TIDMNRR
RNS Number : 3489Q
NewRiver REIT PLC
18 June 2020
NewRiver REIT plc Full Year Results
18 June 2020
Focus on essential retail provides resilience in testing
times
Allan Lockhart, Chief Executive commented: "We are reporting
these results against an extraordinary market backdrop, as COVID-19
continues to cause significant disruption for occupiers in our key
markets. As the Government starts to ease the lockdown
restrictions, we are preparing to return to trading in our retail
portfolio in June and planning for a return to trading in our pubs
from July. We have undertaken extensive planning and are
well-prepared to adjust to the new normal. The safety and wellbeing
of our employees, occupiers and other stakeholders remains our top
priority, and will continue to guide our response.
Until March, FY20 was a year of continued strategic progress, as
we delivered solid operational metrics and a relatively robust
financial performance. Recognising the threat of COVID-19 towards
the end of the year, we took early and decisive action to protect
the financial position of the Company. This included a partial
drawdown of our Revolving Credit Facility ('RCF'), the cancellation
of non-essential capex, a reduction of operating expenditure,
securing eligibility for the joint HM Treasury and Bank of
England's Covid Corporate Finance Facility ('CCFF') and the
decision not to pay a fourth quarter dividend.
At 31 March 2020 we had GBP177 million of cash and credit
facilities available to the Company which, together with our
unencumbered balance sheet, gives us confidence in our ability to
remain cash positive and debt covenant compliant even in a scenario
of very significant cashflow disruption and valuation decline.
Our portfolio is focused on essential retail and convenience,
and has proved resilient through the last three months as over one
third of our tenants continued to trade. As a consequence of
previous portfolio reshaping, we have limited exposure to
department stores, mid-market fashion and casual dining. In the
coming year we will accelerate changes to our portfolio to create
assets that are best in class and relevant to the changing nature
of retail.
Our priorities for the coming year are to:
-- fully reopen our assets and work with occupiers to rebuild our revenues
-- recycle capital from assets, through disposal or change of
use to a more valuable asset class, to improve Loan to Value
('LTV') in-line with Company guidance
-- release value from our development pipeline
-- continue to build a strong asset management platform together
with world-class capital partners
The structural changes in UK retail that were already underway
have been accelerated by COVID-19. It is clear that much existing
retail space in the UK needs to be repurposed and we have been at
the forefront of creating this change through developing mixed-use
schemes in town centres. We believe that with our skill set and
expertise, our management team, and our capital partnerships, we
are well-positioned to respond to both the structural challenges
and to the changing dynamics of the communities in which our assets
are located. This will, we believe, continue to create sustainable
long-term value for our shareholders."
Financial results for FY20
-- Underlying Funds From Operations ('UFFO') of GBP52.1 million
(FY19: GBP55.1 million); includes the impact of GBP2.8 million of
lost income and provisions relating to COVID-19
-- UFFO per share of 17.0 pence (FY19: 18.1 pence)
-- Total dividend per share declared of 16.2 pence (FY19: 21.6 pence); 105% covered by UFFO
-- IFRS loss after tax of -GBP121.1 million (FY19: -GBP36.9
million) mainly due to non-cash reduction in portfolio
valuation
-- EPRA NAV per share of 201 pence (March 2019: 261 pence),
impacted by -12.3% like-for-like valuation decline
-- Total Property Return -5.4%, +480 bps vs MSCI-IPD benchmark;
Total Accounting Return -14.7% (FY19: -3.3%)
-- Proportionally consolidated LTV of 47% at 31 March 2020 (31 March 2019: 37%)
Operational performance for FY20
-- Completed acquisitions of GBP172.8 million (NewRiver share:
GBP102.3 million), reflecting a blended NIY of 9.5%
-- Completed disposals of GBP48.4 million, reflecting a blended
NIY of 5.5% and 1.5% discount to March 2019 valuation
-- Retail occupancy of 94.8% (March 2019: 95.2%); Pubs occupancy of 97.0% (March 2019: 97.9%)
-- Average retail rent of GBP12.66 per sq ft (March 2019: GBP12.52 per sq ft)
-- 678,100 sq ft of retail lettings and renewals; long-term
deals +1.2% ahead of previous passing rent
-- Like-for-like footfall outperformed UK benchmark by +100 bps,
with -5.0% year-on-year decline, including COVID-19
-- Like-for-like EBITDA per pub +2.3% across our 720 community pubs
-- Development pipeline stands at 2.5 million sq ft, including
0.9 million sq ft of planning consents
-- GRESB Score improvement of +13% and second consecutive Green
Star, underlining our commitment to ESG
Significant available liquidity of GBP177 million
-- Wholly unsecured balance sheet provides significant flexibility and capacity
-- Cash reserves of GBP82 million at 31 March 2020; Undrawn
revolving credit facilities of GBP45 million at 31 March 2020
-- Eligibility confirmed for CCFF; GBP50 million facility
currently undrawn, but improves available liquidity to GBP177
million
-- No bank refinancing events due until August 2023; GBP300
million corporate bond is not due for repayment until 2028
-- Compliant with all debt covenants
-- On 1 April 2020, Fitch Ratings affirmed NewRiver's Long-Term
IDR at 'BBB' with a Stable Outlook and senior unsecured rating at
'BBB+'. NewRiver was also assigned a new 'F2' Short-Term IDR
-- Suspension of non-essential capex; limited contractual capex
across our risk-controlled development pipeline
Financial Statistics
Performance Note FY20 FY19 Change
Underlying Funds From Operations ('UFFO') (1) GBP52.1m GBP55.1m -5%
----- ----------- ---------- -------
UFFO per share (1) 17.0p 18.1p -6%
----- ----------- ---------- -------
Ordinary dividend 16.2p 21.6p -25%
----- ----------- ---------- -------
Ordinary dividend cover (2) 105% 84%
----- ----------- ---------- -------
Admin cost ratio (3) 14.9% 13.1%
----- ----------- ---------- -------
Interest cover (4) 3.8x 4.0x
----- ----------- ---------- -------
Net Property Income GBP92.9m GBP90.5m
----- ----------- ---------- -------
IFRS Loss after taxation (5) -GBP121.1m -GBP36.9m
----- ----------- ---------- -------
IFRS Basic EPS -39.6p -12.1p
----- ----------- ---------- -------
EPRA EPS 16.7p 16.6p
----- ----------- ---------- -------
Total Accounting Return (6) -14.7% -3.3%
----- ----------- ---------- -------
GRESB Score (7) 70 62 +13%
----- ----------- ---------- -------
Balance Sheet Note March 2020 March 2019 Change
IFRS Net Assets GBP610.6m GBP796.1m
----- ----------- ----------- -------
EPRA NAV per share 201p 261p -23%
----- ----------- ----------- -------
Shares in issue 306.2m 304.8m
----- ----------- ----------- -------
Balance Sheet (proportionally consolidated) Note March 2020 March 2019 Change
----- ----------- ----------- -------
Net debt (8) GBP563.6m GBP475.1m
----- ----------- ----------- -------
Principal value of gross debt (9) GBP652.4m GBP510.0m
----- ----------- ----------- -------
Cash GBP82.1m GBP27.6m
----- ----------- ----------- -------
Weighted average cost of debt (10) 3.4% 3.2%
----- ----------- ----------- -------
Weighted average debt maturity (11) 5.9 years 6.9 years
----- ----------- ----------- -------
Loan to value (12) 47% 37%
----- ----------- ----------- -------
Notes:
(1) Underlying Funds From Operations ('UFFO') is a Company
measure of cash profits which includes recurring cash profits and
excludes other one off or non-cash adjustments as set out in Note
10 to the Financial Statements and in the Finance Review. UFFO is
used by the Company as the basis for ordinary dividend policy and
cover
(2) Ordinary dividend cover is calculated with reference to
UFFO
(3) Admin cost ratio is net administrative expenses expressed as
a proportion of property revenue (including the Group's share of
joint ventures & associates)
(4) Interest cover is tested at property level and is the basis
for banking covenants. It is calculated by comparing actual net
property income received versus cash interest payable
(5) IFRS (Loss)/Profit after taxation due to non-cash valuation
decline of GBP166.9 million, compared to GBP89.5 million in
previous year
(6) Total Accounting Return is the EPRA NAV per share movement
during the year, plus dividends paid in the year, divided by EPRA
NAV per share at the start of the year
(7) GRESB is the leading sustainability benchmark for the global
real estate sector, and its annual assessment scores participating
companies out of 100
(8) See note 25 for a reconciliation of movement in the Group's
share of net debt in the year
(9) Principal value of gross debt being GBP635.0 million of
Group and GBP17.4 million share of JVs & associates
(10) Cost of debt assuming GBP215 million revolving credit
facility is fully drawn
(11) Average debt maturity assumes one-year extension options
are exercised and bank approved. Excluding this option, debt
maturity at 31 March 2020 is 5.3 years.
(12) Is the ratio of gross debt less cash, short-term deposits
and liquid investments to the aggregate value of properties and
investments. LTV is expressed on a proportionally consolidated
basis. See Note 25 to the Financial Statements for calculation.
The Group has applied IFRS 16 Leases from 1 April 2019, which
requires lessees to recognise a right-of-use asset and related
lease liability representing the obligation to make lease payments.
In accordance with the transition provisions in IFRS 16, the new
rules have been adopted retrospectively, with the cumulative effect
of initially applying the new standard recognised on 1 April 2019.
Comparatives for the year ended 31 March 2019 have not been
restated.
For further information
NewRiver REIT plc +44 (0)20 3328 5800
Allan Lockhart (Chief Executive)
Mark Davies (Chief Financial Officer)
Tom Loughran (Head of Investor
Relations)
+44 (0)20 7251
Finsbury 3801
Gordon Simpson
James Thompson
This announcement contains inside information as defined in
Article 7 of the EU Market Abuse Regulation No 596/2014 and has
been announced in accordance with the Company's obligations under
Article 17 of that Regulation. This announcement has been
authorised for release by the Board of Directors.
Results presentation
A pre-recorded presentation will be streamed live at 9:00am BST
today on our website ( www.nrr.co.uk ) and at the following link:
https://kvgo.com/IJLO/NRR_FY20_results . This will be followed
immediately by a live Q&A session for investors and
analysts.
The dial in details for the conference call facility are as
follows:
UK Toll Free: 0808 109 0700
Standard International Access: +44 (0)20 3003 2666
Password: NewRiver
The accompanying slides will be made available at www.nrr.co.uk
just prior to the presentation commencing.
About NewRiver
NewRiver REIT plc ('NewRiver') is a leading Real Estate
Investment Trust specialising in buying, managing and developing
essential retail and leisure assets throughout the UK.
Our GBP1.2 billion portfolio covers 9 million sq ft and
comprises 33 community shopping centres, 25 conveniently located
retail parks and over 700 community pubs. We hand-picked our assets
to deliberately focus on occupiers providing essential goods and
services, and avoid structurally challenged sub-sectors such as
department stores, mid-market fashion and casual dining. This
focus, combined with our affordable rents and desirable locations,
delivers sustainable and growing returns for our shareholders,
while our active approach to asset management and inbuilt 2.5
million sq ft development pipeline provide further opportunities to
extract value from our portfolio.
NewRiver has a Premium Listing on the Main Market of the London
Stock Exchange (ticker: NRR). Visit www.nrr.co.uk for further
information.
Forward-looking statements
The information in this announcement may include forward-looking
statements, which are based on current projections about future
events. These forward-looking statements reflect the directors'
beliefs and expectations and are subject to risks, uncertainties
and assumptions about NewRiver REIT plc (the 'Company'), including,
amongst other things, the development of its business, trends in
its operating industry, returns on investment and future capital
expenditure and acquisitions, that could cause actual results and
performance to differ materially from any expected future results
or performance expressed or implied by the forward-looking
statements.
None of the future projections, expectations, estimates or
prospects in this announcement should be taken as forecasts or
promises nor should they be taken as implying any indication,
assurance or guarantee that the assumptions on which such future
projections, expectations, estimates or prospects have been
prepared are correct or exhaustive or, in the case of the
assumptions, fully stated in the document. As a result, you are
cautioned not to place reliance on such forward-looking statements
as a prediction of actual results or otherwise. The information and
opinions contained in this announcement are provided as at the date
of this document and are subject to change without notice. No one
undertakes to update publicly or revise any such forward looking
statements. No statement in this document is or is intended to be a
profit forecast or profit estimate or to imply that the earnings of
the Company for the current or future financial years will
necessarily match or exceed the historical or published earnings of
the Company.
Chairman's statement
This report provides an overview of NewRiver's performance in
the year to 31 March 2020, although I appreciate that the onset of
COVID-19 in March 2020 has in short order rendered it out of date.
The subsequent lockdown has had a significant impact on all of our
lives and the markets in which the Company operates, and this is
likely to continue for some time yet.
In these difficult circumstances I want to thank our colleagues,
occupiers, and other stakeholders for the way in which they have
collectively risen to the challenges posed by the pandemic. I would
like to also express my gratitude to NewRiver's leadership team,
whose tireless efforts have deftly steered the Company through
these unprecedented headwinds, and our Board for their close
engagement throughout the crisis. The safety and wellbeing of all
our stakeholders remains our top priority and will continue to
guide our response as we reopen the portfolio.
We are acutely aware of the loss of value that our shareholders
have faced during the year, particularly through the period of
COVID-19. As we have meaningful personal investments in the Company
ourselves, the Board shares this disappointment, but we assure
shareholders that the Company is well positioned to withstand the
impacts of the pandemic. Our unsecured balance sheet is strong, we
have sufficient liquidity and we have conducted a thorough review
across the business for opportunities to remove costs and support
our occupiers. We stand ready to begin the full reopening of our
portfolio and the rebuilding of our revenues in the coming
months.
We also recognise the absolute importance of the dividend to our
shareholders, and the impact of our decision to suspend dividend
payments from the fourth quarter. We were hugely disappointed to
have to do this but were clear that this was the most prudent
course of action amid the uncertainty caused by the crisis. As a
Board, our focus had to be on maintaining liquidity and on
conserving cash. Some uncertainty still remains as to the impact of
COVID-19 on our performance and so the Board has also decided not
to pay a dividend in respect of the first quarter of FY21. But, to
be clear: it is our firm intention to resume dividend payments as
quickly as possible, when conditions allow.
When I wrote to shareholders last year, I expressed my absolute
confidence that NewRiver would emerge strongly from the structural
changes occurring in traditional retailing. That process of change
has been greatly accelerated by COVID-19 but we are clear that our
strategy remains more relevant than ever. Our focus on essential
retailing and convenience has proved highly resilient through the
crisis. Our investment bias toward retail parks is bearing fruit as
their vital role in click and collect strengthens. We continue to
develop strong relationships with Local Authorities and public
bodies: together we can reshape the right amount and type of retail
offer in our town centres and regenerate these spaces into vibrant
multi-use assets. And we are able to do all this by drawing on our
long-term relationships with first class capital partners.
A commitment to our communities is central to NewRiver's culture
and strategy. This year we formed our first charity partnership
with the Trussell Trust, the UK's largest foodbank operator. We did
not realise at that time how the Trussell Trust's work would come
so sharply into focus in the wake of the pandemic. I was humbled by
the generous contributions made by our staff in response to this,
both financially and through volunteering. I was also pleased that
the Board were able to provide extra financial contributions
through salary and fee waivers at this critical time.
On a final note, David Lockhart has informed the Board of his
decision to step down as Executive Deputy Chairman and not to seek
re-election to the Board at the forthcoming AGM. I am very pleased
that David has agreed to assume a new role as Senior Adviser to the
Company. On behalf of the Board, I would like to thank David for
his wise counsel and very significant contribution during his
tenure, and I am delighted that we will continue to benefit from
his vast knowledge and expertise as he assumes his new role.
I would like to thank our shareholders for their continued
support and patience and would like to reiterate our commitment to
building a sustainable business that delivers growing shareholder
returns.
Baroness Ford OBE
Non-Executive Chairman
18 June 2020
Chief Executive's review
We are reporting these results in extraordinary circumstances,
as COVID-19 has caused significant disruption to occupiers in our
key markets. There remains some uncertainty around the
practicalities of easing the current lockdown restrictions, and the
speed at which retail and pub operations can return to normal, but
we are well-positioned to withstand a prolonged period of
disruption.
In this review we provide an update on how we are responding to
COVID-19, our outlook for the current financial year, and provide
the usual update on our operational and financial performance for
the year ended 31 March 2020. To reflect this, the report is
divided into three sections:
-- Performance overview for the year ended 31 March 2020
-- Our response to COVID-19
-- Outlook for the current financial year
Performance overview for the year ended 31 March 2020
During the year we continued to deliver robust operational
metrics across our diversified portfolio and made good progress
with our strategies, although their implementation was impacted by
political uncertainty, particularly in the second half, and the
onset of COVID-19 in March 2020.
We are one of the market-leading platforms operating in the UK
retail real estate market, and the UK's seventh-largest tenanted
pub company. We used the scale and expertise of our platform to
deliver on the strategies we outlined at the beginning of the
financial year:
Strategy Description Progress in FY20
1. Disposing We set a target to dispose
of lower yielding of 5% of our portfolio * We completed disposals of GBP48.4 million, reflecting
assets during the financial year, a blended net initial yield of 5.5% and a modest 1.5%
equating to c.GBP64 million, discount to book value
targeting disposal net
initial yields of 5 to
7% * We therefore achieved over 76% of our disposal target,
as our progress was impacted in the second half by
political uncertainty and COVID-19
* Disposals were completed across all asset types,
demonstrating the inherent liquidity in our portfolio
---------------------------------- -------------------------------------------------------------
2. Capital In May 2019 we formed
Recycling, a new joint venture relationship * During the year, we completed GBP172.8 million of
primarily with BRAVO, primarily acquisitions (NewRiver share: GBP102.3 million),
in joint ventures to acquire and manage representing a blended net initial yield of 9.5%
a portfolio of retail
parks in the UK. We aim
to make the majority of * In the retail portfolio, we acquired six retail parks,
new acquisitions in joint of which five were purchased as part of the joint
ventures, as this increases venture relationship with BRAVO
returns on investment
and ensures we maintain
balance sheet strength. * We acquired one pub company, Bravo Inns, and one pub
portfolio
---------------------------------- -------------------------------------------------------------
3. Leveraging Our market-leading platform
our asset comprises a highly experienced * Asset management fees increased to GBP0.9 million,
management team of asset managers from GBP0.3 million in FY19.
platform and finance, development
and marketing professionals.
We aim to leverage this * Our annualised management fee income at year-end was
platform to manage assets GBP1.1 million, a 120% increase on the prior year
owned in joint ventures
and support an increasing
number of third-party * This increase has been driven by the acquisition of
owners, such as Local properties in our joint venture with BRAVO and the
Authorities. signing of additional third-party asset management
mandates
---------------------------------- -------------------------------------------------------------
4. Sharper We aim to extract further
asset management value from our assets, * We completed 678,100 sq ft of new lettings and
and operational using insights from our renewals securing GBP5.7 million of annualised rent.
efficiencies occupiers and enhancing Long-term deals were signed 1.2% ahead of previous
co-ordination of asset passing rent
management initiatives
across the portfolio.
We aim to lower service * We reduced retail service charge budgets by 5% on
charges for our occupiers, average compared to the prior year, identifying
removing costs and delivering further reductions in response to COVID-19
scale-based synergies.
* We appointed a Head of Asset Management, Emma
Mackenzie, to lead our occupier relationships and
co-ordinate initiatives across our portfolio
---------------------------------- -------------------------------------------------------------
5. Growth In Hawthorn Leisure we
from pubs have a pub management * Until March 2020, Hawthorn Leisure delivered
platform which has the like-for-like EBITDA per pub growth of +5.9% during
scale and expertise to the year. Including March like-for-like EBITDA per
extract further growth pub performance was +2.3%
from our community pubs
business. This growth
will be driven by asset * We completed 82 capital investment projects across
management and development the pub portfolio at a cost of GBP4.3 million and
initiatives across the delivered our 26th c-store to the Co-op
existing portfolio, and
selective acquisitions
to add further pubs to * In December 2019 we acquired Bravo Inns, with its
our platform. portfolio of 44 wet-led community pubs, and acquired
a further 28 pubs from Marston's in January 2020
---------------------------------- -------------------------------------------------------------
Financial performance
Our financial performance was relatively robust during the year,
against a challenging market backdrop which worsened in March 2020
with the onset of COVID-19. Underlying Funds From Operations
('UFFO') were GBP52.1 million, compared to GBP55.1 million in the
previous year. Overall net property income increased, despite the
requirement to include additional provisions relating to COVID-19
rents in operating expenses. However, this increase in net property
income was more than offset by an increase in administrative costs,
as a result of accounting for a full year's ownership of Hawthorn
Leisure and the transfer of pubs from a third-party pub management
platform to Hawthorn Leisure, and increased finance costs,
primarily due to net acquisitions. Our IFRS loss after tax was
-GBP121.1 million, compared to a loss of -GBP36.9 million in the
prior year, predominantly due to a non-cash reduction in portfolio
valuation of GBP166.9 million, of which 31% relates to
COVID-19.
We paid three quarterly dividends of 5.4 pence per share during
the year. The total dividend in respect of the year ended 31 March
2020 is therefore 16.2 pence per share, which is 105% covered by
UFFO. In March 2020, the decision was taken not to pay a fourth
quarter dividend due to the impact of COVID-19 on the Company's
operations. We took the decision that in this time of unprecedented
disruption and uncertainty, our focus should be on managing cash
resources very carefully and maintaining liquidity in the business.
Uncertainty still remains as to the impact of COVID-19 on our
performance and so the Board has also decided not to pay a dividend
in respect of the first quarter of FY21. It is our firm intention
to resume dividend payments as quickly as possible, when conditions
allow.
Our portfolio valuation at 31 March 2020 was GBP1.20 billion,
compared to GBP1.29 billion at 31 March 2019, as net acquisitions
were more than offset by a -12.3% like-for-like decline in
portfolio valuation. The decline was driven by 70 bps yield
expansion and a -5.5% decline in ERVs, reflecting another
challenging year for the UK retail sector, and the impact COVID-19.
The UK lockdown in response to COVID-19 accounted for 31% of the
overall decline in portfolio valuation, and in particular impacted
pub valuations, for which it accounted for all of the valuation
decline. Our portfolio outperformed the MSCI-IPD benchmark by +480
bps for total property return during the year, and outperformed for
both income and capital growth. In our view, this outperformance is
driven by the quality of our asset management, the affordability of
our rents, our portfolio positioning, and the liquidity of our
assets.
At 31 March 2020, we calculated that the total alternative use
valuation ('AUV') for our retail portfolio was GBP803 million, just
12% below the total valuation of our retail assets of GBP916
million, which we consider to be an underpin to our valuations. In
particular, the AUV for our shopping centres was just 8% below 31
March 2020 valuations, validating the underpin to our shopping
centre valuations and the rationale for development across the
portfolio.
Our EPRA net asset value per share was 201 pence per share
(March 2019: 261 pence), predominantly due to a non-cash reduction
in portfolio valuation, and our IFRS net assets were GBP610.6
million (March 2019: GBP796.1 million), reduced for the same
reason.
Our LTV increased from 37% at 31 March 2019 to 47%, with the
majority of the increase occurring in the second half of the
financial year, due predominantly to the decline in our portfolio
valuation but also due to a reduction in the rate of completed
disposals in Q4 due to COVID-19. Whist LTV at this level remains
safely below our covenant thresholds, set at 60% on our unsecured
bank facilities and 65% on our unsecured bond, our focus will be to
improve LTV to be more in-line with our guidance of being below
40%, through our disposal programme in the current financial year.
Our disposal programme is covered further in the "Outlook for the
current financial year" section of this review.
Operational performance
During the year, we acquired eight assets in five separate
transactions totalling GBP172.8 million (NewRiver share: GBP102.3
million), reflecting a blended net initial yield of 9.5%. Of these
total acquisitions, 60% by value were made in our BRAVO JV. We
acquired these high-quality assets at attractive prices, which will
provide opportunities for capital growth through active asset
management and development.
Our retail portfolio continued to deliver robust operational
metrics during the year. Occupancy remained high at 94.8% (March
2019: 95.2%), reflecting our focus on occupiers providing essential
goods and services, and our active approach to asset management.
Our average rent remained affordable at GBP12.66 per sq ft (March
2019: GBP12.52 per sq ft), reflecting our commitment to
affordability for retailers and underpinning the sustainability of
our income. Our shopping centre like-for-like footfall outperformed
the UK benchmark by 100 bps, with a decline of -5.0%, which
includes the significant impact of COVID-19 in March 2020.
During the year we completed 678,100 sq ft of new lettings and
renewals across our retail portfolio. On average, long-term deals
were signed 1.2% ahead of previous passing rent and 0.8% ahead of
March 2019 ERV. Our leasing activity continued to reflect our focus
on occupiers providing essential goods and services, with deals
signed with brands including B&M, Home Bargains, Wilko,
Poundland, Boots and Specsavers. We made good progress letting
vacant space at our acquisitions during the year, as we signed a
10-year lease with B&M at Sprucefield Retail Park, Lisburn and
a 10-year lease with Iceland at Wakes Retail Park on the Isle of
Wight.
The size of the Hawthorn Leisure community pub portfolio
increased from 665 pubs at 31 March 2019 to 720 at 31 March 2020,
as portfolio acquisitions during the year more than offset our
active disposal programme. Our pub occupancy remained high at 97.0%
at 31 March 2020 (31 March 2019: 97.9%), and we delivered
like-for-like EBITDA per pub growth of +2.3% in the year up until
March 2020 (+5.9% excluding the month of March 2020). This strong
performance was driven predominantly by the scale-based synergies
achieved by the integration of Hawthorn Leisure into NewRiver in
January 2019. Since our acquisition of Hawthorn Leisure, we have
completed 131 capital expenditure projects aimed at enhancing the
customer experience, further improving trade, and increasing
capital values, at a total cost of GBP6.1 million, which have
delivered an average return on investment of 16.9%. Further details
on the performance of our community pub portfolio can be found in
the Property and Finance reviews.
We also made good progress with our 2.5 million sq ft
risk-controlled development pipeline, of which 72% relates to
residential. During the year we completed the construction of an
11,700 sq ft development at the site of the former Sea View Inn in
Poole, Dorset, comprising a Co-op c-store and 10 residential units.
We also completed the development of two pods at Waterfront Retail
Park in Barry, Wales which have been pre-let to Costa and Burger
King. In addition, we began the development of an 85-room Premier
Inn in Romford, Greater London, which has been sold as part of a
pre-let forward funding agreement. Longer-term, we held our first
community engagement on our 630,000 sq ft mixed-use regeneration of
Grays Shopping Centre in Essex during the year, which will be
followed by the submission of an outline planning application later
this year.
Our disposal programme saw us complete GBP48.4 million of
disposals during the year, reflecting a blended NIY of 5.5% and a
modest 1.5% discount to March 2019 valuation. These were across all
asset types, reflecting the liquidity of our assets, which
typically have low lot sizes and alternative use potential, making
them attractive to a wide pool of potential buyers.
Demonstrating leadership in ESG
As an owner of assets located in communities across the UK, we
are committed to enhancing the lives of the people we serve while
minimising our impact on the environment. This commitment gained
even more relevance in recent months, as we witnessed the devasting
economic and social impact that the COVID-19 pandemic has had on
our communities.
One of consequences of the crisis has been an increased demand
for foodbanks, which we saw first-hand through our charity
partnership with the Trussell Trust, whose vital work supports over
1,200 food banks across the UK. To date, we have donated over
GBP100,000 to the Trussell Trust, our team members have regularly
volunteered at Trussell Trust sites, and our assets have been made
available for storage, awareness campaigns and volunteer
recruitment. In April 2020, I joined my Board colleagues in waiving
20% of our salaries and fees, and donating these to the Trussell
Trust, a gesture of appreciation for their tireless efforts to help
those most in need.
Our partnership with the Trussell Trust is just one of the
pillars of our comprehensive Environmental, Social and Governance
('ESG') programme. The programme has had its most active year to
date, and I was delighted to see our efforts recognised with the
receipt of a GRESB Green Star in September 2019 for the second
consecutive year, with a 13% improvement on our GRESB Score from
the previous year, and a 94% improvement from our first entry to
the benchmark in 2016. GRESB is the leading sustainability
benchmark for the global real estate sector, and this achievement
underlines the significant progress we have made in this area in a
relatively short period of time.
Our response to COVID-19
Cash reserves, liquidity and financial position
We took early and decisive action from the onset of COVID-19 to
prudently manage our cash resources and increase liquidity in the
business. At 31 March 2020 we had GBP82 million of cash reserves
and GBP45 million of undrawn revolving credit facilities, providing
sufficient liquidity of GBP127 million. On 29 April 2020, we
received confirmation from the Bank of England that we are eligible
to access GBP50 million of funding under the Covid Corporate
Financing Facility ('CCFF'), a joint HM Treasury and Bank of
England lending facility. This facility is currently undrawn, but
improves our available liquidity position to GBP177 million, and is
available to be drawn at the Bank of England's discretion for a
tenure of up to 12 months until March 2021.
We are also taking a prudent approach to preserving cashflow and
reducing operational costs. These measures include the suspension
of all non-essential capital expenditure projects, which will
improve cashflow in FY21 by GBP24 million, and the suspension of
business rates and marketing in our shopping centres and our
community pubs, which will improve cashflow by a further GBP4
million. In-line with our risk-controlled approach, we have limited
contractual capex requirements across our development pipeline.
Our wholly unsecured balance sheet is one of the differentiating
characteristics of our financial position and provides significant
operational flexibility. We have no bank refinancing events due
prior to August 2023, and our GBP300 million corporate bond is not
due for repayment until 2028. We are also compliant with all debt
covenants.
On 1 April, Fitch Ratings affirmed NewRiver's Long-Term Issuer
Default Rating ('IDR') at 'BBB' with a Stable Outlook and senior
unsecured rating at 'BBB+'. The senior unsecured rating applies to
NewRiver's GBP300 million senior unsecured bond dated 2028.
NewRiver was also assigned a new 'F2' Short-Term IDR.
Safety and wellbeing
As the UK Government's response to COVID-19 continues, the
safety and wellbeing of our staff, occupiers, pub partners, and all
the customers who visit our assets, are our top priority. Across
our portfolio, our asset management teams have been working
tirelessly to ensure that our centres are accessible to those who
need them for essential shopping, while taking all necessary steps
to ensure they provide a safe environment where social distancing
measures are adhered to.
At a corporate level, we were well-prepared for a prolonged
period of remote working. Our head office employees have all been
provided IT equipment to enable them to work from home and have
participated in regular update calls and initiatives to ensure they
are aware of the latest developments, and to promote their physical
and mental wellbeing. We continue to closely monitor UK Government
guidance and stand ready to act on the latest advice.
Retail portfolio
Our retail portfolio is focused on occupiers providing essential
goods and services in their local communities, and almost
two-thirds of our retail assets are anchored by a major food and
grocery brand. As a result, almost 40% of our occupiers remained
open throughout lockdown, following the UK Government's order on 23
March 2020 that all non-essential retail premises must close.
Since the beginning of COVID-19, we have engaged constructively
with our occupiers to collect contractual rent due. All our rents
are due in advance, but payment methods vary by occupier, with the
majority opting for quarterly payments.
The table below shows the status of quarterly and monthly rents
with due dates from 25 March to 1 June 2020, which roughly equates
to the period of lockdown. The total rent due for this period is
GBP17.1 million.
Retail rents with due dates between 25 March and 1 June 2020
Status % retail rents due
Collected 52%
===================
Deferred 15%
===================
Re-gear 6%
===================
Moved to monthly payments 2%
===================
Total collected or alternative payments
agreed 75%
===================
Waived 4%
===================
Rent outstanding 21%
===================
Total (%) 100%
===================
Total (GBPm) GBP17.1m
===================
Of the total rent due, 52% has already been collected and a
further 23% is to be collected through alternative payments agreed
with retailers. These alternative payments include deferrals, with
payment plans agreed with retailers over periods averaging 10
months, re-gears, through which occupiers have been offered
concessions in return for committing to longer lease periods, and
moving retailers from quarterly to monthly collections.
We continue to engage with occupiers representing the 21% of
rent outstanding, to either recover late payments or agree
alternative arrangements. We are confident that rent collection
rates for the lockdown period will improve further as normal
trading conditions resume.
Occupiers have benefitted from a business rates holiday through
to March 2021 and significant reductions in service charges that we
have achieved both prior to and since COVID-19. Both of these will
be conducive to occupiers returning to profitability and fulfilling
their contractual rent obligations once stores reopen.
Hawthorn Leisure operations
Following the UK Government's announcement on 20 March 2020 that
entertainment and hospitality premises must close, Hawthorn Leisure
temporarily closed all its sites. We had anticipated pub closures
for some time before the announcement, so were well-prepared for
this outcome.
Since these closures, our Business Development Managers have
been working closely with our pub partners to ensure they are
receiving the support required for their businesses to emerge from
the lockdown in a strong position. This has included assistance
with applications for the UK Government's Retail, Hospitality and
Leisure Grant Fund ("RHLGF"). The RHLGF offers grants of up to
GBP25,000 for businesses with rateable values up to GBP51,000,
meaning that almost all of our pub partners are eligible for these
grants. Pub partners have accessed other UK Government support
schemes, including the Coronavirus Job Retention Scheme, whereby
the UK Government will pay 80% of the wages of employees who are
unable to fulfil their roles due to the impact of COVID-19, and the
12-month business rates holiday for businesses operating in the
hospitality sector, which applies automatically. The business rates
holiday will also result in a direct saving to Hawthorn Leisure of
GBP1 million.
For our Leased & Tenanted pubs, which represent the majority
of our portfolio, rents due from lockdown to 30 June total GBP3.8
million. Based on a financial appraisal of all pub tenants we are
confident in recovering GBP1.7 million of this rent, of which
GBP1.5 million has already been committed and GBP1.4m received. The
remaining rent will either be waived as part of our conditional
support grants provided to pub partners, or will be subject to a
claim for the business disruption and loss of rent caused by
COVID-19. We do not receive any rental income from our operator
managed pubs.
We have also focused on mitigating operating costs. We
furloughed the majority of Hawthorn Leisure head office staff for
the duration of lockdown, and we have topped up the 80% payment
under the Coronavirus Job Retention Scheme to ensure there is no
reduction in regular pay. We have also carefully managed our supply
and distribution contracts and sought concessions from suppliers
such as satellite TV providers.
Our plans are well-advanced to reopen the pub portfolio. Pubs
will be allowed to reopen in 'Step 3' of the UK Government's
COVID-19 Recovery Strategy, which the Government expects to
implement no sooner than 4 July 2020. We are confident that we will
deliver an operational business by this date, based on our
comprehensive reopening plan that covers areas such as safe working
practices and the provision of personal protective equipment, the
reopening of supply chains, and enhancing support for our pub
partners throughout the reopening phase, both operationally and
financially. The phasing of our reopening will be optimised to
achieve a good balance between maintaining cost efficiencies while
ensuring the business is fully operational as soon as possible.
Our disposal programme across the pub estate continues to be
active despite the current restrictions on pub operations,
reflecting the inherent liquidity of these assets. Since 1 April
2020, we have completed six pub disposals and one c-store
disposals, generating total sales proceeds of GBP2.9 million,
demonstrating that even during a lockdown there is still good
liquidity in local community pubs.
Finally, 93% of our pub tenants and partners have fed back to us
in a recent survey that they felt Hawthorn had exceeded or met
their expectations of support during the lockdown period. We have
had confirmation from 74% of our Leased and Tenanted pubs that they
intend to open on 4 July 2020, and 22% are awaiting to see the
final Government guidelines. For the pub business to have collected
over a third of rent due during lockdown and to have generated so
much goodwill from its support actions during this period puts the
Company in a good place to bounce back following reopening in July
and over the summer months.
Outlook for the current financial year
Scenario analysis
Against a backdrop of continued uncertainty, we have undertaken
extensive scenario testing, factoring in the loss of income from
our pub portfolio and reduced rental income from our retail
portfolio. A summary of some of the most realistic scenarios being
tested are as follows:
Scenario FY21 Net property income compared to pre-COVID-19 forecast
Retail Pubs Group blended
---------------------- ------------------ -------------------
1 In-line to -10% -30% to -50% -18%
---------------------- ------------------ -------------------
2 -10% to -20% -50% to -70% -30%
---------------------- ------------------ -------------------
3 -20% to -30% -50% to -70% -38%
---------------------- ------------------ -------------------
4 -30% to -40% -50% to -70% -44%
---------------------- ------------------ -------------------
5 -40% to -50% -50% to -70% -50%
---------------------- ------------------ -------------------
Under each of these scenarios, we have also tested a portfolio
valuation decline significantly in excess of that seen in FY20. We
tested on a quarterly basis our debt covenant metrics for our
unsecured bank facilities and unsecured corporate bond, namely LTV
(excluding unamortised arrangement fees, tested every six months),
interest cover (tested on a rolling 12 month basis), and asset to
debt ratio. We also tested ongoing cash levels. The analysis
demonstrated that even in Scenario 5, the most extreme of these
scenarios, the business would hold sufficient cash funds and meet
all debt covenant requirements throughout the financial year.
At the beginning of the crisis, our expected outturn for the
year was in line with Scenario 4 as outlined above. However, taking
account of the fact that we still collected 52% of rent demanded
when less than 40% of our retail occupiers were open and trading,
and the UK Government's COVID-19 Recovery Strategy, with
non-essential retailers able to trade from 15 June 2020 meaning 60%
of our retail occupiers are now open and pubs expected to re-open
shortly, we expect our FY21 outturn to now be somewhere between
Scenario 2 and Scenario 3, with Group blended net property income
down reduced by 30% to 38%, compared to the Group's pre-COVID-19
forecast.
In our modelling, we have considered how certain characteristics
of our assets are likely to mean they will outperform the wider
market when lockdown restrictions are gradually eased. In retail,
all of our assets have remained open throughout the lockdown for
access to essential goods and services. Our shopping centres are
located in town and city centres with many customers arriving by
foot and have typically lower dwell times, reducing issues around
overcrowding. Our retail parks are large, uncovered spaces with
sizeable car parks, allowing retailers to easily implement control
measures such as queues and spacing of vehicle parking. In our pub
portfolio, our community focus means that our pubs are often close
to homes rather than workplaces. Most of our pubs are wet-led
rather than food-orientated, and over 70% have outside spaces,
making it easier to implement enhanced hygiene and social
distancing measures.
Adapting our strategies to the changed operating environment
Disposal programme
As the real estate capital markets recover in the coming year,
we are targeting between GBP80 million and GBP100 million of asset
disposals, while maintaining discipline in disposal pricing. The
proceeds will predominantly be used to reduce debt, but we will
also recycle into capital partnerships opportunities where
appropriate. We have made good early progress against this target
as we have completed, exchanged or are under offer on GBP30.3
million of disposals so far in FY21.
Capital partnerships
Our asset management platform comprises a dedicated and highly
experienced team of asset managers, working alongside finance,
development, and marketing professionals. The integration of these
teams provides a powerful platform that can be used to support
private and public partners through every stage of property
ownership. Our capital partnership business aims to leverage this
asset management platform to grow income in a capital light
way.
Through our joint venture relationships to date we have
benefitted from high returns on invested capital through the
receipt of a share of rental income, asset management fees and
promotes. Dislocations in real estate valuations following COVID-19
will provide significant opportunities to acquire high quality
retail assets at attractive prices, and we will work closely with
our joint venture partner, BRAVO, to identify these opportunities
and build our existing joint venture relationship.
Our capital partnerships business is also focused on supporting
Local Authority partners. As the ultimate custodians of their town
and city centres, we believe Local Authorities are naturally placed
to take a leadership role in addressing a key issue facing many
towns and cities, which is an excess of retail space. COVID-19 will
likely further encourage this intervention, either because Local
Authorities are seeking additional income streams to address
funding shortfalls, or because asset owners are facing increasing
pressure. Our platform already has extensive experience in
delivering town centre regeneration schemes, such as our projects
in Burgess Hill, Cowley - Oxford, and Grays, and we aim to partner
with many other Local Authorities in order to transform their own
town and city centres.
Growth from pubs
Our first priority in FY21 is to fully reopen our community pub
portfolio, through the successful implementation of our pub
reopening strategy. Once reopened, we intend to continue our
programme of targeted capital expenditure projects to improve
returns and extract further value from our pub sites through
risk-controlled development, including our c-store programme. We
will also continue our active disposal programme of pubs, which has
been successful at generating good returns through recycling of
capital. Recent COVID-19 surveys have concluded that consumers are
more likely to shop locally and visit their local neighbourhood pub
than a high street or night time bar, and our community pub
portfolio is well placed to benefit from this when the lockdown
provisions are lifted.
Allan Lockhart
Chief Executive
18 June 2020
Property review
Highlights
-- Portfolio valued at GBP1.20 billion as at 31 March 2020 (31 March 2019: GBP1.29 billion)
-- Total property return outperformed the MSCI-IPD benchmark by
480 bps, with a total decline of -5.4%,
-- Completed GBP172.8 million of acquisitions (NewRiver share:
GBP102.3 million) at a blended NIY of 9.5%
-- Completed GBP48.4 million of disposals across all asset types, at a blended NIY of 5.5%
-- Retail occupancy remained high at 94.8% (March 2019: 95.2%);
average rent remains affordable at GBP12.66 (March 2019: GBP12.52);
and like-for-like footfall outperformed the UK benchmark by 100
bps
-- Completed 678,100 sq ft of new lettings and renewals across
the retail portfolio; long-term deals on average 1.2% ahead of
previous passing rent and 0.8% ahead of March 2019 ERV
-- Hawthorn Leisure portfolio increased from 665 to 720 pubs;
occupancy of 97.0% at 31 March 2020 (31 March 2019: 97.9%); EBITDA
growth of +5.9% excluding month of March 2020, +2.3%, including
March 2020
-- Risk-controlled development pipeline stands at 2.5 million sq
ft, of which 1.8 million sq ft relates to residential
development
Valuation
At 31 March 2020, our portfolio was valued at GBP1.20 billion
(March 2019: GBP1.29 billion), as net acquisition activity was more
than offset by a -12.3% like-for-like decline in portfolio
valuation. The decline was driven by 70 bps outwards yield shift
and a -5.5% decline in ERVs. The portfolio is now valued of an
equivalent yield of 8.9%. A breakdown of the key valuation
movements by asset type is provided below.
As at 31 March Valuation Portfolio Valuation Topped-up NEY LFL ERV
2020 (NRR share) Weighting surplus/ NIY Movement
(deficit)
----------
(GBPm) (%) (%) (%) (%) (%)
------------- ----------- ----------- ---------- ----- ----------
Regional shopping
centres 472 39 (17.6) 8.1 9.2 (6.7)
------------- ----------- ----------- ---------- ----- ----------
London shopping
centres 148 12 (5.3) 5.8 5.9 (1.8)
------------- ----------- ----------- ---------- ----- ----------
Shopping centres 620 51 (14.9) 7.6 8.4 (5.8)
------------- ----------- ----------- ---------- ----- ----------
Retail parks 224 19 (8.9) 7.5 7.4 (4.0)
------------- ----------- ----------- ---------- ----- ----------
High street 12 1 (17.0) 10.1 9.3 (4.5)
------------- ----------- ----------- ---------- ----- ----------
Pubs & c-stores 275 23 (8.2) 11.1 11.1 -
------------- ----------- ----------- ---------- ----- ----------
Development 66 6 (14.0) - - -
------------- ----------- ----------- ---------- ----- ----------
Total 1,197 100 (12.3) 8.4 8.9 (5.5)
------------- ----------- ----------- ---------- ----- ----------
Our valuation performance reflects another challenging year for
the UK retail sector, and the onset of COVID-19. The UK lockdown in
response to COVID-19 accounted for 31% decline in portfolio
valuation. It accounted for 20% of the decline in shopping centres
and 26% of the decline in retail parks. All of the valuation mark
down on the pub portfolio was due to COVID-19, with a modest mark
down for some of our c-stores.
All our valuation reports include a "material valuation
uncertainty" disclosure. This states that valuers can attach less
weight to previous market evidence for comparison purposes, and
thus less certainty can be attached to their valuations than would
normally be the case. The valuers clarify that this does not mean
that valuations cannot be relied upon.
As the table below shows, our portfolio outperformed the
MSCI-IPD benchmark for both income return and capital growth during
the year, delivering a total return outperformance of +480 bps. In
our view, this outperformance is driven by the affordability of our
rents, which means our ERV decline was much less than others and
our equivalent yields are much higher, so less impacted by yield
expansion. It also reflects the liquidity of our assets, with an
average lot size of just GBP20.2 million for our shopping centres
and GBP13.3 million for our retail parks.
Year to 31 March 2020 Total Return Income Return Capital Growth
NRR portfolio -5.4% 7.8% -12.4%
------------- -------------- ---------------
MSCI-IPD Benchmark(1) -9.8% 5.4% -14.4%
------------- -------------- ---------------
Relative performance +480 bps +230 bps +240 bps
------------- -------------- ---------------
1. Benchmark includes monthly & quarterly valued retails
The Company undertook an alternative use value review at 31
March 2020 across its entire retail portfolio. This is a detailed
internal assessment factoring in demolition costs, construction
costs and a development profit to calculate the value of the next
best alternative use for our retail assets. Due to our assets being
predominantly located in town centres, the vast majority of the
alternative use potential relates to residential development.
At 31 March 2020, we calculated that the total alternative use
valuation ('AUV') for our retail portfolio was GBP803 million, just
12% below the total valuation of our retail assets of GBP916
million, which we consider to be an underpin to our valuations. In
particular, the AUV for our shopping centres was just 8% below 31
March 2020 valuations, validating the underpin to our shopping
centre valuations and the rationale for development across the
portfolio.
Disciplined stock selection
During the year, we acquired eight assets in five separate
transactions totalling GBP172.8 million (NewRiver share: GBP102.3
million), reflecting a blended net initial yield of 9.5%. This
comprises three assets acquired wholly by NewRiver, a further four
acquired in a 50:50 joint venture with BRAVO and one acquired in a
10% associate investment with BRAVO.
12 months to 31 March 2020 Acquisition NewRiver share Net initial Equivalent
price of acquisition yield yield
(GBPm) price (%) (%)
(GBPm)
Kittybrewster Retail Park,
Aberdeen 35.2 17.6 8.9 8.0
============ ================ ============ ===========
Telford Retail Park, Inverness 15.2 7.5 12.3 9.8
============ ================ ============ ===========
Units at Kingsway East Retail
Park, Dundee 3.6 1.8 8.4 9.7
============ ================ ============ ===========
Wakes Retail Park, Newport,
Isle of Wight 6.5 3.3 9.7 8.2
============ ================ ============ ===========
Poole Retail Park 44.7 4.5 8.0 7.9
============ ================ ============ ===========
Sprucefield Retail Park, Lisburn 40.0 40.0 8.6 7.9
============ ================ ============ ===========
Bravo Inns 17.9 17.9 14.0 14.0
============ ================ ============ ===========
Portfolio of 28 wet-led community
pubs 9.7 9.7 9.5 9.5
============ ================ ============ ===========
Total 172.8 102.3 9.5 8.9
============ ================ ============ ===========
Kittybrewster Retail Park, Aberdeen
In June 2019, we acquired Kittybrewster Retail Park, situated
one mile north of Aberdeen city centre, beside the A96 and in close
proximity to a Sainsbury's superstore. The 13-unit, fully-let
retail park offers 154,400 sq ft of retail space and 402 car
parking spaces, and has a convenience and value-led line-up
including B&M, TK Maxx, Sports Direct, Halfords and PureGym.
The asset has a low Rent to Sales ratio of 6.5%, which provides
significant headroom to the asset's Affordable Rent to Sales ratio
of 8.1%.
Telford Retail Park, Inverness
In June 2019, we acquired Telford Road Retail Park, located on
the north west edge of Inverness city centre, close to the A82. The
retail park provides 179,500 sq ft of retail space and is anchored
by B&M, Go Outdoors, Oak Furnitureland and Poundstretcher. The
asset has a low Rent to Sales ratio of 6.0% which provides
significant headroom to the asset's Affordable Rent to Sales ratio
of 7.5%, and the site has alternative use potential for hotels and
light industrial, facilitated by a low capital value per sq ft of
GBP35.
Units at Kingsway East Retail Park, Dundee
In June 2019, we acquired Kingsway East Retail Park, situated
two miles north east of Dundee city centre, close to the junction
of the A972 and A92, and is anchored by an Asda superstore. The
acquisition comprises two units: a 34,500 sq ft store let to
B&M and a 14,700 sq ft store let to home furnishings retailer
Harry Corry, which are adjacent to a 374-space car park. The asset
has a low and sustainable average rent of GBP6.45 per sq ft and a
very low land capital valuation of GBP23 per sq ft.
Wakes Retail Park, Newport, Isle of Wight
In June 2019, we acquired Wakes Retail Park, situated to the
north of Newport town centre, beside the A3020 and is located in
the main retail park concentration on the Isle of Wight. The retail
park provides 40,800 sq ft of retail space across three units, and
is anchored by Pets at Home and Currys PC World. The asset has a
low Rent to Sales ratio of 7.6%, which provides significant
headroom to the asset's Affordable Rent to Sales ratio of 9.0%. In
addition, the asset has alternative use potential for hotels and
residential, supported by a land capital valuation of GBP66 per sq
ft.
Poole Retail Park
In October 2019, we acquired Poole Retail Park, which is located
between the town centres of Poole and Bournemouth in Dorset,
adjacent to the A35 and close to a large residential area. The
fully-let retail park comprises 14 units offering 208,000 sq ft of
retail space, with a tenant line-up including John Lewis at Home,
DW Sports, Next Home, Homesense, Boots and Home Bargains, and a
free car park providing 805 spaces. At acquisition, the asset had
an attractive weighted average unexpired lease term of 6.7 years,
an affordable average rent of GBP18.24 per sq ft and an average
Rent to Sales ratio of 7.8%. We have identified a number of
opportunities to extract further value and enhance income streams
at the asset, including the expansion and adaption of units to
better meet the needs of current and prospective occupiers.
Sprucefield Retail Park, Lisburn
In December 2019, we acquired Sprucefield Retail Park. This
asset is located one mile south of Lisburn city centre, adjacent to
the main junction between Northern Ireland's M1 motorway and the A1
road, which is the main route connecting Northern Ireland to the
Irish Republic. The 47-acre site comprises a five-unit retail park
providing 231,000 sq ft of retail space, a 1,200-space free car
park and 18 acres of development land. The retail park is anchored
by Sainsbury's and B&Q, and has an affordable average rent of
GBP16.11 per sq ft, with a weighted average unexpired lease term of
7.5 years. We have identified significant opportunities to extract
further value from the asset, which has a total capital value per
sq ft of GBP19, through active asset management and the disposal of
parcels of land for development.
Bravo Inns
In December 2019, we acquired Bravo Inns, which owns 44 wet-led
community pubs, predominantly located in North West England. Its
management team have established a high-quality, well-managed and
well-invested portfolio which complements our existing pub
portfolio. The acquisition has increased our exposure to the highly
profitable operator managed pub model, which will provide the
Company with opportunities to drive higher returns through
accretive capital expenditure and other asset management
initiatives. The purchase price of GBP17.9 million equated to 6.8x
EBITDA. This acquisition has been accounted for as a business
combination under IFRS 3.
Portfolio of 28 wet-led community pubs
In January 2020, we made an off-market purchase of a hand-picked
portfolio of 28 community pubs from Marston's PLC. These leased and
tenanted pubs offer a range of opportunities to extract further
value, including through targeted capital expenditure and
development on surplus land.
Active asset management
We have developed a market-leading retail asset management
platform since NewRiver was founded over 10 years ago, and with the
integration of Hawthorn Leisure in January 2019, we now also have a
highly experienced pub management platform. Together these allow us
to take a hands-on approach to asset management, drawing on our
expertise, scale, and strong relationships with our occupiers and
pub partners to deliver the right space in the right locations on
terms beneficial to all parties. We believe this platform contains
inherent value which we plan to further extract through our capital
partnerships business.
Retail portfolio
During the first half we completed 678,100 sq ft of new lettings
and renewals across our retail portfolio, representing GBP5.7
million of annualised rent. This high volume of leasing activity
means that our occupancy rate remained high at 94.8% despite the
challenging market backdrop. On average, long-term deals were
signed 1.2% ahead of previous passing rent and 0.8% ahead March
2019 ERV, at an average rent of GBP15.97 per sq ft. Long-term deals
had an average lease length of 8.6 years.
Our leasing activity reflected our focus on occupiers providing
essential goods and services in the discounter space, we agreed
deals with B&M, Home Bargains, The Works, Wilko and Poundland.
This included a new 10-year lease with Poundland on a 34,000 sq ft
unit at the Abbey Centre, near Belfast, where the retailer was
upsizing from an existing unit elsewhere in the centre to a space
vacated by Primark, following its own upsizing within the centre.
In the health & beauty space, we signed three leases with
Superdrug and further deals with Boots, Grape Tree and Specsavers.
We continue to see demand from low-cost gym operators, particularly
within our retail park portfolio, and during the period we signed a
new letting with The Gym Group at Victoria Retail Park Beverley,
where the brand launched one of its first "small-box" format gyms.
We also made progress letting vacant space at our new acquisition
during the year, signing a 10-year lease with B&M on a unit at
Sprucefield Retail Park, Lisburn on a previously vacant unit and
signed a new 10-year lease with Iceland at Wakes Retail Park on the
Isle of Wight, to open a new "The Food Warehouse" format store.
During the period we also renewed leases on 29 Amazon Lockers
across our shopping centre portfolio, underscoring their importance
as Click & Collect destinations.
Top retail occupiers
Rank Occupier % Total gross income Number of stores in
portfolio
1 Sainsbury's 2.3 3
--------------------------- --------------------- --------------------
2 B&M 2.1 12
--------------------------- --------------------- --------------------
3 Poundland 1.7 20
--------------------------- --------------------- --------------------
4 Superdrug 1.7 16
--------------------------- --------------------- --------------------
5 Wilko 1.6 8
--------------------------- --------------------- --------------------
6 Boots 1.5 17
--------------------------- --------------------- --------------------
7 Primark 1.4 4
--------------------------- --------------------- --------------------
8 TK Maxx 1.3 8
--------------------------- --------------------- --------------------
9 New Look 1.2 14
--------------------------- --------------------- --------------------
10 Marks & Spencer 1.2 4
--------------------------- --------------------- --------------------
Subtotal 16.0
--------------------------- ---------------------
e.g. Next, B&Q, Iceland,
11-25 Home Bargains 12.4
--------------------------- ---------------------
e.g. Greggs, Costa, Tesco,
26-100 Dunelm 19.4
--------------------------- ---------------------
Total 47.8
--------------------------- ---------------------
Our retail rental income is well-diversified, with 1,800 leases
across over 850 different occupiers, and our top occupiers are
focused on providing essential goods and services. The Company's
policy is that no single retailer will account for more than 5% of
total rent, and our top tenant in terms of gross rental income at
year end was Sainsbury's, accounting for 2.3% of total rent.
Alongside this diversification, our affordable rents are key to
ensuring the sustainability of our income, and our average remained
affordable at GBP12.66 per sq ft at 31 March 2020.
Pub portfolio
During the year, the size of our Hawthorn Leisure community pub
portfolio increased from 665 to 720, as portfolio acquisitions more
than offset disposals. The portfolio is geographically spread
throughout England, Scotland and Wales. Our community pubs are
almost all wet-led and operated by individuals, typically as a
family business. At over two-thirds of our pubs, the operator lives
in residential accommodation provided on-site.
Across Hawthorn Leisure, 82% of sites operate under a Leased
& Tenanted model, whereby the Company has an occupational lease
with a tenant, who is responsible for all operating costs of the
pub, including staff costs. Most of our Leased & Tenanted pubs
are 'tied', meaning that tenants are required to purchase drinks
from the Company and lease games machines from Company-approved
suppliers. In return, Hawthorn Leisure receives rental income, a
margin between the wholesale price and sale price to tenants on
drinks supplied, and a share of machine profits.
The remaining 18% of Hawthorn Leisure sites operate under an
Operator Managed model, whereby the Company enters into an operator
agreement with a pub partner. The Company incurs all operating
costs of running the pub, except for staff costs, which are borne
by the operator. In return, the Company receives gross turnover
generated by the pub and pays a management fee to the pub partner,
which is on average around 20% of net revenue.
One of our key strategies is to extract growth from our pubs,
and our 23 Business Development Managers are on the ground working
with our pub partners to find new ways to grow income, reduce costs
and create thriving pubs that serve local communities. This is
reflected in a high occupancy rate across our pub portfolio, which
was 97.0% at 31 March 2020 (31 March 2019: 97.9%).
During the year, like-for-like EBITDA per pub increased 2.3%.
Excluding the month of March 2020, during which the pubs were
impacted by the onset of COVID-19 and eventually temporarily closed
by a UK Government order on 20 March, like-for-like EBITDA per pub
increased 5.9%. This strong performance was driven predominantly by
the scale-based synergies achieved by the integration of Hawthorn
Leisure into NewRiver in January 2019.
Across the pub portfolio, we continued our programme of targeted
capital investment projects aimed at enhancing the customer
experience, further improving trade, and increasing capital values.
Since our acquisition of Hawthorn Leisure, we have completed 131
such projects at a total cost of GBP6.1 million, which have
delivered an average return on investment of 16.9%.
During the year, we opened a dedicated pub partner training
centre in Macclesfield, which provides a comprehensive training
course encompassing sales, marketing, business planning and
financial control. To date, almost 50 pub partners have completed
self-funded training courses at the centre and feedback has been
very positive. In the coming year, we will be looking to roll out
our training platform further across the business.
Other asset management initiatives have included the launch of
our Online Toolkit, which give pub partners access to marketing
materials and how-to guides for drinks offers, entertainment,
sports events and functions, and the launch of an EPOS-integrated
loyalty card scheme across our operator managed pubs, which now has
over 12,000 cards in operation, driving repeat visits and providing
valuable consumer insights.
Risk controlled development
Our risk-controlled development pipeline totals 2.5 million sq
ft (2.1 million sq ft in the near-term) and is one of the ways in
which we extract further value from our assets. Reflecting our
focus on realising alternative use potential, over 70% of the
pipeline relates to residential development.
For most of the projects in our pipeline, we intend to either
sell the site with the benefit of planning or continue with
development through capital partnerships. However, for projects in
our pipeline with a lead time of less than 12 months, such as our
c-store developments for the Co-op, we will typically fund and
manage the construction ourselves, using our experienced in-house
development team.
Total development pipeline
Shopping Retail Health Hotel C-store Residential Total Retail Resi
Centre Park & Social Pipeline & Pre-sold
Care Leisure
Pre-let
Sq ft Sq ft Sq ft Sq ft Sq ft Sq ft Sq ft % %
Completed/Under
construction
in FY20 - 3,600 - 37,900 3,600 8,100 53,200 100 0
--------- -------- --------- -------- -------- ------------
Planning granted 266,300 12,000 - 49,800 10,700 549,100 887,900 57 29
--------- -------- --------- -------- -------- ------------ -------- ---------
In planning - - - - 3,500 25,400 28,900 100 0
--------- -------- --------- -------- -------- ------------ -------- ---------
Pre-planning - 160,000 54,200 - 3,500 872,500 1,090,200 52 0
--------- -------- --------- -------- -------- ------------ -------- ---------
Near-term
pipeline 266,300 175,600 54,200 87,700 21,300 1,455,100 2,060,200
--------- -------- --------- -------- -------- ------------ -------- ---------
Early
feasibility
stages - - - 50,000 - 378,000 428,000
--------- -------- --------- -------- -------- ------------ -------- ---------
Total pipeline 266,300 175,600 54,200 137,700 21,300 1,833,100 2,488,200
--------- -------- --------- -------- -------- ------------ -------- ---------
Additional
residential
potential(1) - - - - - 451,200
--------- -------- --------- -------- -------- ------------
Basingstoke 700,000 - - - - -
Leisure Park
--------- -------- --------- -------- -------- ------------
1. A strategic review of our entire retail portfolio identified
the p otential to deliver residential units adjacent to or above
our assets over the next 5-10 years
Developments completed or under construction in the year
During the year we partially completed the construction of a
11,700 sq ft development at the site of the former Sea View Inn in
Poole, Dorset, comprising a Co-op c-store and 10 residential units.
We also completed the development of two pods at Waterfront Retail
Park in Barry, Wales which have been pre-let to Costa and Burger
King. We commenced the development of an 85-room Premier Inn on the
site of a high street unit in Romford, Greater London, which has
been sold to a property investor as part of a pre-let forward
funding agreement.
Overview of key developments
Site Status Size Description
Burgess Planning 465,000
Hill granted sq ft * Earlier in the year, we submitted a revised planning
application for the mixed-use regeneration of Burgess
Hill town centre to Mid Sussex District Council.
* Working closely with local stakeholders, we adjusted
the design of the scheme to increase its residential
provision, from 142 units to 172, and reduce space
designated for retail, reflecting the changing nature
of the retail market and needs of town centres.
* The revised scheme will include a 16-lane bowling
alley, a 10-screen multiplex cinema, and an 85-bed
hotel with a new public café bar.
* In addition, the development will provide a
significantly improved public realm which would
provide functional space for managed outdoor events.
* COVID-19 has had an impact on planning committee
schedules but we understand that the scheme remans a
priority for Council to bring to committee over the
summer.
------------- -------- --------------------------------------------------------------
Cowley, Planning 236,000
Oxford granted sq ft * Oxford City Council has approved plans for our
mixed-use redevelopment of Templars Square Shopping
Centre.
* The scheme will include 226 new residential
apartments, a 71-bed hotel, two new restaurant units,
a modernised car park and major improvements to the
public realm. The hotel and leisure element of the
scheme is 82% pre-let.
* We are about to complete the Section 106 and Section
278 Agreements at the site and are now identifying a
delivery partner to advance the technical design and
deliver the scheme.
* We are also exploring additional phases of
development to unlock further mixed-use potential
from the asset.
------------- -------- --------------------------------------------------------------
Grays Pre-planning 630,000
sq ft * We acquired Grays Shopping Centre in June 2018, as we
recognised a significant value-creating opportunity
for redevelopment at the site, which is located just
35 minutes from Central London by train.
* We are currently working closely with Thurrock
Council to bring forward a redevelopment plan that
would reduce and repurpose existing retail floorspace,
increase public open areas and facilitate an improved
pedestrian flow through Grays town centre, as well as
providing over 800 new homes.
* At the end of February 2020, we held a Community
Planning Weekend at the site, attended by hundreds of
local residents and businesses who shared thoughts
for the vision of a regenerated town centre.
* The community input was collated and produced into a
feedback report and conceptual layout which was
presented to the public in the town theatre. The
feedback vision document was then adapted to comprise
a pre-application presentation which was submitted to
Thurrock Council in May 2020. The outcome of the
pre-app discussions will evolve the vision document
further, which will then be presented back to the
community prior to a formal planning application
being prepared.
------------- -------- --------------------------------------------------------------
Poole Pre-planning 80,000
Retail sq ft * We acquired Poole Retail Park in a 10% associate
Park investment with BRAVO in October 2019
* Since acquisition, we have agreed terms with a
national retailer to occupy a new 80,000 sq ft unit
to be built on a site currently occupied by Homebase
------------- -------- --------------------------------------------------------------
Rishworth Pre-planning 19,000
Centre sq ft * We have signed an agreement for lease with Aldi to
and Railway occupy a 19,000 sq ft unit at Rishworth Centre and
Street Railway Street Retail Park, Dewsbury, expanding an
Retail existing unit that is currently occupied by Next.
Park,
Dewsbury
------------- -------- --------------------------------------------------------------
Smaller residential developments
During the year we also advanced plans on several smaller
residential projects across our portfolio. In August 2019, we
received planning approval from Hull City Council for the
conversion of vacant office space above the Prospect Shopping
Centre, Hull into 58 residential units, which we now intend to sell
to a residential property developer. We also progressed planning
applications for 36 residential units at The Avenue shopping centre
in Newton Mearns, near Glasgow, which is under offer to a local
housing developer, and 15 residential units at the Deeping Centre
in Market Deeping, which is also under offer to a residential
developer.
At the Newlands Shopping Centre, Witham we are producing a
masterplan for the centre which would see the delivery of around
129 new residential units and are aiming to submit this to
Braintree District Council in summer 2020.
We are currently working on a new residential- led masterplan
with Bournemouth, Christchurch & Poole Council as part of the
Council's Towns Fund bid, through which it expects to receive up to
GBP25 million of grant funding for Boscombe Town Centre. A
Memorandum of Understanding has been agreed between us and the
Council to work in partnership across both parties' properties to
deliver a medium to high density residential led redevelopment of
the whole area.
Convenience store ('c-store') developments
To date we have delivered 26 c-stores to the Co-op, of which 18
utilised surplus land adjacent to existing pubs, three were the
result of pub conversions and five were new builds on sites
previously occupied by pubs. During the period we completed a
c-store development at the site of the Sea View Inn in Poole,
Dorset. Upon completion, the development unlocked a GBP275,000
performance receipt from the Co-op, which is now under offer to a
private investor.
We are currently exploring further c-store opportunities on
surplus land across our pub portfolio. This includes one of our
sites in Glasgow, where we could deliver a scheme similar to the
development at the Sea View Inn in Poole, comprising a c-store and
up to 30 apartments.
Profitable capital recycling
During the year, we completed GBP48.4 million of disposals,
reflecting a blended NIY of 5.5% and a modest 1.5% discount to
March 2019 valuation. In-line with our strategy, disposals were
typically of mature assets where our estimates of forward-looking
returns were below target levels, assets where we believe that the
risk profile has changed, or assets sold to special purchasers.
12 months to 31 March Number of Disposal March 2019 Disposal Blended Blended
2020 transactions price Valuation vs NIY IRR
(GBPm) (GBPm) Valuation (%) (%)
(%)
Shopping centres 2 20.4 20.8 -2.2 7.0 4.5
-------------- --------- ----------- ----------- -------- --------
Retail parks 1 1.9 1.9 - - 5.2
-------------- --------- ----------- ----------- -------- --------
High Street 2 2.4 3.1 -22.0 6.4 -10.6
-------------- --------- ----------- ----------- -------- --------
Pubs and pub land 30 8.1 7.4 +10.5 3.2 11.3
-------------- --------- ----------- ----------- -------- --------
C-stores 14 15.6 16.0 -2.6 5.2 23.1
-------------- --------- ----------- ----------- -------- --------
Total 49 48.4 49.2 -1.5 5.5 11.1
-------------- --------- ----------- ----------- -------- --------
Finance review
Our financial performance was relatively robust during the year,
against a challenging market backdrop which worsened in March 2020
with the onset of COVID-19. Underlying Funds From Operations
('UFFO') were GBP52.1 million, including lost income and provisions
specifically relating to COVID-19 of GBP2.8 million, compared to
GBP55.1 million in the prior year. Our IFRS loss after tax was
-GBP121.1 million, compared to a loss of -GBP36.9 million in the
prior year, predominantly due to a non-cash reduction in portfolio
valuation of GBP166.9 million.
We paid three quarterly dividends of 5.4 pence per share during
the year, totalling 16.2 pence. In March 2020, the decision was
taken not to pay a fourth quarter dividend due to the impact of
COVID-19 on the Company's operations. We took the decision that in
this time of unprecedented disruption and uncertainty, our focus
should be on managing cash resources very carefully and maintaining
liquidity in the business. The total dividend in respect of the
year ended 31 March 2020 is therefore 16.2 pence per share, which
is 105% covered by UFFO. A great deal of uncertainty still remains
as to the impact of COVID-19 on our performance and so the Board
has also decided not to pay a dividend in respect of the first
quarter of FY21. It is our firm intention to resume dividend
payments as quickly as possible, when conditions allow.
Our portfolio was valued at GBP1.20 billion at 31 March 2020,
compared to GBP1.29 billion at 31 March 2019, as net acquisitions
were more than offset by a -12.3% like-for-like decline in
portfolio valuation. Our EPRA net asset value per share was 201
pence per share (March 2019: 261 pence), also predominantly due to
a non-cash reduction in portfolio valuation, and our IFRS net
assets were GBP610.6 million (March 2019: GBP796.1 million),
decreased for the same reason.
Resilient balance sheet and strong liquidity position
Despite the disruption to operations caused by the COVID-19
pandemic, our balance sheet remains very well positioned, due to
the hard work we completed in 2017 and 2018 to move to a fully
unsecured and unencumbered capital structure. Our LTV increased
from 37% at 31 March 2019 to 47%, with the majority of the increase
occurring in the second half of the financial year, due
predominantly to the decline in our portfolio valuation, but also
due to a reduction in the rate of completed disposals in Q4 due to
COVID-19. While LTV at this level remains safely below our covenant
thresholds, our focus will be to improve LTV to be more in-line
with our guidance of being below 40%, through disposals in FY21. We
have already completed, exchanged or are under offer on GBP30.3
million of disposals so far in FY21. Our interest cover ratio, the
other covenant common across our unsecured facilities, remains high
at 3.8x, which compares to our stated policy of >2.0x, and our
closest covenant of 1.75x.
Our liquidity position remains strong, and as at 31 March 2020
we had GBP82.1 million of cash and GBP45.0 million of undrawn
revolving credit facilities, giving available liquidity of GBP127.1
million. The cash position at the year end is significantly greater
than usual, because we drew an additional GBP50 million of our
revolving credit facility in March 2020. Looking forward, in order
to preserve this position, the Company is taking a prudent approach
to preserving cashflow and reducing operational costs. These
measures include the suspension of all non-essential capital
expenditure projects, which will improve cashflow in FY21 by GBP24
million, and the suspension of business rates and marketing in our
shopping centres and our pubs which will improve cashflow by a
further GBP4 million.
On 1 April 2020, Fitch Ratings affirmed NewRiver's Long-Term
Issuer Default Rating ('IDR') at 'BBB' with a Stable Outlook and
senior unsecured rating at 'BBB+'. The senior unsecured rating
applies to NewRiver's GBP300 million senior unsecured bond dated
2028. NewRiver was also assigned a new 'F2' Short-Term IDR. On 29
April 2020, we received confirmation from the Bank of England that
we are eligible to access GBP50 million of funding under the Covid
Corporate Financing Facility ('CCFF'), a joint HM Treasury and Bank
of England lending facility. This facility is undrawn at this
stage, but improves our available liquidity position to GBP177.1
million, and is available to be drawn at the Bank of England's
discretion for a tenure of up to 12 months until March 2021.
Since the UK entered lockdown in March, we have continued to
monitor our liquidity position, and have undertaken detailed
analysis and stress testing which demonstrates that NewRiver
remains a financially sound business with a capital structure that
is well placed to absorb a prolonged period of uncertainty.
Finally, we have a covenant light capital structure with all of
our balance sheet assets unencumbered. There are no refinancing
events until 2023 and beyond so our balance sheet is in a strong
position in spite of the challenging market and its higher than
guidance loan to value. This will be a key focus for the new
financial year and beyond.
Key performance measures
The Group financial statements are prepared under IFRS where the
Group's interests in joint ventures are shown as a single line item
on the income statement and balance sheet. Management reviews the
performance of the business principally on a proportionally
consolidated basis which includes the Group's share of joint
ventures on a line-by-line basis. The Group's financial key
performance indicators are presented on this basis.
In addition to information contained in the Group financial
statements, Alternative Performance Measures ('APMs'), being
financial measures that are not specified under IFRS, are also used
by management to assess the Group's performance. These include a
number of the financial statistics included on Page 2 of this
document. These APMs include a number of European Public Real
Estate Association ('EPRA') measures, prepared in accordance with
the EPRA Best Practice Recommendations reporting framework, which
are summarised in the 'Alternative Performance Measures' section at
the end of this document. We report these measures because
management considers them to improve the transparency and relevance
of our published results as well as the comparability with other
listed European real estate companies. Definitions for APMs are
included in the glossary and the most directly comparable IFRS
measure is also identified. The measures used in the review below
are all APMs presented on a proportionally consolidated basis
unless otherwise stated.
The APM on which management places most focus, reflecting the
Company's commitment to driving cash income returns, is UFFO. UFFO
measures cash profits, which includes recurring cash profits and
excludes other one-off or non-cash adjustments. We consider this
metric to be the most appropriate for measuring the underlying
performance of the business as it is familiar to non-property
investors, and better reflects the Company's generation of cash
profits. It is for this reason that UFFO is used to measure
dividend cover.
The relevant sections of this Finance Review contain supporting
information, including reconciliations to the financial statements
and IFRS measures. The 'Alternative Performance Measures' section
also provides references to where reconciliations can be found
between APMs and IFRS measures.
Underlying Funds From Operations
The following table reconciles IFRS profit after taxation to
UFFO, which is the Company's measure of cash profits.
Reconciliation of loss after taxation to UFFO
31 March 2020 31 March 2019
(GBPm) (GBPm)
-------------
Loss for the year after taxation (121.1) (36.9)
------------------------------------------ ------------- -------------
Adjustments
Revaluation of investment properties 162.6 88.2
Revaluation of joint ventures' investment
properties 4.3 1.3
Revaluation of derivatives 2.8 3.2
(Profit) / loss on disposal of investment
properties 1.8 (1.3)
Gain on bargain purchase - (7.0)
Deferred tax 0.5 -
Exceptional cost in relation to Hawthorn
and Bravo Inns 0.4 3.0
------------------------------------------ ------------- -------------
EPRA earnings 51.3 50.5
------------------------------------------ ------------- -------------
Share-based payment charge - 2.5
Depreciation of properties 0.8 0.8
Integration costs - 1.3
------------------------------------------ ------------- -------------
Underlying Funds From Operations 52.1 55.1
------------------------------------------ ------------- -------------
Underlying Funds From Operations is represented on a
proportionally consolidated basis in the following table. The Group
has applied IFRS 16 "Leases" from 1 April 2019 which requires
lessees to recognise a right-of-use asset and related lease
liability representing the obligation to make lease payments. The
interest expense on the lease liability and depreciation on the
right-of-use asset will be recognised in the statement of
comprehensive income. Comparatives for the year ended 31 March 2019
have not been restated, and therefore the impact of the adoption of
IFRS 16 on the UFFO figures presented for the year to 31 March 2020
is as follows:
-- Property operating expenses - reduced by GBP3.1 million
-- Administrative expenses - reduced by GBP0.1 million
-- Net finance costs - increased by GBP2.9 million
-- Overall UFFO impact - increased by GBP0.3 million
Note that in the following table, figures for the year to 31
March 2019 have been restated to reflect the adoption of IFRS 15
"Revenue from contracts with customers". See Note 1 to the
Financial Statements for further details.
31 March 2020 31 March
2019
(restated)(2)
UNDERLYING FUNDS FROM Group Non-cash JVs & Associates Proportionally Proportionally
OPERATIONS adjustments(1) GBPm consolidated consolidated
GBPm GBPm GBPm GBPm
------- ---------------- ----------------- --------------- ---------------
Revenue 144.8 - 3.4 148.2 141.9
----------------------------- ------- ---------------- ----------------- --------------- ---------------
Property operating expenses (55.0) - (0.3) (55.3) (51.4)
------- ---------------- ----------------- --------------- ---------------
Net property income 89.8 - 3.1 92.9 90.5
------- ---------------- ----------------- --------------- ---------------
Administrative expenses (20.5) 0.8 (0.1) (19.8) (16.2)
----------------------------- ------- ---------------- ----------------- --------------- ---------------
Net finance costs (24.2) 2.8 (0.6) (22.0) (18.7)
----------------------------- ------- ---------------- ----------------- --------------- ---------------
Taxation 0.5 0.5 - 1.0 (0.5)
------- ---------------- ----------------- --------------- ---------------
Underlying Funds From
Operations 52.1 55.1
------- ---------------- ----------------- --------------- ---------------
UFFO per share (pence) 17.0 18.1
------- ---------------- ----------------- --------------- ---------------
Ordinary dividend per
share (pence) 16.2 21.6
------- ---------------- ----------------- --------------- ---------------
Ordinary dividend cover 105% 84%
------- ---------------- ----------------- --------------- ---------------
Admin cost ratio 14.9% 13.1%
------- ---------------- ----------------- --------------- ---------------
Weighted average # shares 305.9 304.0
------- ---------------- ----------------- --------------- ---------------
1. Adjustments to Group figures to remove non-cash items,
principally depreciation of properties GBP(0.8) million,
revaluation of derivatives GBP(2.8) million and Deferred tax
GBP(0.5) million
2. The comparative figures for the year ended 31 March 2020 have
been restated to reflect the prior year adjustment in relation to
service charge. Refer to Note 1 in the notes to the financial
statements for further information on the restatement.
Net property income
Analysis of retail net property income (GBPm)
-------------------------------------------------------------------
Retail net property income for the year ended 31 March 2019 68.6
------------------------------------------------------------ -----
Surrender premia (1.7)
Like-for-like reduction (3.5)
Asset management fees 0.6
Completed development 0.4
Acquisitions 4.8
Disposals (3.0)
Rent provisions (0.9)
Other 0.2
------------------------------------------------------------ -----
65.5
------------------------------------------------------------ -----
IFRS 16 adjustment 2.9
Retail net property income for the year ended 31 March 2020 68.4
On a proportionally consolidated basis, retail net property
income was GBP68.4 million during the year, compared to GBP68.6
million in the year ended 31 March 2019. Excluding the impact of
IFRS 16, which removed ground rent payments from property operating
expenses and added GBP2.9 million to net property income in the
year, net property income reduced to GBP65.5 million.
The key driver of the reduction was a GBP3.5 million, or 6.0%
reduction in like-for-like income, of which 2.5% related to CVAs
and Administrations. Over half of this decline related to just five
assets, with GBP0.7 million relating to the Prospect Shopping
Centre in Hull, where Boots vacated during the year at lease
expiry, and we have since agreed a new letting to a major
discounter on this unit, and GBP0.5 million relating to Valegate
Retail Park in Cardiff, which was impacted by tenant CVAs and
Administrations.
This reduction in like-for-like income was partially offset by a
GBP0.6 million increase in asset management fee income and a GBP0.4
million contribution from our Canvey Island Retail Park
development, which was completed in November 2018. The increase in
asset management fee income reflects our increased focus on
leveraging our market-leading asset management platform, by
managing assets on behalf of third parties and joint venture
partners. Asset management income from BRAVO, our joint venture
partner, and from Canterbury City Council for our management of the
Whitefriars Shopping Centre were the key contributors to this
increase.
The GBP4.8 million of additional income from acquisitions
related to the GBP145.2 million (NewRiver share: GBP74.7 million)
of retail acquisitions made during the year, and the full year
impact of the GBP35.5 million of retail acquisitions made in the
prior year. This more than offset the GBP2.8 million reduction in
net property income relating to the disposal of GBP24.6 million of
retail assets during the year, and the GBP36.2 million of retail
assets in the previous financial year.
Finally, retail net property income includes a GBP0.9 million
provision required by IFRS 9 in relation to retail rents that are
deemed unlikely to be received as a result of the COVID-19
lockdown.
Analysis of pub net property income (GBPm)
Pub net property income for the year ended 31 March 2019 21.9
Like-for-like increase 2.2
Hawthorn Leisure acquisition (full year) 2.3
Star Pubs & Bars acquisition (full year) 0.6
Bravo Inns acquisition (part year) 0.7
Pub, land and c-store disposals (0.6)
Rent and stock provisions (1.6)
COVID-19 lockdown impact (0.8)
Other (0.4)
--------------------------------------------------------- -----
24.3
--------------------------------------------------------- -----
IFRS 16 adjustment 0.2
Pub net property income for the year ended 31 March 2020 24.5
Pub net property income was GBP24.5 million during the year,
compared to GBP21.9 million in the year to 31 March 2019,
principally due to an increase in like-for-like EBITDA per pub of
2.3% and net acquisition activity.
On 16 March 2020, in response to the COVID-19 pandemic, the UK
Government advised the UK public against "non-essential" travel and
suggested people should avoid pubs, clubs, theatres and work from
home if possible. On 20 March 2020, the UK Government announced the
immediate closure of all cafes, pubs, bars and restaurants across
all the formations of the United Kingdom. Our pubs were therefore
unable to trade for the final two weeks of our financial year,
leading to a loss of GBP0.8 million of income across our portfolio
of 720 pubs. Our like-for-like EBITDA per pub of +2.3% reflects the
impact of COVID-19, and was +5.9% excluding the final month of the
year. In addition, pub net property income includes a provision of
GBP1.6 million, predominantly in relation to rent unlikely to be
collected and stock wastage, required by IFRS 9 and as a
consequence of COVID-19.
The acquisition of Hawthorn Leisure was completed in May 2018,
and therefore the current year benefited from a full 12 months of
ownership, compared to 10 months in the comparative period. In
addition, prior to the Hawthorn Leisure acquisition, the management
of the Trent and Mantle portfolios had been outsourced to a 3(rd)
party specialist manager, the cost of which was included within net
property income. Our entire pub portfolio migrated onto the
Hawthorn Leisure management platform in January 2019, and therefore
the associated staff and other management costs are now included
within administrative expenses.
We received a GBP0.6 million uplift from the acquisition of a
portfolio of 76 pubs from Star Pubs & Bars in December 2018,
and an additional GBP0.7 million from the acquisition of Bravo Inns
in December 2019, comprising a portfolio of 44 operator managed
pubs.
Disposals in the pub portfolio reduced net property income by
GBP0.6 million, comprising the sale of 33 pubs and pieces of pub
land during the previous financial year and 30 in the year to 31
March 2020.
Administrative expenses
Administrative expenses were GBP19.8 million, compared to
GBP16.2 million in the previous year, with GBP0.9 million of this
increase due to the fact that the Hawthorn Leisure business was
acquired partway through the previous financial year.
A further GBP1.5 million of the cost increase was because since
January 2019 the entire pub portfolio, including the existing Trent
and Mantle portfolios, has been managed by the Hawthorn Leisure
platform. Prior to this, the management of the Trent and Mantle
portfolios had been outsourced to a 3(rd) party specialist manager,
the cost of which was included within net property income, rather
than administrative expenses. Therefore, the GBP1.5 million
increase in administrative expenses is offset by a GBP1.5 million
increase in net property income, which is included within the
"Hawthorn Leisure acquisition" category in the Analysis of pub net
property income table. The acquisition of Hawthorn Leisure and the
in-housing of the management of the pub portfolio also increased
the administrative expenses ratio from 13.1% to 14.9%, reflecting
the operational nature of the pub business.
Net finance costs
The increase in net finance costs from GBP18.7 million in the
prior year to GBP22.0 million is primarily due to the impact of
IFRS 16, which added GBP2.9 million to net finance costs. In
addition, we drew GBP125 million or our revolving credit facility
during the year, including a GBP50 million drawn down in March 2020
to increase our cash position to GBP82.1 million in light of the
COVID-19 pandemic.
Taxation
As a REIT we are exempt from UK corporation tax in respect of
our qualifying UK property rental income and gains arising from
disposal of exempt property assets. The majority of the Group's
income is therefore tax free as a result of its REIT status. Our
REIT exemption does not extend to profits arising from the margin
made on the sale of drinks within the pub portfolio and other
sources of income. There was a tax credit of GBP1.0 million during
the year, refunding surplus payments on account made in FY19.
Dividends
Paid in FY20 (pence) Declared in relation to FY20
(pence)
Ordinary Ordinary
--------------------- -----------------------------
FY19 Q4 5.4 -
--------------------- -----------------------------
FY20 Q1 5.4 5.4
--------------------- -----------------------------
FY20 Q2 5.4 5.4
--------------------- -----------------------------
FY20 Q3 5.4 5.4
--------------------- -----------------------------
Total 21.6 16.2
--------------------- -----------------------------
As announced on 19 March 2020, the Board took the decision not
to declare a fourth quarter dividend for the year ended 31 March
2020, due to uncertainty around the impact of COVID-19 on the
Company's operations. The total dividend declared in relation to
the year ended 31 March 2020 is therefore 16.2 pence, a 25%
reduction on the prior year.
As a consequence of the decision not to declare a fourth quarter
dividend, ordinary dividend cover, calculated with reference to
UFFO, improved to 105% in the year, from 84% in the prior year.
Ordinary dividend cover is one of our five key Financial Policies
which are explained in the 'Financial Policies' section of this
review.
A great deal of uncertainty still remains as to the impact of
COVID-19 on our performance and so the Board has also decided not
to pay a dividend in respect of the first quarter of FY21. It is
our firm intention to resume dividend payments as quickly as
possible, when conditions allow.
The Company is a member of the REIT regime whereby profits from
its UK property rental business are tax exempt. The REIT regime
only applies to certain property-related profits and has several
criteria which have to be met, including that at least 90% of our
profit from the property rental business must be paid as dividends.
We continued to meet these conditions in FY20, and we intend to
continue as a REIT for the foreseeable future.
Balance sheet
EPRA net assets include a number of adjustments to the IFRS
reported net assets and both measures are presented below on a
proportionally consolidated basis.
As at 31 March 2020 As at 31 March
2019
(restated)(1)
Group JVs & Associates Proportionally Proportionally
GBPm GBPm consolidated consolidated
GBPm GBPm
-------- ----------------- --------------- ---------------
Properties at valuation 1,157.3 39.8 1,197.1 1,288.4
Right of use asset 87.2 - 87.2 -
Investment in JVs & associates 23.0 (23.0) - -
Other non-current assets 1.4 1.5 2.9 1.9
Cash 80.8 1.3 82.1 27.6
Other current assets 27.4 0.5 27.9 34.5
-------- ----------------- --------------- ---------------
Total assets 1,377.1 20.1 1,397.2 1,352.4
Other current liabilities (46.9) (3.0) (49.9) (51.4)
Lease liability (86.3) - (86.3) -
Debt (628.6) (17.1) (645.7) (502.7)
Other non-current liabilities (4.7) - (4.7) (2.2)
-------- ----------------- --------------- ---------------
Total liabilities (766.5) (20.1) (786.6) (540.9)
-------- ----------------- --------------- ---------------
IFRS net assets 610.6 - 610.6 796.1
-------- ----------------- --------------- ---------------
EPRA adjustments:
Warrants in issue - 0.4
Unexercised employee
awards - 1.3
Deferred tax 2.1 1.6
Fair value derivatives 2.7 (0.1)
-------- ----------------- --------------- ---------------
EPRA net assets 615.4 799.3
-------- ----------------- --------------- ---------------
EPRA NAV per share 201p 261p
-------- ----------------- --------------- ---------------
IFRS net assets per share 199p 261p
-------- ----------------- --------------- ---------------
LTV 47% 37%
-------- ----------------- --------------- ---------------
1. The comparative figures for the year ended 31 March 2020 have
been restated to reflect the prior year adjustment in relation to
service charge. Refer to Note 1 in the notes to the financial
statements for further information on the restatement.
Net assets
At year end, IFRS net assets were GBP610.6 million (March 2019:
GBP796.1 million). The reduction was primarily due to a -12.3%
like-for-like decrease in portfolio valuation.
EPRA NAV is calculated by adjusting net assets to reflect the
potential impact of dilutive ordinary shares, and to remove the
fair value of any derivatives held on the balance sheet. These
adjustments are made with the aim of improving comparability with
other European real estate companies. EPRA NAV decreased by 23% to
GBP615.4 million, from GBP799.3 million at 31 March 2019. EPRA NAV
per share decreased by 23% to 201 pence per share at 31 March 2020
compared to 261 pence per share at 31 March 2019. The decrease in
EPRA NAV and EPRA NAV per share is primarily due to the -12.3%
like-for-like decrease in portfolio valuation.
Properties at valuation
Properties at valuation was GBP1,197.1 million at 31 March 2020,
compared to GBP1,288.4 million at 31 March 2019, as increased
acquisition activity was more than offset by a -12.3% like-for-like
decline in valuations.
Net debt & financing
Analysis of movement in proportionally consolidated net debt
(GBPm)
As at 31 March 2020
Group JVs & Associates Proportionally
consolidated
-----------------
Net debt at 31 March 2019 475.6 (0.5) 475.1
------------------------------------------- -----------------
Operating activities
Net cash inflow from operating activities (43.5) (2.8) (46.3)
Dividends received from joint ventures (2.0) 2.0 -
Investing activities
Investment in JV & associate assets 16.6 17.1 33.7
Purchase of investment properties 44.1 44.1
Purchase of Bravo Inns 18.0 18.0
Disposal of investment properties (50.7) (50.7)
Purchase of plant and equipment 10.1 10.1
Development and other capital expenditure 14.1 14.1
Financing activities
Ordinary dividends paid 63.8 63.8
Other 1.7 - 1.7
Net debt at 31 March 2020 547.8 15.8 563.6
-----------------
Proportionally consolidated net debt increased by GBP88.5
million over the year to GBP563.6 million, primarily as a result of
our investment activity. Operating activities generated a net cash
inflow of GBP46.3 million, compared with UFFO of GBP52.1
million.
As part of our disposal programme, we received cash proceeds of
GBP50.7 million, which was more than offset by deployment of
capital of GBP77.8 million to fund investment property acquisitions
and GBP18.0 million to fund the acquisition of Bravo Inns The
purchase of plant and equipment and the development and other capex
contributed a further GBP10.1 million and GBP14.1 million
respectively. The payment of dividends during the year, detailed in
the 'Dividends' section of this review, resulted in a net cash
outflow of GBP63.8 million.
Financial policies
Our conservative financial policies were put in place in
consultation with shareholders and form a key component of our
financial risk management strategy. Our LTV increased from 37% at
31 March 2019 to 47%, with the majority of the increase occurring
in the second half of the financial year, due predominantly to the
decline in our portfolio valuation but also due to a reduction in
the rate of completed disposals in Q4 due to COVID-19. While LTV at
this level remains safely below our covenant thresholds and our
stated policy, our focus will be to improve LTV to be more in-line
with our guidance of being below 40%, through disposals in
FY21.
Financial policy Proportionally consolidated
31 March 2020 31 March 2019
------------------ -------------- --------------
Net debt GBP563.6m GBP475.1m
Principal value of gross debt GBP652.4m GBP510.0m
Weighted average cost of debt(1) 3.4% 3.2%
Weighted average debt maturity(2) 5.9 yrs 6.9 yrs
Guidance <40%
Loan to value Policy <50% 47% 37%
FY20 FY19
------------------ -------------- --------------
Net debt: EBITDA <10x 7.9x 6.3x
Interest cover >2.0x 3.8x 4.0x
Ordinary dividend cover(3) >100% 105% 84%
Group
31 March 2020 31 March 2019
------------------ -------------- --------------
Balance sheet gearing <100% 90% 60%
------------------ -------------- --------------
1. Cost of debt assuming GBP215 million revolving credit facility is fully drawn
2. Average debt maturity assumes one-year extension options are
exercised and bank approved. Excluding this option, debt maturity
at 31 March 2020 is 5.3 years
3. Calculated with reference to UFFO
Additional guidelines
Alongside our financial policies we have a number of additional
guidelines used by management to analyse operational and financial
risk, which we disclose in the following table:
Guideline 31 March 2020
Single retailer concentration <5% of gross income 2.3% (Sainsbury's)
-------------------------- -------------------
Development expenditure <10% of GAV <1%
-------------------------- -------------------
>70% pre-let or pre-sold
Risk-controlled development on committed 100%
-------------------------- -------------------
Pub weighting (excluding
c-stores) <30% of GAV 23%
-------------------------- -------------------
To conclude, the Company remains profitable and cash generating,
with UFFO of GBP52.1m. COVID-19 has had an impact on the results,
both in terms of earnings, and asset valuation, and this is
expected to continue in the new financial year. The cash and
liquidity position of the Company is very robust and with an
unsecured capital structure the balance sheet is well placed to see
through the challenging market conditions. A key priority going
forward is to reduce the loan to value in line with stated guidance
of <40%. There are a number of levers available to the company
in achieving this and our stakeholders can take confidence from the
disposals we have already advanced since lockdown and the
maintaining of our investment grade credit rating with Fitch
Ratings with a stable outlook.
There is a lot to do and we remain focused on delivering value
to shareholders including reinstating the dividend and improving
balance sheet metrics via a lower LTV. Our capital structure
provides a high degree of flexibility and time to be able to
implement our strategies.
Mark Davies
Chief Financial Officer
18 June 2020
Principal risks and uncertainties
Our approach to risk management
There are multiple risks that exist in our business, and
effective risk management is key to the delivery of our strategy
and operation of our business model. The Board has ultimate
responsibility for the risk management and internal controls of the
Company, and regularly evaluates our appetite for risk, ensuring
our exposure to risk is kept at an appropriate level.
The Audit Committee monitors the adequacy and effectiveness of
the Company's risk management and internal controls and supports
the Board in assessing the risk mitigation processes and
procedures. The Executive Committee is closely involved with
day-to-day monitoring of risk management, ensuring it is embedded
within the Company's culture and values, and delegation of
accountability for risk management to senior management. Senior
Management manage and report on risk, ensuring that they are within
the risk appetite as established by the Board.
Key features of the risk management policy:
-- Ongoing analysis and review of the risk register
-- Delegation of accountability for each risk
-- Use of external advisors regarding risk impacts
-- Quarterly reporting and exposure analysis
-- Training of employees and outsourced staff on policies and regulations
Risk appetite
There are multiple risks that could impact our ability to
successfully execute our strategy. The Board operates a low
tolerance for risk, most notably within regulatory, financial and
strategic matters. The Company is prepared to operate in an
external environment which is inherently risky, and our experienced
leadership team continuously works to mitigate the risks arising
from the external environment.
Significant factors which contribute to the low risk of our
business include:
-- We maintain an unsecured balance sheet, with the Company
benefiting from a more diversified debt structure and gaining
access to a larger pool of capital to help achieve our strategic
goals
-- Our disciplined approach to stock selection
-- Deploying capital in joint ventures, thereby diversifying risk
-- A diverse tenant base in which there is no single tenant exposure of more than 3%
-- Our experienced Board and senior management
Risk monitoring and assessment
The identification of risks is a continual process which is
reviewed regularly. The Company maintains a risk register in which
a range of categories are considered. These risks are linked to the
business model and strategic priorities of the Company and the
appetite as described above.
The risk register assesses the impact and likelihood of each
identified risk. Where the residual risk is deemed too high by the
Board then actions are taken to further mitigate the risk, and each
action is assigned to an individual or group. A risk heat map is
used to determine the potential impact and probability of each
significant risk on a gross basis prior to mitigation.
Principal risk areas are:
External risks Internal risks
1. Macroeconomic 6. People
-------------------------
2. Political and regulatory 7. Financing
-------------------------
3. Catastrophic external event 8. Asset management
-------------------------
4. Climate change 9. Development
-------------------------
5. Changes in technology and consumer 10. Acquisition
habits
-------------------------
11. Disposal
-------------------------
Risk assessment during the year
The general environment in which the Company operates became
riskier in the year ended 31 March 2020. This was largely due to
uncertainty associated with the impact of the COVID-19 pandemic,
the deterioration in the UK retail market, and continued political
and economic uncertainty relating to the UK's departure from the
EU.
External Risks
Risk and Monitoring and management Change in risk assessment
impact during the year
1.
Macroeconomic * The Board regularly assesses the Company's strategy * Macroeconomic risk has increased during the year and
Economic in the context of the wider macroeconomic is considered a medium to high impact risk with a
conditions environment. medium to high likelihood.
in the UK and
changes to
fiscal * The Board and management team consider updates from * The outlook for the UK was weakened by uncertainty
and monetary external advisers, reviewing key indicators such as surrounding Brexit negotiations and then the economic
policy may forecast GDP growth, employment rates, interest rates impact of the COVID-19 pandemic.
impact and Bank of England guidance, and consumer confidence
market indices.
activity, * The uncertainty around the impact of the COVID-19
demand for pandemic has resulted in sharp declines in asset
investment * Our portfolio is focused on resilient market valuations, which has narrowed the headroom on some
assets, the sub-sectors such as essential retailers and wet-led of our debt covenants.
operations pubs.
of our
occupiers
or the * Through regular stress testing of our portfolio we
spending ensure our financial position is sufficiently
habits of the resilient.
UK
population.
* Closely monitoring rent collection and cash flow.
------------------------------------------------------------ -------------------------------------------------------------
2. Political
and * The Board regularly considers political and * Political and regulatory risk has increased during
regulatory regulatory developments and the impact they could the year and is considered a medium to high impact
Changes in UK have on the Company's strategy and operating risk with a medium to high likelihood.
Government environment.
policy,
the adverse * An improvement in risk profile following the decisive
effects * External advisers, including legal advisers, provide UK General Election result in December 2019 has been
of Brexit on updates on emerging regulatory changes to ensure the more than offset by political uncertainty surrounding
our tenants, business is prepared and is compliant. COVID-19, and the prospect of a no-deal Brexit.
or the impact
of political
uncertainty * We regularly assess market research to gauge the * We have carried out extensive scenario testing based
on impact of regulatory change on consumer habits on potential political and regulatory responses to
the lifting the current lockdown, and taken steps to
consumers' ensure we are able to respond in each scenario.
retail and * We carry out stress testing on our portfolio in
leisure relation to regulatory changes which may impact our
spend. operations or financial position.
* Where appropriate, we participate in industry and
other representative bodies to contribute to policy
and regulatory debate.
------------------------------------------------------------ -------------------------------------------------------------
3.
Catastrophic * The Board have developed a comprehensive crisis * Catastrophic external event risk has increased during
external response plan which details actions to be taken at a the year and is considered a high impact risk with a
event head office and asset-level. medium likelihood.
An external
event
such as civil * The Board regularly monitors the Home Office * The impact of the COVID-19 has caused unprecedented
unrest, a terrorism threat level and other security guidance. economic and operational disruption. We mitigated the
civil impact through our portfolio positioning focused on
emergency essential goods and services, our cash position and
including * The Board regularly monitors advice from the UK liquidity, and our active approach to asset
a large-scale Government regarding pandemic responses and management.
terrorist
attack
or pandemic, * Emergency procedures at our assets are regularly * COVID-19 has also demonstrated the effectiveness of
or a tested and enhanced in-line with the latest UK home working for the business, which will ensure
cyber-attack, Government guidance. preparedness for further restrictions to accessing
could our assets
severely
disrupt * We have robust IT security systems which cover data
global security, disaster recovery and business continuity * The Board will review the Company's response to the
markets and plans. COVID-19 pandemic and make any necessary amendments
cause to our crisis response plan.
damage and
disruption * The business has comprehensive insurance in place to
to our minimise the cost of damage and disruption to assets.
assets.
This risk has
been added in
response to
unprecedented
disruption
caused
by the
COVID-19
pandemic.
------------------------------------------------------------ -------------------------------------------------------------
4. Climate
change * We have a comprehensive ESG programme which is * Climate change risk has increased during the year and
Adverse regularly reviewed by the Board and Executive is considered a low to medium impact risk with a low
impacts Committee. A detailed overview of the programme can to medium likelihood.
from be found in our standalone ESG report.
environmental
incidents * ESG has risen up the agenda of many stakeholders, and
such * One of the key objectives of the programme is to expectations of compliance with best practice have
as extreme minimise our impact on the environment, through increased.
weather reducing energy consumption, sourcing from renewable
or flooding sources, and increased recycling.
could * Regulatory requirements have also increased during
impact the the year, for example through the implementation of
operation * We regularly assess assets for environmental risk and the European Energy Efficiency Directive.
of our ensure sufficient insurance is in place to minimise
assets. the impact of environmental incidents.
A failure to * Our ESG committee pre-empted these changes, and our
comply with initiatives and disclosure continue to evolve in-line
changes * ESG performance is independently reviewed by our with best practice.
in climate external environmental consultants, and our
change performance is measured against applicable targets
regulations, and benchmarks.
or to meet
our
Environmental
,
Social and
Governance
('ESG')
targets,
could cause
reputational
damage.
------------------------------------------------------------ -------------------------------------------------------------
5. Changes in
technology * The Board and Executive Committee regularly assess * Changes in technology and consumer habits risk has
and our overall corporate strategy, and acquisition, remained stable during the year and is considered a
consumer asset management and disposal decisions in the medium impact risk with a low to medium likelihood.
habits context of current and future consumer demand.
Changes in
the * Although COVID-19 lockdown restrictions have
way consumers * We closely assess the latest trends reported by significantly increased home working and online
live, work, Mintel, our research provider, to ensure we are shopping, we expect much of this to unwind upon
shop aligned with evolving consumer trends. easing of the restrictions.
and use
technology
could have an * Our retail portfolio is focused on essential spending * During the year, our acquisition focus has been on
adverse on goods and services which are resilient to the retail parks, which are ideally suited to click &
impact growth of online retail. Our community wet-led pubs collect, and we have worked closely with retailers as
on demand for perform an important social and societal function, they reshape their physical store portfolios.
our assets. providing experiences which cannot be replicated
online.
* Our retail parks are ideally positioned to help
retailers with their multi-channel retail strategies.
* The alternative use valuation of our portfolio shows
we have optionality in realising value from assets
which do not have a future as retail assets.
------------------------------------------------------------ -------------------------------------------------------------
Internal Risks
Risk and Monitoring and management Change in risk assessment
impact during the year
6. People
The inability * Attracting, retaining and developing talent is core * People risk has remained stable during the year and
to attract, to our HR strategy, which is regularly reviewed by is considered a low to medium impact risk with a low
retain the Board and Executive Committee. to medium likelihood.
and develop
our
people, and * We undertake an extensive Employee Engagement Survey * It remains a challenging operating environment for
ensure once a year to gauge employee views on leadership, the Company, which could present some issues in
we have the company culture, health and wellbeing, personal attracting and retaining talent, but this impact is
right growth and benefits and recognition. This informs any mitigated by an active employee engagement programme
skills in changes to HR policy. and the alignment of reward with both individual and
place Company-level performance
could prevent
us from * We regularly benchmark our pay and benefits against
implementing those of peers and the wider market.
our strategy.
.
* Succession planning is in place for all key positions
and is reviewed regularly by the Nomination
committee.
* Longer notice periods are in place for key employees.
------------------------------------------------------------ ----------------------------------------------------------------------
7. Financing
If gearing * The Board regularly assesses Company financial * Financing risk has increased during the year and is
levels performance and scenario testing, covering levels of considered a high impact risk with a low to medium
become higher gearing and headroom to financial covenants and likelihood.
than our risk assessments by external rating agencies.
appetite or
lead * Although macroeconomic developments, particularly in
to breaches * The Company has a programme of active engagement with the wake of COVID-19 have impacted financial markets,
in key lenders and shareholders. the strength of the Company's balance sheet, and the
bank results of our extensive scenario testing, and
covenants stress-testing of headroom, means we have
this would * The Company has a wholly unsecured balance sheet, significantly mitigated the risk of not being able to
impact which mitigates the risk of a covenant breach caused secure sufficient financing.
our ability by fluctuations in individual property valuations.
to
implement our * On 1 April 2020, Fitch Ratings affirmed NewRiver's
strategy. The * The Company has long-dated maturity on its debt, Long-Term IDR at 'BBB' with a Stable Outlook and
business providing sufficient flexibility for refinancing. senior unsecured rating at 'BBB+'.
could
also struggle
to obtain * Weekly working capital and cash flow analysis is
funding reviewed by the Executive Committee.
or face
increased
interest * Our credit rating is independently assessed by Fitch
rates Ratings every six months
as a result
of
macroeconomic
factors.
------------------------------------------------------------ ----------------------------------------------------------------------
8. Asset
management * Asset-level business plans are regularly reviewed by * Asset management risk has increased during the year
The the asset management team and the Executive Committee and is considered a medium impact risk with a medium
performance and detailed forecasts are updated twice yearly. likelihood.
of our assets
may not meet
with the * The Executive Committee reviews whole portfolio * The COVID-19 pandemic has placed significant
expectations performance on a quarterly basis to identify any restrictions on the operations of our occupiers and
outlined in trends that require action. therefore impacted performance and rent collection at
their our assets.
business
plans, * Our asset managers are in contact with centre
impacting managers and occupiers on a daily basis to identify * Our COVID-19 response has focused on supporting
financial potential risks and improvement areas. occupiers and ensuring businesses can emerge from the
performance crisis in robust financial shape.
and
the ability * Revenue collection is reviewed weekly by the
to Executive Committee
implement our
strategies
------------------------------------------------------------ ----------------------------------------------------------------------
9.
Development * We apply a risk-controlled development strategy * Development risk has remained stable through the year
Delays, through negotiating long-dated pre-lets (typically at and is considered a low to medium impact risk with a
increased least 70% of assets). low likelihood.
costs and
other
challenges * All development is risk-controlled and forms only 5% * Although the COVID-19 pandemic has brought delays to
could of the portfolio by value. many development projects, they remain a small part
impact our of our portfolio and committed capex is low.
ability
to pursue our * Capital deployed is actively monitored by the
development Executive Committee, following detailed due diligence * Our largest developments, which include regeneration
pipeline, modelling and research. schemes in Burgess Hill and Cowley, Oxford, are
and therefore driven by key trends which are likely to re-emerge
our ability after the immediate impacts of COVID-19 ease.
to * An experienced development team monitors on-site
profitably development and cost controls.
recycle
development
sites
and achieve
returns
on
development
------------------------------------------------------------ ----------------------------------------------------------------------
10.
Acquisition * We carry out thorough due-diligence on all new * Acquisition risk has remained stable through the year
The acquisitions, using data from external advisers and and is considered a low to medium impact risk with a
performance our own rigorous in-house modelling before committing low likelihood.
of asset and to any transaction.
corporate
acquisitions * Market dislocation as a result of retail sector
might not * Acquisitions are subject to approval by the Board and challenges and political uncertainty has provided
meet Executive Committee, who are highly experienced in significant opportunities to acquire high-quality
with our the retail and pub real estate sectors. assets at lower prices, reducing the risk of future
expectations underperformance.
and
assumptions, * Our strategy is to acquire predominantly in joint
impacting our ventures, thereby sharing risk.
revenue and
profitability
* Our portfolio is large and our average asset lot size
is small, meaning that each asset represents only a
small proportion of revenues and profits, thereby
mitigating any impact of underperformance
------------------------------------------------------------ ----------------------------------------------------------------------
11. Disposal
We may face * Our portfolio is focused on high quality assets with * Disposal risk has remained increased during the year
difficulty low lot sizes, making them attractive to a wide pool but remains a low to medium impact risk with a low
in disposing of buyers. likelihood.
of assets or
realising
their * Assets are valued every six months by external * Political uncertainty and the onset of COVID-19 in
fair value, valuers, enabling informed disposal pricing March 2020 has increased market uncertainty, causing
thereby decisions. some purchasers to reconsider or delay acquisition
impacting decisions
profitability
and our * Disposals are subject to approval by the Board and
ability Executive Committee, who are highly experienced in * Our portfolio focus means that our assets are viewed
to reduce the retail and pub real estate sectors. as resilient regardless of wider market uncertainty.
debt
levels or
make * Our portfolio is large and our average asset lot size
further is small, meaning that each asset represents only a
acquisitions small proportion of revenues and profits, thereby
mitigating the impact of a sale not proceeding
------------------------------------------------------------ ----------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2020
Operating Fair value Operating Fair value
and financing adjustments Total and financing adjustments Total
(restated)* (restated)*
2020 2020 2020 2019 2019 2019
Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Revenue 4 144.8 - 144.8 140.2 - 140.2
Property operating
expenses** 5 (55.0) - (55.0) (51.2) - (51.2)
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Net property income 89.8 - 89.8 89.0 - 89.0
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Administrative
expenses 6 (20.5) - (20.5) (19.4) - (19.4)
Acquisition and
integration
costs 6 (0.4) - (0.4) (3.3) - (3.3)
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
(20.9) - (20.9) (22.7) - (22.7)
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Share of
income/(loss)
from joint ventures 13 2.0 (3.9) (1.9) 0.8 (1.3) (0.5)
Share of
income/(loss)
from associates 14 0.1 (0.4) (0.3) - - -
Net valuation
movement 12/16 - (162.6) (162.6) - (88.2) (88.2)
(Loss)/profit on
disposal
of investment
properties 7 (1.5) - (1.5) 0.9 - 0.9
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Operating
profit/(loss) 69.5 (166.9) (97.4) 68.0 (89.5) (21.5)
Gain on bargain
purchase - - - - 7.0 7.0
Finance income 8 0.1 - 0.1 - - -
Finance costs 8 (24.3) - (24.3) (21.9) - (21.9)
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Profit/(loss) for the
year before taxation 45.3 (166.9) (121.6) 46.1 (82.5) (36.4)
Taxation 9 1.0 (0.5) 0.5 (0.5) - (0.5)
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Profit/(loss) for the
year after taxation 46.3 (167.4) (121.1) 45.6 (82.5) (36.9)
---------------------- ------ --------------- ------------- -------- --------------- ------------- ------------
Loss for the year after taxation (121.1) (36.9)
Other comprehensive income
Revaluation of property, plant and equipment (1.0) 1.2
-------------------------------------------------------------- -------- --------------- ------------- ------------
Total comprehensive loss for the year (122.1) (35.7)
-------------------------------------------------------------- -------- --------------- ------------- ------------
(Loss)/earnings per
share
Basic (pence) 10 (39.6) (12.1)
Diluted (pence) 10 (39.6) (12.1)
--------------------- --- ------- -------
All activities derive from continuing operations of the
Group.
*The comparative figures for the year ended 31 March 2020 have
been restated. Refer to Note 1 for further information on the
restatement.
**Included in property operating expenses is a GBP2.5 million
(2019: GBP0.3 million) of expected credit loss relating to tenant
debtors.
The notes on pages 36 to 64 form an integral part of these
financial statements.
CONSOLIDATED BALANCE SHEET
As at 31 March 2020
2020 2019 2018
Notes GBPm GBPm GBPm
Non-current assets (restated)* (restated)*
Investment properties 12 1,185.6 1,254.1 1,227.2
Right of use asset 3.9 - -
Investments in joint ventures 13 22.1 7.6 8.5
Investments in associates 14 0.9 - -
Property, plant and equipment 16 56.2 28.1 1.0
Goodwill 15 0.2 - -
Derivative financial instruments 18 - 0.7 3.3
----------------------------------------- ------ -------- ------------ ------------
Total non-current assets 1,268.9 1,290.5 1,240.0
----------------------------------------- ------ -------- ------------ ------------
Current assets
Trade and other receivables 17 26.7 34.6 45.4
Current taxation asset 0.7 - -
Derivative financial instruments 18 - - 0.1
Cash and cash equivalents 19 80.8 27.1 115.8
----------------------------------------- ------ -------- ------------ ------------
Total current assets 108.2 61.7 161.3
----------------------------------------- ------ -------- ------------ ------------
Total assets 1,377.1 1,352.2 1,401.3
----------------------------------------- ------ -------- ------------ ------------
Equity and liabilities
Current liabilities
Trade and other payables 20 46.8 50.9 49.7
Lease liability 0.7 - -
Derivative current liabilities 18 0.1 - -
Current taxation liabilities - 0.3 2.1
Total current liabilities 47.6 51.2 51.8
----------------------------------------- ------ -------- ------------ ------------
Non-current liabilities
Derivative financial instruments 18 2.6 0.6 0.1
Deferred tax liability 9 2.1 1.6 -
Lease liability 85.6 - -
Borrowings 21 628.6 502.7 457.0
----------------------------------------- ------ -------- ------------ ------------
Total non-current liabilities 718.9 504.9 457.1
----------------------------------------- ------ -------- ------------ ------------
Net assets 610.6 796.1 892.4
----------------------------------------- ------ -------- ------------ ------------
Equity
Share capital 23 3.1 3.1 3.0
Share premium 23 227.4 225.0 223.3
Merger reserve 23 (2.3) (2.3) (2.3)
Retained earnings 23 382.4 570.3 668.4
----------------------------------------- ------ -------- ------------ ------------
Total equity 610.6 796.1 892.4
----------------------------------------- ------ -------- ------------ ------------
Net Asset Value (NAV) per share (pence)
EPRA 10 201p 261p 292p
Basic 10 199p 261p 294p
Diluted 10 199p 261p 293p
----------------------------------------- ------ -------- ------------ ------------
The notes on pages 36 to 64 form an integral part of these
financial statements.
*The comparative figures for the year ended 31 March 2020 and
the year ended 31 March 2019 have been restated. Refer to Note 1
for further information on the restatement.
The financial statements on pages 32 to 35 were approved by the
Board of Directors on 18 June 2020 and were signed on its behalf
by:
Allan Lockhart Mark Davies
Chief Executive Chief Financial Officer
NewRiver REIT plc
Registered number: 10221027
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March 2020
2020 2019
GBPm GBPm
-------------------------------------------------------- -------- -------
Cash flows from operating activities
Loss for the year before taxation (121.6) (36.4)
Adjustments for:
Loss/(profit) on disposal of investment property 1.5 (0.9)
Gain on bargain purchase - (7.0)
Net valuation movement 163.0 88.2
Net valuation movement in joint ventures 3.9 1.3
Net valuation movement in associates 0.4 -
Share of income from joint ventures (2.0) (0.8)
Share of income of associates (0.1) -
Net interest expense 18.7 18.7
Rent free lease incentives (2.1) (2.1)
Movement in provision for bad debts 2.5 0.6
Amortisation of legal and letting fees (0.2) 0.3
Depreciation on property plant and equipment 1.2 1.0
Share based-payment expense - 2.5
Net movement from fair value of derivatives 2.7 3.2
--------------------------------------------------------- -------- -------
Cash generated from operations before changes in
working capital 67.9 68.6
Changes in working capital
Decrease in trade and other receivables (1.7) (4.7)
(Decrease) / increase in payables and other financial
liabilities (5.0) (10.3)
--------------------------------------------------------- -------- -------
Cash generated from operations 61.2 53.6
Interest paid (17.7) (16.3)
Corporation tax paid - (2.1)
Dividends received from joint ventures 2.0 0.4
--------------------------------------------------------- -------- -------
Net cash generated from operating activities 45.5 35.6
Cash flows from investing activities
Interest income 0.1 -
Investment in joint ventures assets (15.4) -
Investment in associate assets (1.2) -
Purchase of investment properties (44.1) (51.5)
Business combinations, net of cash acquired (6.3) (46.7)
Disposal of investment properties 50.7 78.7
Development and other capital expenditure (14.1) (24.6)
Purchase of plant and equipment (10.1) (0.7)
--------------------------------------------------------- -------- -------
Net cash used in investing activities (40.4) (44.8)
--------------------------------------------------------- -------- -------
Cash flows from financing activities
Repayment of bank loans (48.7) (78.6)
New borrowings 161.9 62.4
Repayment of principal portion of lease liability (0.8) -
Purchase of derivatives - (0.2)
Dividends paid - ordinary (63.8) (63.1)
--------------------------------------------------------- -------- -------
Net cash generated/(used in) from financing activities 48.6 (79.5)
--------------------------------------------------------- -------- -------
Cash and cash equivalents at beginning of the year 27.1 115.8
Net increase / (decrease) in cash and cash equivalents 53.7 (88.7)
--------------------------------------------------------- -------- -------
Cash and cash equivalents at 31 March 80.8 27.1
--------------------------------------------------------- -------- -------
The notes on pages 36 to 64 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2020
Retained
earnings
Share Share Merger and other
capital premium reserve reserves Total
Notes GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ --------- --------- --------- ------------ --------
As at 31 March 2018 3.0 223.3 (2.3) 668.4 892.4
Loss for the year after
taxation - - - (36.9) (36.9)
Revaluation of property,
plant and equipment - - - 1.2 1.2
---------------------------- ------ --------- --------- --------- ------------ --------
Total comprehensive income
for the year - - - (35.7) (35.7)
Transactions with equity
holders
Net proceeds from issue
of shares 23 0.1 1.7 - - 1.8
Share-based payments - - - 2.5 2.5
Dividends paid 11 - - - (64.9) (64.9)
---------------------------- ------ --------- ------------ --------
As at 31 March 2019 3.1 225.0 (2.3) 570.3 796.1
Loss for the year after
taxation - - - (121.1) (121.1)
Revaluation of property,
plant and equipment 16 - - - (1.0) (1.0)
---------------------------- ------ --------- --------- --------- ------------ --------
Total comprehensive loss
for the year - - - (122.1) (122.1)
Transactions with equity
holders
Net proceeds from issue
of shares 23 - 2.4 - - 2.4
Share-based payments - - - - -
Dividends paid 11 - - - (65.8) (65.8)
---------------------------- ------ --------- --------- --------- ------------ --------
As at 31 March 2020 3.1 227.4 (2.3) 382.4 610.6
---------------------------- ------ --------- --------- --------- ------------ --------
The other reserves included within retained earnings and other
reserves relates to GBP0.2 million profit (2019: GBP1.2 million
profit) on revaluation of property, plant and equipment, which is
non-distributable.
The notes on pages 36 to 64 form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
General information
NewRiver REIT plc (the 'Company') and its subsidiaries (together
the 'Group') is a property investment group specialising in
commercial real estate in the UK. The Company is registered and
domiciled in the UK and its' registered office of the Company is 16
New Burlington Place, London, W1S 2HX.
The consolidated financial statements have been approved for
issue by the Board of Directors on 18 June 2020.
Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all years presented,
other than where new policies have been adopted.
Basis of preparation
In light of the significant impact of Covid-19 on the UK
economy, and the retail and leisure sectors in which the Group and
Company operates, the Directors have placed a particular focus on
the appropriateness of adopting the going concern basis in
preparing the Group's and Company's financial statements for the
year ended 31 March 2020. The Group's and Company's going concern
assessment considers the Group's and Company's principal risks,
identified on pages 28-31 of this document, and is dependent on a
number of factors, including cashflow & liquidity, continued
access to borrowing facilities and the ability to continue to
operate the Group's and Company's unsecured debt structure within
its financial covenants. The Group's and Company's balance sheet is
unsecured, which means that none of its debt is secured against any
of its property assets, this type of financing affords significant
operational flexibility, and consists of GBP380 million of
unsecured bank facilities and a GBP300 million unsecured corporate
bond with the earliest expiry date being August 2023. The debt has
a number of financial covenants that the Group is required to
comply with including an LTV covenant of less than 60%, and a 12
month historical interest
cover ratio of more than 1.75x, and both sources of unsecured
financing have cure provisions in the event of a breach.
The going concern assessment is based on a 12 month outlook from
the date of the approval of these financial statements, using the
Group's three year forecast updated for the impact of Covid-19.
This forecast is based on a reasonable worst case scenario, which
includes the following key sensitivities:
-- A further 20% blended reduction in capital values across the
portfolio, in addition to the 12% recorded in the year ended 31
March 2020
-- 30% reduction in net income from our retail portfolio,
including agreed deferments, on the basis that 52% of rents
relating to Q1 of the year ended 31 March 2021 were collected at
the time of reporting
-- 70% reduction in net income from our pub portfolio, phased as
100% reduction in Q1 FY20, improving to a 40% reduction in Q4
-- GBP100m of disposal proceeds in FY21, completed at a
significant discount to 31 March 2020 book values
-- No new financing is assumed, but existing facilities are
presumed to remain available (earliest expiry August 2023)
Under this scenario, the Group and Company is forecast to
maintain sufficient cash & liquidity resources, and remain
compliant with its financial covenants. Further sensitivity
analysis was performed on this scenario, including removing all
assumed disposals, assuming a more significant valuation decline
and a lower income collection rate. Even applying this sensitivity
analysis, the Group and Company maintains sufficient cash and
liquidity reserves to continue in operation throughout the going
concern assessment period.
Based on the consideration above, the Board believes that the
Group and Company has the ability to continue in business at least
12 months from the date of approval of the financial statements for
the year ended 31 March 2020 and therefore have adopted the going
concern basis in the preparation of this financial information.
Statement of compliance
The Group has restated its prior year comparatives to reflect
management's conclusion that they are principal in the provision of
service charge rather than agent. Management deem themselves as
principal in the transaction as they control the provision of
service charge before it is transferred on to the customer. The
effect of this on the Consolidated Statement of Comprehensive
Income is an increase in revenue and property operating expenses of
GBP16.6 million and an increase in trade and other receivables and
trade and other payables of GBP15.4 million. Included in the trade
and other receivables balance is a restricted monetary asset of
GBP9.3 million which relates to cash balances which legally belong
to the Group but which the Group cannot readily access. They do not
meet the definition of cash and cash equivalents and consequently
are presented separately from cash in the balance sheet. The net
effect of this amendment on the profit / (loss) after tax, basic
EPS, diluted EPS and net assets is GBPnil.
The amortisation of tenant incentives and letting costs of
GBP1.5 million have also been offset against revenue rather than
property operating expenses. The net effect of this amendment on
the profit / (loss) after tax, basic EPS, diluted EPS and net
assets is GBPnil.
Cash flow statement
The Group has reported the cash flows from operating activities
using the indirect method. Interest received is presented within
investing cash flows; interest paid is presented within operating
cash flows. The acquisitions of investment properties are disclosed
as cash flows from investing activities because this most
appropriately reflects the Group's business activities.
Preparation of the consolidated financial statements
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries controlled by the
Company, made up to 31 March each year. Control is achieved when
the Company is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the investee.
The consolidated financial statements account for interest in
joint ventures using the equity method of accounting per IFRS 11.
The financial statements for the year ended 31 March 2020 have been
prepared on the historical cost basis, except for the revaluation
of investment properties, the revaluation of property, plant and
equipment and derivatives which are held at fair value through
profit and loss. The financial statements have also been prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and interpretations issued
by the IFRS Interpretations Committee (IFRS IC), and therefore
comply with article 4 of the EU IAS regulation, and in accordance
with the Companies Act 2006. In the current financial year the
Group has adopted a number of minor amendments to standards
effective in the year issued by the IASB and endorsed by the EU,
none of which have had a material impact on the Group. The
accounting policies used are otherwise consistent with those
contained in the Group's previous Annual Report and Accounts for
the year ended 31 March 2019.
Changes in accounting policy and disclosures
IFRS 16 Leases
The Group has applied IFRS 16 Leases from 1 April 2019 which
requires lessees to recognise a right-of-use asset and related
lease liability representing the obligation to make lease payments.
Interest expense on the lease liability and depreciation on the
right-of-use asset ('ROU') will be recognised in the statement of
comprehensive income.
In accordance with the transition provisions in IFRS 16, the new
rules have been adopted retrospectively, with the cumulative effect
of initially applying the new standard recognised on 1 April 2019.
Comparatives for the year ended 31 March 2019 have not been
restated.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
operating leases under the principles of IAS 17. The payments made
under the operating leases were charged to profit or loss on a
straight-line basis over the period of the lease.
The Group holds two types of leases.
-- Head leases: A number of the investment properties and
managed houses held as property, plant and equipment owned by the
Group are situated on land held through leasehold arrangements, as
opposed to the Group owning the freehold.
-- Office leases: Office space occupied by the Group's head office.
In applying IFRS 16 for the first time, the Group has also
adopted the practical expedients relating to short term leases
where the total lease term is less than or equal to 12 months, and
low value assets of less than GBP3,000 which allow these to be
expensed through the income statement.
The balance sheet impact of recognising the lease liability and
associated ROU asset upon adoption at the 1 April 2019 and
subsequently at 31 March 2020 is set out below.
1 April 2019 31 March
2020
GBPm GBPm
--------------------------------------- ---------
Right of use asset (Investment
property) 83.5 83.3
Right of use asset (Property,
plant and equipment) 3.6 3.9
Current lease liability 0.7 0.7
Non-current lease liability 86.4 85.6
--------------------------------- ----- ---------
As the head leases meet the definition of investment property,
it is initially recognised in accordance with IFRS 16, and then
subsequently accounted for as investment property in accordance
with IAS 40 and the Group's accounting policy. After initial
recognition the ROU head lease asset is subsequently carried at
fair value and the valuation gains and losses recognised within net
valuation movement in the income statement.
The ROU asset in relation to the head office lease has been
recognised as property, plant and equipment. After initial
recognition the ROU head office asset is depreciated on a
straight-line basis over the period of the lease.
Impact on earnings per share from the adoption of IFRS 16:
The impact of applying IFRS 16 for the year to 31 March 2020 is
set out below:
31 March 2020 IFRS 16 31 March 2020
Pre IFRS 16 Adjustment Post IFRS 16
GBPm GBPm GBPm
------------------------- -------------- ----------- --------------
Property operating
expenses 58.1 (3.1) 55.0
Administrative expenses 30.0 (0.1) 20.9
Finance costs 21.4 2.9 24.3
------------------------- -------------- ----------- --------------
As shown above, for the year ended 31 March 2020, property
operating expenses of GBP3.1 million which would have been
recognised under IAS 17 have been replaced with an increase in
finance costs of GBP2.9 million and a decrease in administrative
expenses due to depreciation of the right of use asset of GBP0.1
million, under IFRS 16. The expense relating to low value assets
which have not been recognised under IFRS 16 was GBP0.1 million and
the expense relating to variable lease payments not included in the
measurement of lease liabilities was GBPnil million. The total cash
outflow in relation to lease commitments for the year was GBP3.4
million.
Lease liability maturity table
2020
GBPm
------------------- -----
Within one year 0.7
One to two years 0.7
Two to five years 2.1
After five years 82.8
-------------------- -----
86.3
------------------- -----
The difference between the operating ground lease commitments
disclosed applying IAS 17 as at 31 March 2020 and the lease
liabilities recognised in the consolidated statement of financial
position at the date of initial application is detailed as
follows:
2020
GBPm
-------------------------------------------------------- --------
Within one year 3.4
One to two years 3.4
Two to five years 10.2
After five years 256.7
--------------------------------------------------------- --------
273.7
-------------------------------------------------------- --------
Effect of discounting (187.4)
--------------------------------------------------------- --------
Present value of lease liabilities as at 31 March 2020 86.3
--------------------------------------------------------- --------
New accounting polices
The Group's new accounting policies for leases under IFRS 16 and
the restatement in respect of service charge income and expenses is
set out below.
Leases
At inception, the Group assesses whether a contract is or
contains a lease. This assessment involves the exercise of
judgement about whether the Group obtains substantially all the
economic benefits from the use of that asset, and whether the Group
has the right to direct the use of the asset.
The Group recognises a right-of-use ("ROU") asset and the lease
liability at the commencement date of the lease. The ROU asset is
initially measured based on the present value of lease payments,
plus initial direct costs and the cost of obligations to restore
the asset, less any incentives received.
Lease payments generally include fixed payments and variable
payments that depend on an index (such as an inflation index).
Each lease payment is allocated between the liability and
finance cost. The lease payments are discounted using the interest
rate implicit ]in the lease if that rate can be readily determined
or if not, the incremental borrowing rate is used at 3.2% The
finance cost is charged to profit or loss over the lease period so
as to produce a constant rate of interest on the remaining balance
of the liability for each period.
The ROU asset is depreciated over the shorter of the lease term
or the useful life of the underlying asset. The ROU asset is
subject to testing for impairment if there is an indicator of
impairment. ROU assets are included in the heading Property, plant
and equipment, and the lease liability included in the headings
current and non- current Trade and other payables on the balance
sheet.
Where the ROU asset relates to land or property that meets the
definition of investment property under IAS 40, after initial
recognition the ROU asset is subsequently accounted for as
investment property and carried at fair value (see Investment
properties accounting policy). Valuation gains and losses in a
period are taken to the Income Statement.
The Group has elected not to recognise ROU assets and
liabilities for leases where the total lease term is less than or
equal to 12 months, or for low value leases of less than GBP3,000.
The payments for such leases are recognised in the income statement
on a straight-line basis over the lease term.
Revenue recognition
IFRS 15 is based on the principle that revenue is recognised
when control passes to a customer. The majority of the Group's
income is from tenant leases and is therefore outside of the scope
of the IFRS 15. However, the standard applies to service charge
income. Under IFRS 15, the company needs to consider the agent
versus principal guidance. The company is principal in the
transaction if they control the specified goods or services before
they are transferred to the customer. In the provision of service
charge, the company has deemed itself to be principal and therefore
the consolidated statement of comprehensive income and the
consolidated balance sheet have been amended to reflect service
charge income, expenses, trade and other receivables and trade and
other payables.
The managed pub income and turnover related rent have also been
disaggregated for clearer presentation and the accounting policies
for each of these revenue streams is set out below:
Service charge income
Service charge income is recognised in accordance with IFRS 15.
This income stream is recognised in the period in it is earnt and
when performance obligations are met.
Turnover related rent
Turnover related rent relates to the margin earnt on the sale of
wet products and is recognised at the fair value of the
consideration received or receivable for goods and services
provided in the normal course of business.
Managed pub income
Managed pub income relates to income received in the pub
business relating to food, drinks and machine income. The revenue
from drink and food is recognised at the point at which the goods
are provided. The revenue earned from machines is recognised in the
period in which it relates.
Rental income
Rental income from fixed and minimum guaranteed rent reviews is
recognised on a straight-line basis over the entire lease term.
Where such rental income is recognised ahead of the related cash
flow, an adjustment is made to ensure the carrying value of the
related property including the accrued rent does not exceed the
external valuation. Initial direct costs incurred in negotiating
and arranging a new lease are amortised on a straight-line basis
over the period from the date of lease commencement to the expiry
date of the lease.
Where a rent-free period is included in a lease, this is
recognised over the lease term, on a straight-line basis, as a
reduction of rental income.
Where a lease incentive payment, or surrender premiums are paid
to enhance the value of a property, it is amortised on a straight-
line basis over the period from the date of lease commencement to
the expiry date of the lease as a reduction of rental income. It is
management's policy to recognise all material lease incentives and
lease incentives greater than six months. Upon receipt of a
surrender premium for the early determination of a lease, the
profit, net of dilapidations and non-recoverable outgoings relating
to the lease concerned, is accounting for from the effective date
of the modification, being the date at which both parties agree to
the modification, considering any prepaid or accrued lease payments
relating to the original lease as part of the lease payments for
the new lease.
Letting costs are recognised over the lease term on a straight
line basis as a reduction of rental income.
In the Group's pub business, revenue is measured at the fair
value of the consideration received or receivable and represents
amounts receivable for goods and services provided in the normal
course of business, net of discounts, VAT and other sales-related
taxes.
Asset management fees
Management fees are recognised in the statement of comprehensive
income as the services are delivered and performance obligations
met. The Group assesses whether the individual elements of service
in the agreement are separate performance obligations. Where the
agreements include multiple performance obligations, the
transaction price will be allocated to each performance
obligation.
Promote payments
The Group is contractually entitled to receive a promote payment
should the returns from a joint venture to the joint venture
partner exceed a certain internal rate of return. This payment is
only receivable by the Group on disposal of underlying properties
held by the joint venture or other termination events. Any
entitlements under these arrangements are only accrued for in the
financial statements once the Group believes the above performance
conditions have been met and it is highly probable that the
associated revenue will not reverse.
Other standards
The Group has considered amendments to standards endorsed by the
European Union effective for the current accounting period and
determined that these do not have a material impact on the
consolidated financial statements of the Group. These amendments
include, amendments to IFRS 9 (prepayments features), IAS 28 (long
term interests), IAS 19 (plan amendments) and IFRIC 23.
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective for the
current accounting period.
Amendments to IFRS 3 (Business Combinations) is effective for
financial years commencing on or after 1 January 2020. The
amendments relate to changes in the criteria for determining
whether an acquisition is a business combination or an asset
acquisition. These amendments will be applied to any future
business combinations.
Amendments to IFRS 9 (Financial Instruments) is effective for
financial years commencing on or after 1 January 2020. The
amendments offer relief in meeting the criteria for hedge
accounting on the transition from LIBOR to IBOR. The adoption of
these amendments is not considered to have a material impact on the
financial statements of the Group.
Amendments to References to the Conceptual Framework are
effective for financial years commencing on or after 1 January
2020. The adoption of these amendments is not considered to have a
material impact on the consolidated financial statements of the
Group.
Amendments to IAS 8 (Accounting Policies, Changes in Accounting
Estimates and Errors) are also effective for financial years
commencing on or after 1 January 2020. The amendments will be
applied to any future changes in Accounting Policy, Accounting
Estimates or Errors.
Other accounting policies:
Investment properties
These properties include completed properties that are
generating rent or are available for rent, and development
properties that are under development or available for development.
Investment properties comprise freehold and leasehold properties
and are first measured at cost (including transaction costs), then
revalued to market value at each reporting date by independent
professional valuers. Leasehold properties are shown gross of the
leasehold payables (and accounted for as right-of-use asset under
IFRS 16, see Leases accounting policy). Valuation gains and losses
in a period are taken to the income statement. As the Group uses
the fair value model, as per IAS 40 Investment Properties, no
depreciation is provided. An asset will be classified as held for
sale within investment properties, in line with IFRS 5 Non-Current
Assets Held for Sale and Discontinued Operations, where the asset
is available for immediate sale in their present condition and the
sale is highly probable.
Business combinations
The Group applies the acquisition method to account for business
combinations. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of completion, of assets
given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquired. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition under IFRS are
recognised at their fair value at the acquisition. Where the fair
value of the consideration is less than the fair value of the
identifiable assets and liabilities then the difference is
recognised as a bargain purchase in the statement of comprehensive
income.
Where properties are acquired through corporate acquisitions,
each transaction is considered by management in light of the
substance of the acquisition to determine whether the acquisition
is a business combination or an asset acquisition. If a transaction
is determined to be an asset acquisition then it is accounted for
at cost.
Joint ventures
Interests in joint ventures are accounted for using the equity
method of accounting. The Group's joint ventures are entities over
which the Group has joint control with a partner. Investments in
joint ventures are carried in the balance sheet at cost as adjusted
by post-acquisition changes in the Group's share of the net assets
of the joint venture, less any impairment or share of income
adjusted for dividends. In assessing whether a particular entity is
controlled, the Group considers all of the contractual terms of the
arrangement, whether it has the power to govern the financial and
operating policies of the joint venture so as to obtain benefits
from its activities, and the existence of any legal disputes or
challenges to this control in order to conclude whether the Group
controls the joint venture.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated
depreciation and any recognised impairment loss. Depreciation is
recognised over the useful lives of the equipment, using the
straight-line method at a rate of between 10% to 25% depending on
the useful life.
Public houses are initially measured at cost and subsequently
measured at valuation, net of depreciation and any impairment
losses. Depreciation is recognised so as to write off the cost or
valuation of assets less their residual values over their useful
lives on the following bases:
-- Buildings 4% on a straight line-basis or the lease term if shorter
-- Fixtures and fittings 20% on a straight line-basis depending on the useful life
-- IT 33% on a straight line-basis
-- Freehold land and assets in the course of construction are not depreciated.
Residual value is reviewed at least at each financial year and
there is no depreciable amount if residual value is the same as, or
exceeds, book value.
The gain or loss arising on the disposal of an asset is
determined as the difference between the sales proceeds and the
carrying amount of the asset.
Lease commitments
Prior to adoption of IFRS 16 the group use to account for leases
as follows:
As lessor
The cost of securing an operating lease are capitalised within
the carrying amount of the related investment property and
amortised over the lease term. Revenue from operating leases is
recognised as per the revenue recognition policy.
As lessee
Leases in which a significant portion of the risks and rewards
of ownership are retained by another party, the lessor, are
classified as operating leases. Payments including prepayments,
made under operating leases (net of any incentives received from
the lessor) are charged to statement of comprehensive income on a
straight-line basis over the period of the lease.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at
call with financial institutions, other short-term, highly liquid
investments with original maturities of three months or less that
are readily convertible into known amounts of cash and which are
subject to an insignificant risk of change in value, and bank
overdrafts. Bank overdrafts are shown within borrowings in current
liabilities in the consolidated statement of financial
position.
Financial instruments
Financial assets
The Group classifies its financial assets as fair value through
profit or loss or amortised cost, depending on the purpose for
which the asset was acquired and based on the business model test.
The Group's account for financial assets carried amortised cost
including tenant receivables which arise from the provision of
goods and services to customers. These are initially recognised at
fair value plus transaction costs that are directly attributable to
their acquisition or issue and are subsequently carried at
amortised cost, less provision for impairment. Impairment
provisions for receivables are recognised based on the simplified
approach within IFRS 9 using a provision matrix in the
determination of the lifetime expected credit losses. The
probability of tenant default and subsequent non-payment of the
receivable is assessed. If it is determined that the receivable
will not be collectable, the gross carrying value of the asset is
written off against the associated provision. If in a subsequent
year the amount of the impairment loss decreased and the decrease
can be related objectively to an event occurring after the
impairment was recognised, the previously recognised impairment
loss is reversed to the extent that the carrying value of the asset
does not exceed its amortised costs at the reversal date. The
Group's financial assets measured at amortised cost comprise tenant
receivables and cash and cash equivalents.
The financial instruments classified as financial assets at fair
value through profit or loss include interest rate swap and cap
arrangements. Recognition of the derivative financial instruments
takes place when the hedging contracts are entered into. They are
recognised at fair value and transaction costs are included
directly in finance costs.
The fair values of derivative financial assets and financial
liabilities are determined as follows:
Interest rate swaps and caps are measured using the midpoint of
the yield curve prevailing on the reporting date. The valuations do
not include accrued interest from the previous settlement date to
the reporting date. The fair value represents the net present value
of the difference between the contracted rate and the valuation
rate when applied to the projected balances for the period from the
reporting date to the contracted expiry dates.
Financial assets are derecognised only when the contractual
rights to the cash flows from the financial asset expire or the
Group transfers substantially all risks and rewards of
ownership.
Financial liabilities
Financial liabilities are classified at fair value through
profit or loss or as other liabilities. A financial liability is
derecognised when the obligation under the liability is discharged
or cancelled or expires.
All loans and borrowings are classified as other liabilities.
Initial recognition is at fair value less directly attributable
transaction costs. After initial recognition, interest bearing
loans and borrowings are subsequently measured at amortised costs
using the effective interest method.
Financial liabilities included in trade and other payables are
recognised initially at fair value and subsequently at amortised
cost.
The fair value of a non-interest bearing liability is its
discounted repayment amount. If the due date of the liability is
less than one year, discounting is omitted.
Share capital
Shares are classified as equity when there is no obligation to
transfer cash or other assets. The cost of issuing share capital is
recognised directly in equity against the proceeds from the share
capital.
Taxation
Income tax
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the date of the
balance
sheet. Tax is recognised in the statement of comprehensive
income.
Deferred tax
Any deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, using tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. A
deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised.
Value added tax
Revenues, expenses and assets are recognised net of the amount
of value added tax except:
Where the value added tax incurred on a purchase of assets or
services is not recoverable from the taxation authority, in which
case the value added tax is recognised as part of the cost of
acquisition of the asset or as part of the expense item as
applicable; and
Receivables and payables that are stated with the amount of
value added tax included. The net amount of value added tax
recoverable from, or payable to, the taxation authority is included
as part of receivables or payables in the balance sheet.
Share-based payments
The cost of equity settled transactions is measured with
reference to the fair value at the date at which they were granted.
Where vesting performance conditions are non-market based, the fair
value excludes the effect of these vesting conditions and an
estimate is made at each balance sheet date of the number of
instruments expected to vest. The fair value is recognised over the
vesting period in the statement of comprehensive income, with a
corresponding increase in equity. Any change to the number of
instruments with non-market vesting conditions expected to vest is
recognised in the statement of comprehensive income for that
period.
Employee Benefit Trust
The Group operates an Employee Benefit Trust for the exclusive
benefit of the Group's employees. The investment in the Company's
shares held by the trust is recognised at cost and deducted from
equity. No gain or loss is recognised in the statement of
comprehensive income on the purchase, sale, issue or cancellation
of the shares held by the trust.
Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when paid. In the case of final dividends, this is when approved by
equity holders.
Finance income and costs
Finance income and costs are recognised using the effective
interest rate method. The effective interest method is a method of
calculating the amortised cost of a financial asset or financial
liability and of allocating the interest income or interest expense
over the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments or receipts
throughout the expected life of the financial instrument, or a
shorter period where appropriate, to the net carrying amount of the
financial asset or financial liability.
Service charge income and expense
Service charge income is recognised in the accounting period in
which the services are rendered and the related property expenses
are recognised in the period in which they are incurred.
Other standards
There are no other standards or Interpretations yet to be
effective that would be expected to have a material impact on the
financial statements of the Group.
2. Critical accounting judgements and estimates
The preparation of financial statements requires management to
make estimates affecting the reported amounts of assets and
liabilities, of revenues and expenses, and of gains and losses. The
key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year, are discussed below. Estimates and judgements are
continually evaluated and are based on historical experience as
adjusted for current market conditions and other factors.
Significant judgements
Leased and tied pub classification as investment property
The Directors have exercised judgement in order to determine the
appropriate classification of the leased and tied pubs as
investment Property or Property plant and equipment. Under IAS40
'Investment Properties' an entity treats such a property as
investment property if services provided to the occupier are
insignificant to the arrangement as a whole. The Directors consider
that whilst the relative proportion of wet income to lease income
from a tied pub in quantitative terms is not insignificant other
factors should be considered in making the assessment of whether
the services provided to the tenants are insignificant. The income
received by the Group in respect of the sale of wet products is
higher than that which would be received by a third party providing
the same services and that these pubs pay a lower fixed rent than
they would without the wet product tie. This indicates the margin
earned, in substance, predominantly represents turnover related
rent. Accordingly, leased and tied pubs with an aggregate fair
value of GBP219.1 million at 31 March 2020 ((31 March 2019:
GBP212.1 million) have been classified as Investment Property.
Managed houses with an aggregate value of GBP55.0 million at 31
March 2020 (31 March 2019: GBP26.9 million) have been classified as
Plant, Property and Equipment.
Principal vs agent
The Group has contracts with breweries and drinks distributors
for the provision of wet product to its pub tenants. In assessing
whether it is appropriate to recognise revenue as principal or
agent, the Directors exercise their judgement in considering the
criteria included in IFRS 15 'Revenue from Contracts with
Customers'. The Group is not responsible for the delivery or the
quality of the wet drink product and does not take physical control
or assume inventory risk in the arrangement; these factors indicate
that the Group is acting as agent and the Directors have concluded
that this outweighs the fact that the Group sets the pricing with
the tenant and bears an element of credit risk. In considering the
nature of the relationship with its pub tenants, the Directors are
satisfied that the provisions of IFRS 15 indicate that the Group is
not acting as principal and has therefore recognised revenue of
GBP13.8 million (2019: GBP12.3 million) in the period representing
only the net margin earned on wet product sales, see note 4 for
further details.
Business Combinations
Management must assess whether the acquisition of property
through the purchase of a corporate vehicle should be accounted for
as an asset purchase or a business combination. Management exercise
judgement to determine whether the assets and liabilities acquired
contains processes and inputs in addition to property. On 2
December 2019, the Group acquired Bravo Inns 1 Limited and Bravo
Inns 2 Limited (Bravo Inns) (see note 15). It was determined that a
business had been acquired and as such the transaction would be
accounted for as a business combination under IFRS 3.
Business combinations are accounted for using the acquisition
method and any excess of the purchase consideration over the fair
value of the net assets acquired is recognised as goodwill and if
the fair value of the net asset assets is deemed to be higher than
the purchase consideration then this is recognised as a bargain
purchase.
The following items are ongoing areas of accounting judgement,
however, significant judgment has not been required for any of
these
items in the current financial year.
REIT Status
NewRiver is a Real Estate Investment Trust (REIT) and does not
pay tax on its property income or gains on property
sales, provided that at least 90% of the Group's property income
is distributed as a dividend to shareholders, which becomes taxable
in
their hands. In addition, the Group has to meet certain
conditions such as ensuring the property rental business represents
more than
75% of total profits and assets. Any potential or proposed
changes to the REIT legislation are monitored and discussed with
HMRC. It is managements judgement that the Group has met the REIT
conditions in FY20.
Sources of estimation uncertainty
Investment property
As noted above, the Group's investment properties are stated at
fair value. The assumptions and estimates used to value the
properties are detailed in note 12 . Small changes in the key
estimates, such as the estimated future rental income, can have a
significant impact on the valuation of the investment properties,
and therefore a significant impact on the balance sheet and key
performances measures such as Net Asset Value per share. Certain
estimates require an assessment of factors not within management's
control, such as overall market conditions. The third party valuers
for properties recognised at 31 March 2020 include a material
valuation uncertainty clause in their reports. The clause
highlights significant estimation uncertainty regarding the
valuation of investment property due to the Covid-19 pandemic.
Rents, ERVs, EBITDA multiples and maintainable earnings have a
direct relationship to valuation, while yield has an inverse
relationship. Estimated costs of a development project will
inversely affect the valuation of development properties. There are
interrelationships between all these unobservable inputs as they
are determined by market conditions. The existence of an increase
in more than one unobservable input could be to magnify the impact
on the valuation, see note 12 for sensitivity analysis.
The estimated fair value may differ from the price at which the
Group's assets could be sold. Actual realisation of net assets
could differ from the valuation used in these financial statements,
and the difference could be significant.
Impairment of trade receivables
As a result of Covid-19 the Group's assessment of expected
credit losses is inherently subjective due to the forward-looking
nature of the assumptions made, most notably around the assessment
over the likelihood of tenants having the ability to pay rent as
demanded, as well as the likelihood of rent deferrals and rent
frees being offered to tenants as a result of the pandemic. The
expected credit loss which has been recognised is therefore subject
to a degree of uncertainty which may not prove to be accurate given
the uncertainty caused by Covid-19.
3. Segmental reporting
The Group's operations are organised into two operating
segments, being investment in retail property and in pubs. The
retail investments comprise shopping centres, retail warehouses and
high street stores. The pub investments consist of community public
houses. All of the Group's operations are in the UK and therefore
no geographical segments have been identified.
The relevant gross revenue, net rental income and property and
other assets, being the measures of segment revenue, segment result
and segment assets used by the management of the business, are set
out below. The results include the Group's share of assets and
results from properties held in joint ventures and associates.
Segment revenues and result 2020 2019
Retail Pubs Group Retail Pubs Group
(restated) (restated)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------- ------- -------- ------------ ------- ------------
Property rental and related
income 76.8 13.6 90.4 79.3 13.5 92.8
Managed pub income - 22.5 22.5 - 16.2 16.2
Turnover related rent - 13.8 13.8 - 12.3 12.3
Service charge income 16.9 - 16.9 16.6 - 16.6
Amortisation of tenant incentives
and letting costs (1.5) - (1.5) (1.3) (0.5) (1.8)
Asset management fees 0.9 - 0.9 0.3 - 0.3
Surrender premiums and commissions 1.8 - 1.8 3.3 0.5 3.8
------------------------------------
Segment revenue 94.9 49.9 144.8 98.2 42.0 140.2
Service charge expense (21.1) - (21.1) (21.0) - (21.0)
Ground rent - - - (2.9) - (2.9)
Rates (2.3) (1.1) (3.4) (2.2) (0.7) (2.9)
Other property operating
expenses (6.2) (24.3) (30.5) (5.0) (19.4) (24.4)
------------------------------------
Property operating expenses (29.6) (25.4) (55.0) (31.1) (20.1) (51.2)
------------------------------------ ------- ------- -------- ------------ ------- ------------
Segment result 65.3 24.5 89.8 67.1 21.9 89.0
------------------------------------ ------- ------- -------- ------------ ------- ------------
Administrative expenses (20.5) (19.4)
Share of joint ventures'
and associates' profit after
tax (2.2) (0.5)
Acquisition and integration
costs (0.4) (3.3)
Net valuation movement (162.6) (88.2)
(Loss) / profit on disposal
of investment properties (1.5) 0.9
Finance income 0.1 -
Finance costs (21.5) (18.7)
Gain on bargain purchase - 7.0
Revaluation of derivatives (2.8) (3.2)
Taxation 0.5 (0.5)
------------------------------------ ------------ ------- ------------
Loss for the year after taxation (121.1) (36.9)
------------------------------------ ------- ------- -------- ------------ ------- ------------
Segment assets 2020 2019
Retail Pubs Unallocated Total Retail Pubs Unallocated Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- -------- ------ ------------ -------- -------- ------ ------------ --------
Non-current assets
Investment properties 961.2 224.4 - 1,185.6 987.0 267.1 - 1,254.1
Investments in
joint ventures 22.1 - - 22.1 7.6 - - 7.6
Investment in
associates 0.9 - - 0.9
Public houses - 55.0 - 55.0 - 26.9 - 26.9
Property, plant
and equipment - - 1.2 1.2 - 0.4 0.8 1.2
Other non-current
assets - - 4.1 4.1 - - 0.7 0.7
----------------------- -------- ------ ------------ -------- -------- ------ ------------ --------
Total non-current
assets 1,268.9 1,290.5
Current assets
Trade and other
receivables 23.5 3.2 - 26.7 28.2 6.4 - 34.6
Current taxation
asset - - 0.7 0.7
Cash and cash
equivalents - - 80.8 80.8 - - 27.1 27.1
----------------------- -------- ------ ------------ -------- -------- ------ ------------ --------
Total current
assets 108.2 61.6
Segment assets 1,007.7 282.6 86.1 1,377.1 1,022.8 300.8 28.6 1,352.2
----------------------- -------- ------ ------------ -------- -------- ------ ------------ --------
4. Revenue
2019
2020 (restated)
GBPm GBPm
----------------------------------------------------- ---- ------ ------------
Property rental and related income* 90.4 92.8
Turnover related rent 13.8 12.3
Amortisation of tenant incentives and letting costs (1.5) (1.8)
Surrender premiums and commissions 1.8 3.8
----------------------------------------------------------- ------ ------------
Rental related income 104.5 107.1
----------------------------------------------------------- ------ ------------
Asset management fees 0.9 0.3
Managed pub income 22.5 16.2
Service charge income 16.9 16.6
----------------------------------------------------------- ------ ------------
Revenue 144.8 140.2
----------------------------------------------------------- ------ ------------
*Included within property rental and related income is car park
income of GBP7.4 million (2019: GBP7.1 million) which falls under
the scope of IFRS 15. The remainder of the income is covered by
IFRS 16.
Asset management fees, managed pub income and service charge
income which represents the flow through costs of the day-to-day
maintenance of shopping centres falls under the scope of IFRS 15.
Refer to accounting policies in Note 1.
5. Property operating expenses
2019
2020 (restated)
GBPm GBPm
----------------------------------- ---- ----- ------------
Service charge expense 21.1 21.0
Ground rent - 2.9
Rates on vacant units 3.4 2.9
Expected credit loss 2.5 -
Pub operating expenses 20.3 15.3
Other property operating expenses 7.7 9.1
----------------------------------------- ----- ------------
55.0 51.2
---------------------------------------- ----- ------------
6. Administrative expenses
2020 2019
GBPm GBPm
--------------------------------------------------------- ----- -----
Wages and salaries 9.9 7.8
Social security costs 1.5 1.9
Other pension costs 0.4 0.3
---------------------------------------------------------- ----- -----
Staff costs 11.8 10.0
Depreciation 1.6 1.0
Share-based payments - 2.5
Operating lease payments - 0.3
Other administrative expenses 7.1 5.6
---------------------------------------------------------- ----- -----
20.5 19.4
Professional fees in relation to the acquisition and
integration of Bravo Inns Limited and Hawthorn Leisure 0.4 3.3
---------------------------------------------------------- ----- -----
Administrative expenses 20.9 22.7
---------------------------------------------------------- ----- -----
Net administrative expenses ratio is calculated as follows:
2020 2019
GBPm GBPm
-------------------------------------------------------- ------ ------
Administrative expenses 20.9 22.7
Adjust for:
Asset management fees (0.9) (0.3)
Share of joint ventures' and associates administrative
expenses 0.1 0.1
Share-based payments - (2.5)
Depreciation of properties (0.8) (0.8)
Less exceptional cost in respect of the acquisition
of Bravo Inns Limited (0.4) -
Less exceptional cost in respect of the acquisition
of Hawthorn Leisure - (3.3)
--------------------------------------------------------- ------ ------
Group's share of net administrative expenses 18.9 15.9
--------------------------------------------------------- ------ ------
Property rental and related income* 124.2 121.3
Share of joint ventures' and associates' property
income 3.4 0.9
--------------------------------------------------------- ------ ------
127.6 122.2
-------------------------------------------------------- ------ ------
Net administrative expenses as a % of property income
(including share of joint ventures) 14.9% 13.0%
--------------------------------------------------------- ------ ------
*This balance includes an expected credit loss of
GBP2.5 million
Average monthly number of staff 2020 2019
Directors 7 7
Operations and asset managers 44 34
Pubs 52 53
Support functions 79 55
--------------------------------------------------------- ------ ------
182 149
-------------------------------------------------------- ------ ------
Auditors' remuneration
2020 2019
GBP'000 GBP'000
------------------------------------------------ -------- --------
Audit of the Company's financial statements 315 126
Audit of subsidiaries, pursuant to legislation 235 235
------------------------------------------------- -------- --------
550 361
Non-audit fees 50 35
Total fees 600 396
------------------------------------------------- -------- --------
The remuneration in respect of 2019 relates to Deloitte LLP, the
Group's previous respective auditors. No amounts were paid to
PricewaterhouseCoopers in 2019.
7. (Loss)/profit on disposal of investment properties
2020 2019
GBPm GBPm
------------------------------------------------------ ------- -------
Gross disposal proceeds 48.0 62.5
Carrying value (47.9) (60.7)
Cost of disposal (1.6) (0.9)
------------------------------------------------------- ------- -------
(Loss) / profit on disposal of investment properties (1.5) 0.9
------------------------------------------------------- ------- -------
8. Finance income and finance costs 2020 2019
GBPm GBPm
------------------------------------------ ------- -------
Finance income
Income from loans with joint ventures 0.1 -
Finance expense
Interest on borrowings (18.7) (18.7)
Finance cost on lease liabilities (2.8) -
Revaluation of derivatives (2.8) (3.2)
------------------------------------------- ------- -------
Net finance expense (24.2) (21.9)
------------------------------------------- ------- -------
9. Taxation
2020 2019
GBPm GBPm
--------------------------------------- ------ ------
UK Corporation Tax at 19% (2019: 19%)
Current year 0.9 1.2
Prior year (1.4) (0.7)
---------------------------------------- ------ ------
Taxation (credit) / charge (0.5) 0.5
---------------------------------------- ------ ------
The credit for the year recognised in the consolidated statement
of comprehensive income relates to a total income tax credit of
GBP1.0 million and a deferred tax liability movement of GBP0.5
million.
2020 2019
GBPm GBPm
-------------------------------------------- -------- -------
(Loss) / profit before tax (121.6) (36.4)
Tax at the current rate of 19% (2019: 19%) (23.1) (6.9)
Revaluation of property 30.9 16.7
Current year tax charge 0.9 -
Non-taxable profit due to REIT regime (9.7) (8.6)
Non-deductible expenditure 1.9 -
Prior year adjustment (1.4) (0.7)
Taxation (credit) / charge (0.5) 0.5
--------------------------------------------- -------- -------
Real Estate Investment Trust regime (REIT regime)
The Group is a member of the REIT regime whereby profits from
its UK property rental business are tax exempt. The REIT regime
only applies to certain property-related profits and has several
criteria which have to be met. The main criteria are:
-- the assets of the property rental business must be at least 75% of the Group's assets;
-- the profit from the tax-exempt property rental business must
exceed 75% of the Group's total profit;
-- at least 90% of the Group's profit from the property rental
business must be paid as dividends.
The Group continues to meet these conditions and management
intends that the Group should continue as a REIT for the
foreseeable future.
Deferred tax
31 March 31 March
2019 Movement 2020
GBPm GBPm GBPm
-------------------------- --------- --------- ---------
Deferred tax asset 1.2 - 1.2
Deferred tax liabilities (2.8) (0.5) (3.3)
Net deferred tax (1.6) (0.5) (2.1)
-------------------------- --------- --------- ---------
The following corporation tax rates have been substantively
enacted: 19% effective from 1 April 2017. The deferred tax assets
and liabilities have been calculated at the tax rate effective in
the period that the tax is expected to crystallise. The Group has
recognised a deferred tax liability calculated at 19% (2019: 17%).
As at 31 March 2020, the Group has unrecognised tax losses of
GBP22.5 million (March 2019: GBP9.0 million). The losses have not
been recognised as an asset due to uncertainty over the
availability of taxable income to utilise the losses. The losses do
not expire but are reliant on continuity of ownership and source of
trade.
10. Performance measures
The Group's key performance measure is 'Underlying Funds from
Operations' or 'UFFO'. This performance measure is intended to
measure the underlying profitability of the Group and as such adds
back the non-cash share-based payment expense, unrealised
gains/losses and other one-off items. Management considers this
metric to be the most appropriate for measuring the underlying
performance of the business as it is familiar to non-property
investors, and better reflects the Group's generation of cash
profits. It is for this reason that UFFO is used to measure
dividend cover.
The measure is not intended to replace the cash measures
disclosed in the cash flow statement.
The European Public Real Estate Association (EPRA) issued Best
Practices Policy Recommendations in 2014 and additional guidance in
2016, which gives recommendations for performance measures. The
EPRA earnings measure excludes investment property revaluations and
gains on disposals, intangible asset movements and their related
taxation.
A reconciliation of the performance measures to the nearest IFRS
measure is below:
2020 2019
GBPm GBPm
-------------------------------------------------------------- -------- -------
Loss for the year after taxation (121.1) (36.9)
Adjustments
Net valuation movement 162.6 88.2
Loss/(profit) on disposal of investment properties 1.5 (0.9)
Revaluation of derivatives 2.8 3.2
Gain on bargain purchase - (7.0)
Exceptional cost in relation of Hawthorn and Bravo
Inns 0.4 3.0
Deferred tax 0.5 -
Group's share of joint ventures' and associates' adjustments
Revaluation of investment properties 4.3 1.3
Loss / (profit) on disposal of investment properties 0.3 (0.4)
EPRA earnings 51.3 50.5
Share-based payment charge - 2.5
Depreciation on public houses 0.8 0.8
Integration costs - 1.3
--------------------------------------------------------------- -------- -------
Underlying Funds From Operations (UFFO) 52.1 55.1
--------------------------------------------------------------- -------- -------
Number of shares
2020 2019
Number of shares No. m No. m
---------------------------------------------------- ------- -------
Weighted average number of ordinary shares for the
purposes of Basic EPS, UFFO and EPRA 305.9 304.0
Effect of dilutive potential ordinary shares:
Deferred bonus shares 0.3 0.3
Warrants - 0.2
----------------------------------------------------- -------
Weighted average number of ordinary shares for the
purposes of diluted EPS, UFFO and EPRA 306.2 304.5
----------------------------------------------------- ------- -------
Performance measures (pence)
IFRS
Basic EPS (39.6) (12.1)
Diluted EPS (39.6) (12.1)
UFFO
UFFO per share 17.0 18.1
Diluted UFFO per share 17.0 18.1
EPRA
EPRA EPS 16.7 16.6
Diluted EPRA EPS 16.7 16.6
----------------------------------------------------- ------- -------
The below table reconciles the differences between the
calculation of basic, diluted and EPRA NAV.
EPRA NAV per share and Basic NAV per share:
2020 2019
Shares Pence Shares Pence
GBPm m per share GBPm M per share
------------------------ ------ ------- ----------- ------ ------- -----------
Net assets 610.6 306.2 199p 796.1 304.8 261p
Warrants in issue - - 0.4 0.3
Unexercised employee
awards - 0.3 1.3 0.9
------------------------- ------ ------- ------ ------- -----------
Diluted net assets 610.6 306.5 199p 797.8 306.0 261p
Fair value derivatives 2.7 - (0.1) -
Deferred tax 2.1 - 1.6 -
------------------------- ------ ------- ----------- ------ ------- -----------
EPRA net assets 615.4 306.5 201p 799.3 306.0 261p
------------------------- ------ ------- ----------- ------ ------- -----------
11. Dividends
Pence
Payment date PID Non-PID per share GBPm
-------------------- ------ -------- ----------- -----
Year to March 2020
Ordinary dividends
24 May 2019 5.40 - 5.40 16.3
26 July 2019 5.40 - 5.40 16.5
15 November 2019 5.40 - 5.40 16.5
7 February 2020 5.40 - 5.40 16.5
--------------------- ------ -------- ----------- -----
21.60 - 21.60 65.8
-------------------- ------ -------- ----------- -----
Pence
Year to March 2019 PID Non-PID per share GBPm
Ordinary dividends
25 May 2018 5.25 - 5.25 15.8
27 July 2018 5.40 - 5.40 16.4
16 November 2018 5.40 - 5.40 16.4
24 January 2019 5.40 - 5.40 16.3
--------------------- ------ -------- ----------- -----
21.45 - 21.45 64.9
-------------------- ------ -------- ----------- -----
12. Investment properties
2020 2019
GBPm GBPm
-------------------------------------------------- -------- --------
Fair value brought forward 1,254.1 1,227.2
Acquisitions 44.1 49.9
Capital expenditure 14.1 23.7
Properties acquired in business combinations - 100.2
Lease incentives, letting and legal costs 2.3 2.7
Reclassification to plant property and equipment (5.4) (1.3)
Disposals (47.9) (60.7)
Net valuation movement (159.0) (87.6)
--------------------------------------------------- -------- --------
Fair value carried forward 1,102.3 1,254.1
--------------------------------------------------- -------- --------
Right of use asset (investment property) 83.3 -
-------------------------------------------------- -------- --------
Fair value carried forward 1,185.6 1,254.1
--------------------------------------------------- -------- --------
The Group's investment properties have been valued at fair value
on 31 March 2020 by independent valuers, Colliers International
Valuation UK LLP and Knight Frank LLP, on the basis of fair value
in accordance with the Current Practice Statements contained in The
Royal Institution of Chartered Surveyors Valuation - Professional
Standards, (the 'Red Book'). The valuations are performed by
appropriately qualified valuers who have relevant and recent
experience in the sector. The pub valuations are each subject to a
special assumption that similar commercial supply contracts would
be available to a buyer of the Portfolio, or that the buyer would
have agreements in place with brewers and suppliers which were at
least as good as the Group. The valuer considers this assumption to
be standard practice in the pub industry and to be consistent with
the Red Books definition of adopting the highest and best use.
The outbreak of Covid-19, declared by the World Health
Organisation as a "Global Pandemic" on 11 March 2020, has impacted
global
financial markets. Travel restrictions have been implemented by
many countries. Market activity is being impacted in many sectors.
As
at the valuation date, the external valuers consider that they
can attach less weight to previous market evidence for
comparison
purposes, to inform opinions of value. The current response to
Covid-19 means that external valuers are faced with an
unprecedented
set of circumstances on which to base a judgment. The valuations
across all asset classes are therefore reported on the basis of
"material valuation uncertainty" as per VPS 3 and VPGA 10 of the
RICS Red Book Global. Consequently, less certainty - and a higher
degree of caution - should be attached to the valuations provided
than would normally be the case. The external valuers have
confirmed, the inclusion of the "material valuation uncertainty"
declaration does not mean that valuations cannot be relied upon.
Rather, the phrase is used in order to be clear and transparent
with all parties, in a professional manner that - in the current
extraordinary circumstances - less certainty can be attached to
valuations than would otherwise be the case. In light of this
material valuation uncertainty we have reviewed the ranges used in
assessing the impact of changes in unobservable inputs on the fair
value of the Group's property portfolio.
As a result of the material uncertainty clause included,
sensitivities for more extensive changes in assumptions have been
included in the sensitivity analysis. Whilst the property
valuations reflect the external valuers' assessment of the impact
of Covid-19 at the valuation date, we consider +/-10% for ERV,
+/-10% for EBITDA +/-100bps for NEY and +/-100bps for multiplier to
capture the increased uncertainty in these key valuation
assumptions, and deem it to be a reasonable worst case scenario
given the like for like fall in valuations of 12.3% already
recognised in the year.
There has been no change in the valuation methodology used for
investment property as a result of Covid-19. The impact of Covid-19
on the retail valuation has been the impact on yields and the
capital deduction based on rental income expectations. Within the
pub business, the valuations have made allowances for a delinquency
period.
The fair value at 2020 represents the highest and best use.
The properties are categorised as Level 3 in the IFRS 13 fair
value hierarchy. There were no transfers of property between Levels
1, 2 and 3. Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity can
access at the measurement date. Level 2 inputs are inputs other
than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly. Level 3
inputs are unobservable inputs for the asset or liability.
Information about fair value measurements for the investment
property and public houses using significant unobservable inputs
(Level 3)
EPRA
topped
Property up net
equivalent initial
Property ERV Property rent yield yield
Fair
value Min Max Average Min Max Average Average Average
GBP per GBP per GBP per GBP per GBP per GBP per
(GBPm) sq ft sq ft sq ft sq ft sq ft sq ft % %
------------------ ------- -------- -------- -------- -------- -------- -------- ------------ ---------
Shopping centres 614.7 7.3 31.4 13.1 3.6 21.4 10.3 8.4% 7.6%
Retail warehouse 189.0 8.0 15.7 12.0 2.0 16.0 11.2 7.1% 7.1%
High street 12.1 5.0 11.5 8.8 0.0 16.9 7.2 8.1% 7.9%
Development
sites 62.0 5.3 15.7 9.7 0.2 15.5 3.9 - -
------------------ ------- -------- -------- -------- -------- -------- -------- ------------ ---------
877.8
------------------ ------- -------- -------- -------- -------- -------- -------- ------------ ---------
EBITDA multiples
Fair Property Rent (GBP (x) / Net Initial EBITDA (GBP per
value per site valuation) Yield (%) sq ft)
(GBPm) Min Max Average Min Max Average Min Max Average
-------------------- -------- ------ ------ --------- ----- ------ -------- ----- ------ --------
Pub portfolio 273.8 - - - 1.7x 12.2x 7.6x 1.37 115.1 19.65
Convenience
store development
portfolio 5.7 19.2 19.4 19.3 5.0% 5.3% 5.2% - - -
-------------------- -------- ------ ------ --------- ----- ------ -------- ----- ------ --------
279.5
-------------------- -------- ------ ------ --------- ----- ------ -------- ----- ------ --------
Total 1,157.3
-------------------- -------- ------ ------ --------- ----- ------ -------- ----- ------ --------
The investments are a portfolio of retail and leisure assets in
the UK. The valuation was determined using an income capitalisation
method, which involves applying a yield to rental income streams.
Inputs include yield, current rent and ERV. Development properties
are valued using a residual method, which involves valuing the
completed investment property using an investment method and
deducting estimated costs to complete, then applying an appropriate
discount rate.
The relationship of unobservable inputs to fair value are the
higher the rental values and the lower the yield, the higher the
fair value In the pub portfolio, the valuer values the assets on a
Profits Method, assessing their opinion of the Fair Maintainable
Trade (FMT) that a Reasonable Efficient Operator (REO) could
achieve as at the valuation date having regard to actual trading
performance of each asset and wider market dynamics. In respect of
the pub portfolio, these are valued on the highest and best use
basis. The valuer makes judgements on whether to use residual value
or a higher value to include development potential where
appropriate. Where no conversion opportunity has been identified at
present, the valuer has not specifically considered an alternative
use valuation.
The inputs to the valuation include:
-- Rental value - total rental value per annum
-- Equivalent yield - the net weighted average income return a
property will produce based upon the timing of the income
received.
-- EBITDA multiples and maintainable earnings from each pub
-- Estimated development costs
There were no changes to valuation techniques during the year.
The impact of Covid-19 on the retail valuation has been the impact
on yields and the capital deduction based on rental income
expectations. Within the pub business, the valuations have made
allowances for a delinquency period. Valuation reports are based on
both information provided by the Group, e.g. current rents and
lease terms which is derived from the Company's financial and
property management systems and is subject to the Group's overall
control environment, and assumptions applied by the valuers, e.g.
ERVs and yields. These assumptions are based on market observation
and the valuers' professional judgement.
Revenues are derived from a large number of tenants with no
single tenant or group under common control contributing more than
2% of the Group's revenue.
Sensitivities of measurement of significant inputs
There are interrelationships between all these unobservable
inputs as they are determined by market conditions. The effect of
an increase in more than one unobservable input would be to magnify
the impact on the valuation. Expected vacancy rates may impact the
yield with higher vacancy rates resulting in higher yields.
As set out within significant accounting estimates and judgments
above, the Group's property portfolio valuation is open to
judgments and is inherently subjective by nature.
As a result, the sensitivity analysis below illustrates the
impact of changes in key unobservable inputs on the fair value of
the Group's properties.
Sensitivity impact on valuations of a 10% change in estimated
rental value and absolute yield of 100 bps.
Impact on valuations of Impact on valuations of
a 10% change in ERV 100 bps change in yield
Asset Type GBPm GBPm GBPm GBPm GBPm
Retail asset
valuation Increase 10% Decrease 10% Increase 1.0% Decrease 1.0%
------------------- ------ ------------- ------------- -------------- --------------
Shopping centres 614.7 54.1 (51.3) (70.3) 91.5
Retail warehouses 189.0 9.6 (17.1) (21.1) 28.0
High street 12.1 0.7 (0.7) (0.7) 0.8
Development 62.0 3.7 (3.6) (3.6) 4.6
------------------- ------ ------------- ------------- -------------- --------------
877.8 68.1 (72.7) (95.6) 124.8
Sensitivity impact on valuations of a 10% change in EBITDA and
multiplier of 1.0x.
Impact on valuations of Impact on valuations of
a 10% change in EBITDA a 1.0x change in multiplier
GBPm GBPm GBPm GBPm GBPm GBPm
Asset Type Increase 10% Decrease 10% Increase 1.0x Decrease 1.0x
--------------------- ------ ------------- ------------- --------------- --------------
Pub asset valuation 279.5 28.0 (25.4) 35.9 (35.9)
2019: Sensitivity impact on valuations of a 5% change in
estimated rental value and absolute yield of 150 bps.
Impact on valuations of Impact on valuations of
a 5% change in ERV 50 bps change in yield
Asset Type GBPm GBPm GBPm GBPm GBPm
Retail asset
valuation Increase 5% Decrease 5% Increase 0.5% Decrease 0.5%
------------------- ------ ------------ ------------ -------------- --------------
Shopping centres 734.7 40.4 (37.1) (53.5) 70.2
Retail warehouses 164.8 13.6 (12.4) (19.1) 25.7
High street 16.7 1.5 (1.3) (1.8) 2.3
Development 71.1 4.4 (4.4) (3.6) 4.8
------------------- ------ ------------ ------------ -------------- --------------
987.3 59.9 (55.1) (78.0) 103.0
Sensitivity impact on valuations of a 5% change in EBITDA and
multiplier of 0.5x.
Impact on valuations of Impact on valuations of
a 5% change in EBITDA a 0.5x change in multiplier
GBPm GBPm GBPm GBPm GBPm GBPm
Asset Type Increase 5% Decrease 5% Increase 0.5x Decrease 0.5x
--------------------- ------ ------------ ------------ --------------- --------------
Pub asset valuation 294.0 14.4 (14.4) 16.6 (16.6)
Reconciliation to net valuation movement
in income statement
Net valuation movement in investment properties 2020 2019
GBPm GBPm
----------------------------------------------------- -------- -------
Net valuation movement in investment properties (159.0) (87.6)
Net valuation movement in property, plant
and equipment (4.0) (0.6)
Net valuation movement in right of use asset 0.4 -
Net valuation movement in Consolidated Statement of
Comprehensive Income (162.6) (88.2)
------------------------------------------------------- -------- -------
13. Investments in joint ventures
As at 31 March 2020 the Group has two joint ventures. On the 20
June 2019, the Group completed the acquisition of a portfolio of
four retail parks, in which the Group holds a 50% interest.
2020 2019
GBPm GBPm
-------------------------------------------------- ------ ------
Opening balance 7.6 8.5
Additions to investment in joint ventures 15.4 -
Loan to joint venture 3.0 -
Group's share of profit after taxation excluding
valuation movement 2.0 0.8
Net valuation movement (3.9) (1.3)
Distributions and dividends (2.0) (0.4)
---------------------------------------------------- ------ ------
Investment in joint venture 22.1 7.6
---------------------------------------------------- ------ ------
Name 2020 2019
Country of
incorporation % Holding % Holding
------------------------------------------- ---------------- ---------- ----------
NewRiver Retail Investments LP (NRI LP) Guernsey 50 50
NewRiver Retail (Napier) Limited (Napier) UK 50 -
------------------------------------------- ---------------- ---------- ----------
The Group is the appointed asset manager on behalf of these
joint ventures and receives asset management fees, development
management fees and potentially performance-related bonuses.
NewRiver Retail Investments LP and NewRiver Retail (Napier)
Limited have a 31 December year end. The aggregate amounts
recognised in the consolidated balance sheet and statement of
comprehensive income are as follows:
Balance sheet 2020 2019
Group's Group's
Total share Total share
GBPm GBPm GBPm GBPm
-------------------------------------- ------- -------- ------ --------
Non-current assets 70.7 36.9 14.8 7.4
Current assets 3.2 1.6 1.0 0.5
Current liabilities (6.0) (1.5) (0.6) (0.3)
Borrowings due in more than one year (30.0) (14.9) - -
--------------------------------------
Net assets 37.9 22.1 15.2 7.6
-------------------------------------- ------- -------- ------ --------
Statement of comprehensive income 2020 2020 2019 2019
Group's Group's
Total share Total share
GBPm GBPm GBPm GBPm
----------------------------------------- ------ -------- ------ --------
Revenue 6.4 3.2 1.8 0.9
Property operating expenses (0.6) (0.3) (0.6) (0.3)
----------------------------------------- ------ -------- ------ --------
Net property income 5.8 2.9 1.2 0.6
Administration expenses (0.3) (0.1) (0.2) (0.1)
Net finance costs (0.9) (0.5) (0.2) (0.1)
----------------------------------------- ------ -------- ------ --------
4.6 2.3 0.8 0.4
Net valuation movement (8.0) (3.9) (2.6) (1.3)
(Loss) / profit on disposal (0.5) (0.3) 0.8 0.4
----------------------------------------- ------ -------- ------ --------
Loss after taxation (3.9) (1.9) (1.0) (0.5)
Add back net valuation movement 8.0 3.9 2.6 1.3
Group's share of joint ventures' profit
before valuation movements 4.1 2.0 1.6 0.8
----------------------------------------- ------ -------- ------ --------
The Group's share of contingent liabilities in the joint
ventures is GBPnil (March 2019: GBPnil).
14. Investments in associates
As at 31 March 2020 the Group has two associate. On the 16
October, the Group completed an acquisition of a retail park, in
which the Group holds a 10% interest. The Group deem this to be an
associate, despite having a 10% interest in the Company, because
they hold significant influence.
2020
GBPm
-------------------------------------------------- ------
Opening balance -
Additions to Investment in associate 1.2
Group's share of profit after taxation excluding
valuation movement 0.1
Net valuation movement (0.4)
Investment in associate 0.9
---------------------------------------------------- ------
Name 2020
Country of
incorporation % Holding
------------------------------------------- ---------------- ----------
NewRiver Retail (Nelson) Limited (Nelson) UK 10
------------------------------------------- ---------------- ----------
The Group is the appointed asset manager on behalf of this
associate and receives asset management fees, development
management fees and potentially performance-related bonuses.
NewRiver Retail (Nelson) Limited has a 31 December year end. The
aggregate amounts recognised in the consolidated balance sheet and
statement of comprehensive income are as follows:
Balance sheet 2020
Group's
Total share
GBPm GBPm
-------------------------------------- ------- --------
Non-current assets 44.0 4.4
Current assets 2.0 0.2
Current liabilities (15.0) (1.5)
Borrowings due in more than one year (22.0) (2.2)
--------------------------------------
Net assets 9.0 0.9
-------------------------------------- ------- --------
Statement of comprehensive income 2020
Group's
Total share
GBPm GBPm
------------------------------------------------------ ------ --------
Revenue 1.7 0.2
Property operating expenses 0.1 -
------------------------------------------------------ ------ --------
Net property income 1.8 0.2
Administration expenses (0.1) -
Net finance costs (0.7) (0.1)
------------------------------------------------------ ------ --------
1.0 0.1
Net valuation movement (3.6) (0.4)
------------------------------------------------------ ------ --------
Loss after taxation (2.6) (0.3)
------------------------------------------------------ ------ --------
Add back net valuation movement 3.6 0.4
Group's share of associates' profit before valuation
movements 1.0 0.1
------------------------------------------------------ ------ --------
15. Business combinations
On 2 December 2019, the Group acquired Bravo Inns 1 Limited and
Bravo Inns 2 Limited ('Bravo Inns') for a cash consideration of
GBP7.8 million. Bravo Inns owned 44 public houses situated across
England. From the date of acquisition, Bravo Inns contributed net
revenue of GBP0.6 million and profit before tax from continuing
operations of the Group of GBP0.4 million If the acquisition had
taken place at the beginning of the year, net revenue from
continuing operations would have been GBP2.4 million and profit
before tax from continuing operations for the Group would have been
GBP1.3 million.
Details of the fair value of the assets and liabilities acquired
and the resultant gain on bargain purchase are as follows:
2020 Acquired Adjustments Fair value
GBPm GBPm GBPm
--------------------------------- --------- ------------ -----------
Property, plant and equipment 19.0 (0.3) 18.7
Current assets 0.6 - 0.6
Cash and cash equivalents 1.5 - 1.5
Other net current liabilities (13.2) - (13.2)
Fair value of acquired interest
in net assets on subsidiaries 7.6
---------------------------------- --------- ------------ -----------
Total purchase consideration 7.8
Goodwill 0.2
---------------------------------- --------- ------------ -----------
The goodwill is a result of the fair value determined for the
assets purchased not exceeding the gross asset value determined.
The goodwill has been recognised in the Consolidated Balance Sheet.
A loan of GBP11.7 million was repaid as part of the
acquisition.
16. Property plant and equipment
Office Fixtures Public
equipment and fittings houses Total
GBPm GBPm GBPm GBPm
Cost or
valuation
At 1 April
2019 1.4 0.6 27.7 29.7
Additions 0.4 - 9.8 10.2
Business
combinations - - 18.7 18.7
Revaluation:
Recognised in
the statement
of
comprehensive
income - - (1.0) (1.0)
Recognised in
the income
statement - - (4.0) (4.0)
Net transfers
from
investment
property - - 5.4 5.4
At 31 March
2020 1.8 0.6 56.6 59.0
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
Accumulated
depreciation
At 1 April
2019 0.3 0.5 0.8 1.6
Charge for the
year 0.4 - 0.8 1.2
Disposals - - - -
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
At 31 March
2020 0.7 0.5 1.6 2.8
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
Net book value
at 31 March
2020 1.1 0.1 55.0 56.2
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
Net book value
at 31 March
2019 1.1 0.1 26.9 28.1
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
Office Fixtures Public
equipment and fittings houses Total
GBPm GBPm GBPm GBPm
Cost or
valuation
At 1 April
2018 0.9 0.7 - 1.6
Additions 0.4 - 25.0 25.4
Business
combinations 0.1 - 0.8 0.9
Revaluation: -
Recognised in
the statement
of
comprehensive
income - - 1.2 1.2
Recognised in
the income
statement - - (0.6) (0.6)
Net transfers
from
investment
property - - 1.3 1.3
Disposals - (0.1) - (0.1)
At 31 March
2019 1.4 0.6 27.7 29.7
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
Accumulated
depreciation
At 1 April
2018 0.1 0.5 - 0.6
Charge for the
year 0.2 0.1 0.8 1.1
Disposals - (0.1) - (0.1)
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
At 31 March
2019 0.3 0.5 0.8 1.6
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
Net book value
at 31 March
2019 1.1 0.1 26.9 28.1
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
Net book value
at 31 March
2018 0.8 0.2 - 1.0
--------------- --------------------------------------- ----------------------------------------------- --------------------------------- --------------------------
The Group's public houses have been valued at fair value on 31
March 2020 by independent valuers, Colliers International Valuation
UK LLP, on the basis of fair value in accordance with the Current
Practice Statements contained in The Royal Institution of Chartered
Surveyors Valuation - Professional Standards, (the 'Red Book'). The
valuations are performed by appropriately qualified valuers who
have relevant and recent experience in the sector. Please see note
12 for further information on the valuation of the Group's
properties.
The carrying amount of assets which have been revalued would
have been GBP52.7 million had they been carried under the cost
model.
17. Trade and other receivables
2019
2020 (restated)
GBPm GBPm
------------------------------------------------- ---- ----- ------------
Trade receivables 6.2 7.7
Receivable from the sale of investment property - 3.3
Restricted monetary asset 8.1 9.3
Service charge receivables* 5.6 6.1
Other receivables 3.8 4.5
Prepayments 1.4 1.5
Accrued income 1.6 2.2
26.7 34.6
------------------------------------------------------ ----- ------------
*Included in service charge debtors is GBP0.9 million of Value
Added Taxation, GBP2.2 million of accrued income, GBP0.4 million of
prepayments and GBP2.1 million of service charge debtors.
Trade receivables are shown after deducting a loss allowance of
GBP4.2 million (31 March 2019: GBP1.7 million). The provision for
doubtful debts is calculated as an expected credit loss on trade
receivables in accordance with IFRS 9. The charge to the income
statement in relation to tenant debtors made against doubtful debts
was GBP2.5 million (31 March 2019: GBP0.3 million). The Group has
calculated the expected credit loss by applying a forward-looking
outlook, impacted by the Covid-19 pandemic, to historic default
rates.
The Group monitors rent collection in order to anticipate and
minimise the impact of default by tenants, which may be impacted by
covid-19. All outstanding rent receivables are regularly monitored.
In order to measure the expected credit losses, trade receivables
from tenants have been grouped on a basis on shared credit risk
characteristics and an assumption around the tenants ability to pay
their receivable, based on conversations held and our knowledge of
their credit history. The expected loss rates are based on
historical payment profiles of tenant debtors and corresponding
historical credit losses. These historical loss rates are then
adjusted to reflect the current pandemic and likelihood that
tenants will pay.
2020 2019
GBPm GBPm
Opening loss allowance at 31 March 1.7 0.8
Acquired in business combinations - 0.6
Increase in loss allowance recognised in profit
or loss during the year 2.5 0.3
Closing loss allowance at 31 March 4.2 1.7
--------------------------------------------------- ----- -----
The restricted monetary asset relates to cash balances which
legally belong to the Group but which the Group cannot readily
access. They do not meet the definition of cash and cash
equivalents and consequently are presented separately from cash in
the balance sheet.
18. Derivative financial instruments
The Group enters into derivative financial instruments to
provide an economic hedge to its interest rate exchange risks.
These financial instruments are classified as Level 2 fair value
measurements, being those derived from inputs other than quoted
prices. There were no transfers between levels in the current
year.
2020 2019
GBPm GBPm
------------------------- ------ ------
Interest rate swaps
Non-current assets - 0.7
Current liabilities (0.1) -
Non-current liabilities (2.6) (0.6)
(2.7) 0.1
------------------------- ------ ------
Average contract Notional principal
interest rate amount Fair value
2020 2019 2020 2019 2020 2019
% % GBPm GBPm GBPm GBPm
--------------------------------------- --------- -------- ---------- --------- ------ -----
Interest rate swaps - receive
floating pay fixed
In less than one year 0.4% 0.8% 13.4 13.9 (0.1) -
In more than one year but less
than two - 1.0% - 151.1 - 0.1
In more than two years but less
than five 0.4% - 274.5 - (2.6) -
Interest rate caps - receive floating
pay fixed
In less than one year 0.5% 2.9% 9.7 148.7 - -
In more than one year but less
than two 0.4% 1.6% 70.0 80.2 - -
In more than two years but less
than five - - - - - -
367.6 393.9 (2.7) 0.1
--------------------------------------- --------- -------- ---------- --------- ------ -----
19. Cash and cash equivalents
There are no restrictions on cash in place.
20. Trade and other payables
2019
2020 (restated)
GBPm GBPm
----------------------------- ---- ----- ------------
Trade payables 2.6 6.1
Service charge liabilities* 13.7 15.4
Other payables 4.4 4.4
Accruals 13.6 12.6
Value Added Taxation 4.4 3.2
Rent received in advance 8.1 9.2
46.8 50.9
---------------------------------- ----- ------------
*Service charge liabilities includes GBP1.3 million of accruals,
GBP2.9 million of service charge creditors and GBP9.5 million of
deferred income.
21. Borrowings
2020 2019
Maturity of bank facilities: GBPm GBPm
---------------------------------- ------ ------
Between three and four years 335.0 -
Between four and five years - 210.0
After five years 300.0 300.0
-----------------------------------
635.0 510.0
Less unamortised fees / discount (6.4) (7.3)
628.6 502.7
---------------------------------- ------ ------
2020
Unamortised
facility
Facility fees /
Unsecured borrowings: Maturity date Facility drawn discount
GBPm GBPm GBPm GBPm
----------------------- --------------- --------- --------- ------------ ------
Term loan August 2023 165.0 165.0 (0.9) 164.1
R evolving credit
facility August 2023 215.0 170.0 (1.5) 168.5
Corporate bond March 2028 300.0 300.0 (4.0) 296.0
----------------------- ---------------- --------- ---------
680.0 635.0 (6.4) 628.6
--------------------------------------- --------- --------- ------------ ------
In the year the Group drew down GBP125m of the revolving credit
facility.
22. Lease commitment arrangements
The Group earns rental income by leasing its investment
properties to tenants under non-cancellable lease commitments.
At the balance sheet date the Group had contracted with tenants
for the following future minimum lease payments on its investment
properties:
2020 2019
GBPm GBPm
--------------------------------------- ------ ------
Within one year 77.2 77.9
Between one and two years 71.6 78.5
In the second to fifth year inclusive 161.8 209.4
After five years 206.6 230.0
---------------------------------------- ------ ------
517.2 595.8
--------------------------------------- ------ ------
The Group's weighted average lease length of lease commitments
at 31 March 2020 was 5.2 years (March 2019: 5.5 years).
23. Share capital and reserves
Share capital
Number
of shares Price Held by Shares
Ordinary shares issued per share Total EBT in issue
m's pence m's m's m's
------------------------------ ----------- ----------- ------ -------- ----------
1 April 2018 307.0 4.0 303.0
Scrip dividends issued 0.7 252.5 307.7 4.0 303.7
Shares issued under employee
share schemes 0.9 - 307.7 3.1 304.6
Exercise of warrants 0.1 124.0 307.8 3.0 304.8
-------- ----------
31 March 2019 307.8 3.0 304.8
Scrip dividends issued 0.9 206.8 308.7 3.0 305.7
Shares issued under employee
share schemes 0.2 - 308.7 2.8 305.9
Exercise of warrants 0.3 116.0 309.0 2.8 306.2
------------------------------ ----------- ----------- ------ -------- ----------
31 March 2020 309.0 2.8 306.2
------------------------------ ----------- ----------- ------ -------- ----------
Share Share Total
capital premium
GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------
1 April 2018 3,029 223,287 226,316
Exercise of warrants 1 57 58
Exercise of share options 11 - 11
Scrip dividends issued 9 1,649 1,658
----------------------------- --------- --------- --------
31 March 2019 3,050 224,993 228,043
Exercise of warrants 3 333 336
Scrip dividends issued 9 2,023 2,032
----------------------------- --------- --------- --------
31 March 2020 3,062 227,349 230,411
----------------------------- --------- --------- --------
Warrants
Shareholders who subscribed for placing shares in the original
share listing of NewRiver Retail Limited's shares received
warrants, in aggregate, to subscribe for 3% of the fully diluted
share capital. The subscription price is adjusted following the
payment of dividends or share issuance and was 115p as at 31 March
2020 nil remain outstanding (31 March 2019: 333,401).
Merger reserve
The merger reserve arose as a result of the scheme of
arrangement and represents the nominal amount of share capital that
was issued to shareholders of NewRiver Retail Limited.
Retained earnings
Retained earnings consist of the accumulated net profit of the
Group, less dividends paid from distributable reserves, and
transfers from equity issues where those equity issues generated
distributable reserves. Dividends are paid from the Company's
distributable reserves which were approximately GBP36.7 million at
31 March 2020 (2019: GBP158.7 million).
Shares held in Employee Benefit Trust (EBT)
As part of the scheme of arrangement and group reorganisation,
the Company established an EBT which is registered in Jersey. The
EBT, at its discretion, may transfer shares held by it to directors
and employees of the Company and its subsidiaries. The maximum
number of ordinary shares that may be held by the EBT may not
exceed 10% of the Company's issued share capital. It is intended
that the EBT will not hold more ordinary shares than are required
in order to satisfy share options granted under employee share
incentive plans.
There are currently 2,776,725 ordinary shares held by the
EBT.
24. Share-based payments
The Group has three share schemes for employees:
-- Share option scheme
-- Performance Share Scheme
-- Deferred bonus scheme
Share option scheme
Options were granted between 2009 and 2011. The options were
priced at the share price at date of issue. No options were granted
in 2019 or 2020. The charge for the year recognised in the
statement of comprehensive income was nil (2019: nil).
Average Outstanding Outstanding Average
exercise at start Number at end of Number remaining
Year issued price of year Granted Exercised Lapsed year exercisable life (years)
------------- ---------- ------------ -------- ----------- ---------- ------------ ------------- -------------
2010 2.54 192,686 - - (192,686) - - -
2012 2.35 338,000 - - - 338,000 338,000 1.5
------------- ----------
530,686 - - - 338,000 338,000
------------- ---------- ------------ -------- ----------- ---------- ------------ ------------- -------------
Performance Share Scheme
Zero priced share options have been issued to senior management
and executive directors under the Performance Share Scheme since
2013. The options vest to the extent that performance conditions
are met over a three or four-year period. At the end of the period
there may be a further vesting condition that the employee or
director remains an employee of the Group. Further details on the
scheme and the performance conditions is provided in the
Remuneration Report. The credit for the year recognised in the
statement of comprehensive income was GBP0.8 million (2019: GBP1.6
million charge).
Average
Average Outstanding Outstanding remaining
Year exercise at start Number at end of Number life
issued price of year Granted Exercised Lapsed year exercisable (years)
----------- ----------- ------------ ---------- ----------- ------------ ------------ ------------ -----------
2016 - 494,398 27,552 - (521,950) - - 5.5
2017 - 1,263,442 44,488 - (1,029,424) 278,506 - 6.5
2018 - 919,557 106,201 - (63,263) 962,495 - 7.2
2019 - 1,537,006 176,392 - (125,338) 1,588,060 - 8.3
2020 - - 2,250,775 - (182,562) 2,068,213 - 9.2
----------- ----------- ------------ ---------- ----------- ------------ ------------ ------------ -----------
4,214,403 2,605,582 - (1,922,537) 4,897,274 -
----------------------- ------------ ---------- ----------- ------------ ------------ ------------ -----------
Deferred Bonus Scheme
Zero priced share options have been issued to senior management
and executive directors under the Deferred Bonus Scheme since 2016.
The options vest based on the employee or director remaining in the
employment of the Group for a defined period (usually two years).
The charge for the year recognised in the statement of
comprehensive income for this scheme was GBP0.8 million (March
2019: GBP1.2 million).
Average Outstanding Outstanding Average
exercise at start at end Number remaining
Year issued price of year Granted Exercised Lapsed of year exercisable life (years)
------------- ----------- ------------ -------- ---------- ------- ------------ ------------- --------------
2017 - 14,176 - (14,176) - - - -
2018 - 254,472 6,293 (193,749) - 67,016 - 0.3
2019 - 314,375 33,803 (67,221) - 280,957 - 1.2
2020 448,633 (28,122) - 420,511 - 2.2
--------------------------
583,023 488,729 (303,268) - 768,484 -
------------------------- ------------ -------- ---------- ------- ------------ ------------- --------------
Fair value
The fair value of the share options has been calculated based on
a Monte Carlo Pricing Model using the following inputs:
2020 2019
--------------------- ----------- ----------------
Share price 1.770 2.885 - 2.715
Exercise price Nil Nil
Expected volatility 21% 18%
Risk free rate 0,548-0.7% 0.628% - 0.826%
Expected dividends* 12.2% 7.27% - 7.72%
--------------------- ----------- ----------------
* based on quoted property sector average.
25. Financial instruments and risk management
The Group's activities expose it to a variety of financial risks
in relation to the financial instruments it uses: market risk
including cash flow interest rate risk, credit risk and liquidity
risk. The financial risks relate to the following financial
instruments: trade receivables, cash and cash equivalents, trade
and other payables, borrowings and derivative financial
instruments.
Risk management parameters are established by the Board on a
project-by-project basis. Reports are provided to the Board
quarterly and also when authorised changes are required.
Financial instruments
Valuation 2019
2020 (restated)
level GBPm GBPm
------------------------------------ ---- ---------- -------- ------------
Financial assets
Fair value through profit or loss
Interest rate swaps 2 - 0.7
Financial assets at amortised cost
Trade and other receivables 20.2 23.8
Cash and cash deposits 80.8 27.1
------------------------------------------ ---------- -------- ------------
101.0 51.6
----------------------------------------- ---------- -------- ------------
Financial liabilities
Fair value through profit or loss
Interest rate swaps 2 (2.7) (0.1)
At amortised cost
Borrowings (628.6) (502.7)
Lease liabilities (86.3) -
Payables and accruals (24.8) (26.6)
------------------------------------------ ---------- -------- ------------
(742.4) (529.4)
(641.4) (477.8)
----------------------------------------- ---------- -------- ------------
Market risk
Currency risk
The Group is not subject to any foreign currency risk as nearly
all transactions are in Pounds Sterling.
Interest rate risk
The Group's interest rate risk arises from borrowings issued at
floating interest rates (see note 21 ). The Group's interest rate
risk is reviewed quarterly by the Board. The Group manages its
exposure to interest rate risk on borrowings through the use of
interest rate derivatives (see note 18 ). Interest rate caps and
interest rate swaps are used to both mitigate the risk of an
increase in interest rates but also to allow the Group to benefit
from a fall in interest rates. The Group has employed an external
adviser when contracting hedging to advise on the structure of the
hedging.
Sensitivity analysis is carried out to assess the impact of an
increase in interest rates on finance costs to the Group.
Management consider that a significant movement in interest rates
would be 200 bps and have therefore carried out sensitivity
analysis of the impact of such a movement. The impact of a 200 bps
increase in interest rates for the year would increase net interest
payable in the statement of comprehensive income by GBP4.0 million
(2019: GBP0.6 million). The impact of a 200 bps decrease in
interest rates for the year would reduce the net interest payable
in the statement of comprehensive income by GBP3.7 million (2019:
GBP0.3 million). The directors consider this to be a reasonable
sensitivity given historic interest rates and the possibility for
short term swings in rates.
Credit risk
The Group's principal financial assets are cash, trade
receivables and other receivables.
The Group manages its credit risk through policies to ensure
that rental contracts are made with tenants meeting appropriate
balance sheet covenants, supplemented by rental deposits or bank
guarantees from international banks. The Group may suffer a period
a void period where no rents are received. The quality of the
tenant is assessed based on an extensive tenant covenant review
scorecard prior to acquisition of the property. The assessment
of the tenant credit worthiness is also monitored on an ongoing
basis. Credit risk is assisted by the vast majority of occupational
leases requiring that tenants pay rentals in advance. The Group
monitors rent collection in order to anticipate and minimise the
impact of default by tenants, which may be impacted by covid-19.
All outstanding rent receivables are regularly monitored. In order
to measure the expected credit losses, trade receivables from
tenants have been grouped on a basis on shared credit risk
characteristics and an assumption around the tenants ability to pay
their receivable, based on conversations held and our knowledge of
their credit history. The expected loss rates are based on
historical payment profiles of tenant debtors and corresponding
historical credit losses. These historical loss rates are then
adjusted to reflect the current pandemic and likelihood that
tenants will pay.
2020 2019
GBPm GBPm
Opening loss allowance at 31 March 1.7 0.8
Increase in loss allowance recognised in profit
or loss during the year 2.5 0.9
Closing loss allowance at 31 March 4.2 1.7
--------------------------------------------------- ----- -----
The Group monitors its counterparty exposures on cash and
short-term deposits weekly. The Group monitors the counterparty
credit rating of the institutions that hold its cash and deposits
and spread the exposure across several banks.
The Group's maximum exposure to credit risk as at 31 March 2020
was GBP26.7 million (31 March 2019: GBP30.9 million).
Liquidity risk
The Group manages its liquidity risk by maintaining sufficient
cash balances and committed credit facilities. The Board reviews
the credit facilities in place on a project-by-project basis. Cash
flow reports are issued weekly to management and are reviewed
quarterly by the Board. As a result of the Covid-19 pandemic, the
Directors took the decision to utilise a further GBP50m of undrawn
revolving credit facility. Meaning the Group has over GBP80m of
cash in the bank and a further GBP45m of undrawn RCF as at the 31
March 2020. To preserve cash, the Group suspended the fourth
quarterly dividend payment and suspended all non-essential capital
expenditure projects, suspended business rates and marketing in the
shopping centres and public houses, which should improve cashflow
by a total of GBP28 million over the next 12 months. A summary
table with maturity of financial liabilities is presented
below:
Less One to Two to More
than two five than Total
five
2020 GBPm one year years years years
------------------------ --------- ------- -------- -------- ----------
Borrowings - - (335.0) (300.0) (635.0)
Interest on borrowings (18.8) (18.8) (46.7) (30.7) (115.0)
Interest rate swaps (0.9) (0.7) (1.3) - (2.9)
Lease liabilities (3.4) (3.4) (10.2) (256.7) (273.7)
Payables and accruals (24.8) - - - (24.8)
-------------------------
(47.9) (22.9) (393.2) (587.4) (1,051.4)
------------------------ --------- ------- -------- -------- ----------
2019 GBPm (restated)
------------------------ --------- ------- -------- -------- ----------
Borrowings - - (210.0) (300.0) (510.0)
Interest on borrowings (15.8) (15.8) (46.0) (41.2) (118.8)
Interest rate swaps (0.1) (0.1) - - (0.2)
Payables and accruals (26.6) - - - (26.6)
------------------------- --------- ------- -------- -------- ----------
(42.5) (15.9) (256.0) (341.2) (655.6)
------------------------ --------- ------- -------- -------- ----------
Reconciliation of movement in the Group's share of
net debt in the year 2020 2019
GBPm GBPm
------------------------------------------------------- ------- -------
Group's share of net debt at beginning of year 475.1 344.7
Cash flow
Net (increase)/decrease in cash and cash equivalents (53.7) 88.7
New bank loans (net of expenses) 162.0 62.4
Bank loans acquired in business combinations 11.7 60.6
Bank loans repaid (48.7) (78.6)
Amortisation of bank loan fees 1.0 1.4
Group's share of joint ventures' and associates' cash
flow
Net increase in cash and cash equivalents (0.9) (0.1)
Bank loans repaid - (4.0)
New bank loans 17.1 -
Group's share of net debt 563.6 475.1
-------------------------------------------------------- ------- -------
Being:
Group borrowings 628.6 502.7
Joint ventures' and associates' borrowings 17.1 -
Group cash (80.8) (27.1)
Joint venture and associate cash (1.3) (0.5)
-------------------------------------------------------- ------- -------
Group's share of net debt 563.6 475.1
-------------------------------------------------------- ------- -------
Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern, to provide
returns to shareholders and to maintain an optimal capital
structure to reduce the cost of capital. The Group is not subject
to any external capital requirements. As detailed in note 9, the
Group is a REIT and to qualify as a REIT the Group must distribute
90% of its taxable income from its property business.
To maintain or adjust the capital structure, the Group may
adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital
on the basis of its gearing ratio. This ratio is calculated as net
debt divided by equity. Net debt is calculated as total borrowings,
less cash and cash equivalents.
During the year, the Group's LTV increased by 10% from 37% to
47% and the gearing ratio from 60% to 90% as at the 31 March 2020
as the valuation decline caused by the Covid-19 pandemic. The Group
continually monitors LTV and will continue to monitor LTV closely,
factoring in disposal activity and further valuation declines as
mentioned in Note 1. The Group has remained compliant with all of
its banking covenants during and since the year as discussed in
Note 1.
Net debt to equity ratio 2020 2019
GBPm GBPm
----------------------------------------------------- -------- --------
Borrowings 628.6 502.7
Cash and cash equivalents (80.8) (27.1)
------------------------------------------------------ -------- --------
Net debt 547.8 475.6
Equity attributable to equity holders of the parent 610.6 796.1
------------------------------------------------------ -------- --------
Net debt to equity ratio ('Balance sheet gearing') 90% 60%
------------------------------------------------------ -------- --------
Share of joint ventures' and associates' borrowings 17.1 -
Share of joint ventures' and associates' cash
and cash equivalents (1.3) (0.5)
------------------------------------------------------ -------- --------
Group's share of net debt 563.6 475.1
Carrying value of investment property and public
houses 1,102.3 1,254.1
Carrying value of managed houses 55.0 26.9
Share of joint ventures' and associates carrying
value of investment properties 39.8 7.4
------------------------------------------------------ -------- --------
Group's share of carrying value of investment
properties 1,197.1 1,288.4
------------------------------------------------------ -------- --------
Net debt to property value ratio ('Loan to value') 47% 37%
------------------------------------------------------ -------- --------
Reconciliation of financial liabilities
Lease Borrowings
liabilities GBPm Derivatives Total
GBPm GBPm GBPm
----------------------------------------- ------------- ----------- ------------ -------
As at 1 April 2019 - 502.7 0.1 502.8
------------------------------------------ ------------- ----------- ------------ -------
Adoption of IFRS16 87.1 - - 87.1
------------------------------------------ ------------- ----------- ------------ -------
(Decrease)/Increase through financing
cash flows
----------------------------------------- ------------- ----------- ------------ -------
Repayment of Bravo Inns loan - (11.7) - (11.7)
------------------------------------------ ------------- ----------- ------------ -------
Repayment of bank loans and other costs - (37.0) - (37.0)
------------------------------------------ ------------- ----------- ------------ -------
Repayment of principal portion of lease
liability (0.8) - - (0.8)
------------------------------------------ ------------- ----------- ------------ -------
New borrowings - 162.0 - 162.0
------------------------------------------ ------------- ----------- ------------ -------
Decrease through changes in fair value
----------------------------------------- ------------- ----------- ------------ -------
Change in fair value of derivative - - (2.8) (2.8)
------------------------------------------ ------------- ----------- ------------ -------
Increase through business combinations -
----------------------------------------- ------------- ----------- ------------ -------
Acquisition of Bravo Inns - 11.7 - 11.7
------------------------------------------ ------------- ----------- ------------ -------
Other changes
----------------------------------------- ------------- ----------- ------------ -------
Loan amortisation - 0.9 - 0.9
------------------------------------------ ------------- ----------- ------------ -------
As at 31 March 2020 86.3 628.6 (2.7) 712.2
------------------------------------------ ------------- ----------- ------------ -------
26. Contingencies and commitments
The Group has no material contingent liabilities (2019: None).
The Group was contractually committed to GBP1.0 million of capital
expenditure to construct or develop investment property as at 31
March 2020 (31 March 2019: GBP4.0 million).
27. Related party transactions
Transactions between the Company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note.
During the year the Company paid GBP1.4 million in professional
legal fees to CMS Cameron McKenna Nabarro Olswang LLP for property
services at commercial market rates. Allan Lockhart, CEO of
NewRiver, has a personal relationship with the one of the Partners
at CMS who along with other Partners provides these legal
services.
Management fees are charged to joint ventures for asset
management, investment advisory, project management and accounting
services. Total fees charged were:
2020 2019
GBPm GBPm
---------------------------------- ----- -----
NewRiver Retail Investments LP 0.1 0.1
NewRiver Retail (Nelson) Limited 0.1 -
NewRiver Retail (Napier) Limited 0.1 -
----------------------------------- ----- -----
There were no amounts outstanding at each year end.
Key management personnel
The Executive Directors of the Company who served during the
year are considered to be key management personnel. The combined
emoluments for the key management personnel (relating to the period
they were a Director), based upon amounts included in the Group
financial statements, are set out in the Directors' remuneration
report.
The total compensation of key management personnel was GBP1.5
million (2019: GBP2.2 million), which comprised short-term benefits
of
GBP0.1 million (2019: GBP0.1 million)
The above is a complete list of the company's related parties.
All transfer of resources, services or obligations between the
company and these parties have been disclosed, regardless of
whether a price is charged. We are unaware of any other related
parties, or transactions between disclosed related parties.
Related party relationships and transactions have been accounted
for and disclosed in accordance with the requirements of IFRSs as
adopted by the European Union or other requirements, for example,
the Companies Act 2006.
All members of key management have been identified, as defined
by IAS 24, and their remuneration is included in the disclosures of
key management compensation.
28. Post balance sheet events
On 29 April 2020, the Group received confirmation from the Bank
of England that it is eligible to access GBP50 million of funding
under the Covid Corporate Financing Facility ('CCFF'), a joint HM
Treasury and Bank of England lending facility. This facility is
undrawn at this stage, and is available to be drawn at the Bank of
England's discretion for a tenure of up to 12 months until March
2021.
There were no other significant events occurring after the
reporting period, but before the financial statements were
authorised for issue.
COMPANY BALANCE SHEET
As at 31 March 2020
Notes 2020 2019
GBPm GBPm
------------------------------------------ ------- ------- -------
Non-current assets
Investment in subsidiaries B 616.8 664.9
Interest in associates F 15.4 -
Total non-current assets 632.2 664.9
Current assets
Amounts owed from subsidiary undertakings 689.4 655.6
Other receivables 0.5 1.3
Cash and cash equivalents 53.1 3.3
Total current assets 743.0 660.2
Total assets 1,375.2 1,325.1
Equity and liabilities
Current liabilities
Trade creditors - 1.3
Accruals 3.0 2.7
Other creditors 2.7 0.2
Amounts owed to subsidiary undertakings 60.6 18.3
Total current liabilities 66.3 22.5
Non-current liabilities
Borrowings 628.6 502.7
Total non-current liabilities 628.6 502.7
Net assets 680.3 799.9
Equity
Share capital 3.1 3.1
Share premium 227.4 225.0
Merger reserve 413.1 413.1
Retained earnings 36.7 158.7
Total equity 680.3 799.9
The notes on pages 67 to 71 form an integral part of the Company
financial statements. The Company has applied the exemption in s408
of the Companies Act for omitting the income statement of the
parent company. The loss for the period after taxation was GBP56.2
million.
The financial statements were approved by the Board of Directors
on 18 June 2020 and were signed on its behalf by:
Allan Lockhart Mark Davies
Chief Executive Chief Financial Officer
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2020
Share Share Merger Retained
capital premium reserve earnings Total
GBPm GBPm GBPm GBPm GBPm
As at 1 April 2018 3.0 223.3 413.1 25.9 665.3
Profit after taxation - - - 197.7 197.7
Equity issue 0.1 1.7 - - 1.8
Dividends paid - - - (64.9) (64.9)
As at 31 March 2019 3.1 225.0 413.1 158.7 799.9
Loss after taxation - - - (56.2) (56.2)
Equity issue - 2.4 - - 2.4
Dividends paid - - - (65.8) (65.8)
As at 31 March 2020 3.1 227.4 413.1 36.7 680.3
The notes on pages 67 to 71 form an integral part of these
financial statements. There was no other income in the year
therefore the profit after taxation is the Company's total
comprehensive income for the period.
Retained earnings reflects the Company's distributable
reserves.
NOTES TO THE FINANCIAL STATEMENTS
A. Accounting policies
Basis of accounting
The Company's separate financial statements for the year ended
31 March 2020 are prepared in accordance with Financial Reporting
Standard 101 (FRS 101) "Reduced Disclosure Framework" as issued by
the Financial Reporting Council. The financial statements are
presented in pounds Sterling. These financial statements have been
prepared under the historical cost convention.
The preparation of financial statements requires the use of
certain critical accounting estimates. It also requires the
Directors to exercise judgement in the process of applying the
Company's accounting policies. Changes in assumptions may have a
significant impact on the financial statements in the period the
assumptions changed. The Directors believe that the underlying
assumptions are appropriate. The most critical estimates,
assumptions and judgements relate to the determination of carrying
value of the investment in the Company's subsidiary undertaking.
The nature, facts and circumstance of the investment are taken into
account on assessing whether there are any indications of
impairment.
For the Company's going concern assessment, refer to note 1.
Critical estimates
Impairment of intercompany loans
The impairment of intercompany loans is inherently subjective
due to the forward-looking nature of the assumptions made. Due to
the current climate the Company is operating in as a result of
Covid-19, the Company has recognised an expected credit loss on
intercompany debtors of GBP0.7m.
Disclosure exemptions
The Company has taken advantage of all disclosure exemptions
allowed by FRS 101. These financial statements do not include:
-- certain disclosures regarding the Company's capital;
-- a statement of cash flows;
-- certain disclosures in respect of financial instruments;
-- the effect of future accounting standards not yet adopted; and
-- disclosure of related party transactions with wholly-owned members of the Group.
The above disclosure exemptions have been adopted because
equivalent disclosures are included in the consolidated Group
accounts into which the Company is consolidated.
Dividends
Dividend information is provided in note 11 to the consolidated
accounts.
Investment in subsidiaries
Investments in subsidiary undertakings are stated at cost less
provision for impairment.
Financial instruments
Financial assets
Financial assets consist of loans and receivables. The Group
determines the classification of its financial assets at initial
recognition. Financial assets are initially measured at fair value
plus directly attributable transaction costs. The Group's financial
assets consist of cash, and loans and receivables.
Financial assets are derecognised only when the contractual
rights to the cash flows from the financial asset expire or the
Company transfers substantially all risks and rewards of
ownership.
The Company assesses at each financial position date whether
there is objective evidence that a financial asset or group of
financial
assets is impaired. If there is objective evidence (such as
significant financial difficulty of the obligor, breach of
contract, or it becomes probable that the debtor will enter
bankruptcy), the asset is tested for impairment. The amount of the
loss is measured as the difference between the asset's carrying
amount and the present value of the estimated future cash flows
(that is the effective interest rate computed at initial
recognition). The carrying amount of the asset is reduced through
use of an allowance account. The amount of the loss is recognised
in profit and loss.
If in a subsequent period the amount of the impairment loss
decreased and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously
recognised impairment loss is reversed to the extent that the
carrying value of the asset does not exceed its amortised costs at
the reversal date.
Financial liabilities
Financial liabilities are classified as other liabilities. A
financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires.
All loans and borrowings are classified as other liabilities.
Initial recognition is at fair value less directly attributable
transaction costs. After initial recognition, interest bearing
loans and borrowings are subsequently measured at amortised cost
using the effective interest method.
Financial liabilities included in trade and other payables are
recognised initially at fair value and subsequently at amortised
cost.
The fair value of a non-interest bearing liability is its
discounted repayment amount. If the due date of the liability is
less than one year, discounting is omitted.
Share-based payments
The cost of equity settled transactions is measured with
reference to the fair value at the date at which they were granted.
Where vesting performance conditions are non-market based, the fair
value excludes the effect of these vesting conditions and an
estimate is made at each balance sheet date of the number of
instruments expected to vest. The fair value is recognised over the
vesting period in the statement of comprehensive income of the
company that employs the recipient of the share-based payment, with
a corresponding increase in equity. The Company increases the
carrying value of the subsidiary by the value of the share-based
payment.
Share capital
Shares are classified as equity when there is no obligation to
transfer cash or other assets.
Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when paid. In the case of final dividends, this is when approved by
equity holders at a general meeting.
Merger reserve
The merger reserve resulted from the acquisition of NewRiver
Retail Limited and represents the difference between the value of
the net assets acquired of GBP524.1 million and the nominal value
of the shares issued, less the impairment in NewRiver Retail
Limited following the payment of a dividend to the Company of
GBP111.0 million.
B. Investment in subsidiaries
All subsidiaries were acquired by way of the group
reorganisation, as detailed in note 1 . All subsidiaries are held
indirectly except NewRiver Retail Limited, the former ultimate
parent of the Group.
Proportion
Country of ownership Class of
Name of incorporation Activity interest share
100% Ordinary
C-store REIT Limited UK Dormant company Shares
Convenience Store REIT 100% Ordinary
Limited UK Dormant company Shares
100% Ordinary
NewRiver Capital Limited UK Real estate investments Shares
NewRiver Retail (Burgess 100% Ordinary
Hill) Limited UK Dormant company Shares
NewRiver Community Pubs 100% Ordinary
Limited UK Real estate investments Shares
100% Ordinary
NewRiver (Darnall) Limited UK Real estate investments Shares
NewRiver Finance Company 100% Ordinary
Limited UK Real estate investments Shares
100% Ordinary
NewRiver REIT (UK) Limited UK Asset management Shares
100% Ordinary
NewRiver Leisure Limited UK Real estate investments Shares
NewRiver Public Houses 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Bexleyheath) 100% Ordinary
Holdings Limited UK Group holding company Shares
NewRiver Retail (Bexleyheath) 100% Ordinary
Limited Jersey Real estate investments Shares
NewRiver Retail (Boscombe 100% Ordinary
No. 1) Limited UK Real estate investments Shares
NewRiver Retail (Broadway 100% Ordinary
Square) Limited Jersey Real estate investments Shares
NewRiver Retail (Cardiff) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Carmarthen) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Colchester) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Darlington) 100% Ordinary
Limited UK Real estate investments Shares
100% Ordinary
NewRiver Grays S.a.r.l Luxembourg Real estate investments Shares
100% Ordinary
NewRiver Retail (GP3) Limited UK General partner Shares
NewRiver Retail (Leylands 100% Ordinary
Road) Limited UK Real estate investments Shares
NewRiver Retail (Mantle) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Market 100% Ordinary
Deeping No. 1) Limited Guernsey Real estate investments Shares
NewRiver Retail (Morecambe) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Newcastle 100% Ordinary
No. 1) Limited Guernsey Real estate investments Shares
NewRiver Retail (Nominee 100% Ordinary
No.3) Limited UK Dormant company Shares
NewRiver Retail (Paisley) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Penge) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Portfolio 100% Ordinary
No. 1) Limited Guernsey Real estate investments Shares
NewRiver Retail (Portfolio 100% Ordinary
No. 2) Limited Guernsey Real estate investments Shares
NewRiver Retail (Portfolio 100% Ordinary
No. 3) Limited UK Holding company Shares
NewRiver Retail (Portfolio 100%
No. 3) Limited Partnership UK Real estate investments Partnership
NewRiver Retail (Portfolio 100% Ordinary
No. 5) Limited UK Real estate investments Shares
NewRiver Retail (Portfolio 100% Ordinary
No. 6) Limited UK Real estate investments Shares
NewRiver Retail (Portfolio 100% Ordinary
No. 4) Limited UK Real estate investments Shares
NewRiver Retail (Portfolio 100% Ordinary
No. 8) Limited UK Real estate investments Shares
NewRiver Retail (Ramsay 100% Ordinary
Development) Limited UK Real estate investments Shares
NewRiver Retail (Ramsay 100% Ordinary
Investment) Limited UK Real estate investments Shares
NewRiver Retail (Skegness 100% Ordinary
Developments) LLLLLLLimitedLimited UK Real estate investments Shares
NewRiver Retail (Skegness) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Wakefield) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Warminster) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Wisbech) 100% Ordinary
Limited UK Real estate investments Shares
NewRiver Retail (Witham 100% Ordinary
No. 1) Limited UK Real estate investments Shares
NewRiver Retail (Wrexham) 100% Ordinary
Limited Guernsey Real estate investments Shares
NewRiver Retail Academy 100% Ordinary
Limited UK Dormant company Shares
NewRiver Retail Holdings 100% Ordinary
Limited Guernsey Group holding company Shares
NewRiver Retail Holdings 100% Ordinary
No. 1 Limited Guernsey Group holding company Shares
NewRiver Retail Holdings 100% Ordinary
No. 2 Limited Guernsey Group holding company Shares
NewRiver Retail Holdings 100% Ordinary
No. 3 Limited Guernsey Group holding company Shares
NewRiver Retail Holdings 100% Ordinary
No. 4 Limited Guernsey Group holding company Shares
NewRiver Retail Holdings 100% Ordinary
No. 5 Limited Guernsey Group holding company Shares
NewRiver Retail Holdings 100% Ordinary
No. 6 Limited Guernsey Group holding company Shares
NewRiver Retail Holdings 100% Ordinary
No. 7 Limited Guernsey Group holding company Shares
100% Ordinary
NewRiver Retail Limited Guernsey Group holding company Shares
NewRiver Retail Property 100% Ordinary
Unit Trust Jersey Real estate investments units
NewRiver Retail Property 100% Ordinary
Unit Trust No. 2 Jersey Real estate investments units
NewRiver Retail Property 100% Ordinary
Unit Trust No. 3 Jersey Real estate investments units
NewRiver Retail Property 100% Ordinary
Unit Trust No. 4 Jersey Real estate investments units
NewRiver Retail Property 100% Ordinary
Unit Trust No. 5 Jersey Real estate investments units
NewRiver Retail Property 100% Ordinary
Unit Trust No. 6 Jersey Real estate investments units
NewRiver Retail Property 100% Ordinary
Unit Trust No. 7 Jersey Real estate investments units
100% Ordinary
Pub REIT Limited UK Dormant company Shares
NewRiver Retail (Hamilton) 100% Ordinary
Limited UK Dormant company Shares
100% Ordinary
Bravo Inns 1 Limited UK Real estate investments Shares
100% Ordinary
Bravo Inns 2 Limited UK Real estate investments Shares
NewRiver Retail (Sprucefield) 100% Ordinary
Limited UK Real estate investments Shares
100% Ordinary
Shopping Centre REIT Limited UK Dormant company Shares
Hawthorn Leisure Holdings 100% Ordinary
Limited UK Real estate investments Shares
100% Ordinary
Hawthorn Leisure Limited UK Real estate investments Shares
Hawthorn Leisure Finco 100% Ordinary
Limited UK Real estate investments Shares
Hawthorn Leisure Scotco 100% Ordinary
Limited UK Real estate investments Shares
Hawthorn Leisure Management 100% Ordinary
Limited UK Real estate investments Shares
Hawthorn Leisure Honey 100% Ordinary
Limited UK Real estate investments Shares
Hawthorn Leisure Acquisitions 100% Ordinary
Limited UK Real estate investments Shares
The Company's investments in joint ventures are detailed in note
13 . The registered offices of the companies are:
-- Guernsey - NewRiver Retail (GP1) Ltd, Floor 2 Trafalgar
Court, Les Banques, St Peter Port, GY1 4LY
-- UK - NewRiver Retail (Nelson) Limited, 16 New Burlington Place, London, W1S 2HX
-- UK - NewRiver Retail (Napier) Limited, 16 New Burlington Place, London, W1S 2HX
Reconciliation of the movement in investment in
subsidiaries:
2020 2019
GBPm GBPm
Opening balance 664.9 693.5
Investment in subsidiaries - 121.4
Impairment in subsidiaries (48.1) (150.0)
Investment in subsidiaries 616.8 664.9
The Company has recognised an impairment charge of GBP48.1
million (2019: GBP150.0 million) to reflect the decline in the
valuation of the overall assets of the Group as a result of an
adverse movement in property valuations.
C. Auditors remuneration
The auditors' remuneration in respect of the Company is
disclosed in note 6.
D. Average staff numbers
The average number of staff employed by the Company's
subsidiaries was:
2020 2019
------------------------------- ----- -----
Directors 7 7
Operations and asset managers 42 34
Pubs 52 53
Support functions 81 55
-------------------------------- ----- -----
182 149
------------------------------- ----- -----
The staff costs of the staff employed by the Company's
subsidiaries were:
2020 2019
GBPm GBPm
----------------------- ----- -----
Wages and salaries 9.9 7.8
Social security costs 1.5 1.9
Other pension costs 0.4 0.3
------------------------ ----- -----
Staff costs 11.8 10.0
------------------------ ----- -----
The Company itself has no direct employees. The Directors
emoluments are disclosed in the remuneration report.
E. Borrowings
All borrowings issued by the Group at 31 March 2020 were issued
by the Company. See note 21 of the consolidated financial
statements for details.
F. Interest in associates
In the year, the Company invested GBP15.4million into a joint
venture, NewRiver Retail (Napier) Limited. See note 14 of the
consolidated financial statements for details.
EPRA performance measures
The information in this section is unaudited and does not form
part of the consolidated primary statements of the company or the
notes thereto.
Introduction
Below we disclose financial performance measures in accordance
with the European Public Real Estate Association ('EPRA') Best
Practice Recommendations which are aimed at improving the
transparency, consistency and relevance of reporting across
European Real Estate companies.
This section sets out the rationale for each performance measure
as well as how it is measured. A summary of the performance
measures is included in following table.
FY20 FY19
EPRA Earnings per Share (EPS) 16.7p 16.6p
EPRA Cost Ratio (including direct vacancy
costs) 44.0% 38.3%
EPRA Cost Ratio (excluding direct vacancy
costs) 41.4% 35.8%
March 2020 March 2019
EPRA NAV per share 201p 261p
EPRA NNNAV per share 204p 262p
EPRA NIY 8.1% 7.5%
EPRA 'topped-up' NIY 8.5% 7.9%
EPRA Vacancy Rate 5.2% 4.8%
EPRA Earnings per Share: 16.7p
Definition
Earnings from operational activities
Purpose
A key measure of a company's underlying operating results and an
indication of the extent to which current dividend payments are
supported by earnings
FY20 FY19
(GBPm) (GBPm)
Earnings per IFRS income statement (121.1) (36.9)
Adjustments to calculate EPRA Earnings, exclude:
Changes in value of investment properties, development
properties held for investment and other interests 162.6 88.2
Profits or losses on disposal of investment properties,
development properties held for investment and other
interests 1.5 (0.9)
Negative goodwill / goodwill impairment - (7.0)
Changes in fair value of financial instruments and
associated close-out costs 2.8 3.2
Acquisition costs on share deals and non-controlling
joint venture interests 0.4 3.0
Deferred tax in respect of EPRA adjustments 0.5 -
Adjustments to above in respect of joint ventures
(unless already included under proportional consolidation) 4.6 0.9
EPRA Earnings 51.3 50.5
Basic number of shares 305.9m 304.0m
EPRA Earnings per Share (EPS) 16.7p 16.6p
Reconciliation of EPRA Earnings to Underlying Funds From
Operations (UFFO)
FY20 FY19
(GBPm) (GBPm)
EPRA Earnings 51.3 50.5
Share-based payment charge - 2.5
Depreciation on public houses 0.8 0.8
Integration costs - 1.3
Underlying Funds From Operations (UFFO) 52.1 55.1
Basic number of shares 305.9m 304.0m
UFFO per share 17.0p 18.1p
EPRA NAV per share: 201p
Definition
Net Asset Value adjusted to include properties and other
investment interests at fair value and to exclude certain items not
expected to crystallise in a long-term investment property business
model.
Purpose
Makes adjustments to IFRS NAV to provide stakeholders with the
most relevant information on the fair value of the assets and
liabilities within a true real estate investment company with a
long-term investment strategy.
March 2020 March 2019
(GBPm) (GBPm)
NAV per the financial statements 610.6 796.1
Effect of exercise of options, convertibles and other
equity interests (diluted basis) - 1.7
Diluted NAV, after the exercise of options, convertibles
and other equity interests 610.6 797.8
Exclude:
Fair value of financial instruments 2.7 (0.1)
Deferred tax 2.1 1.6
EPRA NAV 615.4 799.3
Fully diluted number of shares 306.5m 306.0m
EPRA NAV per share 201p 261p
EPRA NNNAV per share: 204p
Definition
EPRA NAV adjusted to include the fair values of (i) financial
instruments, (ii) debt and (iii) deferred taxes.
Purpose
Makes adjustments to EPRA NAV to provide stakeholders with the
most relevant information on the current fair value of all the
assets and liabilities within a real estate company.
March 2020 March 2019
(GBPm) (GBPm)
EPRA NAV 615.4 799.3
Include:
Fair value of financial instruments (2.7) 0.1
Fair value of debt 15.0 3.8
Deferred tax (2.1) (1.6)
EPRA NNNAV 625.6 801.6
Fully diluted number of shares 306.5m 306.0m
EPRA NNNAV per share 204p 262p
EPRA NIY: 8.1%, EPRA 'topped-up' NIY: 8.5%
Definition
The basic EPRA NIY calculates the annualised rental income based
on the cash rents passing at the balance sheet date, less
non-recoverable property operating expenses, divided by the market
value of the property, increased with (estimated) purchasers'
costs.
In respect of the 'topped-up' NIY, an adjustment to the EPRA NIY
in respect of the expiration of rent-free periods (or other
unexpired lease incentives such as discounted rent periods and step
rents).
Purpose
A comparable measure for portfolio valuations to assist
investors in comparing portfolios.
March March
2020 2019
(GBPm) (GBPm)
Investment property - wholly owned 1,157.3 1,281.0
Investment property - share of JVs/Funds 39.8 7.4
Trading property (including share of JVs) 0.3 -
Less: developments (65.9) (75.4)
Completed property portfolio 1,131.5 1,213.0
Allowance for estimated purchasers' costs and capital
expenditure 74.8 83.9
Grossed up completed property portfolio valuation B 1,206.3 1,296.9
Annualised cash passing rental income 110.0 107.5
Property outgoings (11.9) (10.0)
Annualised net rents A 98.1 97.5
Add: notional rent expiration of rent free periods
or other lease incentives 4.7 4.8
Topped-up net annualised rent C 102.8 102.3
EPRA NIY A/B 8.1% 7.5%
EPRA 'topped-up' NIY C/B 8.5% 7.9%
EPRA Vacancy rate: 5.2%
Definition
Estimated Market Rental Value (ERV) of vacant space divided by
ERV of the whole portfolio, excluding pub and development
assets.
Purpose
A 'pure' (%) measure of investment property space that is
vacant, based on ERV.
March March
2020
(GBPm) 2019
(GBPm)
Calculation of EPRA Vacancy Rate GBPm GBPm
Estimated Rental Value of vacant retail space A 4.2 3.8
Estimated rental value of the retail portfolio B 81.4 80.0
EPRA Vacancy Rate A/B 5.2% 4.8%
EPRA Cost Ratio: 44.0%
Definition
Administrative & operating costs (including & excluding
costs of direct vacancy) divided by gross rental income.
Purpose
A key measure to enable meaningful measurement of the changes in
a company's operating costs.
FY20 FY19
(GBPm) (GBPm)
Administrative/operating expenses per IFRS 55.0 48.4
Net service charge costs/fees 4.2 4.4
Management fees less actual/estimated profit element (0.9) (0.3)
Other operating income/recharges intended to cover
overhead expenses less any related profits (1.8) (3.8)
Share of Joint Ventures and associates expenses
(net of other income) 0.4 0.3
Exclude (if part of the above):
Investment property depreciation - -
Ground rent costs 0.6 (2.9)
Service charge costs recovered through rents but - -
not separately invoiced
EPRA Costs (including direct vacancy costs) A 57.5 46.1
Direct vacancy costs (3.4) (3.0)
EPRA Costs (excluding direct vacancy costs) B 54.1 43.1
Gross Rental Income less ground rents - per IFRS 127.3 119.6
Less: service fee and service charge costs components - -
of Gross Rental Income (if relevant)
Add: share of Joint Ventures and associates (Gross
Rental Income less ground rents) 3.4 0.8
Gross Rental Income C 130.7 120.4
EPRA Cost Ratio (including direct vacancy costs) A/C 44.0% 38.3%
EPRA Cost Ratio (excluding direct vacancy costs) B/C 41.4% 35.8%
Reconciliation of EPRA Costs (including direct vacancy costs) to
Net Administrative expenses per IFRS
FY20 FY19
(GBPm) (GBPm)
EPRA Costs (including direct vacancy costs) A 57.5 46.1
Exclude
Ground rent costs (0.6) 2.9
Share of Joint Ventures and associates property
expenses (net of other income) (0.3) (0.2)
Other operating income/recharges intended to cover
overhead expenses less any related profits 1.8 3.8
Net service charge costs/fees (4.2) (4.4)
Operating expenses (excluding service charge cost) (33.8) (30.5)
Tenant incentives (included within income) (0.3) (0.2)
Letting & legal costs (included within income) (1.2) (1.6)
Group's share of net administrative expenses as
per IFRS D 18.9 15.9
EPRA Gross Rental Income C 130.7 120.4
Ground rent costs (0.6) 2.9
Expected credit loss (2.5) (1.2)
Gross Rental Income E 127.6 122.1
Administrative cost ratio as per IFRS D/E 14.9% 13.1%
Alternative Performance Measures (APMs)
In addition to information contained in the Group financial
statements, Alternative Performance Measures ('APMs'), being
financial measures which are not specified under IFRS, are also
used by management to assess the Group's performance. These include
a number of measures contained in the 'Financial Statistics' table
at the beginning of this document. These APMs include a number of
European Public Real Estate Association ('EPRA') measures, prepared
in accordance with the EPRA Best Practice Recommendations reporting
framework. We report these because management considers them to
improve the transparency and relevance of our published results as
well as the comparability with other listed European real estate
companies.
The table below identifies the APMs used in this statement and
provides the nearest IFRS measure where applicable, and where in
this statement an explanation and reconciliation can be found.
APM Nearest IFRS measure Explanation and reconciliation
Underlying Funds From (Loss) / Profit for Note 10 of the Financial
Operations ('UFFO') and the year after taxation Statements
UFFO per share
-------------------------
EPRA Net Asset Value ('NAV') Net Assets Note 10 of the Financial
and EPRA NAV per share Statements
-------------------------
Dividend cover N/A 'Financial Policies' section
of the 'Finance Review'
-------------------------
Admin cost ratio N/A Note 6 of the Financial Statements
-------------------------
Interest cover N/A Note 4 of the 'Financial
Statistics' table
-------------------------
EPRA EPS IFRS Basic EPS Note 10 of the Financial
Statements
-------------------------
EPRA NNNAV Net Assets 'EPRA performance measures'
section of this document
-------------------------
EPRA NIY N/A 'EPRA performance measures'
section of this document
-------------------------
EPRA 'topped-up' NIY N/A 'EPRA performance measures'
section of this document
-------------------------
EPRA Vacancy Rate N/A 'EPRA performance measures'
section of this document
-------------------------
Total Accounting Return N/A Note 6 of the 'Financial
Statistics' table
-------------------------
Weighted average cost N/A Note 10 of the 'Financial
of debt Statistics' table
-------------------------
Weighted average debt N/A Note 11 of the 'Financial
maturity Statistics' table
-------------------------
Loan to Value N/A Note 12 of the 'Financial
Statistics' table
-------------------------
Glossary
Admin cost ratio: Is the Group's share of net administrative
expenses (including its share of JV administrative expenses)
divided by the Group's share of property income (including its
share of JV property income).
Average debt maturity: Is measured in years, when each tranche
of Group debt is multiplied by the remaining period to its maturity
and the result is divided by total Group debt in issue at the year
end.
Affordable Rent to Sales ratio: Is an estimate of the maximum
Rent to Sales ratio that an occupier would deem affordable in
relation to a particular retail unit. It is calculated for NewRiver
by retail consultancy Harper Dennis Hobbs.
Balance sheet gearing: Is the balance sheet net debt divided by
IFRS net assets.
BRAVO: Is BRAVO Strategies III LLC, with which NewRiver formed a
joint venture partnership in May 2019 to acquire and manage a
portfolio of retail parks in the UK.
Book value: Is the amount at which assets and liabilities are
reported in the financial statements.
Cost of debt: Is the Group loan interest and derivative costs at
the year end, divided by total Group debt in issue at the year
end.
CVA: is a Company Voluntary Arrangement, a legally binding
agreement that allows a company to settle debts by paying only a
proportion of the amount that it owes to creditors (such as
contracted rent) or to come to some other arrangement with its
creditors over the payment of its debts.
Dividend cover: Underlying Funds From Operations per share
divided by dividend per share declared in the year.
EPRA: Is the European Public Real Estate Association.
EPRA earnings: Is the IFRS profit after taxation excluding
investment property revaluations, fair value adjustments on
derivatives and gains/losses on disposals.
EPRA net assets (EPRA NAV): Are the balance sheet net assets
excluding the mark to market on effective cash flow hedges and
related debt adjustments, deferred taxation on revaluations and
diluting for the effect of those shares potentially issuable under
employee share schemes.
EPRA NAV per share: Is EPRA NAV divided by the diluted number of
shares at the year end.
ERV growth: Is the change in ERV over a year on our investment
portfolio expressed as a percentage of the ERV at the start of the
year. ERV growth is calculated monthly and compounded for the
period subject to measurement, as calculated by MSCI Real Estate
(formerly named IPD).
Estimated rental value (ERV): Is the external valuers' opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
Footfall: Is the annualised number of visitors entering our
shopping centre assets.
GAV: Is Gross Asset Value, the total value of all real estate
investments owned by the Company
Group: Is NewRiver REIT plc, the Company and its subsidiaries
and its share of joint ventures (accounted for on an equity
basis).
Harper Dennis Hobbs is an independent strategic retail adviser
which analyses the affordability of rents and other occupancy costs
for assets on NewRiver's behalf.
Head lease: Is a lease under which the Group holds an investment
property.
IFRS: Is the International Financial Reporting Standards issued
by the International Accounting Standards Board and adopted by the
EU.
Income return: Is the income derived from a property as a
percentage of the property value.
Interest cover: Is the number of times net interest payable is
covered by underlying profit before net interest payable and
taxation.
Interest-rate swap: Is a financial instrument where two parties
agree to exchange an interest rate obligation for a predetermined
amount of time. These are used by the Group to convert
floating-rate debt obligation or investments to fixed rates.
MSCI-IPD: MSCI Real Estate Investment Property Databank Ltd or
'IPD' produces independent benchmarks of property returns and
NewRiver portfolio returns.
Joint venture: Is an entity in which the Group holds an interest
on a long-term basis and is jointly controlled by the Group and one
or more ventures under a contractual arrangement whereby decisions
on financial and operating policies essential to the operation,
performance and financial position of the venture require each
joint venture partner's consent.
Leasing events: Long-term and temporary new lettings, lease
renewals and lease variations within investment and joint venture
properties.
Like-for-like ERV growth: Is the change in ERV over a year on
the standing investment properties expressed as a percentage of the
ERV at the start of the year.
Like-for-like footfall: Is the movement in footfall against the
same period in the prior year, on properties owned throughout both
comparable periods, aggregated at 100% share.
Like-for-like net income: Is the change in net income on
properties owned throughout the current and previous periods under
review. This growth rate includes revenue recognition and lease
accounting adjustments but excludes properties held for development
in either period, properties with guaranteed rent reviews, asset
management determinations and surrender premiums.
Loan to Value (LTV): Is the ratio of gross debt less cash,
short-term deposits and liquid investments to the aggregate value
of properties and investments. LTV is expressed on a proportionally
consolidated basis.
Mark to market: Is the difference between the book value of an
asset or liability and its market value.
Net equivalent yield (NEY): Is the net weighted average income
return a property will produce based upon the timing of the income
received. In accordance with usual practice, the equivalent yields
(as determined by the external valuers) assume rent received
annually in arrears and on values before deducting prospective
purchaser's costs.
Net initial yield (NIY): Is the current annualised rent, net of
costs, expressed as a percentage of capital value, after adding
notional purchaser's costs.
Net rental income: Is the rental income receivable in the year
after payment of ground rents and net property outgoings. Net
rental income will differ from annualised net rents and passing
rent due to the effects of income from rent reviews, net property
outgoings and accounting adjustments for fixed and minimum
contracted rent reviews and lease incentives.
NewRiver share: Represents the Group's ownership on a
proportionally consolidated basis.
Passing rent: Is the gross rent, less any ground rent payable
under head leases.
Pre-let: A lease signed with an occupier prior to the completion
of a development.
Pre-sale: A sale exchanged with a purchaser prior to completion
of a development.
Promote: An incentive return based on the financial performance
of a joint venture.
Property Income Distribution (PID): As a REIT the Group is
obliged to distribute 90% of the tax-exempt profits. These
dividends, which are referred to as PIDs, are subject to
withholding tax at the basic rate of income tax. Certain classes of
shareholders may qualify to receive the dividend gross. See our
website (www.nrr.co.uk) for details. The Group can also make other
normal (non-PID) dividend payments which are taxed in the usual
way.
Real Estate Investment Trust (REIT): Is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK property rental income and gains on
investment property disposals from corporation tax.
Rental value growth: Is the increase in the current rental
value, as determined by the Company's valuers, over the 12-month
period on a like-for-like basis.
Rent to Sales ratio: Is the turnover of an occupier relation to
a unit as a proportion of the headline rent of that unit. It is
calculated for NewRiver by retail consultancy Harper Dennis
Hobbs.
Retail occupancy rate: Is the estimated rental value of let
units expressed as a percentage of the total estimated rental value
of the portfolio, excluding development properties.
Reversion: Is the increase in rent estimated by the external
valuers, where the passing rent is below the estimated rental
value. The increases to rent arise on rent reviews, letting of
vacant space and expiry of rent-free periods.
Reversionary yield: Is the anticipated yield, which the initial
yield will rise to once the rent reaches the estimated rental
value.
Risk-controlled development pipeline: Is the combination of all
development projects that the Company is currently pursuing or
assessing for feasibility. Our risk-controlled approach means that
we will not commit to a new development unless we have pre-let or
pre-sold at least 70% by area.
Tenant (or lease) incentives: Are any incentives offered to
occupiers to enter into a lease. Typically the incentive will be an
initial rent-free period, or a cash contribution to fit-out or
similar costs. Under accounting rules, the value of lease
incentives given to tenants is amortised through the Income
Statement on a straight-line basis to the lease expiry.
Total Accounting Return (TAR): Is the increase or decrease in
EPRA NAV per share plus dividends paid in the year, expressed as a
percentage of EPRA NAV per share at the beginning of the year.
Total Property Return (TPR): Is calculated as the change in
capital value, less any capital expenditure incurred, plus net
income, expressed as a percentage of capital employed over the
period, as calculated by MSCI Real Estate (formerly IPD). Total
property returns are calculated monthly and indexed to provide a
return over the relevant period.
Total Shareholder Return (TSR): Is calculated by the growth in
capital from purchasing a share in the Company assuming that the
dividends are reinvested each time they are paid.
Topped-Up Net Initial Yield: Net initial yield adjusted to
include notional rent in respect of let properties which are
subject to a rent free period at the valuation date.
Underlying Funds From Operations (UFFO): is a measure of cash
profits which includes recurring cash profits and excludes other
one off or non-cash adjustments. UFFO is used by the Company as the
basis for ordinary dividend policy and cover.
Unsecured balance sheet: The Company's balance sheet is
unsecured, which means that none of its debt is secured against any
of its property assets.
Voids: Are expressed as a percentage of ERV and represent all
unlet space, including voids where refurbishment work is being
carried out and voids in respect of pre-development properties.
Temporary lettings of up to 12 months are also treated as
voids.
Weighted average lease expiry (WALE): Is the average lease term
remaining to first break, or expiry, across the portfolio weighted
by rental income. This is also disclosed assuming all break clauses
are exercised at the earliest date, as stated. Excludes short-term
licences and residential leases.
Yield on cost: Passing rents expressed as a percentage of the
total development cost of a property.
Yield shift: Is a movement (usually expressed in basis points)
in the equivalent yield of a property asset.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKFBBABKKNAD
(END) Dow Jones Newswires
June 18, 2020 02:30 ET (06:30 GMT)
Newriver Reit (LSE:NRR)
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