Supermarket Income REIT plc

Good afternoon, and thank you, everyone, for attending. My name is Steven Noble.

I'm the CIO for Atrato. Atrato is the investment adviser to Supermarket Income REIT, which is the U.K.'

s only real estate investment company focused exclusively on supermarket property, and I'm joined by Rob Abraham, who is the Managing Director for Supermarket Income REIT. I just wanted to start by briefly introducing the key personalities behind the funds.

I'm aware some people may have heard this before, but for those who are new on the call, the Fund's Chairman, Nick Hewson, he's CEO -- or was Co-Founder and CEO of Grandchester Holdings and currently serves as a nonexecutive director on Redrow. And of course, the other name to note on our Board is Vince Prior.

He was previously Head of Sainsbury's property, helping grow their supermarket property portfolio from 7 billion to around 12 billion over a 5-year period. On the Atrato team, who are the principles behind the fund, Ben Green, is a cofounder, has 20 years of experience in executing real estate transactions.

And Ben has executed over 5 billion of supermarket sale and leaseback and we think Ben has done more supermarkets here and leasebacks than anybody else in the U.K. And of course, the other notable name on the Atrato team there is Justin King.

Justin is the Senior Adviser to Atrato. Many of you have heard of Justin, he's a business celebrity in the U.K.

But of course, he was Chief Executive of Sainsbury's for 10 years until 2014, and he currently sits on the Board of Marks & Spencers. He loved what we were doing in arranging a supermarket dedicated investment fund and hence, he was keen to join us.

Now, why put this team together. Well, essentially what we've built is a coverage model for the sector, and that's key to understanding us.

We cover our tenants from the board level, be it the Chairman of the Tesco's all the way down to the store manager. Now, that gives us a deep understanding of the sector, but it also delivers an information advantage as well as a relationship advantage in this space.

And that's important when we come on to store selections, which Rob will take you through as well as important in us being better than our competitors in this investment space. I'm going to start by just taking you through the 3 core pillars which define us as an investment fund.

So the first of those is lease length and structure. We target leases that provide long unexpired lease terms with inflation-linked rent uplifts.

Our current WAULT is around 15 years, and this provides a high degree of certainty over our income, which grows in line with inflation, and we'll take you through the detail on that, a bit later. The second pillar of our investment strategy is omnichannel stores.

Now, let me explain that. We target stores that operate not only as traditional supermarkets, but they also operate as last mile fulfillment hubs for online grocery, and that's both through home delivery as well as through click and collect.

Now, as more grocery sales go online, well how the real estate investors capture that growth? Well, we do that through omnichannel stores.

And Rob is going to take you through that strategy in a bit more detail shortly. And the third is site size.

I mean, one of the unique benefits of investing in this sector is just the size of land we acquire with each acquisition. On average, our site size is around 10 acres, and our store covers around 25% of the site.

So that gives us a lot of optionality on the real estate to adapt to the changing needs of our tenants. And most recently, the biggest change we've seen in that respect is enhancing the stores' fulfillment capacity for home delivery through investment in online fulfillment facilities and distribution capabilities at the back of the store.

And we've got a bit more of that later in the presentation. Just to start with taking you through some of the key highlights for the funds, because we just announced our half year results.

And most of this presentation, we'll take you quickly through the financial result numbers for our half year. We've made GBP 370 million of new acquisitions in this period, and that's come at an average acquisition yield of about 4.6%, which is accretive to our overall dividend cover, and we'll show you that shortly.

We've also been assigned in the period an investment-grade rating on our balance sheet. And on top of that, we've also achieved a premium listing on the London Stock Exchange.

Previously, we were on a specialist fund segment, but the growth in the size and the diversification of our portfolio means we're now on the premium listing, which means we're open to more tracker funds, including EPRA and the FTSE 250. We continue our track record of accretive investment growth.

Overall, our portfolio stands at around GBP 1.6 billion, whilst at the same time, we're growing but maintaining our lease WAULT of 15 years. For the period to the 31st of December, we grew our NTA by 5% or 5p to GBP 1.13p per share.

And for the half -- for the 6 months to date, we've paid a 3p dividend, which is 1.13x covered. I'll just quickly take you through our half year financial results to give you a flavor of our performance before we dive a bit more into our strategy and our portfolio.

Our net rental income increased by over 60% during the period, which we've highlighted here, and this is predominantly through our new acquisitions, but it's also as a result of inflation-linked rent reviews in our portfolio. Just turning to the rental growth in a little more detail.

Our total pro forma net rental income, which is an approximate for our rental income for the next 12 months, now stands at just under GBP 80 million, which has increased by over 50% from the previous December period, primarily because of our new acquisitions and our rent reviews. Focusing on rent reviews, 7 of our leases during the 6-month period were renewed and our average rental increase was 6.3%.

Now, this includes several 5 yearly rent reviews, but you can see the inflation-linked growth coming through on our rent reviews now. Just turning back to the income statement.

On net income from the joint venture, you see there at GBP 6.2 million, that's an increase of 113%. Rob will take you through the joint venture in a bit more detail, but that just reflects that we're now getting the full year's run rate on our joint venture investment, which is a portfolio of 26 Sainsbury stores.

Administrative and other expenses, I mean, that increased in absolute terms. However, I'll direct your attention to our EPRA cost ratio, which has now fallen and now stands at 15.8% compared to 19.9% in the previous period.

Again, that reflects the growth generating a lower cost profile for the overall fund, and we expect that to be broadly consistent over the next few reporting periods. In all, we are pleased that our EPRA earnings per share is 3.1% for the 6-month period.

Now, that's compared to 2.8% per share for the same 6-month comparative period. In other words, that's an 11% growth.

And we're especially pleased that we can grow the portfolio at a way that is achieving progressive EPS growth as well. And finally, just to reiterate, our EPRA dividend cover currently stands at 1.13x, so we're fully covered on our dividend.

Let's just turn quickly to the balance sheet. The first thing that stands out on that page is just our continued growth, as I mentioned previously, EPRA NTA per share increased by 5p.

And our LTV for the period, our loan-to-value ratio was 32%. Now, as a result of around GBP 130 million of post balance sheet acquisitions, our LTV today, taking into account post balance sheet events, is around 39%.

As a fund, we aim to keep our leverage in and around between 30% to 40% over the long term. It's just worth noting the component parts of our NTA growth during the period.

The key point to highlight on the right-hand side of this slide is the positive contribution the joint venture has generated to our NTA growth and we're going to take you shortly through the detail on that in the next few pages. And just to pause on our overall debt.

During the period, our running interest cost was 2%, with total credit facilities of around GBP 793 million, which gives us around GBP 150 million of credit headroom relative to our debts at the moment. I'll now hand you over to Rob, who's going to take you through our portfolio in a little bit more detail and our key milestones for the 6-month period.

Thanks, Steve. Hello, everyone.

So as you've already heard, another really busy period of transactions for the group, those of you that have dialed in previously would have heard what we've been up to on acquisitions, and it's continued to be the case. So really, just showing our ability to continue to grow the portfolio and that's really through our competitive and information advantage in our position as sector -- grocery sector specialists.

And since June, we have deployed a total of GBP 372 million. So this is as at today since June, and that's been into 11 high-quality assets and the deployment of our latest GBP 200 million equity raise back in October has been one of our fastest ever.

These acquisitions were completed at a 4.6% net initial yield and an accretive 17-year WAULT, which has been helped by the addition of a number of particularly long-leased assets, the first being our Sainsbury's store in Washington in the Northeast of England. That has a 34-year lease with RPI reviews, so exceptionally long remaining term there.

And then also, we acquired Sainsbury's in Swansea with 27 years remaining. So we've got a number of the longest lease Sainsbury's in our portfolio.

So as a result, our portfolio now, we've established a diversified portfolio of high-quality assets. The value now exceeds GBP 1.5 billion and that consists of 41 supermarket sites valued at a 4.7% net initial yield.

And the WAULT there, as you can see, again, has been maintained at 15 years through those acquisitions of long-leased assets. And as you can see from the map on the right, here the portfolio is well diversified, and that's both by geography and tenant.

And that's really been enhanced through the addition of our first M&S food hall in Liverpool. And then also, in January, we were delighted to introduce or first [indiscernible] portfolio through the acquisition of a strong trading omnichannel store in Cwmbran in South Wales, and this recently expanded that store to support the supermarkets online fulfillment to the local neighborhood.

I say there in respect to that portfolio growth, I mean, one of the benefits of the portfolio as it stands right now is around us transitioning from the specialist fund segment onto the premium segment of the stock exchange. Now that essentially means we're open to more tracker funds following Supermarket Income REIT.

We expect to be eligible for inclusion in those index funds in and around June, but we should see buying through the index funds, adding a lot more liquidity to our overall share volumes during the year as well as open this up to a more broader and diverse investor base.

So one of the important things to note with our portfolio is that the group is well placed in the current inflationary environment. So we have -- 85% of our leases are inflation-linked, predominantly to RPI.

And of those leases linked to inflation, 64% benefit from annual reviews and our average cap across those leases is 4%. So we have the ability to capture inflation in the current environment.

I was probably about pausing on that, because I know that's primary concern of most of the people on this call is how is investors doing source inflation protection. As Rob said, our average cap around the portfolio is 4%.

But don't forget we're a leveraged fund. So even if you take that cap level of 4% and you apply that on an earnings per share basis, given the benefit -- given the leverage we have within the portfolio, the levered inflation growth is a lot higher.

That's around 5% to 6%. So we think we are a really good source of inflation protection, both in terms of our income on the basis of our inflation-linked rent reviews, the 85% you see there.

But don't forget the inflation growth in rents is also translating to growth in our valuations and our NTA. So we get double sources of growth, both through income as well as valuation, which compounds into our total shareholder return.

So as sector specialists, we're able to identify opportunities where we can really add value for shareholders. And a perfect example of this is our Tesco store in Prescot up in Merseyside on the outskirts of Liverpool.

This is an asset we've been tracking for a number of years and engaging in off-market discussions with the vendor, and that's something we benefit from. We've got an extensive network across current property owners and agents.

So we, as a specialist, we get to see every transaction in this sector. And this is a particularly good store, modern top trading omnichannel store that operates 14 home delivery vans for Tesco and being on the outskirts of Liverpool that's serving a particularly densely populated catchment.

But to the standard purchase, this store was definitely not without some risk. The remaining lease term was only 4 years and the store is relatively oversized at 140,000 square feet.

And as a result -- and included within a 140,000 square feet is around 20,000 square feet, which is currently unutilized. And then also, as a result, the store was overrented.

So through our relationship, and this is where we're really able to add the value, through our relationship with-Tesco, we were able to negotiate a new lease during our due diligence process on the acquisition. On the day of acquisition, we entered into a new 15-year annual CPI lease with the rent being rebased to 4% of turnover.

Now, that's the benchmark that we know the operators work to. So that just may ensure the store is affordable, and we're also getting a long-dated commitment from Tesco to the site where for other purchases, there was that level of uncertainty on the renewal outcome with only 4 years left remaining.

We were also able to capitalize on an opportunity to acquire a vacant plot to the rear of the store. So you can see on the satellite image on the right there, the current service yard is quite narrow.

That is overcrowded with the number of vans. We acquired 30,000 square feet of space just to the left of the service yard there currently vacant, which gives us the opportunity to expand Tesco's home delivery operation and just make the site work even more efficiently for the operator.

And so through this -- regearing this acquisition, we've been able to create material value for shareholders.

And I think, Rob -- I mean, this is a great example of that coverage model we put into the sector, right? This is the benefit of having those relationships, the contacts, the links into the sector, is that we can identify these acquisition opportunities and put in place these proposals to unlock the transaction, which others probably wouldn't have had access to.

So another investment that we've made that's driving value in the Super portfolio and also, demonstrates our ability to identify these value-add opportunities through both information and relationship advantages, has been our joint venture investment in the Sainsbury's reversion portfolio, as we call it. Now, this is a particularly strong portfolio of 26 Sainsbury stores.

There was only a relatively short period left on the lease acquisition, around 3 years. And we just have the conviction in our acquisition that has really allowed us to drive value.

So taking you line by line on this slide. First of all, we underwrite acquisition, Sainsbury's commitment to the stores long term.

So we were aware of the turnover of each of these stores and how, on a per square foot basis, they effectively outperformed their weighting. And that's really been proven out now through Sainsbury's buying back 21 of the 26 stores, and that's driven a significant increase in the value of Super's investment of GBP 30 million.

Then we also spotted the opportunity for some yield compression. So the leases here are all open market reviews.

Historically, there's been a differential between index-linked leases and open market reviews. That gap has now narrowed as we thought it might, and that's driven a further 13% gain on the value of the investment of around GBP 14 million.

And then finally, there's a running yield. So Sainsbury's are paying rents throughout the life of the structure.

It includes debt within the structure. So the rents are just servicing -- reducing down the outstanding balance of the debt.

But that does mean that there's a gain of over 10% per annum. That's equivalent to GBP 16 million to date, and there's still more to come until expiry.

So the total gain, as at the 31st of December is GBP 60 million versus an initial investment of GBP 108 million. So a very strong return.

But just as a reminder there, the proceeds of that investment will not be received until the second half of 2023. And then at that time, we'll work out the most efficient way to deploy that, whether that's -- and the most accretive way to shareholders -- whether that's through further acquisitions or simply returning cash to shareholders.

Yes, I was just going to say big picture on all of that. I mean, it's been, as Rob said, a great investment.

I mean, if you think about it simplistically, we bought something for GBP 108 million that's now worth around just over GBP 160 million. So in that respect, it's been a great business for us.

It will monetize because Sainsbury's are buying back most of the stores, which is natural. They value the real estate as much as we do.

So it's inevitable, they want to buy some of these back as part of their freehold, and that will monetize in 2023. At which time, we get to decide what we do with the process.

Right now, we think that probably gets redeployed quite quickly into other assets, but it has been a really good investment for us. And again, it's just more evidence of the relationship benefit in this sector and really understanding the nature of the stores and how important they are to the operators is where we can extract value or additional value from this real estate.

Turning to the sustainability agenda. Clearly, a very hot topic at the moment, and it's really good to be able to report both Super and its tenants are committed to the sustainability agenda.

The energy performance of each store is an important consideration in our investment process and 3/4 of Super's assets now have an EPC rating of C or above, which is an improvement of 5% on our last reported numbers in June '21. And the supermarket operators are continually investing to improve the energy performance of our stores.

So this includes initiatives such as installing energy-efficient lighting and refrigeration, which results in improved energy performance scores across Super's estate at no cost to Super itself. And we've also been introducing green provisions to all of our new leases.

And then on the right of this page, you can see that we're fortunate that the supermarket operators all have a genuine commitment to the sustainability agenda, with net zero targets of 2040 or earlier. And whilst all of the grocers have also signed up to the British Retail Consortium Climate Action Roadmap.

We're continuing to develop the sustainability agenda across the entire business, and the Super Board is currently conducting a search for additional board members to broaden and deepen the sustainability skill set. And we're delighted to have recently welcomed Christoph Scaife to the Atrato team as Head of Sustainability.

And we've also engaged the services of a third party to start work on streamlined energy and carbon reporting for charter and its funds, and we're on track to become a signatory of the UN principles for responsible investment in the coming weeks. So that's something we'll continue to update you on as we progress.

These next couple of pages, I'll take you through just the structurally supported investment strategy. I mean, what is it behind our EPS dividend and NTA growth that is driving our total shareholder return.

In terms of the grocery sector, we're benefiting from 3 big things, what we call our thematics. First of all, greater working from home.

Second is inflationary tailwinds. And the third is the digital transformation of the U.K.

economy. Now, working from home has generated a step change in grocery sales, and we're going to take you through those numbers now shortly.

But the second is inflation. Now, we benefit doubly as I already previously mentioned.

First of all, as grocery in the sector tends to be a net beneficiary of inflation in terms of additional compounding sales growth. And that will float just through into long-term market rents as well as valuations of the real estate.

And we'll see that come through in terms of valuation growth in our portfolio. But secondly is through our rental uplifts, which are 85% inflation-linked, and that generates the inflation-linked growth in our [ rent for all].

And with the digital transition, greater online penetration benefits us through our focus in omnichannel stores, because that's what we take -- that's what we target, and Rob will take you through that in a bit more detail shortly. But just on the numbers.

The grocery sales are up 10% versus pre-COVID levels. Now, what's driving that?

Well, that's greater working from home. Even as the economy is fully opened, we've seen the tendency from homeworking generating or keeping those additional sales we saw during the lockdown.

Now, this has been coupled with an enormous growth in online grocery, which is up 88%. And remember, the vast majority of online grocery is fulfilled from a store, what we call omnichannel stores.

And that's actually 90% of all big 4 online grocery sales originate or are fulfilled from a supermarket. Now, in contrast, we're also seeing growth in physical sales.

That's actually up 4% as people -- as the physical sales are also growing as people shop more in grocery stores, then say, buying their lunch in [indiscernible] that they used to. Now, what does that mean for omnichannel stores?

Well, we're benefiting in both ways. One, through the growth in physical sales and inflation, but of course, also, the online growth, which means omnichannel stores, like the ones in our investment portfolio, they're up by 16%.

And you can see this provides huge structural support for this segment of the market in which we are invested in. And our rents have never been more affordable than they are now for our tenants because of the sales growth, both physical and online we're seeing coming through our stores.

And it's probably worth, if we jump to the appendix, if that's okay, because we just want to take -- for those who haven't heard the story, quickly through the dynamics of online grocery in a bit more detail and just why the operators use stores as last mile fulfillment centers in U.K. grocery.

I'll hand over to Rob to take you through the growth that we've seen, and then we can take you through the economics in a bit more detail.

Yes. So as you can see on this slide here, you've got the slot capacity for each of the major operators, pre and post-COVID.

And you could -- what really shows here is the ability of the major operators to flex that capacity in a very, very short space of time. We note from our discussions with some of the operators that they saw 7 years of online growth just in the space of just 2 weeks, and we're able to effectively introduce additional vans and capacity into their stores in a very short space of time.

So GBP 1.4 million increase in delivery slots since 2019. Tesco, in their most recently reported figures, have been fulfilling 1.2 million online orders per week over the Christmas period.

So a staggeringly high number of orders. But actually, we know that 90% of the Big 4 orders are fulfilled through omnichannel stores, as Steven was just talking you through there.

And what's quite noticeable is even the likes of Waitrose grew their omnichannel capacity significantly. And their growth is almost double the size of the Ocado growth in the same period, which just shows you that the limitations of the fixed model where you have distribution warehouses versus having a store network that's been established over a long period of time, which allows you to add vans and the store pick model which is just a bit more flexible.

Yes. For those unfamiliar with the sector, you may recall, Waitrose used to have an arrangement with Ocado, where Ocado effectively fulfilled all their online grocery.

And of course, Waitrose ended that relationship. But I mean, you can broadly see that why in the graph in the store fulfillment model, leaving the economics aside, which we're going to take through shortly, is just capacity.

And with the store network, you can really ramp up your last mile fulfillment capacity in Waitrose case up 270%. Now, in hindsight, it's probably a wise decision because if we think about how quickly Ocado has been able to ramp up capacity, it's lagging.

It's up 40%. I mean, with the advanced Ocado technology, we think it's absolutely fantastic in the right location by highly densely populated city, where still capacity is limited.

But in terms of overall distribution network, the store fulfillment is dominating.

So many of you that have listened to us speak before will be familiar with the Tesco distribution maps of the omnichannel networks that we've shown you in the past. And we've now done some further analysis of that post-COVID.

So here, you've got the blue dots on the map. Every blue dot is an omnichannel store that Tesco fulfills orders from, the home delivery orders.

And as you can see, that's the majority of their fulfillment network. But there are other solutions in some of the more densely populated areas.

So you've got the different colored dots here. The red dots trusted around London and the Southeast, are the online-only fulfillment centers.

These are more akin to that Ocado-type model where it's just online only, and you can see there's only 6 of those. They haven't built one of those.

The last development there, as you can see on the slide, is 2016. And instead, all of the growth post-COVID has been through the store networks.

We saw Sainsbury's and Asda last year closed some of those dark stores to instead focus on the omnichannel solution. And then you've also got, more recently, some of the manual omnichannel stores and the automated omnichannel UFC solutions that have been expanded.

So we've got the green dots being the 10 new stores that Tesco rolled out home delivery to post-COVID. Quite interesting there that Tesco actually didn't increase the number of stores that significantly.

What we've instead seeing, and we've seen this in our stores is investment in those well-located stores with additional brands or more efficient fulfillment capacity through building out the service yards of those stores, and it's all about the proximity to consumers and Tesco have got one of the most established store networks -- well, the most established store network of all the operators. And then we've got UFCs, the orange dots.

There's only 3 so far. We know Tesco already expanding that model.

And these, again, they're our omnichannel stores. They just have a bit more of the few automated type fulfillment that follows that Ocado-type racking in the back of house for the particularly, particularly densely populated areas where they need that extra capacity.

But by and large, for the majority of the U.K., it's your local store, and it's between 8 and 14 vans, perhaps, that they fulfill orders from. In the vast majority of the cases, there isn't a density of demand to require that UFC- or a CFC-type model.

Remember, we're targeting those blue dots in our investment strategy. That's essentially what we're buying is the omnichannel stores, the blue, and the green dots being the new ones.

In time, those blue dots will become orange dots as they build in more automation and those bits of real estate will become more valuable. And look broadly, the investment market right now is not differentiating between normal supermarkets and omnichannel stores.

And with the growth in sales from online fulfillment in those omnichannel stores or all the blue and green and orange dots you see, this is the valuable bit of real estate that the property market is still not differentiating.

So the biggest impact on economics is drive time to consumers. So what we've shown you here is, in a very simple illustration, is just how that centralized fulfillment center model versus an omnichannel store operates.

So if you think about the same number of trips from a CFC versus a store, you can achieve double the drop density through being in an omnichannel store due to the proximity to consumers because that -- the drive to the first stop effectively is that bit shorter. And then the drive between each of the stops is also that bit shorter, whereas if you've got the centralized fulfillment model, you've got a warehouse that typically has to travel much further and achieves a much lower drop density and therefore, on a per order basis, your costs are much higher.

Yes. I think about it in terms of numbers, I mean, it costs around GBP 17 per man and van.

So if that man and van is only doing 2 drops an hour, I mean, you've got to recover that GBP 17 in 2 deliveries which is around GBP 8.50 per order. But if you're going into 4 deliveries or 4 drops per hour on the graph on the right-hand side there, I mean, you drive that cost down to just over GBP 4 per delivery.

And that's what you can see on this graph. It's just the economics of using stores as fulfillment centers.

The cost in online grocery is not in the picking and packing, it's in the delivery element. And the only way you reduce that cost is through proximity.

And as online has grown in the U.K., as more and more people switch to online grocery, the scale is delivering economies, which is driving down primarily delivery cost. I mean, the Ocado solution is fantastic at managing the pick-and-pack element.

But the real cost in online grocery is in the delivery and you only solve delivery through proximity. And that is why when you look at the graph earlier that Rob has taken you through, we see the huge growth in store fulfillment capacity from the Big 4, the migration by Waitrose into automated solutions, and this is just going to continue and continue.

And look, if we give you a flavor of, what kind of investment are we seeing at our level. I mean, firstly, I'll say the great thing about investing in this sector is our tenants do this investment.

The nature of our leases are what known as FRI, fully repairing and insuring leases. But the tenants invest in the capital expenditure and not us.

We give our consent, but they do the investment. This is one of our Sainsbury's stores within our portfolio.

It gives you a feel for where this capacity growth is coming from. You can see here the investment they're making in growing the store's delivery fleet from 8 bands to 22.

The area in yellow is the back of house investment that's going into automated racking and packing. And in green, how they're integrating the home delivery logistics which drive through click and collect.

And of course, that's modern drive-through click and collect [indiscernible] recognition, you pull up, someone puts the groceries in your bag. Now, what does that do for the store?

Well, pre-COVID, that store's capacity before this investment would have been around 3,000 orders per week. Post investment that drives its fulfillment capacity to around 7,000 orders per week.

And with the average order of around GBP 100 for an online grocery shop, that can drive an additional GBP 20 million of turnover through that store alone. Now, as a landlord, how do we capture that benefit?

Well, rents in this sector have always been a factor of turnover. And that ratio has always been around 4%.

The rent on the store is 4% of the stores turnover. And as the online sales grow and build in omnichannel stores, you can see how that will translate into higher rental growth just by nature of these stores doing online fulfillment.

And again, as I said earlier, the property market is still not differentiating these omnichannel supermarkets from normal supermarkets. And hence, this is the sweet spot of the sector that we're focused in on, and we're capturing -- we're trying to build our platform.

I'll turn back quickly to the core presentation and just to finish off before we jump into questions. Just to pause on the property market overall.

In this yield series, this is a yield series that we produce ourselves, although there is yield series out there by MSCI and IPD index, they don't necessarily reflect the segments of the market to which we operate. So this yield series is comprised of all market transactions in supermarkets, with lease lengths in excess of 10 years.

And as you can see, yields continue to compress in this sector, but our portfolio looks conservatively valued at 4.7% in comparison to some of the market-based transaction deals that we're seeing, which are now being done in and around 4.4%. And that's natural, right?

[ Those value have ] always lagged the market as they have to be conservative when they establish their values. Over the last 3 years, there's been around 5 billion of supermarket property transactions being traded.

We've seen an increase in interest within the sector, which has helped contribute to the yield shift that we highlighted in the previous page. However, as a specialist in this sector, we have an information advantage.

We have a relationship advantage. That enables us to understand the stores trading as well as the strategic importance of the site to the actual operator.

And in that, we can select the best stores with the largest volume of available transactions. And hence, you can see we're #1 in the transaction list currently.

Now, we continue to see accretive opportunities in the market, and we have plenty of balance sheet capacity to exploit those in the short-term future. I just wanted to take you through relative value as well in the sector.

There's still room for further yield compression. If we look at Tesco's and Sainsbury's bonds, I mean, they're still trading a lot tighter than property yields.

Now bear in mind, the cash flows on our leases are coming from Tesco's and Sainsbury's. The cash flow on the bonds are also coming from Tesco's and Sainsbury's.

So you can get paid 4.5% to own their property-related cash flows or you can earn their bonds and be paid 3% or 2.3% in the case of Sainsbury's. So hence, the relative value still exists on supermarket real estate relative to the bond market.

And of course, we also get the benefit of inflation because our rents are inflation-linked. So our true yield is a lot higher than that 4.4% inflation yield.

Now, if we look and consider that in terms of, well, how does that impact overall with inflation. I mean, you can see, if we were to compare supermarket property yields with inflation-linked bonds, U.K.

government linkers had yield advantage of 6%. But the market long term is pricing inflation breakeven at around 4%.

So hence, you can see there's still a 2% relative advantage through acquiring Super inflation-linked protection through supermarket leases relative than, say, acquiring through investing bonds. So let's sum up before we go into questions.

I mean -- look, in conclusion, we're really proud of the strong set of results we were able to produce for the first half to December. Once again, we've been scaling the business, while delivering NTA as well as EPS growth.

And we achieved 2 big strategic milestones during the period. The first of those was our investment-grade credit rating from Fitch Ratings agency services and the second of those are premium listing on the U.K.

stock markets. Both of them have been long-term targets for us.

We have an investment strategy, which is structurally supported by inflation as well as additional working to home in addition to the digital transformation and the shift to online and online grocery in particular. And we're well positioned for the future.

We expect rental growth driven by inflation. We expect further yield compression in this sector, and we also expect some further upside from our JV investment, which Rob took you through earlier.

And as the macro backdrop becomes even more uncertain, we feel really fortunate to be focused in this sector, which is not only growing, but is also countercyclical and defensive, especially in times of economic uncertainty like we are right now. At that moment, I think we'll pause and open up to questions.

Yes. I guess that's a very appropriate question.

And hopefully, through the presentation, you might have got a bit of a feel for how actually the supermarkets are really using their omnichannel store networks to fulfill orders rather than the warehouses. We have looked at some of these types of assets in the past.

There was the Aston Logistics portfolio as well. And that, I think, points you to how relative value-wise, those logistic-type assets really are not -- we see much better relative value in the store networks.

The stores are as we say, the future model of grocery in the U.K. that's been borne out by Sainsbury's, and as they're closing their dark fulfillment centers, as I mentioned earlier.

So yes, this is -- One of the really interesting points of the grocery market is that the disruptors -- say, in other areas of retail, you've seen online-only disruptors taking significant market share from the incumbent long-standing operators. The difference in grocery is the Big 4 operators have even larger market shares in online than they do in the grocery market as a whole.

So it just shows you that actually, the logistical challenges of fulfilling grocery, that bit more difficult that it's not -- you're not able to disrupt in the same way. And actually, the best parties at doing that are the operators themselves.

And that's why we're focused on the omnichannel stores, which have the proximity and have been a very successful model for the grocers.

Yes, I can take that one. Look, the overall policy for the fund is to maintain a progressive dividend growth policy.

And broadly, that will track the rental growth that we see in our portfolio. So that kind of makes sense.

As we get rental growth through inflation, we have passed that to shareholders through index-linked dividend growth. So broadly, it's linked to the overall growth that we see in our rental income, so highly progressive.

And bearing in mind, our rent -- the WAULT on our portfolio is 15 years. So we're really easy to model.

You can go on to our website, download our entire portfolio and then based on your view on long-term inflation, you can extrapolate that out -- our dividend growth linked to overall rental growth.

Yes, wonderful. I'll take that and I'll put Rob on the spot as much as I can.

First question coming in from Phil G. I think we may have covered this one, but we'll confirm it.

Please, can you confirm the weighted average rent review cap for the whole portfolio?

Yes. That one is relatively straightforward.

So that was the 4% I mentioned earlier, average cap. There's some spread across that.

But typically, we've got some at 5%, some at 3%. But yes, our average rent review structure is 0% to 4% and our most comment is on annual reviews.

And on new acquisitions, Rob, was there much of a difference on cap on new acquisitions?

Yes. No dramatic changes to the portfolio there.

I don't think we have added some open market reviews to the portfolio more recently. Those are stores, though, that we still see due to the structural drivers Steve had mentioned earlier that actually, we still see the opportunity for rental growth, albeit not contractual uplifts.

So we see a role for some really strong open market rent review stores, particularly when you consider that it is the large omnichannel stores that have seen the biggest growth in sales post-COVID. And then, with rents being a function of turnover, actually, you've got a real tailwind for some rental growth in those open market review stores.

So rolled for those. We've added a couple of those, but nothing that's kind of dramatically changed the exposure overall on the portfolio.

And then another question from Paul G., which I'll take. Can you discuss your returns relative to your cost of capital, with some calculations in there?

But I'll keep this relatively high level, but always happy to pick this up offline. I mean -- look, in terms of -- the best way to answer this is, well, what's our breakeven deployment yield?

I mean, if you look at the last raise that we did in October, which was off a raise price of 115p per share relative to our dividend, which is around 6p, that kind of creates a dividend yield of a raise price of around 5%. So that's the hurdle rate that we need to recover.

And then, of course, we're levered. So if you assume 30%, 40% leverage on finance costs, together with the marginal expenses we expect because of that acquisition, which will be a bit of valuation costs, investment adviser fee, et cetera.

We then back solve to say, well, what's our hurdle rate? What do we need to invest in to recover those interest costs as well as achieve that dividend target?

Well, on the last raise, that was around 4.3% net initial yield, our average deployment was 4.6%. So we're exceeding that.

And hence, you see that coming through on our EPS, and hence, you're starting to see the EPS growth compounding through. So broadly, it's a long way of answering that we work out what our breakeven acquisition yield is, and that was around 4.3%.

Next question from Bill G., again, I think. Please, can you provide a breakdown of the lenders and the amounts under the facility?

This is a good question because we are doing a lot on our debt side, but I'll hand over to Rob to take you through that one I think through the slide.

Yes. We have got a slide in here that just sums up each of the facilities.

So we've got a number of [indiscernible] club facilities. You can see, we've got the German -- if I take you through top to bottom just very quickly, we've got some term loans with the German lender, Bayern LB.

Then, we have RCF with HSBC. We've got another RCF GBP 300 million with Barclays, RBC.

GBP 160 million of RCF with Wells Fargo, and then a further GBP 97 million with DekaBank. So DekaBank facilities to term loans.

The RCFs provide us with a huge amount of flexibility to draw and repay. So when we're in -- following an equity raise, we're able to repay those and reduce any carry cost.

We then, of course, deploy quite quickly, so we're able to redraw that debt. But at the moment, we've got a supportive bank group.

We have obtained the credit rating of BBB+. That gives us optionality.

It means we're able to move to an unsecured funding platform. And also, we have access now, or we have the option of accessing the bond markets.

So we're currently exploring that. We're working with Ross Childers debt advisers to plan our debt structure going forward, but we kept our options open.

And I've just seen Paul followed up with another question about the term to expiry is obviously shorter than our leases. Can we extend the maturity?

Very, very timely question. But as I was just mentioning, with the credit rating, we now have access to those longer-dated financing.

Historically, it's not something we wanted to do, because when you're in a secured environment, if you have long-dated debt, it's very inflexible. If you ever had an attractive offer to sell one of your assets, you then have to go through substitution.

You might have to repay the debt. It can be very penal.

So long-dated secured debt is not something -- and this has been seen with a number of real estate companies very recently, in fact, that have come and start with long-dated secured debt. So we never wanted to do that.

We have got, as I said, a very supportive bank group, and we've been able to continue to extend our facilities. But now, we have that opportunity to add in some longer-dated debt and extended debt maturity is very much something we're looking at, at the moment.

It's probably the next evolution for us to go to a partially unsecured secured debt financing model. It's common for most real estate companies to eventually race then in the bond markets, and we're now on that milestone.

And as Rob said, we're looking at that now. So it's the next evolution for us.

But otherwise, we've got a great banking group that support us. I'm just going to take the next question on sustainability.

There's 2. I'll take the first one because it kind of answers the second one.

So on sustainability, how do you factor in the sustainability profile of your tenants beyond the building plans, et cetera? I mean -- look, overall for the sector, one of the nice things about our tenants is, they all have ambitious plans to become net zero both in terms of Scope 1, Scope 2 emissions and shortly, on scope 3 emissions for our sector.

So we've got a really good visibility of our tenant's stat as to how they're going to get to net zero in terms of their carbon footprint. And then more widely, on ESG, in terms of their overall commitments to the U.K.

economy, their social programs, the nature of the employment that they provide in each of their local communities, et cetera. I think many of us on this call, including me, would have started our careers working in the supermarket somewhere.

So in that respect, we do love this sector from our tenant's engagement on ESG and the implementation of ESG. Then how do we support that program, how do we influence that program at our store level?

Well, we do that through trying to green our buildings as much as possible as well. And hence, we have an ambitious program rooftop solar across all our real estate and supply that power to our tenants and to decarbonize the store's footprint as much as possible.

It's completely aligned with the strategic drivers of our tenants. And again, it helps us build our relationship.

Now, one of the other questions, related to conflict of interest with ROOF. Just for those on the call, we do advise another fund, which is Atrato Solar Energy, which is also a listed fund.

It has to tick up ROOF, that focuses on rooftop solar installation. And look, broadly, rooftop installation on Super's portfolio, it does involve a level of specialization that we don't have within our funds around engineering, procurement of the panels, installations, operation and maintenance over its lifetime.

So rather than build out that team within Atrato directly, it does make more sense to outsource into a skill set that can effectively monetize that skill set at much lower cost per unit. So that's the relationship with ROOF.

That is our kind of preferred supplier and design and procurement specialists. But overall, the investment in terms of monetary size is quite small for Supermarket Income REIT.

It's around GBP 300,000 to GBP 0.5 million per site. So in terms of the overall financial impact, rooftop solar is going to be quite small.

But in terms of an ESG impact, it's hugely important, especially decarbonizing the footprint of the estate. So in that respect, going through a kind of PPA procurement process is a lot more efficient than trying to do everything in-house.

But just specifically, on the conflict of interest, anything we do in that space is approved by the Board. And anything we're doing around engaging with ROOF will always be benchmarked to other providers in the space.

But if I can give a plug to ROOF, it actually has one of the lowest cost of capital in the market. So it may well be a third provider for Super.

Next one. I'm a bit confused on the question coming in from Paul G.

I'm a bit confused on the dividend policy. Shouldn't it be driven by EPRA earnings, increased plus accretion.

Given your positive acquisition, does this mean dividend [indiscernible] greater than underlying rental growth? Yes, look, Paul, it's a good question again.

Yes, we are more than 100% covered on dividends, as you'll see. And look, we also have to -- within the REIT regime, we always have to distribute out a minimum of our earnings, which I believe is 90%.

So in effect, yes, you're right. But primarily, dividend growth will -- is linked to our underlying rental growth.

And I think the policy we're pursuing is the rental growth in terms of percentage, is what you should be seeing coming through on our future dividend growth. And of course, that's levered, but as a broad brush, it should grow at the same percentage.

I think that's broadly it. There's more -- I think we're out of time.

So I'll hand back, but thank you all for your time.

Yes, you can do. I mean, look, to sum up very quickly, we are more positive than we have ever been in this sector, primarily because of those key thematics that drive our investment strategy aligned with the key thematics, which have taken place in the U.K.

at the moment. When we look at the economic volatility and the uncertainty, we think supermarkets is a really safe, secure investment play, which will benefit through the high levels of inflation growth we're seeing.

And in that respect, it's also very protective against any future inflation growth that we're going to see as well.