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NewRiver REIT: Solid dividend yield backed by high quality assets

Publication Date: 24 Jun 2019 - By Samuel S. By Samuel S.
Actionable
Differentiated

Equity Fundamental Equity UK EU Real Estate

NewRiver REIT (LON:NRR) is a specialist listed real estate investment trust, focused primarily on retail and leisure property. The company own 29 shopping centres, 22 retail warehouses, 14 high street units, and 359 public houses.

The company is an attractive investment for five main reasons: (1) they are market leading specialists; (2) their assets are an integral part of the communities they serve; (3) their income streams are sustainable and their portfolio is internet resilient; (4) they are focused on delivering a growing dividend to shareholders; and (5) their platform is scalable with a balance sheet that is well positioned to deliver growth.

Their management team has an impressive track record of buying, managing, developing, and recycling convenience-led, community-focused retail and leisure assets. In so doing, they have crafted a portfolio of community shopping centres, community pubs, and conveniently located retail parks located in core markets. 

Additionally, their £1.2bn portfolio was acquired at an average purchase yield of 8.5% and is currently valued at a net initial yield of 7.2%, reflecting their significant successful value creation efforts.

The company’s assets are well located in the heart of communities, providing the appropriate mix of retail, leisure, and civic services. Furthermore, they meet the daily needs of local communities, with their tenants typically focused on providing value for money to visitors on day to day essential goods and services.

Best of all, the company has an exciting 1.9m square foot risk-controlled development pipeline, focused on exploiting the untapped residential potential in the airspace and adjacent sites to their well-located assets.

Third, the company’s income streams are sustainable and resilient in the face of the e-commerce onslaught. Their rents provide good value for money and the income stream is also well diversified as the largest tenant accounts for a mere 2.2% of the total rent roll. 

The property occupancy rate stands at 97% - indicating a highly healthy business - and it has never dropped below 94% in the ten-year life span of the company, indicating the quality and durability of its properties. A final point is that the typical tenant in their properties has low transaction values with high volumes which is a very inefficient formula for profitable shipping, making them unlikely to shift online.

The growing dividend is also an attractive component of the company as it has grown for several years, currently yields over 7%, and is fully covered by cash flows. With interest rates heading lower thanks to indicators of fresh quantitative easing at central banks, this yield backed by such high-quality assets its extremely appealing.

Finally, the company’s balance sheet is fully unencumbered with an unexpired debt maturity span of 7.9 years and an average interest rate of 3.1%. The leverage is also remarkably low with LTV at 28% currently. There are also abundant opportunities across their core markets to scale their business. 

Conclusion: Shares look very attractive here as there is little indication that the portfolio is being materially impacted by e-ecommerce.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Samuel S.

 

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