notes to the consolidated financial statements

 

1. Basis of preparation 

 

General information

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

 

At 30 June 2021 the Group comprised the Company and its wholly owned subsidiaries as set out in Note 13.

Basis of preparation

The consolidated financial information set out in this preliminary announcement covers the year to 30 June 2021, with comparative figures relating to the year to 30 June 2020, and includes the results and net assets of the Group. The financial information has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 30 June 2021.  Whilst the financial information included in this announcement has been computed in accordance with the recognition and measurement requirements of international accounting standards in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. 

The financial information does not constitute the Group's financial statements for the years ended 30 June 2021 or 30 June 2020, but is derived from those financial statements.  Those financial statements give a true and fair view of the assets, liabilities, financial position and results of the Group.  Financial statements for the year ended 30 June 2020 have been delivered to the Registrar of Companies and those for the year ended 30 June 2021 will be delivered following the Company's AGM.  The auditors' reports on both the 30 June 2021 and 30 June 2020 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all years presented, other than where new policies have been adopted.

Going concern

In light of the significant impact of COVID-19 on the UK economy, and the retail sector, the Directors have placed a particular focus on the appropriateness of adopting the going concern basis in preparing the Group's and Company's financial statements for the year ended 30 June 2021. In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.

During the period covered by this report, the Group raised a total of £353.9 million from the issue of equity shares and a further £248.6m million of debt; being £113.8m under the Barclays / RBC Bank facility, £60.0m under the Wells Fargo RCF and increases to the existing HSBC RCF and Bayerische Landesbank facility of £40.0m and £34.8m respectively (see note 20 for further information). All financial covenants have been met to date.

In September 2021, the HSBC RCF facility that was due to mature in August 2022 was extended by a further twelve months to mature in August 2023.

The Group generated net cash flow from operating activities in the period of £42.8 million, with its cash balances at 30 June 2021 totaling £19.6 million. The Group had no capital commitments or contingent liabilities as at the year end date.

As at the date of issuance of these consolidated financial statements, all contractual grocery rent for the March and June quarters has been collected in full; similarly, over 99.5% from non-grocery units has been collected or recovered under vendor provided rental guarantees.

The Group benefits from a secure income stream from its property assets that are let to tenants with excellent covenant strength, and are critical to the UK grocery infrastructure, under long leases that are subject to upward only rent reviews.

As a result, the Directors believe that the Group is well placed to manage its financing and other business risks and that the Group will remain viable, continuing to operate and meet its liabilities for the foreseeable future, being a period of at least 12 months from the date of approval of the financial statements. The Directors are therefore of the opinion that the going concern basis adopted in the preparation of the financial statements is appropriate.

Accounting convention and currency

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

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

Adoption of new and revised standards

In the current financial year, the Group has adopted a number of minor amendments to standards effective in the year issued by the IASB, none of which have had a material impact on the Group.

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. 

Amendments to IFRS 3 "Business Combinations", definition of a business - The amendment provides a revised framework for evaluating a business and introduces an optional "concentration test" and impacts the assessment and judgements used in determining whether future property transactions represent an asset acquisition or business combination. As a result of the amendment it is expected that future transactions are more likely to be treated as an asset acquisition.

Standards and interpretations in issue not yet adopted

A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period and have not been adopted early. Notably, amendments to IAS 1 which clarifies the criteria used to determine whether liabilities are classified as current or non-current (effective 1 January 2023). These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendment is not expected to have an impact on the presentation or classification of the liabilities in the Group based on rights that are in existence at the end of the reporting period.

The Interest Rate Benchmark Reform - IBOR 'phase 2' amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 provide a practical expedient to account for changes in the basis for determining contractual cash flows of financial assets and financial liabilities as a result of IBOR reform. Under the practical expedient, entities will account for these changes by updating the effective interest rate using the guidance in paragraph B5.4.5 of IFRS 9 without the recognition of an immediate gain or loss. This practical expedient applies only to such a change and only to the extent that it is necessary as a direct consequence of interest rate benchmark reform, and the new basis is economically equivalent to the previous basis.

Further amendments include amendments to IFRS 16, 'Leases' - Covid-19 related rent concessions, amendments to IFRS 7, IFRS 4, a number of narrow-scope amendments to IAS 1, Practice statement 2, IAS 8, IFRS 3, IAS 16, IAS 17 and some annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 16.

The above amendments are not expected to have a significant impact on the Group's results.

 

Significant accounting judgements, estimates and assumptions

The preparation of these financial statements in accordance with IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements.

 

Key estimate: Fair value of investment properties

The fair value of the Group's investment properties held directly and indirectly through a joint venture is determined by the Group's independent valuer on the basis of market value in accordance with the RICS Valuation - Global Standards (the 'Red Book'). Recognised valuation techniques are used by the independent valuer which are in accordance with those recommended by the International Valuation Standard Committee and compliant with IFRS 13 "Fair Value Measurement."

The independent valuer did not include any material valuation uncertainty clause in relation to the valuation of the Group's investment property for 30 June 2021 or 30 June 2020.

The independent valuer is considered to have sufficient current local and national knowledge of the supermarket property market and the requisite skills and understanding to undertake the valuation competently.

In forming an opinion as to fair value, the independent valuer makes a series of assumptions, which are typically market-related, such as those in relation to net initial yields and expected rental values. These are based on the independent valuer's professional judgement. Other factors taken into account by the independent valuer in arriving at the valuation of the Group's investment properties include the length of property leases, the location of the properties and the strength of tenant covenants.

The fair value of the Group's investment properties as determined by the independent valuer, along with the significant methods and assumptions used in estimating this fair value, are set out in note 12.

Key judgement: Joint ventures - joint control

In the prior year, 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. During the year, the joint venture also acquired 100% of the issued share capital in Cornerford Limited for a combined total consideration of £115m plus costs (together "the Joint Venture Interest").

Horndrift Limited and Cornerford Limited each hold a 25.2% beneficial interest in a property trust arrangement / bond securitisation structure (the "Structure") which holds a portfolio of 26 Sainsbury's supermarket properties funded by bonds which mature in 2023.

The classification and accounting treatment of the Joint Venture Interest in the property trust arrangement in the Group's consolidated financial statements is subject to significant judgement. By reference to the contractual arrangements and deeds that regulate the Structure, it was necessary to determine whether the Joint Venture Interest, together with the other key parties of the Structure had the ability to jointly control the Structure through their respective rights as defined by the contractual arrangements and deeds of the Structure. The review of the Joint Venture Interest and the other key parties rights required significant judgement in assessing whether the rights identified were substantive as defined by IFRS 10 Consolidated Financial Statements, principally in respect of whether there were any economic barriers that prevent the joint venture investment or the other key parties from exercising their rights. Through assessing the expected possible outcomes either before or upon maturity of the Structure it was determined that there were no significant economic barriers that would prevent Horndrift Limited, Cornerford Limited or the other key parties from exercising their rights under the contractual arrangements and deeds of the Structure.

The Directors therefore concluded that through its Joint Venture Interest, the Group indirectly has joint control of the Structure as defined by IFRS 10 Consolidated Financial Statements. As such the Group's interest in the Structure is accounted for using the equity method of accounting under IAS 28.

Key judgement: Acquisition of investment properties

The Group has acquired and intends to acquire further investment properties. At the time of each purchase the Directors assess whether an acquisition represents the acquisition of an asset or the acquisition of a business.

Under the Definition of a Business (Amendments to IFRS 3 "Business Combinations"), to be considered as a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The optional 'concentration test' is also applied, where if substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business.

During the year, the group completed 19 acquisitions. In 18 cases the concentration test was applied and met, resulting in the acquisitions being accounted for as asset purchases.

For the remaining acquisition where the concentration test was not met, management reviewed if any of the acquired processes were substantive in accordance with IFRS 3. Management concluded that the processes were ancillary in nature to the overall asset and the acquisition shall be considered as an asset purchase.

All £541.2m of acquisitions during the year were accounted for as asset purchases.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below.

2.1 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries drawn up to 30 June 2021.

Subsidiaries are those entities including special purpose entities, directly or indirectly controlled by the Company. Control exists when the Company is exposed or has rights to variable returns from its investment with the investee and has the ability to affect those returns through its power over the investee. In assessing control, potential voting rights that presently are exercisable are taken into account.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

In preparing the consolidated financial statements, intra group balances, transactions and unrealised gains or losses are eliminated in full.

Uniform accounting policies are adopted for all entities within the Group.

2.2 Segmental information

The Directors are of the opinion that the Group is currently engaged in a single segment business, being investment in United Kingdom in supermarket property assets; the non-supermarket properties are ancillary in nature to the supermarket property assets and are therefore not segmented.

 

2.3 Rental income

Rental income arising on investment properties is accounted for in profit or loss on a straight-line basis over the lease term, as adjusted for the following:

·    Any rental income from fixed and minimum guaranteed rent review uplifts is recognised on a straight-line basis over the lease term;

·    Lease incentives are spread evenly over the lease term, even if payments are not made on such a basis. The lease term is the non-cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.

Contingent rents, such as those arising from indexed-linked rent uplifts or market based rent reviews, are recognised in the period in which they are earned.

Where income is recognised in advance of the related cash flows due to fixed and minimum guaranteed rent review uplifts or lease incentives, an adjustment is made to ensure that the carrying value of the relevant property, including the accrued rent relating to such uplifts or lease incentives, does not exceed the external valuation.

Rental income is invoiced in advance with that element of invoiced rental income that relates to a future period being included within deferred rental income in the consolidated statement of financial position.

2.4 Finance expense

Finance expenses consist principally of interest payable and the amortisation of loan arrangement fees.

Loan arrangement fees are expensed using the effective interest method over the term of the relevant loan. Interest payable and other finance costs, including commitment fees, which the Group incurs in connection with bank borrowings, are expensed in the period to which they relate.

2.5 Administrative and other expenses

Administrative and other expenses, including the investment advisory fees payable to the Investment Adviser, are recognised as a profit or loss on an accruals basis.

2.6 Dividends payable to Shareholders

Dividends to the Company's Shareholders are recognised when they become legally payable, as a reduction in equity in the financial statements. Interim equity dividends are recognised when paid. Final equity dividends will be recognised when approved by Shareholders at an AGM.

2.7 Taxation

Non-REIT taxable income

Taxation on the Group's profit or loss for the period that is not exempt from tax under the UK-REIT regulations comprises current and deferred tax, as applicable. Tax is recognised in profit or loss except to the extent that it relates to items recognised as direct movements in equity, in which case it is similarly recognised as a direct movement in equity.

Current tax is tax payable on any non-REIT taxable income for the period, using tax rates enacted or substantively enacted at the end of the relevant period.

Entry to the UK-REIT regime

The Group obtained its UK-REIT status effective from 21 December 2017. Entry to the regime results in, subject to continuing relevant UK-REIT criteria being met, the profits of the Group's property rental business, comprising both income and capital gains, being exempt from UK taxation.

The Group intends to ensure that it complies with the UK-REIT regulations on an on-going basis and regularly monitors the conditions required to maintain REIT status.

2.8 Investment properties

Investment properties consist of land and buildings which are held to earn income together with the potential for capital growth.

Investment properties are recognised when the risks and rewards of ownership have been transferred and are measured initially at cost, being the fair value of the consideration given, including transaction costs. Where the purchase price (or proportion thereof) of an investment property is settled through the issue of new ordinary shares in the Company, the number of shares issued is such that the fair value of the share consideration is equal to the fair value of the asset being acquired. Transaction costs include transfer taxes and professional fees for legal services. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and included within the book cost of the property. All other property expenditure is written off in profit or loss as incurred.

After initial recognition, investment properties are measured at fair value, with gains and losses recognised in profit or loss in the period in which they arise.

Gains and losses on disposals of investment properties will be determined as the difference between the net disposal proceeds and the carrying value of the relevant asset. These will be recognised in profit or loss in the period in which they arise.

Initially, rental guarantees are recognised at their fair value and separated from the purchase price on initial recognition of the property being purchased. They are subsequently measured at their fair value at each reporting date with any movements recognised in the profit or loss.

2.9 Joint ventures

Interests in joint ventures are accounted for using the equity method of accounting. The Group's joint ventures are arrangements in which the partners have joint control and rights to the net assets of the arrangement. Investments in joint ventures are carried in the statement of financial position at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the joint venture, less any impairment or share of income adjusted for dividends. In assessing whether a particular entity is controlled, the Group considers the same principles as control over subsidiaries as described in note 2.1.

2.10 Property, plant and equipment

Property, plant and equipment comprises of rooftop solar panels. Rooftop solar panels are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised over the useful lives of the equipment, using the straight-line method at a rate of between 25- 30 years depending on the useful economic life.

Residual value is reviewed at least at each financial year and there is no depreciable amount if residual value is the same as, or exceeds, book value. Any gain or loss arising on the disposal of the rooftop solar panels are determined as the difference between the sales proceeds and the carrying amount of the asset.

2.11 Financial assets and liabilities

Financial assets and liabilities are recognised when the relevant Group entity becomes a party to the unconditional contractual terms of an instrument. Unless otherwise indicated, the carrying amounts of financial assets and liabilities are considered by the Directors to be reasonable estimates of their fair values.

Financial assets

Financial assets are recognised initially at their fair value. All of the Group's financial assets, except interest rate derivatives, are held at amortised cost using the effective interest method, less any impairment.

Cash and cash equivalents

Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity of three months or less.

Trade and other receivables

Trade and other receivables, including rents receivable, are recognised and carried at the lower of their original invoiced value and recoverable amount. Provisions for impairment are calculated using an expected credit loss model. Balances will be written-off in profit or loss in circumstances where the probability of recovery is assessed as being remote.

Trade and other payables

Trade and other payables are recognised initially at their fair value and subsequently at amortised cost.

Bank borrowings

Bank borrowings are initially recognised at fair value net of attributable transaction costs. After initial recognition, bank borrowings are subsequently measured at amortised cost, using the effective interest method. The effective interest rate is calculated to include all associated transaction costs.

Derivative financial instruments and hedge accounting

The Group's derivative financial instruments currently comprise an interest rate cap and interest rate swaps. Both are designated as hedging instruments for which hedge accounting is being applied as under IAS 39. These instruments are used to manage the Group's cash flow interest rate risk.

The instruments are initially recognised at fair value on the date that the derivative contract is entered into, being the cost of any premium paid at inception, and are subsequently re-measured at their fair value at each reporting date.

Fair value measurement of derivative financial instruments

The fair value of derivative financial instruments is the estimated amount that the Group would receive or pay to terminate the agreement at the period end date, taking into account current interest rate expectations and the current credit rating of the relevant group entity and its counterparties.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs significant to the fair value measurement as a whole.

A number of assumptions are used in determining the fair values including estimations over future interest rates and therefore future cash flows. The fair value represents the net present value of the difference between the cash flows produced by the contract rate and the valuation rate.

Hedge accounting

At the inception of a hedging transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking the hedging transaction.

The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Assuming the criteria for applying hedge accounting continue to be met the effective portion of gains and losses on the revaluation of such instruments are recognised in other comprehensive income and accumulated in the cash flow hedging reserve. Any ineffective portion of such gains and losses will be recognised in profit or loss within finance income or expense as appropriate.  The cumulative gain or loss recognised in other comprehensive income is reclassified from the cash flow hedge reserve to profit or loss (finance expense) at the same time as the related hedged interest expense is recognised.

2.12 Equity instruments

Equity instruments issued by the Company are recorded at the amount of the proceeds received, net of directly attributable issue costs. Costs not directly attributable to the issue are immediately expensed in profit or loss.

Further details of the accounting for the proceeds from the issue of shares in the period are disclosed in note 22.

2.13 Fair value measurements and hierarchy

Fair value is the price that would be received on the sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market. It is based on the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interest. A fair value measurement of a non-financial asset takes into account the best and highest value use for that asset.

The fair value hierarchy to be applied under IFRS 13 is as follows:

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are carried at fair value and which will be recorded in the financial information on a recurring basis, the Group will determine whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period.

3. Gross rental income

		Year to 30 June 2021 £'000	Year to 30  June 2020 £'000
Rental income - freehold property		29,679	10,725
Rental income - long leasehold property		18,477	15,627
Gross rental income		48,156	26,352

 

		Year to 30 June 2021 £'000	Year to 30  June 2020 £'000
Property insurance recoverable		251	-
Service charge recoverable		579	315
Total property insurance and service charge income		830	315
Total property income		48,986	26,667

 

Included within rental income is a £1,998,000 (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 be accounted for on straight-line basis over the lease term. During the year this resulted in an increase in rental income and an offsetting entry being recognised in profit or loss as an adjustment to the investment property revaluation.

On an annualised basis, rental income comprises £27,012,000 (2020: 12,844,000) relating to the Group's largest tenant, £17,271,000 (2020: £10,725,000) relating to the Group's second largest tenant and £5,340,000 (2020: £2,783,000) relating to the Group's third largest tenant. There were no further tenants representing more than 10% of annualised gross rental income during either year.

4. Service charge expense

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Property insurance expenses		379	-
Service charge expenses		665	315
Total property insurance and service charge expense		1,044	315

 

5. Administrative and other expenses

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Investment Adviser fees (Note 27)		6,255	3,252
Directors' remuneration (Note 7)		260	165
Corporate administration fees		676	317
Legal and professional fees		916	708
Other administrative expenses		1,155	742
Total administrative and other expenses		9,262	5,184

 

The fees relating to the issue of shares in the year have been treated as share issue expenses and offset against the share premium reserve.

6. Operating profit

Operating profit is stated after charging fees for:

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Audit of the Company's consolidated and individual financial statements		155	210
Audit of subsidiaries, pursuant to legislation		78	41
Total audit services		233	251
Audit related services: interim review		31	26
Total audit and audit related services		264	277

 

 

 

The Group's auditor also provided the following services in relation to the placing of share capital, the fees for which have been recognised within equity as a deduction from share premium:

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Other non-audit services: corporate finance services in connection with the October 2020 and May 2021 placings		90	-
Other non-audit services: corporate finance services in connection with the October 2019 and May 2020 placings		-	65
Total other non-audit services		90	65
Total fees charged by the Group's auditor		354	342

 

7.    Directors' remuneration

The Group had no employees in the current or prior year. The Directors, who are the key management personnel of the Company, are appointed under letters of appointment for services. Directors' remuneration, all of which represents fees for services provided, was as follows:

 

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Directors' fees		240	148
Employer's National Insurance Contribution		20	17
Total Directors' remuneration		260	165

 

The highest paid Director received £70,000 (2020: £55,000) for services during the year.

 

8.    Finance expense

		Year to 30 June 2021 £'000	Year to 30  June 2020 £'000
Interest payable on bank borrowings and hedging arrangements		5,810	3,685
Fair value adjustment of interest rate derivatives (Note 19)		706	294
Commitment fees payable		532	280
Amortisation of loan arrangement fees		1,442	587
Amortisation of interest rate derivative premium (Note 19)		28	57
Total finance expense		8,518	4,903

 

 

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

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Total interest expense on financial liabilities held at amortised cost		7,252	4,271
Fee expense not part of effective interest rate for financial liabilities held at amortised cost		532	280
Total finance expense		7,784	4,551

 

9.    Taxation

A) Tax charge in profit or loss		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Corporation tax		-	-

 

 

B) Total tax expense		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Tax charge in profit and loss as per the above		-	-
Share of tax expense of equity accounted joint ventures		511	37
Total tax expense		511	37

The Company and its subsidiaries operate as a UK Group REIT.  Subject to continuing compliance with certain rules, the UK REIT regime exempts the profits of the Group's property rental business from UK corporation tax.  To operate as a UK Group REIT a number of conditions had to be satisfied in respect of the Company, the Group's qualifying activity and the Group's balance of business. Since the 21 December 2017 the Group has met all such applicable conditions.

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

 

C) Reconciliation of the total tax charge for the year		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Profit on ordinary activities before taxation		81,956	32,763
Theoretical tax at UK standard corporation tax rate of 19%		15,572	6,225
Effects of:
Investment property revaluation not taxable		(6,895)	(2,480)
Negative goodwill not taxable		-	(562)
REIT exempt income		(8,677)	(3,005)
Share of tax expense of equity accounted joint ventures		511	37
Total tax expense for the year		511	37

UK REIT exempt income includes property rental income that is exempt from UK corporation tax in accordance with Part 12 of CTA 2010.

10. Earnings per share                                                                                                                                          

Earnings per share (EPS) amounts are calculated by dividing the profit or loss for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the year. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.

The European Public Real Estate Association ("EPRA") publishes guidelines for calculating adjusted earnings on a comparable basis. EPRA EPS is a measure of EPS designed by EPRA to enable entities to present underlying earnings from core operating activities, which excludes fair value movements on investment properties and negative goodwill.

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

	Net profit attributable to ordinary Shareholders	Weighted average number of ordinary shares₁	Earnings/ per share
For the year ended 30 June 2021	£' 000	Number	Pence
Basic and diluted EPS	81,956	652,828,945	12.6
Adjustments to remove:
Changes in fair value of investment properties and rent guarantees	(36,288)	-	(5.6)
Group share of changes in fair value of joint venture investment properties	(5,619)	-	(0.9)
Group share of negative goodwill from joint venture investment	(3,265)	-	(0.5)
EPRA EPS	36,784	652,828,945	5.6p
	Net profit attributable to ordinary Shareholders	Weighted average number of ordinary shares₁	Earnings/ per share
For the year ended 30 June 2020	£' 000	Number	Pence
Basic and diluted EPS	32,763	334,236,233	9.8p
Adjustments to remove:			0
Changes in fair value of investment properties and rent guarantees	(13,052)	-	(3.9)p
Negative goodwill	(2,960)		(0.9)p
EPRA EPS	16,751	334,236,233	5.0p

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

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

 

 

11. Dividends
			Year to 30 June 2021 £'000		Year to 30 June 2020 £'000
Amounts recognised as a distribution to ordinary Shareholders in the year:
Dividends paid			35,481		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 ended 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 ended 30 June 2021 of 1.465 pence per share, which was paid on 26 February 2021 to Shareholders on the register on 22 January 2021.

On 8 April 2021, the Board declared a third interim dividend for the year ended 30 June 2021 of 1.465 pence per share, which was paid on 21 May 2021 to Shareholders on the register on 16 April 2021.

On 8 July 2021, the Board declared a fourth interim dividend for the year ended 30 June 2021 of 1.465 pence per share, which was paid on 7 August 2021 to Shareholders on the register on 16 July 2021. This has not been included as a liability as at 30 June 2021.

12. Investment properties

In accordance with IAS 40 "Investment Property", the Group's investment properties have been independently valued at fair value by Cushman & Wakefield, an accredited independent valuer with a recognised and relevant professional qualification and with recent experience in the locations and categories of the investment properties being valued. The valuations have been prepared in accordance with the RICS Valuation - Global Standards (the "Red Book") and incorporate the recommendations of the International Valuation Standards Committee which are consistent with the principles set out in IFRS 13.

The independent valuer in forming its opinion on valuation makes a series of assumptions. As explained in note 2, all the valuations of the Group's investment property at 30 June 2021 are classified as 'level 3' in the fair value hierarchy defined in IFRS 13.

The valuations are ultimately the responsibility of the Directors. Accordingly, the critical assumptions used in establishing the independent valuation are reviewed by the Board.     

	Freehold   £'000	Long  Leasehold £'000	Total   £'000
At 1 July 2020	244,030	295,380	539,410
Property additions	438,710	102,500	541,210
Capitalised acquisition costs	23,331	5,799	29,130
Revaluation movement	17,469	21,161	38,630
Valuation at 30 June 2021	723,540	424,840	1,148,380

 

 

 

	Freehold   £'000	Long  Leasehold £'000	Total £'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

 

There were 19 property acquisitions during the period, of which one was purchased through the acquisition of a corporate structure, rather than acquiring the asset directly.

Included within the carrying value of investment properties at 30 June 2021 is £3,558,000 (2020: £1,560,000) in respect of the smoothing of fixed contractual rent uplifts as described in note 3. The difference between rents on a straight-line basis and rents actually receivable is included within the carrying value of the investment properties but does not increase that carrying value over fair value. The effect of this adjustment on the revaluation movement for the period is as follows:

			Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
Revaluation movement per above			38,630	13,917
Rent smoothing adjustment (note 3)			(1,998)	(865)
Movements in associated rent guarantees (note 15)			(344)	-
Change in fair value recognised in profit or loss			36,288	13,052

 

Valuation techniques and key unobservable inputs

Valuation techniques used to derive fair values

The valuations have been prepared on the basis of market value which is defined in the RICS Valuation Standards as 'the estimated amount for which an asset or liability should exchange on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion'. Market value as defined in the RICS Valuation Standards is the equivalent of fair value under IFRS.

The yield methodology approach is used when valuing the Group's properties which uses market rental values capitalised with a market capitalisation rate. This is sense-checked against the market comparable method (or market comparable approach) where a property's fair value is estimated based on comparable transactions in the market.

Unobservable inputs

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

A decrease in ERV would decrease the fair value. A decrease in net initial yield would increase the fair value.

Sensitivity of measurement of significant valuation inputs

As described in note 2 the determination of the valuation of the Group's investment property portfolio is open to judgement and is inherently subjective by nature.

Sensitivity analysis - impact of changes in net initial yields and rental values

Net initial yields of the Group's investment properties at 30 June 2021 range from 3.9% to 6.2% (2020: 4.3% to 6.2%). Rental values (being passing rents or ERV as relevant) on the Group's investment properties at 30 June 2021 range from £0.4m to £4.8 million (2020: £1.6 million to £4.0 million).

The table below analyses the sensitivity on the fair value of investment properties for changes in rental values and net initial yields:

 

	+1% Rental value £m	-1% Rental value £m	+0.25% Net Initial Yield £m		-0.25% Net Initial Yield £m
(Decrease)/increase in the fair value of investment properties as at 30 June 2021	11.5	(11.5)	(58.8)	65.6
(Decrease)/increase in the fair value of investment properties as at 30 June 2020	2.9	(2.9)	(23.8)		34.2

 

13. Subsidiaries

The entities listed in the following table were the subsidiary undertakings of the Company at 30 June 2021 all of which are wholly owned. All subsidiary undertakings are incorporated in England with their registered office at The Scalpel 18th Floor, 52 Lime Street, London, United Kingdom EC3M 7AF.

Company name	Type of holding	Nature of business
Supermarket Income Investments UK Limited	Direct	Intermediate parent company
Supermarket Income Investments (Midco2) UK Limited	Direct	Intermediate parent company
Supermarket Income Investments (Midco3) UK Limited	Direct	Intermediate parent company
Supermarket Income Investments (Midco4) UK Limited	Direct	Intermediate parent company
SII UK Halliwell (MIDCO) LTD	Direct	Intermediate parent company
Supermarket Income Investments (Midco6) UK Limited*	Direct	Intermediate parent company
SUPR Green Energy Limited*	Direct	Energy provision company
Supermarket Income Investments UK (NO1) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO2) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO3) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO4) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO5) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO6) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO7) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO8) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO9) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO10) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO11) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO12) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16a) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16b) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16c) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO17) Limited	Indirect	Property investment
TPP Investments Limited**	Indirect	Property investment
T (Partnership) Limited**	Indirect	Property investment
The TBL Property Partnership**	Indirect	Property investment
Supermarket Income Investments UK (NO19) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO20) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO21) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO22) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO23) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO24) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO25) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO26) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO27) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO28) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO29) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO30) Limited*	Indirect	Property investment
SII UK Halliwell (No1) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No2) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No3) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No4) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No5) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No6) LTD	Indirect	Investment in Joint venture

 

* New subsidiaries incorporated during the year ended 30 June 2021

** Subsidiaries acquired during the year ended 30 June 2021

 

14. Investment in joint ventures

As at 30 June 2021 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.

On the 17 February 2021, the joint venture also acquired 100% of the issued share capital in Cornerford Limited for a combined total consideration of £115m plus costs.

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

The Group deems this to be a joint venture, as through the Group's interest in Horndrift Limited and Cornerford Limited it indirectly has joint control of the structure.

Under the terms of the Horner (Jersey) LP (the "JV") Limited Partnership Agreement ("LPA"), an affiliate of the Investment Adviser, Atrato Halliwell Limited (the "Carry Partner"), has a carried interest entitlement over the investment returns from the JV's investment in the Structure. Under the terms of the LPA, once the Group and its JV partner have received a return equal to their total investment in the JV plus an amount equivalent to a 10% per annum preferred return on that investment, the Carry Partner is entitled to share in any further cash returns to be distributed by the JV. The Carry Partner's entitlement to share in cash returns in excess of the preferred return increases depending on the extent of those cash returns, up to a maximum entitlement of £15,000,000.

The Group has estimated the value of the Carry Partner's interest in the Group's share of the JV as at 30 June 2021 to be £2,200,000 (2020: £Nil). This has been determined by reference to the expected returns from the JV's investment in the Structure, assuming that the proceeds realised from the future sale of the properties held by within the Structure are equal to the independent valuations of those properties as at 30 June 2021. Accordingly, the Group's beneficial interest in the JV, and therefore the Group's share of the JV's net assets as at 30 June 2021, is estimated to amount to 49.2%. 

The carried interest payments are only payable upon cash distributions from the JV to the Group. To date there have been no cash distributions received by the Group and therefore no carried interest payment has yet become payable.

Entity	Partner	Address and principal place of business	Ownership
Jersey
Horner (Jersey) LP	British Airways Pensions Trustees Limited	Third Floor, Liberation House, Castle Street, St Helier, Jersey, JE1 2LH	50% owned by the Group
Horner REIT Limited		Third Floor, Liberation House, Castle Street, St Helier, Jersey, JE1 2LH	100% owned by Horner (Jersey) LP
United Kingdom
Horndrift Limited		Langham Hall UK LLP, 1 Fleet Street, London, E4M 7RA	100% owned by Horner REIT Limited
Cornerford Limited		Langham Hall UK LLP, 1 Fleet Street, London, E4M 7RA	100% owned by Horner REIT Limited

 

 

					Year to 30 June 2021 £'000		Year to 30 June 2020 £'000
Opening balance					56,081		-
Acquired in the year					58,734		52,635
Negative goodwill arising on acquisition					-		2,960
Group's share of profit after tax                                                                                 15,506							486
Closing balance                                                                                                           130,321							56,081

 

The joint venture entities have a 31 March year end. For accounting purposes consolidated management accounts have been prepared for the joint venture for the periods from acquisition to 30 June 2021 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		Year to 30 June 2021 £'000	Period to 30 June 2020 £'000
Share of income from joint venture		28,885	971
Negative goodwill		6,530	-
Profit for the period and total comprehensive income		35,415	971
Group's share of profit for the period		15,506	486
Statement of financial position		As at 30 June 2021 £'000	As at 30 June 2020 £'000
Investment in joint venture		265,045	112,161
Net assets		265,045	112,161
Group's share of net assets		130,320	56,081

 

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

 

		Year to 30 June 2021 £'000		Period to 30 June 2020 £'000
Rental income		19,886		1,224
Administrative and other expenses		(585)		(8)
Change in fair value of investment properties		13,259		-
Operating profit		32,560		1,216
Finance expense			(2,470)		(171)
Profit before taxation			30,090		1,045
Tax charge for the period			(1,205)		(74)
Profit for the period			28,885		971

 

Non-current assets		As at 30 June 2021 £'000	As at 30 June 2020 £'000
Investment properties		477,447	227,400
Total non-current assets		477,447	227,400
Current assets
Trade and other receivables		15,163	7,403
Cash and cash equivalents		-	-
Total current assets		15,163	7,403
Total assets		492,610	234,803
Non-current liabilities
Debt securities in issue		190,788	102,320
Interest rate derivative		8,836	6,478
Deferred tax		11,048	5,376
Other liabilities		9,188	4,445
Total non-current liabilities		219,860	118,619
Current liabilities
Trade and other payables		7,705	4,023
Total current liabilities		7,705	4,023
Total liabilities		227,565	122,642
Net assets		265,045	112,161

 

 

 

15. Financial assets held at fair value through profit or loss

Rental guarantees provided by the seller of an investment property are recognised as a financial asset when there is a valid expectation that the Group will utilise the guarantee over the contractual term. Rental guarantees are classified as financial assets at fair value through profit and loss in accordance with IFRS 9.

In determining the fair value of the rental guarantee, the Group makes an assessment of the expected future cash flows to be derived over the term of the rental guarantee and discounts these at the market rate. A review is performed on a periodic basis based on payments received and changes in the estimation of future cash flows.  

The fair value of rental guarantees held by the Group are as follows:

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
At start of year		-	-
Additions		766	-
Fair value changes (including changes in estimated cash flows)		(344)	-
Collected during the year		(185)	-
Total financial assets held at fair value through profit and loss at end of year		237	-

 

16. Contract fulfilment assets

During the year, the Group has been chosen to provide renewable electricity to one of its tenants through the use of its acquired rooftop solar panels under the terms of a Purchasing Power Agreement ("PPA"). It is intended that under the terms of the PPA, the tenant will acquire 100% of the systems generated power with a maximum 75% contracted under a take or pay arrangement and 25% under a purchase option. The term of the PPA will be 20 years with a break option coterminous with the occupational lease expiry. As at the year end, no electricity under the PPA was provided to its tenant.    

Under IFRS 15, the incremental costs of obtaining a contract with a customer are recognised as a contract fulfilment asset if the costs are expected to be recoverable.  The Group has determined that the following costs may be capitalised as contract fulfilment assets: i) legal fees to draft a contract (once the Group has been selected as a preferred supplier for a bid) and ii) any commissions payable that are directly related to winning a specific contract.

Costs incurred prior to selection as preferred supplier are not capitalised but are expensed as incurred.

		Year to 30 June 2021 £'000	Year to 30 June 2020 £'000
At start of year		-	-
Additions		85	-
Amortisation		-	-
Total contract fulfilment assets at end of year		85	-

 

In preparing these consolidated financial statements, a review was undertaken to identify indicators of impairment of contract fulfilment assets. As at the year end no such indicators were noted.

 

17. Trade and other receivables

		As at 30 June 2021 £'000	As at 30 June 2020 £'000
Other receivables		2,624	1,629
Prepayments and accrued income		516	73
Total trade and other receivables		3,140	1,702

 

All other receivables relate to amounts that are less than 30 days overdue as at the year 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 30 June 2021. 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.

18. Trade and other payables

		As at 30 June 2021 £'000	As at 30 June 2020 £'000
Corporate accruals		6,153	5,279
VAT payable		2,216	1,124
Total trade and other payables		8,369	6,403

 

All trade and other payables relate to amounts that are less than 30 days overdue at the year end date.

 

19. Interest rate derivatives
	As at 30 June 2021 £'000	As at 30 June 2020 £' 000
Non-current asset: Interest rate cap	-	-
Non-current asset: Interest rate swaps	763	-
Non-current liability: Interest rate swaps	(1,210)	(1,988)

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

 

 

The fair value at the end of period comprises:	Year to 30 June 2021 £'000	Year to 30 June 2020 £' 000
At start of year (net)	(1,988)	(1,113)
Amortisation of cap premium in the year (note 8)	(28)	(57)
Changes in fair value of interest rate derivative in the year	863	(1,112)
Charge to the profit or loss (note 8)	706	294
Fair value at end of year (net)	(447)	(1,988)

 

To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note 20, the Group has entered 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 swap').

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 30 June 2021 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 30 June 2021 was 1.305%. The fixed interest rate of the swaps of £27.5 million and £7.3 million for the remaining exposure of £34.8 million were 0.178% and 0.128% respectively.

The total notional value of the Wells swap was £30.0 million with its term coinciding with the maturity of the Wells Fargo loan facility. The fixed interest rate of the swap as at 30 June 2021 was 0.189%.

63% of the Group's outstanding debt as at 30 June 2021 was hedged through the use of fixed rate debt or financial instruments as at 30 June 2021 (2020: 154%). It is the Group's target to hedge at least 50% of the Group's total debt at any time using fixed rate loans or interest rate derivatives.

The derivatives have been valued in accordance with IFRS 13 by reference to interbank bid market rates as at the close of business on the last working day prior to each reporting date. The fair values are calculated using the present values of future cash flows, based on market forecasts of interest rates and adjusted for the credit risk of the counterparties. The amounts and timing of future cash flows are projected on the basis of the contractual terms.

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

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

With the exception of the Barclays/RBC facility, which is contractually linked to the Sterling Overnight Index Average ("SONIA"); the remaining floating rate loans and interest rate derivatives are contractually linked to LIBOR, a market rate which is expected to become unavailable from the end of 2021. The Investment Adviser is working with the Group's lenders and derivative counterparties to transition to an alternative benchmark rate, currently expected to be SONIA. The transition is not expected to have a material impact on the results or financial position of the Group.

 

20. Bank borrowings

		As at 30 June 2021 £'000	As at 30 June 2020 £'000
Amounts falling due after more than one year:
Secured debt		413,320	128,660
Less: Unamortised finance costs		(3,636)	(1,869)
Bank borrowings per the consolidated statement of financial position		409,684	126,791

 

The Group has a secured revolving credit facility (the 'credit facility') of £140 million with HSBC Bank Plc, a five year interest-only loan secured facility ('the BLB loan facility') of £86.9 million with Bayerische Landesbank, a five year fixed rate secured loan facility ('the Deka loan facility') of £76.6 million with Deka Bank,  a new seven year secured revolving credit facility (the 'Wells Fargo Credit facility') of £60 million with Wells Fargo and a five year secured revolving credit facility (the 'Barclays/RBC credit facility') of £113.8 million with Barclays and Royal Bank of Canada.

As at 30 June 2021, £106.1 million of the credit facility had been drawn down. Interest is payable quarterly on the loan facility based on a margin of 1.65% over three-month LIBOR on the first £100.0 million of the facility and a margin of 1.75% over three-month LIBOR on the remaining £40.0 million of the facility.  In September 2021, the Group announced the extension of the credit facility by a further twelve months, with an expiry date of August 2023. The credit facility was also increased by a further £10.0 million bringing the total size of the facility to £150.0 million. The new tranche has a margin of 1.75% over SONIA.  

As at 30 June 2021, the full amount of the BLB loan facility had been drawn down. Interest is payable quarterly on the £52.1 million tranche of the loan facility based on a margin of 1.25% above three-month LIBOR, the fixed interest rate on this tranche of the loan facility resulting from the Interest rate swap was 2.55%. Interest is payable on a margin of 1.85% above three-month LIBOR on the £27.5 million tranche; the fixed interest rate on this tranche of the loan resulting from the interest rate swap was 2.03%. Interest is payable on a margin of 1.85% above three-month LIBOR on the £7.3 million tranche; the fixed interest rate on this tranche of the loan resulting from the interest rate swap was 1.98%.

As at 30 June 2021, the full £76.6 million of the Deka loan facility has been drawn down. The Deka loan facility has been entered into as a fixed rate agreement, fixing the interest rate at 1.95% over the term of the facility. In August 2021, the Group increased the Deka loan facility by a further £20.0 million to £96.6 million at a fixed interest rate of 1.70%. All other terms remained unchanged.

As at 30 June 2021, £30.0 million of the £60.0 million Wells Fargo credit facility has been drawn down. Interest is payable quarterly on the loan facility based on a margin of 2.00% over three-month LIBOR; the fixed interest rate of this facility resulting from the interest rate swap was 2.19%. In September 2021, the Group exercised its accordion option under the Wells Fargo credit facility by £61.3 million. The new tranche has a term of two years plus three one year extension options at a margin of 1.40% above SONIA.   

As at 30 June 2021, the full £113.8 million of the Barclays/RBC credit facility has been drawn down. Interest is payable quarterly on the loan facility based on a margin of 1.50% above daily SONIA.

The Group has been in compliance with all of the financial covenants across the Group's bank facilities as applicable throughout the periods covered by these financial statements.

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

21. Categories of financial instruments

			As at 30 June 2021 £'000		As at 30 June 2020 £'000
Financial assets
Financial assets at amortised cost:
Cash and cash equivalents			19,579		20,353
Trade and other receivables			2,624		1,629
Financial assets at fair value:
Rent guarantees			237		-
Derivatives in effective hedges:
Interest rate derivative			763		-
Total financial assets			23,203		21,982
Financial liabilities
Financial liabilities at amortised cost:
Secured debt				409,684		126,791
Trade and other payables				6,153		5,279
Derivatives in effective hedges:
Interest rate derivative				1,210		1,988
Total financial liabilities				417,047		134,058

 

At the year end, all financial assets and liabilities were measured at amortised cost except for the interest rate derivatives and rental guarantees which are measured at fair value.  The interest rate derivative valuation is classified as 'level 2' in the fair value hierarchy as defined in IFRS 13 and its fair value was calculated using the present values of future cash flows, based on market forecasts of interest rates and adjusted for the credit risk of the counterparties.

Financial risk management

Through the Group's operations and use of debt financing it is exposed to certain risks. The Group's financial risk management objective is to minimise the effect of these risks, for example by using interest rate cap and interest rate swap derivatives to partially mitigate exposure to fluctuations in interest rates, as described in note 19.

The exposure to each financial risk considered potentially material to the Group, how it arises and the policy for managing it is summarised below.

Market risk

Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.  The Group's market risk arises from open positions in interest bearing assets and liabilities, to the extent that these are exposed to general and specific market movements.

The Group's interest-bearing financial instruments comprise cash and cash equivalents and bank borrowings.  Changes in market interest rates therefore affect the Group's finance income and costs, although the Group has purchased interest rate derivatives as described in note 19 in order to partially mitigate the risk in respect of finance costs.  The Group's sensitivity to changes in interest rates, calculated on the basis of a ten-basis point increase or decrease in closing three-month LIBOR or the SONIA daily rate, was as follows:

			Year to 30 June 2021 £'000	Year to 30 June 2020 £' 000
Effect on profit			356	130
Effect on other comprehensive income and equity			(376)	(233)

 

Trade and other receivables and payables are interest free as long as they are paid in accordance with their terms, and have payment terms of less than one year, so it is assumed that there is no material interest rate risk associated with these financial instruments.

The Group prepares its financial information in Sterling and all of its current operations are Sterling denominated. It therefore has no exposure to foreign currency and does not have any direct sensitivity to changes in foreign currency exchange rates.

Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty fails to meet its contractual obligations.  The principal counterparties are the Group's tenants (in respect of rent receivables arising under operating leases) and banks (as holders of the Group's cash deposits).

The credit risk of rent receivables is considered low because the counterparties to the operating leases are considered by the Board to be high quality tenants and any lease guarantors are of appropriate financial strength.  Rent collection dates and statistics are monitored to identify any problems at an early stage, and if necessary rigorous credit control procedures will be applied to facilitate the recovery of rent receivables. The credit risk on cash deposits is limited because the counterparties are banks with credit ratings which are acceptable to the Board and are kept under review each quarter.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance costs and principal repayments on its secured debt.  It is the risk that the Group will not be able to meet its financial obligations as they fall due.

The Group seeks to manage its liquidity risk by ensuring that sufficient cash is available to meet its foreseeable needs.  These liquidity needs are relatively modest and are capable of being satisfied by the surplus available after rental receipts have been applied in payment of interest as required by the credit agreement relating to the Group's secured debt.

Before entering into any financing arrangements, the Board assesses the resources that are expected to be available to the Group to meet its liabilities when they fall due.  These assessments are made on the basis of both base case and downside scenarios.  The Group prepares detailed management accounts which are reviewed by the Board at least quarterly to assess ongoing liquidity requirements and compliance with loan covenants.  The Board also keeps under review the maturity profile of the Group's cash deposits in order to have reasonable assurance that cash will be available for the settlement of liabilities when they fall due.

Inflation risk arises from the impact of inflation on the Group's income and expenditure.  The majority of the Group's passing rent at 30 June 2021 is subject to inflation linked rent reviews.  Consequently, the Group is exposed to movements in the Retail Prices Index ("RPI"), which is the relevant inflation benchmark.  However, all RPI-linked rent review provisions provide those rents will only be subject to upwards review and never downwards.  As a result, the Group is not exposed to a fall in rent in deflationary conditions.

The following table shows the maturity analysis for financial assets and liabilities.  The table has been drawn up based on the undiscounted cash flows of non-derivative financial instruments, including future interest payments, based on the earliest date on which the Group can be required to pay and assuming that three-month LIBOR and the SONIA daily rate remains at the 30 June 2021 rate.  Interest rate derivatives are shown at fair value and not at their gross undiscounted amounts.

	Less than one year	One to two years	Two to five years	More than five years	Total
As at 30 June 2021	£'000	£' 000	£' 000	£' 000	£' 000
Financial assets:
Cash and cash equivalents	19,579	-	-	-	19,579
Trade and other receivables	2,624	-	-	-	2,624
Rent guarantees	237	-	-	-	237
Interest rate derivatives	-	-	763	-	763
Total financial assets	22,440	-	763	-	23,203
Financial liabilities:
Bank borrowings	6,153	111,962	312,366	-	430,481
Trade payables and other payables	6,153	-	-	-	6,153
Interest rate derivatives	-	-	1,210	-	1,210
Total financial liabilities	12,306	111,962	313,576	-	437,844

 

 

	Less than one year	One to two years	Two to five years	More than five years	Total
As at 30 June 2020	£'000	£' 000	£' 000	£' 000	£' 000
Financial assets:
Cash and cash equivalents	20,353	-	-	-	20,353
Trade and other receivables	1,629	-	-	-	1,629
Total financial assets	21,982	-	-	-	21,982
Financial liabilities:
Bank borrowings	2,821	5,642	128,660	-	137,123
Trade payables and other payables	5,279	-	-	-	5,279
Interest rate derivatives	-	-	1,988	-	1,988
Total financial liabilities	8,100	5,642	130,648	-	144,390

 

 

Capital risk management

The Board's primary objective when monitoring capital is to preserve the Group's ability to continue as a going concern, while ensuring it remains within its debt covenants so as to safeguard secured assets and avoid financial penalties.  Bank borrowings are secured on the Group's property portfolio by way of fixed charges over property assets and over the shares in the property-owning subsidiaries and any intermediary holding companies of those subsidiaries. The Group does not provide any cross-group guarantees nor does the Company act as a guarantor to the lending bank.

At 30 June 2021, the capital structure of the Group consisted of bank borrowings (note 20), cash and cash equivalents, and equity attributable to the Shareholders of the Company (comprising share capital, retained earnings and the other reserves referred to in notes 22 and 23).

In managing the Group's capital structure, the Board considers the Group's cost of capital.  In order to maintain or adjust the capital structure, the Group keeps under review the amount of any dividends or other returns to Shareholders and monitors the extent to which the issue of new shares or the realisation of assets may be required.

Reconciliation of financial liabilities relating to financing activities

		Bank borrowings due in more than 1 year £'000	Interest and commitment fees payable £'000	Interest rate derivatives £'000		Total £'000
As at 1 July 2020	126,791		692		1,988	129,471
Cash flows:
Debt drawdowns in the year	582,961		-		-	582,961
Debt repayments in the year	(298,300)		-		-	(298,300)
Interest and commitment fees paid	-		(6,105)		-	(6,105)
Loan arrangement fees paid	(3,211)		-		-	(3,211)
Non-cash movements:
Finance costs in the statement of comprehensive income	1,443		7,047		28	8,518
Fair value changes	-		-		(1,569)	(1,569)
As at 30 June 2021	409,684		1,634		447	411,765

 

 

 

 

 

		Bank borrowings due in more than 1 year £'000	Interest and commitment fees payable £'000		Interest rate derivatives £'000		Total £'000
As at 1 July 2019	143,708		715			1,113	145,536
Cash flows:
Debt drawdowns in the year	141,510		-			-	141,510
Debt repayments in the year	(157,744)			-		-	(157,744)
Interest and commitment fees paid	-		(4,282)			-	(4,282)
Loan arrangement fees paid	(1,270)		-			-	(1,270)
Non-cash movements:
Finance costs in the statement of comprehensive income	587		4,259			57	4,903
Fair value changes	-		-			818	818
At 30 June 2020	126,791		692			1,988	129,471

Movements in respect to share capital are disclosed in note 22 below.

The interest and commitment fees payable are included within the corporate accruals balance in note 18. Cash flow movements are included in the consolidated statement of cash flows and the non-cash movements are included in note 8. The movements in the interest rate derivative financial liabilities can be found in note 19.

22. Share capital

	Ordinary Shares of 1 pence	Share capital	Share premium reserve	Capital reduction reserve	Total
	Number	£'000	£'000	£'000	£'000
As at 1 July 2020	473,620,462	4,735	436,126	-	440,861
Ordinary shares issued and fully paid - 9 October 2020	192,307,692	1,923	198,077	-	200,000
Scrip dividends issued and fully paid - 26 February 2021	124,795	2	132	-	134
Ordinary shares issued and fully paid - 23 March 2021	144,297,503	1,443	151,513	-	152,956
Scrip dividends issued and fully paid - 21 May 2021	369,716	4	410	-	414
Share issue costs	-	-	(7,399)	-	(7,399)
As at 30 June 2021	810,720,168	8,107	778,859	-	786,966

 

 

 

 

	Ordinary shares of 1 pence	Share capital	Share premium reserve	Capital reduction reserve	Total
	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)
Dividends paid in the year	-	-	-	(14,391)	(14,391)
As at 30 June 2020	473,620,462	4,735	436,126	-	440,861

 

Share allotments and other movements in relation to the capital of the Company in the year:

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 issued, net of total capitalised issue costs, of £193.8 million was credited to the share premium reserve.

On 23 March 2021 the Company completed an equity fundraising and issued an additional 144,297,503 ordinary shares of one pence each at a price of £1.06 per share. The consideration received in excess of the par value of the ordinary shares issued, net of total capitalised issue costs, of £148.4 million was credited to the share premium reserve.

Scrip dividends were issued on 26 February 2021 and 21 May 2021 at a reference price of £1.06 and £1.12 per share respectively. The Company issued a combined total of 494,511 shares under the scrip dividend programme during the year. The consideration received in excess of the par value of the ordinary shares issued, of £0.5 million was credited to the share premium reserve. 

Ordinary Shareholders are entitled to all dividends declared by the Company and to all the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary Shareholders have the right to vote at meetings of the Company. All ordinary shares carry equal voting rights. The aggregate ordinary shares in issue at 30 June 2021 total was 810.7 million.

23. Reserves

The nature and purpose of each of the reserves included within equity at 30 June 2021 are as follows:

·    Share premium reserve: represents the surplus of the gross proceeds of share issues over the nominal value of the shares, net of the direct costs of equity issues

·    Cash flow hedge reserve: represents cumulative gains or losses, net of tax, on effective cash flow hedging instruments

·    Capital reduction reserve: represents a distributable reserve created following a Court approved reduction in capital less dividends paid

·    Retained earnings represent cumulative net gains and losses recognised in the statement of comprehensive income.

The only movements in these reserves during the period are disclosed in the consolidated statement of changes in equity.

24. Capital commitments

The Group had no capital commitments outstanding as at 30 June 2021 and 30 June 2020.

25. Operating leases

The Group's principal assets are investment properties which are leased to third parties under non-cancellable operating leases. The weighted average remaining lease term at 30 June 2021 is 14.8 years (2020: 17.1 years). The leases contain predominately fixed or inflation-linked uplifts.

The future minimum lease payments receivable under the Group's leases, are as follows:

		As at 30 June 2021 £'000	As at  30 June 2020 £'000
Within one year		57,348	28,770
Between one year and five years		231,448	116,038
More than five years		612,471	354,707
Total		901,267	499,515

 

26. Net asset value per share

NAV  per share is calculated by dividing the Group's net assets as shown in the consolidated statement of financial position, by the number of ordinary shares outstanding at the end of the year. As there are no dilutive instruments outstanding, basic and diluted NAV per share are identical.

The European Public Real Estate Association ("EPRA") publishes guidelines for the calculation of three measures of NAV to enable consistent comparisons between property companies, which were updated in the prior year and took effect from 1 January 2020. The Group uses EPRA Net Tangible Assets ("EPRA NTA") as the most meaningful measure of long term performance and the measure which is being adopted by the majority of UK REITs, establishing it as the industry standard benchmark. It excludes items that are considered to have no impact in the long term, such as the fair value of derivatives.

NAV and EPRA NTA per share calculation are as follows:

						As at 30 June 2021			As at 30 June 2020
							£'000		£'000
	Net assets per the consolidated statement of financial position						871,310		477,161
Intangibles						(85)		-
	Fair value of interest rate derivatives						447		1,988
	EPRA NTA						871,672		479,149
	Ordinary shares in issue at 30 June						810,720,168		473,620,462
	NAV per share - Basic and diluted (pence)						108p		101p
	EPRA NTA per share (pence)						108p		101p

 

 

 

 

 

 

 

27. Transactions with related parties

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

 

a.    Directors

Directors' fees

Nick Hewson, Chairman of the Board of Directors of the Company, is paid fees of £70,000 per annum, with the other Directors each being paid fees of £50,000 per annum. Jon Austen is paid an additional £7,500 per annum for his role as chair of the Company's Audit Committee, Vince Prior is paid an additional £2,500 per annum for his role as chair of the Company's Nomination Committee and £5,000 for his role as Senior Independent Director. Cathryn Vanderspar is paid an additional £5,000 for her role as Chair of the Remuneration Committee.

The total remuneration payable to the Directors in respect of the current year and previous year are disclosed in note 7. There were no amounts outstanding at the end of either year.

Directors' interests

Details of the direct and indirect interests of the Directors and their close families in the ordinary shares of one pence each in the Company at 30 June 2021 were as follows:

·    Nick Hewson: 573,575 shares (0.07% of issued share capital)

·    Jon Austen: 182,367 shares (0.02% of issued share capital)

·    Vince Prior: 114,886 shares (0.01% of issued share capital)

·    Cathryn Vanderspar: 57,515 (0.00% of issued share capital)

b.    Investment Adviser

Investment advisory and accounting fees

The investment adviser to the Group, Atrato Capital Limited (the 'Investment Adviser'), is entitled to certain advisory fees under the terms of the Investment Advisory Agreement (the 'Agreement') dated 14 July 2021.

During the year the Agreement was amended on 17 September 2020 and subsequently amended after the year end on 14 July 2021. The terms of the revised agreement have not materially changed other than the extension of the notice period to a rolling two year term and the introduction of a new lower fee tier when NAV exceeds £2bn.

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

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

·    Monthly Management Fee payable monthly in arrears: 1/12^th of 0.7125% per calendar month of Adjusted Net Asset Value up to or equal to £500 million and 1/12^th 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 year to 30 June 2021 the total advisory fees payable to the Investment Adviser were £6,255,423 (2020: £3,252,000) of which £1,463,898 (2020: £820,000) is included in trade and other payables in the consolidated statement of financial position.

The Investment Adviser is also entitled to an annual accounting and administration service fee equal to: £51,500; plus (i) £4,175 for any indirect subsidiary of the Company and (ii) £1,620 for each direct subsidiary of the Company. A full list of the Company and its direct and indirect subsidiary undertakings is listed in Note 13 of these financial statements.

For the year to 30 June 2021 the total accounting and administration service fee payable to the Investment Adviser was £64,920 (2020: £Nil) of which £52,646 (2020: £Nil) 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: 1% of total subscription in respect of ordinary shares subscribed for by any prospective investor introduced by Atrato Partners.  

For the period to 30 June 2021 the total introducer fees payable to the affiliate of the Investment Adviser were £269,172 (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 30 June 2021 were as follows:

·    Ben Green: 1,199,938 shares (0.15% of issued share capital)

·    Steve Windsor: 1,319,486 shares (0.16% of issued share capital)

Carried interest held in the Group's joint venture

Under the terms of the Horner (Jersey) LP (the "JV") Limited Partnership Agreement ("LPA"), an affiliate of the Investment Adviser, Atrato Halliwell Limited (the "Carry Partner"), has a carried interest entitlement over the investment returns from the JV's investment in the Structure. Further details regarding the estimated value of the Carry Partner's interest in the JV are included in note 14.

The carried interest payments are only payable to the extent that distributions are made from the JV to the Group. To date there have been no cash distributions received by the Group and therefore no carried interest payment has yet become payable.

28. Subsequent events

Debt financing

In September 2021, the Group announced the following updates to its debt facilities:

·    An increase of the secured term loan with Deka by £20.0 million to £96.6 million for the remaining three year term. The new tranche of the secured term loan has a fixed rate of 1.70%;

·    A one year extension alongside a £10.0 million increase to its Revolving Credit Facility with HSBC priced at a margin of 1.75% over SONIA; and

·    The exercise of its accordion option under the Wells Fargo credit facility by £61.3 million. The new tranche has a term of two years plus three one year extension options at a margin of 1.40% above SONIA.     

 

 

Acquisitions

In September 2021, the Group also announced the acquisition of the following:

·    Tesco in Prescot, Liverpool for £50.0 million (excluding acquisition costs) with 15 years unexpired lease term and annual, upwards-only, CPI-linked rent reviews;

·    Morrisons in Workington, Cumbria for £28.9 million (excluding acquisition costs) with 17 years unexpired lease term and 5 yearly, upwards-only, CPI-linked rent reviews;

·    An M&S and an Aldi in West Derby, Liverpool for £10.2 million (excluding acquisition costs). The M&S store has a 10 year unexpired lease term and 5 yearly, upwards-only, open market rent reviews. The Aldi store has 15 years unexpired lease term and 5 yearly, upwards-only, 2.5% fixed rent reviews compounded annually; and

·    An Aldi in Oldham, Manchester for £5.6 million (excluding acquisition costs) with 10 years unexpired lease term and 5 yearly, upwards-only, 2% fixed rent reviews compounded annually.

 

Joint Venture investment

In September 2021, the Group announced that Sainsbury's exercised a purchase option to acquire 13 stores within the Sainsbury's Reversion Portfolio, of which the Group has a 50:50 share of a 51% beneficial interest within the Structure.

Sainsbury's acquisition of the 13 stores will be completed in March 2023 upon expiry of the current occupational leases. The purchase price under the option is to be determined based on the assumption of a new 20 year lease to Sainsbury's with the initial rent set at the higher of passing or open market rent, subject to upwards-only, 5 yearly market rent reviews.