Convenience assets and airspace residential a winner for NewRiver

NewRiver REIT issued an upbeat third-quarter trading update on Thursday, saying its convenience-led portfolio remained “well-positioned” to deliver growing and sustainable cash returns.

The FTSE 250 company said convenience-led shopping was delivering “good” operational results and strong metrics, with consistently high retail occupancy of 97%, in line with the 97% reported at the end of the second quarter.

It said its portfolio was underpinned by affordable rents, with an average retail rent of £12.70 per square foot - down slightly from the £12.82 per square foot at the end of September.

Footfall across its shopping centre portfolio increased on a like-for-like basis by 0.5% against the third quarter, outperforming the UK benchmark by 270 basis points.

Footfall in December was up 1.9% on a like-for-like basis, outperforming the UK benchmark by 450 basis points.

NewRiver said 100% of its third quarter rents had already been collected.

It reported 66 leasing events in the retail portfolio across 265,700 square feet, with long term deals on average up 0.1% against the September 2017 estimated recovery value with an average lease length of 8.5 years and securing annual rent of £1.3m.

“NewRiver had a good third quarter, with our convenience-led, community-focused portfolio again performing well and significantly outperforming the wider UK retail market,” said chairman Paul Roy.

The NewRiver board said its “community assets” were embedded with value creating opportunities, with terms agreed with Basingstoke and Deane Borough Council to redevelop the existing 66 acre leisure park to almost double the leisure to 500,000 square feet, and enhance the existing facilities as well as creating more than 200,000 square feet of outlet shopping.

Outline planning consent was also obtained for a 100 unit residential scheme in Stamford on an eight acre site acquired from Morrisons for £1m as part of the Ramsay portfolio in July 2015.

Planning consent had been obtained in East Ham, London, for 36 residential units above existing Sainsbury's store, and the company said it was in “advanced negotiations” on more than £50m of acquisitions at a blended yield of around 9%.

It also completed £5.5m of profitable capital recycling on average 2% ahead of September 2017 valuation.

“Our occupancy has remained strong at a record level of 97%, supported by affordable average rents of £12.70 per square foot,” Paul Roy added.

“The grocers, convenience store operators, and discount and value retailers which are at the core of our portfolio had a good quarter, underpinned by positive like-for-like sales over the Christmas trading period.

“In fact, the discount retail sector is forecast to grow by 36% over the next 5 years - which is ahead of online - driven by a shift in consumer behaviour towards value for money and frequent spend on non-discretionary everyday essentials.”

Roy said that importantly, the board recognised the structural challenge faced by department stores some time ago and therefore now had almost no rental exposure to that part of the market.

On the financial front, NewRiver said its books remained “strong” and supportive of its investment case, confirming a third quarter ordinary dividend up 5.0% to 5.25p per share.

Its dividend for the financial year to date was up 5.0% to 15.75p per share.

The company’s loan-to-value ratio was 25% based on September 2017 valuations, with more than £200m of undrawn credit facilities, which the board said presented “firepower” to exploit opportunities in its marketplace.

Its risk-controlled development pipeline now had more than a million square feet of “valuable” planning consents to build residential in air space above its assets, and convenience stores in pub car parks.

The 15th c-store to be delivered to the Co-op would be completed by the end of the month, generating the first performance fee receipt of £0.75m with an agreement to deliver up to 40 c-stores.

“Finally, our like-for-like footfall was up over the quarter by 0.5% and 1.9% during December, significantly outperforming the national benchmark,” Paul Roy said.

“The strength of our key metrics underpin our growing dividend, which increased by 5% in the third quarter.”

“Looking ahead, our conservatively geared balance sheet is strongly positioned to exploit accretive opportunities over the coming months and we remain confident in our ability to deliver growing and sustainable cash returns to our shareholders from our convenience-led, community-focused portfolio.”