Despite economic woes, NewRiver REIT has amassed enough cash to ensure chief executive Allan Lockhart still has plenty of strategic cards to play.
Having shored up £110m of cash, much of which is held on deposit with the banks, Lockhart (pictured) told EG its options for deploying capital include buying its own shares – since it is trading at a “material discount” – as well as deploying capital into “direct” real estate in its portfolio. Its balance sheet is not exposed to rising interest rates until 2028.
“As it stands at the moment, and given cash gives you so much flexibility and optionality… the key for us is deploying that capital [to] deliver the very best outcome for our shareholders,” said Lockhart.
The news comes after NewRiver posted a modest 5.9% like-for-like decline in portfolio value to £593.6m in the year ending 31 March. Its LTV ratio improved to 33.9%, from 34.1% last year.
Promising signs for rental growth
Net property income grew by 5% during the year, when adjusted for disposals. Lockhart said the prospects for consistent rental growth over the coming years are “encouraging”.
“The retail occupational market is in a much better place than it has been for many years,” he said. “It’s leaner, fitter, definitely more agile. We have seen a significant reduction in tenant failures, below the average since 2007.”
Demand is also solid, with Lockhart pointing to a “tight supply” in NewRiver’s portfolio. Occupancy reached 97% during the year, which is its highest level in five years. Upon lease expiry or break clause last year, 92% of occupiers stayed in NewRiver’s portfolio.
Lockhart noted that omnichannel and bricks-and-mortar retailers have seen a “very strong bounceback”.
In contrast, pure-play online retailers are “the only area of the market that is really challenged” after a period of rapid growth. He observed it has struggled in a high inflation environment that has “squeezed already tight margins”, while consumers return to physical stores.
Positive prospects for physical retail
Consumer confidence is also “a lot better” than the financial markets were expecting, according to Lockhart. On top of record levels of low unemployment, consumers have some £200bn of excess savings on deposit and house prices are “broadly stable”, he said. Retail sales volumes have also recovered to pre-pandemic levels.
Lockhart expects inflation to ease by the end of this year to around 5%, and with that, a rise in living standards into 2024 as wage growth catches up with inflation.
And although retailers continue grappling with rising wages and energy costs, Lockhart said overall cost pressures are easing. He observed a “significant” reduction in supply chain costs, including freight.
“That’s all going to be super positive for retailers,” he said. “There’s no doubt that physical store-based retailers and omnichannel retailers have emerged as the winners out of this high inflation, high interest rate environment.”
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