Newriver REIT Plc Annual Report and Accounts 2018
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& Annual Report 2018 Accounts and NewRiver REIT plc Annual Report and Accounts 2018 NewRiver REIT plc (‘NewRiver’) is a Premium Listed REIT on the Main Market of the London Stock Exchange and a constituent of the FTSE 250 and EPRA indices. Founded in 2009, we specialise in buying, managing, developing and recycling convenience-led, community-focused retail and leisure assets. Our high-quality and conveniently located portfolio provides value for money on essential goods and services to consumers across the UK, and our affordable rents and high footfall locations create desirable and profitable trading opportunities for our occupiers. It is our fundamental belief that affordability for occupiers, and not lease length, means sustainability for our business. With an experienced management team and proven business model, we have a track record of delivering growing and sustainable cash returns to our shareholders and creating thriving communities across the UK. CONTENTS Strategic Report Financial Highlights IFC Our Business at a Glance 04 Chairman’s Review 08 Our Business Model 10 Our Marketplace 12 Leveraging our Key Relationships 16 CEO Review 18 OUR FINANCIAL HIGHLIGHTS Our Strategy 24 Our KPIs 26 Property Review 32 Gross income Funds From Operations Financial Review 56 (proportionally consolidated) Our People 68 ESG Report 69 Risk Management Report 74 £107.0m £60.3m Governance FY17: £106.7m FY17: £58.2m Board of Directors 78 Corporate Governance Report 80 Audit Committee Report 85 FFO per share Ordinary dividend per share Nomination Committee Report 89 Remuneration Committee Report 92 Directors’ Report 109 21.2p 21.0p Financial Statements FY17: 24.9p FY17: 20.0p Independent Auditor’s Report 113 Consolidated Statement of Comprehensive Income 122 Consolidated Balance Sheet 123 Portfolio valuation IFRS net assets Consolidated Cash Flow Statement 124 Consolidated Statement of Changes in Equity 125 Notes to the Financial Statements 126 £1.2bn £892.4m Glossary 162 Company Information 164 FY17: £1.1bn FY17: £684.5m WE ARE SPECIALISTS IN p2 & RETAIL AND LEISURE ASSETS WE ARE POSITIONED IN p6 SUB-SECTORS WE MEET THE NEEDS OF UK p14 WE HAVE A WELL p30 PORTFOLIO WE HAVE THE FINANCIAL p54 TO GROW WE ARE INVESTED AT THE p66 OF COMMUNITIES NewRiver REIT plc Annual Report and Accounts 2018 1 WE ARE SPECIALISTS IN RETAIL AND LEISURE ASSETS Our retail and leisure assets are conveniently located in the heart of communities across the UK. The consumer spend at our assets typically involves instant fulfilment on low value essential items or a face-to-face service, so is defensive in nature as well as being inherently resilient to the growth of online retailing. Convenience spend E • Requires instant fulfilment and is often essential in nature S C C • Is low value, high frequency with a low dwell time K N O R P • Increasingly involves fulfilment of an online order through click & collect, an area E SHOPPING M I A of the retail market which is forecast to grow by 56% in the next five years* U P N M • Occupiers commonly include grocery, discounter, value clothing, coffee, grab & B E L S U go food, retail banks, health & beauty, budget gym I V A N T N CONVENIENCE I T E Convenience location O Y R • Assets are usually located near to where shoppers work or live or between the C two (e.g. edge of town retail park) • Assets are easily accessible and typically offer free parking in close proximity Convenience asset classification • Shopping centres, convenience stores, retail parks * Source: GlobalData (January 2018), Retail Market Growth Forecast 2017 – 2022e 2 NewRiver REIT plc Annual Report and Accounts 2018 & REPORT STRATEGIC Our assets either display both convenience and community characteristics (shopping centres and convenience stores) or strongly display one (convenience – retail parks) or the other (community – pubs). Community spend E S • Is often linked to a service and requires a face to face interaction C C K • Tends to be complementary to convenience spend, and a trip to an asset such O N R P as a shopping centre (or a pub with adjacent c-store) will often include a mix of E CENTRES M I A U convenience and community spend P N M B • Community services include, civic amenities such as GP surgery, dentists, E L S U I libraries and town halls. Also services that cannot be provided online, such as V A N opticians, hairdressers, nail bars, laundrettes, cobblers, post offices, coffee shops T N STORES I and pubs. T E O Y R C Community location • In the heart of the community, walking distance from residential neighbourhoods • Adjacent to public transport links and civic services Community asset classification • Shopping centres, convenience stores, pubs NewRiver REIT plc Annual Report and Accounts 2018 3 OUR BUSINESS AT A GLANCE OUR DIVERSIFIED PORTFOLIO Since the Company was founded in 2009 we have hand-picked a high quality and geographically diversified portfolio of assets spread across the UK, comprising shopping centres, retail parks, convenience stores and pubs. Our assets cater for the day-to-day needs of consumers, occupiers and communities. Our retail portfolio Invested in over 60 towns across the UK 33 Shopping centres Acquired remaining 50% share in four community shopping centres for £59.4m Exchanged conditional contracts for pre-sale of entire residential element of Burgess Hill regeneration Obtained planning consent for 236,000 sq ft mixed use development scheme in Cowley, Oxford 20 Retail parks (2 development sites) Acquired two retail parks for £26.5m On-site at 62,000 sq ft Canvey Island Retail Park development 20 Convenience stores 10 further c-stores delivered to Co-op triggered £1.5m performance receipts Our community pub portfolio N o 331 pubs r th throughout the UK North East 9% t s e North West 16% W East of England 6% 11% East Midlands 19% Net initial yield South East 5% at 31 March 18 South West 10% West Midlands 28% Wales 7% E £1.1m a s t of Capex spent on h t 55 pubs during the year u o S 4 NewRiver REIT plc Annual Report and Accounts 2018 Well positioned portfolio Well diversified income REPORT STRATEGIC £1.2 billion Top 10 occupiers (% Total rent roll) (FY17: £1.1 billion) s Co -store nven & c ien s ce ub & P c o m m u n i t y f o 2.2% 2.1% c u s e d r e t a i l 1.9% 1.8% Shopping centres 65% Retail parks 13% High street (Big Boxes) 2% Development 7% Pubs & convenience stores 13% Consistently high retail occupancy 1.7% 1.5% 97% 97% 96% 96% 95% 94% 1.5% 1.5% FY13 FY14 FY15 FY16 FY17 FY18 Affordable retail rents Resilient shopping (per square ft) centre footfall £12.36 146m 1.4% 1.4% NewRiver REIT plc Annual Report and Accounts 2018 5 WE ARE POSITIONED IN SUB‑SECTORS Our £1.2 billion convenience & community focused portfolio has been hand-picked over the last nine years and so is deliberately positioned in the most sustainable sub-sectors of the UK retail market, with grocery, convenience stores, value clothing, health & beauty and discounters forming the core of our portfolio. Typically our occupiers operate a high volume and low value business model, and so they are inherently resilient to the growth of online retailing. In fact, the discount sector*, to which we have a material weighting, is forecast to grow by 36% over the next five years** driven by the shift in consumer behaviour towards value for money and frequent spend on everyday essential items. This is ahead of the 33%** expected growth in online over the same period. The online growth rate excludes click & collect, which is forecast to increase by 56%**, and which we believe will benefit NewRiver given our retail park portfolio and convenient locations. Importantly, we have limited exposure to retail sub-sectors which we see as structurally challenged due to changing consumer shopping habits and the growth of online. These include mid-market fashion (3.1% of our total income) and department stores (just 0.1% of our total income). * For example: B&M, Home Bargains, Poundland, Lidl, Aldi ** Source: GlobalData (January 2018), Retail Market Growth Forecast 2017 – 2022e 6 NewRiver REIT plc Annual Report and Accounts 2018 STRATEGIC REPORT STRATEGIC We are focused on growing retail sub-sectors, including discounters which are forecast to grow by more than online retail over the next five years** £375bn +15% £327bn NRR focus 134 +15% Food & grocery 117 13 +11% Value clothing 12 32 +36% Discounters 24 21 +14% Health & beauty 18 105 +1% Other physical retail 104 9 +56% Click & collect 6 61 Online 46 +33% 2017 2022e NewRiver REIT plc Annual Report and Accounts 2018 7 CHAIRMAN’S REVIEW I am pleased to report NewRiver REIT’s financial results for the year ending 31 March 2018. Our first full year of operation as a FTSE 250 Footfall across the NewRiver shopping centre company demonstrated the strength of our business portfolio decreased by 0.9% compared to an overall model in a challenging environment for UK real fall in the benchmark of 2.2%. Occupancy was estate. Our convenience-led, community-focused resilient at 97% and average retail rents remained portfolio of assets delivered strong relative affordable for retailers, at £12.36 per sq ft. performance in what was, in aggregate, a difficult NewRiver continued to be active in both equity 12 months for the consumer and some UK retailers. and debt capital markets over the reporting period, In particular, our focus on value-led retailers, paying raising £1 billion in total.