# NewRiver REIT Plc Active approach delivering resilient performance from convenience-led community assets

- Link: https://www.directorstalkinterviews.com/newriver-reit-plc-active-approach-delivering-resilient-performance-from-convenience-led-community-assets/412764486
- Published: 2019-01-17T07:45:45+00:00
- Author: Charlotte Edwards

**NewRiver REIT Plc** (LON:NRR), today announced 3Q company update.

> **Allan Lockhart, Chief Executive commented:** “NewRiver has had a solid third
> quarter as evidenced by the robust operating metrics across our retail and pub
> portfolios. 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 £3 million of synergies identified at
> the time of acquisition, as well as leveraging Hawthorn Leisure’s pub operating
> expertise across our wider retail portfolio. NewRiver’s portfolio of wet-led community
> pubs now accounts for over 20% of our total assets, adding further diversification
> to our 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.”

**Focus on Convenience & Community sub-sectors of the retail market continues to
deliver robust operating metrics**

· High level of retail occupancy sustained at 95.5% (Sep 2018: 96.2%); decrease 
due predominantly to a vacancy created by the upsize of JD Sports at Priory Meadow,
Hastings, to a larger unit within the centre, and modest impact of retailer CVAs
and administrations, where the expected FY19 FFO impact has reduced to £1.4 million,
from £1.6 million announced in November 2018, due to good progress in re-letting
former Poundworld units

· Average retail rents remained affordable at £12.37 per sq ft (Sep 2018: £12.48);
99.6% of Q3 rents collected to date

· Signed 119 leasing deals across 378,100 sq ft; long term deals at an average rent
per sq ft of £14.61 (increased from previous rent of £13.14) and in-line with September
2018 ERV; highlights included two lettings to B&M, including a unit formerly occupied
by Next at South Lakeland Retail Park, Kendal, where we secured an 11% improvement
on previous passing rent; and the letting of three vacant units at The Ridings shopping
centre, Wakefield, to community cinema operator Reel Cinemas

· Like-for-like footfall across the shopping centre portfolio declined 1.8% outperforming
the UK benchmark by 180 bps, reflecting the essential nature of the day to day spend
at our centres

**Community pub operating metrics remain strong and Hawthorn Leisure integration
to complete on schedule**

· Pub occupancy remained high at 98.9% (Sep 2018: 98.6%); 671 pubs now account for
22% of total portfolio

· Hawthorn Leisure integration to complete by the end of January 2019; FFO will 
then benefit from £2 million of the £3 million synergies identified at the time 
of acquisition: includes £1.7 million announced in H1 secured through supply contract
renegotiations and further £0.3 million unlocked in Q3; remaining £1 million to 
follow in FY20

· Hawthorn Leisure portfolio trading well; like-for-like EBITDA per pub up 0.8% 
in Q3, and up 4.3% in the two weeks to 31 December 2018; beer volumes up 10.2% in
two weeks to 31 December 2018

· Opened first community pub in a NewRiver shopping centre, with the launch of the
Keg & Kitchen at The Ridings shopping centre, Wakefield, operated by Hawthorn Leisure;
early trading performance has been encouraging and other opportunities across the
wider portfolio are under review

Continued programme of profitable capital recycling and disciplined acquisitions

· Completed asset disposals totalling £23.9 million (at NewRiver share), representing
a 2% premium to March 2018 valuation and an average NIY of 5.2%, and completed £
12.0 million of acquisitions at a NIY of 17.1%

· In October 2018, disposed of 22 community pubs let on 15-year leases to Marston’s
for £14.8 million, representing a NIY of 5.6%; in December 2018 recycled part of
the proceeds into the acquisition of 76 community pubs from Star Pubs & Bars for
£12.0 million, representing a NIY of 17.1%

· In November 2018 disposed of a supermarket in East Ham, London, for £7.7 million(
NewRiver share: £3.8 million), representing a NIY of 4.9%

· In December 2018 and January 2019 disposed of four Co-op c-stores for total proceeds
of £4.8 million, representing a NIY of 5.0%

**Risk-controlled development pipeline delivering additional cash returns**

· Reached practical completion on the 62,000 sq ft Canvey Island Retail Park in 
November 2018; M&S Foodhall due to open at the site next week; fully-let annualised
rent roll of £1 million and projected yield on cost of 9%

· Convenience store (‘c-store’) development programme for The Co-op saw completion
of two further c-stores since the start of Q3 with a rent roll of £0.1 million; 
on track to deliver a total of 25 by the end of FY19 (currently 23)

**Performance underpinned by a fully unsecured balance sheet with all assets unencumbered**

· Third quarter ordinary dividend up 3% to 5.4 pence per share (Q3 FY18: 5.25 pence);
dividend for the financial year to date up 3% to 16.2 pence per share (FY18 YTD 
15.75 pence)

· LTV of 35% (based on Sep 2018 valuations), well within our stated guidance of 
less than 40%, and with capacity to deploy with discipline

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