NewRiver makes solid first-half progress as developments continue

Retail-focussed real estate investment trust NewRiver was upbeat on its first half results on Wednesday, reporting that its convenience-led strategy was delivering “growing and sustainable” cash returns to shareholders.

The FTSE 250 firm’s funds from operations were up 8% to £26.5m in the six months to 30 September, although funds from operations per share dropped to 10p from 10.5p a year ago following the issue of 67 million new ordinary shares.

Its ordinary dividend per share was increased 5% to 10.5p, which was currently 95% covered by funds from operations as the £225m of equity raised in July was not yet fully deployed.

A third quarter ordinary dividend was also announced on Wednesday at 5.25p per share, improving from 5p a year ago.

The EPRA net asset value per share increased 2% to 297p during the six month period, with the board reporting a revaluation surplus of 0.2%, total property return of 4.9%, a 140 basis point premium on the MSCI-IPD All Retail benchmark, and a total accounting return of 6.3%.

IFRS profit after tax was £29.3m, well ahead of the £6.5m reported 12 months ago, which NewRiver said was due to “positive fair value movements”.

It added that IFRS basic earnings per share were 11p, rising from 2.8p, with IFRS net assets standing at £906.2m at period end, compared with £684.5m at the start.

“I am pleased to report another successful and highly active period for NewRiver across all aspects of the business, as we continue to build a strong platform to deliver growing cash returns,” said chairman Paul Roy.

During the period, NewRiver successfully raised £225m of equity at a 15% premium to EPRA net asset value.

The significantly over-subscribed equity raise in July was priced at 335 pence per share, a 14.7% premium to the March EPRA net asset value and a 2.9% discount to the 20 day average closing price.

It immediately acquired the remaining 50% share in BRAVO joint ventures for a cash consideration of £59.4m, gaining control over four convenience-led community shopping centres in Belfast, Glasgow, Hastings and Middlesbrough with a gross asset value of £240m, at an equivalent yield of 7.7%.

The remaining equity was to be deployed “with discipline” into accretive acquisitions and risk-controlled developments, the NewRiver board explained.

“In the capital markets, we have put down important foundations for the future,” Paul Roy added.

“We raised £225m of equity at a substantial premium to net asset value, and completed the transitional move from secured to unsecured borrowing by raising £430m of unsecured facilities, providing us with increased flexibility and maturity at a reduced cost.”

NewRiver also completed its “transitional move” from secured to unsecured financing during the half, with £430m of new facilities.

It successfully arranged the new unsecured debt facilities to replace the majority of secured debt, with the new facilities including a £215m revolving credit facility, a £165m term loan and a £50m bridge.

The unsecured facilities would provide increased flexibility and debt maturity at an all-in cost of debt of 3.6%, slightly ahead of the all-in cost of 3.5% reported in March, which would reduce to 2.85% once the £215m revolving credit facility was fully drawn.

Its loan-to-value ratio stood at 25% at the end of the period, down from 37% at the start following the equity raise, with the board noting it would increase to around 40% in line with its guidance.

NewRiver’s interest cover remained “strong” at 4.6x, up from 4.3x a year ago.

On the operational front, NewRiver said it was maximising its income and crystallising its value through active asset management and profitable recycling.

A total of 113 leasing events took place in the period across 505,600 square feet, with long term retail deals on average 1.5% against the estimated recovery value.

Retail occupancy was maintained at 97%, in line with the start of the period, at an “affordable” average retail rent of £12.82 per square foot.

Retail like-for-like net income was down 0.4%, or up 0.9% excluding the impact of British Home Stores entering administration.

The company had let two former British Home Stores unity to fashion retailer Primark - a division of Associated British Foods - in the period.

Like-for-like footfall across its shopping centre portfolio was down 0.2%, which still outperformed the UK benchmark by 70 basis points.

The board also reported that crystallised value was recognised in its funds from operations of £0.4m, through £37.1m of disposals completed on average 4% ahead of March valuations, with disposals completed 13% ahead of total cost, generating £4.3m of cash profit.

“Despite a more challenging environment, we continue to be encouraged by the long-term trends we are seeing across our convenience and community-focused retail and leisure portfolio,” commented Paul Roy.

Looking ahead, NewRiver also said it was generating value and securing long-term income streams through risk-controlled developments.

Enabling works were underway at the 465,000 square foot mixed-use regeneration of Burgess Hill town centre, with the company exchanging conditional contracts for the pre-sale of the entire residential element for £34m in the period, and the retail & leisure element now 60% pre-let, up from 49% in March.

A 62,000 square foot consented retail park in Canvey Island, Essex was now 75% pre-let, up from 52% in March.

Planning consent was also obtained for a 236,000 square foot mixed-use development scheme in Cowley, Oxford, with outline planning consent obtained for a 100-unit residential scheme in Stamford, Lincolnshire.

Further progress was also made on its rolling convenience store programme, with three further ‘c-stores’ completed meaning 14 had been delivered to the Co-operative to date, and the 15th set to be delivered in the fourth quarter, triggering a £0.75m performance fee receipt.

“Convenience is a key driver for our customers and their frequent spend on non-discretionary items makes us resilient to the growth of online, as well as fluctuations in the consumer economy over the long-term.”

“Looking ahead, with our well positioned convenience-led community-focused portfolio and financial capacity, we are confident in our ability to continue to deliver growing cash returns to our shareholders,” Paul Roy explained.