NewRiver REIT plc Annual Report and Accounts 2017 Annual Report CONVENIENCE‑LED COMMUNITY‑FOCUSED Annual Report and Accounts 2017 INVESTING IN CONVENIENCE & COMMUNITY TO DELIVER GROWING AND SUSTAINABLE RETURNS NewRiver is one of the UK’s largest REITs focused on the dynamic convenience‑led retail and leisure sectors. Our high quality retail and leisure portfolio caters for the weekly needs of millions of UK wide shoppers, in turn creating desirable and profitable trading opportunities for our retail and leisure occupiers. We understand that affordability for occupiers means sustainability for our business. CONTENTS Strategic Report Governance Financial Highlights 01 Board of Directors 64 Our Marketplace 02 Corporate Governance Report 66 Our Business at a Glance 10 Audit Committee Report 72 Chairman’s Review 12 Nomination Committee Report 76 Chief Executive’s Strategic Review 14 Remuneration Committee Report 78 Our Business Model 18 Directors’ Report 102 Our Strategy 20 Financial Statements Our KPIs 22 Independent Auditor’s Report 106 Property Review 26 Consolidated Income Statement 114 Financial Review 48 Consolidated Balance Sheet 116 Risk Management 55 Consolidated Cash Flow Statement 117 Sustainability Review 58 Notes to the financial statements 119 Glossary 151 Other information IBC Visit our website to discover more about our business: www.nrr.co.uk NewRiver REIT plc Annual Report and Accounts 2017 FINANCIAL HIGHLIGHTS Strong track record Gross income Funds From Operations1 REPORT STRATEGIC (proportionally consolidated) £106.7m £58.2m 58.2 106.7 47.1 +52%* +83%* 74.9 46.7 20.9 25.2 19.9 9.5 5.2 FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 FFO per share Dividend per share2 24.9p 23.0p 23.0 +9%* +11%* 26.6 3.0 24.9 18.5 17.0 5.0 4.75 19.8 16.0 16.0 4.25 5.0 16.3 15.7 4.25 4.75 5.0 4.25 4.5 4.25 4.5 5.0 FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 Assets under management IFRS net assets £1.3bn £684.5m 1.3 689.9 684.5 +35%* 1.1 +71%* 0.8 0.6 339.7 0.4 239.6 79.8 FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 * Compound annual growth rate 1. Previously this measure was referred to as EPRA adjusted earnings 2. FY17 includes 3.0 pence per share of special dividend NewRiver REIT plc Annual Report and Accounts 2017 1 OUR MARKETPLACE CONVENIENCE AND VALUE RETAILERS DOMINATED 2016 STORE OPENINGS, ACCOUNTING FOR 69% OF ALL NEW STORES, WITH GROWTH EXPECTED TO CONTINUE Source: GlobalData 2 NewRiver REIT plc Annual Report and Accounts 2017 NEWRIVER’S POSITION OUR TOP 10 RETAILERS INCLUDES A STRONG MIX OF VALUE AND CONVENIENCE FOCUS % NewRiver rent 2.6% 2.4% 2.4% 2.4% 2.0% 2.0% 1.8% 1.7% 1.7% 1.7% Source: Company NewRiver REIT plc Annual Report and Accounts 2017 3 OUR MARKETPLACE IN-STORE SPEND IS FORECAST TO GROW +10% BY 2021, DRIVEN BY NON- DISCRETIONARY & CONVENIENCE SPEND Source: GlobalData 4 NewRiver REIT plc Annual Report and Accounts 2017 NEWRIVER’S POSITION OUR PORTFOLIO IS FOCUSED ON CONVENIENTLY POSITIONED COMMUNITY ASSETS 16% pubs 84% + c-stores convenience-led retail Source: Company NewRiver REIT plc Annual Report and Accounts 2017 5 OUR MARKETPLACE THE 55+ DEMOGRAPHIC IS FORECAST TO ACCOUNT FOR ALMOST 60% OF IN-STORE SALES GROWTH OVER THE NEXT 10 YEARS Source: Global Data 6 NewRiver REIT plc Annual Report and Accounts 2017 NEWRIVER’S POSITION OUR PORTFOLIO IS WELL-PLACED TO CAPTURE INCREASED SPEND FROM CHANGING DEMOGRAPHICS Age group vs customer percentage The 45+ demographic accounts for 64% of NewRiver’s portfolio 65+ 30% 55 – 64 18% 45 – 54 16% 35 – 44 12% 25 – 34 14% 18 – 24 10% Source: NewRiver/CACI Consumer Surveys 2017 NewRiver REIT plc Annual Report and Accounts 2017 7 OUR MARKETPLACE At the heart of the UK retail and leisure market Our convenience‑led, community‑ The UK retail market is forecast to grow focused retail and leisure portfolio with convenience-driven categories leading is ideally positioned to cater for the the way for physical spend non‑discretionary, essential needs of the UK consumer. Retail sales growth forecast Total retail spend Food & grocery Health & beauty 21.4 Retail represents 84% of our portfolio 18.0 15.4 8.8 10.5 10.9 and notwithstanding the uncertain 14.8 7.3 7.7 economic landscape, the UK retail 14,969 2,336 452 8,660 28,510 2,998 73,666 462 274 5,292 market is forecast to continue to grow, 14,410 28,100 56,478 301 169,225 2,473 41,771 317,963 154,137 147 with convenience‑driven categories 297,288 10,086 1,500 23,355 270,811 131,388 dominating total physical store spend. 19,826 In 2016, convenience and value retail operators accounted for the greatest share of new store openings. 2016 2021 2026 2016 2021 2026 2016 2021 2026 Moreover, the physical store continues to £317.9bn £362.4bn £406.6bn £141.8bn £169.0bn £200.1bn £21.5bn £26.1bn £31.6bn be fundamental to the retail mix, with the Sales through physical stores (£m) Online sales, with click & collect fulfilment (£m) top 10 multichannel retailers accounting Online sales, with home delivery (£m) Online Penetration (%) for nearly 50% of total online sales. Source: GlobalData • In 2016, total retail spend in the UK was £317.9bn, with physical sales Our portfolio and click & collect accounting for £276.1bn of total spend. • By 2021 total retail spend is forecast to increase to £362.4bn, with physical res -sto and click & collect sales accounting for £305.9bn, an increase of 11%. d c an • By 2026 total retail spend is forecast to increase to £406.6bn, s b u with physical and click & collect sales accounting for £332.9bn, P a further increase of 9%. • Although online penetration is forecast to increase from 14.8% to 18.0% by 2021 (and to 21.4% in 2026), convenience‑driven/non‑discretionary spend is forecast to remain resilient to the growth of online and has the strongest growth prospects across retail over the coming years. l i a t This high-volume convenience-led spend is e R d well served by our portfolio le - e c NewRiver Income Profile n e Grocery & Convenience 12% ni 67% e nv Value Fashion 12% Co of NewRiver’s income Discount & Value 11% is generated by convenience & Shopping centres 61% Health & Beauty 7% community Retail warehouses 14% Banks 1% High street (Big Boxes) 4% Food & Beverage 1% Retail development 5% Community pubs 19% Pubs and convenience stores 16% Convenience & Community 67% 8 NewRiver REIT plc Annual Report and Accounts 2017 STRATEGIC REPORT STRATEGIC Forecast growth in retail spend is Convenience and value retailers underpinned by changing demographics continue to expand The 55+ age-group is set to account for 57.5% of all store and click & collect sales growth over the next ten years Top 30 retailers by store openings 2016 split Spend growth by age 2016-2026 by sector Value 38.6% Convenience 30.3% +£5bn +£6.1bn +£13bn +£3bn +£15.1bn +£22.1bn Home 10.3% 25 – 34 45 – 54 65+ 9.4% 5.4% 34.1% Other 20.8% 18 – 24 35 – 44 55 – 64 7.7% 20.1% 23.4% Source: GlobalData Source: GlobalData • Between 2016 and 2026, GlobalData forecasts that a further £64.7bn • Bucking the trend for margin depletion over will be added to the retail market due to sales made either in store or the past decade or so, the store‑only value through click & collect. Of this, 57.5% will come from shoppers aged retailers, including B&M and Home Bargains, 55 and over. have historically performed well in challenging • The under 35s are less financially mobile than their older generations, economic environments. These retailers have suffering lower disposable incomes, reduced car ownership and successfully expanded, maintaining healthy significant barriers to getting on to the property ladder. operating margins, and are looking to continue to expand. • The ageing of the comparatively asset‑rich, baby‑boomer generation, means that spending and, in particular, spending through stores and click & collect, is set to be driven by the baby‑boomers. Our portfolio is well-placed to capture spend Our portfolio is well-placed to from changing demographics capture the growth in value retail • With 64% of shoppers across NewRiver’s portfolio in 2017 aged 45 and NewRiver’s top 10 retailers is comprised of over, NewRiver is well placed to benefit from this key growth segment robust, expanding convenience and value of the population over the next ten years. led retailers. • Older shoppers appreciate the ease of access and free parking offered by retail parks, which now constitute 14% of the NewRiver portfolio. NewRiver Shopper Age Profile 18 − 24 25 − 34 35 − 44 45 − 54 55 − 64 65+ 10% 14% 12% 16% 18% 30% Source: NewRiver/CACI Consumer Surveys 2017 NewRiver REIT plc Annual Report and Accounts 2017 9 OUR BUSINESS AT A GLANCE A convenience-led, community-focused portfolio We invest in convenience & community to deliver secure and sustainable returns to our shareholders. Since the Company was founded in September 2009 we have hand‑picked a high quality and geographically diverse portfolio, catering to the day to day needs of our consumers, occupiers & communities. Our retail portfolio Invested in over 60 towns across the UK 33 Shopping centres 1. Leith, Edinburgh 12. Hull 23. Oxford 2. Paisley 13. Wakefield 24. Cowley, Oxford 3. Newton Mearns 14.