NewRiver targets restarting fully-covered dividend

NewRiver Reit (NRR) has scrapped dividends for the first half but set the optimistic target of reinstating a payment covered by underlying funds from operations (FFO) at the full year in May. If the retail landlord is to fulfil that ambition, any dividend looks likely to be substantially below what shareholders have been used to. Underlying FFO - recurring cash profits minus one-off adjustments - fell by almost two-thirds during the six months to September due to pub closures and reduced rent collection. 

Occupancy within the retail and pub portfolio ticked-up, with almost 505,000 square/feet of space leased or renewed. Nearly 400,000 sq/ft of that was signed during the second quarter, which was more than double each quarter during the previous financial year. However, those were completed at an average discount of 2.7 per cent against March estimated rental values. 

At 48 per cent, the loan-to-value (LTV) ratio remains within touching distance of management’s policy of maintaining the ratio under 50 per cent. Further disposals are on the cards, with almost £72m exchanged or under offer since the end of March, which management expects to rise to £100m for the financial year. But analysts at Peel Hunt estimate that another £215m, equivalent to a fifth of the portfolio, would be needed to get back within LTV guidance of under 40 per cent. 

The group could withstand a further 20 per cent fall in the value of its portfolio and remain within covenants, but during the first half alone, the decline was just over 8 per cent. What’s more, falling rental values and further disposals will weigh on the level of dividend that management is able to declare upon the release of full-year results in May. Sell.