NewRiver signs conditional agreement to lease

RNS Number : 1554E

NewRiver Retail Limited

07 April 2014

 



NewRiver Retail Limited

("NewRiver" or "the Company")

NewRiver agrees to lease a significant portfolio of new convenience stores

to The Co-operative Group

NewRiver Retail Limited (AIM: NRR), the UK REIT specialising in value-creating retail property investment and active asset management, announces that The Co-operative Group Limited (the "Co-operative Group") has signed a conditional agreement to lease (the "Agreement") a significant element of the public house portfolio (the "Portfolio") acquired by NewRiver's BRAVO II joint venture partnership (a fund advised or managed by Pacific Investment Management Company LLC) on 28 November 2013.

Highlights:

·      Conditional agreement to lease 54 new convenience stores ("C-Store") from public house estate

·      Phased development programme over two years creating almost 200,000 sq ft of new retail space

·      Rental income agreed varies from £15.00 per sq ft to £17.50 per sq ft

·      Institutional quality standard lease length of 15 years with no break option and RPI-linked rental increase

·      Incentivised completion programme realising up to £2.7 million in additional proceeds

·      Efficient delivery of NewRiver's stated plan to identify viable demand from major food store operators for C-Store portfolios

Under the Agreement, NewRiver has agreed to lease a portfolio of 54 new C-Store across the UK to The Co-operative Group. The majority will be new-build projects constructed on surplus land adjacent to the existing public houses. The remaining part of the Portfolio will be conventional conversions from public house use to C-Stores, or redeveloped as standalone convenience retail stores. NewRiver will undertake all planning, development and contract requirements to deliver the end product to The Co-operative Group. It is expected that the majority of the completed assets will be delivered within two years.

In total, NewRiver is developing almost 200,000 sq ft of new C-Store space for The Co-operative Group. Finished unit sizes, each with appropriate car parking, will range from 3,000 sq ft to 4,500 sq ft which allow for stores to be open seven days a week.

This unique portfolio leasing arrangement reflects the significant demand from national food store operators and consumers for accessible, community-based multi-range food stores.

The lease terms are 15 years with no break clause and an annual RPI-linked rental increase formula capped at 4% and collared at 1%. The rental income agreed varies between £15.00 per sq ft and £17.50 per sq ft.

As a result of NewRiver's position to be able to rapidly provide The Co-operative Group with a large portfolio of C-Stores, the Agreement is performance incentivised whereby NewRiver will receive additional payments upon delivery of various tranches of the Portfolio. The total fee payable is up to £2.7 million.

Importantly, as the majority of the Portfolio will utilise surplus land (car parking, under-utilised garden space) a number of the public houses will continue to operate in their original format, maintaining a high yielding rental income.

In November 2013, NewRiver announced its £90 million acquisition of a portfolio of 202 public houses from Marston's with the primary intention of conversion of land and buildings to alternative use, principally into convenience stores. At completion Marston's agreedthrough a leaseback arrangement to lease the entire portfolio for a minimum term of up to four years for a total annual rent of £12,235,000, reflecting a net initial yield of 12.8%.

Allan Lockhart, Property Director at NewRiver Retail, said:

"We are delighted to complete this unique and innovative leasing agreement less than five months since we acquired the Portfolio. NewRiver has efficiently delivered on its stated intention to identify viable demand from major food store operators to expand their convenience store portfolios."

"The agreement is a prime example of how NewRiver's successful strategy of strong retailer relationships, active asset management and risk-controlled development generates significant value through the creation of institutional investment class assets. The agreement significantly develops the Co-operative Group's UK footprint and we look forward to expanding our strong relationship with them in the future."

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For further information

NewRiver Retail Limited  David Lockhart, Chief Executive Mark Davies, Finance Director	Tel: [phone]
Bell Pottinger David Rydell/Guy Scarborough/Charlotte Offredi	Tel: [phone]
Liberum Shane Le Prevost/Tim Graham/Simon Atkinson	Tel: [phone]

About NewRiver

NewRiver Retail Limited is an AIM listed REIT. The Company is a specialist real estate investor and asset manager focusing solely on the UK retailing sector with a particular focus on food and value retailing.

The management team, with over 100 years combined experience in the UK commercial property market, actively engages with retailers, stakeholders and consumers. NewRiver Retail is the UK's third largest Shopping Centre owner by number with assets under management of approximately £600 million principally comprising 25 UK wide shopping centres, two supermarkets and a portfolio of 202 public houses mainly suitable for conversion to alternative uses. The portfolio has in excess of 1155 occupiers, a total of 4.6 million sq ft, total annual footfall of over 112 million and a retail occupancy rate of 964 per cent.

The Company's activities include active and entrepreneurial asset management and risk-controlled development, utilising both its own balance sheet and co-investment joint venture structures.

Founded in 2009, NewRiver has become the UK's leading retail-focused property investment business. The Company's shares were admitted to London's AIM in September of the same year. For more information on NewRiver, please visit www.nrr.co.uk

Please see below the statement issued by The Co-operative this morning:

THE CO-OPERATIVE TO DEVELOP 54 PUBS SITES FOLLOWING INNOVATIVE DEAL WITH NEWRIVER RETAIL

The Co-operative Food has signed an agreement to lease 54 pub sites from the Marston's Plc public house portfolio owned by NewRiver Retail.

Last month Steve Murrells, Chief Executive of The Co-operative's retail division, announced that the Food business plans to open more than 100 new convenience stores this year.  This is the first major lease agreement that the business has secured since that announcement.  In order to maintain its position as the UK's leading convenience retailer, The Co-operative Group is building its pipeline to enable the opening of 150 food stores per year across the UK.

The properties are located throughout the country but with a concentration in Central, Eastern and Northern England. The majority will be new-build projects to be constructed on surplus land adjacent to the existing public houses.  A smaller number of public houses will be either converted to convenience store use or redeveloped as standalone convenience retail stores, whilst some of the assets will be significantly expanded in size through the addition of an extension or new-build.

Finished unit sizes will range from 3,000 sq ft to 4,500 sq ft, and the first of the new stores is expected to open early in 2015.

The lease terms are 15 years with no break clause and an annual RPI-linked rental increase formula capped at four per cent and collared at one per cent. The rental income agreed varies between £15.00 per sq ft and £17.50 per sq ft.

Importantly, as the majority of the portfolio will utilise surplus land such as car parks and under-utilised garden space, a number of the public houses will continue to operate in their original format under lease to NewRiver Retail.

Steve Murrells said: "The Co-operative Group has a clear vision to establish itself as the best local food retailer in the UK and over the coming years our focus will be to develop and grow our existing convenience estate of over 2,000 stores.

"Our focus is on convenience stores and a move away from larger stores, as we look to highlight our strengths and consolidate our position as number one in the competitive convenience market.  To do this we are investing in our stores to ensure that the product offering, the service and the prices appeal to shoppers."

Stuart Hookins, Head of Portfolio Strategy, Acquisitions and Disposals at The Co-operative Food, added: "Part of our acquisitions strategy is to explore creative ways to acquire stores, and this is a great example of that approach at work, adding over 50 stores in one transaction.  The speed at which this acquisition was completed - four months from start to finish - is a testament to our decision making and ability to progress deals quickly."

Allan Lockhart, Property Director at NewRiver Retail, said:  "We are delighted to complete this unique and innovative leasing agreement less than five months since we acquired the Portfolio. NewRiver has efficiently delivered on its stated intention to identify viable demand from major food store operators to expand their convenience store portfolios.

"The agreement is a prime example of how NewRiver's successful strategy of strong retailer relationships, active asset management and risk-controlled development generates significant value through the creation of institutional investment class assets. The agreement significantly develops the Co-operative Group's UK footprint and we look forward to expanding our strong relationship with them in the future."

In November 2013 NewRiver announced its £90 million acquisition of a portfolio of 202 public houses from Marston's, with the primary intention of conversion of land and buildings to alternative use, notably convenience stores.

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