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Pimco jumps into NewRiver

Value-retail landlord NewRiver has formed a joint venture with the US investment giant to buy five shopping centres from Zurich Assurance
December 21, 2012

Aim-listed landlord NewRiver Retail (Aim: NRR) has formed a joint venture with a subsidiary of Pimco, the world's largest bond investor, to invest in value shopping centres across Britain. The new vehicle will be seeded with a portfolio of five malls - in Leamington Spa, Cowley, Kilmarnock, Bridlington and Hull - which it has bought from Zurich Assurance for £85m.

IC TIP: Buy at 208p

To fund its 10 per cent share of the joint venture, NewRiver Retail has sold LVS, a subsidiary of value investor Pimco Bravo, 2.95m shares for 165p each. LVS will end up with a 9 per cent stake in NewRiver as well as its 90 per cent share of the joint venture. Bravo, short for Bank Recapitalisation and Value Opportunities, has historically targeted distressed US banks; this is its maiden investment in European property.

NewRiver was formed by seasoned property entrepreneur David Lockhart in late 2009, after the first leg of the property crash, to buy up high-yielding retail property. It focuses on sectors that should do well in tough economic times - discounters, pharmacies and down-market clothes shops. The acquisition from Zurich ticks these boxes, with key tenants including BHS, Boots, Sainsbury’s, Poundland and Wilkinson. The rental yield on the acquisition is 9.7 per cent - more than double the company's cost of debt. NewRiver will manage the joint-venture properties in exchange for an annual fee of £400,000, which should boost its return on capital.

Operationally, NewRiver's strategy has proved successful - thanks to high occupancy and low rents, its portfolio fell just 0.5 per cent in value over the six months to 30 September, compared with 2 per cent for the shopping-centre benchmark. But it has met with scepticism from the market, which has given all owners of secondary property a wide birth over the past two years. The shares floated at 250p and now trade at 208p.