investment properties, including those held through joint

ventures. We further applied a performance materiality

level of 75% (2022: 75%) of specific materiality to ensure

that the risk of errors exceeding specific materiality was

appropriately mitigated.

Reporting threshold

We agreed with the Audit Committee that we would report

to them all individual audit differences in excess of £160,000

(2022: £145,000). We also agreed to report differences below

this threshold that, in our view, warranted reporting on

qualitative grounds.

Other information

The Directors are responsible for the other information.

The other information comprises the information included

in the Annual Report other than the financial statements

and our auditor’s report thereon. Our opinion on the

financial statements does not cover the other information

and, except to the extent otherwise explicitly stated in our

report, we do not express any form of assurance conclusion

thereon. Our responsibility is to read the other information

and, in doing so, consider whether the other information is

materially inconsistent with the financial statements or our

knowledge obtained in the course of the audit, or otherwise

appears to be materially misstated. If we identify such

material inconsistencies or apparent material misstatements,

we are required to determine whether this gives rise

to a material misstatement in the financial statements

themselves. If, based on the work we have performed, we

conclude that there is a material misstatement of this other

information, we are required to report that fact.

We have nothing to report in this regard.

FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT

TO THE MEMBERS OF SUPERMARKET INCOME REIT PLC CONTINUED

ANNUAL REPORT 2023 103

Corporate governance statement

The Listing Rules require us to review the Directors’

statement in relation to going concern, longer-term viability

and that part of the Corporate Governance Statement

relating to the parent company’s compliance with the

provisions of the UK Corporate Governance Code specified

for our review.

Based on the work undertaken as part of our audit, we

have concluded that each of the following elements of the

Corporate Governance Statement is materially consistent

with the financial statements or our knowledge obtained

during the audit.

Going concern and

longer-term viability

• The Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting

and any material uncertainties identified as set out in the “Going concern” section of the Strategic Report; and

• The Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers

and why the period is appropriate as set out in the “Assessment of viability” section of the Strategic Report.

Other Code provisions • Directors’ statement on fair, balanced and understandable as set out in the Audit and Risk Committee Report;

• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks as set out in

the “Our Principal Risks” section of the Strategic Report;

• The section of the annual report that describes the review of effectiveness of risk management and internal

control systems as set out in the Audit and Risk Committee Report; and

• The section describing the work of the Audit Committee as set out in the Audit and Risk Committee Report.

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work

performed during the course of the audit, we are required by

the Companies Act 2006 and ISAs (UK) to report on certain

opinions and matters as described below.

Strategic report and

Directors’ report

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the Strategic report and the Directors’ report for the financial year for which the financial

statements are prepared is consistent with the financial statements; and

• the Strategic report and the Directors’ report have been prepared in accordance with applicable legal

requirements.

In the light of the knowledge and understanding of the Group and Parent Company and its environment

obtained in the course of the audit, we have not identified material misstatements in the strategic report or the

Directors’ report.

Directors’ remuneration In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in

accordance with the Companies Act 2006.

Matters on which we

are required to report by

exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires

us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have

not been received from branches not visited by us; or

• the Parent Company financial statements and the part of the Directors’ remuneration report to be audited are not

in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Responsibilities of Directors

As explained more fully in the Directors’ responsibilities

statement, the Directors are responsible for the preparation

of the financial statements and for being satisfied that they

give a true and fair view, and for such internal control as the

Directors determine is necessary to enable the preparation

of financial statements that are free from material

misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are

responsible for assessing the Group’s and the Parent

Company’s ability to continue as a going concern, disclosing,

as applicable, matters related to going concern and using the

going concern basis of accounting unless the Directors either

intend to liquidate the Group or the Parent Company or to

cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the

financial statements

Our objectives are to obtain reasonable assurance about

whether the financial statements as a whole are free from

material misstatement, whether due to fraud or error,

and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is

not a guarantee that an audit conducted in accordance

with ISAs (UK) will always detect a material misstatement

when it exists. Misstatements can arise from fraud or

error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence

the economic decisions of users taken on the basis of these

financial statements.

104 SUPERMARKET INCOME REIT PLC

Extent to which the audit was capable of detecting

irregularities, including fraud

Irregularities, including fraud, are instances of

non-compliance with laws and regulations. We design

procedures in line with our responsibilities, outlined above,

to detect material misstatements in respect of irregularities,

including fraud. The extent to which our procedures

are capable of detecting irregularities, including fraud is

detailed below:

Non-compliance with laws and regulations

Based on:

• Our understanding of the Group and the industry in

which it operates;

• Discussion with the Investment Adviser and those

charged with governance; and

• Obtaining and understanding of the Group’s policies

and procedures regarding compliance with laws and

regulations.

We considered the significant laws and regulations to be

applicable accounting standards, the Companies Act 2006,

UK Listing Rules and the UK Real Estate Investment Trust

(REIT) regime.

The Group is also subject to laws and regulations where the

consequence of non-compliance could have a material effect

on the amount or disclosures in the financial statements,

for example through the imposition of fines or litigations.

We identified such laws and regulations to be UK VAT

regulations.

Our procedures in respect of the above included:

• Review of Board and Committee meeting minutes for any

instances of non-compliance with laws and regulations;

• Review of a report from the Group’s Investment Adviser,

detailing the actions that the Group has undertaken

to ensure compliance. With the assistance of our

internal tax experts, this paper was reviewed, and the

assumptions challenged;

• Review of correspondence with regulatory and tax

authorities for any instances of non-compliance with laws

and regulations;

• Review of financial statement disclosures and agreeing to

supporting documentation; and

• Review of legal expenditure accounts to understand the

nature of expenditure incurred.

Fraud

We assessed the susceptibility of the financial statements to

material misstatement, including fraud. Our risk assessment

procedures included:

• Enquiry with the Investment Adviser, AIFM and those

charged with governance regarding any known or

suspected instances of fraud;

• Obtaining an understanding of the Group’s policies and

procedures relating to:

∘ Detecting and responding to the risks of fraud; and

∘ Internal controls established to mitigate risks

related to fraud.

• Review of Board and Committee meeting minutes for any

known or suspected instances of fraud;

• Discussion amongst the engagement team as to how and

where fraud might occur in the financial statements; and

• Performing analytical procedures to identify any unusual

or unexpected relationships that may indicate risks of

material misstatement due to fraud;

Based on our risk assessment, we considered the areas most

susceptible to fraud to be revenue recognition (existence

and accuracy of rent smoothing adjustments), revenue

recognition (existence and accuracy of rental receipts),

investment property valuations and management override

of controls.

Our procedures in respect of the above included:

• Testing a sample of journal entries throughout the

year, which met a defined risk criteria, by agreeing to

supporting documentation;

• We agreed to bank and loan balances to direct bank

confirmations and agreements;

• We also addressed the risk of management override

of internal controls by evaluating whether there was

evidence of bias by the Investment Adviser and the

Directors that represented a risk of material misstatement

due to fraud. This included evaluating any management

bias within the valuation of investment property, as

mentioned under the key audit matters subheading;

• To address the fraud risk in relation to calculation of

rent smoothing adjustments, we agreed all critical inputs

to the calculations to lease agreements and performed

a recalculation of the adjustment to rental income,

investigating any variances.

• To address the fraud risk in relation to the existence

and accuracy of rental receipts, for a sample of rental

periods (i.e. quarter or month) under each lease, we

set expectations for the rental income to be received

under the terms of lease agreement and compared this

to the cash receipts identified per the bank statements,

investigating any variances.

FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT

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 income 3 95,823 72,363

Service charge income 3 5,939 2,086

Service charge expense 4 (6,518) (2,338)

Net Rental Income 95,244 72,111

Administrative and other expenses 5 (15,429) (13,937)

Operating profit before changes in fair value of investment properties and share of

income and profit on disposal from joint venture 79,815 58,174

Changes in fair value of investment properties 12 (256,066) 21,820

Total changes in fair value of investment properties (256,066) 21,820

Share of income from joint venture 14 23,232 43,301

Profit on disposal of joint venture 14 19,940 –

Operating (loss)/profit (133,079) 123,295

Finance income 8 14,626 –

Finance expense 8 (39,315) (12,992)

Changes in fair value on interest rate derivatives 19 10,024 –

Profit on disposal of interest rate derivatives 2,878 –

(Loss)/Profit before taxation (144,866) 110,303

Tax charge for the year 9 – –

(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 derivatives 19 1,068 5,566

Total comprehensive (loss)/income for the year (143,798) 115,869

Total comprehensive (loss)/income for the year attributable to ordinary Shareholders (143,798) 115,869

Earnings per share – basic and diluted 10 (11.7) pence 11.3 pence

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 properties 12 1,685,690 1,561,590

Investment in joint ventures 14 – 177,140

Contract fulfilment asset – 93

Financial asset at amortised cost 16 10,819 10,626

Interest rate derivatives 19 37,198 5,114

Total non-current assets 1,733,707 1,754,692

Current assets

Interest rate derivatives 19 20,384 –

Financial assets held at fair value through profit and loss 15 – 283

Trade and other receivables 17 142,155 1,863

Cash and cash equivalents 37,481 51,200

Total current assets 200,020 53,346

Total assets 1,933,727 1,808,038

Non-current liabilities

Bank borrowings 20 605,609 348,546

Total non-current liabilities 605,609 348,546

Current liabilities

Bank borrowings due within one year 20 61,856 –

Deferred rental income 21,557 16,360

Trade and other payables 18 26,979 10,677

Total current liabilities 110,392 27,037

Total liabilities 716,001 375,583

Net assets 1,217,726 1,432,455

Equity

Share capital 22 12,462 12,399

Share premium reserve 22 500,386 494,174

Capital reduction reserve 22 704,531 778,859

Retained earnings (2,957) 141,909

Cash flow hedge reserve 3,304 5,114

Total equity 1,217,726 1,432,455

Net asset value per share – basic and diluted 26 98 pence 116 pence

EPRA NTA per share 26 93 pence 115 pence

The consolidated financial statements were approved and authorised for issue by the Board of Directors on 19 September 2023 and

were signed on its behalf by

Nick Hewson

Chair

19 September 2023

108 SUPERMARKET INCOME REIT PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

capital

£’000

premium

reserve

£’000

Cash flow

hedge

reserve

£’000

Capital

reduction

reserve

£’000

Retained

earnings

£’000

Total

£’000

As at 1 July 2022 12,399 494,174 5,114 778,859 141,909 1,432,455

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 year 63 6,301 – – – 6,364

Share issue costs – (89) – – – (89)

Interim dividends paid – – – (74,328) – (74,328)

As at 30 June 2023 12,462 500,386 3,304 704,531 (2,957) 1,217,726

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2022

capital

£’000

premium

reserve

£’000

Cash flow

hedge

reserve

£’000

Capital

reduction

reserve

£’000

Retained

earnings

£’000

Total

£’000

As at 1 July 2021 8,107 778,859 (452) – 84,796 871,310

Comprehensive income for the year

Profit for the year – – – – 110,303 110,303

Other comprehensive income – – 5,566 – – 5,566

Total comprehensive income for the year – – 5,566 – 110,303 115,869

Transactions with owners

Ordinary shares issued at a

premium during the year 4,292 504,539 – – – 508,831

Share premium cancellation to

capital reduction reserve – (778,859) – 778,859 – –

Share issue costs – (10,365) – – – (10,365)

Interim dividends paid – – – – (53,190) (53,190)

As at 30 June 2022 12,399 494,174 5,114 778,859 141,909 1,432,455

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 loss 19 (10,024) –

Changes in fair value of investment properties and associated rent guarantees 12 256,066 (21,820)

Movement in rent smoothing and lease incentive adjustments 3 (2,763) (2,654)

Finance income 8 (14,626) –

Finance expense 8 39,281 12,992

Share of income from joint venture 14 (23,232) (43,301)

Profit on disposal of interest rate derivative 19 (2,878) –

Profit on disposal of Joint Venture 14 (19,941) –

Cash flows from operating activities before changes

in working capital 77,017 55,520

(Increase)/decrease in trade and other receivables (548) 1,277

Decrease/(increase) in rent guarantee receivables 191 (87)

Increase in deferred rental income 5,198 4,299

Increase in trade and other payables 2,461 2,004

Net cash flows from operating activities 84,319 63,013

Investing activities

Acquisition of contract fulfilment assets – (8)

Disposal of Property, Plant & Equipment 222 –

Acquisition of investment properties 12 (362,630) (371,093)

Capitalised acquisition costs (14,681) (17,603)

Decrease/(Increase) in other financial assets 16 – (10,626)

Receipts from other financial assets 16 290 –

Investment in joint venture 14 (189,528) (3,518)

Proceeds from disposal of Joint Venture 14 292,636 –

Net cash flows used in investing activities (273,691) (402,848)

Financing activities

Proceeds from issue of Ordinary Share Capital 22 – 506,727

Costs of share issues 22 (89) (10,366)

Bank borrowings drawn 20 912,114 402,922

Bank borrowings repaid 20 (598,486) (464,029)

Loan arrangement fees paid (5,010) (2,187)

Bank interest paid (22,408) (9,846)

Settlement of interest rate derivatives 8,646 –

Settlement of Joint Venture Carried Interest (8,066) –

Sale of interest rate derivatives 19 2,878 –

Purchase of interest rate derivative 19 (44,255) –

Bank commitment fees paid (1,708) (681)

Dividends paid to equity holders (67,963) (51,084)

Net cash flows from financing activities 175,653 371,456

Net movement in cash and cash equivalents in the year (13,719) 31,621

Cash and cash equivalents at the beginning of the year 51,200 19,579

Cash and cash equivalents at the end of the year 37,481 51,200

110 SUPERMARKET INCOME REIT PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

General information

Supermarket Income REIT plc (the Company) is a company registered in England and Wales with its registered office at 1 King William

Street, London, United Kingdom, EC4N 7AF. The principal activity of the Company and its subsidiaries (the Group) is to provide its

Shareholders with an attractive level of income together with the potential for capital growth by investing in a diversified portfolio of

supermarket real estate assets in the UK.

At 30 June 2023 the Group comprised the Company and its wholly owned subsidiaries as set out in Note 13.

Basis of preparation

These consolidated financial statements cover the year to 30 June 2023, including comparative figures relating to the year to

30 June 2022, and include the results and net assets of the Group.

The consolidated financial statements have been prepared in accordance with:

• UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies

reporting under those standards,

• The Disclosure and Transparency Rules of the Financial Conduct Authority

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These

policies have been consistently applied to all years presented, other than where new policies that were not previously relevant to the

Group’s operations have been adopted.

Going concern

In light of the current Macroeconomic backdrop, the Directors have placed a particular focus on the appropriateness of adopting the

going concern basis in preparing the Group’s and Company’s financial statements for the year ended 30 June 2023. In assessing the

going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.

Liquidity

At 30 June 2023, the Group generated net cash flow from operating activities of £84.3 million, held cash of £37.5 million and undrawn

committed facilities totalling £189.9 million with no capital commitments or contingent liabilities.

From the sale of its interest in the Sainsburys Reversion Portfolio (SRP), the Group received proceeds of £135.1 million post year

end. £97.1 million of this was used for working capital and debt repayment and £38.0 million towards acquiring two stores (including

acquisition costs). As at the date of signing the annual report the Gross LTV of the group was 34.0%. The remainder of the receivable

of £1.5 million is conditional on the sale of the remaining store in the SRP.

After the year end, the Group also reduced its debt capacity from £862.1 million to £680.5 million (see Note 20 for more information),

leaving undrawn committed facilities of over £100 million available.

The Directors are of the belief that the Group continues to be well funded during the going concern period with no concerns over

its liquidity.

Refinancing events

At the date of signing the financial statements, the Deka facility falls due for repayment during the going concern period

(August 2024). It is intended that the facility will be refinanced prior to maturity, or if required, it will be paid down in full the Group’s

available undrawn committed facilities of over £100 million. All lenders have been supportive during the year and have expressed

commitment to the long-term relationship they wish to build with the Company.

Covenants

The Group’s debt facilities include covenants in respect of LTV and interest cover, both projected and historic. All debt facilities, except

for the unsecured facilities, are ring-fenced with each specific lender.

The Directors have evaluated a number of scenarios as part of the Group’s going concern assessment and considered the impact of

these scenarios on the Group’s continued compliance with secured debt covenants. The key assumptions that have been sensitised

within these scenarios are falls in rental income and increases in administrative cost inflation.

As at the date of issuance of this Annual report 100% of contractual rent for the period has been collected. The Group benefits from

a secure income stream from its property assets that are let to tenants with excellent covenant strength under long leases that are

subject to upward only rent reviews.

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.

Scenario Rental Income Costs

Base case scenario (Scenario 1) 100% contractual rent received when due

and rent reviews based on forward looking

inflation curve, capped at the contractual

rate of the individual leases.

Investment adviser fee based on terms of

the signed agreement (percentage of NAV

as per note 27), other costs 0.35% of NAV.

Scenario 2 Rental income to fall by 25%. Costs expected to remain the same as

the base case.

Scenario 3 Rental income expected to remain the

same as the base case.

10% increases on base case costs to all

administrative expenses.

The Group continues to maintain covenant compliance for its LTV and ICR thresholds throughout the going concern assessment

period under each of the scenarios modelled. One of the secured facilities in the Group has a debt yield covenant, which is calculated

as the passing rent divided by the loan balance for the properties secured against the lender. The debt yield covenant only would be

breached for this facility if rental income is reduced by 6% during the going concern assessment period. The Board considers this

scenario highly unlikely given the underlying covenant strength of the tenants. Furthermore, there are remedies available at the

Group’s disposal which includes reducing a portion of the outstanding debt from available undrawn facilities or providing additional

security over properties that are currently unencumbered. The lowest amount of ICR headroom experienced in the worst-case stress

scenarios was 22%. Based on the latest bank commissioned valuations, property values would have to fall by more than 21% before

LTV covenants are breached, and 10% against 30 June 2023 Company valuations. Similarly, the strictest interest cover covenant

within each of the ring-fenced banking groups is 225%, where the portfolio is forecast to have an average interest cover ratio of 572%

during the going concern period.

Having reviewed and considered three modelled scenarios, the Directors consider that the Group has adequate resources in place for

at least 12 months from the date of these results and have therefore adopted the going concern basis of accounting in preparing the

Annual Report.

Assessment of viability

The period over which the Directors consider it feasible and appropriate to report on the Group’s viability is the five-year period to

30 June 2028. This period has been selected because it is the period that is used for the Group’s medium-term business plans and

individual asset performance forecasts. The assumptions underpinning these forecast cash flows and covenant compliance forecasts

were sensitised to explore the resilience of the Group to 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 property 53,119 44,332

Rental income – long leasehold property 42,669 28,031

Lease surrender income 35 –

Gross rental income 95,823 72,363

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Property insurance recoverable 585 449

Service charge recoverable 5,354 1,637

Total property insurance and service charge income 5,939 2,086

Total property income 101,762 74,449

Included within rental income is a £2,512,000 (2022: £2,654,000) rent smoothing adjustment that arises as a result of IFRS 16 ‘Leases’

requiring that rental income in respect of leases with rents increasing by a fixed percentage be accounted for on a straight-line basis

over the lease term. During the year this resulted in an increase in rental income and an offsetting entry being recognised in profit or

loss as an adjustment to the investment property revaluation.

On an annualised basis, rental income comprises £49,620,000 (2022: £34,420,000) relating to the Group’s largest tenant and

£27,194,000 (2022: £24,265,000) relating to the Group’s second-largest tenant. There were no further tenants representing more

than 10% of annualised gross rental income during either year.

4. Service charge expense

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Property insurance expenses 715 639

Service charge expenses 5,803 1,699

Total property insurance and service charge expense 6,518 2,338

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) 10,292 9,405

Directors’ remuneration (Note 7) 364 269

Corporate administration fees 1,108 893

Legal and professional fees 1,626 2,249

Other administrative expenses 2,039 1,121

Total administrative and other expenses 15,429 13,937

The fees relating to the issue of shares in the year have been treated as share issue expenses and offset against the share

premium reserve.

6. Operating (loss)/profit

Operating (loss)/profit is stated after charging fees for:

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Audit of the Company’s consolidated and individual financial statements 260 190

Audit of subsidiaries, pursuant to legislation 95 64

Total audit services 355 254

Audit related services: interim review 38 32

Total audit and audit-related services 393 286

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 services 65 –

Total other non-audit services 65 123

Total fees charged by the Group’s auditor 458 409

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’ fees 330 245

Employer’s National Insurance Contribution 34 24

Total Directors’ remuneration 364 269

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 deposits 53 –

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 income 14,626 –

Finance expense

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Interest payable on bank borrowings and hedging arrangements 29,707 9,565

Finance expense on settlement of interest rate derivatives (note 19) – 296

Commitment fees payable on bank borrowings 1,571 969

Amortisation of loan arrangement fees* 8,037 2,157

Amortisation of interest rate derivative premium (Note 19) – 5

Total finance expense 39,315 12,992

*This includes a one-off exceptional charge in the year to 30 June 2023 of £1.52 million, relating to the acceleration of unamortised

arrangement fees in respect of the modification of the Wells Fargo and Barclays/RBC facilities under IFRS 9. It also includes a one-off

loan arrangement fee for the short-term J.P. Morgan loan of £4.0 million.

The above finance expense includes the following in respect of liabilities not classified as fair value through profit and loss:

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Total interest expense on financial liabilities held at amortised cost 37,744 11,723

Fee expense not part of effective interest rate for financial liabilities held at amortised cost 1,571 969

Total finance expense 39,315 12,692

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 taxable 49,680 (4,146)

Disposal of interest rate derivative (587) –

Residual business losses 4,428 –

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

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 guarantees 256,066 (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 earnings 57,201 57,402

Adjustments for:

Finance income received on interest rate derivatives held at fair value through profit and loss 9,671 –

One-off restructuring costs in relation to the acceleration of unamortised arrangement fees 1,518 –

Joint Venture acquisition loan arrangement fee 4,009 –

Adjusted Earnings 72,399 57,402

Number

Weighted average number of ordinary shares 1,242,574,505 975,233,858

1 Based on the weighted average number of ordinary shares in issue

Year to

30 June 2023

Pence per share

(‘p’)

Year to

30 June 2022

Pence per share

(‘p’)

Basic and Diluted EPS (11.7) 11.3

EPRA adjustments:

Changes in fair value of interest rate derivatives measured at FVTPL (0.8) –

Changes in fair value of investment properties and rent guarantees 20.6 (2.2)

Group share of changes in fair value of joint venture investment properties (0.9) 0.6

Profit on disposal of interest rate derivatives (0.2) –

Group share of gain on disposal of joint venture investment properties (1.6) (3.8)

Finance income received on interest rate derivatives held at fair value through profit and loss (0.8) –

EPRA EPS 4.6 5.9

Adjustments for:

Finance income received on interest rate derivatives held at fair value through profit and loss 0.8 –

One-off restructuring costs in relation to the acceleration of unamortised arrangement fees 0.1 –

Joint Venture acquisition loan arrangement fee 0.3 –

Adjusted EPRA EPS 5.8 5.9

ANNUAL REPORT 2023 123

11. Dividends

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Amounts recognised as a distribution to ordinary Shareholders in the year:

Dividends paid 74,328 53,190

On 8 July 2022, the Board declared a fourth interim dividend for the year ended 30 June 2022 of 1.485 pence per share, which was paid

on 22 August 2022 to Shareholders on the register on 15 July 2022.

On 21 September 2022 the Board declared a first interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was

paid on 16 November 2022 to shareholders on the register on 7 October 2022.

On 12 January 2023, the Board declared a second interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was

paid on 23 February 2023 to shareholders on the register on 20 January 2023.

On 11 April 2023, the Board declared a third interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was paid

on 26 May 2023 to shareholders on the register on 21 April 2023.

On 6 July 2023, the Board declared a fourth interim dividend for the year ending 30 June 2023 of 1.5 pence per share, which was paid

on 4 August 2023 to shareholders on the register on 13 July 2023. This has not been included as a liability as at 30 June 2023.

12. Investment properties

In accordance with IAS 40 “Investment Property”, the Group’s investment properties have been independently valued at fair value

by Cushman & Wakefield, an accredited independent valuer with a recognised and relevant professional qualification and with

recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared in

accordance with the RICS Valuation – Global Standards (the “Red Book”) and incorporate the recommendations of the International

Valuation Standards Committee which are consistent with the principles set out in IFRS 13.

The independent valuer in forming its opinion on valuation makes a series of assumptions. As explained in note 2, all the valuations of

the Group’s investment property at 30 June 2023 are classified as ‘level 3’ in the fair value hierarchy defined in IFRS 13.

The valuations are ultimately the responsibility of the Directors. Accordingly, the critical assumptions used in establishing the

independent valuation are reviewed by the Board.

Freehold

£’000

Long

Leasehold

£’000

Total

£’000

At 1 July 2022 903,850 657,740 1,561,590

Property additions 131,600 231,030 362,630

Capitalised acquisition costs 4,132 10,549 14,681

Revaluation movement (140,142) (113,069) (253,211)

Valuation at 30 June 2023 899,440 786,250 1,685,690

At 1 July 2021 723,540 424,840 1,148,380

Property additions 150,363 220,447 370,810

Capitalised acquisition costs 7,825 9,778 17,603

Revaluation movement 22,122 2,675 24,797

Valuation at 30 June 2022 903,850 657,740 1,561,590

Reconciliation of Investment Property to Independent Property Valuation

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Investment Property at fair value per Group Statement of Financial Position 1,685,690 1,561,590

Market Value of Property classified as Financial Assets held at amortised cost (Note 16) 7,210 9,960

Total Independent Property Valuation 1,692,900 1,571,550

There were nine property acquisitions during the year, of which two were purchased through the acquisition of a corporate structure,

rather than acquiring the asset directly. All corporate acquisitions during the year have been treated as asset purchases rather than

business combinations because they are considered to be acquisitions of properties rather than businesses.

124 SUPERMARKET INCOME REIT PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

12. Investment properties continued

Included within the carrying value of investment properties at 30 June 2023 is £8,724,000 (2022: £6,212,000) in respect of the

smoothing of fixed contractual rent uplifts as described in note 3. The difference between rents on a straight-line basis and rents

actually receivable is included within the carrying value of the investment properties but does not increase that carrying value over fair

value. The effect of this adjustment on the revaluation movement during the year is as follows:

Year to

30 June 2023

£’000

Year to

30 June 2022

£'000

Revaluation movement per above (253,211) 24,797

Rent smoothing adjustment (note 3) (2,512) (2,654)

Movements in associated rent guarantees and lease incentives (343) (323)

Change in fair value recognised in profit or loss (256,066) 21,820

Valuation techniques and key unobservable inputs

Valuation techniques used to derive fair values

The valuations have been prepared on the basis of market value which is defined in the RICS Valuation Standards as ‘the estimated

amount for which an asset or liability should exchange on the date of the valuation between a willing buyer and a willing seller

in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without

compulsion’. Market value as defined in the RICS Valuation Standards is the equivalent of fair value under IFRS.

The yield methodology approach is used when valuing the Group’s properties which uses market rental values capitalised with

a market capitalisation rate. This is sense-checked against the market comparable method (or market comparable approach) where

a property’s fair value is estimated based on comparable transactions in the market.

Unobservable inputs

Significant unobservable inputs include: the estimated rental value (“ERV”) based on market conditions prevailing at the valuation

date and net initial yield. Other unobservable inputs include but are not limited to the future rental growth – the estimated average

increase in rent based on both market estimations and contractual situations, and the physical condition of the individual properties

determined by inspection.

A decrease in ERV would decrease the fair value. A decrease in net initial yield would increase the fair value.

Sensitivity of measurement of significant valuation inputs

As described in note 2 the determination of the valuation of the Group’s investment property portfolio is open to judgement and is

inherently subjective by nature.

Sensitivity analysis – impact of changes in net initial yields and rental values

Year to

30 June 2023

Year to

30 June 2022

Range of Net Initial Yields 4.7% - 7.4% 3.8% - 6.6%

Range of Rental values (passing rents or ERV as relevant) of Group’s Investment Properties £0.3m - £5.1m £0.3m - £4.2m

Weighted average of Net Initial Yields 5.6% 4.6%

Weighted average of Rental values (passing rents or ERV as relevant) of Group’s Investment

Properties £2.8m £2.6m

The table below analyses the sensitivity on the fair value of investment properties for changes in rental values and net initial yields:

+2%

Rental value

£m

-2%

Rental value

£m

+0.5% Net

Initial Yield

£m

-0.5% Net

Initial Yield

£m

(Decrease)/increase in the fair value of

investment properties as at 30 June 2023 33.7 (33.7) (139.9) 168.1

(Decrease)/increase in the fair value of

investment properties as at 30 June 2022 31.2 (31.2) (81.1) 90.7

ANNUAL REPORT 2023 125

13. Subsidiaries

The entities listed in the following table were the subsidiary undertakings of the Company at 30 June 2023 all of which are wholly

owned. All but those noted as Jersey entities below are subsidiary undertakings incorporated in England.

Company name Holding type Nature of business

Supermarket Income Investments UK Limited

Direct Intermediate parent company

Supermarket Income Investments (Midco2) UK Limited

Direct Intermediate parent company

Supermarket Income Investments (Midco3) UK Limited

Direct Intermediate parent company

Supermarket Income Investments (Midco4) UK Limited

Direct Intermediate parent company

SII UK Halliwell (MIDCO) LTD

Direct Intermediate parent company

Supermarket Income Investments UK (Midco6) Limited

Direct Intermediate parent company

Supermarket Income Investments UK (Midco7) Limited

Direct Intermediate parent company

SUPR Green Energy Limited

Direct Energy provision company

SUPR Finco Limited

Direct Holding company

Supermarket Income Investments UK (NO1) Limited

Indirect Property investment

Supermarket Income Investments UK (NO2) Limited

Indirect Property investment

Supermarket Income Investments UK (NO3) Limited

Indirect Property investment

Supermarket Income Investments UK (NO4) Limited

Indirect Property investment

Supermarket Income Investments UK (NO5) Limited

Indirect Property investment

Supermarket Income Investments UK (NO6) Limited

Indirect Property investment

Supermarket Income Investments UK (NO7) Limited

Indirect Property investment

Supermarket Income Investments UK (NO8) Limited

Indirect Property investment

Supermarket Income Investments UK (NO9) Limited

Indirect Property investment

Supermarket Income Investments UK (NO10) Limited

Indirect Property investment

Supermarket Income Investments UK (NO11) Limited

Indirect Property investment

Supermarket Income Investments UK (NO12) Limited

Indirect Property investment

Supermarket Income Investments UK (NO16) Limited

Indirect Property investment

Supermarket Income Investments UK (NO16a) Limited

Indirect Property investment

Supermarket Income Investments UK (NO16b) Limited

Indirect Property investment

Supermarket Income Investments UK (NO16c) Limited

Indirect Property investment

Supermarket Income Investments UK (NO17) Limited

Indirect Property investment

TPP Investments Limited

Indirect Property investment

T (Partnership) Limited

Indirect Property investment

The TBL Property Partnership Indirect Property investment

Supermarket Income Investments UK (NO19) Limited

Indirect Property investment

Supermarket Income Investments UK (NO20) Limited

Indirect Property investment

Supermarket Income Investments UK (NO21) Limited

Indirect Property investment

Supermarket Income Investments UK (NO22) Limited

Indirect Property investment

Supermarket Income Investments UK (NO23) Limited

Indirect Property investment

Supermarket Income Investments UK (NO24) Limited

Indirect Property investment

Supermarket Income Investments UK (NO25) Limited

Indirect Property investment

Supermarket Income Investments UK (NO26) Limited

Indirect Property investment

Supermarket Income Investments UK (NO27) Limited

Indirect Property investment

Supermarket Income Investments UK (NO28) Limited

Indirect Property investment

Supermarket Income Investments UK (NO29) Limited

Indirect Property investment

Supermarket Income Investments UK (NO30) Limited

Indirect Property investment

Supermarket Income Investments UK (NO31) Limited

Indirect Property investment

Supermarket Income Investments UK (NO32) Limited

Indirect Property investment

Supermarket Income Investments UK (NO33) Limited

Indirect Property investment

Supermarket Income Investments UK (NO34) Limited

Indirect Property investment

Supermarket Income Investments UK (NO35) Limited^

–

Indirect Property investment

Supermarket Income Investments UK (NO36) Limited

Indirect Property investment

Supermarket Income Investments UK (NO37) Limited

Indirect Property investment

Supermarket Income Investments UK (NO38) Limited

Indirect Property investment

Supermarket Income Investments UK (NO39) Limited**^

–

Indirect Property investment

126 SUPERMARKET INCOME REIT PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

13. Subsidiaries continued

Company name Holding type Nature of business

Supermarket Income Investments UK (NO40) Limited*

Indirect Property investment

Supermarket Income Investments UK (NO41) Limited*

Indirect Property investment

Supermarket Income Investments UK (NO42) Limited*

Indirect Property investment

Supermarket Income Investments UK (NO43) Limited*

Indirect Property investment

Supermarket Income Investments UK (NO44) Limited*

Indirect Property investment

Supermarket Income Investments UK (NO45) Limited*

Indirect Property investment

The Brookmaker Unit Trust**^

–

Indirect Property investment

Brookmaker Limited Partnership**

Indirect Property investment

Brookmaker (GP) Limited**

Indirect Property investment

Brookmaker (Nominee) Limited**

Indirect Property investment

Supermarket Income Investments UK (NO47) Limited*

Indirect Property investment

Horner (GP) Limited**^

–

Indirect Property investment

Horner (Jersey) Limited Partnership**^

–

Indirect Property investment

Horner REIT**^

–

Indirect Property investment

SII UK Halliwell (No1) LTD

Indirect Investment in Joint venture

SII UK Halliwell (No2) LTD

Indirect Investment in Joint venture

SII UK Halliwell (No3) LTD

Indirect Investment in Joint venture

SII UK Halliwell (No4) LTD

Indirect Investment in Joint venture

SII UK Halliwell (No5) LTD

Indirect Investment in Joint venture

SII UK Halliwell (No6) LTD

Indirect Investment in Joint venture

* New subsidiaries incorporated during the year ended 30 June 2023

** Subsidiaries acquired during the year ended 30 June 2023

^ Jersey registered entity

+ Registered office: 1 King William Street, London, United Kingdom, EC4N 7AF

- Registered office: 3rd Floor, Gaspe House, 66-72 Esplanade, St Helier, Jersey, JE1 2LH

# Registered office: 8th Floor, 1 Fleet Place, London, United Kingdom, EC4M 7RA

The following subsidiaries will be exempt from the requirements of the Companies Act 2006 relating to the audit of individual accounts

by virtue of Section 479A of that Act.

Company name

Companies House

Registration Number

SII UK Halliwell (MIDCO) LTD 12473355

SUPR Green Energy Limited 12890276

SII UK Halliwell (No1) LTD 12475261

SII UK Halliwell (No2) LTD 12475599

SII UK Halliwell (No3) LTD 12478141

SII UK Halliwell (No4) LTD 12604032

SII UK Halliwell (No5) LTD 12605175

SII UK Halliwell (No6) LTD 12606144

SUPR Finco Limited 14292760

ANNUAL REPORT 2023 127

14. Investment in joint ventures

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Opening balance 177,140 130,321

Additions* 206,656 3,518

Group’s share of profit after tax 23,232 43,301

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:

Entity Address and principal place of business Ownership

Jersey

Horner (Jersey) LP

Third Floor, Liberation House, Castle Street, St Helier,

Jersey, JE1 2LH

100% owned by the Group

Horner GP Third Floor, Liberation House, Castle Street, St Helier,

Jersey, JE1 2LH

100% owned by the Group

Horner REIT Limited Third Floor, Liberation House, Castle Street, St Helier,

Jersey, JE1 2LH

100% owned by Horner (Jersey) LP

United Kingdom

Horndrift Limited

Langham Hall UK LLP, 1 Fleet Street,

London, E4M 7RA

Previously owned 100% by Horner REIT

Limited and disposed in March-23

Cornerford Limited Langham 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 venture 200,887

Cash and cash equivalents 565

Trade and other receivables 19

Total current assets 201,471

Total assets 201,471

Current liabilities

Trade and other payables (9,078)

Total current liabilities (9,078)

Total liabilities (9,078)

Net assets 192,393

Negative goodwill on acquisition (3,565)

Purchase consideration 188,828

Transaction related costs of £451,000 were incurred in respect of the above acquisition and were capitalised as part of the Group’s

carrying amount in the joint venture.

Horner (Jersey) LP’s share of the aggregate amounts recognised in the statement of financial position of the Structure are as follows:

Non-current assets

Fair value

12 Jan 2023

£’000

Investment properties –

Total non-current assets –

Current assets

Contractual receivable 277,379

Trade and other receivables 1,683

Investment properties held for sale 16,888

Cash and cash equivalents –

Total current assets 295,950

Total assets 295,950

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 assets 200,887

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 consideration 430,797 –

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 interest 19,940 –

Horndrift and Cornerford Limited’s share of the aggregate amounts recognised in the consolidated statement of comprehensive

income and statement of financial position for the period ending 13 March 2023 are as follows:

Period to

13 March 2023

£’000

Year to

30 June 2022

£’000

Rental income 3,904 12,878

Finance income 18,142 15,988

Administrative and other expenses (1,844) (190)

Change in fair value of investment properties (4,256) (11,336)

Gain on disposal of investment properties 27,228 84,095

Operating profit 43,174 101,435

Finance expense (1,585) (1,996)

Profit before taxation 41,589 99,439

Tax charge for the period 833 (1,974)

Profit for the period/year 42,422 97,465

Group share of profit for the period / year 23,232 43,301

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 receivable 559,268 530,481

Trade and other receivables 8,743 2,897

Investment properties held for sale 33,794 –

Cash and cash equivalents – –

Total current assets 601,805 533,378

Total assets 601,805 570,383

Current liabilities

Debt securities in issue 169,901 176,243

Interest rate derivative 467 3,451

Deferred tax 353 4,196

Other liabilities 10,259 9,883

Trade and other payables 10,231 7,329

Total current liabilities 191,211 201,102

Total liabilities 191,211 201,102

Net assets 410,594 369,281

Negative goodwill on acquisition (3,565) –

Carrying amount of net assets at disposal 407,029 369,281

15. Financial assets held at fair value through profit or loss

Rental guarantees provided by the seller of an investment property are recognised as a financial asset when there is a valid

expectation that the Group will utilise the guarantee over the contractual term. Rental guarantees are classified as financial assets at

fair value through profit and loss in accordance with IFRS 9.

In determining the fair value of the rental guarantee, the Group makes an assessment of the expected future cash flows to be derived

over the term of the rental guarantee and discounts these at the market rate. A review is performed on a periodic basis based on

payments received and changes in the estimation of future cash flows.

The fair value of rental guarantees held by the Group are as follows:

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

At start of year 283 237

Additions 1,000 283

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 year 10,626 –

Additions – 10,626

Interest income recognised in profit and loss (note 8) 483 –

Lease payments received during the period (290) –

At end of period 10,819 10,626

On 8 June 2022, the Group acquired an Asda store in Carcroft, via a sale and leaseback transaction for £10.6 million, this has been

recognised in the Statement of Financial Position as a Financial asset in accordance with IFRS 9. The financial asset is measured using

the amortised cost model, which recognises the rental payments as financial income and reductions of the asset value based on the

implicit interest rate in the lease. As at 30 June 2023 the market value of the property was estimated at £7.2 million.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss

provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on

similar credit risk and ageing. The expected loss rates are based on the Group’s historical credit losses experienced over the period

from incorporation to 30 June 2023. The historical loss rates are then adjusted for current and forward-looking information on

macro-economic factors affecting the Group’s customers. Both the expected credit loss provision and the incurred loss provision in

the current year is immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss provision

would give rise to a material expected credit loss.

17. Trade and other receivables

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Other receivables 4,723 1,430

Receivable from joint venture disposal 136,582 –

Prepayments and accrued income 850 433

Total trade and other receivables 142,155 1,863

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss

provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on

similar credit risk and ageing. The expected loss rates are based on the Group’s historical credit losses experienced over the period

from incorporation to 30 June 2023. The historical loss rates are then adjusted for current and forward-looking information on

macro-economic factors affecting the Group’s customers. Both the expected credit loss provision and the incurred loss provision in

the current and prior year are immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss

provision would give rise to a material expected credit loss.

The receivable following the disposal of the Joint venture receivable has been initially recognised at fair value which resulted in

a discount of £2.6 million to the gross amounts to be received of £136.6 million and which is being amortised and recognised within

finance income over the period to the receipt of cash from Sainsbury’s. £135.1 million was received post year end and the remainder of

the consideration is expected to be received on sale of the final property.

18. Trade and other payables

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Corporate accruals 22,469 8,958

VAT payable 4,510 1,719

Total trade and other payables 26,979 10,677

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 swaps 35,601 5,114

Non-current asset: Interest rate cap 1,597 –

Current Asset: Interest rate swaps 16,800 –

Current Asset: Interest rate cap 3,584 –

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 inception 44,255 –

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) 19,695 5,270

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) 57,583 5,114

To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note 21,

the Group has entered into derivative interest rate swaps in relation to the drawn Unsecured bank syndicate facilities (‘the Unsecured

swaps’) and loan facilities with Bayerische Landesbank (‘the BLB swaps’) and Wells Fargo Bank (‘the Wells swaps’). The Group has

also entered into a derivative interest rate cap in relation to the drawn HSBC loan facility (‘the HSBC cap’).

A summary of these derivatives as at 30 June 2023 are shown in the table below:

Issuer Derivative Type

Notional amount

£m

Premium Paid

£m

Mark to Market

30 June 2023 Swap Rate Maturity Date

Barclays Interest Rate Swap £250.0 £26.7 £33.5 1.34% Jul-27

Barclays Interest Rate Swap £100.0 £7.6 £8.5 1.34% Jul-25

Barclays Interest Rate Swap £30.6 £1.2 £0.7 1.34% Dec-23

HSBC Interest Rate Cap £96.5 £6.0 £5.2 1.12% Aug-24

BLB Interest Rate Swap £37.3 £1.2 £2.7 2.64% Mar-26

BLB Interest Rate Swap £22.2 £0.7 £1.6 2.64% Mar-26

BLB Interest Rate Swap £27.4 £0.9 £2.0 2.64% Mar-26

Wells Fargo Interest Rate Swap £30.0 – £3.3 0.19% Jul-25

Total £594.0 £44.3 £57.5 – –

On 21 March 2023, the Group announced the refinancing of the existing loan facilities with Bayerische Landesbank with a new

three-year £86.9 million term loan replacing the existing tranches of the same amount. The Group closed out swaps on the same date

as these coincided with the previous facility. The Group made a profit on disposal of £2.9 million on the swaps.

100% of the Group’s outstanding debt as at 30 June 2023 was hedged through the use of fixed rate debt or financial instruments as at

30 June 2023 (2022: 61%). It is the Group’s target to hedge at least 50% of the Group’s total debt at any time using fixed rate loans or

interest rate derivatives.

The derivatives have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on

the last working day prior to each reporting date. The fair values are calculated using the present values of future cash flows, based on

market forecasts of interest rates and adjusted for the credit risk of the counterparties. The amounts and timing of future cash flows

are projected on the basis of the contractual terms.

All interest rate derivatives are classified as level 2 in the fair value hierarchy as defined under IFRS 13 and there were no transfers to

or from other levels of the fair value hierarchy during the year.

ANNUAL REPORT 2023 133

19. Interest rate derivatives continued

In accordance with the Group’s treasury risk policy, the Group applies cash flow hedge accounting in partially hedging the interest rate

risks arising on its Wells Fargo variable rate linked facility. Since the refinancing of the Bayerische Landesbank loan facility the Group

no longer applies hedge accounting to the newly acquired swaps. Changes in the fair values of derivatives that are designated as cash

flow hedges and are effective are recognised directly in the cash flow hedge reserve and included in other comprehensive income.

Any ineffectiveness that may arise in this hedge relationship will be included in profit or loss.

All floating rate loans and interest rate derivatives are contractually linked to the Sterling Overnight Index Average (“SONIA”).

Post year end, the Group extended the maturity of the interest rate derivatives by 12 months. The weighted average interest rate

following the derivative changes is 3.1% inclusive of the margin. The Group also entered into a forward starting cap starting in

August 2024 and terminating in July 2025 with a strike rate of 1.4%.

20. Bank borrowings

Amounts falling due within one year:

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Secured debt – –

Unsecured debt 62,090 –

Less: Unamortised finance costs (234) –

Bank borrowings per the consolidated statement of financial position 61,856 –

Amounts falling due after more than one year:

Secured debt 291,551 352,213

Unsecured debt 318,508 –

Less: Unamortised finance costs (4,450) (3,667)

Bank borrowings per the consolidated statement of financial position 605,609 348,546

Total bank borrowings 667,465 348,546

A summary of the Group’s borrowing facilities as at 30 June 2023 are shown below:

Lender Facility Expiry Expiry*

Credit

margin

Variable/

hedged

Loan

commitment

£m

Amount drawn

30 June 2023

£m

HSBC Revolving credit facility Aug 2024 Aug 2025 1.65% Cap – 1.12% £96.5 £78.1

HSBC Revolving credit facility Aug 2024 Aug 2025 1.65% SONIA £3.5 Nil

HSBC Revolving credit facility Aug 2024 Aug 2025 1.75% SONIA £50.0 Nil

Deka Term Loan Aug 2024 Aug 2026 1.35% 0.54% £47.6 £47.6

Deka Term Loan Aug 2024 Aug 2026 1.35% 0.70% £28.9 £28.9

Deka Term Loan Aug 2024 Aug 2026 1.40% 0.32% £20.0 £20.0

BLB Term Loan Mar 2026 Mar 2026 1.65% SWAP – 2.64% £86.9 £86.9

Wells Fargo Revolving credit facility Jul 2025 Jul 2027 2.00% SWAP – 0.18% £30.0 £30.0

Wells Fargo Revolving credit facility Jul 2025 Jul 2027 2.00% SONIA £9.0 Nil

Barclays Revolving credit facility Jan 2024 Jan 2026 1.50% SONIA £77.5 Nil

Syndicate Unsecured RCF Jul 2027 Jul 2029 1.50% SWAP – 1.34% £250.0 £218.5

Syndicate Unsecured Term Loan Jul 2025 Jul 2027 1.50% SWAP – 1.34% £100.0 £100.0

Syndicate Unsecured Term Loan Jan 2024 Jan 2025 1.50% SWAP – 1.34% £30.6 £30.6

Syndicate Unsecured Term Loan Jan 2024 Jan 2025 1.50% SONIA £31.5 £31.5

Total £862.0 £672.1

*Includes extension options that can be utilised following approval from all parties

134 SUPERMARKET INCOME REIT PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

20. Bank borrowings continued

In July 2022, the Group announced the arrangement of a new £412.1 million unsecured credit facility with a bank syndicate comprising

Barclays, Royal Bank of Canada, Wells Fargo and Royal Bank of Scotland International as summarised above. This was partially used

to reduce the Wells Fargo and Barclays/RBC facilities. This led to loan modifications under IFRS 9 resulting in an acceleration of loan

arrangement fees of £1.52 million.

In January 2023, the Group entered into a short-term debt facility provided by J.P. Morgan of £196.5 million to fund the acquisition of

the additional interest in the Joint Venture. The Facility had a margin of 1.5% over SONIA and an arrangement fee of 2.0%. This facility

was repaid in March 2023.

The Group has been in compliance with all of the financial covenants across the Group’s bank facilities as applicable throughout the

periods covered by these financial statements.

Any associated fees in arranging the bank borrowings that are unamortised as at the end of the year are offset against amounts drawn

under the facility as shown in the table above. The debt is secured by charges over the Group’s investment properties and by charges

over the shares of certain Group undertakings, not including the Company itself. There have been no defaults of breaches of any loan

covenants during the current year or any prior period.

The Group’s borrowings carried at amortised cost are considered to be approximate to their fair value.

Post year end, the Group reduced the HSBC facility to £50.0 million from £150.0 million, cancelled the Barclays/RBC facility and

Unsecured term loan of £77.5 million and £62.1 million respectively and entered into a new £67.0 million facility with SMBC Bank

International PLC, for more information see note 28.

21. Categories of financial instruments

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Financial assets

Financial assets at amortised cost:

Lease Receivables 10,819 10,626

Cash and cash equivalents 37,481 51,200

Trade and other receivables 141,305 1,430

Financial assets at fair value:

Rent guarantees – 283

Interest rate derivative 54,278 –

Derivatives in effective hedges:

Interest rate derivative 3,304 5,114

Total financial assets 247,187 68,653

Financial liabilities

Financial liabilities at amortised cost:

Secured debt 289,736 348,546

Unsecured debt 377,729 –

Trade and other payables 22,469 8,958

Total financial liabilities 689,934 357,504

At the year end, all financial assets and liabilities were measured at amortised cost except for the interest rate derivatives which are

measured at fair value. The interest rate derivative valuation is classified as ‘level 2’ in the fair value hierarchy as defined in IFRS 13

and its fair value was calculated using the present values of future cash flows, based on market forecasts of interest rates and

adjusted for the credit risk of the counterparties.

ANNUAL REPORT 2023 135

21. Categories of financial instruments continued

Financial risk management

Through the Group’s operations and use of debt financing it is exposed to certain risks. The Group’s financial risk management

objective is to minimise the effect of these risks, for example by using interest rate cap and interest rate swap derivatives to partially

mitigate exposure to fluctuations in interest rates, as described in note 19.

The exposure to each financial risk considered potentially material to the Group, how it arises and the policy for managing it is

summarised below.

Market risk

Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in

market prices. The Group’s market risk arises from open positions in interest bearing assets and liabilities, to the extent that these are

exposed to general and specific market movements.

The Group’s interest-bearing financial instruments comprise cash and cash equivalents and bank borrowings. Changes in market

interest rates therefore affect the Group’s finance income and costs, although the Group has purchased interest rate derivatives as

described in note 19 in order to partially mitigate the risk in respect of finance costs. The Group’s sensitivity to changes in interest

rates, calculated on the basis of a ten-basis point increase in the three-month SONIA daily rate, was as follows:

Year to

30 June 2023

£’000

Year to

30 June 2022

£’000

Effect on profit (increase)/decrease (1,383) 413

Effect on other comprehensive income and equity (increase) (58) (223)

Trade and other receivables and payables are interest free as long as they are paid in accordance with their terms, and have payment

terms of less than one year, so it is assumed that there is no material interest rate risk associated with these financial instruments.

The Group prepares its financial information in Sterling and all of its current operations are Sterling denominated. It therefore has no

exposure to foreign currency and does not have any direct sensitivity to changes in foreign currency exchange rates.

Inflation risk arises from the impact of inflation on the Group’s income and expenditure. The majority of the Group’s passing rent at

30 June 2023 is subject to inflation-linked rent reviews. Consequently, the Group is exposed to movements in the Retail Prices Index

(“RPI”), which is the relevant inflation benchmark. However, all RPI-linked rent review provisions provide those rents will only be

subject to upwards review and never downwards. As a result, the Group is not exposed to a fall in rent in deflationary conditions.

The Group does not expect inflation risk to have a material effect on the Group’s administrative expenses, with the exception of the

investment advisory fee which is determined as a function of the reported net asset value of the Group.

Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations. The principal

counterparties are the Group’s tenants (in respect of rent receivables arising under operating leases) and banks (as holders of the

Group’s cash deposits).

The credit risk of rent receivables is considered low because the counterparties to the operating leases are considered by the Board

to be high-quality tenants and any lease guarantors are of appropriate financial strength. Rent collection dates and statistics are

monitored to identify any problems at an early stage, and if necessary rigorous credit control procedures will be applied to facilitate

the recovery of rent receivables. The credit risk on cash deposits is limited because the counterparties are banks with credit ratings

which are acceptable to the Board and are kept under review each quarter.

The credit risk of the receivable from the disposal of the Joint Venture is considered low and this is supported by the fact that the

majority of this was received shortly after the year end.

136 SUPERMARKET INCOME REIT PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

21. Categories of financial instruments continued

Liquidity risk

Liquidity risk arises from the Group’s management of working capital and the finance costs and principal repayments on its secured

debt. It is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group seeks to manage its liquidity risk by ensuring that sufficient cash is available to meet its foreseeable needs. These liquidity

needs are relatively modest and are capable of being satisfied by the surplus available after rental receipts have been applied in

payment of interest as required by the credit agreement relating to the Group’s secured debt.

Before entering into any financing arrangements, the Board assesses the resources that are expected to be available to the Group to

meet its liabilities when they fall due. These assessments are made on the basis of both base case and downside scenarios. The Group

prepares detailed management accounts which are reviewed by the Board at least quarterly to assess ongoing liquidity requirements

and compliance with loan covenants. The Board also keeps under review the maturity profile of the Group’s cash deposits in order to

have reasonable assurance that cash will be available for the settlement of liabilities when they fall due.

The following table shows the maturity analysis for financial assets and liabilities. The table has been drawn up based on the

undiscounted cash flows of non-derivative financial instruments, including future interest payments, based on the earliest date

on which the Group can be required to pay and assuming that the SONIA daily rate remains at the 30 June 2023 rate. Interest rate

derivatives are shown at fair value and not at their gross undiscounted amounts.

As at 30 June 2023

Less than

one year

£’000

One to

two years

£'000

Two to

five years

£'000

More than

five years

£'000

Total

£’000

Financial assets:

Cash and cash equivalents 37,481 – – – 37,481

Trade and other receivables 141,305 – – – 141,305

Amortised cost asset 290 290 908 74,930 76,418

Interest rate derivatives 20,384 20,564 16,635 – 57,583

Total financial assets 199,460 20,854 17,543 74,930 312,787

Financial liabilities:

Bank borrowings 81,545 94,080 549,575 – 725,200

Trade payables and other payables 22,469 – – – 22,469

Total financial liabilities 104,014 94,080 549,575 – 747,669

As at 30 June 2022

Less than

one year

£’000

One to

two years

£'000

Two to

five years

£'000

More than

five years

£'000

Total

£’000

Financial assets:

Cash and cash equivalents 51,200 – – – 51,200

Trade and other receivables 1,430 – – – 1,430

Amortised cost asset 290 290 870 76,415 77,865

Rent guarantees 283 – – – 283

Interest rate derivatives – 843 4,271 – 5,114

Total financial assets 53,203 1,133 5,141 76,415 135,892

Financial liabilities:

Bank borrowings 9,335 205,679 156,510 – 371,524

Trade payables and other payables 8,958 – – – 8,958

Interest rate derivatives – – – – –

Total financial liabilities 18,293 205,679 156,510 – 380,482

ANNUAL REPORT 2023 137

21. Categories of financial instruments continued

Capital risk management

The Board’s primary objective when monitoring capital is to preserve the Group’s ability to continue as a going concern, while ensuring

it remains within its debt covenants so as to safeguard secured assets and avoid financial penalties.

Bank borrowings on secured facilities are secured on the Group’s property portfolio by way of fixed charges over property assets and

over the shares in the property-owning subsidiaries and any intermediary holding companies of those subsidiaries.

At 30 June 2023, the capital structure of the Group consisted of bank borrowings (note 20), cash and cash equivalents, and equity

attributable to the Shareholders of the Company (comprising share capital, retained earnings and the other reserves referred to in

notes 22 and 23).

In managing the Group’s capital structure, the Board considers the Group’s cost of capital. In order to maintain or adjust the capital

structure, the Group keeps under review the amount of any dividends or other returns to Shareholders and monitors the extent to

which the issue of new shares or the realisation of assets may be required.

Reconciliation of financial liabilities relating to financing activities

Total bank

borrowings

£’000

Interest and

commitment

fees payable

£’000

Interest rate

derivatives

£’000

Total

£’000

As at 1 July 2022 348,546 1,939 (5,114) 345,371

Cash flows:

Debt drawdowns in the year 912,114 – – 912,114

Debt repayments in the year (598,486) – – (598,486)

Interest and commitment fees paid – (24,116) – (24,116)

Loan arrangement fees paid (5,010) – – (5,010)

Interest rate premium paid – – (44,255) (44,255)

Interest rate derivative disposal – – 2,878 2,878

Non-cash movements:

Finance costs in the statement of comprehensive income 10,301 29,014 (22,806) 16,509

Fair value changes – – 11,714 11,714

As at 30 June 2023 667,465 6,837 (57,583) 616,719

As at 1 July 2021 409,684 1,634 447 411,765

Cash flows:

Debt drawdowns in the year 402,922 – – 402,922

Debt repayments in the year (464,029) – – (464,029)

Interest and commitment fees paid – (10,527) – (10,527)

Loan arrangement fees paid (2,188) – – (2,188)

Non-cash movements:

Finance costs in the statement of comprehensive income 2,157 10,832 5 12,994

Fair value changes – – (5,566) (5,566)

At 30 June 2022 348,546 1,939 (5,114) 345,371

Movements in respect to share capital are disclosed in note 22 below.

The interest and commitment fees payable are included within the corporate accruals balance in note 18. Cash flow movements are

included in the consolidated statement of cash flows and the non-cash movements are included in note 8. The movements in the

interest rate derivative financial liabilities can be found in note 19.

138 SUPERMARKET INCOME REIT PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

22. Share capital

Ordinary Shares

of 1 pence

Number

Share capital

£’000

premium

reserve

£’000

Capital

reduction

reserve

£’000

Total

£’000

As at 1 July 2022 1,239,868,420 12,399 494,174 778,859 1,285,432

Scrip Dividends issued and fully paid – 22 August 2022 1,898,161 19 2,316 – 2,335

Scrip Dividends issued and fully paid – 16 November 2022 866,474 9 869 – 878

Scrip Dividends issued and fully paid – 23 February 2023 729,198 7 721 – 728

Scrip Dividends issued and fully paid – 26 May 2023 2,876,932 28 2,395 – 2,423

Share issue costs – – (89) – (89)

Dividend paid in the period (note 11) – – – (74,328) (74,328)

As at 30 June 2023 1,246,239,185 12,462 500,386 704,531 1,217,379

As at 1 July 2021 810,720,168 8,107 778,859 – 786,966

Scrip Dividends issued and fully paid – 20 August 2021 300,468 3 348 – 351

Ordinary shares issued and fully paid – 22 October 2021 173,913,043 1,740 198,261 – 200,001

Scrip dividends issued and fully paid – 16 November 2021 500,750 5 578 – 583

Share premium cancelled during the year and

transferred to capital reduction reserve – – (778,859) 778,859 –

Scrip dividends issued and fully paid – 25 February 2022 111,233 1 136 – 137

Ordinary shares issued and fully paid – 29 April 2022 253,492,160 2,535 304,191 – 306,726

Scrip dividends issued and fully paid – 27 May 2022 830,598 8 1,026 – 1,034

Share issue costs – – (10,366) – (10,366)

As at 30 June 2022 1,239,868,420 12,399 494,174 778,859 1,285,432

Share allotments and other movements in relation to the capital of the Company in the year:

Scrip dividends were issued on 22 August 2022, 16 November 2022, 23 February 2023 and 26 May 2023 at a reference price of £1.23,

£1.01, £1.00 and £0.84 per share respectively. The Company issued a combined total of 6,370,765 shares under the scrip dividend

programme during the year. The consideration received (net of share issue costs) in excess of the par value of the ordinary shares

issued of £6.3 million was credited to the share premium reserve.

Ordinary Shareholders are entitled to all dividends declared by the Company and to all of the Company’s assets after repayment of its

borrowings and ordinary creditors. Ordinary Shareholders have the right to vote at meetings of the Company. All ordinary shares carry

equal voting rights. The aggregate ordinary shares in issue at 30 June 2023 total was 1.25 billion.

23. Reserves

The nature and purpose of each of the reserves included within equity at 30 June 2023 are as follows:

• Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value of the shares, net of

the direct costs of equity issues

• Cash flow hedge reserve: represents cumulative gains or losses, net of tax, on effective cash flow hedging instruments

• Capital reduction reserve: represents a distributable reserve created following a Court-approved reduction in capital less

dividends paid

• Retained earnings represent cumulative net gains and losses recognised in the statement of comprehensive income.

The only movements in these reserves during the year are disclosed in the consolidated statement of changes in equity.

24. Capital commitments

The Group had no capital commitments outstanding as at 30 June 2023 and 30 June 2022.

ANNUAL REPORT 2023 139

25. Operating leases

The Group’s principal assets are investment properties which are leased to third parties under non-cancellable operating leases. The

weighted average remaining lease term at 30 June 2023 is 13.6 years (2022: 15.1 years). The leases contain predominately fixed or

inflation-linked uplifts.

The future minimum lease payments receivable under the Group’s leases, are as follows:

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Year 1 100,156 77,438

Year 2 98,941 77,831

Year 3 98,614 77,088

Year 4 97,552 76,861

Year 5 97,177 75,994

Year 6-10 452,219 375,951

Year 11-15 310,150 290,613

Year 16-20 94,875 127,574

Year 21-25 23,358 25,144

More than 25 years 12,743 14,846

Total 1,385,785 1,219,340

26. Net asset value per share

NAV per share is calculated by dividing the Group’s net assets as shown in the consolidated statement of financial position, by the

number of ordinary shares outstanding at the end of the year. As there are no dilutive instruments outstanding, basic and diluted NAV

per share are identical.

The European Public Real Estate Association (EPRA) publishes guidelines for the calculation of three measures of NAV to enable

consistent comparisons between property companies, which were updated in the prior year and took effect from 1 January 2020.

The Group uses EPRA Net Tangible Assets (“EPRA NTA”) as the most meaningful measure of long-term performance and the measure

which is being adopted by the majority of UK REITs, establishing it as the industry standard benchmark. It excludes items that are

considered to have no impact in the long-term, such as the fair value of derivatives.

NAV and EPRA NTA per share calculation are as follows:

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Net assets per the consolidated statement of financial position 1,217,726 1,432,455

Contractual fulfilment intangible assets – (93)

Fair value of financial assets at amortised cost (3,609) (666)

Fair value of interest rate derivatives (57,583) (5,114)

EPRA NTA 1,156,534 1,426,582

Ordinary shares in issue at 30 June 1,246,239,185 1,239,868,420

NAV per share – Basic and diluted (pence) 98p 116p

EPRA NTA per share (pence) 93p 115p

27. Transactions with related parties

Details of the related parties to the Group in the year and the transactions with these related parties were as follows:

a. Directors

Directors’ fees

Nick Hewson, Chair of the Board of Directors of the Company, is paid fees of £75,000 per annum, with the other Directors each

being paid fees of £52,500 per annum. Jon Austen is paid an additional £9,000 per annum for his role as chair of the Company’s

Audit Committee, Vince Prior is paid an additional £4,000 per annum for his role as chair of the Company’s Nomination Committee

and £5,000 for his role as Senior Independent Director. Cathryn Vanderspar is paid an additional £5,000 for her role as Chair of the

Remuneration Committee. Frances Davies is paid an additional £5,000 for her role as Chair of the ESG Committee.

The total remuneration payable to the Directors in respect of the current year and previous year are disclosed in note 7.

140 SUPERMARKET INCOME REIT PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

27. Transactions with related parties continued

Directors’ interests

Details of the direct and indirect interests of the Directors and their close families in the ordinary shares of one pence each in the

Company at 30 June 2023 were as follows:

• Nick Hewson: 1,263,309 shares (0.11% of issued share capital)

• Jon Austen: 305,339 shares (0.02% of issued share capital)

• Vince Prior: 213,432 shares (0.02% of issued share capital)

• Cathryn Vanderspar: 125,802 (0.01% of issued share capital)

• Frances Davies: 24,774 (0.00% of issued share capital)

• Sapna Shah: 28,951 (0.00% of issued share capital)

Details of the direct and indirect interest of the Directors and their close families in the ordinary shares of one pence each in the

Company at the date of signing the accounts were as follows:

• Nick Hewson: 1,263,309 shares (0.11% of issued share capital)

• Jon Austen: 305,339 shares (0.02% of issued share capital)

• Vince Prior: 213,432 shares (0.02% of issued share capital)

• Cathryn Vanderspar: 125,802 (0.01% of issued share capital)

• Frances Davies: 36,774 (0.00% of issued share capital)

• Sapna Shah: 28,951 (0.00% of issued share capital)

b. Investment Adviser

Investment advisory and accounting fees

The investment adviser to the Group, Atrato Capital Limited (the Investment Adviser), is entitled to certain advisory fees under the

terms of the Investment Advisory Agreement (the ‘Agreement’) dated 14 July 2021.

The entitlement of the Investment Adviser to advisory fees is by way of what are termed ‘Monthly Management Fees’ and

‘Semi-Annual Management Fees’ both of which are calculated by reference to the net asset value of the Group at particular dates, as

adjusted for the financial impact of certain investment events and after deducting any uninvested proceeds from share issues up to

the date of the calculation of the relevant fee (these adjusted amounts are referred to as ‘Adjusted Net Asset Value’ for the purpose of

calculation of the fees in accordance with the Agreement).

Until the Adjusted Net Value of the Group exceeds £1,500 million, the entitlements to advisory fees can be summarised as follows:

• Monthly Management Fee payable monthly in arrears: 1/12th of 0.7125% per calendar month of Adjusted Net Asset Value up

to or equal to £500 million, 1/12th of 0.5625% per calendar month of Adjusted Net Asset Value above £500 million and up to or

equal to £1,000 million and 1/12th of 0.4875% per calendar month of Adjusted Net Asset Value above £1,000 and up to or equal to

£1,500 million.

• Semi-Annual Management Fee payable semi-annually in arrears: 0.11875% of Adjusted Net Asset Value up to or equal to

£500 million, 0.09375% of Adjusted Net Asset Value above £500 million and up to or equal to £1,000 million and 0.08125% of

Adjusted Net Asset Value above £1,000 million and up to or equal to £1,500 million.

For the year to 30 June 2023 the total advisory fees payable to the Investment Adviser were £10,292,302 (2022: £9,404,938) of which

£1,845,144 (2022: £1,446,246) is included in trade and other payables in the consolidated statement of financial position.

The Investment Adviser is also entitled to an annual accounting and administration service fee equal to: £52,788; plus (i) £4,279 for

any indirect subsidiary of the Company and (ii) £1,661 for each direct subsidiary of the Company. A full list of the Company and its

direct and indirect subsidiary undertakings is listed in Note 13 of these financial statements.

For the year to 30 June 2023 the total accounting and administration service fee payable to the Investment Adviser was £297,475

(2022: £237,559) of which £83,614 (2022: £81,833) is included in trade and other payables in the consolidated statement of

financial position.

Introducer Services

Atrato Partners, an affiliate of the Investment Adviser, is entitled to fees in relation to the successful introduction of prospective

investors in connection with subscriptions for ordinary share capital in the Company.

The entitlement of the Investment Adviser to introducer fees is by fees and/or commission which can be summarised as follows:

• Commission basis: 1% of total subscription in respect of ordinary shares subscribed for by any prospective investor introduced by

Atrato Partners.

For the year to 30 June 2023 the total introducer fees payable to the affiliate of the Investment Adviser were £nil (2022: £271,239).

ANNUAL REPORT 2023 141

27. Transactions with related parties continued

Interest in shares of the Company

Details of the direct and indirect interests of the Directors of the Investment Adviser and their close families in the ordinary shares of

one pence each in the Company at 30 June 2023 were as follows:

• Ben Green: 1,876,376 shares (0.15% of issued share capital)

• Steve Windsor: 1,698,928 shares (0.14% of issued share capital)

• Steven Noble: 232,255 shares (0.02% of issued share capital)

• Natalie Markham: 62,679 shares (0.01% of issued share capital)

Carried interest held in the Group’s joint venture

Under the terms of the Horner (Jersey) LP (the “JV”) Limited Partnership Agreement (“LPA”), an affiliate of the Investment Adviser,

Atrato Halliwell Limited (the “Carry Partner”), had a carried interest entitlement over the investment returns from the JV’s investment

in the Structure. Further details regarding the estimated value of the Carry Partner’s interest in the JV are included in note 14.

Carried interest payments are only payable to the extent that distributions are made from the JV to the Group. On the acquisition of

the additional Joint Venture interest during the year, the carried interest was considered to have crystalised and became payable.

£7.5 million was paid in relation to the settlement of the carry interest of the additional joint venture interest acquired during the year

and was recognised as a financing cashflow within the cashflow statement. The existing interest of £7.5 million payable is included in

corporate accruals within Note 18 and was settled subsequent to the year end.

c. Other related parties

During the year, SUPR Green Energy Limited received a credit note from Evo Energy Limited for solar panels purchased in June 2021

of £155,142.52. These panels that were being held by Evo Energy Limited were sold to Sonne Solar Limited, a subsidiary of Atrato

Onsite Energy PLC, a company is advised by an affiliate of the Investment Adviser. As 30 June 2023, the balance was still outstanding,

and was received in cash after the year end.

28. Subsequent events

Debt financing

• In July 2023, the Group cancelled its £62.1 million unsecured term loan with the unsecured banking syndicate.

• In September 2023, the Group announced that its £150.0 million revolving credit facility with HSBC was refinanced with a new

£50.0 million, secured three-year RCF with a £75 million accordion option. The new facility has two one-year extension options and

a margin of 170 bps over SONIA.

• In September 2023, the Group announced the cancellation of the Barclays/RBC facility of £77.5 million.

• In September 2023, the Group announced the arrangement of a new £67.0 million unsecured term loan facility with SMBC

Bank International PLC at a margin of 1.4% over SONIA. The term of the loan is for three-years with two further one-year

extension options.

• In September 2023, the Group extended £50.0 million of its £100.0 million unsecured term loan with the unsecured banking

syndicate by one year to July 2026.

Hedging

In September 2023, the Group adjusted its interest rate derivatives held at the year end to extend the maturity of the derivatives by

12 months. The Group’s drawn debt is fully hedged at an interest rate of 3.1% (including margin) with a weighted average debt term

of 4 years (including extension options).

Acquisitions

In July 2023, the Group announced the acquisition of two Sainsbury’s stores from the SRP for £36.4 million (excluding acquisition

costs). Sainsbury’s entered into new 15-year leases on these stores with five-yearly open market rent reviews and a tenant break

option at year 10.

142 SUPERMARKET INCOME REIT PLC

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2023

Registered number: 10799126

Notes

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Non-current assets

Investments in subsidiaries D 1,564,226 1,329,108

Interest rate derivatives 29,318 –

Total non-current assets 1,593,544 1,329,108

Current assets

Interest rate derivatives 13,397 –

Trade and other receivables E 11,412 41,201

Cash and cash equivalents 2,928 23,413

Total current assets 27,737 64,614

Total assets 1,621,281 1,393,722

Current liabilities

Bank Borrowings G 61,856 –

Trade and other payables F 127,027 44,603

Total current liabilities 188,883 44,603

Current liabilities

Bank borrowings G 315,873 –

Total liabilities 504,756 44,603

Total net assets 1,116,525 1,349,119

Equity

Share capital H 12,462 12,399

Share premium reserve 500,386 494,174

Capital reduction reserve 704,531 778,859

Retained earnings (100,854) 63,687

Total equity 1,116,525 1,349,119

The notes on pages 144-145 form part of these financial statements.

The Company has taken advantage of the exemption within section 408 of the Companies Act 2006 not to present its own profit and

loss account. The accumulated loss for the year dealt with the financial statements of the Company was £164,541,000 (2022: profit

£67,411,000). As at 30 June 2023 the Company has distributable reserves of £603.7 million (2022: £842.5 million).

The Company financial statements were approved and authorised for issue by the Board of Directors on 19 September 2023 and were

signed on its behalf by

Nick Hewson

Chair

19 September 2023

ANNUAL REPORT 2023 143

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

capital

£’000

premium

reserve

£’000

Capital

reduction

reserve

£’000

Retained

earnings

£’000

Total

£’000

As at 1 July 2022 12,399 494,174 778,859 63,687 1,349,119

Loss and total comprehensive loss for the year – – – (164,541) (164,541)

Transactions with owners

Ordinary shares issued at a premium during the year 63 6,301 – – 6,364

Transfer to capital reduction reserve

Share issue costs – (89) – – (89)

Interim dividends paid – – (74,328) – (74,328)

As at 30 June 2023 12,462 500,386 704,531 (100,635) 1,116,525

capital

£’000

premium

reserve

£’000

Capital

reduction

reserve

£’000

Retained

earnings

£’000

Total

£’000

As at 1 July 2021 8,107 778,859 – 49,466 836,432

Profit and total comprehensive income for the year – – – 67,411 67,411

Transactions with owners

Ordinary shares issued at a premium during the year 4,292 504,540 – – 508,832

Transfer to capital reduction reserve – (778,859) 778,859 – –

Share issue costs – (10,366) – – (10,366)

Interim dividends paid – – – (53,190) (53,190)

As at 30 June 2022 12,399 494,174 778,859 63,687 1,349,119

144 SUPERMARKET INCOME REIT PLC

NOTES TO THE COMPANY FINANCIAL STATEMENTS

A. Basis of preparation

The Company’s financial statements have been prepared in accordance with FRS 102, the Financial Reporting Standard applicable in

the United Kingdom and the Republic of Ireland.

The principal accounting policies relevant to the Company are as follows:

• Investments in subsidiaries are recognised at cost less provision for any impairment;

• Loans and receivables are recognised initially at fair value plus transaction costs less provision for impairment;

• Trade payables are recognised initially at fair value and subsequently at amortised cost;

• Equity instruments are recognised as the value of proceeds received net of direct issue costs; and

• Dividends are recognised as a financial liability and deduction from equity in the period in which they are declared.

In preparing the Company’s financial statements, advantage has been taken of the following disclosure exemptions

available in FRS 102:

• No cash flow statement has been presented;

• Disclosures in respect of the Company’s financial instruments have not been presented as equivalent disclosures have been

provided in respect of the Group;

• No reconciliation of the number of shares outstanding at the beginning and end of the year has been presented as it is identical to

the reconciliation for the Group shown in note 22 to the Group financial statements; and

• No disclosure has been given for the aggregate remuneration of the key management personnel of the Company as their

remuneration is shown in note 7 to the Group financial statements.

In the year to 30 June 2024, the Company intends to continue to use these disclosure exemptions unless objections are received

from Shareholders.

B. Significant accounting judgements, estimates and assumptions

In preparing the financial statements of the Company, the Directors have made the following judgements:

• Determine whether there are any indicators of impairment of the investments in subsidiary undertakings. Factors taken into

consideration in reaching such a decision include the financial position and expected future performance of the subsidiary

entity. Where indicators of impairment are identified the carrying value of investments in subsidiaries will be compared to their

recoverable amount and an impairment charge recognised where this is lower than carrying value. The net asset value of the

individual subsidiary entities is considered to be a reasonable proxy for fair value less costs to sell as the underlying investment

properties held within these entities is carried at fair value.

C. Auditor’s remuneration

The remuneration of the auditor in respect of the audit of the Company’s consolidated and individual financial statements for the year

was £260,000 (2022: £190,000). Fees payable for audit and non-audit services provided to the Company and the rest of the Group are

disclosed in note 6 to the Group financial statements.

D. Investment in subsidiary undertakings

The Company’s wholly owned direct subsidiaries are Supermarket Income Investments UK Limited, Supermarket Income Investments

(Midco2) UK Limited, Supermarket Income Investments (Midco3) UK Limited, Supermarket Income Investments (Midco4) UK

Limited, Supermarket Income Investments (Midco6) UK Limited, SII UK Halliwell (Midco) Limited, SUPR Finco Limited and SUPR

Green Energy Limited, all of which are incorporated and operating in England with a registered address of 1 King William Street,

London, United Kingdom, EC4N 7AF. The full list of subsidiary entities directly and indirectly owned by the Company is disclosed in

note 13 to the Group financial statements.

The movement in the year was as follows:

Year to

30 June 2023

£’000

Opening balance 1,329,108

Additions 1,066,634

Closing balance 2,395,742

Impairments of investments in subsidiaries (831,516)

As at 30 June 2023 1,564,226

ANNUAL REPORT 2023 145

Year to

30 June 2022

£’000

Opening balance 760,767

Additions 871,692

Closing balance 1,632,459

Impairments of investments in subsidiaries (303,351)

As at 30 June 2022 1,329,108

An impairment of investments in subsidiaries was recognised during both the current and previous year following the payment of

upstream dividends to the Company. Following the payment of dividends, the net assets of certain dividend-paying subsidiaries no

longer support the carrying value of the Company’s investment in those entities and thus an impairment charge was recognised to

bring the carrying value of the investments in line with the recoverable amount, which was also considered to be its value in use.

E. Trade and other receivables

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Intercompany receivables 9,345 40,380

Prepayments and accrued income 223 163

Corporation tax receivable – –

VAT receivable – –

Other receivables 1,844 658

Total trade and other receivables 11,412 41,201

F. Trade and other payables

Trade creditors 2,235 898

Corporate accruals 5,122 525

VAT payable 114 28

Intercompany payables 119,556 43,152

Total trade and other payables 127,027 44,603

G. Bank Borrowings

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Amounts falling due within one year:

Unsecured debt 62,090 –

Less: Unamortised finance costs (234) –

Bank borrowings per the Company’s statement of financial position 61,856 –

Amounts falling due after more than one year:

Unsecured debt 318,508 –

Less: Unamortised finance costs (2,635) –

Bank borrowings per the Company’s statement of financial position 315,873 –

Total bank borrowings 377,729 –

Any associated fees in arranging the bank borrowings that are unamortised as at the end of the year are offset against amounts drawn

under the facility as shown in the table above.

Details of the bank borrowings of the Company are disclosed in note 20 to the Group financial statements.

H. Share capital

Details of the share capital of the Company are disclosed in note 22 to the Group financial statements.

I. Related party transactions

Details of related party transactions are disclosed in note 27 to the Group financial statements.

146 SUPERMARKET INCOME REIT PLC

UNAUDITED SUPPLEMENTARY INFORMATION

Notes to EPRA and other Key Performance Indicators

1. EPRA Earnings and Adjusted Earnings per Share

For the period from 1 July 2022 to 30 June 2023

Net profit

attributable

to ordinary

Shareholders

£’000

Weighted

average number

of ordinary

Number

Earnings/

per share

Pence

Net (loss)/profit attributable to ordinary Shareholders (144,866) 1,242,574,505 (11.7)

Adjustments to remove:

Changes in fair value of investment properties and associated rent guarantees 256,066 – 20.6

Changes in fair value of interest rate derivatives measured at FVTPL (10,024) – (0.8)

Profit on disposal of interest rate derivatives (2,878) – (0.2)

Group share of changes in fair value of joint venture investment properties (11,486) – (0.9)

Profit on disposal of groups interest in joint venture (19,940) – (1.6)

Finance income received on interest rate derivatives held at fair value through profit

and loss (9,671) – (0.8)

EPRA earnings 57,201 1,242,574,505 4.6

Add finance income received on interest rate derivatives held at fair value through

profit and loss 9,671 – 0.8

Add accelerated finance costs 1,518 – 0.1

Add Joint Venture acquisition loan arrangement fee 4,009 – 0.3

Adjusted EPRA earnings 72,399 1,242,574,505 5.8

1 Based on the weighted average number of ordinary shares in issue in the year ended 30 June 2023.

For the period from 1 July 2021 to 30 June 2022

Net profit

attributable

to ordinary

Shareholders

£’000

Weighted

average number

of ordinary

Number

Earnings/

per share

Pence

Net profit attributable to ordinary Shareholders 115,869 975,233,858 11.9p

Adjustments to remove:

Changes in fair value of interest rate derivatives (5,566) – (0.6p)

Changes in fair value of investment properties and associated rent guarantees (21,820) – (2.2p)

Group share of changes in fair value of joint venture investment properties 6,021 – 0.6p

Group share of negative goodwill from joint venture investment (37,102) – (3.8p)

EPRA EPS 57,402 975,233,858 5.9p

2 Based on the weighted average number of ordinary shares in issue in the year ended 30 June 2022.

2. EPRA NTA per share

EPRA NTA is considered to be the most relevant measure for the Group and is now the primary measure of net assets, replacing the

previously reported EPRA Net Asset Value metric. For the current period EPRA NTA is calculated as net assets per the consolidated

statement of financial position excluding the fair value of interest rate derivatives.

ANNUAL REPORT 2023 147

30 June 2023

EPRA NTA

£’000

EPRA NRV

£’000

EPRA NDV

£’000

IFRS NAV attributable to ordinary Shareholders 1,217,726 1,217,726 1,217,726

Fair value of Financial asset held at amortised cost (3,609) (3,609) (3,609)

Fair value of interest rate derivatives (57,583) (57,583) –

Intangibles – – –

Purchasers’ costs – 122,990 –

Fair value of debt – – 4,876

EPRA metric 1,156,534 1,279,524 1,218,993

EPRA metric per share 93p 103p 98p

30 June 2022

EPRA NTA

£’000

EPRA NRV

£’000

EPRA NDV

£’000

IFRS NAV attributable to ordinary Shareholders 1,432,455 1,432,455 1,432,455

Fair value of interest rate derivatives (5,114) (5,114) –

Fair value of Financial asset held at amortised cost (666) (666) (666)

Intangibles (93) – –

Purchasers’ costs – 113,935 –

Fair value of debt – – 4,320

EPRA metric 1,426,582 1,540,610 1,436,109

EPRA metric per share 115p 124p 116p

3. EPRA Net Initial Yield (NIY) and EPRA “topped up” NIY

As at

30 June 2023

£’000

As at

30 June 2022

£’000

Investment Property – wholly owned (note 12) 1,685,690 1,561,590

Investment Property – share of joint ventures – 266,500

Completed Property Portfolio 1,685,690 1,828,090

Allowance for estimated purchasers’ costs 122,990 133,380

Grossed up completed property portfolio valuation (B) 1,808,680 1,961,470

Annualised passing rental income – wholly owned 99,910 77,230

Annualised passing rental income – share of joint venture – 13,372

Annualised non-recoverable property outgoings (1,117) (400)

Less: contracted rent under rent free periods – –

Annualised net rents (A) 98,793 90,202

Rent expiration of rent-free periods and fixed uplifts 447 56

Topped up annualised net rents (C) 99,240 90,258

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 space 439 188

Estimated rental value of the whole portfolio 100,797 77,237

EPRA Vacancy Rate 0.4% 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 IFRS 15,429 13,937

Service charge income (5,939) (2,086)

Service charge costs 6,518 2,338

Net Service charge costs 579 252

Share of joint venture expenses 938 95

Total costs (including direct vacant property costs) (A) 16,946 14,284

Vacant property costs (328) (99)

Total costs (excluding direct vacant property costs) (B) 16,618 14,185

Gross rental income per IFRS 95,823 72,363

Less: service charge components of gross rental income – –

Add: Share of Gross rental income from Joint Ventures 13,529 14,423

Gross rental income (C) 109,352 86,786

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 institutions 667,465 348,546

Net payables – 24,893

Less: Cash and cash equivalents (37,481) (51,200)

Group Net Debt Total (A) 629,984 322,239

Group Property Value

Investment properties at fair value 1,685,690 1,561,590

Intangibles – 93

Net receivables 93,620 –

Financial assets 10,819 10,626

Total Group Property Value (B) 1,790,129 1,572,309

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) 629,984 411,182

Combined Property Value (B) 1,790,129 1,849,717

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

UK 62,688 61,059 2.7%

The like-for-like rental growth is based on changes in net rental income for those properties which have been held for the duration of both the current and

comparative reporting. This represents a portfolio valuation, as assessed by the valuer of £ 1.03 billion (30 June 2022: £1.19 billion).

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

Acquisitions 377,311 388,696

Development

Investment properties

Group Total CapEx 377,311 388,696

Joint Venture

Acquisitions – –

Development – –

Investment properties – –

Joint Venture CapEx – –

Total CapEx 377,311 388,696

Acquisitions relate to purchase of investment properties in the year and includes capitalised acquisition costs. There has been no capital expenditure on the

investment properties within the portfolio and no capitalised development expenditure has been incurred in the year or prior year.

9. Total Shareholder Return

Total Shareholder Return

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 year 119.50 117.50

Share price at the end of the year 73.00 119.50

Increase in share price (46.50) 2.00

Dividends declared for the year 6.00 5.94

Increase in share price plus dividends (40.50) 7.94

Share price at start of year 119.50 117.50

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 borrowings 667,465 348,546

Less cash and cash equivalents (37,481) (51,200)

Net borrowings 629,984 297,346

Investment properties valuation 1,685,690 1,561,590

Net loan to value ratio 37% 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

AGM Annual General Meeting

AIFMD Alternative Investment Fund Managers Directive

Direct Portfolio Wholly Owned Properties held by the Group

EPRA European Public Real Estate Association

EPS Earnings per share, calculated as the profit for the period after tax attributable to members of

the parent company divided by the weighted average number of shares in issue in the period

FRI A lease granted on an FRI basis means that all repairing and insuring obligations are imposed

on the tenant, relieving the landlord from all liability for the cost of insurance and repairs

IFRS UK adopted accounting standards in conformity with the requirements of the

Companies Act 2006

IPO An initial public offering (IPO) refers to the process of offering shares of a corporation to the

public in a new stock issuance

LTV Loan to Value: the outstanding amount of a loan as a percentage of property value

NAV Net Asset Value

Net Initial Yield Annualised net rents on investment properties as a percentage of the investment property

valuation, less assumed purchaser’s costs of 6.8%

Net Loan to Value or Net LTV LTV calculated on the gross loan amount less cash balances

Omnichannel Stores offering both instore picking and online fulfilment

REIT Real Estate Investment Trust

Running yield The anticipated Net Initial Yield at a future date, taking account of any rent reviews in the

intervening period

Sainsbury’s Reversion Portfolio (SRP) A portfolio consisting of the freehold interest in 26 geographically diverse high-quality

Sainsbury’s supermarkets

Total Shareholder Return (TSR) The movement in share price over a period plus dividends declared for the same period

expressed as a percentage of the share price at the start of the Period

WAULT Weighted Average Unexpired Lease Term. It is used by property companies as an indicator of

the average remaining life of the leases within their portfolios

152 SUPERMARKET INCOME REIT PLC

CONTACTS INFORMATION

Directors Nick Hewson (Non-Executive Chair)

Vince Prior (Chair of Nomination Committee & Senior Independent Director)

Jon Austen (Chair of Audit Committee)

Cathryn Vanderspar (Chair of Remuneration Committee)

Frances Davies (Chair of ESG Committee)

Sapna Shah (Chair of Management Engagement Committee)

Company Secretary Hanway Advisory

1 King William Street,

London, EC4N 7AF

Registrar Link Asset Services

The Registry,

34 Beckenham Road,

Beckenham,

Kent, BR3 4TU

AIFM JTC Global AIFM Solutions Limited

Ground floor, Dorey Court,

Admiral Park,

St Peter Port,

Guernsey,

Channel Islands,

GY1 2HT

Investment Adviser Atrato Capital Limited

36 Queen Street,

London,

EC4R 1BN

Financial adviser,

Joint Corporate Broker and

Placing Agent

Stifel Nicolaus Europe Limited

150 Cheapside,

London,

EC2V 6ET

Joint Corporate Broker Goldman Sachs International

Plumtree Court,

25 Shoe Lane,

London,

EC4A 4AU

Auditors BDO LLP

55 Baker Street,

London,

W1U 7EU

Property Valuers Cushman & Wakefield

125 Old Broad Street,

London,

EC2N 1AR

Financial PR Advisers FTI

200 Aldersgate Street,

London,

EC1A 4HD

Website www.supermarketincomereit.com

Registered Office 1 King William Street,

London,

United Kingdom,

EC4N 7AF

Stock exchange ticker ISIN SUPR

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

operations of the UK’s leading grocers.

CONTENTS

STRATEGIC REPORT

1 Highlights for the year

2 Chair’s Statement

4 Financial Highlights

6 SUPR at a glance

12 Q&A with Justin King CBE

15 Investment Adviser’s Report

22 The Company’s Portfolio

26 The UK Grocery Market

29 Key Performance Indicators

30 EPRA Performance Indicators

31 Financial Overview

35 TCFD Compliant Report

51 Our Principal Risks

61 Section 172(1) Statement

CORPORATE GOVERNANCE

62 Our Key Stakeholder Relationships

65 Chair’s Letter on Corporate Governance

66 The Board of Directors

68 The Investment Adviser

70 Leadership and Purpose

74 Board Activities during the year

75 Key Decisions of the Board

during the year

76 Corporate Governance Statement

78 Nomination Committee Report

81 Audit and Risk Committee Report

85 Management Engagement

Committee Report

87 ESG Committee Report

88 Remuneration Committee Report

92 Directors’ Report

94 Directors’ Responsibilities Statement

95 Alternative Investment Fund

Manager’s Report

FINANCIAL STATEMENTS

97 Independent Auditors’ Report to the

members of Supermarket Income

REIT PLC

106 Consolidated Financial Statements

110 Notes to the Consolidated

Financial Statements

142 Company Financial Statements

144 Notes to the Company

Financial Statements

146 Unaudited Supplementary Information

151 Glossary

152 Contacts Information

ANNUAL REPORT 2023

INVESTING

IN THE

FUTURE

OF UK

GROCERY

Supermarket Income REIT plc

 King William Street,

London,

United Kingdom,

ECN AF

www.supermarketincomereit.com

SUPERMARKET INCOME REIT PLC | ANNUAL REPORT 2023