Q3 Portfolio Update

RNS Number : 3758M

NewRiver Retail Limited

20 January 2016

 

NewRiver Retail Limited

("NewRiver" or the "Group" or the "Company")

Q3 Portfolio Update

Highly active third quarter and post-period with transactions totalling £150 million including

£108 million of acquisitions, average yield of 8% and disposals totalling £41 million

Delivery of first Co-operative C-Store

Active asset management delivering value and creating retail occupancy uplift

NewRiver Retail Limited (AIM: NRR), the UK REIT specialising in value-creating retail property investment and active asset management, announces the following portfolio update for the third quarter, beginning 1 October 2015 and ending 31 December 2015.

HIGHLIGHTS

• Deployment of majority of proceeds of oversubscribed £150 million equity fundraise through Neptune Portfolio acquisition (completed 18 January 2015), a portfolio of three shopping centres for a total consideration of £92.3 million, equating to a NIY of 8.1%
• Acquisition of three further retail assets for a combined total of £15.6 million at a blended net initial yield of 7.3%
• Three disposals totalling £31.9 million including Regent Court in Leamington Spa for £28.4 million, NIY of 5% delivering an IRR of 129%; Ferensway, Hull for £3.0 million, NIY of 4%, an IRR of 112%; and a single pub for £475,000, an uplift on purchase price, generating an IRR of 58%
• Post-period sale of a retail warehouse site in Auchinlea, Glasgow, part of the Ramsay Retail Warehouse portfolio acquired in July 2015, sold for £9.0 million, 177% IRR; and exchange on the sale of a single pub for £925,000, an uplift on purchase price, expected to generate an IRR of 30%
• Including post-period transactions, assets under management now total £1.1 billion (30 Sept 2015: £978.5 million)
• Strong portfolio-wide performance from retailers during Christmas period, with majority of retailers reporting increased sales and conversion versus comparable period
• Total rent roll under management at 31 December 2015, following disposals during the period, totaled £85.3 million pa (30 Sept 2015: £85.3 million); following post-period transactions current rent roll now totals £94.4 million
• Weighted Average Lease Expiry ("WALE") for the retail portfolio steady at 7.1 years (30 Sept 2015: 7.4 years)
• Improved retail occupancy rate of 97.3% (30 Sept 2015: 96.3%)
• The average retail rent for the portfolio remained affordable at £12.45 per sq ft. (30 Sept 2015: £12.35 per sq ft.)
• 67 leasing events achieved during the period, of which 32 were long-term new lettings and lease renewals securing a total of £1.8 million pa in rent, 3.3% above ERV (30 Sept 2015: 22.6%) with an improved average lease length of 11.4 years (30 Sept 2015: 8.7 years). Occupier incentives continue to decrease, now at an average of 5.1 months equivalent rent (30 Sept 2015: 5.7 months)
• Completion of first Co-operative convenience store on a 15-year lease at £73,000 pa which opens this week; on-site for a further three. Jackie Moody-McNamara, formerly of Punch Taverns, appointed as new Pub Portfolio Director
• Exchanged contracts with Travelodge for a 71 bed hotel in Cowley, Oxford ahead of planning submission for a £64 million mixed-use redevelopment
• Fifteen planning applications submitted during the period: in Worthing, Hastings, Erdington and 12 residential applications within the pub portfolio. Five consents secured: in Morecambe and Blackburn with a further three residential consents within the pub portfolio
• Good progress across the Company's 1.25 million sq ft mixed-use development pipeline including construction commencing on-site for Wallsend's Phase II to create a new Aldi and Burger King

David Lockhart, Chief Executive at NewRiver Retail, said:

"Following a highly active period NewRiver has again demonstrated its track record in quickly deploying equity capital with acquisitions completed in Q3 and post-period totalling a combined £108 million, at an average yield of 7.94%.

The fourth quarter has got off to an encouraging start, with a £9 million post period disposal, reflecting our commitment to effectively recycling capital. We look forward to the opportunities that 2016 presents including our planned move to a Premium Listing on the Main Market in July."

ACQUISITIONS AND DISPOSALS

·    During the period, NewRiver announced that it exchanged contracts to acquire the Neptune Portfolio for a total consideration of £92.3 million, equating to a net initial yield of 8.1%, an equivalent yield of 9.6% and a reversionary yield of 10.5%. The acquisition completed on 18 January 2016. The portfolio comprises the Ridings Shopping Centre, Wakefield in West Yorkshire; the Cornmill Shopping Centre, Darlington in the North East of England; and the Capitol Shopping Centre, Cardiff in South Wales.

·    NewRiver also completed the acquisition of three further retail assets comprising one shopping centre and two retail warehouses for a combined total of £15.6 million, at a net initial yield of 7.3%. The three retail assets comprise of the Blenheim Shopping Centre in Penge, in the London Borough of Bromley; a retail warehouse in Daventry, Northamptonshire; and a retail warehouse adjacent to the Clifton Moor Retail Park in York, currently let to discount retailer B&M.

These strategic acquisitions, totaling £108 million, demonstrate the Company's proven ability to swiftly deploy funds and deliver on its business model of acquiring strategically selected retail assets, that will generate attractive cash on equity returns with identifiable opportunities to deliver capital and income growth through the Company's active asset management and risk-controlled development.

The acquisitions have also grown the Company's core asset base, its Shopping Centre Portfolio, to 32 centres.

·    During the period, NewRiver completed £31.9 million of disposals, including the £28.4 million sale of Regent Court in Leamington Spa, NIY of 5%, generating an IRR of 129%. Regent Court was acquired in 2012 for £10.45 million, reflecting a NIY of 8.9% as part of the Camel II portfolio. The sale to an institutional buyer follows the Company's successful repositioning of the asset from a low occupancy thoroughfare, to Leamington Spa's leading food and restaurant destination.

·   The Company also disposed of 119-121 Ferensway in Hull for £3.0 million reflecting a NIY of 4.0% and equating to an IRR of 112% during the quarter and the sale of its first pub from the original Marston's portfolio, for £475,000, representing an IRR of 58%

·   Post period disposal of a retail warehouse site in Auchinlea, Glasgow - acquired as part of the Ramsey Portfolio in July 2015 - to an owner occupier for £9.0 million generating an IRR of 177%. Additionally, the Company exchanged on the disposal of a single pub for £925,000, expected to generate an IRR of 30%.

Disposals during and post-period total £41 million and demonstrate the Company's commitment to efficiently recycling capital.

KEY ASSET MANAGEMENT HIGHLIGHTS

NewRiver continues to enhance and drive the value of its portfolio through strategic active asset management. The Company successfully completed 67 leasing events during the period including exchange of contracts with Travelodge in Cowley, Oxford, as well key lettings with Burger King, Costa Coffee, EE, Card Factory and Groupe Gerraud.

Long-term leasing events achieved a total rental income 3.3% above valuation ERV at a significantly increased average lease length of 11.4 years, securing an annual rent of £1.8 million.

The Company has achieved an improved occupancy of 97.3% and increased total annual footfall to 130 million shoppers. The portfolio's top 15 retailers (defined by rental income) continue to be underpinned by successful national retailers including Poundland, New Look, Boots, Primark, Superdrug, Wilkos, ASDA, Argos and B&M. Key highlights include:

• Completion of the 20,000 sq ft Packhorse Kitchen in Huddersfield, introducing two new restaurants and modern new food court anchored by a Burger King and re-activating formerly vacant space. Since opening in December The Packhorse Kitchen has contributed to a 30% uplift in footfall and experienced strong early trade, repositioning The Packhorse into one of the town's leading food and leisure destinations.
• Two new lettings to Burger King, in Middlesbrough on a 20-year lease, at a base rent of £50,000 pa plus turnover linked top-up; and in Wallsend for 20-year lease, at a rent of £60,800 pa plus a 10% turnover top-up
• On-site for the delivery of Phase II in Wallsend to create an 18,500 sq ft Aldi and a 1,500 sq ft Burger King. Wider centre refurbishments, roof works and improved signage have been completed alongside a new 25-year lease at £175,000 pa across 20,000 sq ft, to leading market operator Groupe Gerraud to provide 52 individual traders, with 48 already pre-let
• New letting to Costa Coffee in Wallsend for a new 10-year lease at £37,500 pa
• Two lettings with The Works: in Wisbech on a 10-year lease for £45,000 pa across 2,000 sq ft; and in North Shields for £27,500 pa across 2,300 sq ft.
• New letting to EE in Boscombe on a new 10-year lease for £32,500 pa, 9% ahead of ERV.
• New Letting to Card Factory in Newton Mearns for a formerly vacant 1,600 sq ft unit at £50,000 sq ft pa
• Planning application submitted in Erdington for change of use, refurbishment and rebranding; and also in Hastings and Worthing for change of use from A1 to A3
• Planning consent granted in Morecambe for A3 change of use beneath the existing Travelodge and adjacent to Market Street, as well as significant refurbishment works to improve the centre's entrances and modernise dated branding and facades
• Wider refurbishments works completed in Leith, Paisley and North Shields
• Rating strategy underway in conjunction with the Company's rating consultants to deliver potential savings for occupiers within the Portfolio, ahead of the Business Rates Revaluation in April 2017.

RETAIL WAREHOUSES

The Company's portfolio now includes 21 retail warehouses following acquisitions in December and the Company continues to drive performance and create value within the portfolio including:

·   New Letting to Dreams for a 10-year lease for 2,900 sq ft unit for £57,980 pa, reactivating this formerly vacant unit

·    Planning consent secured in Blackburn for enhancement works

CHRISTMAS TRADING

NewRiver's portfolio performed well during the Christmas period with a variety of retailers reporting strong trade, surpassing targets and a number of stores achieving the strongest ranking performance in their region and national portfolio. Key sub-sectors in the portfolio were: fashion, beauty, fast-food, gaming and entertainment operators. In line with the UK benchmark, the portfolio experienced a modest dip in footfall during the Christmas period of -3.8%, but was off-set by an increase in consumer spend with retailers experiencing increases in sales. The Christmas performance outcome is testimony to the strength of the Company's active asset management and risk controlled development strategy which attracts convenience-orientated shoppers year-round generating further Christmas uplifts.

COMMERCIALISATION

During the period, commercialisation income totalled £685,670, which is 17% ahead of forecast. Notable performers included Hastings, Newtownabbey and Newton Mearns. NewRiver has completed the first tranche of 12 installations of mall kiosks with VIP, the specialist e-cigarette operator, in covered centres generating £240,000 pa, with discussions underway to trial their first external kiosks in two more centres and shop units in two other centres in the coming Q4.  Top Gift, the mobile phone operator, has completed a further six shop units, with a further four in legals, supporting the 16 mall kiosks installed in Q2. Brow bar operator Glamour Eyes, has installed bespoke kiosks in six centres, valued at £90,000 pa, whilst existing operators in 3 other centres are upgrading their kiosks and paying increased rents to secure the business and increase quality on the malls.  A portfolio wide deal for combined internal digital advertising and wayfinding, as well as large format advertising is under offer across 14 centres. Following the acquisition of Project Neptune in Cardiff, Wakefield and Darlington, NewRiver believes there is strong growth in commercialisation to be achieved.

KEY DEVELOPMENT HIGHLIGHTS

Progress continues across the Company's 1.25 million sq ft of development space, key highlights include:

Cowley, Oxford: Ahead of planning submission, the Company is making great progress in its £64 million mixed-use regeneration in Cowley, Oxford with the successful exchange of contracts with Travelodge for a 71-bed hotel in Cowley at £5,250 per room for 25-years. By the end of 2015, NewRiver had completed two public consultations and is expected to submit the planning application by March 2016 to create 225,000 sq ft of retail and leisure space to create 230 new residential flats, an improved retail offer, two new restaurants and modernized car park and public realm as well as the Travelodge hotel.

Pub Portfolio:

·   NewRiver has successfully completed and handed over its first convenience store to the Co-operative Group which opened for trade in January 2016 following an efficient five-month end to end delivery period. The annual rent for the first pub is £73,000 pa on a 15-year lease across 4,173 sq ft. The Company is on-site for the construction of a further three.

·  During the period NewRiver successfully secured a further two Convenience Store planning approvals, equating to a total of 24 secured to date.

·   Value-creating residential development continues to progress well within the pub portfolio with the submission of a further 12 residential planning applications during the quarter, consisting of 45 units, for which three consents have been granted across three sites for a total of seven houses. The Company intends to submit in excess of 20 additional applications in Q4, providing 70 houses in a combination of one and two bedroom apartments, as well as detached and semi-detached houses.

·      The pub portfolio continues to perform well, meeting financial and revenue expectations.

·   Appointment of Jackie Moody-McNamara as Pub Portfolio Director. Mrs Moody-McNamara will lead the strategy on NewRiver's £150 million portfolio of 359 pubs, in addition to overseeing relations with the pub tenants supporting them through proposed developments. Mrs Moody-McNamara also works closely with LT Pub Management to ensure the portfolio continues to trade well. This appointment is in line with the Company's commitment to increasing the profitability of the pub portfolio and its income. Mrs Moody-McNamara brings over 20 years' experience in the pub sector, having held senior roles at Punch Taverns and Allied Breweries. Mrs Moody-McNamara's last role at Punch was Programme Director where she had responsibility for driving a series of strategic projects across the business.

ENDS

For further information

NewRiver Retail Limited  David Lockhart, Chief Executive Mark Davies, Finance Director	Tel: [phone]
Bell Pottinger David Rydell / James Newman / David Bass	Tel: [phone]
Liberum Richard Crawley / Jamie Richards	Tel: [phone]
Peel Hunt LLP Capel Irwin / Hugh Preston	Tel: [phone]

About NewRiver

NewRiver Retail Limited is an AIM listed REIT. The Company is a specialist real estate investor, asset manager and developer focused solely on the UK retail sector. At the close of 2014 NewRiver Retail was named Property Company of the Year - Retail & Leisure at the Estates Gazette Awards.

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 one of the UK's largest shopping centre owner/managers with assets under management of over £1 billion principally comprising 32 UK wide shopping centres, further nationwide retail assets and a portfolio of 359 pubs with retail and mixed-use extension opportunities. The portfolio has 1,765 occupiers, a total of over 7.0 million sq. ft., total annual footfall of over 126 million and a retail occupancy rate of 97 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  

 

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