NewRiver REIT results reflect retail downturn – NewRiver REIT has published results for the year ended 31 March 2019. Highlights:
- EPRA NAV per share fell to 261 pence (March 2018: 292 pence), impacted by portfolio valuation decline of -6.4%
- EPRA earnings per share fell to 16.6p from 18.6p.
- Ordinary dividend per share increased by 3% to 21.6 pence (FY18: 21.0 pence); 84% covered by underlying funds from operations
- First quarterly dividend of the new financial year maintained at 5.4 pence per share
- LTV of 37% (March 2018: 28%) due primarily to net investment activity
- Funds from operations of GBP56.4 million (FY18: GBP60.3 million), which on a per share basis works out at 18.5 pence (FY18: 21.2 pence); decrease mainly due to GBP4.8 million profit on sales made in FY18. Excluding profit/loss on disposal of investment properties, these figures were GBP55.1 million (FY18: GBP55.5 million); and 18.1 pence (FY18: GBP19.5 pence)
Turning to the portfolio, the company reports:
- Retail occupancy of 95.2% (March 2018: 96.5%); Pub occupancy of 97.9% (March 2018: 99.0%)
- 1.2 million sq ft of leasing activity; long term deals on terms 0.5% ahead of previous rent and in-line with ERV
- Average retail rent of GBP12.52 psf (March 2018: GBP12.36 psf) (which they consider to be affordable); they deliberately limited exposure to structurally challenged sub-sectors such as department stores (<0.1% of total income) and casual dining (1.2%)
- Like-for-like footfall across shopping centres declined -2.4%; ahead of the UK benchmark by 20 bps
In retail, they acquired GBP35.5 million of assets at blended NIY of 9.1%, and recycled GBP36.2 million at blended NIY of 6.4% at pricing 7.0% ahead of book value - In pubs, they acquired GBP126.6 million of assets at blended NIY of 13.9% and recycled GBP31.3 million of pubs, pub land and convenience stores (‘c-stores’) at blended NIY of 4.0% with pricing 2% ahead of book value;
- Hawthorn Leisure acquired in May 2018 for an enterprise value of GBP106.8 million, representing a NIY of 13.6%; portfolio of 298 high quality community pubs and an established pub management platform; integration completed in January 2019, unlocking GBP2.1 million of GBP3.0 million of expected annualised operating cost synergies
Developments and new ventures
- In November 2018, they completed their 62,000 sq ft Canvey Island Retail Park development; M&S Foodhall, B&M, Sports Direct and Costa now open & trading; fully-let annualised rent roll of GBP1.0 million and projected yield on cost of 9%
- C-store development programme for the Co-op saw completion of six c-stores during the year; bringing the total number delivered to 25; eight sold in the year, blended NIY 4.9%
- Established joint venture with BRAVO (see below) to acquire four retail parks in Aberdeen, Dundee, Inverness, and on the Isle of Wight for GBP60.5 million, NRR share GBP30.3 million, reflecting a NIY of 9.8%; re-establishing a successful partnership and growing our exposure to conveniently-located retail parks
- Signed three asset management agreements, including with Canterbury City Council, for management of Whitefriars Shopping Centre, Canterbury, and with Areli Real Estate for Nicholsons Shopping Centre, Maidenhead
Allan Lockhart, chief executive, said: “We have delivered a robust performance during the year despite the significant headwinds facing the UK retail sector. While we have not been immune to these challenges, our retail portfolio is focused on the most resilient sub-sectors of the market, providing consumers with convenience, value and services which cannot easily be replicated online. In addition, the specialist and hands-on retail asset management platform we have built since NewRiver’s inception almost 10 years ago means that we have been able to mitigate the impact of any retailer distress in our portfolio. Our pubs business continues to deliver strong cash returns, a modest valuation uplift and opportunities to extract further value, with the integration of Hawthorn Leisure, which we acquired In May 2018, providing a solid platform for future growth.
Looking ahead, we have held our dividend because we are confident that our market positioning, our growth prospects and the strength of our balance sheet give us a clear path to dividend cover. The UK retail real estate market is starting to look attractive to new capital, seeking to capitalise on market dislocation, and we plan to benefit from this by leveraging our asset management platform to manage assets on behalf of partners and third party owners. In that regard, we are delighted to announce today a new joint venture with BRAVO, a fund managed by PIMCO, and the acquisition of a portfolio of retail parks. We are pleased to have re-established this successful partnership, and we are aiming to quickly growth this portfolio, and deliver growing returns to our shareholders.”
BRAVO deal
NewRiver has agreed terms, in principle, relating to a new 50:50 joint venture with BRAVO Strategies III LLC, a fund managed by the Pacific Investment Management Company, and also announces that it has exchanged contracts on the acquisition of a portfolio of four retail parks for total consideration of GBP60.5 million, reflecting a net initial yield of 9.8%, from Zurich Assurance Ltd. It is intended that the acquisition of the portfolio will be completed by the JV, once established. NewRiver’s share of the transaction will be satisfied from existing resources and available credit facilities.
Once established, it is intended that the JV will acquire and manage a portfolio of retail parks in the UK, as well as identifying and pursuing other opportunities in the UK retail sector. Initially, NewRiver will hold a 50% interest in the gross assets of the JV (NRR share: GBP30.2 million) and NewRiver will benefit from 50% of the net rental income (NRR share: GBP3.1 million per annum). It is intended that NewRiver will be appointed as asset manager to the portfolio, in return for a management fee calculated with reference to the gross rental income of the portfolio, and will also receive a promote based on financial performance.
The portfolio comprises four retail park parks: Kittybrewster Retail Park, Aberdeen; Telford Retail Park, Inverness; units in Kingsway East Retail Park, Dundee and Wakes Retail Park on the Isle of Wight. The retail parks have an affordable average rent of GBP14.77 per sq ft, an Affordable Rent to Sales ratio of 6.5%(1) and a WAULT of 6.3 years, and are let to a high quality and well-diversified line-up of occupiers that complements NewRiver’s existing portfolio.
Kittybrewster Retail Park, Aberdeen
Kittybrewster Retail Park is situated approximately one mile north of Aberdeen city centre, beside the A96 and in close proximity to a Sainsbury’s superstore. The 13-unit, fully-let retail park offers 154,400 sq ft of retail space and 402 car parking spaces, and has a convenience and value-led line-up including B&M, TK Maxx, Sports Direct, Halfords and PureGym. The asset has a low Rent to Sales ratio of 6.5%, which provides significant headroom to the asset’s Affordable Rent to Sales ratio of 8.1%.
Telford Retail Park, Inverness
Telford Road Retail Park is located to the north west edge of Inverness city centre, in close proximity to the A82. The retail park provides 179,500 sq ft has a value and convenience-led line-up and is anchored by B&M, Go Outdoors, Oak Furnitureland and Poundstretcher. The asset has a low Rent to Sales ratio of 6.0% which provides significant headroom to the asset’s Affordable Rent to Sales ratio of 7.5%(1) , and has alternative use potential for hotels and light industrial.
Units at Kingsway East Retail Park, Dundee
Kingsway East Retail Park is situated two miles north east of Dundee city centre, close to the junction of the A972 and A92, and is anchored by an Asda food store. The acquisition comprises two units: a 34,500 sq ft store currently let to B&M and a 14,700 sq ft store let to home furnishings retailer Harry Corry, which face out onto the retail park’s 374-space car park. The asset has a low and sustainable average rent of GBP6.45 per sq ft and a very low land capital valuation of GBP23 per sq ft.
Wakes Retail Park, Newport, Isle of Wight
Wakes Retail Park is situated to the north of Newport town centre, beside the A3020 and is located in the main retail park concentration on the Isle of Wight. The retail park provides 40,800 sq ft of retail space across three units, and is anchored by Pets at Home and Currys PC World. The asset has a low Rent to Sales ratio of 7.6%, which provides significant headroom to the asset’s Affordable Rent to Sales ratio of 9.0%(1) . In addition, the asset has alternative use potential for hotels and residential, supported by a land capital valuation of GBP66 per sq ft.
NRR : NewRiver REIT results reflect retail downturn