NewRiver dares to grow again

For a long time, talk of a NewRiver REIT (NRR) recovery had been theoretical. However, the retail landlord’s most recent results reveal that there really could be good times ahead for this real estate investment trust (Reit).

Not that the market reacted accordingly. The shares plunged 11 per cent on the day of its results, but the long-term trend is more promising with the shares trending upwards since the pandemic caused them to fall off a cliff at the start of the outbreak.

All of this is an indication of what chief executive Allan Lockhart knows all too well: that a revival – albeit a gradual one which is likely to be buffeted by inflation – is under way. “We are optimistic about our future prospects and our strategic aim to deliver consistent 10 per cent total accounting returns, even though it is clear that UK economic growth is slowing due to high inflation and monetary and fiscal tightening,” he says.

If shareholders wanted the company to point to one reason for this turnaround in fortunes, NewRiver would no doubt mention its decision to sell its pub business. Those partial to a tipple might be disappointed to see the Reit’s lack of faith in the Great British boozer, but the sale has helped generate £224mn in much-needed cash for its coffers. The sale completed in August 2021 at a time when it looked like the sector might recover due to a speedy vaccine rollout, yet the rise of the omicron variant helped validate NewRiver’s decision. Lockhart says that the Reit would struggle to get the same price for that portfolio now, suggesting that the deal was a big win for the company.

NewRiver is not done selling assets, either. The company hopes to make a further £55mn of disposals this financial year. It also plans on spending another £14mn improving its assets. Its so-called ‘work out’ comprises nearly £90mn worth of shopping centre assets it either plans on shifting or “repositioning” in some way to make them more attractive.

The company has long maintained it wants to build “the most resilient retail portfolio in the UK”. While “resilient retail” is arguably an oxymoron – the sector is subject more than most to the whims of discretionary spending – the company has nevertheless managed to grow during a very tough economic period. If that does not at least there is some resilience to this Reit, nothing will. Hold.

Last IC View: Hold, 84p, 26 Nov 2021