Focus on convenience assets leads performance at NewRiver

NewRiver REIT updated the market on its third quarter on Thursday, reporting that its “active approach” was delivering “resilient performance” from its convenience-led community assets.

The FTSE 250 firm said its high level of retail occupancy was sustained during the period at 95.5%, down from 96.2% at the end of September, with that decrease put down to a vacancy created by the upsize of JD Sports at Priory Meadow in Hastings to a larger unit within the centre.

It was also blamed on the “modest impact” of retailer company voluntary arrangements and administrations, where the expected 2019 funds from operators impact had reduced to £1.4m, from the £1.6m announced in November, due to “good progress” in re-letting former Poundworld units.

Average retail rents remained affordable at £12.37 per square foot, down marginally from the £12.48 reported at the end of September, with 99.6% of third quarter rents collected to date.

NewRiver signed 119 leasing deals across 378,100 square feet during the period, which the board said were long term deals at an average rent per square foot of £14.61, up from £13.14 and in-line with the company’s September estimated recovery value.

The board said highlights there included two lettings to B&M, including a unit formerly occupied by Next at South Lakeland Retail Park, Kendal, where it secured an 11% improvement on the previous passing rent, as well as the letting of three vacant units at The Ridings shopping centre in Wakefield to community cinema operator Reel Cinemas.

Like-for-like footfall across the shopping centre portfolio declined 1.8%, which still outperformed the UK benchmark by 180 basis points, reflecting the “essential” nature of the day-to-day spend at NewRiver’s centres, according to the board.

The company said its community pub occupancy remained “high” at 98.9%, up from 98.6% at the end of September, with 671 pubs now accounting for 22% of its total portfolio.

It said the integration of Hawthorn Leisure was expected to complete by the end of January, with funds from operators to then benefit from £2m of the £3m in synergies identified at the time of the acquisition.

That included the £1.7m announced in the first half, secured through supply contract renegotiations, and a further £0.3m unlocked in the third quarter.

The remaining £1m would follow in the 2020 financial year.

NewRiver said the Hawthorn Leisure portfolio was trading “well”, with like-for-like EBITDA per pub up 0.8% in the third quarter, and up 4.3% in the two weeks to 31 December.

Beer volumes rose 10.2% in the two weeks to 31 December, the board said.

The company opened its first community pub in a NewRiver shopping centre during the quarter, with the launch of the ‘Keg & Kitchen’ at The Ridings shopping centre in Wakefield, operated by Hawthorn Leisure.

Early trading performance there was said to have been encouraging, with other opportunities across the wider portfolio now under review.

NewRiver said it completed asset disposals totalling £23.9m during the period, representing a 2% premium to the March valuation and an average net initial yield of 5.2%, and completed £12m of acquisitions at a net initial yield of 17.1%.

In October, the firm disposed of 22 community pubs let on 15-year leases to Marston's for £14.8m, representing a net initial yield of 5.6%.

NewRiver said that in December, it recycled part of those proceeds into the acquisition of 76 community pubs from Star Pubs & Bars for £12.0m, representing a net initial yield of 17.1%.

In November it disposed of a supermarket in East Ham, London, for £7.7m, of which its share was £3.8m, representing a net initial yield of 4.9%.

The company also disposed of four Co-op convenience stores in December and January for total proceeds of £4.8m, representing a net initial yield of 5.0%.

On the development front, NewRiver said it had reached practical completion on the 62,000 square foot Canvey Island Retail Park in November, with an M&S Foodhall due to open at the site next week.

The development had a fully-let annualised rent roll of £1m, and a projected yield on cost of 9%.

Its convenience store development programme for the Co-op saw the completion of two further stores since the start of the third quarter, with a rent roll of £0.1m.

The firm said ti was on track to deliver a total of 25 by the end of the 2019 financial year, having currently completed 23.

Looking at the books, NewRiver said it performance was underpinned by a fully unsecured balance sheet, with all assets unencumbered.

Its third quarter ordinary dividend rose 3% to 5.4p per share, with the dividend for the financial year to date also ahead 3% to 16.2p per share.

The company’s loan-to-value ratio stood at 35% based on September valuations, which was well within its stated guidance of less than 40%, and left it with the capacity to deploy “with discipline”.

“NewRiver has had a solid third quarter as evidenced by the robust operating metrics across our retail and pub portfolios,” said chief executive officer Allan Lockhart.

“Pleasingly, we completed the construction of our largest pre-let retail development to date at Canvey Island Retail Park in Essex and continued our programme of capital recycling on terms 2% ahead of March 2018 valuations.

“The integration of Hawthorn Leisure is on track to complete later this month, and we have made excellent progress towards realising the £3m of synergies identified at the time of acquisition, as well as leveraging Hawthorn Leisure's pub operating expertise across our wider retail portfolio.”

Lockhart said NewRiver's portfolio of wet-led community pubs now accounted for over 20% of its total assets, adding further diversification to the firm’s income streams.

“Looking ahead, we expect the retail sector to continue to face headwinds in the near-term, particularly in the department store and mid-market fashion sub-sectors which we have consistently avoided.

“We are confident that our focus on the resilient sub-sectors of food and grocery, discounters, value fashion, health and beauty, and community pubs is the right strategy as evidenced by the solid Christmas trading performance recently reported by our key occupiers.”