Half-year Report

RNS Number : 7791Q
Supermarket Income REIT PLC
02 March 2021
 

Supermarket Income REIT plc

(the "Group" or the "Company")

LEI: 2138007FOINJKAM7L537

 

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2020

 

The Board of Directors of Supermarket Income REIT plc (LSE: SUPR), the real estate investment trust providing secure, inflation-protected, long income from grocery property in the UK , is today reporting its interim results for the Group for the six months ended 31 December 2020 (the "Period").

 

FINANCIAL HIGHLIGHTS

 

 

Six months to

31-Dec-20

Six months to

31-Dec-19

Change

 in Period

Annualised passing rent

£46.1m

£26.1m

+76.6%

EPRA Earnings

£15.5m

£7.2m

+115.3%

Profit before tax

£33.0m

£7.8m

+323.1%

Dividend paid per share

2.93 pence

2.88 pence

+1.7%

EPRA EPS

2.8 pence

2.5 pence

12.0%

EPRA dividend cover

1.12x

0.84x

n/a

 

 

 

 

 

31-Dec-20

30-June-20

Change

in Period

IFRS net assets

£691.8m

£477.2m

+45.0%

EPRA NTA

£694.0m

£479.1m

+44.9%

EPRA NTA per share

104 pence

101 pence

+3.0%

Loan to value (Direct Portfolio)

27.0%

19.7%

+37.1%

Portfolio net initial yield

4.7%

5.0%

(6.0)%

 

· 26.4% Total Shareholder Return since the initial listing in July 2017[1]

· Two quarterly dividends declared for the Period totalling 2.9 pence per ordinary share

· On track to deliver full-year 2021 target dividend of 5.86 pence per share

· Direct Portfolio independently valued at £885.3 million increasing by £345.9 million for the Period following valuation growth of £31.9 million and new acquisitions of £314.0 million (excluding acquisition costs)

5.5% valuation growth on a like-for-like basis for the six month period

Direct Portfolio net initial yield ("NIY") of 4.7%

Direct Portfolio weighted unexpired lease term ("WAULT") of 16 years

 

BUSINESS HIGHLIGHTS

· £200.0 million in equity raised via an upsized and over-subscribed Placing and Offer for Subscription in October 2020

· Acquisition of 13 complementary omnichannel supermarket assets in the six months to 31 December at an aggregate purchase price of £314.0 million (excluding acquisition costs)

New acquisitions NIY of 5.1% versus Portfolio NIY of 4.7%

New acquisitions WAULT of 14 years

· Direct Portfolio net loan to value ("LTV") ratio of 27.0% as at 31 December 2020

· Weighted current cost of debt of 2.0%

· Net Tangible Asset Value ("NTA") per ordinary share of 104 pence as at 31 December 2020; and

· 100% of rent collected in full shortly after the balance sheet date

 

POST BALANCE SHEET EVENTS

· £177.1 million of post balance sheet acquisitions comprising:

Purchase of 4 omnichannel supermarket sites for £119.6 million (excluding acquisition costs) providing a blended NIY of 4.9% and a blended 19 year unexpired lease term.

Acquisition of a further 25.5% stake in the Sainsburys Reversion Portfolio for £115.0 million (excluding funding for acquisition costs) through the Company's existing 50:50 joint venture with British Airways Pension Trustees Limited ("BAPTL"). The Group's investment was £57.5 million (excluding funding for acquisition costs).

£113.75 million in new debt financing at a cost of 1.55% and a term of 5 years.

Nick Hewson, Chairman of Supermarket Income REIT plc, commented:

 

"I am delighted to report another period of solid performance by the Group. Our Direct Portfolio benefitted from a 5.5% like for like valuation growth which in turn delivered a material growth in EPRA NTA to 104 pence per share.  

The last 12 months have highlighted the critical role of grocery property in the UK's feed the nation infrastructure. Our supermarkets play a key role in supporting the response of the UK grocery sector to the pandemic and as a result we have experienced strong property  investor interest in our market and consequently a tightening of yields.

Since our IPO in July 2017, we are pleased to have delivered a Total Shareholder Return of 26.4% for our shareholders. We continue to offer investors stable, long-term, inflation-protected income, supported by a compelling real estate opportunity."

 

PRESENTATION FOR ANALYSTS

 

A presentation to analysts will take place today at 08.30am.

 

Webcast details are as follows:

 

https://webcasting.brrmedia.co.uk/broadcast/601d6f87a6bfbf43d06adbd9

The results presentation is available in the Investor Centre section of the Company's website. For further details, please email Dido Laurimore at  SupermarketIncomeREIT@fticonsulting.com  

 

 

FOR FURTHER INFORMATION

 

Atrato Capital Limited 

+44 (0)20 3790 8087

Ben Green / Steve Windsor / Steve Noble 

ir@atratocapital.com

 

Stifel Nicolaus Europe Limited 

+44 (0)20 7710 7600

Mark Young / Matt Blawat

 

 

 

FTI Consulting  

+44 (0)20 3727 1000

Dido Laurimore / Eve Kirmatzis / Andrew Davis 

SupermarketIncomeREIT@fticonsulting.com

 

NOTES TO EDITORS:

Supermarket Income REIT plc (LSE: SUPR) is a real estate investment trust dedicated to investing in grocery properties which are an essential part of the UK's feed the nation infrastructure. The Company focuses on grocery stores which are omnichannel, fulfilling online and in-person sales. All of the Company's 53 supermarkets(1) are let to leading UK supermarket operators, diversified by both tenant and geography.

The Company provides investors with attractive, long-dated, secure, inflation-linked, growing income with the potential for capital appreciation over the longer term and targets a 7% to 10% p.a. total shareholder return over the medium term(2). The Company has increased its dividend target in line with UK RPI inflation each year.

The Company's ordinary shares were admitted to trading on the Main Market of the London Stock Exchange, Specialist Fund Segment, on 21 July 2017.

Atrato Capital Limited is the Company's Investment Adviser.

Further information is available on the Company's website  www.supermarketincomereit.com

(1)  27 directly owned supermarkets, plus 26 via joint venture, this includes acquisitions after the balance sheet date

(2)  There is no certainty that these illustrative projections will be achieved

 

CHAIRMAN'S STATEMENT

Dear Shareholder,

I am delighted to report to you another period of solid performance by the Group, during which we have delivered a 5.5% like for like growth in the value of our Direct Portfolio[2] and a 3% growth in EPRA NTA[3] from 101 pence per share to 104 pence per share in the six month period to 31 December 2020.

Our strategy is to invest in omnichannel supermarkets which we firmly believe is the future model of grocery in the UK. Omnichannel supermarkets operate both as physical supermarkets and as online fulfilment centres performing a critical role in the business strategies of our tenants and the UK's feed the nation infrastructure.

Overview

The continued effect of the pandemic has created unprecedented sales volumes for the sector both in-store and online. Grocery sales rose by £13 billion over the course of 2020, with record annual growth of 11% for the year to December 2020 [4] . All grocery channels and operators have experienced a major increase in demand during this period, and the most notable growth has been in the online grocery channel. More than a fifth of UK households are now making at least one online grocery purchase each month with the online channel growing by over 60% from 8% of supermarket sales in January to a peak of 13% in December.

The major supermarket operators have supplied much of this increased capacity that has enabled online sales to grow so quickly. Tesco, Sainsbury's, Morrisons and Asda now provide over 80% of UK online capacity. This dominance has been achievable due to their network of omnichannel supermarkets, which are extremely well placed to provide last mile delivery, having the size and stock to respond effectively to the increased demand, whilst having the operational flexibility to increase online fulfilment capacity.

The pandemic has served to reinforce the fact that omnichannel supermarkets provide an essential service in feeding the nation. The effective response by the largest supermarket operators to meet elevated levels of demand both in-store and online, illustrates that well located omnichannel supermarkets have become pivotal to the delivery of food to the nation and demonstrates the vital necessity of these stores to urban  infrastructure.

I am pleased to report that during the Period our portfolio valuation yield tightened from 5.0% to 4.7% generating like for like valuation growth of 5.5%, and including new acquisitions, the direct portfolio was valued at £885.3 million. This yield compression and valuation growth is evidence of the growing dominance of the omnichannel model in the UK online grocery market together with the undoubted covenant strength of the operators, driving value creation within the supermarket property market.

I was also pleased to announce in January, a scrip dividend scheme which allows eligible shareholders to elect to receive new ordinary shares in the Company in lieu of a cash dividend.

We recognise our obligation to continue to create long term value for investors in a responsible and sustainable way. Sustainability is a strategic priority and increasingly central to the way we run the business. We have been making good progress against our broader Environmental, Social and Governance ('ESG') strategy with a specialist third party consultant appointed to identify ways to fully integrate environmental and sustainable initiatives into our investment and asset management strategies.

Our tenants have proven themselves invaluable in providing a crucial service to local communities during the pandemic. However, we acknowledge that as a business there is always more that we can do.

Financial results

The direct portfolio of investment properties was independently valued on 31 December 2020 at £885.3 million, reflecting a 5.5% like for like growth in value during the Period.  T his has in turn   driven a 3% increase in the Group's EPRA NTA from 101 pence per share as at 30 June 2020 to 104 pence per share as at 31 December 2020. During the Period, we acquired an additional 13 supermarkets totalling £314.0 million excluding acquisition costs.

In October, we completed an over-subscribed equity placing raising £200.0 million. We also continued to diversify our banking relationships with the addition of Wells Fargo to our banking group.   The proceeds of these placings together with drawings under our banking facilities have enabled us to enhance significantly the quality and geographic diversification of the Portfolio.

Including our interest in the Sainsbury's Reversion Portfolio and our post balance sheet events listed below, we now have direct or indirect exposure to 53 supermarkets.

Reflecting the growth in our direct portfolio, rental income for the six months to 31 December was £20.4 million compared to £11.9 million as at 31 December 2019, representing a 71.4% increase in the period. We have a high degree of certainty of income through the Group's long, upward-only, inflation-linked rental uplifts, leased to tenants with undoubted covenants. Throughout the COVID-19 crisis this has been borne out as we collected 100% of rents with no defaults, deferrals, or rent reductions.

The Group has a low and highly transparent cost base. Our ongoing cost ratio, calculated under the AIC methodology, was 1.4% and our annualised EPRA cost ratio for the Period remained relatively flat at 19.9% compared to 19.7% for the financial year ending 30 June 2020. We expect this ratio to stabilise as the Company continues to deploy further capital and thus increase portfolio value.

The Company has declared two interim dividends for the Period on 17 September 2020 and on 8 January 2021, both at 1.465 pence per share. We are therefore on track to declare dividends of 5.86 pence per share for the financial year. The Group's EPRA dividend cover ratio was 1.12x for the period which reflects the short-term impact on dividend cover applicable to the period between equity proceeds being raised in October and being fully deployed. We recognise that the earnings from the Sainsbury's Reversion Portfolio are used to repay debt secured against that portfolio and that we do not receive a cash distribution of those earnings. In response, we have calculated an adjusted EPRA dividend cover ("Adjusted EPRA Dividend Cover") which excludes undistributed profits of the Sainsbury's Reversion Portfolio.  The Adjusted EPRA Dividend Cover for the Period was 0.91x.

Since the balance sheet date, transactional activity levels have remained high. We have continued to deploy capital through the purchase of a further 4 supermarkets for £119.6 million. We also invested an additional £57.5 million[5] to acquire a further 25.5% interest in the Sainsburys Reversion Portfolio through the existing 50:50 joint venture with British Airways Pension Trustees Limited. In addition, the Group entered into financing arrangements with Barclays and the Royal Bank of Canada providing us with a new five-year revolving credit facility (including two one-year extension options).

Outlook

Given the challenging environment for the wider real estate market and the continued impact of the COVID-19 pandemic, we have been especially pleased with the robust performance of our portfolio and our 100% rental collection each quarter.

The Investment Adviser has proven its ability to identify and acquire attractive investments for the Group despite the on-going COVID-19 crisis. Since lockdown in late March 2020, the Investment Adviser has deployed £542.6 million on behalf of the Group in 15 separate transactions, spreading our geographic coverage and diversifying our tenant base.

Nick Hewson

Chairman

02 March 2021

 

INVESTMENT ADVISER'S REPORT

Atrato Capital Limited, the Investment Adviser to the Group, is pleased to report on the operations of the Group for the Period.

Overview

The continued COVID-19 pandemic has illustrated that supermarket stores in strategic locations, are pivotal to the critical supply of food across the UK. Supermarkets are a regular part of the lives of the UK population and a core part of the UK's food infrastructure. UK Supermarkets stayed open throughout the periods of lockdown and, at the height of the crisis, employed an additional 45,000 workers to maintain the supply chain and implement social distancing measures. The continued impact of the pandemic has driven record grocery sales volumes with an unprecedented annual growth rate of 11% for the year to December 2020 [6] .

The pandemic has also accelerated the move to online grocery shopping propelling the online channel to 13% of the market up from 8% a year earlier and represents 16%-18% of Tesco and Sainsbury's total sales [7] . Much of this demand is here to stay as online becomes an integrated part of customers grocery shopping habits. A survey from Waitrose indicated that around 75% of the UK population was now doing part of its food shopping online with half of those surveyed believing their shopping habits have been changed permanently.

The substantial capacity growth by the big four to meet demand, adding over 1.9 million slots from 1.8 million per week to 3.7 million per week, has re-emphasised the vital role of omnichannel stores operating as last mile logistics nodes in the food supply network [8] . Omnichannel supermarkets represent the mission critical infrastructure that is integrating online and traditional in-store sales, with characteristics not evident in other forms of real estate, namely:

· ideally located for catchment populations and excellent transportation links

· long unexpired lease terms with inflation linked rental uplifts

· strong underlying trading

· attractive property fundamentals with opportunities for active asset management

A pillar of the Group's investment strategy is investing in these omnichannel supermarkets that facilitate in-store shopping, while also forming part of the UK online grocery distribution network. These omnichannel properties have become the dominant model for last-mile grocery fulfilment. The sites owned by the Group proved particularly flexible and resilient in dealing with the increased grocery demand from both online and in-store sales growth caused by the COVID-19 pandemic.

The Group is highly selective in the supermarket assets that it seeks to acquire. As well as targeting assets which operate both as physical supermarkets and online fulfilment centres, the Group also seeks to ensure that its assets benefit from a solid trading history for the operators, long unexpired lease terms, contractual, upward only rental uplifts, strong tenant covenants and geographic diversity.

 

Investment activity - Direct Portfolio

During the Period, the Group added 13 accretive omnichannel supermarket assets for £314.0 million, namely;

· Portfolio of six supermarkets via a sale and leaseback transaction with Waitrose & Partners ("Waitrose") for £74.1 million [9]   with 15 years unexpired lease term and five-yearly, upward-only, CPIH-linked rent reviews.

· Morrisons in Telford, Shropshire for £14.3 million   9 with 13 years unexpired lease term and five-yearly, upward-only, RPI-linked rent reviews.

· Tesco Extra in Newmarket, Suffolk for £61.0 million 9 with 15 years unexpired lease term and annual, upward-only, RPI-linked rent reviews.

· Tesco in Bracknell, Berkshire for £39.5m 9 with 10 years unexpired lease term and annual, upward-only, RPI-linked rent reviews.

· Sainsbury's in Heaton, Newcastle upon Tyne for £53.1 million 9 with a 21 years unexpired lease term and five-yearly, upward-only, RPI-linked rent reviews.

· Tesco Extra, and an Aldi supermarket in Beaumont Leys for £63.4 million 9 . The Tesco Extra was acquired with a 7 years unexpired lease term, with 5-yearly, upwards only, open market rent reviews. The Aldi was acquired 15 years unexpired lease term, with 5-yearly, upwards only, RPI-linked rent reviews.

· Waitrose in Market Harborough, Leicestershire, for £9.1m 9 with 14 years unexpired lease term and annual, upward-only, RPI-linked rent reviews.

The acquisitions had a blended unexpired lease term of 14 years and a blended net initial yield of 5.1%, which is accretive to the Direct Portfolio net initial yield of 4.7%, supporting the Group's ability to grow its dividend whilst also enhancing the quality and diversification of the Portfolio.

Included in the acquisitions above were 17 ancillary units which were acquired as part of the site freeholds. These units serve to enhance the onsite offer and have the potential for value enhancing asset management. These have been valued at £5.0m as at 31 December 2020 and consist of a mix of retail and quick service restaurant units.

Post balance sheet the Group acquired a further 4 supermarkets with a blended net initial yield of 4.9% and a blended unexpired lease term of 19 years for a total consideration of £119.6 million (excluding acquisition costs). The stores acquired post balance sheet were:

· Morrisons in Winchester, Hampshire for £29.7 million 9 with 24 years unexpired lease term and five-yearly, upward-only, RPI-linked rent reviews.

· Sainsbury's in Melksham, Wiltshire for £35.1 million 9   with 17 years unexpired lease term and annual, upward-only, RPI-linked rent reviews.

· Morrisons in Wisbech, Cambridgeshire for £30.0 million 9 with 20 years unexpired lease term and five-yearly, upwards only, RPI-linked rent reviews.

· Sainsbury's in Bangor, Northern Ireland for £24.8 million 9 with 16 years unexpired lease term and five-yearly, 2% fixed rent reviews compounded annually.

Included in the acquisitions above were 9 ancillary units which were acquired as part of the site freeholds and serve to enhance the onsite offer. These have been acquired for a combined value of £22.2 million and consist of a mix of retail, quick service restaurants, residential units and a GP Surgery.

The total acquisitions of £433.6 million from 1 July 2020 were financed from our equity raises in April 2020 and October 2020 and drawings from banking facilities (see financing below).

Our Direct Portfolio of supermarkets comprises the properties in the following table.

 

Tenant

Location

Acquisition Date

Purchase Price (millions)

Valuation at
31 December 2020
(millions)

Passing annual rent (millions)

GIA (sq.ft.)

NSA (Sq.ft.)

Rent review basis

Lease
Expiry

Tenure

Tesco

Thetford, Norf

Aug-17

£43.20

£42.21

£2.70

78,000

48,000

Annual RPI

Dec-29

Virtual freehold

 

Tesco

Bristol, Avon

Aug-17

£28.50

£28.14

£1.60

55,000

31,000

Annual RPI

Mar-31

Virtual freehold

Sainsbury's

Ashford,Kent

Aug-17

£79.80

£91.78

£4.00

125,000

72,000

Annual RPI

Sep-38

Freehold

Tesco

Cumbernauld, N Lanak

Dec-17

£50.00

£64.38

£3.10

117,000

70,000

Annual RPI

Aug-40

Virtual freehold

Tesco

Scunthorpe, Lincs

May-18

£53.00

£65.24

£3.00

98,000

65,000

Annual RPI

Aug-40

Virtual freehold

Morrisons

Sheffield, South Yorks

Jul-18

£51.70

£59.06

£2.90

113,000

58,000

5 yearly RPI

Oct-39

Virtual freehold

Tesco

Mansfield, Notts

Apr-19

£45.00

£53.55

£2.60

90,000

64,000

Annual RPI

Mar-39

Virtual freehold

Sainsbury's

Preston, Lanc

Aug-19

£54.40

£64.52

£3.00

106,000

78,000

Annual RPI

Feb-42

Freehold

Sainsbury's

Cheltenham, Gloucs

Oct-19

£60.40

£62.92

£3.40

98,724

61,964

5 yearly RPI

Jun-32

Freehold

Sainsbury's

Hessle, Yorks

Feb-20

£34.00

£37.00

£2.30

70,899

50,763

Annual RPI

Jun-34

Freehold

Waitrose

Eastbourne, East Sussex

Jul-20

£13.30

£13.63

£0.60

34,600

22,177

5 yearly CPIH

Jul-40

Freehold

Waitrose

Edenbridge, Kent

Jul-20

£7.50

£7.84

£0.40

19,104

13,275

5 yearly CPIH

Jul-40

Freehold

Waitrose

Ely, Cambs

Jul-20

£12.60

£12.70

£0.60

32,890

15,137

5 yearly CPIH

Jul-40

Freehold

Waitrose

Oundle, Northants

Jul-20

£8.70

£8.80

£0.40

22,104

15,220

5 yearly CPIH

Jul-40

Freehold

Waitrose

Sandbach, Ches

Jul-20

£15.80

£15.91

£0.70

40,082

24,443

5 yearly CPIH

Jul-40

Freehold

Waitrose

Sudbury, Suff

Jul-20

£16.30

£16.40

£0.80

43,734

30,380

5 yearly CPIH

Jul-40

Freehold

Tesco

Newmarket, Suff

Jul-20

£61.00

£61.71

£3.00

106,834

68,421

Annual RPI

Mar-36

Freehold

Morrisons

Telford, Shrops

Aug-20

£14.30

£14.51

£0.80

42,434

27,200

5 yearly RPI

Nov-37

Freehold

Tesco

Bracknell, Berk

Sep-20

£39.50

£39.78

£2.40

80,109

56,729

Annual RPI

Dec-30

Virtual Freehold

Sainsbury's

Newcastle, Northumberland

Oct-20

£49.00

£49.00

£2.01

99,836

67,629

5 yearly RPI

Nov-41

Freehold

Tesco

Beaumont Leys, Leics

Nov-20

£56.50

£57.13

£3.85

149,820

97,081

5 yearly OMV

Feb-28

Freehold

Aldi

Beaumont Leys, Leics

Nov-20

£5.50

£5.49

£0.28

18,500

14,800

5 yearly RPI

Aug-45

Freehold

Waitrose

Market Harborough, Leics

Dec-20

£9.08

£9.08

£0.42

22,522

14,636

5 yearly Fixed

Sep-39

Freehold

Ancillary pre-balance Sheet

Various

Various

£5.50

£5.03

£1.45

117,884

 

Various

Various

Freehold

Waitrose1

Winchester, Hampshire

Jan-21

£20.60

£20.60

£0.90

32,156

25,725

5 yearly RPI

Sep-44

Freehold

Sainsbury's1

Melksham, Wilts

Feb-21

£35.06

£35.06

£1.61

60,989

44,522

Annual RPI

Sep-37

Freehold

Sainsbury's1

Bangor, Northern Ireland

Feb-21

£18.80

£18.80

£1.00

60,515

44,176

5 yearly Fixed

Aug-36

Freehold

Morrisons1

Wisbech, Cambrigeshire

Jan-21

£23.00

£23.00

£0.95

48,835

36,626

5 yearly RPI

Aug-46

Freehold

Ancillary post-balance Sheet1

Various

Various

£22.21

£22.21

£1.73

114,221

 

Various4

Various

Freehold

 

1   Acquired post balance sheet date

 

Investment activity - Sainsbury's Reversion Portfolio (post balance sheet event)

On 18 February 2021 the Company announced the acquisition of a further interest in the Sainsburys Reversion Portfolio from Aviva Life and Pensions UK Limited.  The 25.5% beneficial interest was acquired through the Company's existing 50:50 joint venture (the "JV") with British Airways Pension Trustees Limited ("BAPTL"). The purchase price was £115.0 million [10] . The Company's contribution to the JV to fund the acquisition was £57.5 million1 0  

The JV acquired its initial 25.5% stake from British Land Plc in May 2020. Following this second acquisition, the JV's ownership in the Portfolio is now 51.0%. The remaining 49.0% stake is held by Sainsbury's plc.

The strategic rationale for the acquisition is the underlying high quality portfolio of predominantly omnichannel supermarkets with strong property fundamentals and scope for progressive valuation growth in excess of the Company's targeted total shareholder return.

Portfolio valuation

Cushman & Wakefield valued the Direct Portfolio at 31 December 2020, in accordance with the RICS Valuation Global Standards. The properties were valued individually without any premium/discount applying to the Portfolio as a whole.

The direct portfolio market value was £885.3 million, an increase of £345.9 million for the Period following valuation growth of £31.4 million and new acquisitions of £314.0 million 10    reflecting a net initial yield ("NIY") of 4.7% and a like for like valuation growth of 5.5%.

The valuation growth in the direct portfolio reflects the supermarket operators' undoubted covenant strength as tenants, increased demand in the investment market, and our ability to source off-market acquisitions for the Group.  With index-linked lease agreements and the high degree of certainty of income inherent in the Group's long leases, the Investment Adviser believes further valuation growth can be achieved in the future.

The Group's investment in the Sainsbury's Reversion Portfolio (the "Indirect Portfolio"), held as investment in joint ventures, was also independently valued by Cushman & Wakefield, in accordance with the RICS Valuation Global Standards.

The underlying properties comprising the Sainsbury's Reversion Portfolio were revalued to £916.5 million as 31 December 2020 from £900.7 million as at 30 June 2020, representing an increase of £15.8 million. The Group's share of this increase is 12.5% translating to a £2.0 million valuation uplift for the Group. The net carrying value of the underlying investment has increased by a total of £4.9 million to £61.1 million during the Period. This increase is recognised within share of income from joint venture.  

Financial results

IFRS net rental income for the Period was £20.4 million (six months to 31 December 2019: £11.9 million) with a £5.4 million rental growth contribution from new acquisitions.

Administrative and other expenses, which include management and advisory fees and other costs of running the Group, were £4.1 million (six months to 31 December 2019: £2.3 million) generating an annualised EPRA cost ratio for the Period of 19.9% (six months to 31 December 2019: 18.9%). The increase in the EPRA cost ratio reflects the short-term impact of costs applicable to the period between equity proceeds being raised and fully deployed. The Group's EPRA cost ratio is expected to stabilise in the coming years, reflecting a growing level of cost efficiency that is achievable as the Group continues to scale.

Financing costs for the Period were £3.7 million (six months to 31 December 2019: £2.4 million). As at 31 December 2020 the Group's weighted average finance cost was circa 2.0% (six months to 31 December 2019: 2.2%). The change in net financing costs in the Period reflects the continued growth in the business and the reduction in the cost of borrowing for its most recent facilities.

As a result of the above, operating profit, before changes in the fair value of investment properties, as reported under IFRS, increased by 69% to £16.3 million (six months to 31 December 2019: £9.6 million).

The net change in fair value of the direct portfolio investment properties in the Period was £15.5m (six months to 31 December 2019: £0.6 million), which comprises a £32.0 million valuation gain offset by a £15.7 million acquisition costs and a £0.8 million rent smoothing adjustment.

The Group is a qualifying UK Real Estate Investment Trust ("REIT") which exempts the Group's property rental business from UK Corporation Tax.

The Company has declared two interim dividends for the Period;  on the 17 September 2020 an interim dividend of 1.465 pence per share and on 8 January 2021, a second interim dividend of 1.465 pence per share. The Company is on track to declare dividends of 5.86 pence per share for the financial year.

The Group's EPRA dividend cover ratio was 1.12x for the Period which reflects the short term impact on dividend cover applicable to the period between equity proceeds being raised in October and being fully deployed. The Group's adjusted EPRA dividend cover, taking into account the undistributed profits from the   Sainsbury's Reversion Portfolio was 0.91x.

New EPRA Measures for net asset value

EPRA's updated Best Practice Recommendations Guidelines issued in October 2019, which became effective for financial years beginning on 1 January 2020, include three replacement Net Asset Valuation metrics, namely EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV). We report these because management considers them to improve the transparency and relevance of our published results as well as the comparability with other listed European real estate companies.

The Group will report all three metrics going forward, whilst choosing to adopt EPRA NTA as our primary metric as it is the closest to our previous primary metric, EPRA NAV. A reconciliation of all three metrics has been provided in note 22 of the financial statements.

At 31 December 2020, the EPRA NTA per share was 104 pence (30 June 2020: 101 pence), an increase of 3.0%.

Financing and hedging

In October 2020, the Company successfully completed an oversubscribed £200.0 million Placing and Offer for Subscription under which 192,307,692 New Ordinary Shares were issued at 104 pence per New Ordinary Share representing a 3% premium to prevailing NAV at the time of issue. Following a strong level of support from investors during the marketing roadshow, the October Placing was increased from the original target of £150.0 million.

During the Period, the Group has broadened its banking relationships further. In July 2020, the Group arranged a new secured revolving credit facility of £60.0 million with Wells Fargo. This facility has a seven-year term (five year plus two one-year extension options). The facility has a margin of 2.0% above 3-month Libor which is currently equivalent to a total cost of 2.1%. It also includes a £100 million uncommitted accordion option, exercisable at any time throughout the term of the facility.

In August 2020, the Group increased its existing facility with Bayerische Landesbank by £34.8 million comprising a new £27.5 million, secured, five-year tranche and a further £7.3 million tranche, upsizing its existing £52.1 million secured term loan for the remaining three-year term. The facilities are in both cases priced at a 1.85% margin over 3-month Libor, representing a total cost of debt of 2.0%. In September, the Group also agreed an increase to its existing HSBC RCF facility of £40.0 million at a 1.75% margin over 3-month Libor, whilst other terms remain the same as the existing £100m RCF facility.

Post balance sheet, in January 2021, the Group arranged a new secured revolving credit facility of £80.0 million with Barclays and Royal Bank of Canada. This facility has a five-year term (three year plus two one-year extension options). Once drawn, the facility has a margin of 1.5% above SONIA which is currently equivalent to a total cost of 1.6%. It also includes a £70 million uncommitted accordion option, exercisable at any time throughout the term of the facility.

A summary of the Group's credit facilities is provided below:

Lender

Facility

Maturity

Credit margin

Loan commitment

£m

Amount drawn at 31 December 2020 £m

HSBC

Revolving Credit Facility

Aug 2022

1.65%

100.0

100.0

HSBC

Revolving Credit Facility

Aug 2022

1.75%

40.0

11.0

Bayerische Landesbank

Term Loan

Jul 2023

1.25%

52.1

52.1

Bayerische Landesbank

Additional Term Loan A

July 2023

1.85%

7.3

7.3

Bayerische Landesbank

Additional Term Loan B

Aug 2025

1.85%

27.5

27.5

Deka Bank

Term loan

Aug 2026*

1.35%

76.6

76.6

Wells Fargo

Revolving Credit Facility

July 2027*

2.00%

60.0

30.0

Total

 

 

 

363.5

304.5

Post balance sheet events

Barclays and RBC

Revolving Credit Facility

Jan 2026*

1.50%

113.75

n/a

Total

 

 

 

476.5

n/a

Average credit margin

 

 

1.65%

 

 

 

*Including two further one-year extension options.

Total net debt as at 31 December 2020 is £239.2 million, reflecting a net loan-to-value ("LTV") ratio of 27.0%. The Group's medium-term debt target is an LTV ratio of 30%-40%.

Each loan drawn under the credit facilities requires interest payments only until maturity and is secured against both the subject properties and the shares of the property-owning entities. Each property-owning entity is either directly or ultimately owned by the Group.

The Group has significant headroom on its LTV covenants. The covenants contain a maximum 60% LTV threshold and a minimum 200% interest cover ratio for each asset in the Portfolio.  As at 31 December 2020, the Group could afford to suffer a fall in property values of 35.3% before being in breach of its LTV covenants and, with the current hedging arrangements it has in place, it has 461.5% of interest cover headroom.

The Group has designed its debt strategy to minimise the effect of a significant rise in underlying interest rates through the use of hedging instruments. Further details of our debt and hedging can be found within notes 16 and 17 of these accounts.

 

Asset Management

During the period, the Group has completed three rent reviews. The combination of these inflation-linked rent reviews resulted in an annualised increase in rental income of £0.01 million, equivalent to a 0.86% average annualised increase in the rents for these reviewed properties. All rent reviews on the Portfolio are upward-only and linked to the UK Retail Price Index with a weighted average Portfolio floor of 0.49% and a cap of 3.57%.

We are passionate about improving the environmental impact of our properties and our medium-term ambition is to install on-site decarbonised energy producing plants across our estate.

Although the installation programme was delayed due to the impact of COVID-19, we have made strong progress across the estate in advancing the structural and technical designs and planning approvals for the installation of a combined 1.6 Megawatt rooftop solar array across the portfolio.

These solar investments improve the environmental sustainability of our sites something which is very important to the company and its tenants, whilst also generating an additional incremental income stream for the Group, thus enhancing the long-term capital value of the site.

 

Atrato Capital Limited

Investment Adviser

02 March 2021

 

PRINCIPAL RISKS AND UNCERTAINITIES

The principal risks of the business are set out on pages 28 to 35 of the Annual Report 2020 and include commentary on their potential impact, links to the Group's strategic priorities and the relevant mitigation factors. Since the publication of the Annual Report 2020, the Board believes that there has been no material change to the principal risks as stated and the reported mitigation actions remain appropriate to manage the risks. An assessment of these risks as at 31 December 2020 has been noted below:

Impact of the COVID-19 pandemic

The Covid-19 pandemic continues to remain a principal risk to the business and we expect this to continue well into 2021. Notwithstanding the ongoing health and social care risks, the potential impact of the pandemic could be significant, specifically in relation to rent collection and availability of credit facilities. However, the grocery sector has continued to be robust in the face of the wider challenges posed by the pandemic, reporting increased sales, albeit pitted against higher costs, and a rapid positive response to the changing ways in which customers shopped. This has resulted in the supermarket asset class being resilient and in high demand, underpinning asset values. All rental income has been received in full. The Board, the AIFM and the Adviser continue to monitor the impact of the pandemic and where necessary implement additional controls to anticipate and mitigate any adverse consequences.

Uncertainty around the impact of Brexit transitional arrangements

Since the publication of the Annual report the UK has left the European Union. The impact on the supply chains to the major supermarket operators to whom the Group leases the majority of its assets, to date, has been limited.

 

ALTERNATIVE INVESTMENT FUND MANAGER (the "AIFM")

The AIFM was appointed with effect from 15 June 2017 as the Company's alternative investment fund manager under the terms of a Management Agreement between the Company and the AIFM, in accordance with the Alternative Investment Fund Manager's Directive and the Alternative Investment Fund Managers Regulations 2013.

The AIFM is licensed and regulated by the Guernsey Financial Services Commission.

The AIFM is responsible for the day-to-day management of the Company's investments, subject to the investment objective and investment policy and the overall supervision of the Directors. The AIFM is also required to comply with on-going capital, reporting and transparency obligations and a range of organisational requirements and conduct of business rules. The AIFM must also, as the AIFM for the Company, adopt a range of policies and procedures addressing areas such as risk management, liquidity management, conflicts of interest, valuations, compliance, internal audit and remuneration .

 

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm that, to the best of their knowledge, this condensed set of consolidated financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the operating and financial review included herein provides a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority, namely:

· an indication of important events that have occurred during the Period and their impact on the condensed financial statements and a description of the principal risks and uncertainties for the remaining months of the Group's financial year; and

· disclosures of any material related party transactions in the Period. These are included in note 21.  

A full list of Directors of the Company can be found at the end of this interim report.

Shareholder information is as disclosed on the Supermarket Income REIT plc website.

For and on behalf of the Board

 

 

Nick Hewson

Chairman

02 March 2021

 

INDEPENDENT REVIEW REPORT TO SUPERMARKET INCOME REIT PLC

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2020 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement and the related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Financial Reporting Council for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority. 

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

 

 

 

BDO LLP

Chartered Accountants

London

United Kingdom

02 March 2021

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six month period ended 31 December 2020

 

 

 

 

 

 

 

 

Unaudited

Six months to
31 December

2020

Unaudited

Six months to
31 December

2019

Audited

 Year  to

30 June

2020

Profit or loss

Note

£' 000

£' 000

£' 000

Rental income

4

20,408

11,901

26,352

Administrative and other expenses

5

(4,065)

(2,254)

(5,184)

Operating profit before changes in fair value of investment properties and share of income from joint venture

 

16,343

9,647

21,168

 

 

 

 

 

Changes in fair value of investment properties

11

15,462

557

13,052

Share of income from joint venture

12

4,906

-

486

Negative goodwill

 

-

-

2,960

Total share of income from joint venture

 

4,906

-

3,446

Operating profit

 

36,711

10,204

37,666

 

 

 

 

 

Finance expense

7

(3,746)

 (2,450)

(4,903)

Profit before taxation

 

32,965

7,754

32,763

 

 

 

 

 

Tax charge for the period

8

-

-

-

Profit for the period

 

32,965

7,754

32,763

 

 

 

 

 

Items to be classified to profit or loss in subsequent periods

 

 

 

 

 

 

Changes in the fair value of interest rate derivatives 

19

(210)

175

(818)

 

 

 

 

 

Total comprehensive income for the period

 

32,755

7,929

31,945

Total comprehensive income for the period attributable
to ordinary shareholders

 

32,755

 7,929

31,945

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic and diluted (pence)

9

5.9p

2.7p

9.8p

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2020

 

 

Unaudited

31 December

2020

Audited

30 June

2020

Unaudited

 31 December

2019

 

Note

£' 000

£' 000

£' 000

Non-current assets

 

 

 

 

Investment properties

11

885,333

539,410

490,410

Investment in Joint ventures

12

61,112

56,081

-

Other financial assets

 

-

-

172

Total non-current assets

 

946,445

595,491

490,582

 

 

 

 

 

Current assets

 

 

 

 

Financial assets held at fair value through
profit and loss

13

478

-

-

Trade and other receivables

14

2,750

1,702

5,981

Cash and cash equivalents

 

61,936

20,353

7,654

Total current assets

 

65,164

22,055

13,635

Total assets

 

1,011,609

617,546

504,217

 

 

 

 

 

Non-current liabilities

 

 

 

 

Bank borrowings

17

301,163

126,791

166,367

Interest rate derivatives

16

2,213

1,988

972

Total non-current liabilities

 

303,376

128,779

167,339

 

 

 

 

 

Current liabilities

 

 

 

 

Deferred rental income

 

9,418

5,203

5,314

Current tax liabilities

 

-

-

-

Trade and other payables

15

7,041

6,403

3,574

Total current liabilities

 

16,459

11,606

8,888

Total liabilities

 

319,835

140,385

176,227

Total net assets

 

691,774

477,161

327,990

 

 

 

 

 

Equity

 

 

 

 

Share capital

18

6,658

4,735

3,379

Share premium reserve

18

629,914

436,126

300,481

Cash flow hedge reserve

19

(2,231)

(2,021)

(1,029)

Capital reduction reserve

18

-

-

6,193

Retained earnings

 

57,433

38,321

18,966

Total equity

 

691,774

477,161

327,990

 

 

 

 

 

Net asset value per share - basic and diluted

22

104p

101p

97p

EPRA net tangible asset per share -
basic and diluted

22

104p

101p

97p

 

These unaudited condensed consolidated financial statements were approved and authorised for issue by the Board of Directors on 02 March 2021 and were signed on its behalf by:

Nick Hewson

Chairman

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six month period ended 31 December 2020 (unaudited)

 

Share capital

Share premium

reserve

Cash
flow hedge reserve

Capital reduction reserve

Retained
earnings

Total

 

£' 000

£' 000

£' 000

£' 000

£' 000

£' 000

As at 1 July 2020

4,735

436,126

(2,021)

-

38,321

477,161

Comprehensive income for
the period

-

-

-

-

-

-

Profit for the period

-

-

-

-

32,965

32,965

Other comprehensive income

-

-

(210)

-

-

(210)

Total comprehensive income for
the period

-

-

(210)

-

32,965

32,755

Transactions with owners

 

 

 

 

 

 

Ordinary shares issued at a
premium during the period

1,923

198,077

-

-

-

200,000

Share issue costs

-

(4,289)

-

-

-

(4,289)

Interim dividend paid

-

-

-

-

(13,853)

(13,853)

As at 31 December 2020

6,658

629,914

(2,231)

-

57,433

691,774

 

 

For the year from 1 July 2019 to 30 June 2020 (audited)

 

Share capital

Share premium

Reserve

Cash flow

hedge reserve

Capital

 reduction reserve

  Retained  earnings

Total

 

£' 000

£' 000

£' 000

£' 000

  £' 000

£' 000

As at 1 July 2019

2,398

203,672

(1,203)

14,391

11,212

230,470

Comprehensive income for the year

-

--

-

-

-

-

Profit for the year

-

-

-

-

32,763

32,763

Other comprehensive income

-

-

(818)

-

-

(818)

Total comprehensive income for
the year

-

-

(818)

-

32,763

31,945

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

Ordinary shares issued at a
premium during the year

2,338

237,483

-

-

-

239,821

Share issue costs

-

(5,029)

-

-

-

(5,029)

Interim dividend paid

-

-

-

(14,391)

(5,655)

(20,046)

As at 30 June 2020

4,735

436,126

(2,021)

-

38,321

477,161

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six month period ended 31 December 2019 (unaudited)

 

 

Share capital

Share premium

reserve

Cash flow hedge reserve

Capital reduction reserve

Retained

earnings

Total

 

£' 000

£' 000

£' 000

£' 000

£' 000

£' 000

As at 1 July 2019

2,398

203,672

(1,203)

14,391

11,212

230,470

Comprehensive income for the period

-

-

-

-

-

-

Profit for the period

-

-

-

-

7,754

7,754

Other comprehensive income

-

-

175

-

-

175

Total comprehensive Income for
the period

-

-

(175)

-

7,754

7,929

Transactions with owners

 

 

 

 

 

 

Ordinary shares issued at a premium
during the period

 

981

 

99,020

 

-

 

-

 

-

 

100,000

Share issue costs

-

(2,211)

-

-

-

(2,211)

Interim dividend paid

-

-

-

(8,198)

-

(8,198)

As at 31 December 2019

3,379

300,481

(1,029)

6,193

18,966

 

 

 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six month period ending 31 December 2020

 

 

 

Unaudited

Six months to

 31 December
2020

Unaudited

Six months to

 31 December
2019

Audited

Year to

30 June
2020

Operating activities

  Notes

£'000  

£'000  

£'000

Profit for the period (attributable to ordinary shareholders)

 

32,965

7,754

32,763

Adjustments for:

 

 

 

 

Changes in fair value of Investment properties

11

(15,462)

(557)

(13,052)

Movement in rent smoothing adjustments

4

(769)

(313)

(865)

Finance expense

7

3,746

2,450

4,902

Tax expense

8

-

-

-

Negative goodwill arising on revaluation of interest in Joint ventures

 

-

-

(2,960)

Share of income from Joint ventures

 

(4,906)

-

(486)

Cash flows from operating activities before changes in working capital

 

 

 

 

15,574

9,334

20,303

(Decrease)/ Increase in trade and other receivables

 

(1,048)

(2,460)

1,819

Increase in deferred rental income

 

4,215

1,771

1,660

Corporation tax paid

 

-

(245)

(245)

Increase in trade and other payables

 

63

536

3,411

Cash flows from operating activities

 

18,804

8,936

26,947

 

 

 

 

 

Investing activities

Acquisition of investment properties

11

(313,973)

(114,800)

(148,825)

Acquisition of financial assets held at fair value through profit and loss

13

(478)

-

-

Investment in Joint venture

12

(125)

-

(52,635)

Capitalised acquisition costs

 11 

(15,718)

(6,510)

(8,438)

Net cash flows used in investing activities

 

(330,294)

(121,310)

(209,899)

 

 

 

 

 

Financing activities

Proceeds from issue of ordinary share capital

18

200,000

100,000

239,820

Costs of share issues

18

(4,289)

(2,211)

(5,029)

Bank borrowings drawn

 

327,602

81,075

141,510

Bank borrowings repaid

 

(151,790)

(57,744)

(157,744)

Loan arrangement fees paid

 

(2,085)

(922)

(1,270)

Bank interest paid

 

(2,365)

(2,089)

(4,116)

Bank commitment fees paid

 

(147)

(21)

(166)

Dividends paid to equity holders

10

(13,853)

(7,958)

(19,600)

Net cash flows from financing activities

 

353,073

110,130

193,406

 

 

 

 

 

Net increase / (decrease) in cash and cash equivalents for the period

 

41,583

(2,244)

  10,455

Cash and cash equivalents at the beginning of the period

 

20,353

9,898

9,898

Cash and cash equivalents at the end of the period

 

61,936

7,654

20,353

 

1.  Basis of preparation

General information

Supermarket Income REIT plc (the "Company") is a company registered in England and Wales with its registered office at The Scalpel 18th Floor, 52 Lime Street, London, United Kingdom EC3M 7AF. The principal activity of the Company and its subsidiaries (the "Group") is to provide its shareholders with an attractive level of income together with the potential for capital growth by investing in a diversified portfolio of supermarket real estate assets in the UK.

The financial information set out in this report covers the six months to 31 December 2020, with comparative numbers amounts shown for the year to 30 June 2020 and the six months to 31 December 2019. These condensed financial statements are unaudited and the financial information for the year ended 2020 contained herein does not constitute statutory accounts for as defined in section 434 of the Companies Act 2006. The statutory accounts for the year ended 30 June 2020 have been delivered to the Registrar of Companies. The independent auditors' report on those accounts was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

At 31 December 2020 the Group comprised the Company and its wholly-owned subsidiaries. Each of these subsidiaries is incorporated in England and Wales and has the same registered office as the Company.

The condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The accounting policies adopted in this report are consistent with those applied in the Group's audited financial statements for the year ended 30 June 2020. The accounting policies applied in the preparation of this financial information are expected to be consistently applied in the financial statements for the year to 30 June 2021.

Accounting convention and currency

The condensed consolidated financial statements ("the financial statements") have been prepared on a historical cost basis, except that investment properties and interest rate derivatives are measured at fair value.

The financial statements are presented in Pounds Sterling and all values are rounded to the nearest thousand (£'000), except where otherwise indicated. Pounds Sterling is the functional currency of the Company and the presentation currency of the Group.

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.

Going concern

In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.

The Group generated net cash flow from operating activities in the period of 18.8 million, with cash balances at 31 December 2020 totalling £61.9 million and the Group had £59.0 million available for drawdown under the loan facility with HSBC and Wells Fargo. It had no capital commitments or contingent liabilities as at that date. There has been no significant deterioration in this position since the balance sheet date.

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 annual RPI rent reviews.

As a result, the Directors believe that the Group is well placed to manage its financing and other business risks and that the Group will remain viable, continuing to operate and meet its liabilities as they fall due. The Directors are therefore of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.

2.  Significant accounting judgements, estimates and assumptions

There have been no new or material revisions to the nature and amount of judgements and estimates reported in the Annual Report 2020, other than changes to certain assumptions applied in the valuation of properties. Details of the key assumptions applied at 31 December 2020 are set out in note 11.

3.  Summary of significant accounting policies

The principal accounting policies adopted in this report are consistent with those applied in the Group's audited financial statements for the year ended 30 June 2020 and are expected to be consistently applied during the year ending 30 June 2021.

3.1  New standards issued and effective

There were a number of new standards and amendments to existing standards which are required for the Group's accounting period beginning on 1 July 2020, which have been considered as follows:

Amendments to IAS 39 and IFRS 7 Interest Rate Benchmark Reform - The amendments provide relief in applying the requirements of IAS 39 to certain hedges, including allowing the Group to assume that interest rate benchmarks on which hedged cash flows are based (e.g LIBOR) will not be altered as a result of interest rate benchmark reform. Consequently, hedging relationships that may have otherwise been impacted by interest rate benchmark reform have remained in place and no ineffective portion of the hedge has been recognised. 

The Group has also considered other amendments to standards endorsed by the European Union effective for the current accounting period and determined that these do not have a material impact on the consolidated financial statements of the Group in the period ended 31 December 2020. These amendments are as follows: References to Conceptual Framework in IFRSs (amended); IAS 1 and IAS 8 (amended) - Definition of Material; IFRS 3 (amended) - Definition of a Business; and IFRS 16 (amended) - Covid-19 related Rent Concessions.

3.2  New standards issued but not yet effective

A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period. None of these are expected to have a material impact on the consolidated financial statements of the Group.

4. Rental Income

 

Unaudited

Six months to
31 December

2020

Unaudited

Six months to
31 December

2019

Audited

Year to
30 June

2020

 

£' 000

£' 000

£' 000

Rental income - freehold property

11,673

4,140

10,725

Rental income - long lease hold property

8,739

7,761

15,627

Gross rental income

20,412

11,901

26,352

Insurance/service charge income

200

125

315

Insurance/service charge expense

(204)

  (125)

  (315)

Net rental income

20,408

11,901

26,352

Included within rental income is a £769,000 (six months to 31 December 2019: £313,000; year to 30 June 2020: £865,000) rent smoothing adjustment that arises as a result of IFRS 16 'Leases' requiring that rental income in respect of leases with rents increasing by a fixed percentage to be accounted for on straight line basis over the lease term. During the period this resulted in an increase in rental income and an offsetting entry being recognised in profit or loss as an adjustment to the investment property revaluation.

 

5. Administrative and other expenses

 

Unaudited

Six months to
31 December

2020

Unaudited

Six months to
31 December

2019

Audited

Year to
30 June

2020

 

£' 000

£' 000

£' 000

Investment Adviser fees (note 21)

2,718

1,370

3,252

Directors' remuneration (note 6)

130

74

165

Corporate administration fees

276

191

317

Legal and professional fees

515

155

708

Other administrative expenses

426

464

742

Total administrative and other expenses

4,065

2,254

5,184

 

6. Directors' remuneration 

The Group has no employees. 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:

 

Unaudited

Six months to
31 December

2020

Unaudited

Six months to
31 December

2019

Audited

Year to
30 June

2020

 

£' 000

£' 000

£' 000

Directors' fees

120

71

148

Employer's National Insurance Contribution

10

3

17

Total Directors' remuneration

130

74

165

 

7. Finance Expense 

 

Unaudited
Six months to
31 December

2020

Unaudited

Six months to
31 December

2019

Audited

Year to
30 June

2020

 

£' 000

£' 000

£' 000

Interest payable on bank borrowings and hedging arrangements

2,508

1,921

3,685

Fair value adjustment of interest rate derivatives (note 16)

342

135

294

Commitment fees payable on bank borrowings

235

89

280

Amortisation of loan arrangement fees

647

271

587

Amortisation of interest rate cap premium (note 16)

14

34

57

Total finance expense

3,746

2,450

4,903

 

The above finance expense includes the following in respect of liabilities not classified as fair value through profit or loss:

 

Unaudited

Six months to
31 December

2020

Unaudited

Six months to
31 December

2019

Audited

Year to
30 June

2020

 

£' 000

£' 000

£' 000

Total interest expense on financial liabilities held
at amortised cost

3,155

2,277

4,271

Fee expense not part of effective interest rate
for financial liabilities held at amortised cost

235

89

280

Total finance expense

3,390

2,366

4,551

 

8. Taxation

a) Tax charge in profit or loss

 

Unaudited

Six months to
31 December

2020

Unaudited

Six months to
31 December

2019

Audited

Year to

30 June

2020

 

£' 000

£' 000

£' 000

UK corporation tax

-

-

-

 

The Company and its subsidiaries operate as a UK Group REIT.  Subject to continuing compliance with certain rules, the UK REIT rules exempt 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 21 December 2017 the Group has met all such applicable conditions.

The reconciliation of the profit before tax multiplied by the standard rate of corporation tax for the period of 19% to the total tax charge is as follows:

b) Reconciliation of the tax charge for the period

 

Unaudited

Six months

to 31 December

2020

Unaudited

Six months

to 31 December

2019

Audited

Year

to 30 June

2020

 

£' 000

£' 000

£' 000

Profit on ordinary activities before taxation

32,965

7,669

32,763

Theoretical tax at UK standard corporation tax rate of 19%

Effects of:

6,263

1,457

6,225

Investment property revaluation not subject to taxation

(2,938)

(106)

(2,480)

Negative goodwill not taxable

-

-

(562)

REIT exempt income

(3,325)

(1,351)

(3,183)

Tax charge in the period

-

-

-

 

9. 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 calculation of basic, diluted and EPRA EPS is as follows:

 

Unaudited

Six months

to 31 December

2020

Unaudited

Six months

to 31 December

2019

Audited Year

to 30 June

2020

 

£' 000

£' 000

£' 000

Net profit attributable to ordinary shareholders

32,965

7,754

32,763

EPRA adjustments:

 

 

 

Changes in fair value of investment properties

(15,462)

(557)

(13,052)

Changes in fair value of investment properties
within joint ventures

(1,975)

 

 

Negative Goodwill

-

-

(2,960)

EPRA earnings

15,528

7,197

16,751

 

Number 1

Number1

Number1

Weighted average number of ordinary shares

561,413,104

285,370,561

334,236,233

 

1. Based on the weighted average number of ordinary shares in issue

 

Unaudited

Six months

to 31 December

2020

Unaudited

Six months

to 31 December

2019

Audited Year

to 30 June

2020

 

Pence per share

Pence per share

Pence per share

Basic and Diluted EPS

5.9p

2.7p

9.8p

EPRA adjustments:

 

 

 

Changes in fair value of investment properties

(2.8)p

(0.2)p

(3.9)p

Changes in fair value of investment properties
within joint ventures

(0.3)p

 

 

Negative Goodwill

-

-

(0.9)p

EPRA EPS

2.8p

2.5p

5.0p

 

10. Dividends

 

Unaudited

Six months

to 31 December

2020

Unaudited

Six months

to 31 December

2019

Audited Year

to 30 June

2020

 

£' 000

£' 000

£' 000

Distributions to ordinary shareholders in the period:

 

 

 

Dividends paid

13,853

8,198

20,045

 

On 8 July 2020, the Board declared a fourth interim dividend for the year ended 30 June 2020 of 1.460 pence per share, which was paid on 7 August 2020 to shareholders on the register on 17 July 2020.

On 17 September 2020 the Board declared a first interim dividend for the year ending 30 June 2021 of 1.465 pence per share, which was paid on 16 October 2020 to shareholders on the register on 25 September 2020.

On 8 January 2021, the Board declared a second interim dividend for the year ending 30 June 2021 of 1.465 pence per share, which was paid on 26 February 2021 to shareholder on the register on 21 January 2020. This has not been included as a liability as at 31 December 2021.  

11. Investment Properties

In accordance with lAS 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. All the valuations of the Group's investment property at 31 December 2020 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

Long Leasehold

Total

 

£' 000

£' 000

£' 000

At 1 July 2020

244,030

295,380

539,410

Property additions

274,502

39,471

313,973

Capitalised acquisition costs

13,491

2,227

15,718

Revaluation movement

949

15,283

16,231

Valuation at 31 December 2020

532,972

352,361

885,333

 

 

 

 

Freehold

 

Long Leasehold

 

Total

 

£' 000

£' 000

£' 000

At 1 July 2019

84,450

283,780

368,230

Property additions

148,825

-

148,825

Capitalised acquisition costs

8,438

-

8,438

Revaluation movement

2,317

11,600

13,917

Valuation at 30 June 2020

244,030

295,380

539,410

 

 

Freehold

Long Leasehold

Total

 

£' 000

£' 000

£' 000

At 1 July 2019

84,450

283,780

368,230

Property additions

114,800

-

114,800

Capitalised acquisition costs

6,510

-

6,510

Revaluation movement

(2,949)

3,819

870

Valuation at 31 December 2019

202,811

287,599

490,410

 

Of the seven properties held under long leaseholds, one has 118 years unexpired on the headlease, one has 158 years with the option to extend and option to acquire, three have 985 years unexpired, one has 990 years unexpired and one has 989 years unexpired. The Group has no material liabilities in respect of these headleases.

Included within the carrying values of investment properties at 31 December 2020 is £2,329,000 (30 June 2020: £1,560,000; 31 December 2019: £1,007,000) in respect of the smoothing of fixed contractual rent uplifts as described in note 4. The difference between rents on a straight-line basis and rents actually receivable is included within the carrying value of the investment properties but does not increase that carrying value over fair value. The effect of this adjustment on the revaluation movement for the period is as follows:

 

Unaudited

Six months

to 31 December

2020

Unaudited

Six months

to 31 December

2019

Audited Year

to 30 June

2020

 

£' 000

£' 000

£' 000

Revaluation movement per above

16,232

13,917

870

Rent smoothing adjustment (note 4)

(769)

(865)

(313)

Change in fair value recognised in profit or loss

15,462

13,052

557

 

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.

Unobservable inputs

Significant unobservable inputs include: the estimated rental value ("ERV") based on market conditions prevailing at the valuation date and the equivalent yield (defined as the weighted average of the net initial yield and reversionary yield). Other unobservable inputs include but are not limited to the future rental growth - the estimated average increase in rent based on both market estimations and contractual situations and the physical condition of the individual properties determined by inspection.

A decrease in ERV would decrease fair value. A decrease in the equivalent yield would increase the fair value.

Sensitivity of measurement of significant unobservable inputs

The determination of the valuation of the Group's investment property portfolio is open to judgements and is inherently subjective by nature.

Sensitivity analysis - impact of changes in initial yields and passing rent

Initial yields of the Group's investment properties at 31 December 2020 range from 4.2% to 6.1% (year ended 30 June 2020: 4.3% to 6.2%; six months ended  31 December 2019: 4.4% to 6.0%).  A 0.25% shift of the initial yield on all the Group's investment properties would have approximately a £44.7 million (30 June 2020: £23.8 million; 31 December 2019: £23.6 million) impact on the total valuation of the properties. A 1% movement in the passing rents across all the Group's investment properties would have approximately a £8.9 million (30 June 2020: £2.9m; December 2019: £4.9 million) impact on the total valuation of the properties.

12. Investment in joint ventures

As at 31 December 2020 the group has one joint venture investment. On the 28 May 2020, the Group entered into a 50:50 joint venture with the British Airways Pension Trustees Limited to acquire 100% of the issued share capital in Horndrift Limited for a combined total consideration of £102m plus costs.

Horndrift Limited holds a 25.2% share of certain beneficial interests in a property trust arrangement that holds a portfolio of 26 Sainsbury's supermarket properties funded by bonds which mature in 2023 (the "Structure"). Rental surpluses generated by the Structure are required to be applied in the repayment of the bonds and not therefore capable of being transferred to the joint venture or group until those bonds have been repaid.

The Group deem this to be a joint venture, as through its 50:50 share of a 25.2% of beneficial interest in a property trust arrangement it indirectly has joint control of the Structure. The joint venture ownership structure is summarised below:

 

Partner

Address 

Ownership

Jersey

 

 

 

Horner (Jersey) LP

British Airways Pensions

Trustees Limited

Third Floor, Liberation House, Castle Street, St Helier, Jersey, JE1 2LH parent company

50% owned by the Group

Horner REIT Limited

 

Third Floor, Liberation House, Castle Street, St Helier, Jersey, JE1 2LH parent company

100% owned by Horner (Jersey) LP

United Kingdom

 

 

 

Horndrift Limited

 

Langham Hall UK LLP, 1 Fleet Street, London, E4M 7RA

100% owned by Horner REIT Limited

 

 

 

 

 

Period ended
31 December 2020

£'000

Opening balance

 

 

 

56,081

Additions in the year

 

 

 

125

Group's share of profit after tax

4,906

Closing Balance

61,112

 

The joint venture entities have a 31 March year end. For accounting purposes consolidated management accounts have been prepared for the joint venture for the period from 1 July to 31 December 2020 using accounting policies that are consistent with those of the Group.

 

The financial statements of Horner (Jersey) LP prepared on this basis would be as follows:

 

Statement of comprehensive income

 

 

Period ended
31 December 2020

£'000

Share of income from joint venture

 

 

9,812

Profit for the period and total comprehensive income

 

 

9,812

Group's share of profit for the period

 

 

4,906

 

 

 

 

Statement of financial position

 

 

Period ended
31 December 2020

£'000

Investment in joint ventures

 

 

122,223

Net assets

 

 

122,223

Group's share of net assets

 

 

61,112

 

Horner (Jersey) LP's share of the aggregate amounts recognised in the consolidated statement of comprehensive income and statement of financial position of the Structure are as follows:

 

 

 

 

Period ended

31 December 2020

£'000

Rental income

 

 

7,282

Administrative and other expenses

 

 

 (383)

Change in fair value of investment properties

 

 

4,376

Operating profit

 

 

11,275

Finance expense

 

 

 (1,022)

 

Profit before taxation

 

 

10,253

 

Tax charge for the period

 

 

(441)

 

Profit for the period

 

 

9,812

 

Group's share of profit for the period

 

 

4,906

 

 

 

 

 

 

Period ended
31 December

2020

£000

Non-current assets

 

 

 

 

Investment properties

 

 

 

233,088

Total non-current assets

 

 

 

233,088

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

 

 

 

8,758

Cash and cash equivalents

 

 

 

-

Total current assets

 

 

 

8,758

Total assets

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Debt securities in issue

 

 

 

99,423

Interest rate derivative

 

 

 

5,547

Deferred tax

 

 

 

5,787

Other liabilities

 

 

 

4,536

Total non-current liabilities

 

 

 

115,293

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

 

 

4,330

Total current liabilities

 

 

 

4,330

Total liabilities

 

 

 

119,623

Net assets

 

 

 

122,223

 

 

 

 

 

Group's share of net assets

 

 

 

 

13.  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 cashflows to be derived over the term of the rental guarantee and discounted these at the market rate. A review is performed on a periodic basis based on payments received and changes in the estimation of future cashflows. 

The fair value of rental guarantees held by the Group as at the period end date are as follows:

 

Unaudited

31 December

2020

Audited

30 June

2020

Unaudited

31 December

2019

 

£' 000

£' 000

£' 000

At start of period

-

-

-

Additions

478

-

-

Fair value changes (including changes in estimated cash flows)

-

-

-

Payments received

-

-

-

At end of period

478

-

-

 

The fair value of rental guarantees recognised have a contractual expiry of less than next twelve months.

 

14.  Trade and other receivables

 

Unaudited

31 December

2020

Audited

30 June

2020

Unaudited

31 December

2019

 

£' 000

£' 000

£' 000

Trade and other receivables

2,436

1,629

5,904

Prepayments

314

73

77

Total trade and other receivables

2,750

1,702

5,981

 

All trade receivables relate to amounts that are less than 30 days overdue as at the period end date.

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 31 December 2020. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic 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.

15.  Trade and other payables

 

 

Unaudited

31 December

2020

Audited

30 June

2020

Unaudited

31 December

2019

 

£' 000

£' 000

£' 000

Corporate accruals

5,256

5,279

2,790

VAT payable

1,785

1,124

784

Total trade and other payables

7,041

6,403

3,574

 

16.  Interest rate derivatives

 

 

Unaudited

31 December

2020

Audited

30 June

2020

Unaudited

31 December

2019

 

£' 000

£' 000

£' 000

Non-current liability: Interest rate cap

-

-

(1)

Non-current liability: Interest rate swap

(2,213)

(1,988)

(971)

 

The interest rate cap and interest rate swap is remeasured to fair value by the counterparty bank on a quarterly basis.

 

The fair value at the end of the period comprises:

Unaudited

31 December

2020

Audited

30 June

2020

Unaudited

31 December

2019

At start of the period

(1,988)

(1,113)

(1,113)

Interest rate cap premium paid on inception

-

-

-

Amortisation of cap premium in the period (note 7)

(14)

(57)

(34)

Changes in fair value of interest rate derivative in the period

(553)

(1,112)

40

Charge to the income statement

342

294

135

As at the end of the period

(2,213)

(1,988)

(972)

 

To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note 17, the Group has entered into a derivative interest rate cap ('the cap') with HSBC and derivative interest rate swaps in relation to the loan facilities with Bayerische Landesbank ('the BLB swaps') and Wells Fargo Bank ('the Wells swaps').

The total notional value of the cap was £63.5 million with its term coinciding with the expiry of the initial term of the HSBC credit facility.  The strike rate of the cap as at 31 December 2020 was 1.75%. which caps the Group's cost of borrowing at 3.35% on the hedged notional amount.

The total notional value of the BLB swaps was £86.9 million, which is equal to the total amounts drawn under Bayerische Landesbank loan facility. The terms of the BLB swaps coincide with the maturity of the respective Bayerische Landesbank loan facility. The fixed interest rate of £52.1 million of the swap exposure as at 31 December 2020 was 1.305%. The fixed interest rate of the swaps of £27.5 and £7.3m for the remaining exposure of £34.8 million were 0.178% and 0.128% respectively.

The total notional value of the Wells swap was £30.0 million with its term coinciding with the maturity of the Wells Fargo loan facility. The fixed interest rate of the swap as at 31 December 2020 was 0.189%.

79% of the Group's variable rate debt was hedged as at 31 December 2020 (30 June 2020: 100%; 31 December 2019: 100%). It is the Group's target to hedge at least 60% of the Group's total debt at any time using 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 balance sheet date. The fair values are calculated using the present values of future cash flows, based on market forecasts of interest rates and adjusted for the credit risk of the counterparties. The amounts and timing of future cash flows are projected on the basis of the contractual terms.

All interest rate derivatives are classified as level 2 in the fair value hierarchy as defined under IFRS 13 and there were no transfers to or from other levels of the fair value hierarchy during the year.

In accordance with the Group's treasury risk policy, the Group applies cash flow hedge accounting in partially hedging the interest rate risks arising on its variable rate linked loans. Changes in the fair values of derivatives that are designated as cash flow hedges and are effective are recognised directly in the cash flow hedge reserve and included in other comprehensive income.

Any ineffectiveness that may arise in this hedge relationship will be included in profit or loss.

17.  Bank borrowings

 

Unaudited

31 December

2020

Audited

30 June

2020

Unaudited

31 December

2019

 

£' 000

£' 000

£' 000

Amounts falling due after more than one year:

 

 

 

Secured debt

304,473

128,660

168,204

Less: Unamortised finance costs

(3,310)

(1,869)

(1,837)

Bank borrowing per consolidated statement of financial position

301,163

126,791

166,367

 

Secured debt comprises a revolving credit facility (the 'credit facility') of £140 million with HSBC Bank Plc, a five year interest-only loan facility ('the BLB loan facility') of £86.9 million with Bayerische Landesbank, a five year fixed rate loan facility ('the Deka loan facility') of £76.6 million with Deka Bank and a five year interest-only revolving credit facility with Wells Fargo ('the Wells loan facility) of £60.0 million.

The credit facility had an original maturity of three years commencing on 30 August 2017. The Group has since exercised two one year extensions with the credit facility now maturing on 30 August 2022.

At 31 December 2020, £111.0 million has been drawn down under the credit facility. All the advances drawn under the credit facility have an interest charge which is payable quarterly based on a margin above three-month LIBOR.

At 31 December 2020, the full amount of the BLB loan facility had been drawn down. Interest is payable quarterly on the BLB loan facility based on a margin of 125 basis points above three-month LIBOR for the initial £52.1 million and 185 basis points above three-month LIBOR for the remaining £34.8 million. The fixed interest rate on the BLB loan facility resulting from the interest rate swaps were 2.56% on the £52.1 million swap, 2.03% on the £27.5 million swap and 1.98% on the £7.3 million swap.

At 31 December 2020, the full £76.6 million of the Deka loan facility had been drawn down. The Deka loan facility has been entered into as a fixed rate agreement, fixing the interest rate at 1.9% over the term of the facility.

As at 31 December 2020, £30.0 million had been drawn under the Wells loan facility. Interest is payable quarterly on the Wells loan facility based on a margin of 200 basis points above three-month LIBOR. The fixed interest rate on the Wells loan facility resulting from the interest rate swap was 2.19%.

Any associated fees in arranging the bank borrowings that are unamortised as at the end of the period are offset against amounts drawn under the facilities as shown in the table above. The debt is secured by charges over the Group's investment properties and by charges over the shares of certain group companies, not including the Company itself. There have been no defaults of breaches of any loan covenants during the current or any prior period.

The Group's borrowings carried at amortised cost are considered to be approximate to their fair value.

18.  Share capital

 

Ordinary shares

of 1 pence

Share

capital

Share premium reserve

Capital
reduction
reserve

Total

 Six months to 31 December 2020 (unaudited)

Number

£'000

£'000

£'000

£'000

As at 1 July 2020

473,620,462

4,735

436,126

-

440,861

Ordinary shares issued and fully paid

- 9 October 2020

192,307,692

1,923

198,077

-

200,000

Share issue costs

-

-

(4,289)

-

(4,289)

 

 

 

 

 

 

Dividend paid in the period (note 10)

-

-

-

-

 

As at 31 December 2020 

665,928,154

6,658

629,914

-

636,572

 

 

 

 

Ordinary shares

of 1 pence

 

 

 

 

Share

capital

Share premium reserve

 

 

 

Capital
reduction
reserve

Total

Year to 30 June 2020 (audited)

Number

£'000

£'000

£'000

£'000

As at 1 July 2019

239,833,219

2,398

203,672

14,391

220,461

Ordinary shares issued and fully paid

- 7 October 2019

98,039,215

980

99,020

-

100,000

Ordinary shares issued and fully paid

- 30 April 2020

135,748,028

1,357

138,463

-

139,820

Share issue costs

-

-

(5,029)

-

(5,029)

 

 

 

 

 

 

Dividend paid in the period (note 10)

-

-

-

(14,391)

(14,391)

As at 30 June 2020 

473,620,462

4,735

436,126

-

440,861

 

 

Ordinary shares

of 1 pence

Share

capital

Share premium reserve

Capital
reduction
reserve

Total

Six months to 31 December 2019 (unaudited)

Number

£'000

£'000

£'000

£'000

As at 1 July 2019

239,833,219

2,398

203,672

14,391

220,461

Ordinary shares issued and fully paid

-7 October 2019

98,039,215

981

99,019

-

100,000

Share issue costs

-

-

(2,211)

-

(2,211)

 

337,872,434

3,379

300,481

14,391

318,251

Dividend paid in the period (note 10)

-

-

-

(8,198)

(8,198)

As at 31 December 2019 

337,872,434

3,379

300,481

6,193

310,053

 

On 9 October 2020 the Company completed an equity fundraising and issued an additional 192,307,692 ordinary shares of one pence each at a price of £1.04 per share. The consideration received in excess of the par value of the ordinary shares issues, net of total capitalised issue costs, of £193.8 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.

19.  Cash flow hedge reserve

 

Unaudited

Six months to
31 December

2020

Audited

Year to
30 June

2020

Unaudited

Six months to
31 December

2019

 

£' 000

£' 000

£' 000

At start of the period

(2,021)

(1,203)

(1,203)

Fair value movement of interest rate derivatives in effective hedges

(210)

(818)

175

At the end of the period

(2,231)

(2,021)

(1,029)

 

20.  Capital commitments

The Group had no capital commitments outstanding as at 31 December 2020 (30 June 2019: none; 31 December 2019: none).

21. Transactions with related parties

Details of the related parties to the Group in the period and the transactions with these related parties were as follows:

a. Directors

Directors' fees

As noted in the 2020 Annual Report, the remuneration of the Directors' fees were benchmarked during the year ended 30 June 2020 as the fees had remained unchanged since the IPO in July 2017. Having regard to the increase in size and complexity of the Group, fees for all Board members were increased with effect from 1 July 2020. The  total remuneration payable to the Directors in respect of the period to 31 December 2020 was £120,000 (six months to 31 December 2019: £71,000; year to 30 June 2020: £148,000). There were no amounts outstanding at the end of the current or comparative periods.

Nick Hewson, Chairman of the Board of Directors of the Company, is paid fees of £70,000 per annum, with the other Directors each being paid fees of £50,000 per annum. Jon Austen is paid an additional £7,500 per annum for his role as chair of the Company's Audit Committee, Vince Prior is paid an additional £2,500 per annum for his role as chair of the Company's Nominations 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.

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 31 December 2020 were as follows:

· Nick Hewson: 498,525 shares (0.07% of issued share capital)

· Jon Austen: 163,500 shares (0.02% of issued share capital)

· Vince Prior: 96,019 shares (0.01% of issued share capital)

· Cathryn Vanderspar: 38,648 shares (0.01% of issued share capital)

b. Investment Adviser

Advisory fees

The investment adviser to the Group, Atrato Capital Limited (the 'Investment Adviser'), is entitled to certain advisory fees under the terms of the Investment Advisory Agreement (the 'Agreement') dated 17 September 2020.

The entitlement of the Investment Adviser to advisory fees is by way of what are termed 'Monthly Management Fees' and 'Semi-Annual Management Fees' both of which are calculated by reference to the net asset value of the Group at particular dates, as adjusted for the financial impact of certain investment events and after deducting any un-invested proceeds from share issues up to the date of the calculation of the relevant fee (these adjusted amounts are referred to as 'Adjusted Net Asset Value' for the purpose of calculation of the fees in accordance with the Agreement).

Until the Adjusted Net Value of the Group exceeds £1,000 million, the entitlements to advisory fees can be summarised as follows:

· Monthly Management Fee payable monthly in arrears: 1/12th of 0.7125% per calendar month of Adjusted Net Asset Value up to or equal to £500 million and 1/12th of 0.5625% per calendar month of Adjusted Net Asset Value above £500 million and up to or equal to £1,000 million.

· Semi-Annual Management Fee payable semi-annually in arrears: 0.11875% of Adjusted Net Asset Value up to or equal to £500 million and 0.09375% of Adjusted Net Asset Value above £500 million and up to or equal to £1,000 million.

For the period 31 December 2020 the total advisory fees payable to the Investment Adviser were £2,718,000 (six months to December 2019: £1,370,000; year to 30 June 2020: £3,252,000) of which £1,357,684 (30 June 2020: £820,000; 31 December 2019: £572,000) is included in trade and other payables in the consolidated statement of financial position.

Introducer Services

Atrato Partners, an affiliate of the Investment Adviser, is entitled to fees in relation to the successful introduction of prospective investors in connection with subscriptions for ordinary share capital in the Company. The entitlement of the Investment Adviser to introducer fees is by fees and/or commission which can be summarised as follows:

Fee basis: £5,000 for any day on which prospective investors are introduced in meetings, provided that there are at least five such meetings with prospective investors on that day; and (ii) £1,000 per meeting for any day on which prospective investors are introduced in meetings but there are fewer than five such meetings with prospective investors on that day or:

Commission basis: one per cent of total subscription in respect of ordinary shares subscribed for by any prospective investor introduced by Atrato Partners.

For the period to 31 December 2020 the total introducer fees payable to the affiliate of the Investment Adviser were £104,947 (six months to 31 December 2019: Nil; year to 30 June 2020: £25,000)

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 31 December 2020 were as follows:

·   Ben Green: 1,137,101 shares 

· Steve Windsor: 1,251,936 shares 

22. EPRA Measures of net asset value

The Group adopted the EPRA issued new best practice reporting guidelines in the period ending 31 December 2020, incorporating the three new measures of net asset value: EPRA Net Tangible Assets (NTA), Net Reinvestment Value (NRV) and Net Disposal Value (NDV) and are defined as follows:

· EPRA Net Reinstatement Value ("EPRA NRV") which assumes that entities never sell assets and aims to represent the value required to rebuild the entity.

· EPRA Net Tangible Assets ("EPRA NTA") which assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.

· EPRA Net Disposal Value ("EPRA NDV") 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.

EPRA NTA is considered to be the most relevant measure for the Group and is now the primary measure of net assets, replacing the previously reported EPRA Net Asset Value metric. For the current period EPRA NTA is calculated as net assets per the consolidated statement of financial position excluding the fair value of interest rate derivatives. 

EPRA NDV is almost the same as the previous EPRA NNNAV and EPRA NRV is a new number adding back assumed purchasers' costs to the property 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.

31 December 2020 (Unaudited)

EPRA NTA

£' 000

EPRA NRV

£' 000

EPRA NDV

£' 000

IFRS NAV attributable to ordinary shareholders

691,774

691,774

691,774

Fair value of interest rate derivatives

2,213

2,213

2,213

Intangibles

-

-

-

Purchasers' costs

-

60,203

-

Fair value of debt

-

-

3,700

Deferred tax

-

-

-

EPRA NAV

693,987

754,190

697,687

EPRA NAV per share

104p

113p

105p

 

 

30 June 2020 (audited)

EPRA NTA

£' 000

EPRA NRV

£' 000

EPRA NDV

£' 000

IFRS NAV attributable to ordinary shareholders

477,161

477,161

477,161

Fair value of interest rate derivatives

1,988

1,988

1,988

Intangibles

-

-

-

Purchasers' costs

-

36,680

-

Fair value of debt

-

-

2,328

Deferred tax

-

-

-

EPRA NAV

479,149

515,829

481,477

EPRA NAV per share

101p

109p

102p

 

31 December 2019 (Unaudited)

EPRA NTA

£' 000

EPRA NRV

£' 000

EPRA NDV

£' 000

IFRS NAV attributable to ordinary shareholders

327,990

327,990

327,990

Fair value of interest rate derivatives

972

972

972

Intangibles

-

-

-

Purchasers' costs

-

33,348

-

Fair value of debt

-

-

1.418

Deferred tax

-

-

-

EPRA NAV

328,962

362,310

330,380

EPRA NAV per share

97p

107p

98p

 

23. Subsequent events

On 8 January 2021 the Board declared a second interim dividend for the year ending 30 June 2021 of 1.465 pence per share, which was paid on 26 February 2021. This has not been included as a liability as at 31 December 2020.

On the 22 January 2021, the Group announced a new revolving credit facility ("RCF") of £80.0 million with Barclays and Royal Bank of Canada. This secured, interest-only, RCF has a five-year term (comprising an initial three year term and two further one year extension options) and a margin of 150 basis points over SONIA, representing a total cost of debt of 1.55%. The RCF also includes a 70 million uncommitted accordion option which is exercisable at any time over the term of the facility.

On 25 January 2021, the Group announced the exchange of contracts for the acquisition of a Sainsbury's store in Melksham and the acquisition of a Waitrose store in Winchester for a combined value of £64.8 million (excluding acquisition costs) with an unexpired lease term of 17 years and 24 years respectively. The acquisition of the Sainsbury's store in Melksham completed on 25 February 2021.  

On 26 January 2021, the group announced the acquisition of a Morrisons store Wisbech, which was acquired for £30.0 million (excluding acquisition costs) with a new 26 year lease term with five-yearly, upwards only, RPI-linked rent reviews.

On 17 February 2021, the Group announced the acquisition of a Sainsbury's store with an ancillary Homebase unit in Bangor, Northern Ireland, which was acquired for £24.8 million (excluding acquisition costs) with an unexpired lease term of 16 years with five-yearly, upwards only, 2% fixed rent reviews compounded annually.  

On 18 February 2021, the group announced the acquisition of a further 25.5% stake in the Sainsburys Reversion Portfolio for £115.0 million (excluding acquisition costs) through the Company's existing 50:50 joint venture with the British Airways Pension Trustees Limited ("BAPTL"). The Company's contribution to the JV to fund the acquisition was £57.5 million, excluding funds for acquisition costs.

Company Information

 

Directors

 

Nick Hewson (Non-Executive Chairman)

 

Vince Prior (Chair of Nomination Committee & Senior Independent Director)

 

Jon Austen (Chair of Audit Committee)

Cathryn Vanderspar (Chair of Remuneration Committee)

 

 

Company Secretary

 

 

 

 

 

 

Registrar

JTC (UK) Limited

The Scalpel

52 Lime Street

18th Floor

London

EC3M 7AF

 

Link Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent

BR3 4TU

 

 

AIFM

JTC AIFM Services

Ground floor

Dorey Court

Admiral Park

St Peter Port

Guernsey

Channel Islands

GY1 2HT

 

Investment Adviser

Atrato Capital Limited

123 Victoria Street

London

SW1E 6DE

 

Financial adviser, Broker and Placing Agent

Stifel Nicolaus Europe Limited

150 Cheapside

London

EC2V 6ET

 

 

 

 

Auditors

BDO LLP

55 Baker Street

London

W1U 7EU

 

Property Valuers

Cushman & Wakefield

125 Old Broad Street

London

EC2N 1AR

 

Financial PR Advisers

FTI

200 Aldersgate Street

London

EC1A 4HD

 

Website

 

www.supermarketincomereit.com

Registered Office

The Scalpel

52 Lime Street

18th Floor

London

EC3M 7AF

 

Stock exchange ticker

ISIN

SUPR

GB00BF345X11

 

 

 

This report will be available on the Company's website.

 

END

 

 

 

 

[1] Including 2nd interim dividend paid on 26 February 2021

[2] Excluding acquisition costs

[3] EPRA's updated Best Practice Recommendations Guidelines issued in October 2019, include three replacement Net Asset Valuation metrics, namely EPRA Net Reinstatement Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV).

[4] Kantar 2021

[5] Excluding funding for acquisition costs

[6] Kantar 2021

[7] Kantar, Sainsburys and Tesco 2020 Q3 trading statements - 2021

[8] Top 5 online grocery operator websites and Atrato estimates.

[9] Excluding acquisition costs

[10]Excluding acquisition costs

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