TIDMNRR
RNS Number : 0394I
NewRiver REIT PLC
21 November 2018
NewRiver REIT plc Half Year Results
21 November 2018
Convenience & community focus delivering robust cash
returns
Allan Lockhart, Chief Executive commented: "NewRiver has
delivered a robust performance in a challenging market, with
resilient cash returns underpinned by solid operational metrics.
Our continued focus on the growing sub-sectors of the market
characterised by convenience, value and frequent spend on everyday
essentials continues to serve us well.
During the period we remained active across our retail
portfolio, signing leases with growing, best-in class operators and
progressing our risk-controlled development pipeline, most recently
reaching practical completion at Canvey Island Retail Park in
Essex. We continued to diversify our portfolio by investing in
high-quality community pubs through the acquisition of Hawthorn
Leisure, where integration is progressing well and we remain on
track to deliver annualised scale-based synergies of at least GBP3
million. We achieved all of this while maintaining the strong
balance sheet required to support our growth ambitions.
Looking ahead, our income profile is well-diversified and we
have deliberately avoided sub-sectors such as department stores,
mid-market fashion and casual dining, which we believe are most
exposed to the structural changes impacting the retail market. The
way that people live, work and consume is evolving rapidly and, as
an active and specialist owner of community assets with a strong
balance sheet, we are well placed to adapt to and benefit from
these changes."
Proven business model delivering robust cash returns,
underpinned by a strong balance sheet
-- Funds From Operations ('FFO') of GBP25.3 million (HY18:
GBP26.5 million); decrease mainly due to GBP2.2 million one-off
promote received in the prior period, offset by net acquisition
activity; FFO of 8.3 pence (HY18: 10.0 pence)
-- Ordinary dividend per share increased by 3% to 10.8 pence
(HY18: 10.5 pence); 77% covered as our disciplined approach has
meant capital is not yet fully deployed in anticipation of future
acquisition opportunities
-- Q3 FY19 ordinary dividend increased by 3% to 5.4 pence per share (Q3 FY18: 5.25 pence)
-- EPRA NAV per share of 283 pence (March 2018: 292 pence),
impacted by valuation decline of 1.8%
-- Total Property Return +2.4%, +230 bps vs MSCI-IPD benchmark;
Total Accounting Return of +0.6% (HY18: +6.3%)
-- Proportionally consolidated LTV of 35% (March 2018: 28%);
increase due to acquisitions; well within guidance
-- IFRS net assets GBP864.3 million (March 2018: GBP892.4
million); Net property income GBP43.2 million (HY18: GBP40.1
million); IFRS profit after tax GBP2.7 million (HY18: GBP29.3
million); IFRS basic EPS 0.9 pence (HY18: 11.0 pence)
Strength of operational metrics demonstrate resilience of
convenience & community focused portfolio
-- Retail occupancy of 96.2% (March 2018: 96.5%); Pub occupancy of 98.6% (March 2018: 99.0%)
-- 127 retail leasing events across 653,000 sq ft; long term
deals on terms 10.7% ahead of previous rent
-- Affordable average retail rent of GBP12.48 psf (March 2018:
GBP12.36); deliberately limited exposure to structurally challenged
sub-sectors such as department stores (<0.1% of total income)
and casual dining (1.1%)
-- Like-for-like footfall across shopping centres declined 1.9%;
outperforming the UK benchmark by 100 bps
-- Like-for-like net income across retail portfolio -0.5%
reflecting impact of CVAs and administrations
Remaining disciplined and active in our key investment
markets
-- Hawthorn Leisure acquired in May 2018 for an enterprise value
of GBP106.8 million, representing a NIY of 13.6%; portfolio of 298
high quality community pubs and an established pub management
platform; integration of business progressing well and expected to
complete in Q4 FY19; already successfully unlocked GBP1.7 million
of GBP3 million of expected annualised operating cost synergies and
expect to see the benefit of these from early 2019
-- Acquired Grays Shopping Centre in June 2018 for GBP20.2
million and a NIY of 9.4%, and Hollywood Retail & Leisure Park
in Barrow-in-Furness in July 2018 for GBP15.3 million and a NIY of
8.7%
-- Completed GBP14.6 million of disposals 1% ahead of book
value, including sales of Whitwick Retail Park in Coalville for
GBP9.9 million, representing a NIY of 6.9% following completion of
a programme of active asset management initiatives; further GBP20.5
million of disposals completed post period end and GBP23.3 million
under offer
Good progress with our strategic opportunities in a changing
environment
-- Asset Management Platform: signed first agreement with
Canterbury City Council at Whitefriars Shopping Centre
-- Residential development: completed strategic review of entire
portfolio; identified potential to deliver up to 1,300 residential
units adjacent to or above our retail assets over the next 5-10
years, in addition to existing pipeline of 1,100 units
Growing income streams and generating value through 1.8 million
sq ft risk-controlled development pipeline
-- Reached practical completion on 62,000 sq ft Canvey Island
Retail Park development; M&S Foodhall and B&M expect to
open in January 2019; fully-let annualised rent roll of GBP1
million and projected yield on cost of 9%
-- Convenience store ('c-store') development programme for The
Co-operative saw completion of two c-stores during the period;
on-site with a further four, which on completion will bring total
number delivered to 25
Financial Statistics
Performance Note HY19 HY18 Change
Funds From Operations ('FFO') (1) GBP25.3m GBP26.5m -5%
----- --------- --------- -------
FFO per share (Pence Per Share) (1) 8.3 10.0 -17%
----- --------- --------- -------
Ordinary dividend (Pence Per Share) 10.8 10.5 +3%
----- --------- --------- -------
Dividend cover 77% 95%
----- --------- --------- -------
Admin cost ratio 13% 11%
----- --------- --------- -------
Interest cover (2) 3.8x 4.6x
----- --------- --------- -------
Net Property Income GBP43.2m GBP40.1m
----- --------- --------- -------
IFRS Profit after taxation GBP2.7m GBP29.3m
----- --------- --------- -------
IFRS Basic EPS (Pence Per Share) 0.9 11.0
----- --------- --------- -------
EPRA EPS (Pence Per Share) 8.0 9.3
----- --------- --------- -------
Total Accounting Return (paid basis) (3) +0.6% +6.3%
----- --------- --------- -------
Balance Sheet Note Sep 2018 March 2018 Change
IFRS Net Assets GBP864.3m GBP892.4m
----- ---------- ----------- -------
EPRA NAV per share (Pence Per Share) 283 292 -3%
----- ---------- ----------- -------
Shares in issue 303.4m 302.9m
----- ---------- ----------- -------
Balance Sheet (proportionally consolidated) Note Sep 2018 March 2018 Change
----- ---------- ----------- -------
Principal value of gross debt GBP525.0m GBP469.0m
----- ---------- ----------- -------
Cash GBP30.8m GBP116.2m
----- ---------- ----------- -------
Cost of debt (4) 3.2% 3.1%
----- ---------- ----------- -------
Average debt maturity (5) 7.4 years 7.9 years
----- ---------- ----------- -------
Loan to value 35% 28%
----- ---------- ----------- -------
Notes:
(1) Funds From Operations ('FFO') is a Company measure of cash
profits which includes realised recurring cash profits plus
realised profits (or losses) on the sale of properties and excludes
other one off or non-cash adjustments as set out in Note 7 and the
Chief Financial Officer's review. FFO is used by the Company as the
basis for dividend payments and cover
(2) Interest cover is tested at property level and is the basis
for banking covenants. It is calculated by comparing actual net
rental income received versus cash interest payable.
(3) Total Accounting Return (paid basis) equals EPRA NAV per
share growth plus dividends paid in the period
(4) Cost of debt assuming GBP215 million revolving credit
facility is fully drawn
(5) Average debt maturity assumes one-year extension options are
exercised and bank approved
For further information
NewRiver REIT plc +44 (0)20 3328 5800
Allan Lockhart (Chief Executive)
Mark Davies (Chief Financial Officer)
Will Hobman (Head of Investor
Relations & Strategy)
+44 (0)20 7251
Finsbury 3801
Gordon Simpson
James Thompson
This announcement contains inside information as defined in
Article 7 of the EU Market Abuse Regulation No 596/2014 and has
been announced in accordance with the Company's obligations under
Article 17 of that Regulation. This announcement has been
authorised for release by the Board of Directors.
Results presentation
The results presentation will be held at 9.30am today at the
offices of Eversheds Sutherland (International) LLP, 1 Wood St,
London EC2V 7WS. The presentation will be broadcast live via
webcast and conference call.
A live audio webcast will be available at:
http://view-w.tv/965-1325-20163/en
A recording of this webcast will be available on the same link
after the presentation, and on the Company's website
(http://www.nrr.co.uk/investor-center) later in the day.
The dial in details for the conference call facility are as
follows:
UK Toll Free: 0808 109 0700
Standard International Access: +44 (0) 20 3003 2666
Password: NewRiver
About NewRiver
NewRiver REIT plc ('NewRiver') is a leading Real Estate
Investment Trust specialising in buying, managing, developing and
recycling convenience-led, community-focused retail and leisure
assets throughout the UK.
Our GBP1.4 billion portfolio covers over 9 million sq ft and
comprises 34 community shopping centres, 21 conveniently located
retail parks and over 600 community pubs. Having hand-picked our
assets since NewRiver was founded in 2009, we have deliberately
focused on the fastest growing and most sustainable sub-sectors of
the UK retail market, with grocery, convenience stores, value
clothing, health & beauty and discounters forming the core of
our retail portfolio. This focus, combined with our affordable
rents and desirable locations, delivers sustainable and growing
returns for our shareholders, while our active approach to asset
management and inbuilt 1.8 million sq ft development pipeline
provide further opportunities to extract value from our
portfolio.
NewRiver has a Premium Listing on the Main Market of the London
Stock Exchange (ticker: NRR) and is a constituent of the FTSE 250
and EPRA indices. Visit www.nrr.co.uk for further information.
LEI Number: 2138004GX1VAUMH66L31
Forward-looking statements
The information in this announcement may include forward-looking
statements, which are based on current projections about future
events. These forward-looking statements reflect the directors'
beliefs and expectations and are subject to risks, uncertainties
and assumptions about NewRiver REIT plc (the 'Company'), including,
amongst other things, the development of its business, trends in
its operating industry, returns on investment and future capital
expenditure and acquisitions, that could cause actual results and
performance to differ materially from any expected future results
or performance expressed or implied by the forward-looking
statements.
None of the future projections, expectations, estimates or
prospects in this announcement should be taken as forecasts or
promises nor should they be taken as implying any indication,
assurance or guarantee that the assumptions on which such future
projections, expectations, estimates or prospects have been
prepared are correct or exhaustive or, in the case of the
assumptions, fully stated in the document. As a result, you are
cautioned not to place reliance on such forward-looking statements
as a prediction of actual results or otherwise. The information and
opinions contained in this announcement are provided as at the date
of this document and are subject to change without notice. No one
undertakes to update publicly or revise any such forward looking
statements. No statement in this document is or is intended to be a
profit forecast or profit estimate or to imply that the earnings of
the Company for the current or future financial years will
necessarily match or exceed the historical or published earnings of
the Company.
Chief Executive's review
I am pleased to report another period of solid performance for
NewRiver, during which our proven business model, and focus on
those sub-sectors characterised by frequent, store-based spend on
everyday essentials, allowed us to navigate challenging market
headwinds and continue to deliver resilient cash returns to our
shareholders.
Market backdrop
For the UK retail sector, market trends in the first half were
broadly similar to those in the previous financial year. Retailers
continue to face a range of cost pressures at a time when the
growth of online retailing, changes in consumer behaviour and
increased competition are significantly altering market dynamics.
Low consumer confidence and continued economic and political
uncertainty are compounding these issues further. While many
retailers have fared well despite these headwinds, for others they
have exposed challenged business models leading to weaker
performance, requests for rent reductions and, in extreme cases, a
number of business failures.
NewRiver's response to these challenges has been consistent and
effective. Firstly, we have continued to focus our portfolio on the
growing and sustainable market sub-sectors which meet the everyday
needs of UK consumers. These sub-sectors - which include food &
grocery, discounters, grab & go food, value fashion and health
& beauty - are sustainable because they provide essential goods
and services, and are resilient to online retailing, either because
online fulfilment would be too costly or because a face-to-face
service is an integral element of their offer. Secondly, we work
closely with our occupiers to provide affordable rents, low
occupational costs and attractive, well-located spaces which allow
their businesses to thrive, in turn underpinning the sustainability
of our income streams. Thirdly, where our occupiers do face
challenges, we are proactive in finding solutions to protect the
value of our assets and the security of our income. Finally, we
have a relentless focus on extracting further value from our
assets, either through our risk-controlled development pipeline or
our strategic opportunities first outlined in May 2018.
The challenges facing the retail sector are being reflected in
the valuations of some retail assets. Due to the differentiated
nature of our assets, which are typically higher yielding and have
smaller lot sizes than those of our peers, we have been pleased to
see relatively small reductions in valuations across our shopping
centres, and stable valuations across our retail parks. The
investment market for these types of asset has remained active, as
demonstrated by the disposals we have made and the assets currently
under offer, realising disposal prices that are on average ahead of
March 2018 valuations.
The UK pubs sector has generally performed well over the last
six months. Wet-led outlets, which represent the vast majority of
the NewRiver portfolio of 616 community pubs, continued to
outperform the market, benefitting from the warm weather and the
World Cup during the period, while being insulated from the ongoing
challenges faced by casual dining operators, such as market
overcapacity and increasing multi-channel competition. Against a
backdrop of low consumer confidence and limited real wage growth,
the pub remains an affordable treat and an integral part of
community life.
Financial performance
Our financial performance remained robust in the first half,
with our convenience & community focused portfolio delivering
Funds From Operations ('FFO') of GBP25.3 million. This represented
a small reduction from the GBP26.5 million reported in the first
half of last year, due predominantly to a GBP2.2 million one-off
promote received in the prior period. Our IFRS Profit after tax was
GBP2.7 million, reduced from GBP29.3 million in HY18 predominantly
due to a 1.8% reduction in portfolio valuation. Our portfolio
outperformed the MSCI-IPD benchmark for income return and capital
growth, delivering a total return of 2.4%, compared to the
benchmark of 0.2%, an outperformance of 230 bps.
The Board approved two quarterly dividend payments of 5.4 pence
per share, resulting in a first half dividend of 10.8 pence per
share, an increase of 3% compared with the same period last year.
In the first half our dividend was 77% covered, reflecting the fact
that we have deliberately held back on deploying capital because we
expect better buying opportunities in the future, which we are well
placed to take advantage of. We have also announced a third quarter
dividend of 5.4 pence per share, and we expect dividend cover to
improve in the second half of the financial year, as we see the
full benefit of the Hawthorn Leisure acquisition which we made part
way through the first half.
We continue to benefit from our transformational actions in the
debt capital markets in the last financial year, which mean that we
have now diversified our sources of funding, increased operational
flexibility, increased debt maturity to 7.4 years and reduced our
cost of debt to 3.2%. Our LTV was 35% at 30 September 2018, well
within our stated guidance of less than 40%, and interest cover of
3.8x was comfortably within our stated guidance of more than 2.0x,
which means that we have capacity to grow through disciplined stock
selection and our inbuilt risk-controlled development pipeline.
Our portfolio valuation now stands at GBP1.4 billion, increased
from GBP1.2 billion at 31 March 2018 due primarily to the
acquisition of Hawthorn Leisure in the period. Our EPRA net asset
value per share decreased by 9 pence to 283 pence, reflecting both
the 1.8% reduction in portfolio valuation and that our dividend was
not fully covered in the first half. Our IFRS net assets reduced to
GBP864.3 million, due principally to the same factors. This means
that in a challenging operating environment we still delivered a
positive total accounting return of +0.6%.
Operational performance
During the period we completed GBP149.8 million of acquisitions
across our shopping centre, retail park and community pubs
portfolios, at an average net initial yield ('NIY') of 12.5%.
In our retail portfolio, in June 2018 we acquired Grays Shopping
Centre in Essex for GBP20.2 million, equating to a NIY of 9.4% on
the shopping centre element. The acquisition comprised a community
shopping centre with 177,300 sq ft of retail space, anchored by
value and grocery retailers, and a 32,000 sq ft office building
with permitted development rights for residential conversion. We
have already identified a number of value-creating opportunities at
the asset, to meet demand for a budget hotel, budget gym and
discount food retailer, and to deliver much needed residential
units. In July 2018 we acquired Hollywood Retail & Leisure Park
in Barrow-in-Furness, Cumbria for GBP15.3 million, equating to a
NIY of 8.7%. The acquisition comprised a ten-unit 124,400 sq ft
retail and leisure park with an occupier line-up including TK Maxx,
Currys PC World, Dunelm, Nuffield Health and a six-screen Vue
cinema. The asset offers a number of opportunities to extract
further value, including the immediate conversion of two existing
units to introduce a 20,000 sq ft store let to Aldi.
In our community pub portfolio, in May 2018 we completed the
acquisition of Hawthorn Leisure for an enterprise value of GBP106.8
million, comprising a portfolio of 298 pubs and a best-in-class pub
management platform. The acquisition has been accretive to both FFO
and net assets, and is expected to generate scale-based synergies
of at least GBP3 million on an annualised basis, as well as
providing a platform for the future growth of our pub
portfolio.
Across our retail portfolio we continued to see strong
operational metrics. Occupancy remained stable at 96.2%, reflecting
the resilient performance of our occupiers and our active approach
to asset management. Our average rent remained low at GBP12.48,
compared to GBP12.36 psf in March 2018, reflecting our commitment
to affordability for retailers and underpinning the sustainability
of our income. Our shopping centre footfall declined by 1.9% during
the period, outperforming the UK benchmark by 100 bps and
demonstrating the essential nature of the spend at our centres.
Over the period we completed 653,000 sq ft of new lettings and
renewals across our retail portfolio. On average, long-term deals
were signed 11% ahead of previous passing rent but at a small 0.6%
discount to March 2018 ERV, reflecting a few instances where deals
were signed below valuers' assumptions in order to achieve wider
strategic aims. Our leasing activity in the year to date continues
to reflect our focus on the growing and sustainable sub-sectors
which provide convenience and value on everyday purchases, with
deals signed with discounters B&M and Wilko; food and grocery
stores Sainsbury's and Iceland; value fashion retailers such as
BonMarché, TK Maxx and Claire's Accessories; grab & go food
operators including Burger King, Costa and Cooplands; and health
& beauty retailers Savers and Superdrug.
Retail failures in the form of Company Voluntary Arrangements
('CVAs') or administrations continue to have only a small impact on
our rental income. Having deliberately limited our exposure to
sub-sectors facing structural challenges such as casual dining,
department stores and mid-market fashion, the majority of CVAs and
administrations occurring in the first half has no impact. However,
we were impacted by the administration of Poundworld, and the CVAs
of Homebase and Office Depot, which had represented GBP1.9 million,
or 1.9%, of our annual net rental income at the start of the
period. Stores representing GBP0.1 million of rental income were
unaffected, with a further GBP0.9 million recovered through new
deals or deals currently in legals. This results in an estimated
impact on FFO in FY19 of GBP0.9 million, which we are working to
reduce further, encouraged by the strong progress we have made in
mitigating the impact of CVAs and administrations in the previous
financial year.
In our community pubs, the integration of Hawthorn Leisure is
progressing well and is expected to complete in Q4 FY19, with a
dedicated committee established to involve all stakeholders in the
process. At the time of acquisition we identified scale-based
synergies of at least GBP3 million on an annualised basis, achieved
through taking a "best of both" approach where expertise and best
practice are shared across the two portfolios. I am pleased to
report we have already made significant progress towards achieving
these, unlocking GBP1.7 million of annualised cost savings which we
will benefit from in early 2019.
We made good progress with our 1.8 million sq ft risk-controlled
development pipeline during the period. We have now reached
practical completion on our 62,000 sq ft retail park development in
Canvey Island, Essex, with the scheme 75% pre-let to M&S
Foodhall, B&M, Sports Direct and Costa. These stores are set to
open in early 2019 and once fully-let the scheme will deliver
GBP1.0 million of annualised rental income. At our 465,000 sq ft
mixed-used regeneration scheme in Burgess Hill town centre, we have
now handed over a site for the relocation of Lidl away from the
scheme and are on-site with works to relocate the library, the
final step before demolition works can begin.
Across our community pub portfolio, our convenience store
('c-store') development programme for The Co-operative saw the
completion of two new c-stores, and we are on-site with a further
four, which on completion will bring the total number delivered to
date to 25.
We are committed to operating in a way that enhances the lives
of the communities we serve and minimises our impact on the
environment, as we believe this in the best interests of all of our
key stakeholders. To this end we were delighted to receive a Green
Star in the 2018 Global Real Estate Sustainability Benchmark
('GRESB') assessment during the period, and a 35% improvement in
our overall score compared to the prior year. We have been a GRESB
participant since 2015 and these latest results recognise the
significant progress we have made in integrating environmental,
social and governance considerations into our strategy and
operations. Examples of this progress during the first half include
the roll-out of energy efficient LED lighting to many of our
shopping centre assets and the completion of comprehensive staff
wellbeing and occupier engagement surveys, the results of which are
now being integrated into our strategy.
Strategic opportunities in a changing environment
The way that people live, work and consume continues to evolve,
and as specialist asset managers we are well placed to benefit from
many of the developing trends. To ensure we capture maximum value
from these benefits for our communities and our shareholders, we
identified in May 2018 a number of strategic opportunities on which
we will initially focus our efforts. I am pleased to report early
progress across all of these opportunities.
-- Asset management platform
There is a growing trend of local authorities purchasing
shopping centre assets in order to gain greater control over their
town centres and better meet the needs of their communities.
However, in most cases local authorities lack the personnel,
expertise or relationships to successfully asset manage these
centres in-house, and are seeking a partner with the scale,
relationships and proven track record to manage them on their
behalf. Partnering with a large, listed entity such as NewRiver has
additional benefits in the form of greater transparency and strong
governance credentials. In response to this opportunity, we have
now made available our market-leading asset management platform and
expertise to third parties.
In September 2018 we signed our first Asset Management Agreement
with Canterbury City Council for management of the city's
Whitefriars Shopping Centre. Under the terms of the agreement,
NewRiver will undertake full asset management responsibilities for
the centre in exchange for a management fee calculated as a
proportion of net operational income received and a development fee
calculated on third-party-tendered development costs. Our active
asset management approach has already made an impact, with the
centre now fully occupied, and we are already in discussions with
another local authority to secure a similar agreement.
-- Click & Collect
According to research by GlobalData, the value of click &
collect transactions is forecast to grow by 46% over the next five
years to GBP9.8bn, following an estimated 12% in 2018. As the
channel grows, consumers are increasingly demanding convenient
collections close to their home or work, and retailers are
investing heavily in-store and in their supply chains to improve
click & collect infrastructure, as well as using third-party
collection points to expand their reach. Town centres, retail parks
and neighbourhood shops currently account for over 70% of all click
& collect locations, meaning NewRiver's portfolio is
particularly well-suited to this channel. In addition to increased
sales for our occupiers, click & collect brings significant
extra benefits to our assets such as increased footfall and
additional spend.
During the first half we agreed with Paypoint plc to trial its
CollectPlus service over the Christmas period at a number of our
community pubs. The CollectPlus service is currently available in
over 7,000 stores across the UK, and provides customers the ability
to click & collect, return or send parcels easily at a time and
location that is convenient to them. The CollectPlus network is
growing, and we see significant potential across our 616
conveniently located community pubs.
-- Residential development
As the UK's urban population increases, national planning policy
has become strongly supportive of residential development in town
centres, including in the airspace above commercial premises, and
many of our assets are ideally suited to meet local housing demand.
As asset owners, we can crystallise value at several stages in a
residential development project, such as through selling the
development rights or partnering with a third party to develop.
Regardless of where in the process we crystallise value, these
developments will also benefit our assets through increased
footfall and further investment.
Our risk-controlled development pipeline already includes 1,100
residential units, at development sites such as Burgess Hill,
Cowley in Oxford, and Stamford, and we have a track-record of
profitably selling development rights. In July 2018, we completed a
strategic review of our entire retail portfolio and identified the
potential to deliver up to 1,300 residential units adjacent to or
above our assets over the next 5-10 years, in addition to the 1,100
units already included within our 1.8 million sq ft risk-controlled
development pipeline. We believe this opportunity has the potential
to deliver up to GBP140 million of development profit.
-- Additional uses
Our shopping centres are at the heart of the communities they
serve, surrounded by residential areas and fully connected to urban
infrastructure. As the way people live, work and consume evolves,
these assets will play an even more important role in meeting the
needs of local people. With an analytical and tailored approach, we
are already looking at how our centres can be of greater benefit to
their communities in the future. For example, a key element of the
NHS's plans to transform primary care is the provision of localised
and integrated healthcare facilities, and our centres are ideally
placed to meet this demand. We are now in early-stage discussions
with one NHS trust to develop a primary care facility at one of our
shopping centres. Another example is how the changing nature of
work has made flexible working spaces increasingly popular - many
of our units can provide bright, spacious and well-connected units
in the centre of towns which is well-suited to the needs of modern
workers. We will continue to examine how best we can develop this
type of space across our shopping centre portfolio.
Outlook
We expect the challenges faced by the UK retail sector to
continue in the near-term. We see diverging performance between
retailers in the growing, online-resilient sub-sectors focused on
essential goods and services, where NewRiver is positioned, and
those in the structurally-challenged sub-sectors severely impacted
by low consumer confidence, the rise of e-commerce, and market
overcapacity. In pubs we have seen wet-led community pubs, which
represent the vast majority of NewRiver's portfolio, outperform,
while destination and food-led pubs have been impacted by the wider
malaise in the casual dining sector, and we expect this trend to
continue into the future.
The rigorous execution of our business model ensures that we
align our portfolio with the best performing areas of the market
through disciplined stock selection, and that we have the expertise
and ability to extract further value for our shareholders and
communities through active asset management and risk-controlled
development, even when the market faces disruption. Through
continuing this approach, and building on the excellent progress
made to date on our strategic priorities, we are confident that
NewRiver will continue to provide growing returns to our
shareholders.
Allan Lockhart
Chief Executive
20 November 2018
Property review
Highlights
-- Portfolio increased by 11% to GBP1.4 billion (March 2018:
GBP1.2 billion), driven by net acquisitions
-- Ungeared total property return of 2.4%, outperforming the MSCI-IPD benchmark by 230 bps
-- Completed GBP149.8 million of acquisitions in four separate
transactions, at an average equivalent yield of 12.5%
-- Retail occupancy remains high at 96.2% (March 2018: 96.5%)
-- Shopping centre like-for-like footfall outperformed the UK
benchmark by 100 bps, with a decline of 1.9%
-- Completed 653,000 sq ft of new lettings and renewals in
retail portfolio; long-term deals on average 11% ahead of previous
passing rent and 0.6% below March 2018 ERV
-- Occupiers representing GBP1.9 million of annualised rent were
impacted by CVAs and Administrations in the period; good early
progress in re-letting vacated units
-- Reached practical completion on 62,000 sq ft Canvey Island
Retail Park; annualised rent roll of GBP1 million once fully-let
and projected yield on cost of 9%
-- Delivered two c-stores to the Co-op, and on site with a
further four which will bring total number developed to 25
-- Completed GBP14.6 million of disposals on terms on average 1% ahead of March 2018 valuation
Portfolio overview
As at 30 Valuation Weighting Valuation Topped-up NEY LFL ERV
September NRR share NRR Share surplus/(deficit) NIY Movement
2018
--------------
GBPm % % % % %
--------------- --------------- ---------------------- -------------- --------- --------------
Shopping centres 798 57 (2.7) 6.8 7.4 (1.4)
--------------- --------------- ---------------------- -------------- --------- --------------
Retail parks 172 13 - 6.6 6.9 (0.9)
--------------- --------------- ---------------------- -------------- --------- --------------
High street 26 2 (2.0) 7.4 7.3 (4.4)
--------------- --------------- ---------------------- -------------- --------- --------------
Pubs & c-stores 286 21 (0.9) 11.1 11.1 N/A
--------------- --------------- ---------------------- -------------- --------- --------------
Development 92 7 0.5 N/A N/A N/A
--------------- --------------- ---------------------- -------------- --------- --------------
Total 1,374 100 (1.8) 7.8 8.1 (1.4)
--------------- --------------- ---------------------- -------------- --------- --------------
During the six months our portfolio valuation increased to
GBP1.4 billion, from GBP1.2 billion in March 2018. This was the
result of GBP149.8 million of acquisitions in the period being
partially offset by GBP14.6 million of disposals and a 1.8% decline
in valuations.
The portfolio initial yield stood at 7.8% in September 2018,
increased from 7.2% in March 2018, due primarily to the acquisition
of Hawthorn Leisure in May 2018.
Total Return Income Return Capital Growth
% % %
NRR portfolio 2.4 3.6 (1.1)
----------------- ------------------ -------------------
MSCI-IPD Benchmark(1) 0.2 2.4 (2.2)
----------------- ------------------ -------------------
Relative performance +230 bps +110 bps +110 bps
----------------- ------------------ -------------------
1. Benchmark includes monthly & quarterly valued retails
Our portfolio outperformed the MSCI-IPD benchmark for income
return and capital growth, delivering a total return of 2.4%,
compared to the benchmark of 0.2%, an outperformance of 230
bps.
Disciplined stock selection
Retail
Since 1 April 2018, we have completed GBP35.5 million of
acquisitions in two separate transactions, at a blended equivalent
yield of 9.1%.
Since 1 April 2018 Acquisition Net initial Equivalent
price yield yield
(GBPm) (%) (%)
Grays Shopping Centre, Grays 20.2 9.4 9.8
------------ ------------ -----------
Hollywood Retail & Leisure Park, Barrow-in-Furness 15.3 8.7 8.2
------------ ------------ -----------
Total 35.5 9.1 9.1
------------ ------------ -----------
Grays Shopping Centre, Grays
In June 2018, we acquired Grays Shopping Centre in Grays, Essex.
The acquisition comprised a community shopping centre with 177,300
sq ft of retail space and a 32,000 sq ft office building with
permitted development rights for residential conversion, across a
4.7 acre site located in the centre of Grays, with the City of
London accessible by train in less than 35 minutes.
The convenience-led community shopping centre is anchored by
value and grocery retailers including Wilko, Poundland, Iceland and
Peacocks, and has a 700-space multi-storey car park. At
acquisition, it had an affordable average rent of GBP9.62 per sq ft
and a weighted average unexpired lease term of 4.6 years, which
will facilitate asset management and risk-controlled development
opportunities.
We have already identified a number of value-creating
opportunities at the asset, to meet demand for a budget hotel,
budget gym and discount food retailer, and to deliver much needed
residential units. These plans are in line with the Grays Town
Centre Framework, produced by Thurrock Council, and NewRiver will
work closely with them in redeveloping the site, while continuing
to receive an attractive income in the interim.
Hollywood Retail & Leisure Park, Barrow-in-Furness
In July 2018, we acquired Hollywood Retail & Leisure Park in
Barrow-in-Furness, Cumbria. The acquisition comprised a ten-unit
124,400 sq ft retail and leisure park providing 665 free car
parking spaces, with a line-up consisting of quality national
retailers and leisure operators including TK Maxx, Currys PC World,
Dunelm, Nuffield Health and a six-screen Vue cinema.
The asset offers a number of opportunities to extract further
value, including the immediate conversion of two existing units to
introduce a 20,000 sq ft store let to Aldi, which will make the
asset 100% occupied. Including the Aldi store, the retail park had
a weighted average unexpired lease term of 8.3 years and an
affordable average rent of GBP11.36 per sq ft.
The asset is conveniently located in the main retail park
concentration in Barrow-in-Furness, a town with a large catchment
and limited retail competition, and will provide the primary
discount food offer for the community following the introduction of
Aldi.
Pubs
Since 1 April 2018 we have completed GBP114.3 million of
property acquisitions in two separate transactions, at an
equivalent yield of 13.6%.
Since 1 April 2018 Acquisition Net initial Equivalent
price yield (%) yield (%)
(GBPm)
Hawthorn Leisure (298 pubs) 114.0 13.6 13.6
------------ ------------ -----------
Other pubs (one pub) 0.3 N/A 19.7
------------ ------------ -----------
Total 114.3 13.6 13.6
------------ ------------ -----------
Hawthorn Leisure
In May 2018, we completed the acquisition of Hawthorn Leisure
Holdings Limited ("Hawthorn Leisure"). The acquisition comprised
298 high quality community pubs, an established brand and a pub
management platform. By combining NewRiver's existing pub portfolio
with Hawthorn Leisure we aim to achieve scale-based benefits and
other improvements in purchasing and logistics in order to realise
synergies of at least GBP3 million per annum. We have already made
significant progress towards achieving these, unlocking GBP1.7
million of annualised cost savings which we will start to see the
benefit of from early 2019.
Active asset management
Our active asset management is a key driver of long-term capital
value and the generation of cash returns for our shareholders. We
have a hands-on approach to asset management utilising our in-house
expertise, scale, a deep understanding of our market and strong
relationships with our occupiers, which enables us to deliver the
right space in the right locations on terms beneficial to all
parties.
Retail
During the first half we completed 653,000 sq ft of new lettings
and renewals across our retail portfolio. This high volume of
leasing activity means that our occupancy rate was sustained at
96.2% at September 2018. On average, long-term deals were signed
11% ahead of previous passing rent but at a small 0.6% discount to
March 2018 ERV, reflecting a few instances where deals were signed
below valuers' assumptions in order to achieve wider strategic
aims.
Leasing activity in the period continued to reflect our focus on
value and convenience, as we made 63,000 sq ft of lettings to
discounters B&M and Wilko; 19,600 sq ft of lettings to food and
grocery stores including Sainsbury's and Iceland; 10,600 sq ft of
lettings to value fashion retailers such as BonMarché and Claire's
Accessories; 6,700 sq ft of lettings with grab & go food
operators including Costa and Cooplands; and 2,600 sq ft of
lettings with health & beauty retailers including Savers and
Superdrug. Other notable deals in the period included: the letting
of a 5,500 sq ft unit in Gateshead, vacated by Maplin just a month
earlier following its administration, to specialist cycling
retailer Cycle Republic, marking its first opening in the north
east of England and in the NewRiver portfolio; and the letting of a
13,000 unit at Bexleyheath, formerly used for storage, to low cost
gym operator The Gym. Like-for-like footfall at our shopping centre
assets continued to outperform the UK benchmark, by 100 bps in the
period, albeit with a 1.9% decline, demonstrating the essential
nature of the spend at our centres.
Our rental income is well-diversified, with no single retailer
accounting for more than 1.9% of contracted rents, and our policy
is that no single retailer will account for more than 5% of total
rent. Continuing a trend seen in FY18, the period saw a number of
retailers enter into Company Voluntary Arrangements ('CVA's) or
administrations, some of which have impacted our annualised
FFO.
Operator % annualised Rent pre-CVA/Admin Rent not Rent secured Rent in Expected
rent roll impacted on new deals legals FY19 FFO
pre-CVA/Admin by CVA/Admin impact
(%) (GBPm) (GBPm) (GBPm) (GBPm) (GBPm)
--------------- ------------------- -------------- -------------- -------- ----------
Byron Burger, - - - - - -
Jamie's
Italian,
Toys R Us,
Prezzo,
House of
Fraser,
Carluccio's
--------------- ------------------- -------------- -------------- -------- ----------
Maplin 0.1 0.2 - 0.1 - 0.1
--------------- ------------------- -------------- -------------- -------- ----------
Select 0.4 0.4 - 0.3 - 0.1
--------------- ------------------- -------------- -------------- -------- ----------
New Look 1.9 1.9 0.6 0.9 - 0.4
--------------- ------------------- -------------- -------------- -------- ----------
Carpetright 0.3 0.3 0.3 - - -
--------------- ------------------- -------------- -------------- -------- ----------
Mothercare 0.5 0.5 0.2 0.2 - 0.1
--------------- ------------------- -------------- -------------- -------- ----------
Total FY18 3.2 3.3 1.1 1.5 - 0.7
--------------- ------------------- -------------- -------------- -------- ----------
Gaucho, - - - - - -
Gourmet
Burger Kitchen,
Coast, Fabb
Sofas
--------------- ------------------- -------------- -------------- -------- ----------
Poundworld 1.0 1.0 - 0.2 0.2 0.6
--------------- ------------------- -------------- -------------- -------- ----------
Homebase 0.7 0.7 0.1 - 0.4 0.2
--------------- ------------------- -------------- -------------- -------- ----------
Office Outlet 0.2 0.2 - 0.1 - 0.1
--------------- ------------------- -------------- -------------- -------- ----------
Total HY19 1.9 1.9 0.1 0.3 0.6 0.9
--------------- ------------------- -------------- -------------- -------- ----------
Total 5.1 5.2 1.2 1.8 0.6 1.6
--------------- ------------------- -------------- -------------- -------- ----------
These retail failures have given further weight to our long-held
view that it is affordability, rather than lease length, that
underpins the sustainability of rental income. Our average rent
remained affordable during the period, at GBP12.48 psf, compared to
GBP12.36 psf in March 2018, and in addition to this, we have made
significant early progress in our efforts to reduce occupational
costs for our occupiers, reducing service charge budgets by GBP1.0
million so far in FY19, through reviews of areas such as staffing,
soft services and the monitoring and evaluation of energy
consumption.
Pubs
Pub portfolio movements
# Pubs held Pubs acquired Pubs sold # Pubs held
at 31 March at 30 September
2018 2018
331 299 (14) 616
-------------- ---------- -----------------
During the period we completed the acquisition of Hawthorn
Leisure, comprising a portfolio of 298 community pubs and a
best-in-class pub management platform. The integration of Hawthorn
Leisure into our business is progressing well, with a dedicated
committee established internally to involve all stakeholders in the
process, and we expect this to complete in Q4 FY19.
At the time of the acquisition we identified scale-based
synergies of at least GBP3 million on an annualised basis, achieved
through a "best of both" approach whereby expertise and best
practice are shared between the two portfolios. This approach means
that we have already unlocked GBP1.7 million of annualised
synergies which we will begin to benefit from in early 2019.
Across the NewRiver and Hawthorn Leisure pub portfolios, we
continued our programme of targeted capital investment projects
aimed at enhancing the customer experience, further improving trade
and increasing capital values. We completed 53 such projects at a
total cost of GBP2.1 million during the period, and have approvals
in place for a further 51 schemes at an anticipated total cost of
GBP1.7 million.
Risk controlled development
During the period we made significant progress across our
risk-controlled development pipeline which totals 1.8 million sq ft
(1.4 million sq ft in the near-term) including our Retail
(1,622,700 sq ft) and Pub (220,900 sq ft) portfolios, and which we
believe will be a key driver of long-term returns for our
shareholders.
Our risk-controlled approach means that we will not commit to a
new development unless we have pre-let or pre-sold at least 70% by
area, and our development strategy includes:
-- Regeneration of existing space (e.g. Abbey Centre, Belfast)
-- Development of sites acquired in portfolio acquisitions (e.g.
Canvey Island Retail Park, Essex)
-- Capitalising on opportunities within our ownership above or
adjacent to our assets (e.g. Cowley, Oxford)
-- Complete redevelopment of existing assets (e.g. Burgess Hill, c-store pub conversions)
Total development pipeline
Shopping Retail Hotel C-stores Residential Total Retail Residential
Centre Park Pipeline & Leisure Pre-sold
Pre-let
Sq ft Sq ft Sq ft Sq ft Sq ft Sq ft % %
Completed in
period/ Under
construction - 76,800 - 23,300 - 100,100 85 -
--------- -------- -------- --------- ------------
Planning granted 266,300 15,600 87,700 14,300 575,600 959,500 61 28
--------- -------- -------- --------- ------------ ----------- ------------
In planning - - - 3,900 106,600 110,500 100 -
--------- -------- -------- --------- ------------ ----------- ------------
Pre-planning 129,400 26,000 - 10,200 81,900 247,500 6 -
--------- -------- -------- --------- ------------ ----------- ------------
Near-term pipeline 395,700 118,400 87,700 51,700 764,100 1,417,600
--------- -------- -------- --------- ------------ ----------- ------------
Early feasibility
stages 107,600 - 30,000 - 288,400 426,000 - -
--------- -------- -------- --------- ------------ ----------- ------------
Total pipeline 503,300 118,400 117,700 51,700 1,052,500 1,843,600
--------- -------- -------- --------- ------------ ----------- ------------
Additional residential
potential(1) - - - - 926,500
--------- -------- -------- --------- ------------
Basingstoke 700,000 - - - -
Leisure Park
--------- -------- -------- --------- ------------
1. A strategic review of our entire retail portfolio identified
the potential to deliver up to 1,300 residential units adjacent to
or above our assets over the next 5-10 years
During the year we completed 22,800 sq ft of fully pre-let
development, with 77,300 sq ft currently under construction. Post
period end, we reached practical completion on the 62,000 sq ft
Canvey Island Retail Park, which was 75% pre-let at completion, in
line with our risk-controlled approach to development. The period
also saw progress with our 465,000 sq ft regeneration project in
Burgess Hill and 236,000 sq ft residential-driven redevelopment of
Templars Square Shopping Centre in Cowley, Oxford. Looking at our
longer-term pipeline, we held our first public engagement during
the period on our 66-acre leisure park development in
Basingstoke.
Retail
Retail portfolio development pipeline
Shopping Retail Hotel Residential Total Resi Retail Resi
Centre Park Pipeline Units & Leisure Pre-sold
Pre-let
Sq ft #
Sq ft Sq ft Sq ft Sq ft % %
Completed in
period/ Under
construction - 76,800 - - 76,800 80 -
--------- -------- -------- ------------
Planning granted 266,300 15,600 87,700 461,900 831,500 468 59 35
--------- -------- -------- ------------ ---------- ------- ----------- ----------
In planning - - - 89,600 89,600 128 - -
--------- -------- -------- ------------ ---------- ------- ----------- ----------
Pre-planning 129,400 26,000 - 80,500 235,900 115 - -
--------- -------- -------- ------------ ---------- ------- ----------- ----------
Near-term pipeline 395,700 118,400 87,700 632,000 1,233,800
--------- -------- -------- ------------ ---------- ------- ----------- ----------
Early feasibility
stages 107,600 - 30,000 251,300 388,900 359 - -
--------- -------- -------- ------------ ---------- ------- ----------- ----------
Total retail
pipeline 503,300 118,400 117,700 883,300 1,622,700 1,070
--------- -------- -------- ------------ ---------- ------- ----------- ----------
Additional residential
potential(1) - - - 926,500 1,315
--------- -------- -------- ------------ ---------- -------
Basingstoke 700,000 - - -
Leisure Park
--------- -------- -------- ------------ ---------- -------
1. A strategic review of our entire retail portfolio identified
the potential to deliver an additional 1,300 residential units
adjacent to or above our assets over the next 5-10 years
Completed in period/Under construction
Canvey Island Retail Park
We have now reached practical completion on our 62,000 sq ft
retail park development in Canvey Island, Essex, on a site which we
acquired in July 2015 as part of the Ramsay portfolio. The park is
now 75% pre-let, with a line-up comprising M&S Foodhall, Sports
Direct, B&M and Costa. The M&S Foodhall and B&M stores
are expected to be handed over for fit out works in late November,
to enable the stores to open in early 2019.
Victoria Retail Park, Beverley
During the period we completed the construction of a 13,000 sq
ft extension to the retail parade at Victoria Retail Park in
Beverley, which we acquired in July 2015 as part of the Ramsay
portfolio. The extension had been pre-let to B&M, which opened
its new store in September 2018. B&M joins a high quality
retailer line-up comprising Halfords, Poundstretcher and Poundland
at the asset, which now provides 36,600 sq ft of fully-let retail
space.
Planning granted
Burgess Hill
In the first half we made further progress at our 465,000 sq ft
mixed-use regeneration of Burgess Hill town centre. Alongside 142
new residential units, the redevelopment will provide a 10-screen
multiplex cinema, a 63-bed hotel, an improved retail offer and new
restaurant and leisure provisions, additional car park spaces, an
improved public realm and a new purpose-built library for the
Council.
In FY18 we pre-sold the entire residential element of the
development to Delph Property Group for GBP34 million and made
significant progress in pre-letting the retail and leisure element
of the scheme. We also completed the relocation of Iceland to a
high street unit opposite the redevelopment site, with the store
open and trading from February 2018.
During the period we undertook works to relocate Lidl to a site
outside the redevelopment area, on Leylands Road. Having completed
remediation and site preparation works at the Leylands Road site we
expect to complete its sale to Lidl in November. Also during the
six months we started on-site to relocate the existing library to a
new temporary unit. These works are expected to complete in early
2019, with the first demolition works expected to begin shortly
after.
Cowley, Oxford
In July 2017, Oxford City Council approved plans for our major
mixed-use development to regenerate Templars Square Shopping
Centre. The 236,000 sq ft development will include 226 new
residential apartments, a 71-bed Travelodge hotel, two new
restaurant units, a modernised car park and major improvements to
the public realm. The hotel and leisure element of the scheme is
already 82% pre-let.
During the period we advanced discussions with local authorities
to finalise Section 278 and Section 106 agreements. Once these have
been agreed we will proceed to the next phase of the
development.
Pre-planning
Blenheim Shopping Centre, Penge
At the Blenheim Shopping Centre, we have plans to revitalise
this key Greater London asset and provide a significant development
in the airspace above the shopping centre to meet significant local
demand for housing. We are now in pre-planning application
discussions regarding the site with Bromley Council.
Early feasibility stages
We believe that our risk-controlled development pipeline will be
a key driver of future growth and we are currently reviewing
several medium-term opportunities from within our retail portfolio.
These opportunities include 107,600 sq ft of extensions across our
shopping centre portfolio and over 200,000 sq ft of residential
potential above and adjacent to our shopping centres in
Bexleyheath, Hull, Witham and Worthing.
Basingstoke Leisure Park
In March 2018, we exchanged contracts with Basingstoke and Deane
Borough Council (the 'Council') on a development agreement for a
66-acre leisure park in a prominent location in Basingstoke, near
Junction 6 of the M3 motorway.
Capitalising on the growing popularity of integrated leisure and
retail, our proposals currently comprise approximately 500,000 sq
ft of leisure and 200,000 sq ft of designer outlet shopping. We are
confident that this unique combination of leisure and designer
outlet shopping will appeal to the local community and a catchment
significantly beyond Basingstoke in one of the UK's most affluent
regions.
To facilitate this development, we have entered into a long-term
Development Agreement with Basingstoke and Deane Borough Council
which is conditional on achieving planning consent and pre-lets as
well as a viability assessment, amongst other conditions. In the
event that the development becomes unconditional, NewRiver will be
granted a 250-year leasehold interest.
In October 2018, we held our first community engagement event to
garner the views of all local stakeholders, with a view to
submitting a formal planning application in 2020.
Pubs
Pubs portfolio development pipeline
C-stores Residential Total Retail Residential
Pipeline & Leisure Pre-sold
Pre-let
Sq ft Sq ft Sq ft % %
Completed in period/ Under
construction 23,300 - 23,300 100 -
--------- ------------
Planning granted 14,300 113,700 128,000 100 -
--------- ------------ ----------- ------------
In planning 3,900 17,000 20,900 100 -
--------- ------------ ----------- ------------
Pre-planning 10,200 1,400 11,600 100 -
--------- ------------ ----------- ------------
Near-term pipeline 51,700 132,100 183,800
--------- ------------ ----------- ------------
Early feasibility stages - 37,100 37,100 - -
--------- ------------ ----------- ------------
Total pubs pipeline 51,700 169,200 220,900
--------- ------------ ----------- ------------
As well as generating high levels of low risk cash returns, our
portfolio of 616 pubs contains a number of inbuilt value creating
development opportunities. These include the potential to build
convenience stores or residential units on surplus land adjacent to
pubs which was effectively acquired at zero cost, and opportunities
to convert pubs into convenience stores or residential units.
Convenience stores ('c-stores')
We have an overarching agreement with the Co-operative (the
'Co-op') to deliver up to 40 c-stores and, based on planning
achieved to date and viability assessments, it is our current
expectation that we will deliver around 30 c-stores in total. These
stores are let on fixed lease terms of 15 years at rents ranging
from GBP15.00-17.50 per sq ft, with RPI linked increases capped at
4% and collared at 1%. The agreement also includes performance
receipts linked to c-store delivery, with the first receipt
triggered by the delivery of our 15(th) c-store to the Co-op, which
took place in January 2018. In total, we recognised performance
receipts of GBP75,000 in the period.
During the first half we completed two c-stores and at period
end were on-site with a further four. Completion of these stores
will bring our total number of c-stores delivered to 25; 18
utilising surplus land adjacent to existing pubs, three pub
conversions and four new builds on sites previously occupied by
pubs.
Profitable capital recycling
During the period we completed GBP14.6 million of disposals, on
terms on average 1% ahead of March 2018 valuation, but 4% below
total cost (being purchase price plus subsequent capex), generating
a small cash loss of GBP0.6 million. In line with our strategy,
these disposals were typically of mature assets where our estimates
of forward looking returns were below target levels, assets where
we believe that the risk profile has changed, or assets sold to
special purchasers.
Since 1 April Number Disposal Total Disposal March 2018 Disposal Blended Blended
2018 of Disposals price cost vs Valuation vs NIY IRR
Total Valuation
GBPm GBPm cost GBPm % % %
%
Retail park 1 9.9 9.4 5% 10.0 * 1% 6.9 7.5
-------------- --------- ------ ----------- ----------- ----------- -------- --------
Pubs and pub
land 19 4.7 5.9 * 20% 4.5 4% N/A 5.3
-------------- --------- ------ ----------- ----------- ----------- -------- --------
Total 20 14.6 15.3 * 4% 14.5 1% 4.7 7.0
-------------- --------- ------ ----------- ----------- ----------- -------- --------
In September 2018 we completed the disposal of Whitwick Retail
Park in Coalville for GBP9.9 million, reflecting a topped-up net
initial yield of 6.9% and delivering an unlevered IRR of 7.5%. The
asset was sold following the completion of a comprehensive
programme of asset management initiatives, which saw NewRiver
invest GBP1.2 million, and increased the weighted average unexpired
lease term from 2.2 years at acquisition to 10.7 years and
increasing net rental income across the park by 17%.
Throughout the period, we disposed of 14 pubs and five pieces of
pub land. These were sales to special purchasers, mainly the
occupiers of pubs, in line with our commitment to working with our
pub occupiers to best meet their needs and those of the local
community.
Finance review
In the context of a challenging market backdrop in the retail
sector, our financial performance remained robust in the first
half, with our convenience & community focused portfolio
delivering Funds from Operations ('FFO') of GBP25.3 million. This
represented a small reduction from the GBP26.5 million reported in
the first half of last year, due predominantly to a GBP2.2 million
one-off promote received in the prior period, offset by net
acquisition activity.
Our first half ordinary dividend per share increased by 3% to
10.8 pence (HY18: 10.5 pence), and was 77% covered by FFO per share
of 8.3 pence, as we have deliberately withheld full capital
deployment in anticipation of future acquisition opportunities. Our
fully unencumbered balance sheet remains well placed, with LTV
increased to 35% reflecting acquisition activity completed during
the period, but well within our stated guidance.
Our IFRS Profit after tax was GBP2.7 million, reduced from
GBP29.3 million in HY18 predominantly due to a non-cash 1.8%
reduction in portfolio valuation, which also caused IFRS net assets
to decrease by 3% from GBP892.4 million at 31 March 2018 to
GBP864.3 million at 30 September 2018.
Key performance measures
The Group financial statements are prepared under IFRS where the
Group's interests in joint ventures are shown as a single line item
on the income statement and balance sheet. Management reviews the
performance of the business principally on a proportionally
consolidated basis which includes the Group's share of joint
ventures on a line-by-line basis. The Group's financial key
performance indicators are presented on this basis.
In addition to information contained in the Group financial
statements, Alternative Performance Measures ('APMs'), being
financial measures which are not specified under IFRS, are also
used by management to assess the Group's performance. These include
a number of the financial statistics included on page 2 of this
document. These APMs include a number of European Public Real
Estate Association ('EPRA') measures, prepared in accordance with
the EPRA Best Practice Recommendations reporting framework. We
report a number of these measures because management considers them
to improve the transparency and relevance of our published results
as well as the comparability with other listed European real estate
companies. Definitions for APMs are included in the glossary and
the most directly comparable IFRS measure is also identified. The
measures used in the review below are all APMs presented on a
proportionally consolidated basis unless otherwise stated.
The APM on which management places most focus, reflecting the
Company's commitment to driving cash income returns and growing the
dividend, is Funds From Operations ('FFO'). We consider this
measure to be most appropriate when considering our dividend policy
as it is a cash measure and it is familiar to non-property and
international investors. Funds From Operations is a Company measure
determined by cash profits which includes realised recurring cash
profits, realised profits or losses on the sale of properties and
excludes other one-off or non-cash adjustments.
The relevant sections of this Finance Review contain supporting
information, including reconciliations to the financial statements
and IFRS measures. Definitions for APMs are also included in the
glossary.
Funds From Operations
The following table reconciles IFRS profit after taxation to
Funds From Operations ('FFO'), which is the Company's measure of
cash profits.
Reconciliation of profit after taxation to FFO
30 September 30 September
2018 2017
GBPm GBPm
------------
Profit for the period after taxation 2.7 29.3
Adjustments
Revaluation of investment properties 24.7 (2.2)
Revaluation of joint ventures' investment
properties 0.2 0.2
Revaluation of derivatives 0.4 (2.1)
Revaluation of joint ventures' derivatives - (0.1)
Share-based payment charge 1.2 1.4
Depreciation on properties 0.1 -
Gain on bargain purchase (6.9) (3.0)
Cost in respect of unsecured refinancing - 3.0
Cost in respect of Hawthorn Leisure acquisition 2.9 -
------------------------------------------------ ------------
Funds From Operations 25.3 26.5
------------------------------------------------ ------------ ------------
Funds From Operations is represented on a proportionally
consolidated basis in the following table.
FUNDS FROM OPERATIONS 30 September 2018 30 September
2017
Existing Hawthorn Proportionally Proportionally
portfolio(1) Leisure consolidated consolidated
GBPm GBPm GBPm GBPm
-------------- --------- --------------- ---------------
Gross income 48.3 11.4 59.7 49.9
Property operating expenses (10.6) (5.9) (16.5) (9.8)
-------------- --------- --------------- ---------------
Net property income 37.7 5.5 43.2 40.1
Administrative expenses (5.8) (1.9) (7.7) (6.1)
Net finance costs (9.4) (7.3)
(Loss) / Profit on disposal
of investment properties (0.3) 0.4
Taxation (0.5) (0.6)
-------------- --------- --------------- ---------------
Funds From Operations 25.3 26.5
-------------- --------- --------------- ---------------
FFO per share (pence) 8.3 10
-------------- --------- --------------- ---------------
Ordinary dividend per share
(pence) 10.8 10.5
-------------- --------- --------------- ---------------
Dividend cover 77% 95%
-------------- --------- --------------- ---------------
Adjusted FFO 24.9 26.2
-------------- --------- --------------- ---------------
Admin cost ratio 12.9% 11.4%
-------------- --------- --------------- ---------------
Weighted average # shares 303.8m 266.5m
-------------- --------- --------------- ---------------
1. Proportionally consolidated excluding Hawthorn Leisure
Adjusted FFO ('AFFO'), a measure which adjusts our FFO to
reflect maintenance capex incurred during the period (the element
considered to be non-accretive, and which cannot be recovered from
occupiers through the service charge) stood at GBP24.9 million. Our
maintenance capex remained low over the period, representing less
than 2% of our gross property income and 0.03% of our portfolio
value, reflecting our focus on providing clean, secure and
accessible environments for purpose-driven, low-dwell-time
shopping.
Net property income
Analysis of net property income (GBPm)
-----------------------------------------------------------------------
Net property income for the 6 months ended 30 September 2017 40.1
--------------------------------------------------------------- -----
BRAVO JVs promote (2.2)
--------------------------------------------------------------- -----
37.9
--------------------------------------------------------------- -----
Retail: Like-for-like net property income (0.2)
Retail: Acquisitions 3.8
Retail: Disposals (1.3)
Retail: Prior period surrender
premia (1.1)
Pubs: Trent transfer programme (1.1)
Pubs: Acquisition of Hawthorn
Leisure 5.5
Pubs: C-store developments 0.3
Pubs: Disposals (0.3)
Other (0.3)
Net property income for the 6 months ended 30 September 2018 43.2
On a proportionally consolidated basis, net property income has
increased by 8% to GBP43.2 million, from GBP40.1 million in HY18.
Adjusting for the one-off BRAVO JV promote fees of GBP2.2 million,
net property income has increased by 14% from GBP37.9 million to
GBP43.2 million.
Retail like-for-like net property income decreased marginally by
GBP0.2 million, or 0.5%, during the period, including the adverse
impact of CVAs/administrations announced in 2018. Our well
diversified income streams and focus on convenience & community
retail mitigated our exposure to such operators, but we did see a
reduction in net rental income of GBP0.7 million as a result of
CVAs/administrations. Excluding this impact, retail like-for-like
net property income increased by 1.9%.
Retail acquisitions increased net property income by GBP3.8
million, with the acquisition of the remaining 50% share in the
BRAVO joint ventures in July 2017 contributing GBP1.8 million, the
acquisitions of The Rishworth Centre and Railway Street Retail
Park, Dewsbury and Valegate Retail Park, Cardiff, in February 2018
contributing GBP1.2 million, and the acquisitions of Grays Shopping
Centre and Hollywood Retail Park during the period contributing
GBP0.8 million.
Retail disposals decreased net rental income by GBP1.3 million,
with the disposal of the Primark unit in the Hillstreet Shopping
Centre in Middlesbrough and Clough Road Retail Park in Hull the key
drivers. Prior period surrender premia reduced net property income
by GBP1.1 million, with a key driver the surrender premium received
on the unit formerly occupied by Morrisons at The Piazza in
Paisley, where we are in discussions with an existing occupier
looking to upsize.
In our pub portfolio, we saw a reduction in net property income
of GBP1.1 million due to the transfer of the final pubs in the
Trent portfolio. At the time of the Trent portfolio acquisition, we
signed a four-year leaseback agreement with Marston's PLC
("Marston's"), which came to an end in December 2017. We started
the transfer programme from Marston's to the Company's outsourced
pub manager in November 2016 and it was completed in December 2017.
The transfer was structured in such a way that the final two
tranches included those pubs in most need of capital investment,
causing a reduction in income when compared to the leaseback which
we are confident of recovering as we continue to roll out our
targeted capex programme.
The acquisition of Hawthorn Leisure in May 2018, including a
portfolio of 298 high quality community pubs, and an established
pub management platform, contributed GBP5.5 million to net property
income in the period. At the time of acquisition, we identified
scale-based operating synergies of at least GBP3 million, and we
have already successfully unlocked GBP1.7 million of synergies,
which will come on-stream from the start of FY20.
We had 19 c-stores open and trading during the period, compared
with 11 during the comparative period which added GBP0.3m to net
property income. We sold 14 community pubs and five plots of land
adjacent to pubs during the period, generating disposal proceeds of
GBP4.7 million and reducing net property income by GBP0.3
million.
Administrative expenses
Administrative expenses increased by 26% during the period to
GBP7.7 million from GBP6.1 million. The increase is due to the
acquisition of the Hawthorn Leisure pub management platform, which
added GBP1.9 million to administrative expenses during the period,
offset by other administrative cost savings. Our admin cost ratio
increased from 11.4% in HY18 to 12.9% which also reflects the
impact of the additional administrative costs associated with the
Hawthorn Leisure acquisition.
Net finance costs
Net finance costs have increased by 27% during the period to
GBP9.4 million from GBP7.3 million. This is due to an increase in
drawn debt to support acquisition activity completed over the last
12 months, with the weighted average amount of gross debt held
during the period increasing to GBP515 million, from GBP437 million
in the prior period.
Disposals
We completed GBP14.6 million of capital recycling during the
period. Disposals comprised one retail park, 14 pubs and five plots
of land adjacent to pubs.
Taxation
As a REIT we do not pay corporation tax on qualifying UK
property rental income and gains arising from disposal of exempt
property assets. We earn operating income through our pub portfolio
and asset management fees in joint ventures which are taxable, and
therefore during the period we incurred a corporation tax charge of
GBP0.5 million, which was in-line with the charge incurred in the
prior period.
Dividends
We are committed to our progressive dividend policy, and we have
a track record of delivering a growing ordinary dividend to
shareholders. Our dividend policy is driven by two key
objectives:
-- Growing cash FFO and FFO per share so that we can continue to
pay a growing and fully covered dividend
-- The REIT requirement to pay out at least 90% of recurring cash profits
Paid in HY19 (pence) Declared in relation to HY19
(pence)
Ordinary Total Ordinary Total
------------- -------- ------------------ -----------
FY18 Q4 5.25 5.25 - -
------------- -------- ------------------ -----------
FY19 Q1 5.40 5.40 5.40 5.40
------------- -------- ------------------ -----------
FY19 Q2 - - 5.40 5.40
------------- -------- ------------------ -----------
Total 10.65 10.65 10.80 10.80
------------- -------- ------------------ -----------
During the period we paid 10.65 pence per share of ordinary
dividends, being quarterly dividends from Q4 FY18 and Q1 FY19.
During the period, we declared a total ordinary dividend of 10.8
pence per share, a 3% increase from 10.5 pence in HY18. This
dividend was 77% covered by FFO of 10.8 pence per share, due
predominantly to the fact that we have deliberately withheld full
capital deployment in anticipation of future opportunistic
acquisition opportunities. We remain committed to delivering a
fully covered dividend to our shareholders, and we would expect
dividend cover to improve in the second half of the financial year,
as we see the full benefit of the Hawthorn Leisure acquisition
which we made part way through the first half. Dividend cover is
one of our five key Financial Policies which are explained in the
'Net debt & financing' section of this Review.
Today we also announce our ordinary dividend for the third
quarter of FY19 of 5.4 pence, an increase of 3% compared with Q3
FY18. The dividend will be paid on 8 February 2019 to shareholders
on the register on 28 December 2018. The ex-dividend date will be
27 December 2018. The quarterly dividend will be payable as a REIT
Property Income Distribution (PID).
Balance sheet
EPRA net assets include a number of adjustments to the IFRS
reported net assets and both measures are presented below on a
proportionally consolidated basis.
As at 30 September 2018 As at 31 March
2018
Joint Proportionally Proportionally
Group ventures consolidated consolidated
GBPm GBPm GBPm GBPm
-------- ---------- --------------- ---------------
Properties at valuation 1,364.3 12.2 1,376.5 1,239.6
Investment in joint ventures 8.5 (8.5) - -
Other non-current assets 3.0 - 3.0 4.3
Cash 30.3 0.5 30.8 116.2
Other current assets 15.3 0.1 15.4 34.6
-------- ---------- --------------- ---------------
Total assets 1,421.4 4.3 1,425.7 1,394.7
Other current liabilities (42.4) (0.3) (42.7) (41.2)
Debt (513.0) (4.0) (517.0) (460.9)
Other non-current liabilities (1.7) - (1.7) (0.2)
-------- ---------- --------------- ---------------
Total liabilities (557.1) (4.3) (561.4) (502.3)
-------- ---------- --------------- ---------------
IFRS net assets 864.3 - 864.3 892.4
-------- ---------- --------------- ---------------
EPRA adjustments:
Warrants in issue 0.5 0.5
Unexercised employee
awards 1.3 1.3
Deferred tax 1.6 -
Fair value derivatives (3.0) (3.3)
-------- ---------- --------------- ---------------
EPRA net assets 864.7 890.9
-------- ---------- --------------- ---------------
EPRA NAV per share 283p 292p
-------- ---------- --------------- ---------------
IFRS net assets per share 284p 294p
-------- ---------- --------------- ---------------
LTV 35% 28%
-------- ---------- --------------- ---------------
Net assets
At 30 September 2018, net assets decreased by 3% to GBP864.3
million, from GBP892.4 million at 31 March 2018. This marginal
decrease was predominately due to a 1.8% decrease in portfolio
valuation.
EPRA NAV is calculated by adjusting net assets to reflect the
potential impact of dilutive ordinary shares, and to remove the
fair value of any derivatives held on the balance sheet. These
adjustments are made with the aim of improving comparability with
other European real estate companies. EPRA NAV decreased by 3% to
GBP864.7 million, from GBP890.9 million at 31 March 2018. EPRA NAV
per share decreased by 3% to 283 pence per share at September 2018
compared to 292 pence per share in March 2018. This was primarily
due to a decline in our portfolio valuation of 1.8%.
Properties at valuation
Properties at valuation increased by GBP136.9 million in the six
months to September 2018, predominantly due to acquisitions and
capital expenditure, less disposals and a small reduction in
portfolio valuation. Hawthorn Leisure and other accretive
acquisitions added GBP160.4 million and we incurred GBP11.6 million
of capital expenditure during the half, spending GBP4.8 million on
our retail park development in Canvey Island which reached
practical completion post period end, and GBP1.5 million on c-store
developments. We completed GBP14.0 million of capital recycling
during the period, selling one retail park, 14 pubs and five plots
of land adjacent to pubs.
Net debt & financing
Analysis of movement in proportionally consolidated net debt
(GBPm)
Proportionally consolidated net debt at 31 March
2018 344.7
Operating activities
Net cash inflow from operations before working
capital movements (22.9)
Changes in working capital 3.0
------------------------------------------------------ -------
Investing activities
Purchase of investment properties 37.3
Hawthorn Leisure acquisition 109.1
Disposal of investment properties (30.2)
Purchase of plant, property and equipment 0.6
Development and other capital expenditure 11.8
------------------------------------------------------ -------
Financing activities
Ordinary dividends paid 32.1
Other 0.7
Proportionally consolidated net debt at 30 September
2018 486.2
------------------------------------------------------ -------
Net debt increased by GBP141.5 million over the period, to
GBP486.2 million, primarily as a result of the accretive
acquisitions made in the period.
Operating activities generated a net cash inflow from operations
before working capital movements of GBP22.9 million, compared with
FFO of GBP25.3 million.
Investing activities included the acquisition of Grays Shopping
Centre and Hollywood Retail Park, Barrow-in-Furness increased net
debt by GBP37.3 million and the acquisition of Hawthorn Leisure
which increased net debt by GBP109.1 million, being the sum of the
purchase price (net of cash acquired) of GBP48.5 million, and the
share of debt acquired in the transaction of GBP60.6 million. This
acquisition activity was offset by GBP30.2 million received
following the disposal of investment properties, principally
Coalville Retail Park which was sold during the period, and the
Primark unit in the Hillstreet Shopping Centre in Middlesbrough
which was sold at the end of FY18.
Financial Policies
Financial policy Proportionally consolidated
30 September 2018 31 March 2018
------------------ ------------------ ------------------
Net debt GBP486.2m GBP344.7m
Principal value of gross debt GBP525.0m GBP469.0m
Weighted average cost of drawn debt(1) 3.2% 3.1%
Weighted average debt maturity of drawn debt(2) 7.4 yrs 7.9 yrs
Guidance <40%
Loan to value Policy <50% 35% 28%
30 September 2018 30 September 2017
------------------ ------------------ ------------------
Net debt: EBITDA <10x 6.9x 4.4x
Interest cover >2.0x 3.8x 4.6x
Dividend cover >100% 77% 95%
Group
30 September 2018 31 March 2018
------------------ ------------------ ------------------
Balance sheet gearing <100% 56% 38%
------------------ ------------------ ------------------
1. Cost of debt assuming GBP215 million revolving credit facility is fully drawn
2. Average debt maturity assumes one-year extension options are exercised and bank approved
Our conservative financial policies were put in place in
consultation with shareholders and form a key component of our
financial risk management strategy.
-- Loan to Value was 35% at 30 September 2018, an increase from
28% on 31 March 2018. Our guidance is that our LTV will remain
below 40%.
-- Net debt: EBITDA was 6.9x, an increase from 4.4x in HY18. Our
guidance is that Net debt: EBITDA will remain below 10x.
-- Interest cover was 3.8x at 30 September 2018, which remains
significantly ahead of our financing policy which requires a
minimum cover of 2.0x.
-- Dividend cover, calculated with reference to FFO per share,
was 77% in HY18, and it is our policy to have at least 100%
dividend cover. Our dividend was not fully covered because we have
not yet fully deployed the proceeds of the equity raise completed
in the prior period. We are committed to delivering a fully covered
dividend to our investors, and we will remain disciplined and
active in the investment market.
-- Balance sheet gearing increased to 56% from 38% at 31 March
2018, largely due to the increase in drawn debt from the funding of
acquisitions in the period.
Additional guidelines
Sitting alongside our financial policies are additional
guidelines, used by management when analysing operational and
financial risk, which we disclose in the following table:
Guideline 30 September 2018
Single retailer concentration <5% 1.9%
-------------------------- ------------------
Development expenditure <10% of GAV 1%
-------------------------- ------------------
>70% pre-let or pre-sold
Risk-controlled development on committed 85%
-------------------------- ------------------
Pub weighting <20% of GAV 20%
-------------------------- ------------------
-- Our largest single retailer concentration at the period end
was Poundland, with a single retailer concentration, expressed as a
percentage of total rent roll, of 1.9%
-- Our development expenditure in the last 12 months as a
proportion of total gross asset value was less than 1%.
-- Our risk-controlled approach to development means that we
will not commit to a new development unless we have pre-let or
pre-sold at least 70% by area, and we are currently 85% pre-let on
committed developments.
-- Our pub weighting is currently 20% excluding c-stores, and we
envisage that pubs will remain an important part of our
portfolio.
Mark Davies
Chief Financial Officer
20 November 2018
Principal risks and uncertainties
The principal risks of the business are set out on pages 75-77
of the Group's 2018 Annual Report & Accounts alongside their
potential impact and related mitigations.
The Board has considered the principal risks and uncertainties
that the Group is exposed to, and which may impact performance, in
light of the continued political and economic uncertainty from
Brexit and world events. Whilst we consider the principal risks are
unchanged from those set out in the Annual Report and Accounts
published in June 2018, the Board is aware that market uncertainty
could lead to some risks being elevated.
The Board has reviewed the principal risks in the context of the
second half of the current financial year and believes there has
been no material change to the risks outlined in the Group's Annual
Report, and that the existing mitigation measures within the
business remain relevant for the risks highlighted.
Our principal risks and uncertainties which may impact the
business over the remaining six months of the year are summarised
below.
General Commercial - Economic recession due to uncertainty from
Brexit and world events, or future Government policy which
adversely affects the Company's ability to manage its assets
effectively.
Corporate Strategy and Performance - Failure to communicate
sufficiently and effectively with investors, leading to a depressed
share price and demand for equity, or growth in online retail spend
could be perceived as a threat to traditional bricks and mortar
retailers.
Financial - Breach of debt covenants could trigger loan defaults
and repayment of facilities putting pressure on surplus cash
resources. Ensuring that there is adequate working capital for
capital expenditure, development projects and acquisitions.
Compliance - Breach of any of the regulations governing the
business of the Group, such as listing rules, UK Corporate
Governance Code and The Pubs Code.
Asset Management - Failure in performance by individual assets
against their business plans.
Development - Poor control of development projects could lead to
inadequate returns on investment, or over--exposure to developments
could put pressure on cash flow and debt financing.
Directors' Responsibility Statement
We confirm to the best of our knowledge:
(a) The condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
(b) The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
On behalf of the Board
Allan Lockhart Mark Davies
Chief Executive Chief Financial Officer
20 November 2018
Copies of this announcement are available on the Company's
website at www.nrr.co.uk and can be requested from the Company's
registered office at 16 New Burlington Place, London W1S 2HX.
Independent Review Report to NewRiver REIT plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2018 which comprises the condensed
consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated cash flow
statement, the condensed consolidated statement of changes in
equity and related notes 1 to 17. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2018 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Guernsey, Channel Islands
20 November 2018
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 September 2018
Six months ended 30 September Six months ended 30
2018 September 2017
Operating Fair value Operating Fair value
and financing adjustments Total and financing adjustments Total
Unaudited Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Gross income 4 59,227 - 59,227 49,734 - 49,734
Property operating
expenses 5 (16,356) - (16,356) (9,269) - (9,269)
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Net property income 42,871 - 42,871 40,465 - 40,465
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Administrative expenses 6 (8,925) - (8,925) (7,203) - (7,203)
Acquisition costs 6 (2,851) - (2,851) - - -
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
(11,776) - (11,776) (7,203) - (7,203)
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Share of income from
joint
ventures 10 219 (178) 41 1,673 (237) 1,436
Net valuation movement 9 - (24,705) (24,705) - 2,215 2,215
(Loss)/profit on
disposal
of investment
properties (262) - (262) 502 - 502
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Operating profit 31,052 (24,883) 6,169 35,437 1,978 37,415
Gain on bargain purchase 13 - 6,876 6,876 - - -
Finance income 22 - 22 24 - 24
Finance costs (9,366) - (9,366) (7,748) (1,989) (9,737)
Revaluation of
derivatives - (418) (418) - 2,155 2,155
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Profit for the period
before
taxation 21,708 (18,425) 3,283 27,713 2,144 29,857
Taxation (546) - (546) (600) - (600)
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Profit for the period
after
taxation 21,162 (18,425) 2,737 27,113 2,144 29,257
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
IFRS earnings per share
(pence)
Basic 7 0.9 11.0
Diluted 7 0.9 10.9
------------------------- ------ --------------- ------------- --------- --------------- ------------- --------
Six months
Six months ended ended 30 September
30 September 2018 2017
Unaudited GBP'000 GBP'000
----------------------------- ------------------- --------------------
Profit for the period after
taxation 2,737 29,257
Other comprehensive income
Revaluation of property, 49 -
plant and equipment
Total comprehensive income
for the year 2,786 29,257
-------------------------------- ------------------- --------------------
All activities derive from continuing operations of the
Group.
CONDENSED CONSOLIDATED BALANCE SHEET
As at 30 September 2018
30 September 31 March
2018 2018
Unaudited Audited
Notes GBP'000 GBP'000
---------------------------------- ------ ------------- ----------
Non-current assets
Investment properties 9 1,358,661 1,227,212
Investments in joint ventures 10 8,467 8,509
Property, plant and equipment 14 5,617 951
Derivative financial instruments 2,985 3,339
---------------------------------- ------ ------------- ----------
Total non-current assets 1,375,730 1,240,011
Current assets
Trade and other receivables 15,311 34,427
Derivative financial instruments 35 122
Cash and cash equivalents 30,343 115,801
---------------------------------- ------ ------------- ----------
Total current assets 45,689 150,350
---------------------------------- ------ ------------- ----------
Total assets 1,421,419 1,390,361
---------------------------------- ------ ------------- ----------
Current liabilities
Trade and other payables 40,430 38,731
Current taxation 2,025 2,125
---------------------------------- ------ ------------- ----------
Total current liabilities 42,455 40,856
Non-current liabilities
Derivative financial instruments 149 173
Deferred tax liability 1,569 -
Borrowings 11 512,975 456,952
---------------------------------- ------ ------------- ----------
Total non-current liabilities 514,693 457,125
---------------------------------- ------ ------------- ----------
Net assets 864,271 892,380
---------------------------------- ------ ------------- ----------
Equity
Share capital 12 3,033 3,029
Share premium 12 223,434 223,287
Merger reserve 12 (2,335) (2,335)
Retained earnings 640,139 668,399
---------------------------------- ------ ------------- ----------
Total equity 864,271 892,380
---------------------------------- ------ ------------- ----------
Net asset value (NAV) per share
Basic 7 284p 294p
Diluted 7 283p 293p
---------------------------------- ------ ------------- ----------
The financial statements were approved by the Board of Directors
on 20 November 2018 and were signed on its behalf by:
Allan Lockhart Mark Davies
Chief Executive Chief Financial Officer
NewRiver REIT plc
Registered number: 10221027
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 September 2018
Six months ended
30 September 30 September
2018 2017
Unaudited Notes GBP'000 GBP'000
---------------------------------------------------------- ------ ------------- -------------
Cash flows from operating activities
Profit for the period before taxation 3,283 29,857
Adjustments for:
Loss/(profit) on disposal of investment property 262 (502)
Net valuation movement 9 24,705 (2,215)
Net valuation movement in joint ventures 10 178 274
Share of income from joint ventures (219) (1,710)
Gain on bargain purchase (6,876) (2,964)
Net interest expense 9,344 9,713
Revaluation of derivatives 418 (2,155)
Rent free lease incentives (683) (1,995)
Movement in provision for bad debts 191 205
Amortisation of legal and letting fees 154 185
Depreciation on property plant and equipment 257 225
Share-based payment expense 1,200 1,400
---------------------------------------------------------- ------ ------------- -------------
Cash generated from operations before changes
in working capital 32,214 30,318
Changes in working capital
Decrease/(increase) in receivables and other financial
assets 1,685 (2,256)
Decrease in payables and other financial liabilities (4,720) (4,650)
---------------------------------------------------------- ------ ------------- -------------
Cash generated from operations 29,179 23,412
Interest paid (8,735) (6,543)
Corporation tax paid (646) (275)
Dividends received from joint ventures 10 83 1,916
---------------------------------------------------------- ------ ------------- -------------
Net cash inflow from operating activities 19,881 18,510
Cash flows from investing activities
Interest income 22 24
Purchase of investment properties 9 (37,318) (2,932)
Business combinations net of cash acquired 13 (48,484) (53,646)
Disposal of investment properties 30,176 37,426
Development and other capital expenditure (11,791) (8,422)
Purchase of plant and equipment (623) (431)
---------------------------------------------------------- ------ ------------- -------------
Net cash used in investing activities (68,018) (27,981)
Cash flows from financing activities
Proceeds from issuance of new shares 151 222,022
Repayment of borrowings acquired in business combination (60,578) -
Repayment of borrowings (28,000) (365,620)
New borrowings 83,392 211,048
Purchase of derivatives (184) (2,362)
Dividends paid - ordinary 8 (32,102) (23,337)
Dividends paid - special 8 - (7,019)
---------------------------------------------------------- ------ ------------- -------------
Net cash (used in)/generated from financing activities (37,321) 34,732
---------------------------------------------------------- ------ ------------- -------------
Cash and cash equivalents at beginning of the
period 115,801 45,956
Net (decrease)/increase in cash and cash equivalents (85,458) 25,261
---------------------------------------------------------- ------ ------------- -------------
Cash and cash equivalents at end of period 30,343 71,217
---------------------------------------------------------- ------ ------------- -------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 30 September 2018
Share Share Merger Retained
capital premium reserve earnings Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------ --------- --------- --------- ----------- ---------
As at 31 March 2017 2,340 1,691 (2,335) 682,842 684,538
Profit for the period after
taxation - - - 29,257 29,257
Total comprehensive income
for the period - - - 29,257 29,257
Transactions with equity holders
Net proceeds from issue of
shares 682 226,902 - - 227,584
Cost of issue of new shares (5,562) - - (5,562)
Share-based payments - - - 1,400 1,400
Dividends paid - - (31,002) (31,002)
---------------------------------- ------ --------- --------- --------- ----------- ---------
As at 30 September 2017 3,022 223,031 (2,335) 682,497 906,215
Profit for the period after
taxation - - - 16,475 16,475
Total comprehensive income
for the period - - - 16,475 16,475
Transactions with equity holders
Net proceeds from issue of
shares 7 284 - - 291
Cost of issue of new shares - (28) - - (28)
Share-based payments - - - 1,159 1,159
Dividends paid - - (31,732) (31,732)
---------------------------------- ------ --------- --------- --------- ----------- ---------
As at 31 March 2018 3,029 223,287 (2,335) 668,399 892,380
Profit for the period after
taxation - - - 2,737 2,737
Revaluation of property, plant
and equipment - - - 49 49
Total comprehensive income
for the period - - - 2,786 2,786
Transactions with equity holders
Net proceeds from issue of
shares 12 4 147 - - 151
Share-based payments - - - 1,200 1,200
Dividends paid 8 - - - (32,246) (32,246)
---------------------------------- ------ --------- --------- --------- ----------- ---------
As at 30 September 2018 3,033 223,434 (2,335) 640,139 864,271
---------------------------------- ------ --------- --------- --------- ----------- ---------
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
General information
NewRiver REIT plc (the 'Company') and its subsidiaries (together
the 'Group') is a property investment group specialising in
commercial real estate in the UK.
These condensed consolidated financial statements have been
approved for issue by the Board of Directors on 20 November
2018.
Going concern
The Directors of the Company 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
-- Capital and debt funding
The Group has cash and short-term deposits, significant undrawn
borrowing facilities, as well as profitable rental income streams
and as a consequence the Directors believe the Group is well placed
to manage its business risks. The Group is currently well within
the prescribed financial covenants on its borrowing facilities.
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 condensed consolidated financial
statements.
Statement of compliance
The information for the year ended 31 March 2018 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that year
has been delivered to the Registrar of Companies. The auditor's
report on those accounts was not qualified, did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying the report and did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
The annual financial statements are prepared in accordance with
IFRSs as adopted by the European Union. The condensed set of
financial statements included in this half yearly financial report
has been prepared in accordance with International Accounting
Standard 34 'Interim Financial Reporting', as adopted by the
European Union.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries. The consolidated
financial statements account for interest in joint ventures using
the equity method of accounting per IFRS11.
Other than the policy on plant, property and equipment for pubs,
the same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's latest audited financial
statements, a copy of which can be found on our website
www.nrr.co.uk. The Group's financial performance is not
seasonal.
Changes in accounting policy and disclosures
IFRS 9 Financial Instruments (became effective 1 January
2018)
IFRS 9 replaces IAS 39 Financial Instrument: Recognition and
Measurement and introduces a single model that has initially only
two classification categories rather than the multiple
classification and measurement models in the previous standard. The
new models are amortised at cost and fair value.
The fair value of each category of the Group's financial
instruments approximates to their carrying value other than the
Group's debt instruments, which are carried at amortised cost.
Where financial assets and liabilities are measured at fair value
the measurement hierarchy, valuation techniques and inputs used are
consistent with those used at 31 March 2018. Therefore, the
adoption of IFRS 9 does not have a material impact on the Group's
consolidated results or financial position and does not require
there to be a restatement of comparative figures. There were no
movements between different levels of the fair value hierarchy in
the period.
Having considered the requirements of IFRS 9, under section
5.5.15(b), the Directors are required to apply the simplified
approach when considering the Expected Credit Loss ("ECL") model
when determining the expectations of impairment. Under the
simplified approach the Company is always required to measure
lifetime expected losses. The probability of credit loss is
recognised as part of the provision for doubtful debts.
IFRS 15 Revenue from Contracts with Customers (became effective
1 January 2018)
The new revenue recognition model under which IFRS 15 operates
recognises revenue either at a point in time or over time.
The Group's revenue is largely generated from rental income from
leases, wet income from pubs and asset management fees that do not
contain service components and revenue recognition under IFRS 15
has not resulted in the change of revenue recognition.
IFRS 16 Leases (effective 1 January 2019)
This standard requires lessees to recognise a right-of-use asset
and related lease liability representing the obligation to make
lease payments. Interest expense on the lease liability and
depreciation on the right-of-use asset will be recognised in the
statement of comprehensive income. The Group is undertaking
detailed analysis of the impact of IFRS 16 and expects there to be
some impact particularly in respect of ground rent obligations
payable by the Group.
There are no other standards or Interpretations yet to be
effective that would be expected to have a material impact on the
financial statements of the Group.
2. Critical accounting judgements and estimates
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. 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. Estimates and judgements are
continually evaluated and are based on historical experience as
adjusted for current market conditions and other factors.
Significant judgements
Business Combinations
Management must assess whether the acquisition of property
through the purchase of a corporate vehicle should be accounted for
as an asset purchase or a business combination. Management exercise
judgement to determine whether the assets and liabilities acquired
contains processes and inputs in addition to property. On 25 May
2018, the Group acquired Hawthorn Leisure. It was determined that a
business had been acquired and as such the transaction would be
accounted for as a business combination under IFRS 3.
Business combinations are accounted for using the acquisition
method and any excess of the purchase consideration over the fair
value of the net assets acquired is recognised as goodwill and if
the fair value of the net asset assets is deemed to be higher than
the purchase consideration then this is recognised as a bargain
purchase.
Operating segments
Following the acquisition of Hawthorn Leisure in May 2018, the
Group's operations are organised into two operating segments, being
investment in retail property and in pubs. The retail investments
comprise shopping centres, retail warehouses and high street
stores. The pub investments consist of over 600 community public
houses. The Group's assets and revenue have been shown as two
separate operating segments in note 3.
Sources of estimation uncertainty
As noted above, the Group's investment properties are stated at
fair value. The assumptions and estimates used to value the
properties are detailed in note 9. Small changes in the key
estimates, such as the estimated future rental income, can have a
significant impact on the valuation of the investment properties,
and therefore a significant impact on the balance sheet and key
performances measures such as Net Asset Value per share. Certain
estimates require an assessment of factors not within management's
control, such as overall market conditions.
Rents, ERVs, EBITDA multiples and maintainable earnings have a
direct relationship to valuation, while yield has an inverse
relationship. Estimated costs of a development project will
inversely affect the valuation of development properties. There are
interrelationships between all these unobservable inputs as they
are determined by market conditions. The existence of an increase
in more than one unobservable input could be to magnify the impact
on the valuation. The impact on the valuation will be mitigated by
the interrelationship of two unobservable inputs moving in
directions which have an opposite impact on value e.g. an increase
in rent may be offset by an increase in yield, resulting in no net
impact on the valuation.
The estimated fair value may differ from the price at which the
Group's assets could be sold. Actual realisation of net assets
could differ from the valuation used in these financial statements,
and the difference could be significant.
Pub classification
The Group's strategic aim is to hold all of its property for
capital appreciation and income, regardless of the asset type and
operating model. The Group operates pubs under three operating
models; leased, operator managed and fully managed. Management have
concluded that the most appropriate classification is investment
property for the leased model as the Group earns rental income from
these properties and, whilst it may in some cases earn a margin on
beverage sales to the pub, it does not retain the risks and rewards
associated with operating these pubs. The fully managed and
operator managed pubs have been classified as property, plant and
equipment as the Group directly or indirectly manages those pubs
and retains all the risks and rewards from trading.
3. Segmental reporting
Following the acquisition of Hawthorn Leisure in May 2018, the
Group's operations are organised into two operating segments, being
investment in retail property and in pubs. The retail investments
comprise shopping centres, retail warehouses and high street
stores. The pub investments consist of over 600 community public
houses. All of the Group's operations are in the UK and therefore
no geographical segments have been identified.
The relevant gross income, net rental income and property and
other assets, being the measures of segment revenue, segment result
and segment assets used by the management of the business, are set
out below. The results include the Group's share of assets and
results from properties held in joint ventures.
Six months ended 30 Six months ended 30 September
Segment revenues and result September 2018 2017
Retail Pubs Group Retail Pubs Group
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ -------- -------- --------- ---------- ---------- ----------
Property rental and related
income 40,363 18,900 59,263 38,619 8,458 47,077
Asset management fees 124 - 124 415 - 415
Realised gain received from
joint venture - - - 2,238 - 2,238
Surrender premiums and commissions 272 58 330 198 - 198
------------------------------------
Gross income 40,759 18,958 59,717 41,470 8,458 49,928
Service charge expense (3,177) - (3,177) (3,379) - (3,379)
Amortisation of tenant incentives
and letting costs (587) (155) (742) (591) (197) (788)
Ground rent (1,510) - (1,510) (1,316) - (1,316)
Rates (1,903) (261) (2,164) (1,310) (5) (1,315)
Other property operating
expenses (1,056) (7,862) (8,918) (1,409) (1,593) (3,002)
------------------------------------
Property operating expenses (8,233) (8,278) (16,511) (8,005) (1,795) (9,800)
------------------------------------ -------- -------- --------- ---------- ---------- ----------
Segment result 32,526 10,680 43,206 33,465 6,663 40,128
Administrative expenses (11,825) (7,450)
Net valuation movement (24,884) 1,941
(Loss)/profit on disposal
of investment properties (264) 388
Finance income 22 24
Finance costs (9,430) (10,329)
Gain on bargain purchase 6,876 2,964
Revaluation of derivatives (418) 2,191
Taxation (546) (600)
------------------------------------ ---------- ---------- ----------
Profit for the year after
taxation 2,737 29,257
------------------------------------ -------- -------- --------- ---------- ---------- ----------
Segment assets 30 September 2018 31 March 2018
Retail Pubs Unallocated Total Retail Pubs Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------- -------- ------------ ---------- ---------- -------- ------------ ----------
Non-current assets
Investment properties 1,062,957 295,704 - 1,358,661 1,047,852 179,360 - 1,227,212
Investments in
joint ventures 8,467 - - 8,467 8,509 - - 8,509
Property, plant
and equipment - 4,445 1,172 5,617 - - 951 951
Other non-current
assets - - 2,985 2,985 - - 3,339 3,339
---------------------- ---------- -------- ------------ ---------- ---------- -------- ------------ ----------
Total non-current
assets 1,375,730 1,240,011
Current assets
Trade and other
receivables 9,006 6,305 - 15,311 29,533 4,894 - 34,427
Other current
assets - - 30,378 30,378 - - 115,923 115,923
---------------------- ---------- -------- ------------ ---------- ---------- -------- ------------ ----------
Total current
assets 45,689 150,350
Segment assets 1,080,430 306,454 34,535 1,421,419 1,085,894 184,254 120,213 1,390,361
---------------------- ---------- -------- ------------ ---------- ---------- -------- ------------ ----------
4. Gross income
Six months ended
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------- ------------- -------------
Property rental and related income 58,785 43,929
Asset management fees 124 406
Realised gain received from joint venture - 5,201
Surrender premiums and commissions 318 198
-------------------------------------------- ------------- -------------
Gross income 59,227 49,734
-------------------------------------------- ------------- -------------
5. Property operating expenses
Six months ended
30 September 30 September
2018 2017
GBP'000 GBP'000
----------------------------------------------- ------------- -------------
Service charge expense 3,125 3,156
Amortisation of tenant incentives and letting
costs 709 743
Ground rent 1,500 1,246
Rates on vacant units 2,117 1,241
Pub operating costs 7,862 1,593
Other property operating expenses 1,043 1,290
------------------------------------------------ ------------- -------------
Property operating expenses 16,356 9,269
------------------------------------------------ ------------- -------------
The principal reason for the increase in pub operating costs is
the acquisition of Hawthorn Leisure, which accounted for GBP5,629k
of the increase.
6. Administrative expenses
Six months ended
30 September 30 September
2018 2017
GBP'000 GBP'000
-------------------------------------------------- ------------- -------------
Wages and salaries 3,857 2,371
Social security costs 635 988
Other pension costs 139 65
--------------------------------------------------- ------------- -------------
Staff costs 4,631 3,424
Depreciation 257 225
Share based payments 1,200 1,400
Operating lease payments 281 102
Other administrative expenses 2,556 2,052
--------------------------------------------------- ------------- -------------
8,925 7,203
Professional fees in relation to the acquisition
of Hawthorn Leisure 2,851 -
-------------------------------------------------- ------------- -------------
Administrative expenses 11,776 7,203
--------------------------------------------------- ------------- -------------
The acquisition of Hawthorn Leisure accounted for an increase in
administrative expenses as summarised below;
Existing operations 7,043 7,203
Hawthorn Leisure 1,882 -
Acquisition costs 2,851 -
-------------------------- ------- ------
Administrative expenses 11,776 7,203
-------------------------- ------- ------
Net administrative expenses ratio is calculated as follows:
Six months ended
30 September 30 September
2018 2017
GBP'000 GBP'000
----------------------------------------------------- ------------- -------------
Administrative expenses 11,776 7,203
Adjust for:
Asset management fees (124) (406)
Share of joint ventures' administrative expenses 49 248
Less share-based payments (1,200) (1,400)
Less exceptional cost in respect of the acquisition
of Hawthorn Leisure (2,851) -
----------------------------------------------------- ------------- -------------
Group's share of net administrative expenses 7,650 5,645
------------------------------------------------------ ------------- -------------
Property rental and related income 58,785 43,929
Realised gain received from joint ventures - 5,201
Less gain on bargain purchase - (2,964)
Share of joint ventures' property rental income 477 3,148
------------------------------------------------------ ------------- -------------
59,262 49,314
----------------------------------------------------- ------------- -------------
Net administrative expenses as a % of property
income (including share of joint ventures) 12.9% 11.4%
------------------------------------------------------ ------------- -------------
Average staff numbers including Directors
Directors 7 7
Operations and asset managers 30 20
Pubs 48 -
Support functions 80 28
------------------------------------------------------ ------------- -------------
165 55
----------------------------------------------------- ------------- -------------
The increase in the average number of staff during year is due
to the acquisition of Hawthorn Leisure.
Performance measures
The Group's key performance measure is 'Funds from Operations'
or 'FFO'. This performance measure is intended to measure the
underlying profitability of the Group and as such includes realised
gains on disposals and adds back expense recognised for non-cash
share-based payment, unrealised gains and the one-off cost in
respect of the costs of the move to the main market. The measure is
not intended to replace the cash measures disclosed in the cash
flow statement.
The European Public Real Estate Association (EPRA) issued Best
Practices Policy Recommendations in 2014 and additional guidance in
2016, which gives recommendations for performance measures. The
EPRA earnings measure excludes investment property revaluations and
gains on disposals, intangible asset movements and their related
taxation.
A reconciliation of the performance measures to the nearest IFRS
measure is below:
Six months ended
30 September 30 September
2018 2017
GBP'000 GBP'000
---------------------------------------------------- ------------- -------------
Profit for the period after taxation 2,737 29,257
Adjustments
Revaluation of investment properties 24,705 (2,215)
Loss/(profit) on disposal of investment properties 262 (502)
Revaluation of derivatives 418 (2,155)
Gain on bargain purchase (6,876) (2,964)
Refinance costs - 2,954
Exceptional cost in relation to the acquisition 2,851
of Hawthorn -
Group's share of joint ventures' adjustments
Revaluation of investment properties 178 274
Loss on disposal of investment properties 2 114
Revaluation of derivatives - (37)
----------------------------------------------------- ------------- -------------
EPRA earnings 24,277 24,726
(Loss)/profit on disposal of investment properties (262) 502
Loss on disposal of joint ventures' investment
properties (2) (114)
Depreciation of investment properties 126 -
Share-based payment charge 1,200 1,400
----------------------------------------------------- ------------- -------------
Funds From Operations (FFO) 25,339 26,514
----------------------------------------------------- ------------- -------------
Six months ended
30 September 30 September
2018 2017
Number of shares No. 000s No. 000s
------------------------------------------------ ------------- -------------
Weighted average number of ordinary shares for
the purposes of Basic EPS, FFO and EPRA 303,819 266,452
Effect of dilutive potential ordinary shares:
Share options 67 163
Deferred bonus shares 206 609
Performance share plan 631 1,133
Warrants 204 231
------------------------------------------------- ------------- -------------
Weighted average number of ordinary shares for
the purposes of diluted EPS 304,927 268,588
------------------------------------------------- ------------- -------------
Performance measures (pence)
IFRS
Basic EPS 0.9 11.0
Diluted EPS 0.9 10.9
FFO
FFO per share 8.3 10.0
Diluted FFO per share 8.3 9.9
EPRA
EPRA EPS 8.0 9.3
Diluted EPRA EPS 8.0 9.2
------------------------------------------------- ------------- -------------
EPRA NAV per share and basic NAV per share:
30 September 2018 31 March 2018
Shares Pence Shares Pence
GBP'000s 000s per share GBP'000s 000s per share
------------------------ --------- -------- ----------- --------- -------- -----------
Net assets 864,271 303,923 284p 892,380 303,655 294p
Warrants in issue 482 380 501 380
Unexercised employee
awards 1,276 1,368 1,276 1,301
------------------------- --------- -------- ----------- --------- -------- -----------
Diluted net assets 866,029 305,671 283p 894,157 305,336 293p
Fair value of deferred
tax liability 1,569 - - -
Fair value derivatives (2,869) - (3,288) -
------------------------- --------- -------- ----------- --------- -------- -----------
EPRA net assets 864,729 305,671 283p 890,869 305,336 292p
------------------------- --------- -------- ----------- --------- -------- -----------
7. Dividends
Pence
Payment date PID Non-PID per share GBP'000
------------------------------ ------ -------- ----------- --------
Six months to September 2018
Ordinary dividends
25 May 2018 5.25 - 5.25 15,883
27 July 2018 5.40 - 5.40 16,363
------------------------------- ------ -------- ----------- --------
10.65 - 10.65 32,246
------------------------------ ------ -------- ----------- --------
Year to March 2018
Special dividends
4 August 2017 3.00 - 3.00 7,019
Ordinary dividends
11 May 2017 5.00 - 5.00 11,699
4 August 2017 5.25 - 5.25 12,284
1 November 2017 5.25 - 5.25 15,922
9 February 2018 5.25 - 5.25 15,810
------------------------------- ------ -------- ----------- --------
23.75 - 23.75 62,734
------------------------------ ------ -------- ----------- --------
8. Investment properties
30 September 31 March
2018 2018
GBP'000 GBP'000
---------------------------------------------- ------------- ----------
Fair value brought forward 1,227,212 995,928
Acquisitions 37,318 31,238
Capital expenditure 11,430 16,393
Properties acquired in business combinations
(see note 13) 121,492 244,657
Lease incentives, letting and legal costs 890 3,790
Reclassification of investment property (883) -
Disposals (14,093) (51,892)
Net valuation movement (24,705) (12,902)
----------------------------------------------- ------------- ----------
Fair value carried forward 1,358,661 1,227,212
----------------------------------------------- ------------- ----------
The Group's investment properties have been valued at fair value
on 30 September 2018 by independent valuers, Colliers International
Valuation UK LLP and Knight Frank LLP, on the basis of fair value
in accordance with the Current Practice Statements contained in The
Royal Institution of Chartered Surveyors Valuation - Professional
Standards, (the 'Red Book'). The valuations are performed by
appropriately qualified valuers who have relevant and recent
experience in the sector.
The fair value at 30 September 2018 represents the highest and
best use.
The properties are categorised as Level 3 in the IFRS 13 fair
value hierarchy. There were no transfers of property between Levels
1, 2 and 3. Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity can
access at the measurement date. Level 2 inputs are inputs other
than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly. Level 3
inputs are unobservable inputs for the asset or liability.
The investments are several retail and leisure assets in the UK.
The valuation was determined using an income capitalisation method,
which involves applying a yield to rental income streams. Inputs
include yield, current rent and ERV. Development properties are
valued using a residual method, which involves valuing the
completed investment property using an investment method and
deducting estimated costs to complete, then applying an appropriate
discount rate.
The relationship of unobservable inputs to fair value are the
higher the rental values and the lower the yield, the higher the
fair value.
In respect of the pub portfolio the valuer makes judgements on
whether to use residual value or a higher value to include
development potential where appropriate. Where no conversion
opportunity has been identified at present, the valuer has not
specifically considered an alternative use valuation.
The inputs to the valuation include:
-- Rental value - total rental value per annum
-- Equivalent yield - the discount rate of the perpetual cash
flow to produce a net present value of zero assuming a purchase at
the valuation
-- EBITDA multiples and maintainable earnings from each pub
-- Estimated development costs
There were no changes to valuation techniques during the
period.
Valuation reports are based on both information provided by the
Group, e.g. current rents and lease terms which is derived from the
Company's financial and property management systems and is subject
to the Group's overall control environment, and assumptions applied
by the valuers, e.g. ERVs and yields. These assumptions are based
on market observation and the valuers' professional judgement.
Revenues are derived from a large number of tenants with no
single tenant or group under common control contributing more than
4% of the Group's revenue.
There are interrelationships between all these unobservable
inputs as they are determined by market conditions. The effect of
an increase in more than one unobservable input would be to magnify
the impact on the valuation. The impact on the valuation will be
mitigated by the interrelationship of two unobservable inputs
moving in opposite directions, e.g. an increase in rent may be
offset by an increase in yield, resulting in no net impact on the
valuation. Expected vacancy rates may impact the yield with higher
vacancy rates resulting in higher yields.
During the period two public houses in the Trent portfolio were
reclassified as from investment property to property, plant and
equipment as these operate under the fully managed model.
9. Investments in joint ventures
There were five joint ventures which were equity accounted for
prior to the acquisition of the joint venture partner's holding in
July 2017. As at 30 September the Group has one joint venture.
30 September 31 March
2018 2018
GBP'000 GBP'000
-------------------------------------------------- ------------- ---------
Opening balance 8,509 71,763
Effective disposal of investments - (62,379)
Group's share of profit after taxation excluding
valuation movement 219 2,018
Net valuation movement (178) (564)
Distributions and dividends (83) (2,329)
---------------------------------------------------- ------------- ---------
Investments in joint ventures 8,467 8,509
---------------------------------------------------- ------------- ---------
30 September 31 March
Name 2018 2018
Country of
incorporation % Holding % Holding
-------------------------------- ---------------- ------------- ----------
NewRiver Retail Investments LP Guernsey 50 50
-------------------------------- ---------------- ------------- ----------
The aggregate amounts recognised in the consolidated balance
sheet and income statement are as follows:
Balance sheet 30 September 2018 31 March 2018
Group's Group's
Total share Total share
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- --------- -------- --------
Non-current assets 24,400 12,200 24,750 12,375
Current assets 1,058 529 779 390
Current liabilities (531) (266) (528) (265)
Borrowings (7,992) (3,996) (7,982) (3,991)
--------------------- --------- --------- -------- --------
Net assets 16,935 8,467 17,019 8,509
--------------------- --------- --------- -------- --------
Income statement Six months ended
30 September 2018 30 September 2017
Group's Group's
Total share Total share
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- --------- --------- --------- ---------
Net property income 670 335 5,254 2,627
Administration expenses (98) (49) (496) (248)
Net finance costs (131) (65) (1,184) (592)
----------------------------------------- --------- --------- --------- ---------
441 221 3,574 1,787
Net valuation movement (356) (178) (548) (274)
Derivative fair value movement - - 74 37
Profit on disposal (4) (2) (228) (114)
Profit after taxation 81 41 2,872 1,436
Add back net valuation movement 356 178 548 274
Add back derivative fair value movement - - (74) (37)
----------------------------------------- --------- --------- --------- ---------
Group's share of joint ventures'
Funds From Operations 437 219 3,346 1,673
----------------------------------------- --------- --------- --------- ---------
10. Borrowings
30 September 31 March
2018 2018
Maturity of secured bank loans: GBP'000 GBP'000
--------------------------------- ------------- ---------
Less than one year - -
Between one and two years - -
Between two and three years - -
Between three and four years - -
Between four and five years 221,000 165,000
After five years 300,000 300,000
---------------------------------- ------------- ---------
521,000 465,000
Unamortised loan fees (8,025) (8,048)
---------------------------------- ------------- ---------
512,975 456,952
--------------------------------- ------------- ---------
During the period, the Company utilised GBP56 million of
available facilities to fund the Hawthorn Leisure acquisition, the
acquisition of Grays Shopping Centres and Hollywood Retail &
Leisure Park.
During the prior year the Company secured GBP680 million of new
unsecured borrowing facilities to replace its secured borrowings.
The refinancing exercise provided the Company with a reduced cost
of debt, increased flexibility and an increased borrowings
maturity.
The new facilities include a GBP165 million term loan and a
GBP215 million revolving credit facility, with an initial maturity
of five years which can be extended to a maximum of seven years,
subject to lender consent. The facilities were extended by one year
in August 2018. The facility agreement contains financial covenants
based on loan to value ratio, interest cover and the level of
secured borrowings. The floating rate interest on the loan must be
substantially hedged and the Group has entered into interest rate
swaps to fix the interest on the five-year term loan.
In February 2018, the Group issued a GBP300 million publicly
listed corporate bond with a maturity of 10 years to March 2028 and
a coupon of 3.5%. The unsecured corporate bond was rated BBB+ by
Fitch.
Unamortised
facility
Facility fees /
Unsecured borrowings: Maturity date Facility drawn discount
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------------- --------- --------- ------------ --------
Term loan August 2023 165,000 165,000 (1,470) 163,530
Revolving credit
facility August 2023 215,000 56,000 (1,918) 54,082
Corporate bond March 2028 300,000 300,000 (4,637) 295,363
----------------------- ---------------- --------- ---------
680,000 521,000 (8,025) 512,975
--------------------------------------- --------- --------- ------------ --------
11. Share capital and reserves
Share capital
Number Price Held Shares
Ordinary shares issued per share Total by EBT in issue
000's pence 000's 000's 000's
------------------------------------ -------- ----------- -------- -------- ----------
31 March 2017 238,589 4,614 233,975
Issue of shares in firm placing
and open offer 67,164 335 305,753 4,614 301,139
Exercise of share options 1,066 242 306,819 4,614 302,205
Scrip dividends issued 87 335 306,906 4,614 302,292
Shares issued under employee share
schemes 657 - 306,906 3,957 302,949
------------------------------------ -------- ----------- -------- -------- ----------
31 March 2018 306,906 3,957 302,949
Scrip dividends issued 53 286 306,959 3,957 303,002
Exercise of share options 386 - 306,959 3,571 303,388
------------------------------------ -------- ----------- -------- -------- ----------
30 September 2018 306,959 3,571 303,388
------------------------------------ -------- ----------- -------- -------- ----------
Share Share
capital premium Total
GBP'000 GBP'000 GBP'000
--------------------------------- --------- --------- --------
31 March 2017 2,340 1,691 4,031
Issue of shares in firm placing
and open offer 672 219,028 219,700
Exercise of share options 10 2,568 2,578
Shares issued under employee
share schemes 7 - 7
------------------------------------ --------- --------- --------
31 March 2018 3,029 223,287 226,316
Proceeds from issue of new
shares 4 147 151
------------------------------------ --------- --------- --------
30 September 2018 3,033 223,434 226,467
------------------------------------ --------- --------- --------
Warrants
Shareholders who subscribed for placing shares in the original
share listing of NewRiver Retail Limited's shares, which were
subsequently novated to NewRiver REIT plc, received warrants to
subscribe for 3% of the fully diluted share capital. The
subscription price is adjusted following the payment of dividends
or share issuance and was 127p as at 30 September 2018. 380,000
remain outstanding (31 March 2018: 380,000) and are satisfied by
issuing shares in the Company.
Merger reserve
The merger reserve arose as result of a scheme of arrangement
and group reorganisation, and represents the nominal amount of
share capital that was issued to shareholders of NewRiver Retail
Limited, the previous holding company of the group.
Retained earnings
Retained earnings consist of the accumulated net profit of the
Group, less dividends paid from distributable reserves, and
transfers from equity issues where those equity issues generated
distributable reserves. Dividends are paid from the Company's
distributable reserves which were approximately GBP682 million at
30 September 2018.
Shares held in Employee Benefit Trust (EBT)
As part of the scheme of arrangement and group reorganisation,
the Company established an 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 EBT may not
exceed 10% of the Company's issued share capital. It is intended
that the EBT will not hold more ordinary shares than are required
in order to satisfy share options granted under employee share
incentive plans.
There are currently 3,570,682 ordinary shares held by the
EBT.
12. Business combinations
On 24 May 2018, the Group acquired Hawthorn Leisure Limited for
a cash consideration of GBP55.1 million. Hawthorn Leisure owned 298
public houses situated across England and Scotland. From the date
of acquisition, Hawthorn Leisure contributed net revenue of GBP5.5
million and profit before tax from continuing operations of the
Group of GBP3.1 million If the acquisition had taken place at the
beginning of the year, net revenue from continuing operations would
have been GBP7.6 million and profit before tax from continuing
operations for the Group would have been GBP6.6 million.
Details of the assets and gain on bargain purchase arising are
as follows:
Fair value
GBP'000
--------------------------------------------------------------- -----------
Investment property 121,492
Property, plant and equipment 3,629
Current assets 3,199
Cash and cash equivalents 6,583
Other net current liabilities (72,960)
Fair value of acquired interest in net assets of subsidiaries 61,943
Gain on bargain purchase (6,876)
---------------------------------------------------------------- -----------
Total purchase consideration 55,067
---------------------------------------------------------------- -----------
The bargain purchase is a result of the fair value determined
for the assets purchased exceeding the gross asset value
determined. The gain on bargain purchase recognised in the
statement of comprehensive income in gross income. The fair value
of cash and cash equivalents was considered equal to the carrying
value representing the entity's bank deposits.
13. Property plant and equipment
Plant
Property and Equipment Total
GBP'000 GBP'000 GBP'000
---------------------------------- --------- --------------- --------
Cost
At 1 April 2017 - 728 728
Additions - 913 913
----------------------------------- --------- --------------- ----------
At 31 March 2018 - 1,641 1,641
Additions - 386 386
Transfer of investment property 3,355 - 3,355
Business combinations 1,335 - 1,335
----------------------------------- --------- --------------- ----------
At 30 September 2018 4,690 2,027 6,717
----------------------------------- --------- --------------- ----------
Depreciation
At 1 April 2017 - (377) (377)
Depreciation charge for the year - (313) (313)
----------------------------------- --------- --------------- ----------
At 31 March 2018 - (690) (690)
Depreciation charge for the year (126) (122) (248)
Revaluation (162) - (162)
----------------------------------- --------- --------------- ----------
At 30 September 2018 (288) (812) (1,100)
----------------------------------- --------- --------------- ----------
Book value at 30 September 2018 4,402 1,215 5,617
Book value at 31 March 2018 - 951 951
----------------------------------- --------- --------------- --------
14. Financial instruments
The Group enters into derivative financial instruments to
provide an economic hedge to its interest rate exchange risks.
These financial instruments are classified as Level 2 fair value
measurements, being those derived from inputs other than quoted
prices. There were no transfers between levels in the current year.
The cumulative amount previously recognised in equity was recycled
to the income statement. See latest audited financial
statements.
The increase in net financial liabilities is largely due to the
acquisition of Hawthorn Leisure which resulted in a drawdown on the
revolving credit facility of GBP56.0 million and the utilisation of
cash for the repayment of the loan within Hawthorn of GBP60.6
million.
Financial instruments
Valuation 30 September 31 March
2018 2018
level GBP'000 GBP'000
----------------------------------- ---------- ------------- ----------
Financial assets
Fair value through profit or loss
Interest rate caps 2 - 503
Interest rate swaps 3,019 2,958
Loans and receivables
Trade and other receivables 13,066 29,449
Cash and cash deposits 30,343 115,801
------------------------------------ ---------- ------------- ----------
46,429 148,711
----------------------------------- ---------- ------------- ----------
Financial liabilities
Fair value through profit or loss
Interest rate swaps 2 (150) (346)
At amortised cost
Borrowings (512,975) (456,952)
Payables and accruals (25,309) (26,649)
------------------------------------ ---------- ------------- ----------
(538,433) (483,947)
(492,004) (335,236)
----------------------------------- ---------- ------------- ----------
15. Related party transactions
Transactions between the Company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note.
Management fees are charged to join ventures for asset
management, investment advisory, project management and accounting
services. Total fees charged were:
Six months ended
30 September 30 September
2018 2017
GBP'000 GBP'000
------------------------------------------ ------------- -------------
NewRiver Retail Investments LP 56 72
NewRiver Retail Property Unit Trust No.2 - 48
NewRiver Retail Property Unit Trust No.5 - 33
NewRiver Retail Property Unit Trust No.6 - 211
NewRiver Retail Property Unit Trust No.7 - 41
------------------------------------------- ------------- -------------
No amounts outstanding at period end.
16. Post balance sheet events
The Group sold 22 community pubs for GBP14.8 million on the 29
October 2018 and a supermarket in East Ham, held in a 50:50 joint
venture between NewRiver and Morgan Stanley Real Estate Investing,
for GBP7.8 million (NRR share: GBP3.9 million) on the 13 November
2018.
The third quarter dividend in relation to the year ended 31
March 2019 will be 5.40 pence per share and will be paid on 8
February 2019 to shareholders on the register on 28 December 2018.
The ex-dividend date will be 27 December 2018.
EPRA performance measures
The information in this section is unaudited and does not form
part of the consolidated primary statements of the company or the
notes thereto.
Introduction
The Group discloses financial performance measures in accordance
with the European Public Real Estate Association ('EPRA') Best
Practice Recommendations which are aimed at improving the
transparency, consistency and relevance of reporting across
European Real Estate companies.
This section sets out the rationale for each performance measure
as well as how it is measured. A summary of the performance
measures is included in following table.
Performance Measure HY19 HY18
-------------
EPRA Earnings per Share (EPS) 8.0p 9.3p
------------------------------- ------------- ---------
September 18 March 18
------------------------------- ------------- ---------
EPRA NAV per share 283p 292p
EPRA NNNAV per share 284p 293p
EPRA NIY 7.3% 6.8%
EPRA 'topped-up' NIY 7.8% 7.2%
EPRA Vacancy Rate 4% 3%
------------------------------- ------------- ---------
A. EPRA Earnings per Share: 8.0p
Definition
Earnings from operational activities
Purpose
A key measure of a company's underlying operating results and an
indication of the extent to which current dividend payments are
supported by earnings
HY19 HY18
Calculation of EPRA Earnings GBPm GBPm
------------------------------------------------------------------- ---------- ----------
Earnings per IFRS income statement 2.7 29.3
Adjustments to calculate EPRA Earnings, exclude:
Changes in value of investment properties, development
properties held for investment and other interests 24.7 (2.2)
Profits or losses on disposal of investment properties,
development properties held for investment and other
interests 0.3 (0.5)
Negative goodwill / goodwill impairment (6.9) (3.0)
Changes in fair value of financial instruments and associated
close-out costs 0.4 (2.2)
Acquisition costs on share deals and non-controlling
joint venture interests 2.9 2.0
Exceptional costs in respect of refinancing - 1.0
Adjustments to above in respect of joint ventures (unless
already included under proportional consolidation) 0.2 0.3
-------------------------------------------------------------------- ---------- ----------
EPRA Earnings 24.3 24.7
-------------------------------------------------------------------- ---------- ----------
Basic number of shares 303.8 266.5
-------------------------------------------------------------------- ---------- ----------
EPRA Earnings per Share (EPS) 8.0p 9.3p
-------------------------------------------------------------------- ---------- ----------
B. EPRA NAV per share: 283p
Definition
Net Asset Value adjusted to include properties and other
investment interests at fair value and to exclude certain items not
expected to crystallise in a long-term investment property business
model.
Purpose
Makes adjustments to IFRS NAV to provide stakeholders with the
most relevant information on the fair value of the assets and
liabilities within a true real estate investment company with a
long-term investment strategy.
September March
2018 2018
Calculation of EPRA Net Asset Value GBPm GBPm
-------------------------------------------------------------- ---------- ----------
NAV per the financial statements 864.3 892.4
Effect of exercise of options, convertibles and
other equity interests (diluted basis) 1.8 1.8
Diluted NAV, after the exercise of options, convertibles
and other equity interests 866.1 894.2
Exclude:
Fair value of financial instruments (3.0) (3.3)
Deferred tax 1.6 -
EPRA NAV 864.7 890.9
--------------------------------------------------------------- ---------- ----------
Fully diluted number of shares 305.7 305.3
EPRA NAV per share 283p 292p
--------------------------------------------------------------- ---------- ----------
C. EPRA NNNAV per share: 284p
Definition
EPRA NAV adjusted to include the fair values of (i) financial
instruments, (ii) debt and (iii) deferred taxes.
Purpose
Makes adjustments to EPRA NAV to provide stakeholders with the
most relevant information on the current fair value of all the
assets and liabilities within a real estate company.
September March
2018 2018
Calculation of EPRA Triple Net Asset Value (NNNAV) GBPm GBPm
-------------------------------------------------------- -------------- ----------
EPRA NAV 864.7 890.9
Include:
Fair value of financial instruments 3.0 3.3
Fair value of debt 3.1 (0.3)
Deferred tax (1.6)
-------------------------------------------------------- -------------- ----------
EPRA NNNAV 869.2 893.9
-------------------------------------------------------- -------------- ----------
Fully diluted number of shares 305.7 305.3
-------------------------------------------------------- -------------- ----------
EPRA NNNAV per share 284p 293p
D. EPRA NIY: 7.3%, EPRA 'topped-up' NIY: 7.8%
Definition
The basic EPRA NIY calculates the annualised rental income based
on the cash rents passing at the balance sheet date, less
non-recoverable property operating expenses, divided by the market
value of the property, increased with (estimated) purchasers'
costs.
In respect of the 'topped-up' NIY, an adjustment to the EPRA NIY
in respect of the expiration of rent-free periods (or other
unexpired lease incentives such as discounted rent periods and step
rents).
Purpose
A comparable measure for portfolio valuations to assist
investors in comparing portfolios.
September March
2018 2018
Calculation of EPRA NIY and 'topped-up' NIY(1) GBPm GBPm
----------------------------------------------------------- --------- -------------- ------------
Investment property - wholly owned 1,361.5 1,226.3
Investment property - share of JVs/Funds 12.2 12.4
Trading property (including share of JVs)
Less: developments (92.4) (78.7)
---------------------------------------------------------------------- -------------- ------------
Completed property portfolio 1,281.3 1,159.9
Allowance for estimated purchasers' costs and capital
expenditure allowed for 92.4 76.3
Gross up completed property portfolio valuation B 1,373.7 1,236.3
Annualised cash passing rental income 111.1 95.4
Property outgoings (10.7) (11.1)
Annualised net rents A 100.4 84.3
Add: notional rent expiration of rent free periods
or other lease incentives(2,3) 6.3 4.5
Topped-up net annualised rent C 106.7 88.8
EPRA NIY A/B 7.3% 6.8%
----------------------------------------------------------- --------- -------------- ------------
EPRA 'topped-up' NIY C/B 7.8% 7.2%
----------------------------------------------------------- --------- -------------- ------------
E. EPRA Vacancy rate: 4%
Definition
Estimated Market Rental Value (ERV) of vacant space divided by
ERV of the whole portfolio, excluding pub and development
assets.
Purpose
A 'pure' (%) measure of investment property space that is
vacant, based on ERV.
September March
2018 2018
Calculation of EPRA Vacancy Rate GBPm GBPm
---------------------------------------------------- --------- -------------- ----------
Estimated Rental Value of vacant retail space A 3.1 2.8
Estimated rental value of the retail portfolio B 83.2 80.1
EPRA Vacancy Rate A/B 4% 3%
---------------------------------------------------- --------- -------------- ----------
Alternative Performance Measures (APMs)
In addition to information contained in the Group financial
statements, Alternative Performance Measures ('APMs'), being
financial measures which are not specified under IFRS, are also
used by management to assess the Group's performance. These include
a number of the financial statistics included on page 2 of this
document. These APMs include a number of European Public Real
Estate Association ('EPRA') measures, prepared in accordance with
the EPRA Best Practice Recommendations reporting framework. We
report these because management considers them to improve the
transparency and relevance of our published results as well as the
comparability with other listed European real estate companies.
The table below identifies the APMs used in this statement and
provides the nearest IFRS measure where applicable, and where in
this statement an explanation and reconciliation can be found.
APM Nearest IFRS measure Explanation and reconciliation
Funds From Operations Profit for the year after Note 7 of the Financial Statements
('FFO') and FFO per taxation and page 17 of this document
share
------------------------------ ---------------------------------------
EPRA Net Asset Value Net Assets Note 7 of the Financial Statements
('NAV') and EPRA NAV and page 20 of this document
per share
------------------------------ ---------------------------------------
Dividend cover N/A Glossary and page 19 of this
document
------------------------------ ---------------------------------------
Admin cost ratio N/A Glossary
------------------------------ ---------------------------------------
Interest cover N/A Glossary and page 2 of this
document
------------------------------ ---------------------------------------
EPRA EPS IFRS Basic EPS Note 7 of the Financial Statements
------------------------------ ---------------------------------------
EPRA NNNAV Net Assets Page 43 of this document
------------------------------ ---------------------------------------
EPRA NIY N/A Page 43 of this document
------------------------------ ---------------------------------------
EPRA 'topped-up' NIY N/A Page 43 of this document
------------------------------ ---------------------------------------
EPRA Vacancy Rate N/A Page 44 of this document
------------------------------ ---------------------------------------
Total Accounting Return N/A Glossary and page 2 of this
document
------------------------------ ---------------------------------------
Cost of debt N/A Page 2 of this document
------------------------------ ---------------------------------------
Average debt maturity N/A Page 2 of this document
------------------------------ ---------------------------------------
Loan to Value N/A Page 2 of this document
------------------------------ ---------------------------------------
Glossary
Admin cost ratio: Is the Group's share of net administrative
expenses (including its share of JV administrative expenses)
divided by the Group's share of property income (including its
share of JV property income).
Average debt maturity: Is measured in years, when each tranche
of Group debt is multiplied by the remaining period to its maturity
and the result is divided by total Group debt in issue at the
period end.
Balance sheet gearing: Is the balance sheet net debt divided by
IFRS net assets.
Book value: Is the amount at which assets and liabilities are
reported in the financial statements.
Cost of debt: Is the Group loan interest and derivative costs at
the period end, divided by total Group debt in issue at the period
end.
Dividend cover: Funds From Operations per share divided by
dividend per share declared in the period.
EPRA: Is the European Public Real Estate Association.
EPRA earnings: Is the IFRS profit after taxation excluding
investment property revaluations, fair value adjustments on
derivatives and gains/losses on disposals.
EPRA net assets (EPRA NAV): Are the balance sheet net assets
excluding the mark to market on effective cash flow hedges and
related debt adjustments, deferred taxation on revaluations and
diluting for the effect of those shares potentially issuable under
employee share schemes.
EPRA NAV per share: Is EPRA NAV divided by the diluted number of
shares at the period end.
ERV growth: Is the change in ERV over a period on our investment
portfolio expressed as a percentage of the ERV at the start of the
period. ERV growth is calculated monthly and compounded for the
period subject to measurement, as calculated by MSCI Real Estate
(formerly named IPD).
Estimated rental value (ERV): Is the external valuers' opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
Footfall: Is the annualised number of visitors entering our
shopping centre assets.
Funds From Operations: Is a measure of cash profits which
includes realised recurring cash profits, realised cash profits or
losses on the sale of properties and excludes other one off or
non-cash adjustments.
Group: Is NewRiver REIT plc, the Company and its subsidiaries
and its share of joint ventures (accounted for on an equity
basis).
Head lease: Is a lease under which the Group holds an investment
property.
IAS/IFRS: Is the International Financial Reporting Standards
issued by the International Accounting Standards Board and adopted
by the EU.
Income return: Is the income derived from a property as a
percentage of the property value.
Interest cover: Is the number of times net interest payable is
covered by underlying profit before net interest payable and
taxation.
Interest-rate swap: Is a financial instrument where two parties
agree to exchange an interest rate obligation for a predetermined
amount of time. These are used by the Group to convert
floating-rate debt obligation or investments to fixed rates.
MSCI Real Estate: MSCI Real Estate (formerly Investment Property
Databank Ltd or 'IPD') produces independent benchmarks of property
returns and NewRiver portfolio returns.
Joint venture: Is an entity in which the Group holds an interest
on a long-term basis and is jointly controlled by the Group and one
or more ventures under a contractual arrangement whereby decisions
on financial and operating policies essential to the operation,
performance and financial position of the venture require each
joint venture partner's consent.
Leasing events: Long-term and temporary new lettings, lease
renewals and lease variations within investment and joint venture
properties.
LIBOR: Is the London Interbank Offered Rate, the interest rate
charged by one bank to another for lending money.
Like-for-like ERV growth: Is the change in ERV over a period on
the standing investment properties expressed as a percentage of the
ERV at the start of the period.
Like-for-like footfall: Is the movement in footfall against the
same period in the prior year, on properties owned throughout both
comparable periods, aggregated at 100% share.
Like-for-like net income: Is the change in net income on
properties owned throughout the current and previous periods under
review. This growth rate includes revenue recognition and lease
accounting adjustments but excludes properties held for development
in either period, properties with guaranteed rent reviews, asset
management determinations and surrender premiums.
Loan to Value (LTV): Is the ratio of gross debt less cash,
short-term deposits and liquid investments to the aggregate value
of properties and investments. LTV is expressed on a proportionally
consolidated basis.
Mark to market: Is the difference between the book value of an
asset or liability and its market value.
Net equivalent yield (NEY): Is the net weighted average income
return a property will produce based upon the timing of the income
received. In accordance with usual practice, the equivalent yields
(as determined by the external valuers) assume rent received
annually in arrears and on values before deducting prospective
purchaser's costs.
Net initial yield (NIY): Is the current annualised rent, net of
costs, expressed as a percentage of capital value, after adding
notional purchaser's costs.
Net rental income: Is the rental income receivable in the period
after payment of ground rents and net property outgoings. Net
rental income will differ from annualised net rents and passing
rent due to the effects of income from rent reviews, net property
outgoings and accounting adjustments for fixed and minimum
contracted rent reviews and lease incentives.
NRR share: Represents the Group's ownership on a proportionally
consolidated basis.
Passing rent: Is the gross rent, less any ground rent payable
under head leases.
Pre-let: A lease signed with an occupier prior to the completion
of a development.
Pre-sale: A sale exchanged with a purchaser prior to completion
of a development.
Promote: A share of returns received by one party in a joint
venture that is higher than its equity share, reflecting that
party's role as operator
Property Income Distribution (PID): As a REIT the Group is
obliged to distribute 90% of the tax-exempt profits. These
dividends, which are referred to as PIDs, are subject to
withholding tax at the basic rate of income tax. Certain classes of
shareholders may qualify to receive the dividend gross. See our
website (www.nrr.co.uk) for details. The Group can also make other
normal (non-PID) dividend payments which are taxed in the usual
way.
Real Estate Investment Trust (REIT): Is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK property rental income and gains on
investment property disposals from corporation tax.
Rental value growth: Is the increase in the current rental
value, as determined by the Company's valuers, over the 12-month
period on a like-for-like basis.
Retail occupancy rate: Is the estimated rental value of let
units expressed as a percentage of the total estimated rental value
of the portfolio, excluding development properties.
Reversion: Is the increase in rent estimated by the external
valuers, where the passing rent is below the estimated rental
value. The increases to rent arise on rent reviews, letting of
vacant space and expiry of rent-free periods.
Reversionary yield: Is the anticipated yield, which the initial
yield will rise to once the rent reaches the estimated rental
value.
Risk-controlled development pipeline: Is the combination of all
development projects that the Company is currently pursuing or
assessing for feasibility. Our risk-controlled approach means that
we will not commit to a new development unless we have pre-let or
pre-sold at least 70% by area.
Tenant (or lease) incentives: Are any incentives offered to
occupiers to enter into a lease. Typically the incentive will be an
initial rent-free period, or a cash contribution to fit-out or
similar costs. Under accounting rules the value of lease incentives
given to tenants is amortised through the Income Statement on a
straight-line basis to the lease expiry.
Total Accounting Return (TAR): Is the increase or decrease in
EPRA NAV per share plus dividends paid in the period, expressed as
a percentage of EPRA NAV per share at the beginning of the
period.
Total Property Return (TPR): Is calculated as the change in
capital value, less any capital expenditure incurred, plus net
income, expressed as a percentage of capital employed over the
period, as calculated by MSCI Real Estate (formerly IPD). Total
property returns are calculated monthly and indexed to provide a
return over the relevant period.
Total Shareholder Return (TSR): Is calculated by the growth in
capital from purchasing a share in the Company assuming that the
dividends are reinvested each time they are paid.
Voids: Are expressed as a percentage of ERV and represent all
unlet space, including voids where refurbishment work is being
carried out and voids in respect of pre-development properties.
Temporary lettings of up to 12 months are also treated as
voids.
Weighted average lease expiry (WALE): Is the average lease term
remaining to first break, or expiry, across the portfolio weighted
by rental income. This is also disclosed assuming all break clauses
are exercised at the earliest date, as stated. Excludes short-term
licences and residential leases.
Yield on cost: Passing rents expressed as a percentage of the
total development cost of a property.
Yield shift: Is a movement (usually expressed in basis points)
in the equivalent yield of a property asset.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKDDDABDKQDB
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