Our strategy, already underway, is to improve the physical
appearance of the centre, reduce two of the long term voids, pursue
an extension opportunity with Lidl and explore potential
residential opportunities within the ownership.
The Beacon shopping centre, North Shields
(www.thebeaconcentre.co.uk) comprises 181,000 sq ft and a 460 space
car park. Key retailers include: Wilkinson, Home Bargains,
Poundland, B&M, Boots and Greggs. We intend to improve the
retail mix through the reconfiguration of existing units to meet
specific retailer demand, modernise the physical appearance of the
centre both internally and externally and capitalise on the new
interlink between the centre and the local library which has just
undergone a GBP3 million refurbishment by the Council.
La Porte Precinct in Grangemouth was the final asset acquired
from Zolfo Cooper. With a purchase price of just GBP1.6 million
this asset represented less than 10% of the Zolfo Cooper portfolio.
The property comprises a retail parade located in a prime position
within Grangemouth's town centre.
The fully let retail parade has sustained 100% occupancy for
over 10 years, let to Poundstretcher, WH Smith, Boots and Thomson
Travel.
202 Marston's Plc Pub Portfolio
Arguably our most innovative transaction in 2013 was the
acquisition of 202 pubs from Marston's Plc for GBP90 million.
With our appreciation of the rapidly growing demand from major
food retailers to expand their convenience store estate, we
identified an intuitive opportunity to facilitate this growth. Pubs
can be ideal properties to accommodate convenience stores and it
was with this in mind that we hand-selected selected the pubs that
formed the portfolio acquired from Marston's.
On average our portfolio of pubs comprises 24 car parking spaces
(convenience store operators generally seek 10 to 15 car parking
spaces), pub size of 3,100 sq ft (convenience store requirements
range from 2,500 to 4,000 sq ft), the majority of the pubs have
good roadside visibility and are located in residential areas,
exactly the profile that convenience store operators are seeking.
Finally, the average pub site area is 24,000 sq ft offering great
optionality to build new convenience stores in the car park whilst
protecting the value of the pub.
Marston's, as part of the transaction, agreed to manage the
portfolio on a four year leaseback basis at a fixed annual rental
which based on the acquisition price of GBP90 million equates to an
attractive net initial yield of 12.9%. This arrangement frees our
time to pursue our strategy of alternative uses whilst benefitting
from an attractive income stream and when we are ready to implement
an alternative use we can call for vacant possession from
Marston's.
Our strategy has now been validated with the post year-end
announcement of our portfolio leasing transaction with The
Co-operative Group who has agreed, subject to specific conditions,
to lease up to 54 properties for fixed terms of 15 years and at
rents ranging from GBP15 per sq ft to GBP17 per sq ft. Furthermore
we will receive performance fees of up to GBP2.7 million payable on
the delivery of a minimum of 40 properties to The Co-operative
Group.
Our final two acquisitions during the reporting period ending 31
March 2014, represent a good example of our opportunistic approach
where we can leverage off our retailer relationships and transact
with speed utilising our strong balance sheet.
14-19 Queens Square, Crawley was a retail building comprising
approximately 45,000 sq ft let entirely to Poundland Limited for a
term expiring in June 2019 at a rent of GBP350,000 pa. The property
was acquired for GBP4,250,000 equating to a net initial yield of
7.7%. We believed that this price represented excellent value given
the very strong sales performance that Poundland were generating
from the property and this location.
Within a week of the acquisition, and given Poundland's
objective to secure their long term position in this property, the
lease was re geared to a fixed term of 15 years and the rent
increased to GBP450,000 pa. Following an unsolicited offer we
successfully sold the Poundland unit for just under GBP6 million,
after the balance sheet date, demonstrating the Company's ability
to efficiently enhance value and recycle equity.
Finally we exchanged contracts to acquire the freehold interest
with vacant possession from HSBC of 40 Fishergate, Preston for
GBP625,000. Simultaneous with the acquisition, contracts have been
exchanged with Sainsbury's to lease the entire property as a
convenience food store for a term of 15 years with a tenant only
break at year 10 and rent of GBP90,000 pa. Following the completion
of certain works, Sainsbury's are due to take occupation and
commence their fit out in the summer of 2014.
Disposals
Two disposals were completed during the reporting period. The
first and largest was the sale of the Customer First Centre &
Library in Wallsend which was sold to an annuity fund managed by
Legal & General for GBP7.9 million equating to a net initial
yield of 4.3%.
This disposal coincided with the completion of NewRiver's first
major development and the price achieved reflected both the quality
of the development and the leasing of the library to North Tyneside
Council for a term of 30 years at a rent of GBP363,000 pa subject
to annual increases linked to RPI.
This disposal and the development in Wallsend have proved to be
highly successful and profitable.
The final disposal was the sale of units 1&2 Union Street
Glasgow to a private investor for GBP900,000 which represents 5.9%
above valuation. Having sold unit 3 in March 2011 the IRR from this
asset has been 76.1%.
Asset Management
Alongside our very acquisitive year we remained highly committed
to improving the operating performance of our assets through
focused and smart asset management with the last 12 months having
proved to be another successful year.
With an annual rent roll of GBP53.8 million, 43 retail assets
and 1,118 tenancies, the portfolio generates considerable annual
leasing activity through lease renewals, new lettings, rent reviews
and lease re-gears.
Furthermore we manage an annual service charge of GBP10.4
million and indirectly employ almost 200 people in the day to day
management of our multi let shopping centres.
Our asset management strategy is focused on delivering 10 key
operating objectives which are:
1. Achieving high rent collection rates
2. Aiming to deliver sustainable rental growth
3. Reducing void rates
4. Reducing property costs such as service charge, business rates & utilities
5. Improving the quality & efficiency of our property management
6. Reducing the cost and time of our leasing transactions
7. Increasing both footfall and dwell times and basket spend for our retailers
8. Improving retail mix
9. Enhancing our retailer relationships
10. Improving our digital, marketing and commercialisation
capability
We have made significant progress with the following
highlights:
1. Achieving high rent collection rates
Rent roll under management now stands at GBP53.8 million
underpinned by intensive weekly scrutiny of our rent collection. We
conduct weekly status calls with our managing agents to establish
arrears and determine appropriate action to ensure full
recovery.
2. Aiming to deliver sustainable rental growth
During the 12 months to March 2014, NewRiver Retail completed
141 leasing events including 99 new lettings and lease renewals at
1.7% above Valuation ERV, generating and maintaining GBP2.5 million
of income (GBP1.8 million NewRiver share).69 new lettings were
completed, securing an additional GBP1.8 million (GBP1.3 million
NewRiver share) of annual rent. 30 lease renewals were completed,
defending GBP0.7 million (GBP0.5 million NewRiver share) of annual
rent.
3. Reducing void rates
The retail occupancy rate was maintained during the period at
95%; with like for like occupancy rates, excluding acquisitions
also maintained at 94%.
4. Reducing property costs
Maintaining low operational costs for our retailers is an
important aspect of the NewRiver business model. On the acquisition
of any new centres, we instruct our rating advisers to review the
rateable values seeking to reduce liability on both vacant and
occupied units. This year we have successfully appealed over GBP1.9
million in revaluation savings against the 2010 Rating List and
generated GBP1 million in refunds and reduced liabilities through
rates mitigation.
An example of further success is at Burns Mall, Kilmarnock,
where we have reduced the annual service charge budget by over
GBP76,000 since March 2013 representing a 12% reduction through a
series of initiatives ranging from the re-tendering of cleaning and
security contracts to improving the efficiency of our resource by
decreasing man hours and empowering staff with dual role
responsibilities.
Cost saving initiatives also benefit the local community as we
have provided space for Arts Council backed charities, such as East
Street Arts and Castlefield Galleries who procure space on behalf
of community projects and local arts groups which in turn enhances
the environment and importantly secures over 50% savings on empty
rates for the Company.
Running concurrently and complementing our rates reduction
strategy, we actively review operational costs at a property level
with the intention of decreasing the cost whilst maintaining an
attractive shopping environment. Initiatives such as the
installation of LED lighting across our portfolio reduces both
long-term running costs by way of decreasing electricity
consumption and reduces on-going maintenance costs.
Overall we have delivered a reduction in service charge budgets
across our retail portfolio of nearly GBP500,000, representing a 5%
year on year reduction.
5. Improving the quality & efficiency of our property
management
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