NewRiver Reit income prospects dim

The group’s tenant base is focused on value fashion, food and grocery, discount retail, health and beauty and grab-and-go-food. There is some merit to this in tough times. These types of retailers are less affected by wider economic conditions as they provide essential everyday goods and services, and are more resilient to the rise of e-commerce, either because they provide a face-to-face service that cannot be replicated electronically, or because online fulfilment would be too costly. What's more, rents are low at just £12.49 per square foot, making NewRiver's properties more affordable, and its space is 95.6 per cent occupied.

However, none of this makes NewRiver immune to the sector's wider travails. Indeed, CVAs and administrations have hit the landlord and contributed to a 3.5 per cent decline in like-for-like rental income during the first half. The company has also been struggling to agree new leases on terms much ahead of estimated rental values. And aside from its pubs portfolio, property values are under pressure, with the portfolio value registering a 3.3 per cent first-half decline to £1.26bn, which fed through to a 6.5 per cent reduction in net asset value (NAV) per share to 244p. 

Underlying funds from operations, a cash profit measure that excludes items such as gains or losses on revaluation of investment properties and disposal proceeds, dipped 1 per cent last year. Although it recovered 3 per cent during the first half, two quarterly dividend payments of 5.4p a share were only 80 per cent covered by underlying funds from operations. 

Management has put several measures in place in the hope of restoring full dividend cover by the end of the 2021 financial year. These include selling lower-yielding assets and recycling proceeds into higher-yielding assets, which will mainly be bought in joint ventures, and increasing fee income from managing assets held in joint ventures or by third parties. Following the £107m acquisition of the Hawthorn Leisure pubs business in May 2018, management also hopes the pub portfolio will help boost cash profits.