Focus on convenience a solid play for NewRiver

The FTSE 250 real estate investment trust took over Hawthorn Leisure in May for £106.8m , representing a net initial yield of 13.6%.

It included a portfolio of 298 “high quality” community pubs and an established pub management platform, which was expected to generate at least £3m of annualised operating synergies.

NewRiver said the integration of the business was progressing “well”, with a dedicated committee established to involve all stakeholders in the process, and completion expected in the last quarter of the 2019 financial year.

Grays Shopping Centre was acquired in June for £20.2m, representing a net initial yield of 9.4% on the shopping centre element and a capital value across the whole site of £40 per square foot.

NewRiver said the purchase was “well-located”, with the City of London accessible by train in less than 35 minutes.

“[We are] now pursuing opportunities to meet demand for a budget hotel, budget gym and discount food retailer, and to secure planning permission to build up to 300 residential units,” the NewRiver board said in its statement.

The Hollywood Retail & Leisure Park in Barrow-in-Furness was acquired this month for £15.3m, representing a net initial yield of 8.7%, with the company focussing on the conversion of two existing units to introduce Aldi to the asset.

Acquisitions and the strength of NewRiver’s underlying cash flows supported a first quarter ordinary dividend increase of 3% to 5.4p, the board told shareholders.

The board said a focus on convenience and community was continuing to deliver “robust” operating metrics, with its high level of retail occupancy sustained at 96.2% - down from 96.5% in March.

Pub occupancy of 99.0% including Hawthorn Leisure was stable, with the company’s pub portfolio trading performance benefitting from the FIFA World Cup.

The company’s shopping centre footfall apparently outperformed the UK benchmark by 50 basis points in the period, though it was down 2.5% on a like-for-like basis.

Its average retail rent remained “affordable and sustainable” at £12.35 per square foot, down slightly from £12.36 in March.

Over 99% of first quarter rents had already been collected, the board said, with its retention rate sitting at 94% based on lease expiries and breaks during the period.

Looking at its portfolio, NewRiver had 50 leasing events across 160,800 square feet during the quarter, securing annual rent of £1.4m.

That included the letting of a 12,900 square foot unit formerly used for storage at The Broadway Shopping Centre in Bexleyheath, to low cost gym operator The Gym Group on a 15-year lease, unlocking £162,500 of annualised incremental income.

It said long term deals were on average 2.4% higher than the March estimated recovery value, with an average lease length of 7.9 years.

NewRiver made progress on its strategy to extract value from its “market-leading asset management platform”; and was selected as asset manager by a local authority shopping centre owner subject to a final agreement.

During the first quarter the firm completed a strategic review of its entire portfolio, reportedly identifying the potential to deliver up to 1,300 residential units adjacent to or above its retail assets over the next 5-to-10 years, in addition to the 1,100 units already included within its 1.9 million square foot risk-controlled development pipeline.

“[The] residential opportunity has potential to deliver up to £140m of development profit,” the board said.

NewRiver added that the on-site phase of the Canvey Island Retail Park development was progressing “well”, with practical completion scheduled for the third quarter of 2019.

On completion, it would activate an annualised rent roll of £1m and a projected yield on cost of 9%.

It also made continued progress with its convenience store development programme for the Co-operative, and was on-site with three further stores, which on completion would bring the total number delivered to 23.

“The Co-operative is currently reviewing sites across the Hawthorn Leisure portfolio for convenience store development potential.”

Opening up the books, NewRiver said it had a “strong” balance sheet underpinning its growth plans.

It said that, following acquisition activity, its loan-to-value was 35% based on March valuations - an increase from 28% in March.

That loan-to-value ratio was still within its stated guidance of less-than-40%, with community pubs now accounting for 19% of the £1.4bn portfolio following the Hawthorn Leisure acquisition.

NewRiver completed £2.2m of profitable capital recycling on terms 11% ahead of its March valuation, with a further £22.8m of disposals under offer and £32.2m in the market.

“This has been an active period for NewRiver, in which our continued focus on convenience and community retail and leisure assets, characterised by frequent spend on everyday essential goods and services, has enabled us to continue to deliver robust operational performance despite wider sector headwinds,” said chief executive Allan Lockhart.

“Our portfolio is focused on the fastest growing and most sustainable sub-sectors of the UK retail market, with grocery, convenience stores, value clothing, health and beauty, and discounters forming the core of our retail portfolio, and a deliberately limited exposure to department stores of just 0.1% of our total rent roll.”

Lockhart said that across its portfolio, NewRiver was progressing “a number” of opportunities to unlock further value, having identified the potential to develop an additional 1,300 residential units across its retail portfolio and commenced a review of the Hawthorn Leisure portfolio to identify convenience store development sites.

“In addition, we continue to recycle capital profitably, with £25m of disposals completed or under offer, and over £30m in the market.

“The 3% increase in our first quarter dividend to 5.4p reflects our continued commitment to deliver growing and sustainable cash returns to shareholders.”