NewRiver REIT is planning to make around £300m of disposals over the next five years, as it reports recovery in retail values and improving rental income.
The value of its retail portfolio fell by 3.1% to £702m on a like-for-like basis in the six months ending September, narrowing from a 9.4% drop in the first half of this year and a 6.1% decline in H2 last year.
NewRiver chief Allan Lockhart told EG that the REIT is planning to deploy surplus capital on acquisitions in the first quarter. Over the next three to four years, it aims to reshape its portfolio by focusing on retail parks, core shopping centres and regeneration projects.
The REIT’s disposal programme includes aims to exit its remaining seven risk “work out” assets by the end of its 2023 financial year, with four repositioned as core centres.
Some £236m of properties were offloaded during the period, including the Hawthorn pubs business, which generated £224m gross proceeds. After the period ended it completed a further £16.8m of retail disposals.
EPRA net tangible assets per share was down by 13% to 131p during the six months, on the back of the Hawthorn disposal.
IFRS loss after tax stood at £49.9m, improving on a £92.3m loss in the first half of this year.
Net property income rose to £32.4m for the period, from £27.1m. Retail net income was up 6.8% to £25.2m.
Partnering up
The REIT aims to file proposals for at least 250 build-to-rent homes on a Wickes site at the Moor in Sheffield, after securing 670,000 sq ft of planning consents relating to its Cowley and Burgess Hill developments. Works are also under way for a 19,000 sq ft Aldi store in Dewsbury.
Lockhart said the business is in “early discussions” with a joint venture partner on its residential-led Gray’s Shopping Centre redevelopment, which proposes around 800 to 900 homes with a reprovision of “a small amount” of retail after the existing centre is demolished. A formal planning application will be submitted next year.
It is also seeking operating partners for the BTR elements of its schemes.
“On some of our projects the opportunity would be to work with specialist partners that have greater experience in delivering large-scale, residential-led projects,” said Lockhart. “Equally some of the projects will offer the opportunity to forward-fund end product to specialist investors. We have quite a bit of flexibility on how we deliver our projects.”
Last month the firm sold Blenheim Shopping Centre in Penge, south east London, to a London residential developer for £12.4m.
A transformed balance sheet
The landlord’s loan-to-value ratio has reduced to 39.4% from 50.6% at year-end, driven by stabilising values. After repaying £335m of debt, the REIT said it had no refinancing obligations on drawn debt until March 2028. It has extended its undrawn revolving credit facility to August 2024.
Lockhart said the balance sheet has “completely transformed over the past 12 months” after the Hawthorn sale.
Liquidity in retail real estate has also shown clear improvement this year, driven by private investors in shopping centres and increasingly institutional investors in retail parks, according to Lockhart.
Citing MSCI data, Lockhart pointed to capital growth in the retail park sector for three consecutive quarters, driven by stabilising rental income and yield compression. He also noted that the decline in valuations for shopping centres has been improving, with yields now steadying and ERV decline narrowing.
“Valuations are close to levelling out and stabilising, supported by liquidity coming into the market,” said Lockhart. “For retail parks, 2021 is likely to be the second-highest year in terms of transaction volumes, for the past 10 years. in terms of shopping centres, deal volumes are three times higher than last year. All of this indicates the market decline we’ve seen over the past two to three years is levelling off.”
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