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RNS
Supermarket Income REIT PLC   -  SUPR   

Half-year Report

Released 07:05 06-Feb-2020

RNS Number : 1263C
Supermarket Income REIT PLC
06 February 2020
 

Supermarket Income REIT plc

(the "Group" or the "Company")

LEI: 2138007FOINJKAM7L537

 

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

 

Supermarket Income REIT plc (LSE: SUPR), the real estate investment trust dedicated to investing in property which enables the future model of UK grocery, is today reporting its interim results for the Group for the six months ended 31 December 2019 (the "Period").

 

FINANCIAL HIGHLIGHTS

 

 

Six months to

31-Dec-19

Six months to 31-Dec-18

Change in Period

Annualised passing rent

£26.1m

£16.5m

+ 59%

EPRA Earnings

£7.2m

£4.7m

+ 53%

Total Shareholder Return

7.0%

(4.0)%

+ 11%[1]

Quarterly dividend per share

1.46 pence

1.42 pence

+ 2.9%

EPRA EPS

2.5 pence

2.5 pence

-

 

 

 

 

 

31-Dec-19

30-June-19

Change in Period

Total net assets

£328.0m

£230.5m

+ 42%

Loan to value

32.4%

43.0%

- 11%1

EPRA NAV per share

97 pence

97 pence

-

Portfolio net initial yield

5.0%

4.9%

+0.1%1

 

·      7% Total Shareholder Return for the Period and 24% since the initial listing in July 2017

·      Two quarterly dividends declared for the Period totalling 2.9 pence per ordinary share (six months to 31 December 2018: 2.8 pence per ordinary share)

Quarterly dividends up 2.9% since September 2019, in line with UK RPI inflation

On track to deliver full-year target dividend of 5.8 pence per share

·      Investment properties independently valued at £490.4 million (30 June 2019: £368.2 million)

o   Growth of 1.6% on a like-for-like basis for the six-month period

o   Portfolio net initial yield of 5.0% reflects yield accretive acquisitions

BUSINESS HIGHLIGHTS

·      £100 million in equity raised via an upsized and over-subscribed Placing and Offer for Subscription in October 2019

·      Acquisition of two complementary omnichannel supermarket assets at an aggregate purchase price of £114.8 million

New assets average acquisition net initial yield ("NIY") of 5.2% versus Portfolio average of 4.9%

No change to Portfolio weighted unexpired lease term ("WAULT") of 18 years

Both leases have RPI linked rent reviews

·      The Investment Advisor entered into a strategic partnership with EVO Energy to evaluate and execute projects to reduce the environmental impact of the Company's store portfolio 

·      Agreed heads of terms with Tesco PLC for the installation of a rooftop solar array at the Company's Thetford store

·      Agreed a new £76.6 million debt facility provided by Deka Bank, with a fixed interest rate of 1.9% for the five-year term of the facility

·      Net loan to value ("LTV") ratio of 32.4% as at 31 December 2019, with a weighted current cost of debt of 2.2%

·      Net Asset Value ("NAV") per ordinary share of 97 pence as at 31 December 2019

 

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

 

"I am delighted to report another period of solid performance by the Group during which we have generated a 7% total return for our shareholders.

 

The contracted RPI rental uplifts in all our leases continues to provide inflation-protected income and allows us to deliver on our inflation-linked dividend growth targets. I am pleased that we have once again increased our quarterly dividend by 2.9% in line with RPI. We remain on track to deliver an annualised dividend of 5.8 pence per ordinary share for the financial year.

 

Since our IPO in July 2017, we have delivered a Total Shareholder Return of 24% for our shareholders. We continue to offer investors stable, long-term, inflation-protected income, supported by a compelling real estate opportunity."

 

Presentation for analysts

 

A presentation to analysts (with dial-in facilities) will take place today at 09:30am at Tavistock, 1 Cornhill, London EC3V 3ND.

 

Dial in details are as follows:

 

·      UK Toll-Free: 0800 3589473

·      UK Toll: +44 3333 000804

·      Participant PIN: 58764165#

 

The results presentation is available in the Investor Centre section of the Company's website https://www.supermarketincomereit.com/

 

For further details, please email James Whitmore at james.whitmore@tavistock.co.uk or Isabel Wallis at isabel.wallis@tavistock.co.uk 

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

Atrato Capital Limited                                  +44 (0)20 3790 8087

 

Ben Green

 

Steve Windsor

 

Steve Noble

 

Stifel Nicolaus Europe Limited                    +44 (0)20 7710 7600

 

Mark Young

 

Matt Blawat

 

 

Tavistock Communications (PR Adviser)  +44 (0)20 7920 3150

 

James Whitmore

 

Jeremy Carey

 

 

NOTES TO EDITORS:

Supermarket Income REIT plc (LSE: SUPR) is a real estate investment trust dedicated to investing in supermarket properties that form a key part of the future omnichannel model of grocery and let to leading UK supermarket operators. The Company provides investors with attractive, long-dated, secure, inflation-linked, growing income with the potential for capital appreciation over the longer term and targeting a 7% to 10% p.a total shareholder return over the medium term. The Company has increased its dividend target for the year ending 30 September 2020 in line with UK RPI inflation to 5.80 pence per share, payable in quarterly instalments. Atrato Capital is the Company's Investment Adviser. The Company's ordinary shares were admitted to trading on the Main Market of the London Stock Exchange, Specialist Fund Segment, on 21 July 2017.

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

 

Chairman's Statement

 

I am pleased to present the interim unaudited consolidated results for the Group for the six months ended 31 December 2019 (the "Period").

 

Overview

 

We invest in omnichannel stores which we believe are the future model of grocery in the UK. Omnichannel supermarkets operate both as physical supermarkets and as online fulfilment centres. We target stores which perform a critical role in the business strategies of our tenants.

 

This was another busy period for the Group. In October the Company closed a significantly over-subscribed equity raise, with the level of demand allowing the Board to increase the issue beyond the targeted £50 million, raising a total of £100 million at a 5% premium to prevailing NAV. The level of demand from investors reflects the attraction of our inflation-protected long income secured against a high-quality portfolio of assets.

 

We also acquired two additional omnichannel supermarkets for £114.8 million (excluding acquisition costs). The acquisitions had a blended unexpired lease term of 17 years and an accretive blended net initial yield of 5.2%. Our Portfolio now consists of nine supermarkets, let on fully repairing and insuring lease terms ("FRI"), with upward-only, RPI-linked rent reviews. Our annualised passing rent roll has grown to £26.1 million (31 December 2018: £16.5 million) with a long weighted average unexpired lease term of 18 years.

 

The big four grocers continue leveraging their existing store networks to support last mile logistics for online grocery. As a result, growth in e-commerce sales is driving value creation in these locations that is not yet fully reflected by the investment market. Our Portfolio yield increased to 5.0% from 4.9% reflecting our recent yield accretive acquisitions and I am pleased to report further growth in our like-for-like portfolio value, of 1.6% in the Period or 5.2% above the aggregate portfolio acquisition price (excluding acquisition costs). 

 

This stable, inflation-linked income stream enabled us to increase our quarterly dividend in line with RPI for the second year in a row. We have declared dividends totalling 2.9 pence per share for the Period (six months to 30 June 2019: 2.8 pence), increasing the quarterly dividend by 2.9%. We remain on track to deliver an annualised dividend of 5.8 pence per ordinary share for the financial year and 5.84 pence per share for the twelve months ending 31 December 2020.

 

Over the Period, the Group delivered a Total Shareholder Return of 7.0% (six months to 31 December 2018: (4.0%)).

 

I am also particularly pleased to report continued progress in activity relating to implementing our environmental, social and corporate governance ("ESG") policy. During the Period our Investment Advisor entered into a strategic partnership with EVO Energy, the UK's leading commercial renewable energy company to evaluate and execute projects which will reduce the environmental impact of our Portfolio.  The Investment Advisor has agreed terms with Tesco for the installation of our first rooftop photovoltaic scheme, which will supply decarbonised power direct to the store, significantly enhancing the environmental sustainability of the site and generating additional incremental income for the Group. 

 

In addition, I'm also delighted to be able to announce the appointment of Cathryn Vanderspar as a Non-Executive Director of the Group. Cathryn has over 20 years of experience in real estate investment advisory and will further strengthen our Board. We look forward to working with Cathryn.

 

The Group has maintained its strong performance since inception in July 2017, benefitting from the advantages of increased scale and further diversification to our Portfolio. In the two and a half years since our IPO we have achieved a Total Shareholder Return of 24% and we remain confident of delivering strong, stable and growing returns for shareholders.

 

 

Financial Results

 

The Portfolio was independently valued at £490.4 million as at 31 December 2019 (30 June 2019: £368.2 million), representing a like-for-like increase of approximately £5.8 million for the six-month period and £24.4 million above the aggregate acquisition price (excluding acquisition costs).

 

Changes in the fair value of investment properties in the Period was £0.6 million (six months to 31 December 2018: £0.8 million), which comprises a £7.4 million increase in valuation partially offset through £6.5 million of acquisition costs (primarily stamp duty land tax) and a £(0.3) million rent smoothing adjustment. The Group's EPRA Net Asset Value at 31 December 2019 remains unchanged at 97 pence per ordinary share (30 June 2019: 97 pence per share).

 

All our properties have contractual, upward-only, inflation-linked rental uplifts and average rental increases were 2.7% in the Period (six months to 31 December 2018: 3.2%). The high degree of certainty of income inherent in the Group's long, inflation-linked leases, combined with the improving financial performance of the supermarket operators, gives the Board confidence that further valuation growth can be achieved in the future.

 

The Group has a highly transparent and low-cost base. Our adjusted EPRA cost ratio for the Period was 17.7% (six months to 31 December 2018: 17.0%)[2]. We expect this ratio to fall as the Company continues to deploys further capital and thus increase portfolio value. This compares favourably with our peer group average of 18.2%.

 

IFRS earnings for the Period were £7.8 million (six months to 31 December 2018: £5.5 million). Our EPRA earnings for the Period were £7.2 million (six months to 31 December 2018: £4.7 million), generating EPRA earnings per share for the Period of 2.5 pence (six months to 31 December 2018: 2.5 pence) which remains consistent despite the additional equity issued following our £100 million equity raise in the Period.

 

Dividends

 

One of our core objectives is to deliver a high quality, low risk income stream to our shareholders. The Company has declared two interim dividends for the Period, on 8 October 2019, an interim dividend of 1.42 pence per share and on 8 January 2020, a second interim dividend of 1.46 pence per share.

 

We are therefore on track to pay a dividend of 5.8 pence per share for the financial year. The Group's EPRA dividend cover ratio was 89% for the Period (six months to 31 December 2018: 91%).

 

Financing

 

As of 31 December 2019, we had drawn down debt facilities totalling £168.2 million, with a further £60.5 million of undrawn headroom at the half year end to support future acquisition opportunities.

 

We broadened our banking arrangements during the Period, adding Deka Bank to our banking group. This £76.6 million fully drawn term loan facility has a fixed coupon of 1.9% and is secured against the Sainsbury's superstore in Preston, the Tesco Extra supermarket in Mansfield, and the Sainsbury's superstore in Cheltenham.

 

As at 31 December 2019, the Group's net loan-to-value (LTV) ratio was 32.4% (30 June 2019: 36.3%). The average unexpired term of our borrowing is 3.1 years (30 June 2019: 3.5 years) and our weighted average cost of debt is 2.2% (30 June 2019: 2.5%).

 

During the period we have been in active discussion with several lenders on the refinancing and upsizing of our current £100 million HSBC loan facility on substantially the same terms but increasing the duration to between five and seven years. Upon completion, this will increase our weighted average debt terms to between four to six years and will provide the Group with significant financial flexibility to support future operations.

 

Our highly attractive debt facilities reflect the quality of the underlying Portfolio and strength of the tenant covenants. 

 

Our hedging strategy for the Group's variable rate debt is primarily to use interest rate derivatives. The Group has hedged all of its committed debt facilities. Further details of our debt and hedging can be found later in these accounts.

 

 

Outlook

 

The Company has performed well over the Period, delivering on its stated objectives and we remain confident of delivering attractive returns for our shareholders through a stable and growing income stream with the potential for capital appreciation.

 

 

Nick Hewson

Chairman

6 February 2020

 

Investment Adviser's Report

Atrato Capital Limited is the Investment Adviser to Supermarket Income REIT plc and is pleased to report on the operations of the Group for the Period.

Overview

The Group's investment policy is to invest in stores which deliver the future model of grocery in the UK. As grocery retailers transition further to a strategy of integrating online and offline shopping, with all of the big four operators now utilising well located stores as last-mile fulfilment centres, the Group targets stores that operate both as physical supermarkets and online fulfilment centres, via home delivery and/or click and collect. 

 

Characteristics of our supermarket investments:

ü Omnichannel stores

ü Long [average] unexpired lease terms with inflation-linked rental uplifts

ü Large catchment populations

ü Excellent transportation links

ü Strong underlying trading performance

ü Opportunities for active asset management and sustainability investment

ü Low site cover

 

Supermarket property has a long record of positive total returns underpinned by stable income returns due in part to the long length of lease commitments, upward-only rent reviews and strong occupier covenants.

Covenant strength is a particular feature of the supermarket investment sector that continues to attract investors, both domestically and overseas. Since the Company's IPO in July 2017, the covenant strength of the grocery sector has continued to improve, as evidenced by the credit rating upgrade of Tesco[3]. Rating agency Standard and Poor's cited improvements in cash generation, sustained debt reduction and anticipated growth in profits as the principal reasons behind the upgrade in credit rating.

An increased level of investor demand has continued to support supermarket property yields in contrast to other retail property sectors.

To date, the Group has concentrated on investing in a portfolio of principally freehold and long leasehold properties let to Tesco, Sainsbury's and Morrisons in optimal locations for both catchment and last-mile delivery and with low site cover.

The Portfolio

The portfolio comprises nine high-quality supermarket properties benefiting from highly attractive leases to strong tenant covenants (Tesco, Sainsbury's and Morrisons), with upward-only, RPI-linked rent reviews and a long 18-year WAULT.

These omnichannel supermarket properties operate both as physical stores and online fulfilment centres. Each property is located on a large site with the potential for income and capital growth opportunities.

The properties in the table below are listed chronologically in order of acquisition

Tenant

Sainsbury's

Tesco

Tesco

Tesco

Tesco

Morrisons

Tesco

Sainsbury's

Sainsbury's

Location

Ashford Kent

Thetford Norwich

Bristol

Avon

CumbernauldLanarkshire

Scunthorpe

Lincolnshire

Hillsborough Sheffield

Mansfield

Notts

Preston Lancashire

Cheltenham

Gloucestershire

Acquisition date

Aug 2017

Aug 2017

Aug 2017

Dec 2017

May 2018

Jul 2018

Apr 2019

Aug 2019

Oct 2019

Purchase price
(ex acquisition costs)

£79.8m

£43.2m

£28.5m

£50.0m

£53.0m

£51.7m

£45.0m

£54.4m

£60.4m

Valuation (31 Dec 2019)

£86.5m

£42.8m

£28.8m

£57.9m

£57.2m

£53.5m

£47.6m

£56.0m

£60.4m

Passing annual rent

£4.04m

£2.72m

£1.58m

£3.03m

£2.98m

£2.87m(1)

£2.51m

£2.96m

£3.39m

Size (sq. ft.)

125,000

78,000

55,000

117,000

98,000

113,000

90,000

106,000

99,000

Net sales area (sq. ft)

71,732

47,800

30,699

69,923

64,678

58,108

64,000

78,000

62,000

Rent review basis

Annual RPI

Annual RPI

Annual RPI

Annual RPI

Annual RPI

5-Yearly RPI

Annual RPI

Annual RPI

5-Yearly RPI

Next rent review

Sep 2020

Dec 2020

Mar 2020

Mar 2020

Mar 2020

Oct 2024

Mar 2020

Feb 2020

Dec 2023

Rent review collar

3% cap, 1% floor

4% cap, 0% floor

4% cap, 0% floor

5% cap, 0% floor

5% cap, 0% floor

4% cap, 0% floor

4% cap, 0% floor

4% cap, 1% floor

4% cap, 1% floor

Lease expiry

Sep 2038

Dec 2029

Mar 2031

Aug 2040

Aug 2040

Oct 2039

Mar 2039

Feb 2042

Jun 2032

(1) Contracted RPI increase publicly available but not formally agreed with tenant

Investment activity

During the Period, the Group strengthened its portfolio with the addition of two accretive omnichannel supermarket assets for £114.8 million. The Sainsbury's store in Preston, Lancashire was acquired with an unexpired lease term of 22.5 years with annual, upward-only, RPI-linked rent reviews, and the Sainsbury's store in Cheltenham, Gloucestershire, was acquired with an unexpired lease term of 13 years with five-yearly, upward-only, RPI-linked rent reviews. 

The acquisitions had a blended unexpired lease term of 17 years and a blended net initial yield of 5.2%, which is accretive to the portfolio net initial yield of 5.0%, supporting the Company's ability to grow its dividend whilst also enhancing the quality and diversification of the Portfolio.

The acquisitions were financed from the over-subscribed £100 million Placing and Offer for Subscription in October 2019 and drawings from our new banking facility (see financing below).

The Company has an extensive acquisition pipeline of potential longer-term opportunities which continues to be closely tracked.

Valuation

The Portfolio has been independently valued by Cushman & Wakefield in accordance with the RICS Valuation - Professional Standards 2017 (the "Red Book"). As at 31 December 2019, the Portfolio had a market value of £490.4 million, representing a like-for-like increase of approximately 1.6% for the six-month period and 5.2% above the aggregate acquisition price (excluding acquisition costs).

This valuation growth reflects the contracted increases in rent, the continued strengthening of the covenants of our tenants and favourable supply and demand characteristics in the investment market.

With contracted rents increasing on average by 2.7% in the Period and the high degree of certainty of income inherent in the Group's long leases, the Investment Adviser believes further valuation growth will be achieved in the future.

Financial Results

IFRS net rental income for the Period was £11.9 million (six months to 30 December 2018: £8.3 million). Compared with the same period last year, contracted RPI rent reviews in the Period resulted in rental increases of 2.8% with £3.2 million of rental growth contribution from new acquisitions. The strong rental growth reflects the contracted upward-only, RPI-linked rent reviews present in all of the Group's leases. As at 31 December 2019 the Group's annualised rental income is £26.1 million (31 December 2018: £16.5 million).

Administrative and other expenses, which include management and advisory fees and other costs of running the Group, were £2.3 million (six months to 31 December 2018: £1.5 million) generating an adjusted EPRA cost ratio of 17.7%[4] (six months to 31 December 2018: 17.0%). Our EPRA cost ratio compares favourably with our peer group average of 18.2%.

Financing costs for the Period were £2.5 million (six months to 31 December 2018: £2.1 million) reflecting a weighted average finance cost of 2.2% (six months to 31 December 2018: 2.5%). The reduction in weighted average finance cost reflects the attractiveness of the Portfolio and the growing strength of the tenant covenants. The Group's conservative leverage policy continues to maintain a healthy level of interest cover at over 600% compared to the covenant at a minimum of 200%. Further information on financing and hedging is provided below.

As a result of the above, operating profit, before changes in the fair value of investment properties, as reported under IFRS, increased by 41% to £9.6 million (six months to 31 December 2018: £6.8 million).

Change in fair value of investment properties in the Period was £0.6 million (six months to 31 December 2018: £0.8 million), which comprises a £7.4 million (six months to 31 December 2018: £4.1 million) increase in valuation, offset by acquisition costs of £6.5 million (six months to 31 December 2018: £3.1 million) and a rent smoothing adjustment totalling £0.3 million (six months to 31 December 2018: £0.2 million).

The Group's EPRA NAV as at 31 December 2019 equates to 97 pence per ordinary share (30 June 2019: 97 pence) and earnings measured on an EPRA basis was 2.5 pence per ordinary share for the six-month period to 31 December 2019 (31 December 2018: 2.5 pence).

Financing

In October 2019 the Company successfully completed an oversubscribed £100 million Placing and Offer for Subscription under which 98,039,215 New Ordinary Shares were issued at 102.0 pence per New Ordinary Share representing a 5% premium to prevailing NAV.

 

The Group has broadened its banking relationships, adding Deka Bank in August 2019 as lenders to the Group in addition to the Group's £100 million revolving credit facility from HSBC and the £52 million term loan facility from Bayerische Landesbank. A summary of the Group's credit facilities is provided below:

 

Lender

Facility

Maturity

Credit margin

Loan commitment (£m's)

Amount drawn at 31 December 2019 (£m's)

HSBC

Revolving Credit Facility

Aug 2021

1.60%

100.0

39.5

Bayerische Landesbank

Term Loan

Jul 2023

1.25%

52.1

52.1

Deka Bank

Term loan

Aug 2024

1.35%

76.6

76.6

 

The new Deka Bank £76.6 million facility has a fixed rate of 1.9% and is secured against the Sainsbury's superstore in Preston, Lancashire, the Tesco Extra supermarket in Mansfield, Nottinghamshire and the Sainsbury's superstore in Cheltenham, Gloucestershire.

 

Total net debt as at 31 December 2019 is £158.8 million (30 June 2019: £133.8 million), reflecting a net loan-to-value ("LTV") ratio of 32.4% (30 June 2019: 36.3%), with a further £60.5 million of undrawn headroom at the year end. The Group's medium-term target is a LTV ratio of 30%-40% once the portfolio growth phase is complete.

 

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

 

The Group has negotiated significant headroom on its LTV covenants. The covenants contain a maximum 60% LTV threshold and a minimum 200% interest cover ratio for each asset in the Portfolio. Net LTV and interest cover for the period was 32.4% and 615% respectively. 

 

During the period we have been in active discussion with several lenders on the refinancing and upsizing of our current £100 million HSBC loan facility on substantially the same terms but increasing the duration to between five and seven years. Upon completion, this will increase our weighted average debt terms to between four to six years and will provide the Group with significant financial flexibility to support future operations.

 

Asset management

During the Period we entered into a strategic partnership with EVO Energy, the UK's leading commercial renewable energy company.  The goal of the strategic partnership is to evaluate and execute projects which will reduce the carbon emissions of Group's Portfolio.

In a key milestone for the partnership we have reached agreement with Tesco on the commercial terms for the installation of a 370 kilowatt rooftop solar array, which will provide circa 310,000 kilowatt per hour of decarbonised electricity our Thetford store. This investment will improve the environmental sustainability of the site whilst also generating an additional incremental income stream for the Group, enhancing the long-term capital value of the site. We are passionate about improving the environmental impact of our properties and our medium-term ambition is to install on-site decarbonised energy producing plant across our estate.

 

As at the date of this report, the Group has completed four rent reviews. The combination of these inflation-linked rent reviews resulted in an annualised increase in rental income of £0.2 million to £26.1 million, equivalent to a 2.4% average annualised increase in the rents for these reviewed properties. All rent reviews on the Portfolio are upward- only and linked to the UK Retail Price Index with a weighted average Portfolio cap of 4%.

 

 

 

Atrato Capital Limited

Investment Adviser

6 February 2020

 

PRINCIPAL RISKS AND UNCERTAINITIES

The principal risks of the business are set out on pages 20 to 25 of the Annual Report 2019 and include commentary on their potential impact, links to the Group's strategic priorities and the relevant mitigation factors. Since the publication of the Annual Report 2019, the Board believes that there has been no material change to the principal risks and the reported mitigation actions remain appropriate to manage the risks.

ALTERNATIVE INVESTMENT FUND MANAGER (the "AIFM")

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

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

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

DIRECTORS' RESPONSIBILITY STATEMENT

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

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

·       disclosures of any material related party transactions in the Period. These are included in note 20.  

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

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

For and on behalf of the Board

 

 

 

Nick Hewson

Chairman

6 February 2020

 

 

 

 

 

INDEPENDENT REVIEW REPORT TO SUPERMARKET INCOME REIT PLC

 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2019 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement and the related notes.

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

Directors' responsibilities

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

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

Our responsibility

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

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

BDO LLP

Chartered Accountants

London

United Kingdom

 

6 February 2020

 

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

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six month period ended 31 December 2019

 

 

 

 

 

 

Unaudited Six months to 31 December

2019

Unaudited

Six months to 31 December

2018

Audited

 Year

 to 30

 June

2019

 

Profit or loss

Note

£' 000

£' 000

£' 000

 

Rental income

4

11,901

           8,293

17,231

 

Administrative and other expenses

5

(2,254)

(1,517)

(3,088)

 

Operating profit before changes in fair value of investment properties

 

            9,647

           6,776

14,143

 

 

 

 

 

 

 

Changes in fair value of investment properties

11

557

              792

647

 

Operating profit

 

            10,204

           7,568

14,790

 

 

 

 

 

 

 

Finance expense

7

(2,450)

(2,057)

(4,180)

 

Profit before taxation

 

            7,754

           5,510

10,610

 

 

 

 

 

 

 

Tax charge for the period

8

-

-

(18)

 

Profit for the period

 

             7,754

            5,510

10,593

 

 

 

 

 

 

 

Items to be classified to profit or loss in subsequent periods

 

 

 

 

 

 

 

Changes in the fair value of interest rate derivatives 

18

175

(237)

(1,121)

 

 

 

 

 

 

Total comprehensive income for the period

 

7,929

5,273

         9,471

 

Total comprehensive income for the period (attributable to ordinary shareholders)

7,929

   5,273

        9,471

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic and diluted (pence)

9

2.7p

3.0p

5.3p

 

             

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2019

 

 

 

 

Unaudited

31 December

2019

Audited

30 June

2019

Unaudited

 31 December

2018

 

Note

£' 000

£' 000

Non-current assets

 

 

 

Investment properties

11

490,410

368,230

Other financial assets

12

172

-

Interest rate derivatives

15

-

-

60

Total non-current assets

 

490,582

368,230

 

 

 

 

Current assets

 

 

 

Trade and other receivables

13

5,981

3,521

Cash and cash equivalents

 

7,654

9,898

5,895

Total current assets

 

13,635

13,419

5,992

 

 

 

 

Total assets

 

504,217

381,649

326,702

 

 

 

 

Non-current liabilities

 

 

 

 

Bank borrowings

16

166,367

143,708

143,710

Interest rate derivatives

15

972

1,113

289

Total non-current liabilities

 

167,339

144,821

143,999

 

 

 

 

Current liabilities

 

 

 

Deferred rental income

 

5,314

3,543

Current tax liabilities

 

-

245

Trade and other payables

14

3,574

2,570

2,307

Total current liabilities

 

8,888

6,358

5,754

Total liabilities

 

176,227

151,179

149,753

Total net assets

 

327,990

230,470

176,949

 

 

 

 

Equity

 

 

 

Share capital

17

3,379

2,398

Share premium reserve

17

300,481

203,672

Cash flow hedge reserve

18

(1,029)

(1,203)

Capital reduction reserve

17

6,193

14,391

Retained earnings

 

18,966

11,212

Total equity

 

327,990

230,470

176,949

 

 

 

 

Net asset value per share - basic and diluted

21

97p

96p

EPRA NAV per share

21

97p

97p

96p

 

 

These unaudited condensed consolidated financial statements were approved and authorised for issue by the Board of Directors on 6 February 2020 and were signed on its behalf by:

Nick Hewson

Chairman

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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

 

 

Share capital

Share premium

reserve

Cash flow hedge reserve

Capital reduction reserve

Retained earnings

Total

 

£' 000

£' 000

£' 000

£' 000

£' 000

£' 000

As at 1 July 2019

2,398

203,672

(1,203)

14,391

11,212

230,470

Comprehensive income for the period

-

-

-

-

-

-

Profit for the period

-

-

-

-

7,754

7,754

Other comprehensive income

-

-

175

-

-

175

Total comprehensive Income for the period

-

-

(175)

-

7,754

7,929

Transactions with owners

 

 

 

 

 

 

Ordinary shares issued at a premium during the period

 

981

 

99,020

 

-

 

-

 

-

 

100,000

Share issue costs

 

(2,211)

-

-

-

(2,211)

Interim dividend paid

 

 

-

(8,198)

-

(8,198)

As at 31 December 2019

3,379

300,481

(1,029)

6,193

18,966

327,990

                 

 

For the period from 1 July 2018 to 30 June 2019 (audited)

 

 

Share capital

Share premium

reserve

Cash flow hedge reserve

Capital reduction reserve

Retained earnings

Total

 

£' 000

£' 000

£' 000

£' 000

£' 000

£' 000

As at 1 July 2018

1,844

149,039

(82)

25,325

620

176,746

Comprehensive income for the year

-

-

-

-

-

-

Profit for the year

-

-

-

-

10,593

10,593

Other comprehensive income

-

-

(1,121)

-

-

(1,122)

Total comprehensive income for the year

-

-

(1,121)

-

10,593

9,471

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

Ordinary shares issued at a premium during the year

554

55,695

-

-

-

56,249

Share issue costs

-

(1,062)

-

-

-

(1,062)

Interim dividend paid

-

-

-

(10,934)

-

(10,934)

As at 30 June 2019

2,398

203,672

(1,203)

14,391

11,212

230,470

 

 

For the six month period ended 31 December 2018 (unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

Share capital

Share premium

reserve

Cash flow hedge reserve

Capital reduction reserve

Retained earnings

Total

 

£' 000

£' 000

£' 000

£' 000

£' 000

£' 000

As at 1 July 2018

1,844

149,039

(82)

25,325

620

176,746

Comprehensive income for the period

 

 

 

 

 

 

Profit for the period

-

-

-

-

5,510

5,510

Other comprehensive income

-

-

(237)

-

-

(237)

Total comprehensive income for the period

-

-

(237)

-

5,510

5,273

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

Interim dividend paid

-

-

-

(5,070)

-

(5,070)

As at 31 December 2018

1,844

149,039

(319)

20,255

6,130

176,949

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six month period ending 31 December 2019

 

 

Unaudited

Unaudited

Audited

 

Six months to

Six months to

Year to

 

 31 December 2019

 31 December 2018

30 June
2019

 

Notes

£'000

£'000

£'000

Operating activities

 

 

 

 

Profit for the period (attributable to ordinary shareholders)

 

7,754

5,510

10,593

Adjustments for:

 

 

 

 

Changes in fair value of Investment properties

11

(557)

(792)

(647)

Movement in rent smoothing adjustments

4

(313)

(187)

(366)

Finance expense

7

2,450

2,057

4,180

Tax expense

8

-

-

18

Cash flows from operating activities before changes in working capital

 

 

 

 

9,334

6,588

13,777

Increase in trade and other receivables

 

(2,460)

938

(2,486)

Increase in deferred rental income

 

1,771

1,555

1,877

Corporation tax paid

 

(245)

-

-

Increase in trade and other payables

 

536

552

745

Cash flows from operating activities

 

8,936

9,634

13,913

 

 

 

 

 

Investing activities

Acquisition of investment properties

11

(114,800)

(51,700)

(85,450)

Capitalised acquisition costs

 

(6,510)

(3,071)

(5,617)

Net cash flows used in investing activities

 

(121,310)

(54,771)

(91,067)

 

 

 

 

 

Financing activities

Proceeds from issue of ordinary share capital

17

100,000

-

45,000

Costs of share issues

17

(2,211)

-

(1,062)

Bank borrowings drawn

 

81,075

56,050

128,341

Bank borrowings repaid

 

(57,744)

-

(72,291)

Loan arrangement fees paid

 

(922)

(683)

(933)

Bank interest paid

 

(2,089)

(1,504)

(3,323)

Bank commitment fees paid

 

(21)

-

(42)

Interest rate cap premium paid

 

                           -

-

(27)

Dividends paid to equity holders

   10

(7,958)

(5,070)

(10,850)

Net cash flows from financing activities

 

110,130

48,793

84,813

 

 

 

 

 

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

 

(2,244)

3,655

7,659

Cash and cash equivalents at the beginning of the period

 

9,898

2,239

2,239

Cash and cash equivalents at the end of the period

 

7,654

5,895

9,898

 

NOTES TO THE 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.

 

The financial information set out in this report covers the six months to 31 December 2019, with comparative numbers amounts shown for the year to 30 June 2019 and the six months to 31 December 2018. These condensed financial statements are unaudited and the financial information for the year ended 2019 contained herein does not constitute statutory accounts for as defined in section 434 of the Companies Act 2006. The statutory accounts for the year ended 30 June 2019 have been delivered to the Registrar of Companies. The independent auditors' report on those accounts was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

 

At 31 December 2019 the Group comprised the Company and its wholly-owned subsidiaries. Each of these subsidiaries is incorporated in England and Wales and has the same registered office as the Company.

 

The condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The accounting policies adopted in this report are consistent with those applied in the Group's audited financial statements for the year ended 30 June 2019 apart from the adoption of IFRS 16 "Leases". IFRS 16 specifies how leases are recognised, measured, presented and disclosed. This has not had a material impact on the group as a lessor and accordingly there have been no restatements to the Group's previously reported financial information as a result of adopting IFRS 16. The accounting policies applied in the preparation of this financial information are expected to be consistently applied in the financial statements for the year to 30 June 2020.

 

Based on the current operations of the Group, no other new or revised accounting standards have been issued that are expected to have a material effect on the Group's financial statements in the future.

 

Accounting convention and currency

 

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

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

 

Going concern

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

The Group generated net cash flow from operating activities in the period of £8.9 million, with cash balances at 31 December 2019 totaling £7.7 million and the Group had £60.5 million available for drawdown under the loan facility with HSBC. It had no capital commitments or contingent liabilities as at that date. There has been no significant deterioration in this position since the balance sheet date.

The Group benefits from a secure income stream from its property assets that are let to tenants with excellent covenant strength under long leases that are subject to upward only annual RPI rent reviews.

 

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

 

2.  Significant accounting judgements, estimates and assumptions

 

There have been no new or material revisions to the nature and amount of judgements and estimates reported in the Annual Report 2019, other than changes to certain assumptions applied in the valuation of properties. Details of the key assumptions applied at 31 December 2019 are set out in note 11.

 

3.  Summary of significant accounting policies

 

The principal accounting policies adopted in this report are consistent with those applied in the Group's audited financial statements for the year ended 30 June 2019 and are expected to be consistently applied during the year ending 30 June 2020.

 

During the period, the Group has adopted IFRS 16 "Leases". IFRS 16 specifies how leases are recognised, measured, presented and disclosed. This has not had a material impact on the Group as a lessor and accordingly there have been no restatements to the Group's previously reported financial information as a result of adopting IFRS 16.

 

4. Rental Income

 

Unaudited Six months to 31 December

2019

Unaudited

Six months to 31 December

2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

Rental income - freehold property

4,140

2,136

4,280

Rental income - long leasehold property

7,761

6,157

12,951

Gross rental income

11,901

8,293

17,231

Insurance/service charge income

125

                  90

           163

Insurance/service charge expense

(125)

    (90)

  (163)

Net rental income

11,901

8,293

17,231

 

Included within rental income is a £313,000 (six months to 31 December 2018: £187,000; year to 30 June 2019: £366,000) rent smoothing adjustment that arises as a result of IFRS 16 'Leases' requiring that rental income in respect of leases with rents increasing by a fixed percentage to be accounted for on straight line basis over the lease term. During the period this resulted in an increase in rental income and an offsetting entry being recognised in profit or loss as an adjustment to the investment property revaluation.

 

5. Administrative and other expenses

 

Unaudited Six months to 31 December

2019

Unaudited

Six months to 31 December

2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

Investment Adviser fees (note 20)

1,370

838

1,814

Directors' remuneration (note 6)

74

74

145

Corporate administration fees

191

154

372

Legal and professional fees

155

118

396

Other administrative expenses

464

333

361

Total administrative and other expenses

2,254

1,517

3,088

 

6. Directors' remuneration 

The Group has no employees. The Directors, who are the key management personnel of the Company, are appointed under letters of appointment for services. Directors' remuneration, all of which represents fees for services provided, was as follows

 

Unaudited Six months to 31 December

2019

Unaudited

Six months to 31 December

2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

Directors' fees

71

71

133

Employer's National Insurance Contribution

3

3

12

Total Directors' remuneration

74

74

145

 

7. Finance Expense  

 

Unaudited Six months to 31 December

2019

Unaudited

Six months to 31 December

2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

Interest payable on bank borrowings and hedging arrangements

 

1,921

 

1,765

 

3,334

Fair value adjustment of interest rate derivatives (note 15)

135

-

252

Commitment fees payable on bank borrowings

89

18

47

Amortisation of loan arrangement fees

271

245

492

Amortisation of interest rate cap premium (note 15)

34

29

55

Total finance expense

2,450

2,057

4,180

 

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

 

Unaudited Six months to 31 December

2019

Unaudited

Six months to 31 December

2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

Total interest expense on financial liabilities held at amortised cost

 

2,277

 

1,884

 

3,827

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

89

18

47

Total finance expense

2,366

1,902

3,873

 

8. Taxation

a)Tax change in profit or loss

 

Unaudited

Six months

 to 31 December

2019

Unaudited

Six months

to 31 December 2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

UK corporation tax

-

-

18

           

 

The Company and its subsidiaries operate as a UK Group REIT.  Subject to continuing compliance with certain rules, the UK REIT rules exempt the profits of the Group's property rental business from UK corporation tax.  To operate as a UK Group REIT a number of conditions had to be satisfied in respect of the Company, the Group's qualifying activity and the Group's balance of business. Since the 21 December 2017 the Group has met all such applicable conditions. In the intervening period from incorporation of Company on 1 June 2017 to 21 December 2017 the Group was subject to UK corporation tax on its property rental business at an effective rate of 19%, resulting in a liability.  

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

 

b) Reconciliation of the tax charge for the period

 

Unaudited

Six months

to 31 December

2019

Unaudited

Six months

to 31 December 2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

Profit on ordinary activities before taxation

7,669

5,510

10,610

Theoretical tax at UK standard corporation tax rate of 19%

Effects of:

1,457

1,047

2,016

Investment property revaluation not subject to taxation

(106)

(158)

(123)

REIT exempt income

(1,351)

(889)

(1,893)

Adjustment in respect of prior period

-

-

18

Tax charge in the period

-

-

18

 

9. Earnings per share

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

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

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

Unaudited

Six months

to 31 December

2019

Unaudited

Six months

to 31 December

2018

Audited

Year

to 30

June

2019

 

£' 000

£' 000

£' 000

7,754

5,510

10,593

 

 

 

Changes in fair value of investment properties

(557)

(792)

(647)

EPRA earnings

7,197

4,718

9,946

 

Number 1

Number1

Number1

Weighted average number of ordinary shares

285,370,561

184,356,434

198,087,482

 

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

 

 

Unaudited

Six months

to 31 December

2019

Unaudited

Six months

to 31 December

2018

Audited

Year

to 30

June

2019

 

Pence per share

Pence per share

Pence per share

Basic and Diluted EPS

2.7p

3.0p

5.3p

EPRA adjustments:

 

 

 

Changes in fair value of investment properties

(0.2)p

(0.5)p

(0.3)p

EPRA EPS

2.5p

2.5p

5.0p

 

10. Dividends

 

Unaudited

Six months

to 31 December

2019

Unaudited

Six months

to 31 December

2018

Audited

Year

to 30

June

2019

 

Pence per share

Pence per share

Pence per share

Distributions to ordinary shareholders in the period:

 

 

 

Dividends paid

8,198

5,070

10,934

 

On 8 July 2019, the Board declared a fourth interim dividend for the year ended 30 June 2019 of 1.419 pence per share, which was paid on 7 August 2019 to shareholders on the register on 19 July 2019.

On 8 October 2019 the Board declared a first interim dividend for the year ending 30 June 2020 of 1.419 pence per share, which was paid on 7 November 2019 to shareholders on the register on 17 October 2018.

On 8 January 2020 the Board declared a second interim dividend for the year ending 30 June 2020 of 1.460 pence per share, which will be paid on or around 7 February 2020 to shareholders on the register on 16 January 2020. This has not been included as a liability as at 31 December 2019.

11. Investment Properties

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

The independent valuer in forming its opinion on valuation makes a series of assumptions. All the valuations of the Group's investment property at 31 December 2019 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.

 

 

Unaudited 

Six months

to 31 December

2019

Audited

Year

to 30

June

2019

Unaudited

Six months to 31 December

2018

Long Leasehold properties

£' 000

£' 000

£' 000

At start of the period

283,780

181,550

181,550

Property additions

-

96,700

51,700

Capitalised acquisition costs

-

5,617

3,071

Revaluation movement

3,819

(87)

9

At the end of the period

287,599

283,780

236,330

 

 

 

Unaudited 

Six months

to 31 December

2019

Audited

Year

to 30

June

2019

Unaudited

Six months to 31 December

2018

Freehold properties

£' 000

£' 000

£' 000

At start of the period

84,450

83,350

83,350

Property additions

114,800

-

-

Capitalised acquisition costs

6,510

-

-

Revaluation movement

(2,949)

1,100

970

At the end of the period

202,811

84,450

84,320

 

 

 

Unaudited 

Six months

to 31 December

2019

Audited

Year

to 30

June

2019

Unaudited

Six months to 31 December

2018

Total investment properties

£' 000

£' 000

£' 000

At start of the period

368,230

264,900

264,900

Property additions

114,800

96,700

51,700

Capitalised acquisition costs

6,510

5,617

3,071

Revaluation movement

870

1,013

979

At the end of the period

490,410

368,230

320,650

 

Included within the carrying values of investment properties at 31 December 2019 is £1,007,000 (30 June 2019: £694,000; 31 December 2018: £515,000) in respect of the smoothing of fixed contractual rent uplifts as described in note 4. The difference between rents on a straight-line basis and rents actually receivable is included within the carrying value of the investment properties but does not increase that carrying value over fair value. The effect of this adjustment on the revaluation movement for the period is as follows:

 

 

Unaudited 

Six months

to 31 December

     2019

Audited

Year

to 30

June

2019

Unaudited

Six months to 31 December

2018

 

£' 000

£' 000

£' 000

Revaluation movement per above

870

1,013

979

Rent smoothing adjustment (note 4)

(313)

(366)

(187)

Change in fair value recognised in profit or loss

557

647

792

 

Valuation techniques and key unobservable inputs

Valuation techniques used to derive fair values

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

Unobservable inputs

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

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

Sensitivity of measurement of significant unobservable inputs

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

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

Initial yields of the Group's investment properties at 31 December 2019 range from 4.4% to 6.0% (year ended 30 June 2019: 4.3% to 5.5%; six months ended December 2018: 4.4% - 5.6%).  A 0.25% shift of the initial yield on all the Group's investment properties would have approximately a £23.6 million (30 June 2019: £18.1 million; 31 December 2018: £15.8 million) impact on the total valuation of the properties. A 1% movement in the passing rents across all the Group's investment properties would have approximately a £4.9 million (30 June 2019: £3.7m; December 2018: £3.2 million) impact on the total valuation of the properties.

12. Other financial assets

Other financial assets comprise costs incurred at the balance sheet date in relation to a prospective acquisition which is expected to complete during the quarter ended 31 March 2020.

 

13.  Trade and other receivables

 

 

Unaudited

31 December

2019

Audited

30

 June

2019

Unaudited

31 December

2018

 

£' 000

£' 000

£' 000

Trade and other receivables

5,904

3,503

-

Prepayments

77

17

98

Total trade and other receivables

5,981

3,521

98

 

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

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and ageing. The expected loss rates are based on the Group's historical credit losses experienced over the period from incorporation to 31 December 2019. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.

Both the expected credit loss provision and the incurred loss provision in the current and prior year are immaterial. No reasonably possible changes in the assumptions underpinning the expected credit loss provision would give rise to a material expected credit loss.

Included within other receivables is £3,656,000 (30 June 2019: £3,315,000; 31 December 2018: 0) of rental receipts held by the group's managing agents as at 31 December 2019. These amounts are held within ring-fenced client trust accounts by the managing agent before being transferred to the group and therefore there is not deemed to be any material credit risk in relation to these receivables.

14.  Trade and other payables

 

 

Unaudited

31 December

2019

Audited

30

June

2019

Unaudited

31 December

2018

 

£' 000

£' 000

£' 000

Corporate accruals

2,790

1,828

1,367

Trade payables

-

-

22

VAT payable

784

742

918

Total trade and other payables

3,574

2,570

2,307

 

15.  Interest rate derivatives

 

 

 

Unaudited

31 December

2019

Audited

30

June

2019

Unaudited

31

December

2018

 

£' 000

£' 000

£' 000

 

 

 

 

Non-current asset: Interest rate cap

-

-

60

Non-current liability: Interest rate cap

(1)

(18)

-

Non-current liability: Interest rate swap

(971)

(1,095)

(289)

 

 

 

 

 

 

 

The fair value at comprises:

 £'000

 £'000

£' 000

At start of the period

(1,113)

37

37

Interest rate cap premium paid on inception

-

26

-

Amortisation of cap premium in the period (note 7)

(34)

(55)

(29)

Changes in fair value of interest rate derivative in the period

40

(1,374)

(237)

Charge to the income statement

135

253

-

As at the end of the period

(972)

(1,113)

 (229)

                   

 

To partially mitigate the interest rate risk that arises as a result of entering into the floating rate debt facilities referred to in note 16, the Group has entered into a derivative interest rate cap ('the cap') and a derivative interest rate swap ('the swap').

 

The total notional value of the cap was £63.5 million with its term coinciding with the expiry of the initial term of the HSBC credit facility.  The strike rate of the cap as at 31 December 2019 was 1.75%. which caps the Group's cost of borrowing at 3.35% on the hedged notional amount.

 

The total notional value of the swap was £52.1 million with its term coinciding with the maturity of the Bayerische Landesbank loan facility. The fixed interest rate of the swap as at 31 December 2019 was 1.305%.

 

All of the Group's variable rate debt was hedged as at 31 December 2019 (30 June 2019: 80%; 31 December 2018: 80%) with £24.0 million of the cap not currently being utilised in a hedging relationship. It is the Group's target to hedge at least 60% of the Group's total debt at any time using interest rate derivatives.

 

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.

 

The interest rate derivatives are remeasured to fair value by the counterparty bank on a quarterly basis. The interest rate derivative valuation is classified as level 2 in the fair value hierarchy as defined in IFRS 13.

 

16.  Bank borrowings

 

 

Unaudited

31 December

2019

Audited

30

June

2019

Unaudited

31 December

2018

 

£' 000

£' 000

£' 000

Amounts falling due after more than one year

 

 

 

Secured debt

168,204

144,894

144,893

Less: Unamortised finance costs

(1,837)

(1,186)

(1,183)

Bank borrowing per consolidated statement of financial position

166,367

143,708

143,710

 

Secured debt comprises a revolving credit facility (the 'credit facility') of £100 million with HSBC Bank Plc, a five year interest-only loan facility ('the BLB loan facility') of £52.1 million with Bayerische Landesbank and a five year fixed rate loan facility ('the Deka loan facility') of £76.6 million with Deka Bank.

 

The credit facility had an original maturity of three years commencing on 30 August 2017. The Group exercised a one year extension with the credit facility no maturing on 30 August 2021.

 

At 31 December 2019, £39.5 million has been drawn down under the credit facility. All the advances drawn under the credit facility have an interest charge which is payable quarterly based on a margin above three-month LIBOR. The margin payable by the Group on the credit facility as at 31 December 2019 was 160 basis points above three-month LIBOR.

 

At 31 December 2019, the full amount of the BLB loan facility had been drawn down. Interest is payable quarterly on the BLB loan facility based on a margin of 125 basis points above three-month LIBOR. The fixed interest rate on the Deka loan facility resulting from the interest rate swap was 2.55%.

 

At 31 December 2019, the full £76.6 million of the Deka loan facility had been drawn down. The Deka loan facility has been entered into as a fixed rate agreement, fixing the interest rate at 1.9% over the term of the facility.

 

Any associated fees in arranging the bank borrowings that are unamortised as at the end of the period are offset against amounts drawn under the facilities as shown in the table above.

 

The debt is secured by charges over the Group's investment properties and by charges over the shares of certain group companies, not including the Company itself. There have been no defaults of breaches of any loan covenants during the current or any prior period.

 

17.  Share capital

 

 

 

Ordinary shares

of 1 pence

Share capital

Share premium reserve

Capital reduction reserve

Total

 Six months to 31 December 2019 (unaudited)

Number

£'000

£'000

£'000

£'000

As at 1 July 2019

239,833,219

2,398

203,672

14,391

220,461

Ordinary shares issued and fully paid -

     7 October 2019

98,039,215

981

99,019

-

100,000

Share issue costs

-

-

(2,211)

-

(2,211)

 

337,872,434

3,379

300,481

14,391

318,251

Dividend paid in the period (note 10)

-

-

-

(8,198)

(8,198)

As at 31 December 2019 

337,872,434

3,379

300,481

6,193

310,053

 

 

 

 

Ordinary shares

of 1 pence

 

 

 

 

Share capital

 

 

 

Share premium reserve

 

 

 

Capital reduction reserve

 

 

 

 

 

Total

 

Year to 30 June 2019 (audited)

Number

£'000

£'000

£'000

£'000

 

As at 1 July 2018

184,356,434

1,844

149,039

25,325

176,208

 

Ordinary shares issued and fully paid -

     26 March 2019

44,554,455

446

44,554

-

45,000

 

Ordinary shares issued and fully paid -

     24 April 2019

10,922,330

109

11,141

-

11,250

 

Share issue costs

-

-

(1,062)

-

(1,062)

 

 

239,833,219

2,398

203,672

25,352

180,883

 

Dividend paid in the period (note 10)

-

-

-

(10,934)

(10,934)

 

As at 30 June 2019 

239,833,219

2,398

203,672

14,391

220,461

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares

of 1 pence

Share capital

Share premium reserve

Capital reduction reserve

Total

 

Six months to 31 December 2018 (unaudited)

Number

£'000

£'000

£'000

£'000

 

As at 1 July 2018

184,356,434

1,844

149,039

25,325

176,208

 

Dividend paid in the period (note 10)

-

-

-

(5,070)

(5,070)

 

As at 31 December 2018

184,356,434

1,844

149,039

20,255

171,138

 

                       

 

On 7 October 2019 the Company completed a equity fundraising and issued an additional 99,039,215 ordinary shares of one pence each at a price of £1.02 per share. The consideration received in excess of the par value of the ordinary shares issues, net of total capitalised issue costs, of £99.0 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 capital reduction reserve is classed as a distributable reserve and dividends paid by the Company are currently being offset against this reserve.

18.  Cash flow hedge reserve

 

 

Unaudited

Six months to 31 December

2019

Audited

Year

to 30

 June

2019

Unaudited

Six months to 31 December

2018

 

£' 000

£' 000

£' 000

At start of the period

(1,203)

(82)

(82)

Fair value movement of interest rate derivatives in effective hedges

175

(1,121)

(237)

At the end of the period

(1,029)

(1,203)

(319)

 

19.  Capital commitments

 

The Group had no capital commitments outstanding as at 31 December 2019 (30 June 2019: none; 31 December 2018: none).

 

20. Transactions with related parties

 

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

 

a. Directors

 

Directors' fees

 

Nick Hewson, Chairman of the Board of Directors of the Company, is paid fees of £55,000 per annum, with the other Directors each being paid fees of £35,000 per annum. Jon Austen is paid an additional £5,000 per annum for his role as chair of the Company's Audit Committee and Vince Prior is paid an additional £3,500 per annum for his role as Senior Independent Director.

 

The total remuneration payable to the Directors in respect of the period to 31 December 2019 was £71,000 (six months to 31 December 2018: £71,000; year to 30 June 2019: £145,000). There were no amounts outstanding at the end of the current or comparative periods.

 

Directors' interests

 

Details of the direct and indirect interests of the Directors and their close families in the ordinary shares of one pence each in the Company at 31 December 2019 were as follows:

 

 

·      Nick Hewson: 399,600 shares

·      Jon Austen: 120,000 shares

·      Vince Prior: 76,019 shares

b. Investment Adviser

Advisory fees

The investment adviser to the Group, Atrato Capital Limited (the 'Investment Adviser'), is entitled to certain advisory fees under the terms of the Investment Advisory Agreement (the 'Agreement') dated 20 June 2017.

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

Until the Adjusted Net Value of the Group exceeds £500 million, which it has not as at 31 December 2019, 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;

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

 For the period 31 December 2019 the total advisory fees payable to the Investment Adviser were £1,370,000 (six months to December 2018: £838,000; year to 30 June 2019: £1,814,000) of which £572,000 (30 June 2019: £379,000; 31 December 2018: £308,000) is included in trade and other payables in the consolidated statement of financial position.

 Interest in shares of the Company

 Details of the direct and indirect interests of the Directors of the Investment Adviser and their close families in the ordinary shares of one pence each in the Company at 31 December 2019 were as follows:

·       Ben Green: 1,137,101 shares            

·      Steve Windsor: 1,251,935 shares     

c. Transactions with other related parties

Morgan Williams act as the Senior Adviser to the Company, with their appointment being to provide their supermarket expertise to assist in sourcing suitable assets for investment. Any fees payable to the Senior Adviser form part of the acquisition costs in relation to the acquisition of the relevant property. Mark Morgan is a partner in Morgan Williams and sits on the Investment Committee of the Investment Adviser.

In the period to 31 December 2019 the amount payable to Morgan Williams for these services was £626,000 (six months ended December 2018: £258,500; year to June 2019: £483,000).  All of which has been capitalised as additions to investment properties.  None of the amounts payable were outstanding at the end of the current or comparative periods.

Other transactions:

Other than those related party transactions disclosed in this or other notes to the financial statements the Directors are not aware of any transactions with related parties requiring disclosure. The Company does not have an ultimate controlling party.

 

21. Net asset value (NAV) per share

 

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

 

EPRA has issued guidelines aimed at enabling entities to provide a comparable measure of NAV on the basis of long-term fair values. The EPRA measure excludes items that are considered to have no impact in the long-term. For the current period EPRA NAV is calculated as net assets per the consolidated statement of financial position excluding the fair value of interest rate derivatives.

 

NAV and EPRA NAV per share calculations are as follows:

 

 

 

Unaudited

31 December

2019

Audited

30 June

2019

Unaudited

31 December

2018

 

£' 000

£' 000

£' 000

Net assets

327,990

230,470

176,949

Fair value of interest rate derivatives

972

1,113

229

EPRA NAV

328,962

231,583

177,178

 

 

 

 

 

Number

Number

Number

Ordinary shares in issue

337,872,434

239,833,219

184,356,434

NAV per share - Basic and diluted (pence)

97p

96p

96p

EPRA NAV per share (pence)

97p

97p

96p

 

 

22. Subsequent events

 

On 8 January 2020 the Board declared a second interim dividend for the year ending 30 June 2010 of 1.460 pence per share, which will be paid on or around 7 February 2020 to shareholders on the register on 17 January 2020. This has not been included as a liability as at 31 December 2019.

Company Information

 

Directors

 

Nick Hewson (Non-Executive Chairman)

 

Vince Prior (Non-Executive Director)

 

Jon Austen (Non-Executive Director)

Cathryn Vanderspar (Non-Executive Director)

 

 

Company Secretary

 

 

 

 

 

 

Registrar

JTC (UK) Limited

The Scalpel

52 Lime Street

18th Floor

London

EC3M 7AF

 

Link Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent

BR3 4TU

 

 

AIFM

JTC AIFM Services

Ground floor

Dorey Court

Admiral Park

St Peter Port

Guernsey

Channel Islands

GY1 2HT

 

Investment Adviser

Atrato Capital Limited

123 Victoria Street

London

SW1E 6DE

 

Financial adviser, Broker and Placing Agent

Stifel Nicolaus Europe Limited

150 Cheapside

London

EC2V 6ET

 

Auditors

BDO LLP

55 Baker Street

London

W1U 7ET

 

Property Valuers

Cushman & Wakefield

125 Old Broad Street

London

EC2N 1AR

 

Financial PR Advisers

Tavistock

1 Cornhill

London

EC3V 3ND

 

 

 

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

 

END

 

[1] Movement in percentage

[2] Adjusted EPRA cost ratio excludes impact of £143,000 of non-recurring costs relating to non-capitalised acquisition costs.

[3] In August 2018 Fitch Ratings upgraded Tesco plc to investment grade (BBB-) followed by Moody's Investors Services who raised them to the equivalent level (Baa3) in June 2019 and Standard and Poor's who raised them to the equivalent level (BBB-) in November 2019.

[4] Adjusted EPRA cost ratio excludes impact of £143,000 of non-recurring costs relating to non-capitalised acquisition costs


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