NewRiver REIT portfolio 'resilient' amid turbulent retail environment

NewRiver REIT reported “good progress” with its strategies to deliver underlying funds from operations growth, and to re-establish its dividend cover in the first quarter.

The FTSE 250 company disposed of £27.5m of assets in the three months through June, at a blended net initial yield of 6.7%, and 1.6% below book value.

That comprised an ASDA supermarket and petrol filling station at St Elli Shopping Centre in Llanelli for £17.9m, one shopping centre, six convenience stores and three pubs exchanged or under offer on a further £10.7mof assets, altogether representing a blended net initial yield of 6.0%.

It said it was on track to recycle 5% of its portfolio in the 2020 financial year.

NewRiver said it deployed proceeds into acquisition in the Bravo joint venture of four retail parks - Kittybrewster Retail Park in Aberdeen, units at Kingsway East Retail Park in Dundee, Telford Retail Park in Inverness, and Wakes Retail Park on the Isle of Wight - for £60.5m, of which its share was £30.3m, reflecting a net initial yield of 9.8%.

An asset management agreement was signed with developer Areli Real Estate for the management of Nicholsons Shopping Centre, Maidenhead.

The company said that was the third mandate for its third-party asset management platform within a year of its launch, adding that discussions were ongoing with a number of local authority owners of retail assets to expand the platform further.

NewRiver said on the operational front, its affordable rents and a focus on convenience, value and services were delivering “robust” operational metrics, with retail occupancy remaining high at 95.4%, rising marginally from 95.2% at the end of March.

A total of 172,200 square feet of leasing activity was completed in the quarter, which included lease renewals on 29 Amazon Lockers across the company’s community shopping centre portfolio.

That secured £52,000 of rent, with the board saying it underscored the importance of its centres as click and collect destinations, adding that long-term retail deals were completed on terms 1.4% ahead of previous rent and 3.2% ahead of estimated rental values.

Average retail rent remained “affordable”, the board said, at £12.58 per square foot, rising from £12.52 per square foot at the end of March.

NewRiver said its “well-positioned” portfolio proved resilient to company voluntary arrangements and administrations during the quarter, with 0.5% of its gross income impacted by CVAs and administrations during the period.

That included Arcadia Group exposure of 0.3% of gross income, with no reduction to rental income as a result of its company voluntary arrangements.

Like-for-like footfall across the company’s shopping centres declined 2.5%, which still outperformed the UK benchmark by 70 basis points.

Looking at the firm’s community pub portfolio, NewRiver said it continued to deliver “robust” cash flows, with opportunities to extract further value.

It said the portfolio delivered like-for-like EBITDA growth per pub of 5.5% in the first quarter, which was reportedly driven by the “scale-based synergies” it secured in the 2019 financial year.

Occupancy remained high at 97.6%, down slightly from 97.9% at the end of March, across its 661 community pubs.

NewRiver said it was extracting further value through risk-controlled development, explaining it was now on-site with the redevelopment of the Sea View Inn in Poole, Dorset, to deliver a scheme comprising 10 apartments and a Co-op convenience store.

The company’s performance was underpinned by a fully unsecured balance sheet, and disciplined capital allocation, with the board holding the ordinary dividend for the first quarter at 5.4p.

Its proforma loan-to-value ratio remained stable at 37% based on March valuations, which was within NewRiver’s stated guidance of less than 40%, and reflected its net neutral investment approach.

“We have made a good start to the year despite continued retail sector headwinds, delivering robust operational metrics, with occupancy and average rents remaining stable, footfall outperforming the benchmark, and long-term leasing deals ahead of previous passing rent and estimated rental values,” said NewRiver REIT chief executive Allan Lockhart.

“We have progressed our strategies to deliver underlying funds from operations growth and to re-establish a fully covered dividend with a net neutral investment approach, recycling £27.5m of lower-yielding assets and acquiring £30.3m of high-yielding retail parks, with robust cash flows, in a new joint venture with Bravo.

“We signed our third mandate within a year to our third-party asset-management platform, for the Nicholsons Shopping Centre in Maidenhead, which is a significant endorsement of our in-house capabilities and demonstrates the attractiveness of our scale, governance and asset management expertise to a wide range of third-party asset owners.”

Lockhart noted that the pub portfolio also continued to deliver high occupancy and robust cash returns, as it benefited from its first full quarter of the scale-based synergies secured through the integration of Hawthorn Leisure, completed in January.

“Looking ahead, we remain confident that our diversified portfolio, underpinned by affordable and therefore sustainable rents, and a focus on convenience, value and services, alongside our identified growth strategies, will position us well to weather the current challenges and pursue value-creating opportunities.”