NewRiver REIT plc (NRR) Earnings Call Transcript & Summary

Our next question comes from the line of Tom Musson from Liberum.

Some others in the industry is sort of talking about a 35% to 40% peak-to-trough decline in ERVs, so maybe about another 15% from here. Just wondered what your take is on that? And how much more pressure do you think ERVs could come under across the NewRiver portfolio?

Yes. Thank you, Tom. Well, as you have seen in the half year results, we did about 500,000 square feet of leasing transactions at, I think, just under 3% of our March ERVs, which I think is an incredible performance given the extreme circumstances that we've been operating in. I think the U.K. government mentioned yesterday is -- the last period has been the worst economic period for 300 years. So to be able to transact that level of leasing and to do that in pretty much in line with our March ERVs, I think, endorses the type of assets that we own, endorses that we have good affordability within our portfolio, and this is something that we mentioned in the presentation that even during COVID, the research shows that, on our rent-to-sales ratio, our rents are affordable. So looking ahead, we feel confident in the underlying affordability of our portfolio.

Our next question comes from the line of Greg Lawless from Shore Capital.

Just talking about your new leases and kind of the discounts that you're -- I think you talked about 3% discount. Just as a retail follower, we hear from lots of retailers talking about kind of 20% to 30% haircuts. I mean you're clearly getting a much more resilient passing rent. Just wondered if you could comment on that, please?

Yes. Well, look, I think it partly reflects the fact that we -- our portfolio is focused on convenience and community. There's no doubt that area of the market has been a beneficiary during COVID. Many of our assets are located locally to where people live. We have an average travel time to our retail assets of around 13 minutes. And during COVID, where consumers have been very worried about catching COVID, they have been more inclined to shop locally than go to city center locations or even regional shopping center destinations. So I think we've been benefiting from that. And the type of assets that we own, Greg, are in locations where the retailers that are expanding and taking space, including B&M, who we leased over 100,000 square feet during the period, that's where they want to be. And we're able to offer them high-quality space at a rental level that those type of retailers can afford.

We currently have no further questions in the phone queue.

Right. We're now going to questions from the webinar. And the first question is from Matt Saperia. Matt's question is, when thinking about getting the LTV down below 40%, and the reclassification of the portfolio, will sales be focused on the 16% in work out and other? And following that, and given recent press speculation around sales activity, how much of the AUV would you expect to capture on disposals from the regeneration portfolio? Well, with regards to LTV, as I said earlier, Matt, we've been able to keep our LTV in check during the last period, which has been a period of very significant disruption, and that's been primarily down to the successful performance on sales. I think we're confident that we can maintain our LTV in line over the next sort of final phase of the COVID disruption period. And then beyond that, I think we're confident that we will be able to accelerate the reduction in LTV to get it down to where we want it to be, which is around 40%. And that will mean further sales in our next financial year. And our approach to selling assets is always been down to the forward-looking returns. And we would be expecting to sell assets across our sort of key segmentations, whether it's in core retail parks, work out, and that's -- we've seen some increased activity and interest coming through for us on some of our assets. In relation to the regeneration portfolio, yes, we do expect to be able to capture some of that delta between the AUV and the retail values as we advance our regeneration proposals in terms of master planning, securing planning concern, that is definitely going to enhance our opportunity to capture that part of that delta. So we've now got a -- next question. So we've got a question from Kieran, Kieran Lee from Berenberg. So Kieran's question is, firstly, on the dividend. The statement says you would look to reinstate on a covered basis at the full year, would this be in relation to actual FY '21 earnings or run rate basis? And Kieran's second question is regarding our shopping center regeneration portfolio. Could you talk through some of the economics of this assumptions for AUV? How our potential returns impacted by the additional costs of working around an open and trading shopping center? And will you have to buy out leases to facilitate development? Is this certainly viable in higher-value locations? Or do you hope to do this nationally? Well, just a question on dividend, I think we really answered that, Kieran. We've made the intent -- we've announced the intention to reinstate the dividend at the full year, and we'll be providing further details on that at the full year. But in relation to your questions around the economics of our regeneration portfolio from an AUV perspective, I think I mentioned to you that -- in the presentation, that our AUV calculation assumes absolutely no retail, and therefore, the entire site has redeveloped for alternative uses, predominantly residential. And we factor in all the costs you will expect to be factored into in arriving at that calculation. But our regeneration portfolio does not envisage the complete removal of retail. Part of our existing regeneration shopping centers will be redeveloped for alternative uses, predominantly residential. And we tend to judge the financial performance of that around looking at the profit on cost, the internal rate of return and equity multiplier is a number of measures that we look to judge the viability. Yes, we will have to secure vacant possession of the areas that we want to regenerate, and we're confident in doing that in terms of looking at the lease expiry profile of the areas that we're looking to regenerate. And in terms of viability, yes, it's certainly easier to stack up regeneration projects from a viability perspective in areas where you have good underlying residential values. So our regeneration portfolio comprises of assets in locations with strong underlying residential values. We do have regeneration potential outside of those types of areas, particularly in the North, and our approach to that will be to undertake those projects in partnership, particularly with the public sector. And I hope that answers your question, Kieran.

Next question is a pub related question, so I'll pick that up. Thanks, Allan. This is from Mark Bentley from ShareSoc. Mark, thanks for getting in touch this morning. Your question is, why was Hawthorne operator managed business performance better since reopening on the 4th of July compared to leased and tenanted. So in terms of the performance of the 2 portfolios, I think the important thing to say firstly is both our operator managed business. And our leased and tenanted business outperformed the market, as you can see from the presentation pack. In fact, when we opened on the 4th of July, our operator managed business, which is principally what led was out the blocks a little quicker. You can see from the performance through August that leased and tenanted improved. In fact, for 3 weeks in August, we were trading ahead of prior year sales, and we've peaked at 103% on the 23rd of August. The principal reason for that, Mark, is in our leased and tenanted business, we can do food, we have a good food component in leased and tenanted. And during the month of August, we had the government support scheme, the Eat Out to Help Out, and that would have not benefited our operator managed business at the time, which is principally a wet-led community pub business. So those are the principal reasons as to why our leased and tenanted business was trading, on average, ahead of our operator managed business during the period since lockdown. But I'd also like to reiterate that both parts of our community pub business outperformed the market. Well, that brings an end to the presentation. I think it's bang on 10:00, and I'd just like to, on behalf of Allan and myself, just thank you all for attending this morning. We'll be available for the rest of the day. If anybody wants to ask any questions, please get in touch. And have a good day. Thank you.

Thank you.