Could a NewRiver recovery be on the way?

NewRiver (NRR) is once again an outlier in the listed real estate world – but this time, it’s for a good reason. After years of being one of the real estate investment trusts (Reits) most badly hit by downward property valuations – due to its heavy exposure to retail and shopping centre assets – the company has managed to swing to a pre-tax profit in its results for the six months to 30 September when many other Reits are posting big losses.

Those losses are primarily due to asset valuation drops as rising interest rates dampen buyer demand for real estate. But, in the words of its chief executive, NewRiver’s valuation has already been “very significantly rebased”. Put another way, the price of NewRiver’s retail buildings had already bottomed due to the well-documented struggles of physical retail over the past decade. As such, the company managed to post a mere £10.3mn portfolio loss and only a 1.5 per cent dip in EPRA net tangible assets (NTA) compared with the 12.2 per cent NTA nosedive which Londonmetric (LMP) posted this month.

Yet, NewRiver is far from booming. It posted only a marginal increase in net property income from £23.6mn last year to £23.7mn this year. And even that small increase could be wiped out by a forthcoming recession giving physical retailers yet another walloping. Meanwhile, although the valuation gain is positive, the prospect of future gains is uncertain when the direction of interest rates and investor appetite are so hard to predict in the current environment.

NRR trades at a significant discount to net asset value and a mere 9.2 times predicted forward earnings for 30 September next year, but its long-awaited recovery is by no means guaranteed. Hold.

Last IC view: Hold, 88.8p, 8 Jun 2022