NewRiver REIT has continued its strategy of recycling capital into high yielding property with £162.9m transacted so far in FY20, it announced in a trading update.
The update for the quarter ending 31 December 2019 revealed it had sold £70.3m worth of assets at a blended yield of 4.9% and acquired £92.6m worth of property at a blended yield of 10.1%.
Capital recycling programme
NewRiver made significant progress in its startegy to dispose of a minimum of 5% of its portfolio in FY20. So far it has completed, exchanged or is under offer to sell a total of £70.3m worth of assets, at a blended net initial yield (NIY) of 4.9%. The completed disposals are on terms in-line with March 2019 valuation.
The completed disposals total £39.3m across all asset types, at a blended NIY of 5.6%, with a further £31m of disposals exchanged or under offer, at a blended NIY of 3.8%.
Proceeds will be recycled into high yielding acquisitions across retail parks and community pubs. So far in FY20, NewRiver has acquired a total of £163.1m (NewRiver share: £92.6m), at a blended NIY of 10.1%.
These include:
- Poole Retail Park, which was acquired in October 2019 in a 10% investment with BRAVO for £44.7m (NewRiver share: £4.5m), representing a NIY of 8.0%;
- Sprucefield Retail Park, Lisburn acquired in December 2019 for £40m, representing a NIY of 8.7%. The asset generates £3.7m of annualised income for NewRiver and provides opportunity to extract further value through active asset management and the disposal of parcels of land for development; and
- Bravo Inns – acquired in December 2019 for £17.9m, representing an EBITDA multiple of 6.8x; transaction expected to generate annualised outlet EBITDA of £2.6m across the 44 pubs and grows NewRiver’s exposure to the highly profitable operator manager pub model.
Retail portfolio
The group’s retail portfolio delivered robust operational metrics against a challenging retail environment. Retail occupancy was up – 96.1% from 95.6% in September 2019. It completed 152,000 sq ft of leasing deals on terms 3.0% ahead of previous passing rent and 2.5% ahead of estimated rental values (ERV).
The average retail rent across its portfolio is £12.59/sq ft, with its largest tenant, Sainsbury’s, representing just 2.3% of gross income. Like-for-like footfall across NewRiver’s shopping centres outperformed UK benchmark by 60 bps, with a decline of -1.9%.
The group signed its fourth third-party asset management mandate, with Knowsley Council, to become strategic asset manager for Kirkby Town Centre. The agreement includes fees for acquisition due-diligence, asset management and a potential development monitoring fee.
Pub portfolio
Like-for-like EBITDA growth per pub of 4.9% in FY20 to date, as the portfolio continued to benefit from the scale-based synergies secured in 2019 and a solid Christmas trading period. Pub occupancy remained high at 97.9% across its 698 community pubs.
Convenience stores
The group’s 26th convenience store will be handed over to the Co-op this week at site of the Sea View Inn in Poole, triggering a £275,000 performance receipt from the Co-op.
Financials
Third quarter ordinary dividend held at 5.4 pence per share (Q3 FY19: 5.4 pence); dividend for FY20 to date held at 16.2 pence per share (FY19 to Q3: 16.2 pence).
Following acquisitions, pro forma loan to value (LTV) of 41%. Net borrowings are expected to reduce as the company’s disposal programme progresses. The group’s guidance remains for LTV to be below 40%.
Chief executive’s comments
Allan Lockhart, chief executive, said: “In the third quarter, we saw continued stability in our operational metrics with an increase in retail occupancy to 96.1%, footfall outperforming the UK benchmark by 60 bps and a healthy demand for our retail space having signed deals across 152,000 sq ft, with long-term deals on terms ahead of previous passing rent and ERVs. Our pubs business also delivered growth through the acquisition of Bravo Inns and from strong like-for-like EBITDA per pub growth.
“Our disposal programme continues apace, with £70.3m of disposals now completed, exchanged or under offer in FY20 to date, at a blended yield of 4.9%. In line with our strategy, we have recycled sales proceeds into £92.6m of retail park and community pub acquisitions in FY20 to date, at a blended net initial yield of 10.1%.
“We were pleased with the robust Christmas trading performance of a number of our top 15 tenants, including Sainsbury’s, B&M, Primark, Next and Iceland. With a clear strategy and a portfolio focused around occupiers providing convenience, value and services, we feel well-positioned to navigate our way through these challenging market conditions.”
NRR : NewRiver’s capital recycling programme continues with £162.9m of deals