NewRiver REIT’s chief executive Allan Lockhart has stayed upbeat about the prospect of disposing of assets during the Covid-19 crisis, while highlighting a potential return to shopping centre acquisitions.
Earlier today the landlord disclosed a loss after tax of £121.1m for the year to 31 March, hit by disruption from the Covid-19 pandemic.
The landlord is targeting £80m-£100m in disposals this year to help bring its LTV down from 47%.
Despite the strain that the pandemic has placed on liquidity and the retail capital markets, Lockhart is confident that the landlord will meet this goal.
He pointed out that the company offloaded £48.4m in assets last year, equalling 75% of its disposals target.
“We would have exceeded it if not for the onset of Covid-19,” said Lockhart. “But we are pleased with the disposal we did achieve – it was not as if last year was an easy market, with uncertainty around Brexit and the general election affecting confidence. We are confident we can repeat that this year.”
Improving liquidity
Lockhart also expects liquidity to improve as lockdown measures are eased and non-essential retail continues to reopen. Around 64% of the REIT’s retailers have resumed trading across England and Wales.
“We expect the vast majority of our estate will be open within the next 10 days,” he said. “This will be very positive for revenue collection and [rebuilding] confidence in the capital markets.
NewRiver is also preparing to reopen its pub estate on or around 4 July.
“One of the consequences of Covid-19 is no one will be going on holidays abroad,” Lockhart added. “There will be a lot more staycations, and we will pick up the benefits of that – not just through our pub estate but also through our retail locations near seaside destinations.”
“With challenge comes opportunities”
While NewRiver aims to reduce its LTV through disposals, it will also continue to acquire properties through its joint venture with US private equity firm Bravo.
“We expect to see some really attractive opportunities during the rest of the year,” said Lockhart. “There are challenges in the market, but with challenge always comes opportunities. We expect to be active in the market and growing our jv over the next 12 months.”
He added that while acquisitions in this arena involve third-party debt, he felt confident in the REIT’s ability to access debt on the back of its “strong” lender relationships.
Lockhart also identified opportunities in the shopping centre market, as values continue to decline.
“We haven’t bought a shopping centre for nearly three years now, because we didn’t think the pricing was attractive enough,” said Lockhart. “But now I think there will be opportunities over the next 12 months to two years, where you can acquire a high quality shopping centre with a long-term sustainable future, at a really attractive price, or there will be the opportunity to buy one where the greater value is in its alternative use.”
Sub-sectors with potential
He highlighted that the landlord’s last shopping centre acquisition – the 170,000 sq ft Grays centre in Essex – is in pre-planning stages for conversion into more than 800 homes, with scope for a hotel and some retail.
“This is the type of project that really interests us, and where we have both the asset management and the development skillsets to transition these properties from retail into a classic mixed-use regeneration project,” said Lockhart. “This is a great area for us as a business in the medium to long term.
Retail park acquisitions will also remain firmly on the agenda: “We are very positive about retail parks and will continue to increase our weighting in [this area],” said Lockhart.
High occupational demand, low service charges and ability to complement click-and-collect services were all highlighted as key drivers behind this investment strategy.
The landlord is also looking to buy more pubs, on a “selective” basis. “We are confident there will be select opportunities for us to allocate more capital into the pubs sector,” Lockhart said.
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