NewRiver: shopping at your convenience

The property portfolio focuses on convenience shopping for non-discretionary goods – such as groceries – as well as community shopping centres and pubs.

With many consumers time-constrained, convenience stores are performing well, and demand from tenants means that occupancy remains high at 97 per cent. More generally, NewRiver's tenants tend to want to stay put because the rents it charges are very low – typically around one-third of the IPD average. This is shown by the 95 per cent retention rate at lease break or expiry.

As well as having a diverse tenant base, NewRiver has mostly avoided consumer trouble spots, such as department stores, mid-market fashion and casual dining. At its last results the company identified only 1 per cent of the rent roll as being at risk of entering company voluntary arrangements (CVAs) or administration.

The company's business model is also low-risk when it comes to increasing value through development. For example, it only started work on a 62,000 square feet (sq ft) retail park on Canvey Island in Essex after it had de-risked the venture by securing 75 per cent pre-let agreements. Planning consent has also been secured on a 236,000 sq ft mixed-use development scheme in Cowley, Oxford.

NewRiver also buys established shopping centres such as Bexleyheath and increases rental income by better use of the asset, including converting space over shops into apartments for rent. Such acquisitions have to meet strict criteria, the latest being Grays shopping centre in Essex bought for £20.2m. The metrics here are worth emphasising. The cost to buy the 4.7-acre site works out at £40 per sq ft, compared with a new-build cost of around £120 per sq ft. Levelling the site for residential use would immediately make it worth £30m. And the site has 32,000 sq ft of office space with permitted development rights for residential conversion, all just a 35-minute train ride from London's Square Mile. There is also plenty of room for extracting more value because average rents are just £9.62 per sq ft compared with £12.36 on the rest of its portfolio. Management works hard to encourage footfall at its centres with initiatives such as introducing multi-practice medical centres. So while average shopping centre footfall across the UK was down 2.2 per cent last year, visitor numbers at NewRiver's centres eased just 0.9 per cent.

NewRiver also owns 629 pubs, representing 19 per cent of its gross assets. Some of these have excess space that can be used to accommodate convenience stores, and an arrangement with the Co-op has already seen 20 such stores delivered, 13 of which were built on surplus land adjacent to existing pubs. These stores are all leased on a 15-year agreement, with retail prices index (RPI) linked uplifts, and on land acquired effectively at nil cost. Delivery of the 15th such store last year triggered the first performance receipt under the agreement of £1.5m.

Of the 629 pubs, 298 came with the acquisition in May of Hawthorn Leisure Holdings for £106.8m, representing a net initial yield of 13.6 per cent. Crucially, this included an established brand and pub management platform, which could be applied across the entire pub portfolio to bring significant scale-based synergies. And 40 of the properties have been identified as potential convenience store sites. Having acquired 202 pubs from Marston’s in 2013, it added 158 pubs from Punch Taverns in 2015. Using Hawthorn Leisure’s pub management platform is expected to realise synergies of around £3m a year.

To finance these acquisitions, NewRiver completed a £225m equity-raising in March 2017 and a further £300m through the issue of an unsecured bond. It also raised £430m of unsecured bank facilities. This has extended the debt maturity from 2.5 years to 7.9 years, while reducing the cost of debt from 3.5 per cent to 3.1 per cent. Gearing remains modest, however, with the loan-to-value ratio of 34 per cent adjusted for the Hawthorn acquisition.