NewRiver REIT plc (NRR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to NewRiver's Full Year Results. I'm Allan Lockhart, Chief Executive; and I'm here today with Mark Davies, Chief Financial Officer. The last few months have been testing times, and I'd like to begin with a thank you to all our staff, occupiers and other stakeholders who have made such a huge effort to ensure that wherever possible, our retail assets have remained open, accessible and safe. The safety and well-being of our staff and all those who visit our properties is our top priority. There are 3 areas I'd like to focus on this morning. First and foremost, our robust performance for the financial year 2020. This is one of the toughest years I can remember for retailing with Brexit uncertainty, the general election and then in the final month of the year, the onset of COVID. I'm pleased that against this backdrop, we are reporting robust financial and operational metrics. Secondly, I want to explain the actions that we have taken during lockdown and the impact they have had. Finally, I'd like to outline the plans we have for the business as we emerge from lockdown and what the outcomes might be under different scenarios. We're going to split the presentation, as usual, with Mark covering off the financials and the review of the pub portfolio. The outcome for 2020, as I said earlier, was a very credible performance given the economic backdrop. UFFO came in at GBP 52.1 million, slightly below last year, although this also included GBP 2.8 million of lost income and provisions relating to COVID, without which we would have been in line. Our total dividend for the year was 16.2p, 105% covered by UFFO. We did not pay a fourth quarter dividend due to COVID. And given its ongoing impact, the Board has also decided not to pay one for the first quarter. We recognize the absolute importance of dividends to our shareholders, and it is our firm intention to resume payments as quickly as possible when conditions allow. Our EPRA NAV was 201p compared to 261p in the previous year, and the reduction was mainly due to a 12.3% decline in like-for-like valuations, with COVID accounting for around 1/3 of this. Finally, we ended the year with an LTV of 47%, an increase on the prior year due to disruption caused to our disposal program and valuations in the second half. This year, we aim to improve this to a level that is close to our internal guidance. And we are confident that as market liquidity improves, we can achieve this through our disposal program for FY '21. During the year, we made GBP 48.4 million of disposals, achieving over 75% of the target we set ourselves at the start of the year. We saw some great opportunities in the market, and we made GBP 102.3 million of acquisitions at a blended 9.5% yield, the majority of which was in our joint venture partnership with BRAVO. Our operational metrics remained strong with retail occupancy maintained around 95%. The key to our high occupancy is our average retail rent, which remained affordable and significantly lower than peers at GBP 12.66. We also completed 678,000 square feet of leasing on terms ahead of the previous passing rent, demonstrating that our assets are attractive to retailers where physical stores are critically important to them. Turning now to the impact of COVID and how we responded. We acted immediately to ensure the safety of our staff and occupiers, closing all nonessential stores and pubs. We also moved quickly to protect our liquidity position, drawing down on our RCF, suspending the dividend and stopping all nonessential CapEx. As a result of these actions, we have significant liquidity to remain compliant with all our financial covenants. Almost 40% of the retail occupiers have continued to trade throughout the lockdown, and 75% of rents have been collected or had alternative payment terms agreed. Our pub portfolio has been temporarily closed, and we've been working with our pub partners to ensure that they can access the government support they need. Most pub rents have been deferred, although we have seen an acceleration in rent collection in the last 2 to 3 weeks, and we have also submitted an insurance claim for business interruption. With pubs scheduled to reopen on July 4, we are well advanced with our preparation and expect a large part of the estate to open immediately. Pubs remain an attractive asset class, and we've completed 6 pub sales since the 1st of April. And finally, supporting our communities is at the heart of everything we do at NewRiver. And I was pleased that we're able to provide additional support for the very valuable work that our corporate charity partner, the Trussell Trust, is doing throughout this crisis. The impact of COVID on our retail portfolio has clearly been significant. However, as the chart on the left shows, almost 40% of our occupiers continued to trade throughout the lockdown, and all of our top 5 operators remained open. This is reflective of our portfolio positioning, focusing on essential goods and services provided to local communities and avoiding structurally challenged subsectors. I'm pleased to report that following the reopening of the nonessential stores on Monday, 60% of our retail portfolio is now open. The chart on the right-hand side shows that of the GBP 17.1 million of rent due for the first quarter of FY '21, 52% has already been collected; and for a further 23%, agreements have been reached with occupiers to recover the rent, either through deferrals, re-gears or a move to monthly payments. Negotiations continue with occupiers for the rent outstanding, but we are confident of higher collection rates as nonessential stores reopen, which started this week. The impact of the pandemic has been more marked on our pub business. Of the GBP 3.8 million of pub rents due for the first quarter of FY '21, we have already recovered around 1/3 and are confident of recovering a further 13%. For the rent outstanding, we will either waive rent as part of a conditional support grant provided to pub partners or pursue recovery through our insurance claim. We have taken significant action to minimize cost, pausing supply and distribution contracts, limiting CapEx and accessing government support where available. As you can see on this slide, we have modeled 5 different scenarios and their impact on FY '21 net property income compared to our forecast before COVID. In all scenarios, we also tested a valuation decline significantly in excess of that incurred in FY '20. At the beginning of lockdown, we expected our performance for FY '21 to be in line with scenario 4. However, as good progress has been made with rent collection and our reopening plans, we now expect FY '21 to be somewhere between scenario 2 and scenario 3. It is because of our strong cash and liquidity position, our unencumbered balance sheet and that we have no refinancing events until 2023, that even in a scenario with extreme cash flow and valuation disruption, we would still hold sufficient cash to comply with all our financial covenants in FY '21. Our portfolio is well positioned to cope with the impact of COVID, with over 2/3 of our retail assets anchored by a food and grocery retailer, most of them in spacious locations. Now that all nonessential stores are allowed to open, we expect our assets to bounce back faster due to their local characteristics. We expect the majority of our pubs to be open on the 4th of July. Given that over 70% of our pubs have outside space and are less focused on casual dining, our pubs are well positioned to benefit from the busy summer months. We entered FY '20 with some very strategic goals. As I said in my opening, we were looking to dispose of lower-yielding assets. And although we sold close to GBP 50 million in the period, this was short of our target. But I believe it was a good result given political and COVID uncertainty. We successfully recycled those proceeds into GBP 100 million of acquisitions, mainly through our BRAVO JV at a yield of over 9.5%. Through leveraging our asset management platform, we increased asset management fees by over 120%, and we expect those figures to continue to improve. Through sharper asset management and operational efficiencies, once again, we were able to deliver progress through a significant reduction in service charges and leasing activity. Finally, we were targeting increased profitability in our pubs. Until the end of February, pub EBITDA was up by 5.9% and over 2.3% for the year as a whole. We also increased our number of pubs from 665 to 720. Overall, I'm pleased with the progress we have made. Our portfolio positioning and our strategies were already ideally placed for a market undergoing structural change, and COVID will likely accelerate those changes. It is clear that a significant amount of existing retail space in the U.K. needs to be repurposed, and we had been at the forefront of creating this change through advancing mixed-use schemes in town centers such as in Grays, which I will talk about later. This year, we are targeting between GBP 80 million and GBP 100 million of asset disposals, and we're already off to a good start with GBP 30 million either completed, exchanged or under offer. We see a significant opportunity to grow our capital partnerships, principally through our joint venture partnership with BRAVO, to acquire assets at attractive prices. We also believe that the opportunity for public-private partnerships is going to be an important feature of the market going forward as local authorities and the U.K. Government look to regenerate town and city centers, and we're very well positioned to capitalize on that opportunity. Although pubs are slightly behind retail in reopening, they remain a highly attractive and liquid asset class and provide a range of opportunities to extract further value. We now have a market-leading pub management platform. And through our active asset management, development and disposals, we expect to continue to deliver attractive returns. With that, I'll now hand over to Mark.

Thank you, Allan, and good morning, everyone. I'm going to start by talking you through the financial review for the period, providing an update on our balance sheet and capital structure and then provide an update on our community pub business, Hawthorn Leisure. Our underlying funds from operations for the year were GBP 52.1 million compared to GBP 55.1 million in the prior year. This included GBP 2.8 million of lost income and provisions relating to COVID-19. So excluding that impact, our UFFO was in line. Admin expenses were GBP 19.8 million compared to GBP 16.2 million in the prior year. The increase related to the recognition of a full year of costs associated with Hawthorn, which was acquired only partway through the prior year; and the transfer of the management of our pubs from a third party to the Hawthorn Leisure platform, with the associated costs now being recognized as an admin cost rather than an operating expense. The increase in finance costs from GBP 18.7 million to GBP 22 million was mainly due to the implementation of IFRS 16, which added GBP 2.9 million. Our ordinary dividend was 16.2p for the year, and I'll talk about the dividend further in a moment. Turning now to our net property income bridge for the retail portfolio, which decreased from GBP 68.6 million to GBP 68.4 million during the year. Excluding the impact of IFRS 16, net property income actually reduced to GBP 65.5 million. A key driver of the increase was a GBP 3.5 million or a 6% decline in like-for-like income. CVAs and administrations accounted for just under 1/2 of this, with the remainder relating to our store closure programs, occupiers vacating or lower rents being negotiated at renewal. This reduction was offset by an additional GBP 0.6 million of asset management fees and GBP 0.4 million from our Canvey Island Retail Park development, which was completed in the prior year. Acquisitions, which comprise 6 retail parks and a retail park in a shopping center in the prior year, added GBP 4.8 million, while our disposal program led to a GBP 3 million reduction. GBP 0.9 million related to rent provisions required for retail rents that are deemed unlikely to be received as a result of the COVID-19 lockdown. Now looking at Hawthorn Leisure, where net income increased during the year from GBP 21.9 million to GBP 24.5 million. The main drivers of this were a GBP 2.2 million increase in like-for-like income driven by the scale-based synergies we achieved on integrating Hawthorn Leisure. A further GBP 2.3 million was added by the acquisition of Hawthorn and GBP 0.6 million from a portfolio of pubs from Star Pubs & Bars, both acquired in the prior year. The acquisition of Bravo Inns in December 2019 added a further GBP 0.7 million. And our active program of disposals and recycling capital in pubs, land and convenience stores reduced net property income by GBP 0.6 million. We then had GBP 1.6 million of rent and stock provisions, which mainly relate to rent unlikely to be collected and stock wastage resulted from COVID-19. The closure of our pubs in March had a further GBP 0.8 million impact, although, as I will explain later, we are initiating a number of measures to mitigate some of this loss. So overall, income increased by GBP 2.6 million, and it's pleasing to report positive like-for-likes during the year, demonstrating yet again sustainability and scalability of owning a wet-led community pub portfolio. Our total dividend for the year is 16.2p. This is a 25% reduction on the prior year and has arisen as a result of the Board's conservative decision on 19th March to not pay fourth quarter dividend for the year due to uncertainty around the impact of COVID. A high deal of uncertainty still remains as to the impact of COVID on our performance for the next 12 months, albeit the government guidelines to lifting lockdown are starting to provide more clarity. The Board has decided not to pay a dividend in respect of the first quarter of FY '21 and expects to reinstate the quarterly dividend as soon as possible. Our balance sheet remains very well positioned with our unsecured capital structure providing significant flexibility, headroom and the ability to navigate challenging market conditions. Our EPRA NAV per share reduced from 261p at March 31, 2019, to 201p, with 54p of the decline relating to a reduction in portfolio valuation. Our loan-to-value increased from 37% to 47%, which I will talk about further in a moment. Our balance sheet is unsecured and unencumbered. The company has, therefore, not had to have any engagement with its banks or bondholders on its balance sheet debt other than the usual and regular relationship meetings. The company has strong liquidity with GBP 177 million available, including cash reserves of GBP 82 million. The company has completed a number of important steps to improve liquidity and available resources during lockdown. Whilst loan-to-value at the 47% level remains safely below our covenant thresholds and our stated policy, our priority for the coming year will be to reduce LTV in line with our guidance of being below 40% through an active disposal program. This slide provides some further detail on headroom to our covenants. And as you can see, we could absorb significant further reductions in portfolio valuation and net property income before we would approach our covenant levels. It was pleasing that Fitch reaffirmed their rating in April 2020 at BBB+ with a stable outlook. Our income collection statistics, capital structure and exposure to essential goods and services were key factors in determining this successful outcome. Finally, this chart demonstrates our strong maturity profile and the flexibility that our debt maturity provides to us with no refinancing events required until 2023 and beyond and our GBP 300 million corporate bond not due for repayment until 2028. We refinanced the balance sheet of the company in 2018, moving to a completely unsecured debt structure. The company's timing and execution of this important milestone is a key factor in being able to ride the COVID storm and navigate through these uncertain times with a high degree of control over the timing and our ability to deliver on our strategies. Turning now to a review of our community pub business, Hawthorn Leisure, and my CEO update. It's been a great year for our pub business because we've been able to deliver like-for-like EBITDA growth, which was coming along very nicely at plus 5.9% before COVID arrived. We've lost a bit of growth and momentum at the back end of the year, but still finished up 2.3%. I would like to begin by touching briefly on our pub reopening plan, which we refer to internally as Project Bounce, and this is based around our 4 Ps business model, and the team are doing a great job in making sure we can bounce back stronger than ever. For our people, both staff and customers, we want to ensure the safest possible operating environment as businesses reopen, whether that be through risk assessments or provision of PPE. As a result of the support we have provided during lockdown, 75% of our tenants intend to open for business on the 4th of July, and 22% are awaiting publication of the government guidelines, and the majority we expect to open if they are allowed to. In terms of property, we want to optimize our portfolio for a post-COVID-19 environment, whether that be through focused and targeted CapEx, including the investment in outdoor space, risk-controlled development and selective disposals. We have already raised GBP 6.1 million from disposals since lockdown at or above book value. So this gives me great confidence in the underlying value of the portfolio. To strengthen our proposition, we are working very hard to ensure pub partners and tenants have all the guidance and equipment ready to ensure a smooth reopening, leveraging on the strong relationships we have with the brewers and the supply chain that continue to deliver our synergies. Our local wet-led proposition and strategy to focus on community pubs, we know, puts us in a good place to bounce back. And our research confirms that customers are more likely to stay local in a new normal environment. And last but not least, to ensure sustainability of earnings in the future, we are providing initial support measures, including a modest grant to ensure that our pubs can continue to be sustainable, growing businesses in the future and get back to positive like-for-like territory as quickly as possible and where we were in early March. All of this means we are well positioned for the reopening of our estate on the 4th of July, and we await government guidelines and confirmations. FY '20 was a busy and successful year for our community pub business, including the acquisition of 2 off-market portfolios at attractive income yields, which I will talk about in a moment; the continuation of our CapEx investment and development programs; and pursuing our capital recycling and disposal strategy for both pubs and convenience stores. All of this resulted in the overall growth of the portfolio from 665 to 720 community pubs, like-for-like EBITDA per growth of plus 5.9% up until COVID in March 2020 and continued high occupancy at 97%. It was a shame to see our portfolio valuation marked down at the end of the year because of COVID because we've had a very good history of valuation gains from buying well in our pub business and being able to add value. However, the valuer's basis for doing this is understood, and I'm sure we can get this value back at some point in the not-too-distant future. Looking at our acquisitions, we bought Bravo Inns in December 2019. It is a portfolio of 44 high-quality, well-managed and well-invested wet-led community pubs. We acquired it for GBP 17.9 million, representing a very attractive EBITDA multiple of 6.8x and yield on cost of 14%. All the pubs are operator-managed, which has grown Hawthorn Leisure's exposure to this attractive segment, providing opportunities to extract further growth through a higher degree of management control and synergy. We've all been very impressed with the quality of Bravo Inns since we bought the company, and its trading was in line with our expectations since acquisition, and a 14% yield is a good place to start. The quality of the people and focus on community in Bravo Inns is a real strong addition to our business, and I'm delighted that Ken Buckley, Founder and Chairman of BRAVO, has agreed to join the Hawthorn Board as a non-Executive Director. We will all benefit from Ken's wise counsel and more than 30 years in the U.K. pub industry. Our second acquisition was an off-market purchase of 28 pubs from Marston's. This is a really nice hand-picked portfolio of leased and tenanted sites, many of which like The Freemasons Arms in Droitwich on this slide provide asset management opportunities and often surplus land. Our group relationship with Marston's remains very strong, and we were pleased as a key customer of Marston's PLC to see their recent announcement of their joint venture with Carlsberg underpinning the value of the U.K. beer and pub sector and future investment in their supply and distribution platform, which we will benefit from. During the year, we continued our program of targeted capital investment projects aimed at enhancing the customer experience, further improving trade and increasing capital values. Since the acquisition of Hawthorn Leisure, we've completed 131 such projects at a total cost of GBP 6.1 million, which has delivered an average return on investment of 16.9%. Here, we show just 2 good examples of the great work that our teams have done. The Church Inn in Swinton is a popular community wet-led pub in Greater Manchester. In November 2019, the pub reopened after GBP 210,000 of extensive refurbishment work. Since reopening, the pub has seen a significant uplift in EBITDA, delivering a return on investment in excess of 70%. I know the team at The Church Inn have been working hard to ensure they are ready for reopening in a few weeks' time. The Goodrest Tavern in Worcester is another great case study. We made a handsome profit from building a new convenience store for the co-op in the pub carpark and reinvested some of the proceeds into a refurbishment of this excellent family community pub, installing a new entertainment space and a heated outside seating area, which will be open all year round. Throughout lockdown, this pub has been a hive of community activity as a collection and distribution point for donations to local charities, and that underscores the importance of these assets to local communities. Our team is keen to reopen the pub upon lifting lockdown and get back to providing such an important community hub in a residential neighborhood of Worcester that's surrounded by chimney pots with a large carpark and pub and convenience store complementing one another, providing convenience and community in one location. Another way we've always been good at extracting value in our pub estate is through risk-controlled development. Our c-store development program continued with success throughout the year as we delivered our 26th store at the site of the Sea View Inn in Poole. But there are also some further accretive opportunities for residential development throughout the portfolio, typically on surplus land adjacent to pubs. A good example is at The Wheatsheaf pub in the center of Hatfield Peverel in Essex. Following a successful change of the tenant of the pub, we were able to facilitate a surrender of the land behind previously used as a campsite. In short order, we then sold this land for almost GBP 350,000 to a local housing developer after securing planning permission for the construction of 9 new homes. We finished with a refurbishment of the pub, which continues to be an important local community hub. Finally, before I hand back to Allan, I'd like to pay tribute and thanks to my team and all our Hawthorn Leisure staff who have worked tirelessly to ensure that our tenants and pub partners have been supported throughout and are well positioned to bounce back strongly when the lockdown is finally eased. We have generated enormous goodwill over the last 3 months across a range of important stakeholders. And 97% of our portfolio tenants and partners say we have exceeded or met expectations of support during lockdown. As the seventh largest tenanted pub company in the U.K., we have been providing continued support, time and resources to the British Beer and Pub Association to ensure our message is heard loud and clear in government about the importance of community pubs. And our lobbying has helped deliver a number of crucial support measures to help get the industry back up and running post lockdown. I have also recently joined the BBPA Board and remain impressed by their collegiate and constructive approach to handling the crisis, and I'm sure when we do reopen that the U.K. pub sector can bounce back stronger than ever. Over to you, Allan.

Thank you, Mark. Our retail portfolio comprises diverse income streams with a focus on essential retailing, and this has proved to be very beneficial during lockdown and will continue to be so as restrictions are lifted. As you can see, our top 10 occupiers are focused on the resilient sectors of food and grocery, health and beauty and discount. With over 850 occupiers accounting for over 1,800 leases and an affordable average retail rent of GBP 12.66, we have avoided the issues that have impacted so many of our peers. Even though our portfolio positioning has meant that operationally, we have held up well, that's not to say that valuations haven't been impacted. We saw a 12.3% like-for-like decline in portfolio valuation during the period, driven by 70 basis points yield expansion and a 5.5% decline in ERVs, reflecting another challenging year for the U.K. retail sector and also the impact of COVID. Indeed, COVID accounted for 31% of the overall decline in portfolio valuation and, in particular, impacted our pub valuations for which it accounted for all of the decline. Our portfolio once again outperformed the MSCI-IPD benchmark this year by 480 basis points for total property return and outperformed for both income and capital growth. In our view, this significant outperformance is driven by the quality of our asset management, the affordability of our rents, our portfolio positioning and the liquidity of our assets. While retail valuations in the market are under pressure, our retail valuations are strongly underpinned by alternative use value. Our latest internal alternative use valuation for our retail assets is just 12% below our March '20 valuations. The discount varies by asset type with our shopping center valuations being just 8% below the alternative use value, providing further validation of our regeneration potential across our portfolio. With challenges comes opportunities, and we do expect to see good acquisition opportunities in the market this year. A good example of this is Sprucefield Retail Park in Northern Ireland, which we acquired in December 2019. This is a high-quality asset acquired at a very attractive price, reflecting a yield of 8.7% and a capital value per square foot of just GBP 19. Situated beside the key motorway network, this asset is ideally located for a wide range of uses. As well as a retail park anchored by Sainsbury's, we acquired 18 acres of development land at effectively no cost. Since acquisition, we have signed a 10-year lease with B&M to occupy a previously vacant unit, and we have received strong interest from logistic operators for the surplus land. Our asset management team have had an active year, completing over 670,000 square feet of lettings and renewals, reducing service charges and maintaining excellent occupancy of 95%. As this chart shows, leasing activity has been consistent throughout the year, reflecting our focus on affordable rents and reducing occupational costs. Our development pipeline totals 2.5 million square feet and includes 1 million square feet of valuable planning consents. Over 90% of the pipeline is focused on alternative uses, of which the majority relates to residential. Most of our projects are expected to be either developed in capital partnerships or sold with the benefit of planning. On this slide, we highlight some of these opportunities. And as you can see, they are geographically diverse and all at different stages of development, but all offering attractive returns. Because of its scale, I would just highlight our 630,000 square foot planned regeneration of Grays Shopping Centre, just 35 minutes from Central London by train. In the year, we completed our first community planning engagement. And based on this, we have submitted a pre-application to Thurrock Council. The project aims to deliver up to 800 new residential units and significantly reduce the retail footprint at the site. We are very focused on ESG, and it was great to see our GRESB rating improve over the year. In particular, we're very strong on the social aspect of ESG. We're proud of our work in our communities and have relationships with a number of different charities and projects. We help both financially and with our employees' time to try and achieve better outcomes for those most in need. So in conclusion, FY '20 was a year of robust performance, although it ended against the backdrop of unprecedented disruption in our markets. Our strong cash and liquidity position, our portfolio focus and our experienced leadership team have ensured that we've been able to skillfully navigate the challenges of COVID, and we are well positioned to rebuild our revenues now that all nonessential stores can open and pubs will be opening at the beginning of July. For this year, our priorities are to ensure our assets continue to offer a safe environment for our shoppers as footfall increases over the coming months. We will, through our disposal program, improve our LTV that has been impacted by COVID to be closer to our guidance. Finally, we will continue our focus on releasing value from our development pipeline and grow our market-leading asset management platform together with our capital partners. This will, I believe, continue to create sustainable, long-term value for our shareholders. And with that, I would like to hand you back to the operator for any questions on the line.

[Operator Instructions] The first question comes from the line of Steve Bramley-Jackson calling from HSBC.

I just had a question on your LTV. So you finished the last year at 47%, and you were talking about disposals to bring it down through 40%. Just 2 things really, one is, what quantum of property do you need to sell to bring your LTV through that 40% level? And then secondly, considering market conditions, particularly in the retail sector, what gives you the confidence that you can sell a property?

Steve, it's Mark here. Thanks for the question. I'll certainly pick up the LTV component because, as you rightfully pointed out, our loan-to-value is at 47%, which is, of course, above the company's stated current guidance. So it's very much management's intention to address that over the next few months and beyond and to get that back to where it was at 40% or below. In terms of what we would need to do, obviously, I'm sure you'll forgive me for not being able to absolutely predict what happens to future valuations. But even with that in mind, we are assuming further disposals over the next 12 months. We've always been active in recycling capital. And we'd be confident of being able to do that again this year, having got off to a pretty good start with over GBP 30 million disposed even during a lockdown period, including pubs and retail. In terms of how the math works, it's -- to get back down to the 40% level, we're going to need to sell at least GBP 100 million of assets. It could be twice that depending on what happens to valuations. There are a number of levers available to us, except your comment about market conditions, particularly in retail. And I'm sure Allan will speak about that in a moment. Coming into the COVID environment, obviously, our pub business, Hawthorn Leisure, was in really good shape, having delivered positive like-for-likes of 5.9%. We lost a bit of that at the end of the year with COVID and lost a bit of valuation as well. But pubs remain saleable. In fact, we've already sold and realized GBP 6 million of proceeds from pub disposals in the lockdown period. So there are options available to us. But we accept that right now, it would be challenging to assume a liquid market would return quickly. I would just go back to the LTV point, before I pass to Allan on his views on the liquidity in the retail sector, is that we do have time here. We have an unsecured capital structure. We do have covenants. We've reported those in the presentation this morning. We do have good headroom. And because we're completely unencumbered, we have a high degree of control over timing, destiny and our ability to deliver on our strategies, but by no means complacent. We know that there's a challenging task ahead, and we are confident that we can sell assets because we've always been able to do that. And as the market improves post lockdown, that would be our strategy. Sorry, Allan, do you want to say anything about the liquidity in the retail market?

Yes. I mean I think, Steve, it is a relatively tough operating environment in which to sell. But I think our confidence is really based on a number of factors. First of all, we had a pretty successful sales program last year, achieving 75% of our target and disposing around GBP 50 million of assets at a blended yield of about 5.5%, and that was notwithstanding that market was tough last year. We would have exceeded that target without the onset of COVID, where we lost a couple of deals in the last 8 weeks of the last financial year. Secondly, we're off to a really good start. As Mark said, we've got GBP 30 million already completed, exchanged or under offer. We are intending to target selling between GBP 80 million and GBP 100 million this year. We've got negotiations underway on a large part of that. And I think the third reason we're confident is that we believe that we have better liquidity characteristics in our portfolio. Our average shopping center is just over sort of GBP 20 million. Our retail parks are less than that. And of course, pubs are a very liquid asset class. We don't have assets in our portfolio, unlike, say, some of our peers where single assets are GBP 300 million, GBP 400 million, GBP 500 million, GBP 600 million. Those type of assets are really, really tough to sell. But we have assets in the right locations, right type of assets where there's still investor demand.

The next question comes from the line of Tom Musson calling from Liberum.

I've just got 2 questions, if I can. Interested, firstly, in some of the more recent leasings sort of since the year-end, I guess, if you conducted any during the lockdown period and where they've transacted relative to ERVs. And secondly, maybe one for Mark, can you just remind us on the interest cover covenant, how often that is tested and whether it looks backward or forward?

If I just pick up on the leasing. Yes, we have been active in doing leasing deals during lockdown, particularly with the discount retailers. So we've done a number of deals with B&M, one of which we mentioned this morning at Sprucefield Retail Park. But we've also done deals with the likes of Iceland, Aldi, et cetera. There's still retailers, sectors like food and grocery and discount, where they are active in the market. They're looking to expand their store portfolios. Stores are critically important to food and grocery retailers, health and beauty retailers, and discounters. And our assets are ideally suited for these type of retailers. And we're able to offer high-quality space, exposing retailers to very high levels of footfall. But we are able to do that at occupational costs that these retailers can afford, and that's why our occupancy has been maintained at 95% during last year. That's why we've delivered 670,000 square feet of leasing deals last year. And we expect to be able to continue a good leasing activity in FY '21. Mark, do you want to take the point on...

Yes. Tom, thanks for the question around the covenants. As you say, we've got a loan-to-value covenant, which I mentioned earlier and an interest cover. So we've got 2 interest cover covenants in our bank facilities, 1.75x interest cover that's tested historically. And we have a lot of headroom. And on the bond, we have even greater headroom on the basis that the covenant is set at 1.5x of historic income. So clearly, we report the covenants on a quarterly basis. The work that we do for our banks around valuation is determined by the company's year-end and half year results and the independent valuations that are done and tested and audited. One can never be relaxed or complacent about any of this. But we have so much headroom in our interest cover. Under all eventualities, even beyond absolute worst case, we just don't see any issues with our interest cover testing in the bank facility or the bond. The LTV covenant is the key test, I think, going forward to keep an eye on. And a 22% reduction off the current level will take us towards that covenant test. But we will ensure that, that doesn't happen. Disposals will be a key part of that strategy. And I think it's highly beneficial right now, Tom, that we have such a covenant-light, unencumbered debt structure. We are regularly engaged with our banks. We have weekly calls with all 4 of our relationship banks, have done on Zoom and Teams during lockdown. And we're not having difficult conversations about covenants or covenant waivers, which is not in that territory at all now or any time in the near future. So we're able to focus on the business, the business plan and the strategy, which is what we should be focused on. And that's clearly the management's key priority.

[Operator Instructions] The next question comes from the line of Michael Prew calling from Jefferies.

If I just revert to one slide, where you helpfully produced the alternative use illustration. Can you just clarify, is this a residual land calculation allowing for demolition of existing assets and then rebuilding? I mean it just strikes me that you look at the alternative value that an awful lot of this is basically some multiple given sort of town center and easy-to-access locations for some of the retailers, in particular, but this is mostly converted into residential. So it's really a derivative of Steve Bramley-Jackson's question. I mean through this alternative use calculation and possible process, is there a liquidity implication, a positive one, in terms of the evolution of some of these assets into housing land, which bear in mind that the housing market seem to reopen in May?

Mike, thank you for the question. Yes, I mean we take the alternative use potential very seriously as an opportunity for us to add value to the business. And we're currently working on about 2.5 million square feet of development projects, of which about 90% of that is focused on alternative uses and the main one being residential. And many of our shopping centers are situated in the hearts of town centers in local communities. And clearly, there's a great opportunity there to deliver much needed residential. And as you know, the residential market has been suffering from a very significant undersupply of new residential that's been accumulating for many years. That clearly coincides with a retail market today where there's an oversupply of space. And over the last 10 years, online has grown from around 6% to nearly 20%. What online hasn't done is actually created any new spending demand. All it's simply done is diverted spending away from physical stores. But there's been no real -- any -- so there's been no readjustment to retail floor space in the U.K., and that's really what's required. And we've been very much ahead of the curve on this, looking wherever we can within our own portfolio to replace surplus retail space, and the natural alternative use for us is residential. But it's not just residential. As I mentioned on Sprucefield, and we've got other examples in our retail park portfolio, with the increasing demand for logistics serving online, a number of our retail parks are natural locations for logistic operators. And it's interesting to see some of the logistics investors starting to invest in retail parks over the last year or so. So I think our portfolio is well positioned from an alternative use perspective. It gives us great confidence that our detailed alternative use assessment is within 12% of our retail values. And in shopping centers, particularly, that is narrowed to within 8%. And I think it provides a really good underpin for our retail values going forward.

The next question comes from the line of Steve Bramley-Jackson calling from HSBC.

Sorry to belabor this, just coming back on covenants again. Good to hear that the interest rate aspect of your covenants has such substantial headroom that that's [ not ] to be a concern to shareholders or potential investors. In terms of the LTV covenant, though, which I think you say that if values drop by a further 22% you will breach, what restrictions would that invoke on your business if indeed that happens?

Yes. Okay. 22% which we've highlighted to you, Steve, on Slide 18, that would be a reduction in portfolio value across the entire estate. So if we break up the 3 component parts, starting with our retail parks, we feel cautiously optimistic about the future valuation prospect for those parks. And one can easily argue that they will benefit from click & collect traffic through growth in online. But of course, because it's retail, it's not immune. But in all the scenario planning that we're doing, we don't get anywhere near that sort of territory for retail parks, even under reasonable worst case. In our pub portfolio, which makes up around about 25% of our asset base, we feel more than cautiously optimistic actually that we can maintain valuations at or around the current level. You will have spotted no doubt, Steve, because I know you're forensic on these things, that there was some valuation decline as a consequence of COVID in our pub portfolio. And hopefully, we can get some of that back sometime soon. But even if we can't, there's good stability there in the cash flows. We've just delivered an EBITDA growth for the period. So we think the pub portfolio provides a good underpin and stability. And then looking at the shopping centers where we've seen the greater degree of valuation decline, and one could argue again that that's where there may be more market uncertainty, but with all of that in mind, the shopping centers would have to reduce in value way beyond that 30% level, taking account of the points that we've made on retail parks and our community pubs. So what happens? Just picking up on the second part of the question, if we approach that sort of 60% loan-to-value territory, because we're unencumbered, we have a lot of flexibility. I mean the timing of it will be dictated by our half year results and our year-end results. We certainly don't expect anything to be triggered at the half year. We'll be advanced with disposals at that time as well, so that will give us even further confidence. There'll be a further test then at the valuation of March of '21, and that's perhaps where you're starting to flex your assumptions as to what happens to forward-looking values. We are not forecasting or expecting under any circumstances a breach. But if we do approach that level, Steve, to answer the final part of your question, what happens? We have 4 clearing bank relationships, strong relationships, I would argue, and we have the ability to cure that covenant breach, which effectively buys us around 90 days to be able to do that. The lever is available to the company at that time. Would be the usual, Steve. Would you raise some equity? It would be very modest, but that would be one thing that you could do. But again, that's not in the current plan. And obviously, disposals, the ability to dispose further assets to remain below the 60% threshold. Our debt structure could not be more straightforward. We've got one bank facility and one corporate bond on the balance sheet. So we don't have many conversations that we need to have. And because all the assets are unencumbered, if one asset or one group of assets falls in value, certainly more than we're expecting, Steve, we do have that diversification with retail parks and pubs particularly providing that useful cushion. So that's kind of -- I hope that's not too long a way of answering your straightforward question, but it's obviously a very important area of this, and we understand why you're asking the question. It's a good question. And we refinanced the business in 2018, looking back at the best possible time to ride through this COVID wave. We have an unsecured balance sheet. And Fitch have just reaffirmed their credit rating on the company, a BBB+ with stable outlook. So there's plenty to be positive about, but at the same time, this is no time for complacency. And it's a very good question, so forgive me for taking such a long time to answer it.

We have no further questions coming through on the phone lines. So I'd like to hand the call back over to Mark Davies for any questions on the webcast. Thank you.

Well, thank you. It's Allan here. I'm going to start with a question from Clive Black. Clive has asked a couple of questions. I'll read them out. With public transport currently challenged by social distancing, how is NewRiver's shopping center estate set up for adjusted footfall? And his second question is, how is NewRiver positioned for a U.K. that is in recession? Thank you for those questions, Clive. Just turning to your first question, well, we've done a lot of preparation in readiness for all the nonessential stores to be allowed to reopen as of Monday. As I mentioned in the presentation, all of our shopping centers have remained open during COVID because we have a high proportion of essential-based retailers that have been operating throughout. But nevertheless, COVID has had a major impact on footfall. And what our preparations have been focused on is to ensure that we can maintain a very safe environment for the increased footfall that we were expecting once nonessential stores were allowed to reopen. And that has actually transpired. So on Monday, our footfall was up 69% on the previous week. And the feedback that we're getting on the ground is that our on-site teams are being able to cope with a substantial increase in footfall whilst maintaining a safe environment and maintaining the current social distancing measures. I also think that many of our shopping centers or in town centers are actually better positioned to operate in a post-COVID environment even with social distancing measures in place because a high proportion of our customers can actually walk to our shopping centers. Many of our centers are open. And the type of centers that we have, our customers generally visit just under twice a week. They know exactly what they're going to do, which shops they're going to go to. So it's a much safer form of retailing, and consumers have more confidence in that type of retailing. And it's interesting, the feedback that we're getting from retailers that have opened recently is that the local centers are outperforming city centers and destination centers. And I don't think that should come as a surprise. And we expect local centers to be one of the beneficiaries coming out of the lockdown period. In relation to the second question, again, I think that our portfolio is ideally positioned for a recession. Previous recessions have shown us that consumers tend to rein back major purchases, and they place a far greater importance on value for money. And our portfolio, which has a high proportion of food, grocery discount and value-for-money retailers, were better positioned in a market where there is a recession. So thank you, Clive. And the next question, I think, is directed to Mark.

Thanks, Allan. Thanks, Clive. We've got a few questions coming from shareholders. So I want to try and address all of these, if we can, but I'm also mindful of the time that we have allocated. First question from André at B&I Capital. Could you comment on the ability to reduce cost of your pubs while they were closed? Thank you for that question. This has been a focus area for the management during the lockdown period. We have furloughed just over 70% of our pub workforce, albeit we are -- continue to pay all of our people in full. It's been absolute priority #1 to protect our people, protect our pubs, protect our future, and that's generated enormous goodwill during the lockdown period, which will enable us to bounce back stronger than ever. We've cut down on all marketing and operating expenditure where we're able to and reduced all nonessential capital expenditure as well. We have benefited quite significant actually from government support. Business rates relief, there's no business rates at all now in the pub portfolio from April 1. That's a saving of over GBP 1 million alone. And then the support grants obviously play a big part in supporting our tenants and partners. And it's for that reason that we say in our statement this morning that during the lockdown period, we are going to get to around about 45% rent collection. So that is, we think, a good outcome and reflects the great team, the great job that the team have done. So thank you for that question. The next question is from [ Paul Scott ], one of our shareholders. How will you retain REIT status if not paying dividends anymore? Well, we are paying dividends. We paid 3 dividends during the period. We just chose not to pay the fourth quarter dividend, which was the right decision on the 19th of March given everything that has happened subsequent. We've announced this morning that we're not reinstating for Q1, but I think it's quite clear from the company's statement today that the company recognizes the importance of dividends to shareholders, and we'll absolutely focus on reinstating that dividend as soon as we are able. In terms of how the REIT test works, it's done on an annual basis. We've distributed 95% of our profits, cash profits in this financial year. So we are dividend covered, and we satisfy the REIT tests. We haven't submitted that to the Revenue yet. Obviously, our results came out this morning. We've got 12 months to submit our taxation forms to HMRC. And then we obviously will need to monitor this in financial year ended March '21. But we don't expect this to be an issue. We retain REIT status, and that will continue. So thank you for that question. I think it's a very good one and a topical one, clearly. Next question from Yusuf from Belfield Capital. What proportion of your pubs have gardens, which I think you're referring to outdoor space, and expectation of trading in the pubs portfolio for the rest of 2020? The first bit is easy. 70% is the answer to how many pubs have got gardens outdoor space. Expectations on trading for the rest of 2020, that's just more difficult to predict right now, but at least we're still waiting for government guidance and reopening, we hope, on the 4th of July. I think that's all. Yes, I think there have been some more questions literally come in as I was countering through that. So we will address those questions after the meeting. Thank you to everybody for your time and attendance this morning. Allan, do you want to make any closing remarks?

No. I think I share that, Mark. Really appreciate everybody's attendance. And any follow-up questions, please get in touch with the company. Thank you.

Cheers, Allan. Thanks, guys. Thank you, everybody.