NewRiver REIT has posted declines in net asset value per share and portfolio value, but has emphasised its ongoing effort to diversify its portfolio as the retail sector continues to struggle.
The landlord, which focuses on convenience stores and pubs, reported EPRA NAV per share of 283p for the first six months of its 2019 financial year, down by 3.1% from 292p in March 2018. This was affected by a valuation decline of 1.8%.
Like-for-like net income across the retail portfolio fell by 0.5%, caused by retailer company voluntary arrangements and administrations. Its retail occupancy was 96.2%, while pub occupancy was 98.6%.
However, its ordinary dividend per share for the six months increased by 3% to 10.8p, compared with 10.5p in HY18.
The landlord said there were 127 retail leasing events across 653,000 sq ft, and that it had struck long-term deals on terms 10.7% ahead of previous rent.
For Allan Lockhart, chief executive of NewRiver, the letting activity demonstrated the enduring popularity of physical space for retailers.
Lockhart said: “The physical store is absolutely vital to the majority of retailers. When you look at total spend in the UK in 2017, it was around £327bn, and 85% of that – £281bn – relates to in-store retailing. It remains an important part of the retailer’s business, particularly in the sectors we are focused on.”
Lockhart also highlighted the REIT’s active disposals programme, which is on track to sell around 5% of its portfolio during the financial year.
It completed around £15m of disposals in the period, ahead of March 2018 valuations. One example was the sale of a Sainsbury’s store in East Ham, which sold 18% above March book value.
Post-period end, a further £44m of disposals either completed or are under offer.
“We are seeing good investor demand for our assets when we choose to sell,” said Lockhart.
Asset management platform
Separately, the landlord is in discussions with “a number of local authorities” to expand its asset management platform next year. During the period it formed its first deal with Canterbury City Council, which will manage Whitefriars Shopping Centre.
“Overall we are in good shape. We are looking ahead to next year with confidence,” Lockhart said. “We still have capital to deploy.”
The REIT has made a significant push to diversify its portfolio. This includes its investment in community pubs through the acquisition of Hawthorn Leisure in May.
It reported average retail rent of £12.48 per sq ft, up on £12.36 in March. The REIT said it deliberately limited exposure to structurally challenged sub-sectors such as department stores and casual dining.
Residential pipeline
During the period the REIT also completed a strategic review of its entire portfolio, identifying potential to deliver up to 1,300 residential units adjacent to or above its retail assets over the next five to 10 years, in addition to an existing pipeline of 1,100 units.
So far, the REIT has secured 1m sq ft of planning permission mostly for residential projects, of its 1.8m sq ft pipeline.
Lockhart said: “NewRiver has delivered a robust performance in a challenging market, with resilient cash returns underpinned by solid operational metrics. Our continued focus on the growing sub-sectors of the market characterised by convenience, value and frequent spend on everyday essentials continues to serve us well.
“Looking ahead, our income profile is well-diversified and we have deliberately avoided sub-sectors such as department stores, mid-market fashion and casual dining, which we believe are most exposed to the structural changes impacting the retail market.
“The way that people live, work and consume is evolving rapidly and, as an active and specialist owner of community assets with a strong balance sheet, we are well placed to adapt to and benefit from these changes.”
To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette
