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 2022 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 2022, with comparative figures relating to the year to 30 June 2021, 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 2022. Whilst the financial information included in this announcement has been computed in accordance with the recognition and measurement requirements of UK adopted international accounting standards 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 2022 or 30 June 2021, 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 2021 have been delivered to the Registrar of Companies and

those for the year ended 30 June 2022 will be delivered following the Company's AGM.  The auditors' reports on both the 30 June 2022 and 30 June 2021 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 rising inflation, the energy crisis, the Ukrainian conflict and supply-chain issues on the UK economy, and the retail sector, the Directors have placed a particular focus on the appropriateness of adopting the going concern basis in preparing the Group's and Company's financial statements for the year ended 30 June 2022. In assessing the going concern basis of accounting the Directors have had regard to the guidance issued by the Financial Reporting Council.

During the year covered by this report, the Group raised a total of £506.7 million from the issue
of equity shares and a further £180.0m million of debt; being £150.0m under the Barclays / RBC Bank facility and increases to the existing HSBC RCF and Deka loan facility of £10.0m and £20.0m respectively (see note 21 for further information). All financial covenants have been met to date.

In July 2022, the Company arranged a new £412.1 million unsecured with a bank syndicate comprising Barclays, Royal Bank of Canada, Wells Fargo and Royal Bank of Scotland International, of which £255 million was used to refinance existing secured commitments (See note 29 for further information).

In September 2022, the HSBC RCF facility that was due to mature in August 2023 was extended by
a further two years to mature in August 2025.

The Group generated net cash flow from operating activities in the year of £63.0 million, with its cash balances at 30 June 2022 totalling £51.2 million. The Group had no capital commitments or contingent liabilities as at the year-end date.

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

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

£59.4 million of the Group's BLB loan facility falls due in July 2023. The Directors' expect this facility to be refinanced in advance of its expiry however it is also noted that the Group has sufficient headroom in its existing facilities to repay this facility in full if required. As mentioned above the Group successfully raised additional debt financing in July 2022.

As a result, the Directors believe that the Group is well placed to manage its financing and other business risks and that the Group will remain viable, continuing to operate and meet its liabilities for the foreseeable future, being the period to 30 September 2023, which is at least a period of 12 months from the date of approval of the financial information. The Directors are therefore of the opinion that the going concern basis adopted in the preparation of the financial information is appropriate.

Accounting convention and currency

The consolidated financial information (the "financial information") 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 information is 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.

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

There was no material effect from the adoption of other amendments to IFRS effective in the year. They have no significant impact on the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies

Standards and interpretations in issue not yet adopted

The following are new standards, interpretations and amendments, which are not yet effective, and have not been early adopted in this financial information, that will or may have an effect on the Group's future financial statements:

 

·    Amendments to IAS 1 which are intended to clarify the requirements that an entity applies in determining whether a liability is classified as current or non-current. The amendments are intended to be narrow-scope in nature and are meant to clarify the requirements in IAS 1 rather than modify the underlying principles. The Group will review the further amendments when they are issued (expected November 2022), at this stage, based on communications from the IASB to date there is not expected to be a material impact on the classification of liabilities as current or non-current on the Statement of Financial Position

 

The amendments include clarifications relating to:

-      How events after the end of the reporting period affect liability classification

-      What the rights of an entity must be in order to classify a liability as non-current

-      How an entity assesses compliance with conditions of a liability (e.g. bank covenants)

-      How conversion features in liabilities affect their classification

 

The amendments were originally effective for periods beginning on or after 1 January 2022 which was then deferred to 1 January 2023.

The IASB has proposed further amendments in an exposure draft that was issued in November 2021, as part of these further amendments the effective date is proposed to be deferred to 1 January 2024. The Group will review the further amendments when they are issued (expected November 2022), at this stage, based on communications from the IASB to date there is not expected to be a material impact on the classification of liabilities as current or non-current on the Statement of Financial Position.

 

·   Amendments to IFRS 3 Business Combinations and IAS 8 Accounting policies (effective for periods beginning on or after 1 January 2022)

 

There are other new standards and amendments to standards and interpretations which have been issued that are effective in future accounting periods, and which the Group has decided not to adopt early. None of these are expected to have a material impact on the consolidated financial statements of the Group.

Significant accounting judgements, estimates and assumptions

The preparation of these financial information 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 information.

Key estimate: Fair value of investment properties

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

The independent valuer did not include any material valuation uncertainty clause in relation to the valuation of the Group's investment property for 30 June 2022 or 30 June 2021.

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

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

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

Key judgement: Joint ventures - joint control

In prior years, the Group entered into a 50:50 joint venture with the British Airways Pension Trustees Limited to acquire 100% of the issued share capital in Horndrift Limited for a combined total consideration of £102m plus costs. 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 previously held a portfolio of 26 Sainsbury's supermarket properties funded by bonds which mature in 2023.  During the year, Sainsbury's exercised options to acquire 21 of these stores within the Structure and it has been determined that the exercise of the purchase options by Sainsbury's resulted in the performance obligation being satisfied for a sale of the properties in accordance with IFRS 15. The JV is deemed to hold a contractual receivable from Sainsbury's plc in respect of these 21 properties, with the cash proceeds expected to be received during the course of 2023. The remaining 5 stores continue to be held as Investment Properties within the Joint Venture.

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

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

Key judgement: Acquisition of investment properties

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

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

During the year, the group completed 10 acquisitions. In 10 cases the concentration test was applied and met, resulting in the acquisitions being accounted for as asset purchases.

All £371.1 million of acquisitions during the year were accounted for as asset purchases.

Key judgement: Acquisition of financial assets at amortised cost

The Group has acquired properties under a sale and leaseback arrangement. At the time of the purchase the Directors assess whether the acquisition represents the acquisition of an investment property or a financial asset.

Under IFRS 15, for the transfer of an asset to be accounted for as a true sale, satisfying a performance obligation of transferring control of an asset must be met for this to be deemed a property transaction and accounted for under IFRS 16. If not, it is accounted for as an asset under IFRS 9.

During the year, the Group acquired a property under a sale and leaseback arrangement with a Big Four Supermarket Operator. In this case, it was deemed that as the lease was for a significant part of the asset's useful economic life, control was not passed and the asset was therefore accounted for under IFRS 9 as an amortised cost asset.

 

2.    Summary of significant accounting policies

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

2.1.  Basis of consolidation

The consolidated financial information comprise the financial information of the Company and all of its subsidiaries drawn up to 30 June 2022.

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

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

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

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

2.2.  Segmental information

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

2.3.  Rental income

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

·   Any rental income from fixed and minimum guaranteed rent review uplifts is recognised on
a straight-line basis over the lease term, variable lease uplift calculations are not rebased when a rent review occurs and the variable payment becomes fixed;

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

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

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

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

Leases classified under IFRS 9 as financial assets recognise income received from the tenant between finance income and a reduction of the asset value, based on the interest rate implicit in the lease.

2.4.  Finance expense

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

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

2.5.  Administrative and other expenses

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

2.6.  Dividends payable to Shareholders

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

2.7.  Taxation

Non-REIT taxable income

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

Non-REIT taxable income continued

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

Entry to the UK-REIT regime

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

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

2.8.  Investment properties

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

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

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

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

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

2.9.  Joint ventures

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

2.10.   Property, plant and equipment

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

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

2.11. Financial assets and liabilities

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

 

Financial assets

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

For assets where changes in cash flows are linked to changes in an inflation index, the Group updates the effective interest rate at the end of each reporting period and this is reflected in the carrying amount of the asset each reporting period until the asset is derecognised.

Cash and cash equivalents

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

Trade and other receivables

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

Trade and other payables

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

Bank borrowings

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

In the event of a modification to the terms of a loan agreement, the Group considers both the quantitative and qualitative impact of the changes. Where a modification is considered substantial, the existing facility is treated as settled and the new facility is recognised. Where the modification is not considered substantial, the carrying value of the liability is restated to the present value of the cash flows of the modified arrangement, discounted using the effective interest rate of the original arrangement. The difference is recognised as a gain or loss on refinancing through the statement of comprehensive income.

Derivative financial instruments and hedge accounting

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

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

Fair value measurement of derivative financial instruments

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

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

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

Hedge accounting

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

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

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

2.12.   Equity instruments

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

Further details of the accounting for the proceeds from the issue of shares in the period are disclosed in note 23.

2.13.   Fair value measurements and hierarchy

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

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

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

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

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

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

 

3.    Gross rental income

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Rental income - freehold property	44,332	29,679
Rental income - long leasehold property	28,031	18,477
Gross rental income	72,363	48,156
	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Property insurance recoverable	449	251
Service charge recoverable	1,637	579
Total property insurance and service charge income	2,086	830
Total property income	74,449	48,986

 

Included within rental income is a £2,654,000 (2021: £1,998,000) rent smoothing adjustment that arises as a result of IFRS 16 'Leases' requiring that rental income in respect of leases with rents increasing by a fixed percentage be accounted for on straight-line basis over the lease term. During the year this resulted in an increase in rental income and an offsetting entry being recognised in profit or loss as an adjustment to the investment property revaluation.

On an annualised basis, rental income comprises £34,420,000 (2021: 27,012,000) relating to the Group's largest tenant, £24,265,000 (2021: £17,271,000) relating to the Group's second largest tenant and £6,272,000 (2021: £5,340,000) relating to the Group's third largest tenant. There were no further tenants representing more than 10% of annualised gross rental income during either year.

 

4.    Service charge expense

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Property insurance expenses	639	379
Service charge expenses	1,699	665
Total property insurance and service charge expense	2,338	1,044

 

 

5.    Administrative and other expenses

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Investment Adviser fees (Note 28)	9,405	6,255
Directors' remuneration (Note 7)	269	260
Corporate administration fees	893	676
Legal and professional fees	2,249	916
Other administrative expenses	1,121	1,155
Total administrative and other expenses	13,937	9,262

 

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

 

6.    Operating profit

Operating profit is stated after charging fees for:

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Audit of the Company's consolidated and individual financial statements	190	155
Audit of subsidiaries, pursuant to legislation	64	78
Total audit services	254	233
Audit related services: interim review	32	31
Total audit and audit related services	286	264

 

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

 

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Other non-audit services: corporate finance services in connection with the October 2021 and April 2022 placings	78	-
Other non-audit services: corporate finance services in connection with the transition to premium segment of LSE	45	-
Other non-audit services: corporate finance services in connection with the October 2020 and May 2021 placings	-	90
Total other non-audit services	123	90
Total fees charged by the Group's auditor	409	354

 

 

7.    Directors' remuneration

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

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Directors' fees	245	240
Employer's National Insurance Contribution	24	20
Total Directors' remuneration	269	260

 

The highest paid Director received £70,000 (2021: £70,000) for services during the year.

 

8.    Finance expense

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Interest payable on bank borrowings and hedging arrangements	9,565	5,810
Fair value adjustment of interest rate derivatives (Note 20)	296	706
Commitment fees payable	969	532
Amortisation of loan arrangement fees	2,157	1,442
Amortisation of interest rate derivative premium (Note 20)	5	28
Total finance expense	12,992	8,518

 

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

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Total interest expense on financial liabilities held at amortised cost	11,723	7,252
Fee expense not part of effective interest rate for financial liabilities held at amortised cost	969	532
Total finance expense	12,692	7,784

 

 

9.    Taxation

A) Tax charge in profit or loss

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Corporation tax	-	-
B) Total tax expense
Tax charge in profit and loss as per the above	-	-
Share of tax expense of equity accounted joint ventures	987	511
Total tax expense	987	511

 

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

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

C) Reconciliation of the total tax charge for the year	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Profit on ordinary activities before taxation	110,303	81,956
Theoretical tax at UK standard corporation tax rate of 19%	20,958	15,572
Effects of:
Investment property revaluation not taxable	(4,146)	(6,895)
REIT exempt income	(16,812)	(8,677)
Share of tax expense of equity accounted joint ventures	987	511
Total tax expense for the year	987	511

 

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

 

10.  Earnings per share

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

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

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

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

For the year ended 30 June 2022	Net profit attributable to ordinary Shareholders £'000	Weighted average number of ordinary shares Number	Earnings/ per share Pence
Basic and diluted EPS	110,303	975,233,858	11.3
Adjustments to remove:
Changes in fair value of investment properties and rent guarantees	(21,820)	-	(2.2)
Group share of changes in fair value of joint venture investment properties	6,021	-	0.6
Group share of gain on disposal of joint venture investment properties	(37,102)	-	(3.8)
EPRA EPS	57,402	975,233,858	5.9p
For the year ended 30 June 2021
Basic and diluted EPS	81,956	652,828,945	12.6
Adjustments to remove:
Changes in fair value of investment properties and rent guarantees	(36,288)	-	(5.6)
Group share of changes in fair value of joint venture investment properties	(5,619)	-	(0.9)
Group share of negative goodwill from joint venture investment	(3,265)	-	(0.5)
EPRA EPS	36,784	652,828,945	5.6p

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

 

11.  Dividends

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Amounts recognised as a distribution to ordinary Shareholders in the year:
Dividends paid	53,190	35,481

 

On 8 July 2021, the Board declared a fourth interim dividend for the year ended 30 June 2021 of 1.465 pence per share, which was paid on 7 August 2021 to Shareholders on the register on 16 July 2021.

On 23 September 2021 the Board declared a first interim dividend for the year ended 30 June 2022 of 1.485 pence per share, which was paid on 16 November 2021 to Shareholders on the register on 8 October 2021.

On 10 January 2022, the Board declared a second interim dividend for the year ended 30 June 2022 of 1.485 pence per share, which was paid on 25 February 2022 to Shareholders on the register on 21 January 2022.

On 6 April 2022, the Board declared a third interim dividend for the year ended 30 June 2022 of 1.485 pence per share, which was paid on 27 May 2022 to Shareholders on the register on 22 April 2022.

On 8 July 2022, the Board declared a fourth interim dividend for the year ended 30 June 2022 of 1.485 pence per share, which was paid on 22 August 2022 to Shareholders on the register on 15 July 2022. This has not been included as a liability as at 30 June 2022.

 

12.  Investment properties

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

The independent valuer in forming its opinion on valuation makes a series of assumptions. As explained in note 2, all the valuations of the Group's investment property at 30 June 2022 are classified as 'level 3' in the fair value hierarchy defined in IFRS 13.

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

	Freehold £'000	Long Leasehold £'000	Total £'000
At 1 July 2021	723,540	424,840	1,148,380
Property additions	150,363	220,447	370,810
Capitalised acquisition costs	7,825	9,778	17,603
Revaluation movement	22,122	2,675	24,797
Valuation at 30 June 2022	903,850	657,740	1,561,590
At 1 July 2020	244,030	295,380	539,410
Property additions	438,710	102,500	541,210
Capitalised acquisition costs	23,331	5,799	29,130
Revaluation movement	17,469	21,161	38,630
Valuation at 30 June 2021	723,540	424,840	1,148,380

 

There were 10 property acquisitions during the year, of which two were purchased through the acquisition of a corporate structure, rather than acquiring the asset directly. All corporate acquisitions during the year have been treated as asset purchases rather than business combinations because they are considered to be acquisitions of properties rather than businesses.

Included within the carrying value of investment properties at 30 June 2022 is £6,212,000 (2021: £3,558,000) in respect of the smoothing of fixed contractual rent uplifts as described in note 3. The difference between rents on a straight-line basis and rents actually receivable is included within the carrying value of the investment properties but does not increase that carrying value over fair value. The effect of this adjustment on the revaluation movement during the year is as follows:

12. Investment properties continued

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Revaluation movement per above	24,797	38,630
Rent smoothing adjustment (note 3)	(2,654)	(1,998)
Movements in associated rent guarantees (note 15)	(323)	(344)
Change in fair value recognised in profit or loss	21,820	36,288

 

Valuation techniques and key unobservable inputs

 

Valuation techniques used to derive fair values

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

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

Unobservable inputs

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

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

Sensitivity of measurement of significant valuation inputs

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

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

Net initial yields of the Group's investment properties at 30 June 2022 range from 3.8% to 6.6% (2021: 3.9% to 6.2%). Rental values (being passing rents or ERV as relevant) on the Group's investment properties at 30 June 2022 range from £0.3 million to £4.2 million (2021: £0.4 million to £4.8 million).

 

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

	+1% 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 2022	15.6	(15.6)	(81.1)	90.7
(Decrease)/increase in the fair value of investment properties as at 30 June 2021	11.5	(11.5)	(58.8)	65.6

 

13.  Subsidiaries

The entities listed in the following table were the subsidiary undertakings of the Company at 30 June 2022 all of which are wholly owned. All but one subsidiary undertakings are incorporated in England with their registered office at The Scalpel 18^th Floor, 52 Lime Street, London, United Kingdom EC3M 7AF. The remaining Company as stated below is incorporated in Jersey and have a registered office of 28 Esplanade, St. Helier, JE2 3QA, Jersey.

Company name	Holding type	Nature of business
Supermarket Income Investments UK Limited	Direct	Intermediate parent company
Supermarket Income Investments (Midco2) UK Limited	Direct	Intermediate parent company
Supermarket Income Investments (Midco3) UK Limited	Direct	Intermediate parent company
Supermarket Income Investments (Midco4) UK Limited	Direct	Intermediate parent company
SII UK Halliwell (MIDCO) LTD	Direct	Intermediate parent company
Supermarket Income Investments (Midco6) UK Limited	Direct	Intermediate parent company
SUPR Green Energy Limited	Direct	Energy provision company
Supermarket Income Investments UK (NO1) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO2) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO3) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO4) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO5) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO6) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO7) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO8) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO9) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO10) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO11) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO12) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16a) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16b) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO16c) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO17) Limited	Indirect	Property investment
TPP Investments Limited	Indirect	Property investment
T (Partnership) Limited	Indirect	Property investment
The TBL Property Partnership	Indirect	Property investment
Supermarket Income Investments UK (NO19) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO20) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO21) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO22) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO23) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO24) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO25) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO26) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO27) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO28) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO29) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO30) Limited	Indirect	Property investment
Supermarket Income Investments UK (NO31) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO32) Limited**	Indirect	Property investment
Supermarket Income Investments UK (NO33) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO34) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO35) Limited**^	Indirect	Property investment
Supermarket Income Investments UK (NO36) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO37) Limited*	Indirect	Property investment
Supermarket Income Investments UK (NO38) Limited*	Indirect	Property investment
SII UK Halliwell (No1) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No2) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No3) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No4) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No5) LTD	Indirect	Investment in Joint venture
SII UK Halliwell (No6) LTD	Indirect	Investment in Joint venture

* New subsidiaries incorporated during the year ended 30 June 2022

** Subsidiaries acquired during the year ended 30 June 2022

^ Jersey registered entity

 

The following subsidiaries will be exempt from the requirements of the Companies Act 2006 relating to the audit of individual accounts by virtue of Section 479A of that Act.

Company name	Companies House   Registration Number
SII UK Halliwell (MIDCO) LTD	12473355
SUPR Green Energy Limited	12890276
SII UK Halliwell (No1) LTD	12475261
SII UK Halliwell (No2) LTD	12475599
SII UK Halliwell (No3) LTD	12478141
SII UK Halliwell (No4) LTD	12604032
SII UK Halliwell (No5) LTD	12605175
SII UK Halliwell (No6) LTD	12606144

 

14.  Investment in joint ventures

As at 30 June 2022 the Group has one joint venture investment. On the 28 May 2020, the Group entered into a 50:50 joint venture with the British Airways Pension Trustees Limited to acquire 100%
of the issued share capital in Horndrift Limited for a combined total consideration of £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. Further amounts have been advanced in the year to fund operating costs and taxation liabilities on a pro-rata basis with the other parties.

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

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

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

The Group has estimated the value of the Carry Partner's interest in the Group's share of the JV as
at 30 June 2022 to be £7,500,000 (2021: £2,200,000). This has been determined by reference to the expected returns from the JV's investment in the Structure, assuming that the proceeds realised from the future sale of the properties held by within the Structure are equal to the independent valuations of those properties as at 30 June 2022. Accordingly, the Group's beneficial interest in the JV, and therefore the Group's share of the JV's net assets as at 30 June 2022, is estimated to amount to 47.9%.

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

Entity	Partner	Address and principal place of business	Ownership
Jersey Horner (Jersey) LP	British Airways Pensions 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 2022 £'000	Year to 30 June 2021 £'000
Opening balance	130,321	56,081
Acquired in the year	3,518	58,734
Negative goodwill arising on acquisition	-	-
Group's share of profit after tax	43,301	15,506
Closing balance	177,140	130,321

 

The joint venture entities have a 31 March year end. For accounting purposes consolidated management accounts have been prepared for the joint venture for the periods from acquisition to 30 June 2022 using accounting policies that are consistent with those of the Group.

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

Statement of comprehensive income	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Share of income from joint venture	97,464	28,885
Negative goodwill	-	6,530
Profit for the year and total comprehensive income	97,464	35,415
Group's share of profit for the year	43,301	15,506

 

Statement of financial position	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Investment in joint venture	369,280	265,045
Net assets	369,280	265,045
Group's share of net assets	177,140	130,320

 

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

 

		Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Rental income		12,878	19,886
Finance income		15,988	-
Administrative and other expenses		(190)	(585)
Change in fair value of investment properties		(11,336)	13,259
Gain on disposal of investment properties		84,095	-
Operating profit		101,435	32,560
Finance expense		(1,996)	(2,470)
Profit before taxation		99,439	30,090
Tax charge for the period		(1,974)	(1,205)
Profit for the year		97,465	28,885

                                                                                               

Non-current assets		As at 30 June 2022 £'000	As at 30 June 2021 £'000
Investment properties		37,005	477,447
Total non-current assets		37,005	477,447
Current assets
Contractual receivable		530,481	-
Trade and other receivables		2,897	15,163
Cash and cash equivalents		-	-
Total current assets		533,378	15,163
Total assets		570,383	492,610
Non-current liabilities
Debt securities in issue		176,243	190,788
Interest rate derivative		3,451	8,836
Deferred tax		4,196	11,048
Other liabilities		9,883	9,188
Total non-current liabilities		193,773	219,860
Current liabilities
Trade and other payables		7,329	7,705
Total current liabilities		7,329	7,705
Total liabilities		201,102	227,565
Net assets		369,281	265,045

 

 

 

During the year, Sainsbury's exercised options to acquire 21 stores within the Structure. The purchase price under the options is determined based on the assumption of a new 20-year lease term at the higher of passing or open market rent, subject to upward-only, five yearly market rent reviews. The purchase price is subject to contractual negotiations and as at the year-end had not been agreed.

As the year end, the Group determined that the exercise of the purchase options by Sainsbury's Plc resulted in the performance obligation being satisfied for a sale of the properties in accordance with IFRS 15. The JV is deemed to hold a contractual receivable from Sainsbury's plc, with the cash proceeds expected to be received during the course of 2023 as noted above.

In arriving at the valuation of the contractual receivable, the fair value of the 21 properties subject to option exercise were valued as at 30 June 2022 by the Group's independent valuer in accordance with the RICS Valuation -Global Standards (the 'Red Book') given the absence of an agreed purchase option price.  This amount was adjusted based on future expected rental receipts from the properties together with an indexation adjustment of the property valuation over the last years based on the MSCI Supermarket Property Index as per the terms of the contractual documents. The total of all these amounts was then discounted to present value.

After the year end, the Company announced the purchase price on the 21 option stores was formally agreed at £1,040 million. The purchase by Sainsbury's plc is expected to complete between March 2023 and July 2023 on expiry of the current leases.

Sainsbury's has agreed to retain occupation of 4 of the 5 remaining stores within the Portfolio under a new 15-year lease agreement with five yearly open market rent reviews and a tenant break at year 10. The JV has exclusivity to purchase these stores for £68 million (excluding acquisition costs), reflecting a net initial yield of 6%, which can be exercised upon expiry of the current leases between March and July 2023. The remaining store is expected to be sold in March 2023 subject to vacant possession.

 

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 2022 £'000	Year to 30 June 2021 £'000
At start of year	237	-
Additions	283	766
Fair value changes (including changes in estimated cash flows)	(326)	(344)
Collected during the year	89	(185)
Total financial assets held at fair value through profit and loss at end of year	283	237

 

16.  Financial assets held at amortised cost

 

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
At start of year	-	-
Additions	10,626	-
Amortisation	-	-
Impairment	-	-
Total financial asset held at amortised cost	10,626	-

 

On 8 June 2022, the Group acquired an Asda store in Carcroft, via a sale and leaseback transaction for £10.6m, this has been recognised in the Statement of Financial Position as a Financial asset in accordance with IFRS 9. The financial asset is measured using the amortised cost model, which recognises the rental payments as financial income and reductions of the asset value based on the implicit interest rate in the lease. The carrying value of financial assets held at amortised cost approximates fair value.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and ageing. The expected loss rates are based on the Group's historical credit losses experienced over the period from incorporation to 30 June 2022. The historical loss rates are then adjusted for current and forward-looking information on macro-economic factors affecting the Group's customers. Both the expected credit loss provision and the incurred loss provision in the current year is immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss provision would give rise to a material expected credit loss. 

 

17.  Contract fulfilment assets

In the prior year, the Group was chosen to provide renewable electricity to one of its tenants through the use of its acquired rooftop solar panels under the terms of a Purchasing Power Agreement ("PPA"). It is intended that under the terms of the PPA, the tenant will acquire 100% of the 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 2022 £'000	Year to 30 June 2021 £'000
At start of year	85	-
Additions	8	85
Amortisation		-
Total contract fulfilment assets at end of year	93	85

 

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

 

18.  Trade and other receivables

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Other receivables	1,430	2,624
Prepayments and accrued income	433	516
Total trade and other receivables	1,863	3,140

 

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and ageing. The expected loss rates are based on the Group's historical credit losses experienced over the period from incorporation to 30 June 2022. The historical loss rates are then adjusted for current and forward-looking information on macro-economic factors affecting the Group's customers. Both the expected credit loss provision and the incurred loss provision in the current and prior year are immaterial. No reasonable possible changes in the assumptions underpinning the expected credit loss provision would give rise to a material expected credit loss.

 

19.  Trade and other payables

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Corporate accruals	8,958	6,153
VAT payable	1,719	2,216
Total trade and other payables	10,677	8,369

 

20.  Interest rate derivatives

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Non-current asset: Interest rate swaps	5,114	763
Non-current liability: Interest rate swaps	-	(1,210)

 

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

The fair value at the end of year comprises:	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
At start of year (net)	(447)	(1,988)
Amortisation of cap premium in the year (note 8)	(5)	(28)
Changes in fair value of interest rate derivative in the year	5,270	863
Charge to the profit or loss (note 8)	296	706
Fair value at end of year (net)	5,114	(447)

 

To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note 20, the Group has entered derivative interest rate swaps in relation to the loan facilities with Bayerische Landesbank ('the BLB swaps') and Wells Fargo Bank ('the Wells swap').

The total notional value of the BLB swaps was £86.9 million, which is equal to the total amounts drawn under Bayerische Landesbank loan facility. The terms of the BLB swaps coincide with the maturity of the respective Bayerische Landesbank loan facility. The fixed interest rate of £52.1 million of the swap exposure as at 30 June 2022 was 1.305%. The fixed interest rate of the swaps of £27.5 million and £7.3 million for the remaining exposure of £34.8 million were 0.178% and 0.128% respectively.

The total notional value of the Wells swap was £30.0 million with its term coinciding with the maturity of the Wells Fargo loan facility. The fixed interest rate of the swap as at 30 June 2022 was 0.189%.

61% of the Group's outstanding debt as at 30 June 2022 was hedged through the use of fixed rate debt or financial instruments as at 30 June 2022 (2021: 63%). It is the Group's target to hedge at least 50% of the Group's total debt at any time using fixed rate loans or interest rate derivatives.

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

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

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

All floating rate loans and interest rate derivatives are contractually linked to the Sterling Overnight Index Average ("SONIA").

After the year end date, the Company took the decision to fix its interest rate exposure by entering into interest rate swaps to hedge the Company's £381 million of drawn unsecured debt for a weighted average term of 4 years. 100% of the Company's drawn debt is now hedged at an effective fixed rate of 2.6% (including margin). The cost of acquiring the hedges was £35.2 million which will immediately impact EPRA NTA by 2.8 pence per share.

 

 

21.  Bank borrowings

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Amounts falling due after more than one year:
Secured debt	352,213	413,320
Less: Unamortised finance costs	(3,667)	(3,636)
Bank borrowings per the consolidated statement of financial position	348,546	409,684

 

A summary of the Group's borrowing facilities as at 30 June 2022 are shown below:

Lender	Facility	Expiry	Credit margin	Variable	Loan commitment £m^	Amount drawn 30 June 2022 £m
HSBC	Revolving credit facility	Aug 2025*	1.65%	SONIA	£100.0	Nil
HSBC	Revolving credit facility	Aug 2025*	1.75%	SONIA	£50.0	Nil
Deka	Term Loan	Aug 2026*	1.89%		£47.6	£47.6
Deka	Term Loan	Aug 2026*	2.05%		£28.9	£28.9
Deka	Term Loan	Aug 2026*	1.72%		£20.0	£20.0
BLB	Term Loan	Jul 2023	1.25%	SWAP (Note 20)	£52.1	£52.1
BLB	Term Loan	Aug 2025	1.85%	SWAP (Note 20)	£27.5	£27.5
BLB	Term Loan	Jul 2023	1.85%	SWAP (Note 20)	£7.3	£7.3
Wells Fargo	Revolving credit facility	Jul 2027*	2.00%	SWAP (Note 20)	£30.0	£30.0
Wells Fargo	Revolving credit facility	Jul 2027*	2.11%	SONIA	£30.0	Nil
Wells Fargo	Revolving credit facility	Sep 2023	1.40%	SONIA	£100.0	Nil
Barclays	Revolving credit facility	Jan 2026*	1.50%	SONIA	£300.0	£138.8
Total					£793.4	£352.2

*Includes extension options

^Includes uncommitted accordions

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 this financial information.

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

As disclosed in note 1, the Group has adopted Interest Rate Benchmark Reform - IBOR 'phase 2'. Applying the practical expedient introduced by the amendments, when the benchmarks affecting the credit facility and the BLB loan facility were transitioned from LIBOR to SONIA the adjustments to the contractual cash flows have been reflected as an adjustment to the effective interest rate. Therefore, the replacement of the loans' benchmark interest rate has not result in an immediate gain or loss recorded in profit or loss.

Each of the Group's facilities impacted by the changes resulting from interest rate benchmark reform transitioned during the period and the Group does not consider that the transition from LIBOR to SONIA within the Group's floating rate facilities gives rise to a significant change in market risk.

 

22.  Categories of financial instruments

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Financial assets
Financial assets at amortised cost:
Lease Receivables	10,626	-
Cash and cash equivalents	51,200	19,579
Trade and other receivables	1,430	2,624
Financial assets at fair value:
Rent guarantees	283	237
Derivatives in effective hedges:
Interest rate derivative	5,114	763
Total financial assets	68,653	23,203
Financial liabilities
Financial liabilities at amortised cost:
Secured debt	348,546	409,684
Trade and other payables	8,958	6,153
Derivatives in effective hedges:
Interest rate derivative	-	1,210
Total financial liabilities	357,504	417,047

 

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

Financial risk management

Through the Group's operations and use of debt financing it is exposed to certain risks. The Group's financial risk management objective is to minimise the effect of these risks, for example by using interest rate cap and interest rate swap derivatives to partially mitigate exposure to fluctuations in interest rates, as described in note 20.

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

Market risk

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

The Group's interest-bearing financial instruments comprise cash and cash equivalents and bank borrowings.  Changes in market interest rates therefore affect the Group's finance income and costs, although the Group has purchased interest rate derivatives as described in note 20 in order to partially mitigate the risk in respect of finance costs.  The Group's sensitivity to changes in interest rates, calculated

on the basis of a ten-basis point increase in the three-month LIBOR and the SONIA daily rate, was as follows:

 

	Year to 30 June 2022 £'000	Year to 30 June 2021 £'000
Effect on profit	413	356
Effect on other comprehensive income and equity	(223)	(376)

 

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

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

Inflation risk arises from the impact of inflation on the Group's income and expenditure.  The majority of the Group's passing rent at 30 June 2022 is subject to inflation linked rent reviews.  Consequently, the Group is exposed to movements in the Retail Prices Index ("RPI"), which is the relevant inflation benchmark.  However, all RPI-linked rent review provisions provide those rents will only be subject to upwards review and never downwards.  As a result, the Group is not exposed to a fall in rent in deflationary conditions.

The Group does not expect inflation risk to have a material effect on the Group's administrative expenses, with the exception of the investment advisory fee which is determined as a function of the reported net asset value of the Group resulting from any upward rent reviews.  

Credit risk

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

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

Liquidity risk

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

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

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

The following table shows the maturity analysis for financial assets and liabilities. The table has been drawn up based on the undiscounted cash flows of non-derivative financial instruments, including future interest payments, based on the earliest date on which the Group can be required to pay and assuming that the SONIA daily rate remains at the 30 June 2022 rate. Interest rate derivatives are shown at fair value and not at their gross undiscounted amounts.

 

 

As at 30 June 2022	Less than one year £'000	One to two years £'000	Two to five years £'000	More than five years £'000	Total £'000
Financial assets:
Cash and cash equivalents	51,200	-	-	-	51,200
Trade and other receivables	1,430	-	-	-	1,430
Amortised cost asset	290	290	870	76,415	77,865
Rent guarantees	283	-	-	-	283
Interest rate derivatives	-	843	4,271	-	5,114
Total financial assets	53,203	1,133	5,141	76,415	135,892
Financial liabilities:
Bank borrowings	9,335	205,679	156,510	-	371,524
Trade payables and other payables	8,958	-	-	-	8,958
Interest rate derivatives	-	-	-	-	-
Total financial liabilities	18,293	205,679	156,510	-	380,482
As at 30 June 2021
Financial assets:
Cash and cash equivalents	19,579	-	-	-	19,579
Trade and other receivables	2,624	-	-	-	2,624
Rent guarantees	237	-	-	-	237
Interest rate derivatives	-	-	763	-	763
Total financial assets	22,440	-	763	-	23,203
Financial liabilities:
Bank borrowings	6,153	111,962	312,366	-	430,481
Trade payables and other payables	6,153	-	-	-	6,153
Interest rate derivatives	-	-	1,210	-	1,210
Total financial liabilities	12,306	111,962	313,576	-	437,844

 

Capital risk management

The Board's primary objective when monitoring capital is to preserve the Group's ability to continue as a going concern, while ensuring it remains within its debt covenants so as to safeguard secured assets and avoid financial penalties. 

Bank borrowings are secured on the Group's property portfolio by way of fixed charges over property assets and over the shares in the property-owning subsidiaries and any intermediary holding companies of those subsidiaries. The Group does not provide any cross-group guarantees nor does the Company act as a guarantor to the lending bank.

At 30 June 2022, the capital structure of the Group consisted of bank borrowings (note 21), cash and cash equivalents, and equity attributable to the Shareholders of the Company (comprising share capital, retained earnings and the other reserves referred to in notes 23 and 24).

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

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 2021	409,684	1,634	447	411,765
Cash flows:
Debt drawdowns in the year	402,922	-	-	402,922
Debt repayments in the year	(464,029)	-	-	(464,029)
Interest and commitment fees paid	-	(10,527)	-	(10,527)
Loan arrangement fees paid	(2,188)	-	-	(2,188)
Non-cash movements:
Finance costs in the statement of comprehensive income	2,157	10,832	5	12,994
Fair value changes	-	-	(5,566)	(5,566)
As at 30 June 2022	348,546	1,939	(5,114)	345,371
As at 1 July 2020	126,791	692	1,988	129,471
Cash flows:
Debt drawdowns in the year	582,961	-	-	582,961
Debt repayments in the year	(298,300)	-	-	(298,300)
Interest and commitment fees paid	-	(6,105)	-	(6,105)
Loan arrangement fees paid	(3,211)	-	-	(3,211)
Non-cash movements:
Finance costs in the statement of comprehensive income	1,443	7,047	28	8,518
Fair value changes	-	-	(1,569)	(1,569)
At 30 June 2021	409,684	1,634	447	411,765

 

Movements in respect to share capital are disclosed in note 23 below.

The interest and commitment fees payable are included within the corporate accruals balance in note 19. Cash flow movements are included in the consolidated statement of cash flows and the non-cash movements are included in note 8. The movements in the interest rate derivative financial liabilities can be found in note 20.

 

23.  Share capital

	Ordinary Shares of 1 pence Number	Share capital £'000	Share premium reserve £'000	Capital reduction reserve £'000	Total £'000
As at 1 July 2021	810,720,168	8,107	778,859	-	786,966
Scrip Dividends issued and fully paid  - 20 August 2021	300,468	3	348	-	351
Ordinary shares issued and fully paid    - 22 October 2021	173,913,043	1,740	198,261	-	200,001
Scrip dividends issued and fully paid   - 16 November 2021	500,750	5	578	-	583
Share premium cancelled during the year and transferred to capital reduction reserve	-	-	(778,859)	778,859	-
Scrip dividends issued and fully paid   - 25 February 2022	111,233	1	136	-	137
Ordinary shares issued and fully paid    - 29 April 2022	253,492,160	2,535	304,191	-	306,726
Scrip dividends issued and fully paid   - 27 May 2022	830,598	8	1,026	-	1,034
Share issue costs	-	-	(10,366)	-	(10,366)
As at 30 June 2022	1,239,868,420	12,399	494,174	778,859	1,285,432
As at 1 July 2020	473,620,462	4,735	436,126	-	440,861
Ordinary shares issued and fully paid - 9 October 2020	192,307,692	1,923	198,077	-	200,000
Scrip dividends issued and fully paid - 26 February 2021	124,795	2	132	-	134
Ordinary shares issued and fully paid - 23 March 2021	144,297,503	1,443	151,513	-	152,956
Scrip dividends issued and fully paid - 21 May 2021	369,716	4	410	-	414
Share issue costs	-	-	(7,399)	-	(7,399)
As at 30 June 2021	810,720,168	8,107	778,859	-	786,966

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

On 22 October 2021 the Company completed an equity fundraising and issued an additional 173,913,043 ordinary shares of one pence each at a price of £1.15 per share. The consideration received in excess of the par value of the ordinary shares issued, net of total capitalised issue costs, of £193.8 million was credited to the share premium reserve.

Following a successful application to the High Court and lodgement of the Company's statement of capital with the Registrar of Companies, the Company was permitted to reduce the capital of the Company by an amount of £778.9 million. This was effected on 15 December 2021 by a transfer of that amount from the share premium reserve to the capital reduction reserve. The capital reduction reserve is classed as a distributable reserve.

On 29 April 2022 the Company completed an equity fundraising and issued an additional 253,492,160 ordinary shares of one pence each at a price of £1.21 per share. The consideration received in excess of the par value of the ordinary shares issued, net of total capitalised issue costs, of £298.3 million was credited to the share premium reserve.

Scrip dividends were issued on 20 August 2021, 16 November 2021, 25 February 2021 and 27 May 2022 at a reference price of £1.17, £1.16, £1.23 and £1.25 per share respectively. The Company issued a combined total of 1,743,049 shares under the scrip dividend programme during the year. The consideration received in excess of the par value of the ordinary shares issued, of £2.1 million was credited to the share premium reserve. 

Ordinary Shareholders are entitled to all dividends declared by the Company and to all of the Company's assets after repayment of its borrowings and ordinary creditors. Ordinary Shareholders have the right to vote at meetings of the Company. All ordinary shares carry equal voting rights. The aggregate ordinary shares in issue at 30 June 2022 total was 1.24 billion.

 

24.  Reserves

The nature and purpose of each of the reserves included within equity at 30 June 2022 are as follows:

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

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

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

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

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

 

25.  Capital commitments

The Group had no capital commitments outstanding as at 30 June 2022 and 30 June 2021.

 

26.  Operating leases

The Group's principal assets are investment properties which are leased to third parties under non-cancellable operating leases. The weighted average remaining lease term at 30 June 2022 is 15.1 years (2021: 14.8 years). The leases contain predominately fixed or inflation-linked uplifts.

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

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Within one year	77,438	57,348
Between one year and five years	307,774	231,448
More than five years	834,128	612,471
Total	1,219,340	901,267

 

27.  Net asset value per share

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

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

NAV and EPRA NTA per share calculation are as follows:

	As at 30 June 2022 £'000	As at 30 June 2021 £'000
Net assets per the consolidated statement of financial position	1,432,455	871,310
Intangibles	(93)	(85)
Fair value of financial assets at amortised cost	(666)	-
Fair value of interest rate derivatives	(5,114)	447
EPRA NTA	1,426,582	871,672
Ordinary shares in issue at 30 June	1,239,868,420	810,720,168
NAV per share - Basic and diluted (pence)	116p	108p
EPRA NTA per share (pence)	115p	108p

 

28.  Transactions with related parties

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

 

a. Directors

Directors' fees

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

The total remuneration payable to the Directors in respect of the current year and previous year are disclosed in note 7.

Directors' interests

Details of the direct and indirect interests of the Directors and their close families in the ordinary shares of one pence each in the Company at 30 June 2022 were as follows:

·   Nick Hewson: 661,670 shares (0.05% of issued share capital)

·   Jon Austen: 279,779 shares (0.02% of issued share capital)

·   Vince Prior: 134,886 shares (0.01% of issued share capital)

·   Cathryn Vanderspar: 91,738 (0.01% of issued share capital)

 

Details of the direct and indirect interest of the Directors and their close families in the ordinary shares of one pence each in the Company at the date of signing the accounts were as follows:

·   Nick Hewson: 1,086,670 shares (0.09% of issued share capital)

·   Jon Austen: 305,339 shares (0.02% of issued share capital)

·   Vince Prior: 151,923 shares (0.01% of issued share capital)

·   Cathryn Vanderspar: 108,645 (0.01% of issued share capital)

 

b. Investment Adviser

Investment advisory and accounting fees

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

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

Until the Adjusted Net Value of the Group exceeds £1,500 million, the entitlements to advisory fees can be summarised as follows:

· Monthly Management Fee payable monthly in arrears: 1/12th of 0.7125% per calendar month of Adjusted Net Asset Value up to or equal to £500 million, 1/12th of 0.5625% per calendar month of Adjusted Net Asset Value above £500 million and up to or equal to £1,000 million and 1/12^th of 0.4875% per calendar month of Adjusted Net Asset Value above £1,000 and up to or equal to £1,500 million.

·   Semi-Annual Management Fee payable semi-annually in arrears: 0.11875% of Adjusted Net Asset Value up to or equal to £500 million, 0.09375% of Adjusted Net Asset Value above £500 million and up to or equal to £1,000 million and 0.08125% of Adjusted Net Asset Value above £1,000 million and up to or equal to £1,500 million.

For the year to 30 June 2022 the total advisory fees payable to the Investment Adviser were £9,404,938 (2021: £6,255,423) of which £1,446,246 (2021: £1,463,898) is included in trade and other payables in the consolidated statement of financial position.

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

For the year to 30 June 2022 the total accounting and administration service fee payable to the Investment Adviser was £237,559 (2021: £64,920) of which £81,833 (2021: £52,646) is included in trade and other payables in the consolidated statement of financial position.

Introducer Services

Atrato Partners, an affiliate of the Investment Adviser, is entitled to fees in relation to the successful introduction of prospective investors in connection with subscriptions for ordinary share capital in
the Company.

The entitlement of the Investment Adviser to introducer fees is by fees and/or commission which can be summarised as follows:

·   Commission basis: 1% of total subscription in respect of ordinary shares subscribed for
by any prospective investor introduced by Atrato Partners.

For the year to 30 June 2022 the total introducer fees payable to the affiliate of the Investment Adviser were £271,239 (2021: £269,172).

Interest in shares of the Company

Details of the direct and indirect interests of the Directors of the Investment Adviser and their close families in the ordinary shares of one pence each in the Company at 30 June 2022 were as follows:

·   Ben Green: 1,199,938 shares (0.10% of issued share capital)

·   Steve Windsor: 1,319,486 shares (0.11% of issued share capital)

·   Steven Noble: 204,130 shares (0.02% of issued share capital)

·   Natalie Markham: 52,529 shares (0.00% of issued share capital)

Carried interest held in the Group's joint venture

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

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

 

29.  Subsequent events

Debt financing

·    In July 2022 the Group announced the arrangement of a new £412.1 million unsecured credit facility with a bank syndicate comprising Barclays, Royal Bank of Canada, Wells Fargo and Royal Bank of Scotland International. This consists of:

o  A £250 million five-year revolving credit facility at a margin of 1.5% over SONIA, with two further one-year extension options;

o  A £100 million three-year term loan at a margin of 1.5% over SONIA, with two further one-year extension options;

o  A £62.1 million eighteen-month term loan at a margin of 1.5% over SONIA, with one further eighteen-month extension option.

·    In July 2022, the new unsecured facility was used to refinance the following existing secured facilities:

o  A reduction of the Barclays/RBC facility of £300.0 million including uncommitted accordion options to £77.5 million;

o  A reduction of the Wells Fargo facility of £160.0 million including uncommitted accordion options to £39.0 million.

·    In September 2022, the Group announced a two-year extension to its revolving credit facility with HSBC, inclusive of a one-year accordion option at lender's discretion.

 

Hedging

 

·    After the year end date, the Company took the decision to fix its interest rate exposure by entering into interest rate swaps to hedge the Company's £381 million of drawn unsecured debt for a weighted average term of 4 years. 100% of the Company's drawn debt is now hedged at an effective fixed rate of 2.6% (including margin). The cost of acquiring the hedges was £35.2 million which will immediately impact EPRA NTA by 2.8 pence per share.

 

Acquisitions

·    In July 2022, the Group announced the acquisition of a Tesco superstore, M&S Foodhall and an Iceland in Chineham, Basingstoke with non-grocery units for £72.9 million (excluding acquisition costs). The Tesco superstore has a 12-year unexpired lease term and is subject to 5-yearly open market rent reviews.

·    In August 2022, the Group announced the acquisition of a Sainsbury's supermarket and an M&S Foodhall in Glasgow with non-grocery units for £34.5 million (excluding acquisition costs).  The unexpired lease terms of the two stores are 10 and 4 years respectively and are both subject to 5-yearly upwards only, open market rent reviews.

·    In August 2022, the Group announced the acquisition of a Tesco in Newton-le-Willows, Merseyside for £16.6 million (excluding acquisition costs). The store has a 12-year unexpired lease term and is subject to annual RPI-linked rental uplifts

·    In August 2022, the Group announced the acquisition of a Tesco in Bishops Cleeve, Cheltenham for £25.4 million (excluding acquisition costs). The store has a 12-year unexpired lease term and is subject to annual RPI-linked rental uplifts.

·    In September 2022, the Group announced the acquisition of a Tesco supermarket in Llanelli, South Wales for £66.8 million (excluding acquisition costs). The store has a 12-year unexpired lease term and is subject to annual, upwards only RPI linked rent reviews.

 

Joint Venture investment

 

·    After the year end, the Company announced the purchase price on the 21 option stores was formally agreed at £1,040 million. The purchase by Sainsbury's plc is expected to complete between March 2023 and July 2023 on expiry of the current leases.

·    Sainsbury's has agreed to retain occupation of 4 of the 5 remaining stores within the Portfolio under a new 15-year lease agreement with five yearly open market rent reviews and a tenant break at year 10. 

·    The JV has exclusivity to purchase these stores for £68 million (excluding acquisition costs), reflecting a net initial yield of 6%, which can be exercised upon expiry of the current leases between March and July 2023. The remaining store is expected to be sold in March 2023 subject to vacant possession.