TIDMNRR
RNS Number : 2897E
NewRiver Retail Limited
29 May 2012
NewRiver Retail Limited
("NewRiver" or "the Company")
Final Results for the 12 Months ended 31 March 2012
(Audited)
NewRiver Retail Limited (AIM: NRR), the UK REIT specialising in
value-creating retail property investment and asset management, is
pleased to announce annual results for the 12 months period to 31
March 2012.
Financial Highlights
-- Profit before tax of GBP4.0 million driven by increased EPRA
recurring profits of GBP4.4 million (2011: GBP0.9 million)
-- Group revenue trebled to GBP15.0 million (2011: GBP4.8
million)
-- Increasing focus on income leading to strong EPRA earnings
per share growth to 17.3p (2011: 6.3p)
-- Final dividend doubled to boost shareholder returns to 9p
(2011: 4.5p), reflecting total dividend for the year of 15p (2011:
5.5p), fully covered by profits earned during the year
-- EPRA NAV per share decreased by 5.5% to 258p (2011:+4.5%),
however, increased by 7.5% after accounting for one-off costs
relating to equity fund raising and purchase costs of 33.5p per
share during the year
-- Successful equity fund raising of GBP42.5 million gross,
immediately deployed in completion of major portfolio acquisition.
Further GBP47 million of new senior debt originated for
acquisitions
Operational Highlights
-- Continuing robust platform delivering strong income
returns
-- Acquisitions in the year totalling a net GBP93 million at an
average initial yield of 8.5%
-- Assets under management increased to GBP275 million
-- Two disposals delivering an average IRR of 27%, both ahead of
target IRR of 15%
-- Growing impact of active asset management strategy delivered
70 positive leasing events, 1% ahead of ERV and 92% at or above
business plan
-- Low void rate across the portfolio of 4% (2011:3%)
-- Significant food anchored, risk-controlled development and
refurbishment programme pipeline in excess of 500,000 sq ft
-- Appointed development manager by Scottish Widows for a second
major shopping centre development
-- Focus on resilient food and value sub sectors: minimal impact
in 2012 of retailer administrations of only 1.6% of gross rental
income
David Lockhart, Chief Executive of NewRiver Retail Limited,
commented:
"NewRiver has achieved its objective of establishing a
profitable platform with a strong management team that is capable
of delivering sustainable growth. Considering the challenging
conditions in the wider UK retail environment we have continued to
transact on attractive value creating opportunities.
Whilst investment sentiment remains cautious, we believe there
continues to be highly attractive opportunities for well
capitalised, specialist and proven investors in UK retail property.
Through our strong relationships with retailers, wide network of
contacts, market intelligence and focused business strategy we are
in a strong position to build on our success and enhance our
position as one of the UK's leading retail real estate
investors."
For further information contact:
NewRiver Retail Limited Tel: 0203 328 5800
David Lockhart, Chief Executive
Mark Davies, Finance Director
Pelham Bell Pottinger Tel: 0207 861 3232
David Rydell/Rosanne Perry/Guy Scarborough
Cenkos Securities Tel: 0207 397 8900
Ian Soanes/Max Hartley
Investec Bank
Garry Levin/ Chris Sim/ David Andersen Tel 0207 597 5970
Chairman's Statement
I am pleased to report NewRiver's second full year results for
the 12 month period to 31 March 2012.
The company is a recognised leader in its specialist sector and
had a successful year, demonstrating the strength of both its
business model and management team in a challenging environment for
retailers, property investment and the economy as a whole.
NewRiver's model of active asset management and risk controlled
development continues to be a robust engine for growth generating
tangible cash returns to shareholders. The average purchase yield
of the portfolio is 8.5% and it is the Board's view that dividends
will form an increasingly important component of total shareholder
returns. The Board has approved a final dividend of 9.0p per share
making 15.0p per share for the year, nearly triple our 2011
dividend. This reflects our commitment to generating strong income
returns to shareholders, whilst meeting the company's future
investment needs and maintaining a cautious approach to
gearing.
Our issue of new equity during the year was over-subscribed and
I am delighted to welcome the new shareholders who invested in the
company. We raised a total of GBP42.5 million of new capital, which
was immediately deployed in the acquisition of four major shopping
centres and I am pleased to report that these are already
generating strong returns.
NewRiver continues to pursue active and opportunistic asset
management activities. Whilst we have acquired a number of new
shopping centres, rental income has been further supplemented by
the profitable disposal of two properties during the year at prices
which considerably exceeded our IRR hurdle rates.
Our core team has expanded alongside the size and scale of the
company and I am also pleased to welcome three new members of the
Board. Christopher Taylor and Kay Chaldecott, both highly respected
figures in the UK commercial property arena, joined as Non
Executive Directors during the financial year. On 1 April 2012,
Charles Miller joined the Board as Executive Development Director.
An acknowledged expert in UK retail development, Charles brings
significant skills and experience to the management team. Peter Tom
CBE and Susie Farnon have stood down as Non Executive Directors and
I take this opportunity to thank them for their service to the
Company.
Although the macro-economic and financial outlook remains
uncertain, the Board is confident that NewRiver will continue to
deliver strong, long term returns for shareholders and looks
forward to the future with confidence.
Paul Roy
Chairman
28 May 2012
Chief Executive's Review
Our second full financial year was once again a highly active
period for the Company and builds on the momentum created last
year. We completed six acquisitions totalling a net GBP93 million,
raised a further GBP42.5 million of equity capital which was
immediately deployed to expand the portfolio, created a new banking
relationship, completed two disposals and strengthened our Board
and management team.
We are particularly pleased that this high level of activity is
reflected in another strong financial performance with gross
revenues increasing threefold to GBP15.0 million, (2011: GBP4.8
million), recurring EPRA profits up fivefold to GBP4.4 million
(2011: GBP0.9 million), EPRA earnings per share increasing almost
threefold to 17.3p (2011: 6.3p) and the total dividend for the year
increasing almost threefold from 5.5p last year to 15p this year.
EPRA NAV decreased by 5.5% to 258p (2011: 273p) but after
accounting for exceptional costs relating to the equity fundraising
and one-off purchase costs EPRA NAV per share actually grew over 7%
(2011:+22%).
The key event of the year was the acquisition of a portfolio of
four shopping centres for GBP68 million. As well as increasing the
asset base, the acquisition allowed the Company to raise further
equity capital, attracting new shareholders and enlarging the
market capitalisation as well as entering into a new banking
relationship with Clydesdale Bank which provided the debt for the
acquisition. It was pleasing to report that the equity fund raise
was oversubscribed and included a number of new shareholders
joining the register and I welcome them as investors in
NewRiver.
Assets under management increased from GBP166 million to GBP275
million, the majority of which are owned by the Company. We made
two small disposals where the short term upside created was better
redeployed into new projects with enhanced returns. These disposals
generated returns significantly above the target business plan. We
were also appointed by Scottish Widows as development manager for a
second major shopping centre and we value this growing
relationship.
Whilst the UK retail sector is facing challenging headwinds it
also presents opportunities and we capitalise on these
opportunities by focusing on the food and value retail sub sectors
which continue to outperform, and where demand from retailers
exceeds supply due to the development pipeline being close to a
record low. We know from our close relationship with major
retailers such as Sainsbury's, Morrisons, Tesco, Poundland and
Wilkinson, there is continuing strong demand for new retail space
the majority of which is focused on town centre opportunities where
changes in the political and planning environment favour the
NewRiver model.
Our investment strategy is focused on driving income returns and
we believe that as a REIT our key performance benchmark is our
ability to deliver a growing and sustainable dividend to our
shareholders. This is evidenced by the significant increase in the
total dividend for this period and income generation is the
continuing priority for management. We specifically target high
yielding assets with affordable and sustainable rents which
generate immediate cash on cash returns. We then apply our asset
management and development skills to maintain and grow the
income.
Active asset management is embedded in our culture and is what
enables us to consistently create value in difficult market
conditions. Since our IPO we have completed over 120 leasing events
generating and maintaining cGBP3.7 million of income of which more
than 90% have been at or above the target business plan. We have
been broadly unaffected this year by the high profile closure of a
small number of retail chains and our focus on affordable and
sustainable rents has resulted in almost all the affected units
being retained by the new owners of the businesses. The void rate
stood at a very conservative 4%, reinforcing the low risk
characteristics of our portfolio.
We now own and manage 16 shopping centres and have been rolling
out multi-channel marketing campaigns across our portfolio. The
rise of social media is an exciting opportunity for our centres to
integrate digital media capabilities from Twitter and Facebook to
mobile Apps into a programme of dynamic community events and
initiatives. Locally we have been working hard with the retailers,
consumers and stakeholders to deliver not just a shopping
experience but also a sociable, entertaining and desirable retail
destination at the heart of town.
The lack of new retail development provides NewRiver with a real
market opportunity as our portfolio is positioned in town and
focused on the food and value sub sectors who are actively seeking
new space. By combining our knowledge of managing assets coupled
with our expertise in identifying development opportunities, we are
confident our growing development programme of in excess of 500,000
sq ft can deliver significant future value. We manage risk by
controlling the majority of the development sites within our
shopping centre portfolio and the Company will not embark on any
development without agreed pre-lettings and local authority support
to deliver on both estate and planning issues.
Considering the difficult conditions in the wider UK retail
environment we have continued to transact on attractive value
creating opportunities. Whilst market conditions remain challenging
we are confident we will continue to identify attractive
opportunities through our strong relationships with retailers, wide
network of contacts, market intelligence and focused business
strategy. We have established a strong platform for growth and are
in a good position to build on our success and enhance our position
as one of the UK's leading retail real estate investors. The
current financial year has lost none of the momentum with a strong
pipeline of opportunities and a wide ranging programme of
development and refurbishment underway. We look forward to the
future with confidence.
I would like to thank our shareholders who continue to support
the Company and its development. It remains a privilege to be part
of such a dynamic company with a dedicated and experienced
management team and I would again like to thank them and our key
advisers for their hard work and professionalism.
David Lockhart
Chief Executive
28 May 2012
Finance Director's Report
Performance for the year
I am pleased to present NewRiver Retail's Finance Report for the
year ended 31 March 2012.
This is our second full accounting year and our business model
of focussing on delivering income returns to shareholders is
captured by the growth in recurring EPRA profits to GBP4.4 million
(2011: GBP0.9 million). This is a near fivefold increase and
achieved in a year where the economic backdrop has been
challenging.
Our profit after taxation is GBP3.9 million (2011: GBP3.2
million), however our key performance indicator is EPRA profits
which include recurring items only and flow straight through to the
total dividend. The dividend is fully covered by profits earned and
has increased significantly to 15p per share from 5.5p in 2011.
Highlights from the Statement of Comprehensive Income
Income
Gross property income for the year was GBP15.0 million compared
to GBP4.8 million in 2011. The growth is a result of new
acquisitions made in the year and supported by our active asset
management. The Company will receive the full benefit of
acquisitions completed in 2012 on a fully annualised basis in the
year to 31 March 2013.
The joint venture with Morgan Stanley Real Estate contributed
GBP0.9 million of surplus rental income during the year. The
Company also received GBP0.2 million of asset management fees from
the joint venture and a further GBP0.3 million of asset management
fees from our joint ventures with Scottish Widows.
There were a number of retailer administrations during the year
and the financial impact on the company's rental income for 2012
was a modest GBP0.25 million, which amounts to 1.6% of rental
income. Eleven of the thirteen units affected by administration
remained open and continued to trade. We are in advanced
discussions to secure a new tenancy at the same passing rent in one
of the remaining units.
Finance costs totalled GBP5.3 million (2011: GBP1.8 million) for
the year. Borrowings were increased in line with acquisitions
completed and interest cover remained very positive at over three
times at the property level compared to banking covenants which
range from 1.5-1.75 times.
Administrative expenses were managed to GBP4.0 million (2011:
GBP3.1 million), in a year where investment was made in the Company
to support future growth. This included an increase in the staff
headcount to eighteen to support the significant increase in assets
under management and new office space to accommodate the
growth.
Capital
According to data from IPD, capital values were under pressure
in this financial year, particularly in the second half. However
the Company has been active in its asset management activities
completing 70 leasing events which supports and enhances value. The
Company was also able to make two disposals resulting in a realised
profit of GBP0.4 million at an average IRR of 27% which was 6%
above carrying value. The profit on sale is partially offset
against the GBP0.8 million valuation movement resulting in a
capital loss for the year of GBP0.4 million (2011: profit GBP4.0
million).
Consolidated Statement Of Comprehensive Income (Extract) FY12 FY11
GBPm GBPm
Gross property income 15.0 4.8
Property operating expenses -2.2 -0.3
Net property income 12.8 4.5
----- -----
Joint Venture net income 0.9 1.3
Operating expenses -4.0 -3.1
----- -----
Operating profit 9.7 2.7
----- -----
Net finance costs:
Senior debt -3.7 -1.2
Convertible loan stock -1.6 -0.6
----- -----
EPRA recurring profit 4.4 0.9
----- -----
Net valuation movement on properties -0.8 4.0
Profit on sale of investment properties 0.4 -
----- -----
Profit before taxation ('PBT') 4.0 4.9
----- -----
Key ratios
FFO EPS (pence) 17.4 6.5
EPRA EPS (pence) 17.3 6.3
Dividend per share (pence) 15.0 5.5
Dividend cover 103% 115%
---------------------------------------------------------- ----- -----
Earnings per Share ("EPS")
EPRA EPS is an important performance indicator for the Company
as it relates to recurring earnings only. EPRA EPS was 17.3p per
share (2011: 6.3p per share) which is a good result helped by the
immediate deployment of capital raised in August 2011 into property
acquisitions which have subsequently generated revenues at strong
yields.
Basic EPS was 15.3p (2011: 23p) down slightly on EPRA EPS due to
downward revaluation movements, and still represents strong
positive returns due to this increased recurring earnings.
In addition we have taken the decision to disclose Funds From
Operations ("FFO") as this is an important metric often used by the
investment community when comparing the performance of
International REITs. Reported FFO this year was GBP4.4 million
(2011: GBP0.9 million) which amounted to 17.4p per share (2011:
6.5p).
Balance Sheet Highlights
The Company has established a financial platform that is able to
support further growth and the key items in the Company's Balance
Sheet are listed below:
Consolidated Balance Sheet (Extract) 2012 2011
GBPm GBPm
================================================================= ======== ======
Investment properties 197.7 105.8
Investment in joint ventures 11.3 11.9
Other assets 12.0 12.0
Borrowings (107.8) (60.3)
Convertible Unsecured Loan Stock (24.6) (24.5)
Other liabilities (9.5) (6.2)
Net Assets 79.1 38.7
-------- ------
Total Equity 79.1 38.7
-------- ------
Net debt (borrowings less cash) 99.3 49.6
Net loan to value 50% 47%
EPRA NAV pence/share 258 273
-------- ------
Exceptional and one off Costs absorbed in EPRA NAV (pence/share) 33 37
======== ======
Investment Properties
The Company was active in acquiring new investment properties of
GBP93 million (net) during the year and this is reflected in the
increase to GBP197.7 million (2011: GBP105.8 million).
Joint Ventures
Our 50% interest in the Morgan Stanley joint venture did not
acquire or sell any assets this year and the carrying value
reflects a slight reduction in the value of properties held.
Other assets and liabilities
The Company had GBP8.6 million of cash on its balance sheet at
31 March 2012 (2011: GBP10.6 million). Other assets include rental
debtors of GBP2 million and prepayments of GBP0.5 million. Other
liabilities include GBP3.3 million of rent received in advance,
GBP2.4 million of accruals and a mark to mark valuation deficit of
GBP1.4 million on interest rate hedging.
Borrowings
The Group's capital strategy is to maintain a conservative level
of gearing whilst ensuring that projects generate an effective
return for shareholders and the REIT gearing test is always
satisfied.
During the year the Company originated GBP47.3 million of new
senior debt facilities (2011: GBP55.0 million) and we continue to
have good relationships with Santander, HSBC and Clydesdale
Bank.
The Company has continued to benefit from these banking
relationships whilst having no legacy issues to manage with its
borrowings. This is reflected in our senior debt borrowing cost in
the year of 4% which is currently one of the lowest in the real
estate sector.
The Company continues to apply a hedging strategy which is
aligned to the property strategy. Borrowings are currently 80%
hedged against interest rate risk. 53% of all borrowings are fixed
whilst the hedged balance of 27% is capped and 20% of borrowings
are floating. This strategy provides interest rate protection and
allows the Company to benefit from a low interest rate
environment.
At the property level where loan covenants are tested, the net
Loan to Value ("LTV") as at 31 March 2012 was 50%. The Company's
targeted LTV range is 40-55%, subject to the Board's view of market
conditions at the time, the prospects of and risks within the
portfolio and the recurring cash flows of the business. The
majority of the Company's lending is secured with LTV covenants at
or above 70% so there is adequate headroom.
As at 31 March 2012 Balance Sheet gearing was 125% (2011: 128%)
and more detail on the Company's borrowings is provided in note 19
to the financial statements.
Net Asset Value
The Net Asset Value ("NAV") at 31 March 2012 was GBP79.1 million
which amounts to an EPRA NAV per share of 258p (2011: 273p). The
Company has absorbed 33.5p per share of purchase and exceptional
costs during the year (2011: 37p per share) and delivered a net
increase in NAV per share of 7.5% year on year (2011: +22%) when
these costs are stripped out.
Assets Under Management ("AUM")
The Company has increased its assets under management during the
year to GBP275 million and this is reconciled as follows:
2012 2011
GBPm GBPm
====================== ====== =====
Investment properties 197.7 105.8
Morgan Stanley JV (1) 45.5 46.2
Asset Management (2) 31.8 14.0
Total AUM 275.0 166.0
------ -----
(1)-NewRiver has a 50% equity interest in the Morgan Stanley JV
(2)-Approximate estimate of asset value. NewRiver has no equity
interest in these assets.
Dividend
The Company paid its interim dividend in the year of 6p per
share (2011: 1p) and a final dividend of 9p per share (2011: 4.5p)
has been approved by the Board, resulting in a total dividend for
the year of 15p per share (2011: 5.5p). The Company's entire
dividend is payable as a Property Income Distribution and is fully
covered by profits earned in the year.
The final dividend will be paid on 13 July 2012 to ordinary
shareholders on the register on 22 June 2012. The ex-dividend date
will therefore be 20 June 2012.
Summary
The Company has produced a profitable result this year which is
underpinned by revenue growth, a sensible financing strategy and
recurring EPRA profits. This has enabled a high growing dividend
payment to shareholders and the Board continues to believe that
income returns will form the key component of total return. The
Company is well placed to deliver on this strategy with the
platform that has been put in place.
Mark Davies
Finance Director
28 May 2012
Property Director's Report
The last 12 months have been a successful period for the
Company. Our business model and real estate portfolio are defensive
and cash generative, the precise qualities required of a real
estate company in the current flat economic growth environment.
Our portfolio increased to GBP275 million of assets under
management through carefully selected acquisitions. We have
recycled cash through two disposals that exceeded our minimum IRR
target of 15%. We have also successfully implemented our asset
management strategy for this financial reporting period and
continued the excellent progress on our development programme.
The UK retail sector is traditionally stable, consistent and
resilient. It is a sector that is important to the UK economy
representing 8% of GDP and employs c.9% of the UK's workforce.
Despite wider economic challenges, the value of retail sales
remained positive in 2011 with UK retail sales growing by 3.3%*.
The subsectors that out performed and in our view will continue to
do so are: food, value, health and beauty, and clothing. The
retailing sub sectors that underperformed were those more reliant
on discretionary spend and the home related market; electrical and
white goods, furniture, carpets, home ware and DIY.
This retailing pattern reflects the economic environment and
resultant consumer behaviour. Consumer behaviour is determined by
two components; time and money, and within each component there is
core time and core money and discretionary time and discretionary
money. In tough economic times it is inevitable that consumers will
have less discretionary time and money.
Our strategy has been to create a real estate portfolio that
caters to the consumer's core time and money by focusing on value,
convenience and experience. In the last 12 months the portfolio has
maintained high occupancy, consistent rent collection in excess of
90% within ten days of the quarter date, modest impact of retail
administrations at 1.6% of rental income and 90% of leases renewed
at passing rental levels. The key retailers in the portfolio are
trading well with the majority generating annual sales where the
ratio of rent to sales ranges from 1.5% to 9%.
Acquisitions
In the last reporting period we concluded six acquisitions
totalling cGBP93 million. The majority of the acquisitions were
conducted off market at an attractive blended net initial yield of
8.5%. All of the acquisitions fully comply with our strict
investment criteria providing high annual cash on cash returns with
realisable prospects for capital growth from pre-identified asset
and development management initiatives. In summary the individual
acquisitions were as follows:
Shopping centre portfolio
In August, we completed the acquisition of a portfolio of four
shopping centres from Zurich Insurance for a total of GBP68
million. The transaction was sourced off market and subject to
NewRiver raising the required funding from shareholders to complete
the transaction.
Approximately 94% of the passing rent was derived from multiple
retailers and 60% of the income was from key sectors: food, health
and beauty, clothing and discount. Given the low vacancy rate,
income diversity through retailer and sector spread and the secure
weighted average lease expiry, these shopping centres will provide
attractive annual double digit cash on cash returns as well as
capital growth through pre identified asset and development
management initiatives.
The portfolio included the following shopping centres:
Merlin's Walk, Carmarthen
Merlin's Walk opened in 1998 and comprises 103,300 sq ft of
sales and ancillary accommodation in 24 retail units. The centre is
arranged in an open street format with ground floor retail and
first floor ancillary accommodation. It is located in the heart of
the town adjacent to a 350 space car park and a large Wilkinsons
store. The anchor tenants for the centre are TK Maxx, Poundland,
Argos and Store 21.
The Piazza Shopping Centre, Paisley
The Piazza Shopping Centre in Paisley was developed in 1968 with
an extension in 1975. The centre underwent a major refurbishment in
the 1990s. It provides a clean and attractive covered single level
shopping centre extending to 252,000 sq ft of retail and offices in
40 units together with a 366 space multi-storey car park.
The centre is well located next to the train station and the
town's principal bus station. The Piazza dominates the Paisley
retail offer and is anchored by the Co-operative, New Look, and
Poundland.
The Hildreds Shopping Centre, Skegness
The Hildreds Shopping Centre is a fully covered 55,000 sq ft
centre that opened in 1988. The Centre comprises 30 stores
including Evans, Burtons, H.Samuel, WH Smith, JD Sports and
Wilkinsons. The centre, which is the town's only managed centre, is
anchored by the Co-operative and Home Bargains and benefits from an
adjacent 320 space car park.
The Horsefair, Wisbech
The Horsefair Shopping Centre has 26 retail units comprising
92,000 sq ft of sales and ancillary accommodation. The centre was
opened in 1989 and built in a single storey open street format,
with car parking for nearly 400 cars and the bus station
immediately adjacent. The centre is Wisbech's only managed centre
and is anchored by the Co-operative with key tenants including
Boots, Poundland, Superdrug, New Look and Argos.
Other Acquisitions
23-24 Market Place, Great Yarmouth
Our second acquisition was the purchase of 23-24 Market Place,
Great Yarmouth for a total consideration of GBP2.5 million. The
property, which is located in a prime retailing position, has a
total gross internal area of 41,280 sq ft. Based On our purchase
price, the capital value per sq ft is GBP60.56 which is
significantly below replacement cost.
The property was let to Life & Style Retail Ltd at
GBP200,000 per annum, although at the time of purchase, was in
administration and no longer trading from the premises.
Simultaneously with the purchase, NewRiver benefitted from a day
one uplift in value through a negotiated agreement with Poundland
for a new 10 year lease at GBP295,000 pa. The agreement reflects a
net initial yield on purchase costs of 11.2%.
The Sovereign Shopping Centre, Boscombe
In August 2011, we acquired The Sovereign Shopping Centre in
Boscombe, Bournemouth from UBS Global Asset Management (UK) Ltd.
for GBP12 million reflecting a net initial yield of 9.6%.
The shopping centre provides approximately 86,000 sq ft of
retailing space anchored by Sports Direct, Poundland, 99p Stores,
Costa Coffee and New Look together with direct links into adjoining
anchor tenants Wilkinson, Lidl and Boots. Approximately 64% of the
income, including the car park is secured to non-discretionary
retail traders offering defensive characteristics.
In total there are 48 tenancies and at the time of purchase the
current gross rent roll was GBP1.6 million pa with an average
weighted unexpired lease length of 10.7 years.
The Newland Shopping Centre, Witham
In November 2011 we completed the acquisition of the Newlands
Shopping Centre in Witham, Essex for GBP5 million reflecting a net
initial yield of 9.7%. The transaction emanated from a distressed
debt position. The acquisition price reflects a reduction of 60% of
the previously traded value in February 2007 at a price of GBP12.92
million.
The Newlands Shopping Centre provides approximately 66,000 sq ft
of retailing and ancillary space anchored by Iceland, New Look,
Card Factory, and Greggs and benefits from direct links into
adjoining Newlands Street and a 200 space car park.
At the time of purchase there were 24 tenancies and the current
gross rent roll was GBP0.58 million pa with an average weighted
unexpired lease length of 4.6 years. More than 60% of the income is
secured to non-discretionary retail traders such as food, value
fashion, discount & health and beauty, offering defensive
characteristics.
Co-operative, Skegness
The Company also acquired the Co-operative in Skegness and this
is discussed further in the key asset management highlights.
60/64 Church Walk, Burgess Hill
Finally, NewRiver acquired a large space retail unit in Burgess
Hill from the Co-operative for GBP1.32 million reflecting a net
initial yield of 10%. The property, 60/64 Church Walk, which
comprises c.17,000 sq ft arranged over two levels and located on
the pedestrianised Church Walk, is let to Store 21 with a 10 year
unexpired term at a current rent of GBP140,000 pa. Store 21 trades
successfully from this store. Strong retailer demand for large
space retail units exists in Burgess Hill.
Disposals
In line with our commitment to recycle capital, we completed two
disposals generating significant IRRs ahead of our minimum
corporate target of 15%.
The first disposal, completed in August 2011, was the sale of a
large space retail unit in Canterbury let to Wilkinson with an
unexpired term of 14 years. The property was sold to a UK
institution for GBP5 million reflecting a net initial yield of
6.3%, generating a levered IRR of 16% and at a level that exceeded
our 31 March 2011 valuation.
The property, which was originally acquired as part of the
Redevco portfolio in May 2010, had an outstanding rent review at
the time of purchase. NewRiver secured an uplift in rent and then
took advantage of strong institutional demand for retail
investments such as this.
Finally we concluded the sale of our retail investment in Great
Yarmouth in October 2011, following our opportunistic purchase at
GBP2.5 million earlier in the year and the new letting to
Poundland. The property was sold for GBP3.38 million to a cash
buyer, reflecting a net initial yield of approximately 8.25% and
providing NewRiver with an unlevered IRR of 43% exceeding the
Company's minimum geared target IRR of 15%.
NewRiver's objective is to initiate a sale upon the successful
completion of a business plan at the asset level, although when the
opportunity arises to secure a premium price at an earlier stage,
or when an asset's risk profile increases to an unacceptable level,
the Company will sell.
Asset Management
The retail property sector faces a challenging economic
environment where consumers benefit from a range of retail channels
from out of town shoping centres to online. NewRiver is therefore
fully committed to pro-active asset management with the objective
of improving footfall, increasing dwell time which should lead to
improved retailer sales at our centres.
Beyond the core asset management focused on leasing and retail
mix, NewRiver is committed to developing active asset management
initiatives. Each initiative may have a modest impact on financial
performance but combined makes a significant difference which we
define as the accumulation of marginal gain. Examples include:
increased operating efficiency in the service charge, rating
appeals, rating mitigation, introduction of solar energy panels,
upgrading the quality of our centre managers, free Wi Fi in our
centres at no capital cost to NewRiver but receipt of an annual
income, outdoor advertising, indoor digital advertising, events,
promotions, drink machines, children's rides, car valeting and
automatic number plate recognition. We engage in these initiatives
because every GBP1 of revenue we generate out of an asset, we
estimate, will translate into c.GBP12 to GBP15 of capital
value.
As one of the leading UK owners of shopping centres we invest
significant time in developing relationships with major
stakeholders in the locality of our assets and, more importantly,
with the consumers using our shopping centres.
NewRiver has taken a leading role in local town centre
regeneration with the submission of eight of our towns to the
Portas review. We are in the process of being elected to the Board
of the Business Improvement District ("BID") companies in Boscombe
& Erdington and have already been elected to both the Board of
the Skegness Town Centre Partnership ("TCP") and the Burgess Hill
Town Centre Partnership. It is our intention to promote BIDs and
TCPs for all of our shopping centres. We strongly believe that a
coordinated approach between private and public stakeholders makes
a significant and positive difference to town centres.
We undertake regular customer surveys to help guide the asset
and development strategies. We are also at an early stage in
developing our digital media capability to provide each shopping
centre with an active website, Facebook page and Twitter account.
Twitter provides an instant medium to communicate directly with our
consumers, allowing us to play our part in driving sales for our
retailers. With the growth of smart phones and the development of
price comparison apps, it is vital for real estate owners of
shopping centres to engage with technology and this is why we will
be one of the first shopping centre owners to install free Wi Fi in
all of our shopping centres.
Our key asset management highlights for this reporting period
include:
Lease renewal at Northumberland Street, Newcastle Upon Tyne
We completed a new ground lease for a term of 125 years on our
Northumberland Street property in Newcastle upon Tyne. The property
was acquired by NewRiver in June 2010, for a total consideration of
GBP4.2 million reflecting a net initial yield of c. 9.6%. The
original ground lease was for a period of 42 years and through the
successful conclusion of the new ground lease with the freeholders
we have now institutionalised this asset.
Skegness - The Hildreds Shopping Centre - The Co-operative
store
In February 2012, we completed one of our key short term asset
management initiatives acquiring the long leasehold interest of our
existing 39,500 sq ft freehold asset attached to the Hildred's
Shopping Centre in Skegness. The long leasehold interest was
acquired from the Co-operative Group for a total consideration of
GBP2.9 million reflecting a net initial yield of 9.5%. The weighted
average lease expiry profile is seven years as the property is let
to Home Bargains, and CWS has entered into a short term lease.
This acquisition will release an immediate uplift in value
through the merger of the CWS's long leasehold interest with our
freehold interest. Furthermore this acquisition creates a number of
asset management and redevelopment opportunities.
Unit 13 the Montague Centre, Worthing
The property was acquired as part of the Standard Life portfolio
and let to TK Maxx paying a rent of GBP210,000 pa with a lease
expiry in December 2011. At the time we purchased this asset TK
Maxx traded successfully and given the size of the unit and the
lack of potential relocation opportunities we were confident we
would secure TK Maxx for the long term.
At the end of last year we completed the lease renewal with TK
Maxx for a term of 15 years with a tenant break option in year 10
at a rent of GBP240,000 pa. As part of the asset management
initiative, we made a capital contribution to TK Maxx linked to
their intended store refurbishment
Locks Heath, Fareham
Feedback from our annual consumer survey at Locks Heath
indicated a strong desire for a branded coffee operator. As a
consequence, in the last 12 months we have entered into a lease
agreement with Costa Coffee for a 10 year term at a commencing rent
of GBP26,000 pa. We secured planning consent for a new coffee shop
which has now been constructed and delivered to Costa Coffee for
fitting.
The introduction of Costa Coffee will assist in increasing dwell
time in this centre which will benefit other retailers.
Summary
It has been a highly active year, and we have concluded 70
leasing events ranging from new lettings, through to lease renewals
and re gears. The total annual rent that was subject to leasing
events was GBP1.6 million. Furthermore, 90% of our retailers have
renewed their lease at expiry or did not exercise a tenant
break.
It is pleasing to note that 92% of our leasing events were
concluded in excess of our business plan targets at rents 1% above
ERV and our portfolio is on track to out perform the minimum geared
IRR of 15%.
Risk Controlled Development
Significant progress has been made in advancing our development
programme.
Currently NewRiver is engaged in eleven development projects in
excess of 500,000 sq ft. The projects are at different stages in
the development cycle but the majority are food anchored led and
that the required land to implement these developments are either
in the direct control of NewRiver or with local authority.
Key development highlights include:
The Forum Shopping Centre, Wallsend
Following the acquisition of the former vacant Co-operative
department store adjoining the Wallsend Shopping Centre, and the
entering into an Option agreement with the local authority, we will
be submitting a planning application in the next few months for a
sub division of the former vacant Co- operative department store, a
refurbishment of the shopping centre and an extension to provide
for a 45,000 sq ft food store plus 300 space car park. Construction
will only commence following planning and pre letting of the new
retail space.
The Martlets, Burgess Hill
Upon completion of an extensive master planning exercise and
consultation, our proposals are evolving to incorporate a new
80,000 sq ft food store, 100,000 sq ft of additional comparison
retailing and c.700 car parking spaces. The development will be
phased with the food store plus some additional comparison
retailing being in the first phase.
Extensive discussions have taken place with two of the UK's
leading food retailers and we are close to finalising the layout
and technical requirements of these retailers. Once leasing terms
are agreed with one of these retailers we will move into the pre
planning stage and aim to have secured a detailed planning consent
by the first quarter of 2013.
Central Square, Erdington
We secured strong support from Asda to redevelop the 1960s
shopping centre into a 55,000 sq ft food store with c.300 car
parking spaces. Following consultation with the City Council
earlier this year we are seeking to submit a planning application
within the next three months.
Locks Heath, Fareham
We have considered a number of development options that utilise
both our land holdings and adjacent local authority land holdings.
We have received strong food store demand and recently entered into
an exclusivity agreement with one of the major food retailers to
pursue pre letting legal negotiations to provide a 70,000 sq ft
food store. Further consultation will be required with major
stakeholders including the local authority prior to a planning
application being submitted which we would expect in 2013.
Portfolio Metrics
NewRiver has maintained a high occupancy rate in line with IPD
and some of the major REITs. We have significantly increased income
diversification through an increase in the number of retailers in
the portfolio and increased our exposure to the key winning retail
sub sectors.
The impact of retailer administrations has been very modest.
Only 13 retail units within our entire portfolio have been subject
to multiple retailer administrations including Peacocks, Bon
Marche, Game, and TJ Hughes. Of the 13 stores, 11 have remained
open, continue to trade and are being taken out of administration.
The impact to us in 2012 was just GBP0.25 million representing 1.6%
of gross revenue. It has been widely reported that other retailers
are intending a major restructuring, in administration or have
announced profit warnings such as Clintons, Mothercare, HMV, JJB,
Thomas Cook, Carpetright, Thorntons and Jessops. Our current rental
exposure to all of the above is two retail units totalling an
annual rent of GBP0.1m pa. We do not have any rental exposure to
Clintons.
We strongly believe the defensive qualities of our portfolio
fully endorses our decision to focus on retailing that is
predominantly based on non-discretionary spend. We are confident
that our portfolio will remain broadly immune from retailer
administrations.
NewRiver, as the owner of 14 shopping centres, is one of the UKs
leading shopping centre owners. This growth in our portfolio will
allow us to drive through operational efficiencies within our
centres but perhaps more importantly allows us to deepen even more
our working relationships with our key retailers who have multiple
representations within the portfolio.
It is from these strong working relationships that our key
retailers are prepared to share their confidential sales data. From
this we can monitor our performance as an asset manager, establish
that our rental levels within our portfolio are sustainable and
receive a trading insight for future acquisitions.
From the information that we have been provided by five of our
top ten retailers we know that the rent to sales ratio ranges from
1.5% to 9% with the average being 4.5%. For us thisis the most
important metric and part of our stock selection criteria is to
target assets where the rent to turnover ratio ranges from 3% to
10%.
Outlook
The next 12 months will be challenging for the UK consumer and
the real estate market is expected to be suppressed from flat UK
economic growth and a restricted credit market. Notwithstanding the
tough economic circumstances, NewRiver looks forward to the next 12
months with confidence and enthusiasm. We have a strong and robust
operating platform from which to continue growing our business by
taking advantage of an excellent buying market against minimal
competition.
Allan Lockhart
Property Director
28 May 2012
*source: ONS- sales by value excluding fuel costs
Consolidated Income Statement
For the year ended 31 March 2012
Year ended 31 March Year ended 31 March
2012 2011
Income Capital Total Income Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Gross property income 3 15,011 - 15,011 4,778 - 4,778
Property operating expenses 4 (2,222) - (2,222) (353) - (353)
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Net property income 12,789 - 12,789 4,425 - 4,425
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Administrative expenses 5 (4,009) - (4,009) (3,159) - (3,159)
Income from joint ventures 13 945 (560) 385 1,272 545 1,817
Net valuation movement 12 - (274) (274) - 3,574 3,574
Profit on disposal of investment
properties 6 - 413 413 - - -
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Operating profit/(loss) 9,725 (421) 9,304 2,538 4,119 6,657
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Net finance expense
Finance income 7 5 - 5 29 - 29
Finance costs 7 (5,339) - (5,339) (1,774) - (1,774)
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Profit/(loss) for the year
before taxation 4,391 (421) 3,970 793 4,119 4,912
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Current taxation 8 (120) - (120) (124) - (124)
REIT conversion charge 8 - - - - (1,600) (1,600)
--------------------------------- ----- -------- -------- -------- -------- -------- --------
Profit/(loss) for the year
after taxation 4,271 (421) 3,850 669 2,519 3,188
--------------------------------- ----- -------- -------- -------- -------- -------- --------
All activities derive from continuing operations of the Group.
The Notes form an integral part of these financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2012
Year Year
ended ended
31 March 2012 31 March 2011
Notes GBP'000 GBP'000
---------------------------- ----- -------------- --------------
Profit for the year after
taxation 3,850 3,188
---------------------------- ----- -------------- --------------
Other comprehensive income
Fair value loss on interest
rate swaps 19 (1,451) (204)
---------------------------- ----- -------------- --------------
Total comprehensive income
for the year 2,399 2,984
---------------------------- ----- -------------- --------------
Earnings per share
FFO basic (pence) 9 17.4 6.5
EPRA basic (pence) 9 17.3 6.3
Basic (pence) 9 15.3 23.1
Diluted (pence) 9 15.2 23.0
---------------------------- ----- -------------- --------------
All activities derive from continuing operations of the Group.
The Notes form an integral part of these financial statements
Consolidated Balance Sheet
As at 31 March 2012
Year Year
ended ended
31 March 2012 31 March 2011
Notes GBP'000 GBP'000
--------------------------------- ----- -------------- --------------
Non-current assets
Investment properties 12 197,736 105,800
Investments in joint ventures 13 11,275 11,926
Property, plant and equipment 14 404 7
--------------------------------- ----- -------------- --------------
Total non-current assets 209,415 117,733
--------------------------------- ----- -------------- --------------
Current assets
Trade and other receivables 16 3,045 1,413
Cash and cash equivalents 17 8,562 10,651
--------------------------------- ----- -------------- --------------
Total current assets 11,607 12,064
--------------------------------- ----- -------------- --------------
Total assets 221,022 129,797
--------------------------------- ----- -------------- --------------
Equity and liabilities
Current liabilities
Trade and other payables 18 6,908 4,140
Current taxation liabilities 18 495 840
--------------------------------- ----- -------------- --------------
Total current liabilities 7,403 4,980
--------------------------------- ----- -------------- --------------
Non-current liabilities
Non-current taxation liabilities 18 744 1,201
Derivative financial instruments 19 1,376 116
Borrowings 19 107,842 60,252
Debt instruments 19 24,581 24,474
--------------------------------- ----- -------------- --------------
Total non-current liabilities 134,543 86,043
--------------------------------- ----- -------------- --------------
Net assets 79,076 38,774
--------------------------------- ----- -------------- --------------
Equity
Retained earnings 21 1,936 318
Share capital and share premium 21 - -
Other reserves 21 74,085 33,801
Hedging reserve 21 (1,701) (250)
Share option reserve 23 187 62
Revaluation reserve 21 4,569 4,843
--------------------------------- ----- -------------- --------------
Total equity 79,076 38,774
--------------------------------- ----- -------------- --------------
Net Asset Value (NAV) per share
EPRA NAV (pence) 10 258 273
Basic (pence) 10 254 273
Diluted (pence) 10 253 272
--------------------------------- ----- -------------- --------------
The Notes form an integral part of these financial
statements
The financial statements were approved by the Board of Directors
on 28 May 2012 and were signed on its behalf by:
David Lockhart Mark Davies
Chief Executive Finance Director
Consolidated Cash Flow Statement
As at 31 March 2012
31 March 2012 31 March 2011
Notes GBP'000 GBP'000
------------------------------------------- ----- ------------- -------------
Net cash inflow from operating activities 20 4,130 2,196
------------------------------------------- ----- ------------- -------------
Investing activities:
Purchase and improvement of investment
properties 12 (99,855) (88,911)
Net proceeds from disposal of investment
properties 6 8,058 -
Purchase of plant and equipment 14 (415) -
Cash inflow from joint ventures 13 845 1,535
------------------------------------------- ----- ------------- -------------
Net cash from investing activities (91,367) (87,376)
------------------------------------------- ----- ------------- -------------
Financing activities:
Issue of new shares 21 40,284 9,770
Increase in bank loans 47,370 53,561
Net proceeds from issue of Convertible
Unsecured Loan Stock 19 - 24,474
Dividends paid 11 (2,506) (142)
------------------------------------------- ----- ------------- -------------
Net cash from financing activities 85,148 87,663
------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the beginning
of the year 17 10,651 8,168
Movement during the year (2,089) 2,483
------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the end
of the year 8,562 10,651
------------------------------------------- ----- ------------- -------------
Cash and cash equivalents comprise:
Cash at bank and in hand 17 8,562 10,651
------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the end
of the year 8,562 10,651
------------------------------------------- ----- ------------- -------------
The Notes form an integral part of these financial
statements.
Consolidated Statement of Changes in Equity
As at 31 March 2012
Share
capital Share
Retained and share Other Hedging option Revaluation
earnings premium reserves reserves reserves reserves Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ----- --------- ---------- --------- --------- --------- ----------- --------
As at 31 March
2010 846 24,031 - (46) 25 1,269 26,125
Net proceeds
of issue from
new shares 21 - 9,770 - - - - 9,770
Transfer of share
premium 21 - (33,801) 33,801 - - - -
Total comprehensive
income for the
year 21 3,188 - - (204) - - 2,984
Share-based payments 23 - - - - 37 - 37
Dividend payments 11 (142) - - - - - (142)
Revaluation movement
for the year 12 (3,574) - - - - 3,574 -
--------------------- ----- --------- ---------- --------- --------- --------- ----------- --------
As at 31 March
2011 318 - 33,801 (250) 62 4,843 38,774
--------------------- ----- --------- ---------- --------- --------- --------- ----------- --------
Net proceeds
of issue from
new shares 21 - 40,284 - - - - 40,284
Transfer of share
premium 21 - (40,284) 40,284 - - - -
Total comprehensive
income for the
year 21 3,850 - - (1,451) - - 2,399
Share-based payments 23 - - - - 125 - 125
Dividend payments 11 (2,506) - - - - - (2,506)
Revaluation movement
for the year 12 274 - - - - (274) -
--------------------- ----- --------- ---------- --------- --------- --------- ----------- --------
As at 31 March
2012 1,936 - 74,085 (1,701) 187 4,569 79,076
--------------------- ----- --------- ---------- --------- --------- --------- ----------- --------
The Notes form an integral part of these financial
statements.
Notes to the accounts
1 Accounting policies
General information
NewRiver Retail Limited (the 'Company') and its subsidiaries
(together the 'Group') is a property investment group specialising
in commercial real estate in the United Kingdom. NewRiver Retail
was incorporated on 4 June 2009 in Guernsey as a registered
closed-ended investment company. The Company was incorporated in
Guernsey under the provisions of The Companies (Guernsey) Law,
2008. On 22 November 2010, the Company converted to a REIT and
repatriated effective management and control to the United Kingdom.
The Company's registered office is Isabelle Chambers, Route
Isabelle, St Peter Port, Guernsey GY1 3TX and the business address
is Level 1 Prince Frederick House, 37 Maddox Street London, W1S
2PP. The Company has taken advantage of the exemption conferred by
the Companies (Guernsey) Law, 2008, section 244, not to prepare
company only financial statements.
Going concern
The Directors of NewRiver Retail Limited have reviewed the
current and projected financial position of the Group making
reasonable assumptions about future trading and performance. The
key areas reviewed were:
- Value of investment property
- Timing of property transactions
- Capital expenditure and tenant incentive commitments
- Forecast rental income
- Loan covenants
The Group has cash and short-term deposits, as well as
profitable rental income streams and as a consequence the Directors
believe the Group is well placed to manage its business risks.
Whilst the Group has borrowing facilities in place, it is currently
well within prescribed financial covenants.
After making enquiries and examining major areas which could
give rise to significant financial exposure the Board has a
reasonable expectation that the Company and the Group have adequate
resources to continue its operations for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis
in preparation of these financial statements.
Statement of compliance
These financial statements have been prepared on a going concern
basis and in accordance with International Financial Reporting
Standards, as adopted by the European Union ('IFRS'). These
financial statements have been prepared under the historical cost
convention, as modified by the revaluation of investment
properties, joint venture interests and derivatives which are fair
valued.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company, its subsidiaries and the SPV's
controlled by the Company, made up to 31 March each year. Control
is achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain
benefits from its activities.
The Group financial statements consolidate the financial
statements of the Company and its subsidiaries. Intra group
transactions are eliminated in full.
Certain new interpretations and amendments or revisions to
existing standards, which may be relevant to the Group, have been
published that are mandatory for later accounting periods and which
have not been adopted early. These are:
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 13 Fair Value Measurement
IAS 19 (revised) Employee Benefits
The Directors are considering whether these will have a material
impact on the Group's financial statements. Whilst they believe
these will not have any material impact on the carrying value of
assets and liabilities, these standards may lead to additional
disclosures.
Use of estimates and key sources of estimation uncertainty
The preparation of the Group's financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and contingencies at the
date of the Group's financial statements, and revenue and expenses
during the reporting period. Actual results could differ from
estimates. Significant estimates in the Group's financial
statements include the assumptions relating to the valuation of
options and investment properties. By their nature these estimates
and assumptions are subject to measurement uncertainty.
Critical judgements in applying the Group's accounting
policies
In the process of applying the Group's accounting policies,
management is of the opinion that any instances of application of
judgements did not have a significant effect on the amounts
recognised in the financial statements.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the end of the reporting period, that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year, are discussed below.
(i) Investment properties
The preparation of financial statements requires management to
make estimates affecting the reported amounts of assets and
liabilities, of revenues and expenses, and of gains and losses. As
described below, the Group's investment properties are stated at
estimated fair value, as accounted for by management based on an
independent external appraisal. The estimated fair value may differ
from the price at which the Group's assets could be sold at a
particular time, since actual selling prices are negotiated between
willing buyers and sellers. Also, certain estimates require an
assessment of factors not within management's control, such as
overall market conditions. As a result, actual results of
operations and realisation of net assets could differ from the
estimates set forth in these financial statements, and the
difference could be significant.
(ii) Valuation of options
Management have relied on the services of external experts to
determine the fair value of options at their grant date, in order
to expense that value over their estimated vesting period. This
requires significant estimates of a number of inputs which are used
to model that fair value.
(iii) Valuation of Convertible Unsecured Loan Stock
Management was required to make estimates with the assistance of
external experts to conclude on the valuation of the convertible
unsecured loan stock at the date of issue. The issuance of the
compound instrument was between two knowledgeable parties at arms
length and at a market rate of 5.85% per annum for 5 years.
Management have concluded that the value of the convertible option
was negligible and the value resided in the debt portion of the
instrument at the date of issue.
(iv) Impairment in investment in associates
Determining whether investments are impaired requires an
estimation of the fair values less cost to sell and value in use of
those investments. The process requires the Group to estimate the
future cash flows expected from the cash-generating units and an
appropriate discount rate in order to calculate the present value
of the future cash flows. Management has evaluated the
recoverability of those investments based on such estimates.
Investment property and property in the course of
construction
Property held to earn rentals and for capital appreciation is
classified as investment property. Investment property comprises
both freehold and leasehold land and buildings.
Investment property is recognised as an asset when:
- It is probable that the future economic benefits that are
associated with the investment property will flow to the
Company;
- There are no material conditions precedent which could prevent completion; and
- The cost of the investment property can be measured reliably.
Investment property is measured initially at its cost, including
related transaction costs. After initial recognition, investment
property is carried at fair value. The Group has appointed Colliers
International as property valuers to prepare valuations on a
semi-annual basis. Valuations are undertaken in accordance with the
appropriate sections of the current Practice Statements contained
in the Royal Institution of Chartered Surveyors Appraisal and
Valuation Standards, 6th Edition (the 'Red Book'). This is an
internationally accepted basis of valuation. Gains or losses
arising from changes in the fair value of investment property are
included in the income statement in the period in which they arise
and transferred to the revaluation reserve.
When the Group begins to redevelop an existing investment
property for continued future use as an investment property, the
property remains an investment property and is accounted for as
such. When the Group begins to redevelop an existing investment
property with a view to sell, the property is transferred to
trading properties and held as a current asset. The property is
re-measured to fair value as at the date of the transfer with any
gain or loss being taken to the income statement. The re-measured
amount becomes the deemed cost at which the property is then
carried in trading properties.
In completing these valuations the valuer considers the
following:
(i) current prices in an active market for properties of a
different nature, condition or location (or subject to different
lease or other contracts), adjusted to reflect those
differences;
(ii) recent prices of similar properties in less active markets,
with adjustments to reflect any changes in economic conditions
since the date of the transactions that occurred at those prices;
and
(iii) discounted cash flow projections based on reliable
estimates of future cash flows, derived from the terms of any
existing lease and other contracts and (where possible) from
external evidence such as current market rents for similar
properties in the same location and condition, and using discount
rates that reflect current market assessments of the uncertainty in
the amount and timing of the cash flows.
The cost of properties in the course of development includes
attributable interest and other associated outgoings. Interest is
calculated on the development expenditure by reference to specific
borrowings where relevant and otherwise on the average rate
applicable to the term loans. A property ceases to be treated as a
development property on practical completion.
Value added tax
Revenues, expenses and assets are recognised net of the amount
of value added tax except:
(i) Where the value added tax incurred on a purchase of assets
or services is not recoverable from the taxation authority, in
which case the value added tax is recognised as part of the cost of
acquisition of the asset or as part of the expense item as
applicable; and
(ii) Receivables and payables that are stated with the amount of
value added tax included. The net amount of value added tax
recoverable from, or payable to, the taxation authority is included
as part of receivables or payables in the balance sheet.
Revenue recognition
(i) Rental income Rental income is recognised on an accruals
basis. A rent adjustment based on open market estimated rental
value is recognised from the rent review date in relation to
unsettled rent reviews. Where a rent-free period is included in a
lease, the rental income foregone is allocated evenly over the
period from the date of lease commencement to the expiry date of
the lease.
Rental income from fixed and minimum guaranteed rent reviews is
recognised on a straight-line basis over the entire lease term.
Where such rental income is recognised ahead of the related cash
flow, an adjustment is made to ensure the carrying value of the
related property including the accrued rent does not exceed the
external valuation. Initial direct costs incurred in negotiating
and arranging a new lease are amortised on a straight-line basis
over the period from the date of lease commencement to the expiry
date of the lease.
Where a lease incentive payment, including surrender premiums is
paid, does not enhance the value of a property, it is amortised on
a straight-line basis over the period from the date of lease
commencement to the expiry date of the lease. Upon receipt of a
surrender premium for the early determination of a lease, the
profit, net of dilapidations and non-recoverable outgoings relating
to the lease concerned, is immediately reflected in income.
(ii) Interest Income Interest income and expenses is recognised
in the income statement under the effective interest method as they
accrue. Interest income is recognised on a gross basis, including
withholding tax, if any.
(iii) Asset management fees Management fees are recognised in
the income statement on an accruals basis.
(iv) Promote payments Under the terms of the Limited Partnership
Agreement of NewRiver Retail Investments LP, the Group is
contractually entitled to receive a promote payment should the
returns from the joint venture to the joint venture partner exceed
a certain internal rate of return. This payment is only receivable
by the Group on disposal of underlying properties held by the joint
venture. Any entitlements under these arrangements are only accrued
for in the financial statements once the Group believes that
crystallisation of the fee is virtually certain.
Business combinations
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the Group's
interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities exceeds the cost of
the business combination, the excess is recognised immediately in
the income statement. Goodwill is reviewed for impairments
annually. The acquisition of subsidiaries is accounted for using
the purchase method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of completion, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquired. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS 3
are recognised at their fair value at the acquisition.
Whilst a corporate acquisition would normally be accounted for
under IFRS 3, there are situations where these transfers may not
qualify as business combinations. This is considered on a case by
case basis by management in light of the substance of the
acquisition.
Acquisitions
The consideration payable in respect of each acquisition may be
dependant upon certain future events. In calculating the cost of
each acquisition the Group has assessed the most probable outcome
as at the balance sheet date. These amounts are reconsidered
annually at each year end and changes to consideration are taken to
the income statement.
Joint ventures
The Group's investment properties are typically held in property
specific special purpose vehicles ('SPVs'), which may be legally
structured as a joint venture.
In assessing whether a particular SPV is accounted for as a
subsidiary or joint venture, the Group considers all of the
contractual terms of the arrangement, including the extent to which
the responsibilities and parameters of the venture are determined
in advance of the joint venture agreement being agreed between the
two parties. The Group will then consider whether it has the power
to govern the financial and operating policies of the SPV, so as to
obtain benefits from its activities, and the existence of any legal
disputes or challenges to this control in order to conclude on the
classification of the SPV as a joint venture or subsidiary
undertaking. The Group considers this position with the evidence
available at the time.
The consolidated financial statements account for interests in
joint ventures using the equity method of accounting. Any premium
paid for an interest in a jointly controlled entity above fair
value of identifiable assets, liabilities and contingent
liabilities is accounted for in accordance with the goodwill
accounting policy.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Convertible unsecured loan stock
Convertible unsecured loan stock consist of both a liability and
equity element. On issue of convertible loan stock, management
assess the fair value of the liability by reference to the cash
flow to redemption associated with the instrument, discounted at a
market rate of interest. The difference between the issue proceeds
and the fair value of the liability is allocated to the equity
element of the instrument.
Trade and other payables
Trade and other payables are initially recognised at fair value,
and subsequently where necessary re-measured at amortised cost
using the effective interest method.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value. A provision for impairment of trade receivables is
established when there is objective evidence the Group will not be
able to collect all amounts due according to the original terms of
the receivables.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation is recognised so as to write off the cost or
valuation of assets less their residual values over their useful
lives, using the straight-line method, on the following bases:
Fixtures and equipment 10% - 20%
The gain or loss arising on the disposal of an asset is
determined as the difference between the sales proceeds and the
carrying amount of asset of the asset and is recognised in
income.
Share based payments
Share options have been granted to key management as set out in
Note 23. The cost of equity settled transactions is measured with
reference to the fair value at the date at which they were granted.
The Group accounts for the fair value of these options at grant
date over the vesting period in the income statement, with a
corresponding increase to the share based payment reserve. The fair
value was calculated based on the Black Scholes Model using the
following inputs:
Share price GBP2.35 - GBP2.50
Exercise price GBP2.35 - GBP2.71
Expected volatility 25%* - 10%*
Risk free rate 1.39% - 2.60%
Expected dividends* 4% - 3%
*based on quoted property sector average (not NewRiver Retail
Limited's expected dividend)
Treasury shares
Own equity instruments which are reacquired (treasury shares)
are recognised at cost and deducted from equity. No gain or loss is
recognised in the income statement on the purchase, sale, issue or
cancellation of the Group's own equity instruments. Any difference
between the carrying amount and the consideration is recognised in
the reserves
The Group has issued a number of shares to an Employee Benefit
Trust (EBT) as detailed in Note 22. As this EBT is controlled by
the Group, it is consolidated in these financial statements and
unallocated shares held by the EBT are shown as treasury
shares.
Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when paid. In the case of final dividends, this is when approved by
the Board.
Hedge accounting
Hedges of interest rate risk on firm commitments are accounted
for as cash flow hedges.
At the inception of the hedge relationship, the entity documents
the relationship between the hedging instruments and the hedged
item, along with its risk management objectives and its strategy
for undertaking various hedge transactions. Furthermore, at the
inception of the hedge and on an ongoing basis, the Group documents
whether the hedging instrument is highly effective in offsetting
changes in fair values or cash flows of the hedged item.
Cash flow hedge
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating
to the ineffective portion is recognised immediately in profit or
loss, and is included in the 'other gains and losses' line
item.
Amounts previously recognised in other comprehensive income and
accumulated in equity are reclassified to profit or loss in the
periods when the hedged item is recognised in profit or loss, in
the same line of the income statement as the recognised hedged
item. However, when the forecast transaction that is hedged results
in the recognition of a non-financial asset or a non-financial
liability, the gains and losses previously accumulated in equity
are transferred from equity and included in the initial measurement
of the cost of the non-financial asset or non-financial
liability.
Hedge accounting is discontinued when the Group revokes the
hedging relationship, the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge
accounting. Any gain or loss recognised in other comprehensive
income at that time is accumulated in equity and is recognised when
the forecast transaction is ultimately recognised in profit or
loss. When a forecast transaction is no longer expected to occur,
the gain or loss accumulated in equity is recognised immediately in
profit or loss.
Leasing (as lessors)
Leases where the Group does not transfer substantially all the
risks and benefits incidental to the ownership of the assets are
classified as operating leases. All of the Group's properties are
leased under operating leases and included in investment properties
in the balance sheet.
2 Segmental reporting
During the year the Group operated in one business segment,
being property investment in the United Kingdom and as such no
further information is provided.
3 Gross property income
2012 2011
GBP'000 GBP'000
----------------------------------- -------- --------
Rental and related income 14,290 4,378
Asset management fees 470 342
Surrender premiums and commissions 251 58
----------------------------------- -------- --------
Gross property income 15,011 4,778
----------------------------------- -------- --------
4 Property operating expenses
2012 2011
GBP'000 GBP'000
---------------------------------------------- -------- --------
Amortisation of tenant incentives and letting
costs 204 23
Ground rent payments 553 214
Other property operating expenses 1,465 116
---------------------------------------------- -------- --------
Property operating expenses 2,222 353
---------------------------------------------- -------- --------
5 Administrative expenses
2012 2011
GBP'000 GBP'000
--------------------------- -------- --------
Group staff costs 2,537 1,991
Office costs 279 177
Depreciation 11 1
Other administration costs 1,182 990
--------------------------- -------- --------
Administrative expenses 4,009 3,159
--------------------------- -------- --------
During the year a fee of GBP0.05m was paid to Colliers
International for valuation services
2012 2011
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Auditors remuneration
Fees payable to the Company's auditor for the
audit 115 88
Fees payable to the Company's auditor for the
interim review 24 18
----------------------------------------------------- -------- --------
Total audit fees 139 106
----------------------------------------------------- -------- --------
Fees payable to Company's auditor for tax compliance
services - 50
Fees payable to Company's auditor for corporate
finance services 100 -
----------------------------------------------------- -------- --------
Total non-audit fees 100 50
----------------------------------------------------- -------- --------
6 Profit on disposal of investment properties
2012 2011
GBP'000 GBP'000
----------------------- -------- --------
Gross disposal proceeds 8,380 -
Costs of disposal (322) -
----------------------- -------- --------
Net disposal proceeds 8,058 -
Carrying value (7,645) -
----------------------- -------- --------
Profit on disposal 413 -
----------------------- -------- --------
7 Finance income and expense
2012 2011
GBP'000 GBP'000
----------------------------------------- -------- --------
a) Finance income
Income from cash and short-term deposits 5 29
----------------------------------------- -------- --------
Total finance income 5 29
----------------------------------------- -------- --------
b) Finance costs
Interest on bank loans 3,756 1,228
Interest on debt instruments 1,583 546
----------------------------------------- -------- --------
Total finance costs 5,339 1,774
----------------------------------------- -------- --------
Net finance cost 5,334 1,745
----------------------------------------- -------- --------
Interest on debt instruments relates to the Convertible
Unsecured Loan Stock.
More details on the Group's borrowings are provided in Note
19.
8 Taxation
The tax expense for the year comprises:
2012 2011
GBP'000 GBP'000
-------------------------------------- -------- --------
Current taxation
UK Corporation Tax at 26% (2011: 28%) 120 124
-------------------------------------- -------- --------
Current taxation 120 124
REIT conversion charge - 1,600
-------------------------------------- -------- --------
Tax charge for the year 120 1,724
-------------------------------------- -------- --------
The charge for the year can be reconciled to the profit per the
income statement as follows:
2012 2011
GBP'000 GBP'000
------------------------------------------- -------- --------
Profit before tax 3,970 4,912
Tax at the Current rate of 26% (2011: 28%) 1,032 1,375
Tax effect of profit under REIT regime (912) (1,251)
REIT conversion charge - 1,600
------------------------------------------- -------- --------
Tax expense for the year 120 1,724
------------------------------------------- -------- --------
The Company entered the REIT regime on 22 November 2010 and is
not exposed to tax on qualifying UK property rental income and
gains arising from the disposal of exempt property assets, for this
reason deferred tax has not been provided for on revaluation
surpluses. At the time of the Company's conversion a provision of
GBP1.6 million (representing a 2% charge on the assets taken into
the regime) was made for the REIT conversion charge which the
Company has chosen to pay over 4 years (which carries as 0.19%
charge). The instalments are payable annually between June 2011 and
July 2014.
9 Earning per share
The European Public Real Estate Association (EPRA) issued Best
Practices Policy Recommendations in October 2010, which gives
guidelines for performance measures. The EPRA earnings measure
excludes investment property revaluations and gains on disposals,
intangible asset movements and their related taxation and the REIT
conversion charge.
The National Association of Real Estate Investment Trusts
(NAREIT) Funds From Operations (FFO) measure is similar to EPRA
earnings and is a performance measure used by many property
analysts. The main difference to EPRA earnings with respect to the
Group is that it adds back the amortisation of leasing costs and
tenant incentives and is based on US GAAP.
The calculation of basic and diluted earnings per share is based
on the following data:
2012 2011
GBP'000 GBP'000
------------------------------------------------- -------- --------
Earnings
Earnings for the purposes of basic and diluted
EPS being profit after taxation 3,850 3,188
Adjustments to arrive at EPRA profit
Exceptional items:
REIT conversion charge - 1,600
Prior year tax provision - 36
Other exceptional items 83 165
Unrealised movement on revaluation of investment
properties 274 (3,574)
Unrealised movement on revaluation of joint
venture investment properties 560 (545)
Profit on disposal of investment properties (413) -
------------------------------------------------- -------- --------
EPRA profit 4,354 870
------------------------------------------------- -------- --------
Additional adjustments to arrive at NAREIT
FFO
Amortisation of tenant incentives 70 23
Amortisation of rent free periods (171) -
Amortisation of capitalised leasing costs 134 -
------------------------------------------------- -------- --------
NAREIT FFO 4,387 893
------------------------------------------------- -------- --------
2012 2011
Number of shares No. 000's No. 000's
------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
for the purposes of basic EPS, basic EPRA EPS
and FFO EPS 25,242 13,822
Effect of dilutive potential ordinary shares:
Options - 21
Warrants 28 22
CULS - -
------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
for the purposes of basic diluted EPS and basic
diluted EPRA EPS 25,270 13,865
------------------------------------------------- ---------- ----------
EPRA EPS basic (pence) 17.3 6.3
EPRA diluted EPS (pence) 17.2 6.3
FFO EPS basic (pence) 17.4 6.5
EPS basic (pence) 15.3 23.1
Diluted EPS (pence) 15.2 23.0
------------------------------------------------- ---------- ----------
Under the terms of the Limited Partnership agreement relating to
NewRiver Retail Investments LP dated 28 February 2010, MSREI has
been granted the right to convert its interest in the JV or part
thereof on an NAV for NAV basis into shares of NewRiver Retail
Limited, up to 10% of the share capital of NewRiver Retail Limited
during the joint venture period. This conversion would have an
dilutive effect on the Group's EPS calculation, for the current
year of 0.3 pence which is not reflected in the above calculation
(accretive effect for the prior year).
10 Net asset value per share
2012 2011
------------------------------------------ ------- -------
Net asset value (GBP'000) 79,076 38,774
Number of ordinary shares EPRA* 34,333 24,467
Number of ordinary shares 31,080 14,212
Number of diluted shares 34,333 24,467
EPRA Net asset value per share (pence) 258 273
Basic Net asset value per share (pence) 254 273
Diluted Net asset value per share (pence) 253 272
------------------------------------------ ------- -------
*The number of shares in issue is adjusted under the EPRA
calculation to assumes conversion of the warrants, options and the
Convertible Unsecured Loan Stock converted to equity.
However, in the current year the conversion of the Convertible
Unsecured Loan Stock would have an accretive effect on the EPRA
calculation and is therefore excluded from the calculation.
11 Dividends
The following dividends were paid during the current and prior
years:
2012 2011 2012 2011
Pence per share Pence per share GBP'000 GBP'000
------------------------ ---------------- ---------------- -------- --------
Ordinary dividends paid
2011 Interim dividend - 1p - 142
2011 Final dividend - 4.5p 641 -
2012 Interim dividend 6p - 1,865 -
------------------------ ---------------- ---------------- -------- --------
6p 5.5p 2,506 142
------------------------ ---------------- ---------------- -------- --------
2012 Final dividend
proposed 9p - 2,797 -
------------------------ ---------------- ---------------- -------- --------
15p
------------------------ ---------------- ---------------- -------- --------
The proposed final dividend was approved by the Board on 23 May
2012. It has not been included as a liability or deducted from
retained profits in these accounts. The final dividend is payable
on 13 July 2012 to ordinary shareholders on the register at the
close of business on 22 June 2012 and will be recognised as an
appropriation of retained earnings in 2013.
The dividend will be paid entirely as a PID (Property Income
Distribution). PID dividends are paid, as required by REIT
legislation, after deduction of withholding tax at the basic rate
of income tax (currently 20%). However, certain classes of
shareholder may be able to claim exemption from deduction of
withholding tax.
12 Investment properties
2012 2011
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Opening balance 105,800 13,315
Acquisitions and improvements in the year 99,855 88,911
Disposals in the year (7,645) -
------------------------------------------------------ -------- --------
198,010 102,226
Fair value (deficit)/surplus on property revaluations (274) 3,574
------------------------------------------------------ -------- --------
Closing balance 197,736 105,800
------------------------------------------------------ -------- --------
The Group's investment properties have been valued at 31 March
2012 by independent valuers on the basis of fair value in
accordance with the Appraisal and Valuation Standards of the Royal
Institute of Chartered Surveyors Sixth Edition (the 'Red
Book').
It is the Group's policy to carry investment properties at fair
value in accordance with IAS 40 'Investment Property'. The fair
value of the Group's investment properties at 31 March 2012 has
been determined by the directors on the basis of open market
valuations carried out by Colliers International who are the
external valuers to the Group.
The basis for the valuations included in the report is based on
current market rental yields, expected rental income and comparable
market transactions.
13 Investments in joint ventures
2012 2011
GBP'000 GBP'000
------------------------------------------------------- --------
Opening balance 11,926 11,778
Additional joint venture interests during the
year (1) - 1,440
Income from joint ventures 945 1,272
Net valuation movement (560) 545
Distributions and dividends (1) (695) (2,032)
Return of capital (1) (150) (943)
Hedging movements (191) (134)
---------------------------------------------- ------- --------
Net book value 11,275 11,926
---------------------------------------------- ------- --------
Country of % Holding
Name incorporation 2012
-------------------------------------- --------------- ---------
NewRiver Retail Investments LP Guernsey 50%
NewRiver Retail Investments (GP) Ltd* Guernsey 50%
-------------------------------------- --------------- ---------
(1) The net cash inflow during the year was GBP0.84 million
(2011: cash inflow GBP1.50 million).
NewRiver Retail Investments LP (the 'JV') is an established
jointly controlled limited partnership set up by NewRiver Retail
Limited and Morgan Stanley Real Estate Investing ('MSREI') to
invest in UK Retail property.
The JV is owned equally by NewRiver Retail Limited and MSREI.
NewRiver Retail (UK) Limited is the appointed asset manager on
behalf of the JV and receives asset management fees as well as
performance-related return promote payments. No promote payment has
been recognised during the year (2011: nil) as the Group is
entitled to receive promote payments only after achieving the
agreed hurdles.
Under the terms of the Limited Partnership agreement relating to
NewRiver Retail Investments LP dated 28 February 2010, MSREI has
been granted the right to convert its interest in the JV or part
thereof on an NAV for NAV basis into shares of NewRiver Retail
Limited, up to 10% of the share capital of NewRiver Retail Limited
during the joint venture period, which is from 5 March 2010 and
expires 5 March 2015. This conversion would have an dilutive effect
on the Group's EPS calculation for the current year (accretive in
the prior year).
In line with the existing NewRiver investment strategy, the JV
targets UK retail property assets with the objective of delivering
added value and above average returns through NewRiver's proven
skills in active and entrepreneurial asset management and risk
controlled development and refurbishment.
*NewRiver Retail Investments (GP) Ltd has a number of 100% owned
subsidiaries which are NewRiver Retail (Finco No 1) Limited and
NewRiver Retail (GP1) Limited, acting in its capacity as General
Partner for NewRiver Retail (Holding No 1) LP and NewRiver Retail
(Portfolio No 1) LP. These entities have been set up to facilitate
the investment in retail properties in the UK by the joint
venture.
The JV has a 31 December year end and the Group has applied
equity accounting for its interest in the JV. The aggregate amounts
recognised in the consolidated balance sheet and income statement
eliminate inter company transactions and are as follows:
2012 2011
NewRiver Retail NewRiver Retail
Investments 2012 Investments 2011
(GP) Ltd Group's Share (GP) Ltd Group's Share
Total 50% Total 50%
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ---------------- -------------- ---------------- --------------
Balance sheet
Non-current assets 45,465 22,733 46,365 23,183
Current assets 2,035 1,018 2,105 1,052
Current liabilities (2,002) (1,001) (1,714) (857)
Non-current liabilities (22,949) (11,475) (22,904) (11,452)
----------------------------- ---------------- -------------- ---------------- --------------
Net assets 22,549 11,275 23,852 11,926
----------------------------- ---------------- -------------- ---------------- --------------
Income statement
Income 3,593 1,796 4,661 2,331
Administration expenses (784) (392) (1,062) (531)
Finance costs (919) (459) (1,055) (528)
----------------------------- ---------------- -------------- ---------------- --------------
Recurring income 1,890 945 2,544 1,272
Fair value (deficit)/surplus
on property revaluations (1,121) (560) 1,090 545
Income from joint ventures 769 385 3,634 1,817
----------------------------- ---------------- -------------- ---------------- --------------
Recurring income in the joint venture has reduced due to
property sales in 2011.
The Group's share of any contingent liabilities to the JV is
GBPnil. (2011: GBPnil)
14 Property, plant and equipment
Fixtures
and
equipment Total
GBP'000 GBP'000
------------------------- ---------- --------
Cost
At 1 April 2010 8 8
At 31 March 2011 8 8
------------------------- ---------- --------
Additions 415 415
Disposals (8) (8)
------------------------- ---------- --------
At 31 March 2012 415 415
------------------------- ---------- --------
Accumulated depreciation
At 1 April 2010 - -
Charge for the year 1 1
At 31 March 2011 1 1
------------------------- ---------- --------
Charge for the year 11 11
Eliminated on disposals (1) (1)
------------------------- ---------- --------
At 31 March 2012 11 11
------------------------- ---------- --------
Carrying Amount
At 31 March 2012 404 404
------------------------- ---------- --------
At 31 March 2011 7 7
At 31 March 2010 8 8
------------------------- ---------- --------
15 Investment in subsidiary undertakings
Below is a list of the Group's principal subsidiaries:
Proportion
of
ownership
Country of interest
Name incorporation Activity 2012
---------------------------------- --------------- ------------------------ ----------
NewRiver Retail (Boscombe)
Limited United Kingdom Real estate investments 100%
NewRiver Retail (Market Deeping
No. 1) Limited Guernsey Real estate investments 100%
NewRiver Retail (Newcastle
No. 1) Limited Guernsey Real estate investments 100%
NewRiver Retail (Portfolio
No. 1) Limited Guernsey Real estate investments 100%
NewRiver Retail (Portfolio
No. 2) Limited Guernsey Real estate investments 100%
NewRiver Retail (Portfolio
No. 3) Limited United Kingdom Real estate investments 100%
NewRiver Retail (Portfolio
No. 4) Limited United Kingdom Real estate investments 100%
NewRiver Retail (Portfolio
No. 5) Limited United Kingdom Real estate investments 100%
NewRiver Retail (Portfolio
No. 6) Limited* United Kingdom Real estate investments 100%
Company operation
and
NewRiver Retail (UK) Limited United Kingdom asset management 100%
NewRiver Retail (Witham) Limited United Kingdom Real estate investments 100%
NewRiver Retail (Wrexham No.
1) Limited Guernsey Real estate investments 100%
NewRiver Retail CUL No. 1 Limited United Kingdom Finance Company 100%
---------------------------------- --------------- ------------------------ ----------
The Group's investment properties are held by its subsidiary
undertakings.
*Incorporated after 31 March 2012.
16 Trade and other receivables
2012 2011
GBP'000 GBP'000
------------------------------- -------- --------
Trade receivables 2,089 1,213
Prepayments and accrued income 505 200
Other receivables 451 -
------------------------------- -------- --------
3,045 1,413
------------------------------- -------- --------
All amounts fall due for payment in less than one year.
A provision of GBP0.2 million (2011: GBP0.1 million) was made
for trade receivables as at 31 March 2012.
17 Cash and cash equivalents
2012 2011
GBP'000 GBP'000
------------- -------- --------
Cash at bank 8,562 10,651
------------- -------- --------
8,562 10,651
------------- -------- --------
18 Trade and other payables
2012 2011
GBP'000 GBP'000
------------------------------------- -------- --------
Trade payables 495 428
Other payables 675 -
Accruals 2,409 1,732
Rent received in advance 3,329 1,980
------------------------------------- -------- --------
6,908 4,140
Taxation - current 495 840
------------------------------------- -------- --------
Current trade and other payables 7,403 4,980
------------------------------------- -------- --------
Taxation - non-current 744 1,201
------------------------------------- -------- --------
Non-current trade and other payables 744 1,201
------------------------------------- -------- --------
19 Borrowings
2012 2011
GBP'000 GBP'000
--------------------------------- -------- --------
Secured bank loans 107,842 60,252
Convertible Unsecured Loan Stock 24,581 24,474
--------------------------------- -------- --------
Total borrowings 132,423 84,726
--------------------------------- -------- --------
Maturity of borrowings:
Less than 1 year - -
Between 1 and 2 years* 13,268 -
Between 2 and 5 years 119,155 84,726
Over 5 years - -
Total borrowings 132,423 84,726
--------------------------------- -------- --------
* The Company has an option to extend this loan to 4 June
2015.
Secured bank loans
Bank loans are secured by way of legal charges on properties
held by the Group and a hedging policy is adopted which is aligned
with the property strategy on each of its assets.
Facility and arrangement fees
2012 2011
-------------
Facility Fees Amortised Balance Facility Fees Amortised Balance
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- -------- -------- --------- -------- -------- -------- --------- --------
Santander* 33,371 (327) 132 33,176 26,159 (219) 55 25,995
Clydesdale** 40,815 (539) 64 40,340 - - - -
HSBC*** 34,580 (346) 92 34,326 34,580 (346) 23 34,257
------------- -------- -------- --------- -------- -------- -------- --------- --------
108,766 (1,212) 288 107,842 60,739 (565) 78 60,252
Convertibles 25,000 (574) 155 24,581 25,000 (566) 40 24,474
------------- -------- -------- --------- -------- -------- -------- --------- --------
133,766 (1,786) 443 132,423 85,739 (1,131) 118 84,726
------------- -------- -------- --------- -------- -------- -------- --------- --------
*This facility is 93% fixed by way of an interest rate swap at
an average rate of 4.0%
**This facility is 81% by way of an interest rate swap at an
average rate of 4.5%
***This facility is subject to an interest cap agreement and is
60% capped at 6.5% (4% cap, 2.5% bank margin)
Fair Value on Interest rate swaps
The Group recognised a mark to market fair value loss of GBP1.5
million (2011: GBP0.2 million) on its interest rate swaps as at 31
March 2012. The fair value loss recognised for on Balance Sheet
hedging was GBPnil (2011: GBP0.1 million).
The carrying value of interest rate swaps in the balance sheet
at 31 March 2012 was GBP1.376 million (2011: GBP0.116 million).
All borrowings are due after more than 1 year.
Convertible Unsecured Loan Stock ('CULS')
On 22 November 2011 the Group issued GBP25 million of CULS where
the stock holder may convert all or any of the stock into ordinary
shares at the rate of 1 ordinary share for every GBP2.80 nominal
value of CULS held. The conversion price has subsequently been
revised to GBP2.76 to reflect subsequent equity raised and
dividends paid. Under the terms of the convertible, interest will
accrue at 5.85% on the outstanding loan stock until 31 December
2015 when it will either be converted or repaid. The interest
payable on the CULS is due biannually on the 30 June and 31
December.
Management was required to make estimates with the assistance of
external experts to conclude on the valuation of the CULS at the
date of issue. The issuance of the compound instrument was between
two knowledgeable parties at arms length and at a market rate of
5.85% per annum for 5 years. Management have concluded that the
value of the convertible option was negligible and the value
resided in the debt portion of the instrument at the date of
issue.
20 Cash flow note
2012 2011
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Operating profit 9,304 6,657
Adjustments for:
Income from joint venture not received (945) (1,272)
Net valuation movement 274 (3,574)
Net valuation movement of joint venture investment
properties 560 (545)
Profit on sale of investment properties (413) -
Depreciation of property, plant and equipment
and goodwill 11 (1)
Amortisation of tenant incentives 70 23
Amortisation of rent-free periods (171) -
Amortisation of capitalised leasing costs 134 -
Share-based payments expense 125 37
Interest paid (5,036) (770)
Interest received 5 29
Taxation paid (483) (355)
--------------------------------------------------- -------- --------
Operating cash flows before movements in working
capital 3,435 229
--------------------------------------------------- -------- --------
Increase in receivables (1,633) (1,412)
Increase in payables 2,328 3,379
--------------------------------------------------- -------- --------
Cash inflows from operations 4,130 2,196
--------------------------------------------------- -------- --------
21 Share capital and reserves
2011 2011 2011 2011 2011 2011 2011
Retained Other Share Revaluation Share option Hedging Total
Earnings Reserves Premium Reserve Reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------- ------------ ------------- -------- --------
Brought forward 846 - 24,031 1,269 25 (46) 26,125
Shares issued in year - - 10,531 - - - 10,531
Issue costs - - (761) - - - (761)
Transfer to distributable
reserve - 33,801 (33,801) - - - -
Movement on revaluation (3,574) - - 3,574 - - -
Total comprehensive income
for the year 3,188 - - - - (204) 2,984
Dividends paid (142) - - - - - (142)
Share-based payments - - - - 37 - 37
--------------------------- --------- --------- --------- ------------ ------------- -------- --------
Balance carried forward 318 33,801 - 4,843 62 (250) 38,774
--------------------------- --------- --------- --------- ------------ ------------- -------- --------
2012 2012 2012 2012 2012 2012 2012
Retained Other Share Revaluation Share option Hedging Total
Earnings Reserves Premium Reserve Reserve Reserve(i)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------- ------------ ------------- ----------- --------
Brought forward 318 33,801 - 4,843 62 (250) 38,774
Shares issued in year - - 42,500 - - - 42,500
Issue costs - - (2,216) - - - (2,216)
Transfer to distributable
reserve - 40,284 (40,284) - - - -
Movement on revaluation 274 - - (274) - - -
Total comprehensive income
for the year 3,850 - - - - (1,451) 2,399
Dividends paid (2,506) - - - - - (2,506)
Share-based payments - - - - 125 - 125
--------------------------- --------- --------- --------- ------------ ------------- ----------- --------
Balance carried forward 1,936 74,085 - 4,569 187 (1,701) 79,076
--------------------------- --------- --------- --------- ------------ ------------- ----------- --------
The authorised share capital is unlimited and there are
currently 31,079,068 shares in issue (31 March 2011: 14,214,308).
In addition there are 624,440 shares held in the Employee Benefit
Trust (Note 22).
In the year ending 31 March 2012, 16.87 million (2011: 4.2
million) nil par value Ordinary Shares were issued for cash
consideration at a price of GBP2.52 (2011: GBP2.50) resulting in an
increase of the total share capital and other reserves to GBP74.1
million (2011: GBP33.8 million). Costs of GBP2.2 million (2011:
GBP0.8 million) directly attributable to the issue of these shares
have been set against the share premium account.
During the year the Group approved a transfer from the share
premium account of GBP40.3 million (2011: GBP33.8 million) to other
reserves which may be distributed in the future.
Shareholders who subscribed for Placing Shares in the initial
Placing received warrants, in aggregate, to subscribe for 3% of the
Fully Diluted Share Capital exercisable at the subscription price
per Ordinary Share of GBP2.50 and all such warrants shall be fully
vested and exercisable upon issuance. The subscription price was
adjusted to GBP2.44 following the share issue in May 2010 and
subsequently to GBP2.27 following the dividend payment in July and
December 2011. During the year no (2011:2,308) warrants were
exercised.(i) Includes share of joint venture hedging reserve.
22 Treasury shares
The Company has established an Employee Benefit Trust (EBT)
which is registered in Jersey.
The EBT at its discretion may transfer shares held by it to
Directors and employees of the Company and its subsidiaries. The
maximum number of ordinary shares that may be held by the Trustee
of the EBT may not exceed 10% of the Company's issued share capital
at that time. It is intended that the Trustee of the EBT will not
hold more ordinary shares than are required in order to satisfy
awards/options granted under share incentive plans.
During the year no shares were issued to the EBT (2011:
nil).
As the EBT is consolidated, these shares are treated as Treasury
Shares.
No shares have been allocated by the EBT to directors or
employees during the year.
2012 2011
000s 000s
----------------------- ----- -----
Brought forward 624 624
Issued during the year - -
----------------------- ----- -----
Carried forward 624 624
----------------------- ----- -----
23 Share-based payments
The Group provides share based payments to employees in the form
of share options, all share based payment arrangements granted
since the admission on 1 September 2009 have been recognised in the
financial statements. The Group uses the Black Scholes Model and
the resulting value is amortised through the income statement over
the vesting period of the share-based payments with a corresponding
credit to the share-based payments reserve.
(a) Terms
Exercise 2012 2011
Price Number Number of
GBP of Options Options
------------------------------- -------- ----------- ----------
Awards brought forward 886,949 660,200
Awards made during the year: 2.71 - 48,943
2.50 - 144,973
2.44 - 32,833
2.35 1,585,000 -
------------------------------- -------- ----------- ----------
Exercisable options at the end
of the year 2,471,949 886,949
------------------------------- -------- ----------- ----------
The awards granted during the period are based on a percentage
of the total number of shares in issue, as a result of the new
share issue the number of awards have increased.
(b) Share-based payment charge
2012 2011
GBP'000 GBP'000
-------------------------------------------- -------- --------
Share-based payment expense brought forward 62 25
Share-based payment expense in the year 125 37
-------------------------------------------- -------- --------
Cumulative share based payment 187 62
-------------------------------------------- -------- --------
24 Financial commitments and operating lease arrangements
2012 2011
GBP'000 GBP'000
------------------------------- -------- --------
Operating leases which expire:
Within 1 year 173 55
1 to 2 years 141 -
2 to 5 years 514 -
Over 5 years 879 -
------------------------------- -------- --------
1,707 55
------------------------------- -------- --------
Operating lease payments represent rentals payable by the Group
for occupation of its office properties.
The current lease expires in November 2021 with a tenant break
option in 2016.
25 Post balance sheet events
On 23 May 2012, the Board of Directors approved a final dividend
of 9 pence per share which will result in a final total dividend
for the year of 15 pence per share.
26 Financial instruments - risk management
The Group's activities expose it to a variety of financial risks
in relation to the financial instruments it uses: market risk
(including currency risk, price risk and cash flow interest rate
risk), credit risk and liquidity risk. The financial risks relate
to the following financial instruments: trade receivables, cash and
cash equivalents, trade and other payables, borrowings and
derivative financial instruments.
Risk management parameters are established by the Board on a
project by project basis. Reports are provided to the Board
formally on a quarterly basis and also when authorised changes are
required.
a) Market risk
Currency risk
As all material transactions are in GBP the Group is not subject
to any foreign currency risk.
Cash flow and fair value interest rate risk
The Group has significant interest-bearing cash resources, the
majority of which are held in business accounts with its principal
bankers. The Group's interest rate risk arises from long-term
borrowings (Note 19), borrowings issued at variable rates expose
the Group to cash flow interest rate risk, whilst borrowings issued
at a fixed rate expose the Group to fair value risk. The Group's
cash flow and fair value risk is reviewed quarterly by the
Board.
The cash flow and fair value risk is approved quarterly by the
Board. The Group analyses its interest rate exposure on a dynamic
basis. It takes on exposure to mitigate the effects of fluctuations
in the prevailing levels of market interest rates on its financial
position and cash flows. Interest costs may increase as a result of
such changes. They may reduce or create losses in the event that
unexpected movements arise. Various scenarios are simulated taking
into consideration refinancing, renewal of existing positions,
alternative financing and hedging. Based on these scenarios the
Group calculates the impact on profit and loss of a defined
interest rate shift. The simulation is run on an ongoing basis to
verify that the maximum potential impact is within the parameters
expected by management. Formal reporting to the Board on cash flows
is made on a monthly basis. To date the Group has sought to fix its
exposure to interest rate risk on borrowings through the use of a
variety of interest rate derivatives. At 31 March 2012, the Group
(including joint ventures) had GBP107.7 million (2011: GBP71.9
million) of interest rate swaps in place, and it's net debt was 86%
fixed (2011: 94%). This gives certainty over future cash flow but
exposure to fair value movements, which amounted to an unrealised
loss of GBP1.45 million at 31 March 2012 (2011: GBP0.2 million).
Sensitivity analysis is carried out to assess the impact of an
increase in interest rates on finance costs to the Group. The
impact of a 2% increase in interest rates would increase the net
interest payable in the income statement by GBP1.1 million (2011:
GBP0.1 million).
b) Credit risk
The Group's principal financial assets are cash and short term
deposits, trade and other receivables.
The credit risk on the Group's trade and other receivables is
considered low due to the Group having policies in place to ensure
that rental contracts are made with tenants meeting appropriate
balance sheet covenants, supplemented by rental deposits or bank
guarantees from international banks. The amounts presented in the
Balance Sheet are net of allowances for doubtful receivables. An
allowance for impairment is made where there is objective evidence
that the Group will not be able to collect all amounts due
according to the terms of the receivables concerned.
The Group has VAT receivable of GBP0.1 million (2011: GBP0.4
million payable). The timing of payment of these balances is
subject to future revenue receipts and application to HMRC. The
Group forecasts the payment of these balances based upon the timing
of future revenue receipts and its experience of successful
application to the HMRC.
No balances are considered passed due or impaired at 31 March
2012 based upon this assessment of the timing of future cash
receipts. The Group believes its only exposure is in relation to
the timing of the outstanding refund. The maximum credit risk
exposure is limited to the carrying value on the balance sheet.
The credit risk on the Group's cash and short-term deposits and
derivative financial instruments is limited to the Group's policy
of monitoring counterparty exposures.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient
cash, the availability of funding through an adequate amount of
committed credit facilities and the ability to close out market
positions. The Board and its advisers seek to have appropriate
credit facilities in place on a project by project basis, either
from available cash resources or from bank facilities.
Management monitor the Group's liquidity position on a weekly
basis. Formal liquidity reports are issued on a weekly basis and
are reviewed quarterly by the Board, along with cash flow
forecasts. A summary table with maturity of financial liabilities
is presented below:
2012 2011
Year Years Years
Current 2 3 to 5 Current Year 2 3 to 5
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- -------- -------- --------------------- -------- -------- --------
Interest-bearing Interest-bearing
loans and borrowings - 13,268* 95,498 loans and borrowings - - 60,739
CULS - - 25,000 CULS - - 25,000
Trade and other Trade and other
payables 7,403 744 - payables 4,980 - -
Derivative financial Derivative financial
instruments - - 1,701 instruments - - 250
---------------------- -------- -------- -------- --------------------- -------- -------- --------
7,403 14,012 122,199 4,980 - 85,989
---------------------- -------- -------- -------- --------------------- -------- -------- --------
*Option to extend by 2 years.
The Group monitors its risk to a shortage of funds by
forecasting cash flow requirements for future years, including
consideration of existing facilities and covenant requirements. The
Group's objective is to maintain a balance between continuity of
funding and flexibility through the use of bank overdrafts and
other short-term borrowing facilities, bank loans and equity fund
raisings.
(d) Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern to provide
returns to shareholders through Property Income Distributions
(PIDs) in accordance with the REIT regime and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
To maintain or adjust the capital structure the Group may return
capital to shareholders, issue new shares or sell assets to reduce
debt. Consistent with others in the industry, the Group monitors
capital on the basis of its gearing ratio. This ratio is calculated
as net debt divided by total capital. Net debt is calculated as
total borrowings (including borrowings and trade and other payables
as shown in the balance sheet) but excluding preference shares,
which for capital risk management is considered to be capital
rather than debt, less cash and short-term deposits. Total capital
is calculated as equity, as shown in the balance sheet, plus
preference shares and net debt. Where the Group has a net position,
the gearing ratio will be zero. The Group is not subject to any
external capital requirements.
27 Related party transactions
Group
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Director's shareholdings can be found in the Directors
report.
Total emoluments of Executive Directors during the year
(excluding share-based payments) was GBP1.5 million (2011: GBP1.2
million).Share-based payments of GBP0.13 million (2011: GBP0.04
million) accrued during the year.
During the year 24,250 shares (2011: nil) were acquired on the
open market by Directors at market value.
28 Operating lease arrangements
The Group earns rental income by leasing its investment
properties to tenants under non-cancellable operating leases.
At the balance sheet date the Group had contracted with tenants
for the following future minimum lease payments on its investment
properties:
2012 2011
GBP'000 GBP'000
----------------------------------- -------- --------
Within 1 year 17,267 6,947
In the 2nd year 14,325 6,291
In the 3rd to 5th year (inclusive) 33,922 15,890
After 5 years 45,669 29,489
----------------------------------- -------- --------
111,183 58,617
----------------------------------- -------- --------
Weighted Average Lease Expiry
(to expiry) of operating leases in NewRiver Retail Ltd
portfolio
This information is provided by RNS
The company news service from the London Stock Exchange
END
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