There's still hope for NewRiver recovery play

NewRiver (NRR) has adopted the retail landlord equivalent of 'pile it high; sell it cheap' with a mixed outcome. Charging affordable rents to get tenants into its buildings has worked to fill space, but it makes increasing those rents difficult unless its tenants leave.

As such, occupancy hit a record high of 98 per cent in its results for the six months to 30 September, while its rental income performance was weak. Asset sales meant gross and net rental income slumped 6.5 per cent and 9.3 per cent. Like-for-like net rental income nudged down 0.5 per cent, with the fall driven by the retail buildings in its 'work out' portfolio that it is trying to sell.

However, like-for-like net rental income increased £200,000 a year in its 'core' portfolio, and this heavily caveated slither of good news is significant. True, NewRiver posted a loss due to another devaluation. Yet, the plateauing of interest rates, record occupancy, and the marginal rent increase for the assets it wants to hold indicate there could be marginal but sustainable growth from here.

NewRiver is putting a small amount of money where its mouth is in this respect, opting to "temporarily increase our dividend payout" beyond its dividend policy because of its confidence in future returns. It still amounts to less than last year's dividend, but it's a good sign. So is the fact the company is looking to buy, having built up a pot of cash and identifying retail parks as a growth opportunity.

This stock remains cheap on a price-to-net asset value basis because of the years of false dawns for shopping centre landlords. But, barring another black swan event like Covid, we maintain our speculative recovery investment case for this stock. Buy.

Last IC view: Buy, 86p, 06 Jun 2023