NewRiver REIT

Description

NewRiver is a specialist real estate investment trust (REIT) that focuses on convenience-led and value-oriented areas of retail, where consumer spending trends tend to be more stable. It is an active owner and manager of its property estate, investing to redevelop its assets in order to improve their long-term earnings potential.

The company’s portfolio has limited exposure to structurally challenged retail sub-sectors and extends to more than eight million square feet of leasable space, including more than 30 shopping centres, more than 20 retail warehouses and more than 600 pubs.

Investment case summary

The travails of the UK high street have weighed on the share price of many retail and property stocks in recent years, including NewRiver. The company’s property portfolio has allowed to deliver a consistently robust performance, however, which we believe should continue. Its retail assets are in areas where footfall has been consistently above the national average and rental incomes have been much more resilient because of the convenience-led offerings (frequent spend on everyday essentials) of its tenants. Meanwhile, the cost of rent is low as a proportion of its tenant’s revenues, resulting in very high occupancy and retention rates.

We hold NewRiver’s management team in high regard and have been impressed by their disciplined portfolio management: buying property at an attractive price, deploying capital in redevelopment projects that deliver an excellent long-term return and engaging in profitable capital recycling. For example, following the Hawthorne Leisure acquisition, the company has an opportunity to further expand and develop its pub portfolio.

With more than 2,000 leases with over 800 different occupiers, NewRiver has very diverse customer base and is not reliant on the fortunes of any one retailer. Meanwhile, it has a conservative, flexible, well-funded balance sheet and is very cash generative. The business is very well-positioned to deliver attractive, sustainably growing cash returns in the years ahead.

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Fund exposure
Income Focus Fund 4.84%
Equity Income Fund 3.05%

As at 31 October 2018

Segmentation
Geography United Kingdom
Industry Financials
Themes UK domestic exposure

Source: Woodford

Share Price

Market Quotes by TradingView

Commentary

Good performance

This morning saw NewRiver REIT release a decent set of interim results, illustrating a good performance despite continued headwinds in a challenging sector.

The net asset value of NewRiver’s portfolio declined by 1.9% year on year. A reduction in the value of the portfolio is not encouraging at face value. However, continued active management, risk-controlled development and residential initiatives should continue to counteract this trend. Whilst the main detractor has been shopping centres it is worth noting that occupancy rates in retail have been resilient, despite decreased footfall. NewRiver remains a very defensive asset in this challenging sector, and its diversification into pubs should provide further protection from retail headwinds.

The dividend is a key attraction to the stock – with a yield of 9.3% and modest but sustainable growth prospects, the dividend alone should provide shareholders with a low double-digit total return. However, the share price remains at a significant discount to the company’s net asset value and we believe, the prospect of even more attractive returns awaits us, as this discount ultimately narrows. Challenges in the sector may continue but we believe the business is very well positioned, with a strong management team that will continue to deliver solid cash returns moving forward.

Alex Correia
21 November 2018

Great set of results

A great set of annual results from NewRiver today, with the company continuing to make progress in new developments and in the asset management of existing assets, despite the antipathy towards retail-exposed REITs. A focus on retailers benefiting from frequent spend on everyday essentials, has served the company well over the course of this financial year and we would expect that to remain the case going forward.

The company has also announced the acquisition of Hawthorn Leisure, which looks like a great deal, at a great price. It’s paying £107m for 298 high quality community pubs with an initial yield of 13.6% and an opportunity to create further value through asset management. The prior deals of 202 pubs from Marstons and 158 from Punch have both been well-executed.

NewRiver REIT is so much more than just a holder of value-centric retail assets with large redevelopments providing exposure to leisure and residential assets. The portfolio is well-diversified and the pipeline is starting to deliver. In time, all of this will be recognised but, in the meantime, the company yields just shy of 8%, fully covered by cash.

Stephen Lamacraft
24 May 2018

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at www.fundinfo.com.

© 2018 Woodford Investment Management Ltd.
All rights reserved.

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