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Annual Report and Accounts 2018
NewRiver REIT plc (‘NewRiver’) is a Premium Listed REIT on the Main
Market of the London Stock Exchange and a constituent of the FTSE
250 and EPRA indices.
Founded in 2009, we specialise in buying, managing, developing
and recycling convenience-led, community-focused retail and
leisure assets.
Our high-quality and conveniently located portfolio provides value for
money on essential goods and services to consumers across the UK,
and our affordable rents and high footfall locations create desirable
and profitable trading opportunities for our occupiers. It is our
fundamental belief that affordability for occupiers, and not lease
length, means sustainability for our business.
With an experienced management team and proven business model,
we have a track record of delivering growing and sustainable cash
returns to our shareholders and creating thriving communities across
the UK.
CONTENTS
Strategic Report
Financial Highlights
Our Business at a Glance
Chairman’s Review
Our Business Model
Our Marketplace
Leveraging our Key Relationships
CEO Review
Our Strategy
Our KPIs
Property Review
Financial Review
Our People
ESG Report
Risk Management Report
Governance
Board of Directors
Corporate Governance Report
Audit Committee Report
Nomination Committee Report
Remuneration Committee Report
Directors’ Report
IFC
04
08
10
12
16
18
24
26
32
56
68
69
74
78
80
85
89
92
109
113
Financial Statements
Independent Auditor’s Report
Consolidated Statement of
122
Comprehensive Income
123
Consolidated Balance Sheet
Consolidated Cash Flow Statement
124
Consolidated Statement of Changes in Equity 125
126
Notes to the Financial Statements
162
Glossary
164
Company Information
OUR FINANCIAL HIGHLIGHTS
Gross income
(proportionally consolidated)
£107.0m
FY17: £106.7m
Funds From Operations
£60.3m
FY17: £58.2m
FFO per share
21.2p
FY17: 24.9p
Ordinary dividend per share
21.0p
FY17: 20.0p
Portfolio valuation
£1.2bn
FY17: £1.1bn
IFRS net assets
£892.4m
FY17: £684.5m
WE ARE SPECIALISTS IN
&
RETAIL AND LEISURE ASSETS
WE ARE POSITIONED IN
SUB-SECTORS
WE MEET THE NEEDS OF UK
WE HAVE A WELL
PORTFOLIO
WE HAVE THE FINANCIAL
TO GROW
WE ARE INVESTED AT THE
OF COMMUNITIES
p2
p6
p14
p30
p54
p66
NewRiver REIT plc Annual Report and Accounts 2018
1
WE ARE SPECIALISTS IN
RETAIL AND LEISURE ASSETS
Our retail and leisure assets are conveniently located in the heart of
communities across the UK. The consumer spend at our assets typically
involves instant fulfilment on low value essential items or a face-to-face service,
so is defensive in nature as well as being inherently resilient to the growth
of online retailing.
Convenience spend
• Requires instant fulfilment and is often essential in nature
•
•
Is low value, high frequency with a low dwell time
Increasingly involves fulfilment of an online order through click & collect, an area
of the retail market which is forecast to grow by 56% in the next five years*
• Occupiers commonly include grocery, discounter, value clothing, coffee, grab &
go food, retail banks, health & beauty, budget gym
Convenience location
• Assets are usually located near to where shoppers work or live or between the
two (e.g. edge of town retail park)
• Assets are easily accessible and typically offer free parking in close proximity
Convenience asset classification
• Shopping centres, convenience stores, retail parks
E
C
N
E
I
N
E
V
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O
C
S
K
R
A
P
L
I
A
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E
R
SHOPPING
CONVENIENCE
P
U
B
S
C
O
M
M
U
N
IT
Y
* Source: GlobalData (January 2018), Retail Market Growth Forecast 2017 – 2022e
2
NewRiver REIT plc Annual Report and Accounts 2018
&
Our assets either display both convenience and community characteristics
(shopping centres and convenience stores) or strongly display one (convenience
– retail parks) or the other (community – pubs).
E
C
N
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I
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E
V
N
S
K
R
A
P
L
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O
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CENTRES
STORES
P
U
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S
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N
IT
Y
Is often linked to a service and requires a face to face interaction
Community spend
•
• Tends to be complementary to convenience spend, and a trip to an asset such
as a shopping centre (or a pub with adjacent c-store) will often include a mix of
convenience and community spend
• Community services include, civic amenities such as GP surgery, dentists,
libraries and town halls. Also services that cannot be provided online, such as
opticians, hairdressers, nail bars, laundrettes, cobblers, post offices, coffee shops
and pubs.
Community location
•
• Adjacent to public transport links and civic services
In the heart of the community, walking distance from residential neighbourhoods
Community asset classification
• Shopping centres, convenience stores, pubs
NewRiver REIT plc Annual Report and Accounts 2018
3
STRATEGIC REPORT
OUR BUSINESS AT A GLANCE
OUR DIVERSIFIED PORTFOLIO
Since the Company was founded in 2009 we have hand-picked a high
quality and geographically diversified portfolio of assets spread across the UK,
comprising shopping centres, retail parks, convenience stores and pubs.
Our assets cater for the day-to-day needs of consumers, occupiers and
communities.
Our retail portfolio
Invested in over 60
towns across the UK
33 Shopping centres
Acquired remaining 50% share in four
community shopping centres for £59.4m
Exchanged conditional contracts for
pre-sale of entire residential element of
Burgess Hill regeneration
Obtained planning consent for 236,000
sq ft mixed use development scheme in
Cowley, Oxford
20 Retail parks (2 development sites)
Acquired two retail parks for £26.5m
On-site at 62,000 sq ft Canvey Island Retail
Park development
20 Convenience stores
10 further c-stores delivered to Co-op
triggered £1.5m performance receipts
Our community pub portfolio
331 pubs
throughout the UK
11%
Net initial yield
at 31 March 18
£1.1m
of Capex spent on
55 pubs during the year
st
e
W
4
NewRiver REIT plc Annual Report and Accounts 2018
N
o
r
t
h
North East
North West
East of England
East Midlands
South East
South West
West Midlands
Wales
9%
16%
6%
19%
5%
10%
28%
7%
South
East
Well positioned portfolio
£1.2 billion
(FY17: £1.1 billion)
Well diversified income
Top 10 occupiers (% Total rent roll)
s & c
P u b
- s t o r es
Convenienc
e &
2.2%
2.1%
1.9%
1.8%
c
o
m
m
u
n
i
t
y
f
o
c
u
s
e
d
r
e
tail
65%
13%
2%
7%
13%
Shopping centres
Retail parks
High street (Big Boxes)
Development
Pubs & convenience stores
Consistently high retail occupancy
1.7%
1.5%
94%
95%
96%
96%
97%
97%
3
1
Y
F
4
1
Y
F
5
1
Y
F
6
1
Y
F
7
1
Y
F
8
1
Y
F
1.5%
1.5%
Affordable retail rents
(per square ft)
Resilient shopping
centre footfall
£12.36
146m
1.4%
1.4%
NewRiver REIT plc Annual Report and Accounts 2018
5
STRATEGIC REPORT
WE ARE POSITIONED IN
SUB‑SECTORS
Our £1.2 billion convenience & community focused portfolio
has been hand-picked over the last nine years and so is
deliberately positioned in the most sustainable sub-sectors of
the UK retail market, with grocery, convenience stores, value
clothing, health & beauty and discounters forming the core of
our portfolio. Typically our occupiers operate a high volume
and low value business model, and so they are inherently
resilient to the growth of online retailing.
In fact, the discount sector*, to which we have a material weighting, is forecast to grow by 36%
over the next five years** driven by the shift in consumer behaviour towards value for money and
frequent spend on everyday essential items. This is ahead of the 33%** expected growth in online
over the same period. The online growth rate excludes click & collect, which is forecast to increase
by 56%**, and which we believe will benefit NewRiver given our retail park portfolio and
convenient locations.
Importantly, we have limited exposure to retail sub-sectors which we see as structurally challenged
due to changing consumer shopping habits and the growth of online. These include mid-market
fashion (3.1% of our total income) and department stores (just 0.1% of our total income).
* For example: B&M, Home Bargains, Poundland, Lidl, Aldi
** Source: GlobalData (January 2018), Retail Market Growth Forecast 2017 – 2022e
6
NewRiver REIT plc Annual Report and Accounts 2018
We are focused on growing retail sub-sectors, including
discounters which are forecast to grow by more than
online retail over the next five years**
+15%
£375bn
£327bn NRR focus
Food & grocery
Value clothing
Discounters
Health & beauty
117
12
24
18
Other physical retail
104
Click & collect
Online
6
46
2017
+15%
+11%
+36%
+14%
+1%
+56%
+33%
134
13
32
21
105
9
61
2022e
NewRiver REIT plc Annual Report and Accounts 2018
7
STRATEGIC REPORT CHAIRMAN’S REVIEW
I am pleased to report NewRiver REIT’s financial results for the year
ending 31 March 2018.
Our first full year of operation as a FTSE 250
company demonstrated the strength of our business
model in a challenging environment for UK real
estate. Our convenience-led, community-focused
portfolio of assets delivered strong relative
performance in what was, in aggregate, a difficult
12 months for the consumer and some UK retailers.
In particular, our focus on value-led retailers, paying
affordable rents and providing their customers with
essential items such as clothing and groceries,
provided us with some insulation from the decline
seen in UK consumer confidence over the year.
Funds from operations (FFO) grew by 4% to
£60.3 million (FY17: £58.2 million), with IFRS Profit
after taxation increasing by 26% to £45.7 million
(FY17: £36.2 million). FFO per share decreased to
21.2 pence (FY17: 24.9 pence) mainly because the
Company has not yet fully deployed the equity
raised in July 2017. The Company increased its fully
covered ordinary dividend for the year by 5% to
21.0 pence (FY17: 20.0 pence).
Footfall across the NewRiver shopping centre
portfolio decreased by 0.9% compared to an overall
fall in the benchmark of 2.2%. Occupancy was
resilient at 97% and average retail rents remained
affordable for retailers, at £12.36 per sq ft.
NewRiver continued to be active in both equity
and debt capital markets over the reporting period,
raising £1 billion in total. We raised gross proceeds
of £225 million through the equity share issue
mentioned above. The issue was highly successful
and oversubscribed, with pricing at a 14.7% premium
to March 2017 EPRA net asset value. We also
refinanced our secured debt during the year through
£730 million of new, unsecured credit facilities and a
maiden issue of investment grade corporate bonds.
Together these transactions mean that NewRiver
has a stronger balance sheet, combining lower
financing costs with a longer debt maturity. This will
provide the Company with enhanced capacity and
agility to pursue attractive investment opportunities
when they arise.
8
NewRiver REIT plc Annual Report and Accounts 2018
As previously announced, Allan Lockhart, co-
founder of NewRiver, became Chief Executive on
1 May 2018, succeeding David Lockhart. David has
been appointed Executive Deputy Chairman and
will remain on the Board, thus ensuring a smooth
leadership transition and continuing to give us the
benefit of his vast knowledge and expertise. On
behalf of the Company, I thank David for his
dedication, leadership and outstanding contribution
to the business he co-founded nine years ago.
I congratulate Allan on his richly deserved
appointment as he, together with the management
team, take the Company forward in this next exciting
phase of its development. I will reach the ninth
anniversary of my appointment as Chairman in
July 2019, and therefore, in line with the UK
Corporate Governance Code, it is not my intention
to stand for re-election at the 2019 Annual General
Meeting. A formal search process to appoint my
successor is already underway.
NewRiver’s portfolio is well let to a diverse, high
quality group of occupiers, but our share price is not
immune to the more general negative sentiment
towards the retail sector. Our prospects are strong
– we have one of the most highly regarded
management teams in the real estate sector and a
carefully assembled and highly cash generative
portfolio of retail and leisure assets which delivers
attractive quarterly dividends. We have an identified
pipeline of acquisition opportunities to execute in
the near-term with the cash resources available
to us. These factors, along with our inbuilt risk-
controlled development pipeline and strong balance
sheet, give us confidence in our future prospects.
Ultimately if our share price undervalues those
prospects the Board can also use the existing share
purchase authority as part of a sound capital
management programme.
On behalf of the Board, I would again like to thank
all of NewRiver’s executive management and
employees, whose effort, enthusiasm and
entrepreneurial flair helped to deliver another strong
performance by the Company. Finally, I am grateful
to our advisers and shareholders for their
continuing support.
Paul Roy
Non-Executive Chairman
23 May 2018
NewRiver REIT plc Annual Report and Accounts 2018
9
STRATEGIC REPORT OUR BUSINESS MODEL
DELIVERING GROWING CASH
RETURNS & THRIVING COMMUNITIES
Our focus
Our resilient portfolio
We are an income focused convenience
and community retail and leisure
specialist. We invest in communities
across the UK through our portfolio
of community shopping centres,
community pubs, convenience
stores and retail parks.
We have always recognised the
importance of income returns as the
driver of total returns, as demonstrated
by our progressive dividend track record.
We aim to create thriving communities
and deliver growing cash returns to
our shareholders.
Our portfolio is focused on
sustainable retail sub-sectors
>70%
Convenience & Community
Over 70% of our income is convenience and community in
nature, providing value for money to UK consumers on
essential good and services. The nature of the spend at our
assets typically involves instant fulfilment on low value
essential items or a face to face service and so is defensive
in nature as well as being inherently resilient to the growth
of online retailing.
What makes us different
Our portfolio
SEE MORE ON PAGE 4
Our key relationships
SEE MORE ON PAGE 16
10
NewRiver REIT plc Annual Report and Accounts 2018
Our strategic priorities
1
1
1
Dis c i p li n e d stock selectio
n
5
5
5
n e fi ts of scale
e
B
Growing cash
returns
+
Thriving
communities
C
o
n
s
ervative ba l a n
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e s heet
P
r
o
fi
t
a
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it
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Activ
ma
4
4
4
al recycling
n trolled
m ent
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p
3
3
3
sR i
c
k -
d e v
Our contribution
To our investors
Growing & sustainable cash returns
Ordinary dividend
21.0p (+5%)
Total accounting return
8.1%
To our occupiers
Profitable trading opportunities through
affordable rents and resilient footfall
Total occupational costs
<£25 per sq ft
2
2
2
Shopping centre footfall
+130bps
Vs UK benchmark
To our communities
Thriving town centres and communities
Retail occupancy
97%
Risk-controlled development pipeline
1.0 million sq ft
of valuable planning consents achieved
SEE OUR STRATEGY ON PAGE 24
SEE OUR FINANCIAL REVIEW ON PAGE 56
SEE OUR PROPERTY REVIEW ON PAGE 32
SEE OUR ESG STORY ON PAGE 69
Our people
SEE MORE ON PAGE 68
Our approach to risk
SEE MORE ON PAGE 74
NewRiver REIT plc Annual Report and Accounts 2018
11
STRATEGIC REPORT
OUR MARKETPLACE
OUR PORTFOLIO IS RESILIENT
Changes in
retailing
Technological
advancements
Over the last 40 years consumer spending on a basket of essential
goods of housing, transport, utilities, education and health has
come to represent an ever-larger percentage of household
income, squeezing consumer budgets. Retailers, facing increasing
cost pressures in areas such as staff costs, sourcing, supply chain
and infrastructure have been constrained from passing on these
costs by intense competition.
Advancements in technology mean consumers are better informed
than ever before and the rise of e-commerce has resulted in an
increase in retail competition, particularly from new online-only
entrants. Retailers, constrained by this increasingly competitive
marketplace face significant challenges attracting consumers to
their stores.
Changes in
demographics
As the average age of the UK consumer increases, how they live,
work and consume continues to evolve. The time consumers have
available to fulfil their retail requirements and their expectations of
physical retailing in a digital age continues to change.
Population
urbanisation
Changes in the way people live and work over the past 30 years
have caused an increase in the percentage of the population living
in urban areas. Towns have expanded to meet the needs of a
rising population and a shortage of housing.
Environmental and social
impact of retail property
The real estate sector is estimated to contribute 36% of global
greenhouse gas emissions and businesses and consumers are
increasingly aware of the need to be responsible and minimise
their environmental impact.
12
NewRiver REIT plc Annual Report and Accounts 2018
How we are responding
Our focus on affordable rents in centres with robust footfall provides a
profitable trading environment for our retailers. Our proactive approach
to occupational cost management will ensure that our centres remain
attractive in future.
£12.36
per sq ft average retail
rent in our portfolio
We focus on discount and value led retail which is intrinsically resilient to
the growth of e-commerce and forecast to grow by 36% over the next
five years. Our shopping centres provide consumers with convenient
access to essential goods and services with over 70% of our retail
income derived from the discount and value subsectors.
+36%
expected growth in discounters
over the next 5 years
Our conveniently located shopping centres and retail parks provide
easily accessible locations. Our shopping centres are well lit and well
maintained, and typically located near local transport terminals. At our
retail parks our less mobile customers appreciate the free convenient
car parking.
24%
estimated population
of UK over 65 by 2041
Our portfolio presents us with a variety of flexible asset management
options, supported by our low capital value per square foot. Our
risk-controlled development pipeline includes 1.1 million sq ft of
residential space in areas above or adjacent to our assets. This type of
development meets the objectives of national planning policies by
providing residents with housing in the heart of local communities.
1.1m sq ft
of residential included within our
1.9m sq ft risk-controlled development pipeline
We are committed to minimising our impact on the environment without
compromising operational efficiency and since 2009 we have made
significant strides incorporating ESG into our strategy, risk management
and governance process. This year we have taken another important
step forward, publishing a standalone ESG report for the first time.
Through positive engagement with our local communities we aim to
foster thriving locations, maximising returns through
stakeholder engagement.
6%
reduction in GHG emissions
& electricity consumption in FY18
NewRiver REIT plc Annual Report and Accounts 2018
13
STRATEGIC REPORT WE MEET THE NEEDS OF UK
To us, our customers are not only our valued retail and leisure occupiers, but the
consumers that visit our assets every week. By understanding who our consumers
are, what they need and how they behave, we can create attractive spaces for
shoppers where retail and leisure operators trade profitably.
Understanding our customers
Through our relationship with CACI, an industry-leading consumer research provider, we track key customer trends across our
portfolio and the wider market, on both a national and local level. As part of this, we conduct regular in-depth consumer surveys
across our portfolio. The most recent of these, conducted in May 2017, surveyed our entire shopping centre portfolio and over
12,000 individual respondents. It provided us with quantitative insights into consumer dwell time, frequency of visits and average
retail spend as well as valuable qualitative feedback from customers.
New mum Kate is picking up
dinner for her family in M&S
Amanda picks up her granddaughter
Molly from school so that her daughter
can work later
Mary hand-picks her groceries
on Mondays, when the shops
are less busy
Local students Frankie and
Jamie visit the centre gym then
pick up healthy meals from the
Co-op for dinner
£26
average spend
per visit*
13 min
drive time*
* Source: NewRiver CACI Consumer Surveys 2017
14
NewRiver REIT plc Annual Report and Accounts 2018
In addition, across our shopping centre portfolio our centre managers engage on a daily basis with occupiers and customers. Through
this they provide timely data such as occupier sales performance, footfall and car park usage, and are able to gather customer feedback
and suggestions on our shopping centre environments and facilities.
Putting our research into action
The information we collect enables better decision making throughout the operation of our business model, providing better outcomes
for all stakeholders. For example, data on local demographics and consumer spending allows us to assess the merits of acquisition
opportunities, while customer feedback on retail and leisure provision, and centre facilities inform our active asset management
decisions and risk-controlled development pipeline.
Anna always gets her
batteries from B&M to ensure
the best value for money
Terry pops to the centre once
a week for his prescription
and everyday health
products from Boots
Louise pops to the
centre with her
daughter at
the weekend
Michael and Zanni pop
to Poundland for their
daily essentials
81 visits
per year*
41 mins
dwell time*
NewRiver REIT plc Annual Report and Accounts 2018
15
STRATEGIC REPORT LEVERAGING OUR KEY RELATIONSHIPS
BUILDING LASTING RELATIONSHIPS
RETAILERS AND LEISURE OPERATORS
As an active asset owner we work
with our occupiers to help meet the
everyday needs of customers
COUNCILS AND COMMUNITIES
We work with councils and local
stakeholders to create sustainable
and thriving communities
LENDERS
Our banks and bond holders provide
us with the funding to grow and
efficiently execute our strategy
SHAREHOLDERS
As owners of the business,
our shareholders provide the
support for us to realise our strategy
16
NewRiver REIT plc Annual Report and Accounts 2018
We count hundreds of high-quality businesses as occupiers across our
assets, and we support them daily by providing attractive environments
with robust footfall and affordable rents. We engage with occupiers early
in our asset management and development initiatives to provide the best
spaces to meet their needs and ambitions.
Our centre managers work daily with occupiers at a local level, while our
asset management team conducts regular meetings with national
retailers and leisure operators to help us continually improve as
property owners.
As owners of community assets located in the heart of towns across the
UK, councils and other local groups are key stakeholders for us. In FY18, we
engaged with 51 county and town councils across the UK at every phase in
our asset ownership.
During the disciplined acquisition, active asset management and
risk-controlled development phases, we work with councils and other
local groups to determine their needs and aspirations for the community,
and to address any suggestions or concerns. Similarly, when recycling
assets we engage with local stakeholders to ensure an orderly handover
that benefits the community.
During the year we raised £730 million of debt financing, comprising
£430 million of new unsecured bank facilities and our debut £300 million
sterling denominated corporate bond which was assigned an investment
grade BBB+ rating by Fitch Ratings. Through these actions, we have
transitioned to a fully unsecured balance sheet.
The success of this activity, in difficult market conditions, underscores
the strength of our relationships with lenders, and we will continue to
work closely with our new and existing debt holders as we execute
our strategy.
We pride ourselves on maintaining an open and continuous
dialogue with our investors through an active programme of meetings,
presentations and site visits through the year. The Chief Executive, Chief
Financial Officer and the Head of Investor Relations are the Company’s
principal spokespersons with institutional investors, with our asset
managers also meeting investors where required. The Chairman and
Senior Independent Director are available to meet with shareholders
to discuss governance and other matters.
In 2018 we conducted another extensive programme of shareholder
engagement, holding 130 meetings with 172 individual
institutional investors.
>200
meetings with
retailers in FY18
51
county and town
councils worked with
in FY18
£730m
of new debt
financing in FY18
172
investors met
in FY18
NewRiver REIT plc Annual Report and Accounts 2018
17
STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW
This has been another year of growth for NewRiver, in which our
convenience & community focused business model has continued to
show resilience in the face of challenging headwinds affecting the
wider UK retail sector.
Furthermore, the foundations we have put in place
through our actions in the equity and debt capital
markets, the capacity we have for further growth and
the continued focus we have on the most
sustainable, and in some cases fastest growing
segments of the UK retail market mean that we feel
well positioned looking forward.
Market backdrop
For UK retailers, the past year has been one of the
most challenging in recent memory, with limited real
wage growth and low consumer confidence
reducing spending at a time when retailers are
under pressure from rising cost bases. Intense
competition and the growth of online retailing,
which, according to data from the GlobalData, now
accounts for 16% of total retail spend in the UK, has
given consumers complete price transparency and
limited the ability of retailers to increase prices,
which has in turn reduced retailer margins. In
summary, consumers have less money to spend and
are increasingly focused on value for money.
Against this background, the UK retail market has
seen a number of high-profile retail failures in the
first few months of 2018. While there have been
some early signs of improvement in the consumer
backdrop, in particular a return to modest real wage
growth, it is likely that the environment will remain
difficult for retailers for the foreseeable future. What
is unlikely to change is the UK consumer’s
increasing focus on convenience & value for money,
and NewRiver’s portfolio is well positioned to benefit
from this trend.
The mixed fortunes of retailers have inevitably had a
negative impact on investor sentiment towards the
retail real estate market, with retail failures and store
estate rationalisation programmes leading to excess
capacity in some parts of the market. This has meant
that, in some instances, lease negotiations have
become more protracted.
In this context, the retail property market has seen a
continued trend of polarisation, with the ‘squeezed
middle’ – shopping centres which are typically single
department store anchored with a high proportion of
mid-market fashion retailers – bearing the brunt of
retail market headwinds. Performance from both the
experience-driven and discretionary-focused
super-regional centres and the convenience-led
community shopping centres has been resilient, with
the latter being our core focus area.
Financial performance
Our Funds from Operations (‘FFO’) were up 4% to
£60.3 million, with all aspects of our business model,
from disciplined stock selection through to profitable
capital recycling, making a positive contribution in
the year. IFRS Profit after tax was £45.7 million,
increased from £36.2 million in FY17 predominantly
due to profits realised on the disposal of investment
properties and the revaluation of derivatives. The
Board has approved a final quarterly dividend of
5.25 pence per share, resulting in an ordinary
dividend for the year of 21.0 pence per share, up 5%
compared to the previous year. We are especially
pleased to report a fully covered dividend, given we
issued 67 million new shares in July 2017 and we still
have significant firepower to deploy. We deliberately
maintained our capital discipline during the year
because we are forecasting better buying
opportunities in the new financial year, which
we are well placed to take advantage of.
Looking ahead, our Q1 FY19 dividend of 5.4 pence
per share, an increase of 3% on Q1 FY18, reflects our
continued focus on distributing growing cash returns
to our shareholders, the strength of our underlying
cash flows and our well-advanced
acquisition pipeline.
IFRS net assets increased from £684.5 million at
31 March 2017 to £892.4 million, predominantly due
to our £225 million equity raise. Our EPRA Net Asset
Value (‘NAV’) per share was 292 pence at the year
18
NewRiver REIT plc Annual Report and Accounts 2018
end, in line with the position at 31 March 2017 but
slightly lower than the position at the half year due
to a 1.3% reduction in capital values in the second
half of the financial year, reflecting negative
sentiment towards the UK retail sector. Our portfolio
valuation now stands at £1.2 billion, from £1.1 billion
at 31 March 2017, due primarily to acquisition activity
in the period. We remain focused on delivering
growing and sustainable cash returns to our
shareholders, with our total accounting return
of 8.1% being entirely income driven.
It was a transformational year for NewRiver in the
debt and equity capital markets, during which we
raised £1 billion on accretive terms. In July 2017 we
successfully raised £225 million of equity at a 14.7%
premium to March 2017 EPRA NAV. The equity raise
gave us the capacity to grow, but importantly also
the scale we required to complete our long-held
ambition to move from a secured to an unsecured
debt structure, which meant that we ended the year
with an unencumbered balance sheet having raised
£730 million of unsecured financing. This included
£430 million of new unsecured bank facilities,
which we raised in August 2017, and our debut
£300 million sterling-denominated corporate bond
which was assigned an investment grade rating by
Fitch Ratings. These actions mean that we have
diversified our sources of funding, increased
operational flexibility, increased debt maturity to
7.9 years and reduced our cost of debt to 3.1% -
this is a fantastic achievement, especially given
the market backdrop. With an LTV of 28% at
31 March 2018, safely within our stated guidance
of less than 40%, and interest cover of 4.7x, we have
capacity to grow through disciplined stock selection
and our inbuilt risk-controlled development pipeline.
Operational performance
During the year we completed £147.1 million of
acquisitions, at an average initial yield of 7.6%. In
July 2017 we acquired the remaining 50% share in
the BRAVO joint ventures for a cash consideration
of £59.4 million, which gave us control over four
community shopping centres in Belfast, Glasgow,
Hastings and Middlesbrough with a gross asset
value of £240million. Having been responsible for
the day to day management of these assets since
they were purchased by the joint venture in 2013
and 2014, we are well aware of the accretive asset
management opportunities still to come. It is worth
reflecting that since the joint ventures with BRAVO
NewRiver REIT plc Annual Report and Accounts 2018
19
STRATEGIC REPORT CHIEF EXECUTIVE’S STRATEGIC REVIEW CONTINUED
were first established in 2012, we have
generated £3.9 million in asset
management and £7.9 million in
performance receipts, and we continue
to enjoy a strong relationship with the
manager of the BRAVO fund.
In February 2018 we acquired two retail
parks, in Dewsbury and Cardiff, from an
institution and a receiver respectively,
for combined consideration of
£26.5 million, representing a blended
initial yield of 8.9%. Both retail parks
have good occupier demand and
present us with the opportunity to
add value through a variety of identified
active asset management initiatives.
Across our retail portfolio we
continued to see strong operational
metrics. Occupancy was sustained
at 97% over the year, reflecting the
compelling nature of our convenience-
led, community-focused portfolio to
occupiers. Our footfall was broadly
stable, declining marginally by 0.9%
over the year but outperforming the
national benchmark by 130 bps,
demonstrating the resilient nature of the
spend at our centres. The combination
of our robust footfall, high occupancy,
affordable average rents of just £12.36
per sq ft and a retention rate of 95% at
lease break or expiry indicates to us that
retailers are trading profitably at our
assets, underpinning the sustainability
of our income. We achieved like-for-like
net rental income growth of 0.9% during
the year, reflecting the impact of our
completed active asset management
initiatives across our retail portfolio.
Our highly active approach to asset
management resulted in the completion
of 985,600 sq ft new lettings and
renewals, with long term deals
completed on terms 1.3% ahead of ERV.
As already mentioned, the number of
Company Voluntary Arrangements
(‘CVA’s) and administrations filed by over
indebted retailers and restaurant
operators since the start of 2018 clearly
demonstrate that the occupational
market is under pressure. As owners of
retail property, we are not immune to
this pressure, but with our clear focus on
those growing sub-sectors providing
shoppers with value for money
on essential items, and a deliberately
1
2
3
4
5
20
NewRiver REIT plc Annual Report and Accounts 2018
OUR INVESTMENT CASE
We are market leading specialists
• Our experienced management team specialises in buying,
managing, developing and recycling convenience-led, community-
focused retail & leisure assets
• Our core markets are community shopping centres, community
pubs and conveniently located retail parks
• Our £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%
Our assets are an integral part of the
communities they serve
• They are well located in the heart of communities, providing
the appropriate mix of retail, leisure and civic services
• They meet the day to day needs of local communities, with our
occupiers typically focused on providing value for money to visitors
on day to day essential goods and services
• We have an exciting 1.9m sq ft risk-controlled development pipeline,
focused on exploiting the untapped residential potential in the
airspace above and on sites adjacent to our well located assets
Our income streams are sustainable and
our portfolio is internet resilient
• Our rents are affordable for retailers and we have a well diversified
income stream with our largest occupier accounting for just 2.2%
of total rent roll
• Our retail occupancy is currently 97%, and has been above 94%
since the company was founded in 2009
• The retailers trading in our portfolio typically operate low
transaction value, high volume business models, and so are
inherently resilient to the growth of online retail
We are focused on delivering a growing
dividend to shareholders
• We have a proven track record of delivering a growing dividend to
our shareholders, which we pay on a quarterly basis
• We have a market leading dividend yield of over 7%, and delivering
a fully covered dividend is one of our core financial policies
Our platform is scalable and our balance
sheet is well positioned to deliver growth
• We have a fully unencumbered balance sheet, with an unexpired
debt maturity of 7.9 years and an average cost of 3.1%
• With LTV currently at 28%, and opportunities across our core
markets, we are well placed to continue to grow the business
minimal exposure to structurally challenged sectors
such as department stores, mid-market fashion and
casual dining, we feel well positioned. As a result
of this, and because of the highly diversified nature
of our rental income stream, we estimate that just
£0.9 million, less than 1% of our total rent roll for the
coming year, is currently at risk from retailers who
have already entered CVAs or administrations. The
two new leases agreed with Primark during the year
on units vacated by BHS following its administration
in July 2016 demonstrate our active approach to
asset management and are good examples of how
a retailer administration gave us the opportunity to
enhance our occupier line-up.
We continued to apply our active asset management
approach to the 331 community pubs in our portfolio
over the year. Our pubs are an attractive source of
returns for us, providing us with a sustainable
income stream, strong relative returns and profitable
risk-controlled development opportunities. In
December 2017 our four-year leaseback agreement
with Marston’s PLC came to an end and during the
year we completed the transfer of the management
of all the pubs in the Trent portfolio from Marston’s,
which means that we are now in the position to
expand our targeted capital investment programme
across the entire pub portfolio. We invested
£1.1 million into such projects during the year,
completing 55 individual projects. We have
continued to make selective and profitable disposals
from our pub portfolio, selling a further 11 pubs and
five parcels of land adjacent to pubs for £3.7 million
in the period representing a 7% premium to March
2017 valuation.
We made good progress on our 1.9 million sq ft
risk-controlled development pipeline during the year.
The convenience store development programme
within our pub portfolio continued to progress, and
we handed over a further 10 convenience stores
(‘c-stores’) to the Co-operative (‘Co-op’) in the period,
bringing the total number delivered so far to 20, of
which 13 utilised surplus land adjacent to existing
pubs, three were pub conversions and four were
new builds on sites previously occupied by pubs.
These c-stores are all leased on 15-year agreements
with RPI uplifts, providing a very valuable income
stream from land acquired at effectively nil cost. In
addition, the delivery of our 15th store to the Co-op
triggered our first performance receipt under the
agreement, and in total we recognised £1.5 million of
performance receipts in the year.
In our retail portfolio, we recently started on site
at our 62,000 sq ft Canvey Island Retail Park
development, having successfully de-risked the
project by pre-letting 75% to a range of occupiers
including M&S Foodhall, Costa, B&M and Sports
Direct. In July 2017 we exchanged conditional
contracts on the pre-sale of the entire residential
element of the 465,000 sq ft mixed-use
regeneration of Burgess Hill town centre. During the
year we completed works to relocate Iceland out of
our shopping centre and into another unit we own
close by, recently vacated by Store Twenty One, to
facilitate the development. We are on track to begin
the first phase of demolition works in mid-2018.
In July 2017 Oxford City Council approved our plans
for our 236,000 sq ft mixed-use development to
regenerate Templars Square Shopping Centre,
including the provision of 226 residential units. We
are now working with Oxford County Council to
move the project on to the next stage.
Most recently, in March 2018 we were appointed
by Basingstoke and Deane Borough Council
(the ‘Council’) as its nominated developer to bring
forward the redevelopment of a 66-acre leisure park
in Basingstoke, which based on current proposals,
will comprise approximately 200,000 sq ft of
designer outlet shopping and approximately
500,000 sq ft of leisure. The agreement is
conditional on achieving planning consent and
pre-lets as well as a viability assessment, but in the
event that the development becomes unconditional,
the Council will grant NewRiver a 250-year
leasehold interest over the site, which is located in
one of the UK’s most affluent regions. This is a
long-term opportunity, with onsite works estimated
to commence in 2023, but in signing the
development agreement we have reached the first
major milestone in the project.
Opportunities in a changing environment
The retail market continues to change and as
specialist active asset managers we have identified
a number of short-term and long-term areas of focus
to ensure that we will continue to deliver growing
and sustainable cash returns to our shareholders.
Our short-term actions are incremental in nature,
and centred around achieving cost efficiencies for
our occupiers to reduce occupational costs and
support rents, and enhancing the sustainability of
our income stream. Cost saving initiatives to reduce
occupational costs for our occupiers which are
already underway include seeking significant
reductions in our marketing and service charge
budgets, as well as investing in technology to
reduce our car park operating budgets. In addition
to these cost savings, we will extract maximum value
from our risk-controlled development pipeline, either
through progressing projects to completion (e.g.
Canvey Island Retail Park) or crystallising value
generated through obtaining planning consent (e.g.
residential opportunity in Stamford).
NewRiver REIT plc Annual Report and Accounts 2018
21
STRATEGIC REPORT CHIEF EXECUTIVE’S STRATEGIC REVIEW CONTINUED
The following are examples of our longer-term
actions which aim to take advantage of changes in
consumer behaviour and other market trends:
• Asset management platform
As experienced and specialist active asset
managers, we have established a market leading
platform which we believe has significant unrealised
value. Historically, we have generated asset
management and performance receipts from our
joint venture partners, as most recently seen with
the BRAVO joint ventures, and we believe our
platform can be applied to community shopping
centres held by third parties, who would be able to
benefit from our experience, scale and relationships
with retailers, as well as providing the assurance of
partnering with a publicly listed company with the
highest standards of governance. This opportunity is
especially relevant given the number of community
shopping centres acquired by local authorities in
recent years, and would generate an untapped
annuity stream with limited incremental investment.
• Additional uses
We are committed to extracting maximum value
from our existing portfolio, and we have already
demonstrated the potential for the provision of
residential accommodation above and adjacent to
our assets, through the 1.1 million sq ft of
opportunities included within our risk-controlled
development pipeline. We are focused on giving
consumers more reasons to visit our assets and we
believe that there is potential to introduce additional
uses such as primary health care provision and
co-working space. Over the next year we will invest
time in understanding in more detail the model of
primary healthcare providers and will explore ways
in which we can work more closely with specialist
partners to deliver these services. In addition to civic
services, there is a growing market for flexible office
space, reflecting changes in how people work and
live. Our assets are ideally placed to take advantage
of this and could provide temporary or permanent
office space in vacant units and excess management
suites. In the next year we will analyse the level of
demand for these uses and the feasibility of offering
space for this use.
A TIMELINE OF OUR KEY ACTIVITIES
Raised £225m of
equity at 15%
premium
to EPRA NAV
Acquired remaining
BRAVO units
for £59.4m
Pre-sale of
Burgess Hill
residential units
for £34m
Planning consent
obtained for a
236,000 sq ft
mixed-use
development in
Cowley, Oxford
£430m
unsecured debt
raised
July 2017
July 2017
July 2017
July 2017
Aug 2017
22
NewRiver REIT plc Annual Report and Accounts 2018
• Evolution of click & collect
Our assets are in highly accessible locations, with an
average travel time for shoppers of only 13 minutes,
with ample and affordable car parking provision and
the ability to accommodate articulated lorries.
According to GlobalData, click & collect is forecast to
grow by 56% over the next 5 years, and many of our
assets are well placed to benefit from this trend. In
fact, we already see a number of our occupiers
using their physical stores for this purpose, and
some online retailers such as Amazon using our
centres to provide lockers for collection of online
orders. In the next year, we will review in detail how
click & collect and retailer distribution models could
evolve, and ways in which we can work with our
retailers to reduce the cost of the last mile of
distribution.
Outlook
In our view, the headwinds experienced by the retail
market in recent months will continue, and it is likely
that in the near-term there will be further retailer
consolidation, particularly in the department store,
mid-market fashion and casual dining sub-sectors of
the market. We have deliberately limited our
exposure to these sub-sectors, which are under
significant structural pressure due to changing
consumer habits. Retail real estate capital values too
will remain under pressure, reflecting the impact of
further CVAs and negative sentiment towards
the sector.
Having handpicked our convenience-led,
community-focused portfolio over the last nine
years, we feel well positioned because we are
focused on growing and sustainable retail sub
sectors. Our occupiers provide consumers with
value for money on essential goods and services,
and the sustainability of our cash income streams is
underpinned by affordable rents and robust footfall.
In addition, we have a high quality and experienced
management team, and an identified programme of
short-term and long-term opportunities to extract
greater value from our portfolio, as well as a
risk-controlled development pipeline which we are
now delivering. Our now fully unencumbered
balance sheet provides us with the flexibility to
exploit acquisition opportunities as they arise, and
we remain focused on delivering growing cash
returns to our shareholders.
Allan Lockhart
Chief Executive
23 May 2018
Acquisition of two
retail parks for
£26.5m at a
blended net initial
yield of 8.9%
15th c-store
delivered to Co-op,
triggering
performance
receipts of £1.5m
Issued £300m
debut corporate
bond (BBB+ rated
by Fitch Ratings)
Development
agreement signed
on 66 acre
development
opportunity in
Basingstoke
Jan 2018
Feb 2018
Mar 2018
Mar 2018
NewRiver REIT plc Annual Report and Accounts 2018
23
STRATEGIC REPORT OUR STRATEGY
OUR AIM IS TO CREATE
SECURE, SUSTAINABLE AND
GROWING CASH RETURNS
At the core of our strategy is delivering superior returns to our shareholders.
Our strategic priorities, underpinned by significant market expertise, enable
us to deliver these returns through economic cycles.
Strategic priority
What we do
Progress in 2018
Priorities for 2019
KPIs
1
2
Disciplined stock selection
Active asset management
Risk-controlled development
Profitable capital recycling
Maximise benefits of scale/
Conservative balance sheet
We target high yielding assets with low
risk characteristics. We take a
disciplined approach, and our
significant market experience means
we are able to price risk appropriately
and so buy assets at the right prices
•
• Completed £147.1 million of
acquisitions in five separate
transactions, at an average
equivalent yield of 7.7%
In July 2017, acquired remaining
50% share in BRAVO JVs for
£59.4 million, allowing us to gain
control over four shopping centres
in Belfast, Hastings, Middlesbrough
and Glasgow
In February 2018, acquired two retail
parks, in Dewsbury and Cardiff, for
combined consideration of
£26.5 million, both with compelling
asset management opportunities
•
We enhance and protect income returns
through our asset management initiatives.
We have an active and hands-on
approach utilising our in-house expertise,
a deep understanding of our market and
strong relationships with our occupiers.
This means we are able to deliver the right
space in the right locations on terms
mutually beneficial to all stakeholders
• Completed 985,600 sq ft of new
lettings and renewals across our
retail portfolio, with long-term deals
secured at on average 1.3% ahead of
March 2017 ERV
• Signed leasing deals with Primark for
two 40,000 sq ft units in Belfast and
Hastings which had been vacated by
BHS following its administration
• Completed repositioning of the
55,300 sq ft Coalville Retail Park in
Leicestershire, increasing weighted
average lease length by 9.0 years to
11.2, net income by 17% and valuation
by 10%
We create income and capital growth from
We regularly assess potential
We focus on driving efficiencies in
within our portfolio through our risk-controlled
upside opportunities in disposing
our financing and operating costs
development pipeline. We are able to create
value using our in-house expertise to obtain
of assets and recycling capital
into new opportunities where
to maximise cash returns to
shareholders, while maintaining
planning consents, which we then choose to
appropriate. We have a track record
a conservative balance sheet
either develop ourselves or crystallise profit
of doing this profitably
• Risk-controlled development pipeline totals
• Completed £57.5 million of
• Successfully raised £1 billion
1.9 million sq ft
disposals, on terms on average
of financing on accretive terms,
through disposal. Our risk-controlled approach
means that we will not commit to developments
without securing significant pre-lets or pre-sales
• Began on-site works at our 62,000 sq
ft Canvey Island Retail Park development;
practical completion scheduled for
early 2019
• Exchanged contracts on residential element
of our 465,000 sq ft mixed-use regeneration
of Burgess Hill town centre
• Progressed convenience store
development programme in our pub
portfolio, handing over a further 10 stores
to the Co-op to bring our total so far to 20
• Appointed nominated developer for
redevelopment of 66 acre leisure park in
Basingstoke
11% ahead of March 2017
valuation and 23% ahead of
total cost
including £730 million of
unsecured debt financing
• Maturity increased to 7.9 years
• Disposed of two retail units from
from 2.5 years in March 2017
our shopping centre portfolio
and two high street assets, with
the largest disposals of this
group being purchases by
Primark
the year, with the largest being
Clough Road Retail Park in Hull
for £11.2 million, generating a
cash profit on cost of £1.4 million
• Sold five retail park assets during
slightly to 15%
• All in cost of debt of 3.1% once
the £215 million RCF is fully
drawn, from 3.5% in March 2017
•
Interest cover improved to 4.7x
• Admin cost ratio increased
• Remain active in the investment
market and continue to target high
yielding assets with low risk
characteristics
• Continue the disciplined deployment
of proceeds from our July 2017
equity raise
• Continue asset management
initiatives across portfolio
• Sustain high level of retail occupancy
• Maintain affordable rents for
occupiers to ensure sustainability
of cash income
• Annualised rent roll
• Funds From Operations
• Total Accounting Return
• Total Property Return
• Annualised rent roll
• GRESB score
• Retail occupancy
• Total Accounting Return
• Total Property Return
• Funds From Operations
• Deliver seven further c-stores to the Co-op
• Continue to recycle assets that
• Continue to abide by our
• Complete the Canvey Island Retail
Park development
• Commence on-site works at our 465,000 sq
ft mixed use development in Burgess Hill
no longer meet our return criteria
financial policies and guidelines
• Continue to make opportunistic
• Maintain admin cost ratio at
disposals to special purchasers
or below 15% over the
medium term
• Annualised rent roll
• GRESB score
• Total Accounting Return
• Total Property Return
• Funds From Operations
• Retail occupancy
• Funds From Operations
• Total Accounting Return
• Admin cost ratio
• Funds From Operations
•
Interest cover
• LTV
• GRESB score
• Total Accounting Return
24
NewRiver REIT plc Annual Report and Accounts 2018
1
1
1
Dis c i p li n e d stock selectio
n
5
5
5
n e fi ts of scale
e
B
Growing cash
returns
+
Thriving
communities
C
o
n
s
ervative ba l a n
c
e s heet
P
r
o
fi
t
a
b
l
e
c
a
p
it
4
4
4
al recycling
n trolled
m ent
o
e l o
p
3
3
3
sR i
c
k -
d e v
t
t
e
s
s
a
e
n
e
m
e
g
a
n
Activ
ma
2
2
2
3
4
5
Disciplined stock selection
Active asset management
Risk-controlled development
Profitable capital recycling
We create income and capital growth from
within our portfolio through our risk-controlled
development pipeline. We are able to create
value using our in-house expertise to obtain
planning consents, which we then choose to
either develop ourselves or crystallise profit
through disposal. Our risk-controlled approach
means that we will not commit to developments
without securing significant pre-lets or pre-sales
We regularly assess potential
upside opportunities in disposing
of assets and recycling capital
into new opportunities where
appropriate. We have a track record
of doing this profitably
Maximise benefits of scale/
Conservative balance sheet
We focus on driving efficiencies in
our financing and operating costs
to maximise cash returns to
shareholders, while maintaining
a conservative balance sheet
Progress in 2018
• Risk-controlled development pipeline totals
• Completed £57.5 million of
• Successfully raised £1 billion
1.9 million sq ft
• Began on-site works at our 62,000 sq
ft Canvey Island Retail Park development;
practical completion scheduled for
early 2019
• Exchanged contracts on residential element
of our 465,000 sq ft mixed-use regeneration
of Burgess Hill town centre
• Progressed convenience store
development programme in our pub
portfolio, handing over a further 10 stores
to the Co-op to bring our total so far to 20
• Appointed nominated developer for
redevelopment of 66 acre leisure park in
Basingstoke
disposals, on terms on average
11% ahead of March 2017
valuation and 23% ahead of
total cost
• Disposed of two retail units from
our shopping centre portfolio
and two high street assets, with
the largest disposals of this
group being purchases by
Primark
• Sold five retail park assets during
the year, with the largest being
Clough Road Retail Park in Hull
for £11.2 million, generating a
cash profit on cost of £1.4 million
of financing on accretive terms,
including £730 million of
unsecured debt financing
• Maturity increased to 7.9 years
from 2.5 years in March 2017
• All in cost of debt of 3.1% once
the £215 million RCF is fully
drawn, from 3.5% in March 2017
Interest cover improved to 4.7x
•
• Admin cost ratio increased
slightly to 15%
• Deliver seven further c-stores to the Co-op
• Complete the Canvey Island Retail
• Continue to recycle assets that
• Continue to abide by our
no longer meet our return criteria
financial policies and guidelines
Park development
• Commence on-site works at our 465,000 sq
ft mixed use development in Burgess Hill
• Continue to make opportunistic
disposals to special purchasers
• Maintain admin cost ratio at
or below 15% over the
medium term
• Annualised rent roll
• GRESB score
• Total Accounting Return
• Total Property Return
• Funds From Operations
• Retail occupancy
• Funds From Operations
• Total Accounting Return
Interest cover
• Admin cost ratio
• Funds From Operations
•
• LTV
• GRESB score
• Total Accounting Return
NewRiver REIT plc Annual Report and Accounts 2018
25
Strategic priority
What we do
Priorities for 2019
KPIs
We target high yielding assets with low
We enhance and protect income returns
risk characteristics. We take a
disciplined approach, and our
through our asset management initiatives.
We have an active and hands-on
significant market experience means
approach utilising our in-house expertise,
we are able to price risk appropriately
a deep understanding of our market and
and so buy assets at the right prices
strong relationships with our occupiers.
• Completed £147.1 million of
acquisitions in five separate
transactions, at an average
equivalent yield of 7.7%
This means we are able to deliver the right
space in the right locations on terms
mutually beneficial to all stakeholders
• Completed 985,600 sq ft of new
lettings and renewals across our
retail portfolio, with long-term deals
secured at on average 1.3% ahead of
•
In July 2017, acquired remaining
March 2017 ERV
50% share in BRAVO JVs for
• Signed leasing deals with Primark for
£59.4 million, allowing us to gain
control over four shopping centres
in Belfast, Hastings, Middlesbrough
two 40,000 sq ft units in Belfast and
Hastings which had been vacated by
BHS following its administration
and Glasgow
• Completed repositioning of the
•
In February 2018, acquired two retail
55,300 sq ft Coalville Retail Park in
parks, in Dewsbury and Cardiff, for
Leicestershire, increasing weighted
combined consideration of
£26.5 million, both with compelling
asset management opportunities
average lease length by 9.0 years to
11.2, net income by 17% and valuation
by 10%
• Remain active in the investment
• Continue asset management
market and continue to target high
initiatives across portfolio
yielding assets with low risk
characteristics
• Continue the disciplined deployment
of proceeds from our July 2017
equity raise
• Sustain high level of retail occupancy
• Maintain affordable rents for
occupiers to ensure sustainability
of cash income
• Annualised rent roll
• Funds From Operations
• Total Accounting Return
• Total Property Return
• Annualised rent roll
• GRESB score
• Retail occupancy
• Total Accounting Return
• Total Property Return
• Funds From Operations
STRATEGIC REPORT
OUR KPIs
MEASURING OUR PROGRESS
We measure our progress against our strategic objectives
with reference to our key performance indicators (KPIs).
Total Accounting Return
Total Property Return
Funds From Operations
8.1%
8.2%
£60.3m
FY14
FY15
FY16
FY17
FY18
10.8
15.7
FY14
N/A
FY15
N/A
18.1
FY16
N/A
5.7
8.1
FY17
FY18
6.8
8.2
9.5
20.9
FY14
FY15
FY16
FY17
FY18
47.1
58.2
60.3
What it is
Total Accounting Return (‘TAR’)
measures the change in EPRA Net
Asset Value (‘NAV’) per share over
the year, plus dividend paid, as a
percentage of the EPRA NAV at
the start of the financial year. TAR
performance relative to UK listed Real
Estate Investment Trusts is a key metric
used in setting the long-term incentive
plan (‘Performance Share Plan’).
Our performance
Our continued focus on income
through the year saw us deliver a Total
Accounting Return of 8.1%, increased
from 5.7% in FY17.
What it is
Total property return is a measure
of the income and capital growth
generated across our portfolio. It
is calculated by MSCI Real Estate
(formerly known as IPD) on our behalf,
using independent valuers, and we
assess our performance against the
market by comparing our returns to
the MSCI-IPD All Retail benchmark.
What it is
Funds From Operations (‘FFO’) is a
Company measure determined by
cash profits which includes realised
recurring cash profits plus realised
cash profits or losses on the sale of
properties and excludes other one off
or non-cash adjustments. FFO per
share is used by the Company when
considering our dividend policy.
Our performance
We delivered a total property return
of 8.2%, outperforming the MSCI-IPD
All Retail benchmark by 190bps. This
outperformance was driven by our
income return of 7.3%, outperforming
the benchmark by 220bps.
Our performance
Our convenience and community
focus and execution of our business
model resulted in a 4% increase in FFO
to £60.3 million.
How it links to our
strategic priorities /
management remuneration
How it links to our
strategic priorities /
management remuneration
How it links to our
strategic priorities /
management remuneration
1
2
3
4
5
£
1
2
3
1
2
3
4
5
26
NewRiver REIT plc Annual Report and Accounts 2018
Annualised rent roll
£100.1m
Admin cost ratio
15%
FY14
FY15
FY16
FY17
FY18
31.2
56.2
FY14
FY15
FY16
FY17
FY18
85.1
96.5
100.1
22
23
19
14
15
What it is
Annualised rent roll is a measure of
the scale and diversity of our business
and the success of our active asset
management and risk-controlled
development. It is disclosed on a
proportionally consolidated basis,
including rental income from joint
ventures at our share.
What it is
The ratio of administrative expenses
to gross revenue on a proportionally
consolidated basis, including our share
of administrative expenses and gross
revenue from joint ventures. It is a
measure of the operational efficiency
of the Company.
Our performance
Our annualised rent roll increased by
4% over the year to £100.1 million,
driven by acquisitions and our active
approach to asset management.
Our performance
Our admin cost ratio was 15% in FY18,
a slight increase from FY17 but lower
than in previous years, as we continue
to benefit from our increasing scale.
How it links to our
strategic priorities /
management remuneration
How it links to our
strategic priorities /
management remuneration
1
2
3
5
1
2
3
4
Disciplined stock selection
Active asset management
Risk-controlled development
Profitable capital recycling
5 Benefits of scale /
Conservative balance sheet
£
Management remuneration
NewRiver REIT plc Annual Report and Accounts 2018
27
STRATEGIC REPORT OUR KPIs CONTINUED
Retail occupancy
Loan to Value
97%
28%
Interest cover
4.7x
FY14
FY15
FY16
FY17
FY18
95%
96%
96%
97%
97%
FY14
FY15
FY16
FY17
FY18
25%
27%
28%
39%
37%
FY14
FY15
FY16
FY17
FY18
3.9
3.9
4.3
4.5
4.7
What it is
Retail occupancy is the estimated
rental value of units expressed as a
percentage of the total estimated
rental value of the retail portfolio,
excluding development activities.
What it is
Loan to Value (‘LTV’) is the proportion of
our properties that are funded by
borrowings. The measure is presented
on a proportionally consolidated basis,
including our share of properties and
borrowings held in joint ventures.
Maintaining an LTV of less than 50% is
one of our key Financial Policies but our
current guidance is that LTV will remain
below 40%. Compliance with these
policies forms part of Executive Director
variable pay.
What it is
Interest cover is the ratio of our
operating profit to our net financing
costs, on a proportionally consolidated
basis, including our share of operating
profit and net financing costs from joint
ventures. Maintaining interest cover
of more than 2.0x is one of our key
Financial Policies, and compliance with
these policies forms part of Executive
Director variable pay.
Our performance
Retail occupancy was sustained at 97%
during the year, due to our active asset
management. This is the highest level
of occupancy we have seen since the
Company was founded in 2009.
Our performance
Our LTV reduced over the year, from
37% to 28% as we have not yet fully
deployed the £225 million of equity
raised in the period.
Our performance
Our interest cover was 4.7x in
FY18, increased from 4.5x in FY17,
principally due to a reduction in
finance costs following our debt
refinancing during the year.
How it links to our
strategic priorities /
management remuneration
How it links to our
strategic priorities /
management remuneration
How it links to our
strategic priorities /
management remuneration
2
3
5
£
5
£
28
NewRiver REIT plc Annual Report and Accounts 2018
GRESB Score
46
FY14
N/A
FY15
N/A
FY16
N/A
FY17
FY18
36
46
What it is
As a further demonstration of our
commitment to placing ESG at the
heart of our business, we have this
year introduced this new KPI, which
is our Global Real Estate Sustainability
Benchmark (‘GRESB’) score. The GRESB
annual survey is the global real estate
industry’s most rigorous assessment of
sustainability performance, with 850
organisations participating last year.
Our performance
We saw a 28% improvement in
our GRESB score over the year to
46, driven by the establishment of our
portfolio-wide energy efficiency
programme, which helped to reduce
GHG emissions across our portfolio
by 6%.
How it links to our
strategic priorities /
management remuneration
2
3
5
Our approach to ESG
Since our founding in 2009, we have made significant strides
incorporating ESG in to our strategy, risk management and governance
processes. This year we have taken another important step forward,
publishing a standalone ESG report for the first time.
Going forward, this report will be published annually, enabling
stakeholders to assess our progress against our key ESG priorities
over time.
1
2
3
4
Disciplined stock selection
Active asset management
Risk-controlled development
Profitable capital recycling
5 Benefits of scale /
Conservative balance sheet
£
Management remuneration
NewRiver REIT plc Annual Report and Accounts 2018
29
STRATEGIC REPORT WE HAVE A WELL
PORTFOLIO
Our portfolio is well diversified by asset class, lot size, geography
and occupier.
Our £1.2 billion portfolio includes community shopping centres (65%), community pubs and convenience
stores (13%) and retail parks (13%).
Our retail portfolio is located in towns and communities across the UK, with 34% in London & the South of
England, 18% in Yorkshire & the Midlands, 26% in Northern Ireland, Scotland and Wales and 22% in the North
of England. Our largest asset, the Broadway Shopping Centre & Retail Park is located in Bexleyheath, London,
and accounts for 12% of our total portfolio valuation.
In our retail portfolio, our income stream is well diversified, with our largest single retailer accounting for just
2.2% of our total rent roll, safely within our stated guideline that single retailer concentration will not be greater
than 5%. Approximately 80% of our retail rental income is from retailers who are either listed companies or
have a national presence, with the balance from high quality independent operators. We have over 800
different occupiers in our retail portfolio, and over 2,000 tenancies. Our retailers are focused on providing
value for money to local communities on essential goods and services.
Our community pub portfolio is also well diversified, with 331 pubs spread across the UK and an average lot
size of £0.5 million. Our pubs are highly liquid, as demonstrated by the 11 pubs and five parcels of pub land
we have disposed of this year, on terms 9% ahead of valuation.
30
NewRiver REIT plc Annual Report and Accounts 2018
FTSE 350
Other National Retailers
NewRiver REIT plc Annual Report and Accounts 2018
31
STRATEGIC REPORT £147.1m
of disciplined
stock selection
Including the remaining 50%
share in 4 community shopping
centres previously held in
BRAVO joint ventures
20th
c-store delivered to Co-op
Triggering £1.5m of performance receipts
80,000sq ft
of lettings to Primark on former BHS units
Commenced construction on a
new retail park in Canvey Island
62,000sq ft
in development
66acre
leisure park
Exchanged contracts with
Basingstoke and Deane
Borough Council on a
development agreement for
a leisure park in a prominent
location in Basingstoke
PROPERTY REVIEW
• Started on site at 62,000 sq ft retail park
development in Canvey Island having
de-risked with pre-lets
• Exchanged conditional contracts for
pre-sale of entire residential element of
465,000 sq ft mixed-use regeneration of
Burgess Hill town centre for £34 million;
on-site enabling works advancing
• Planning consent obtained for a 236,000
sq ft mixed-use development scheme in
Cowley, Oxford
• Appointed as nominated developer for
risk-controlled redevelopment of a 66-
acre leisure park in Basingstoke
• Completed £57.5 million of disposals, on
terms on average 11% ahead of March
2017 valuation and 23% ahead of total
cost, generating cash profit of £10.7 million
Highlights
• Portfolio increased by 10% to £1.2 billion
(March 2017: £1.1 billion), driven by net
acquisitions
• Ungeared total property return of 8.2%,
outperforming the MSCI-IPD All Retail
benchmark by 190 bps
• Completed £147.1 million of acquisitions in
five separate transactions, at an average
equivalent yield of 7.7%
• Retail occupancy maintained at 97%
(March 2017: 97%)
• Shopping centre like-for-like footfall -0.9%,
outperforming the UK benchmark by 130
bps
• Completed 985,600 sq ft of new lettings
and renewals across retail portfolio; terms
on average 1.3% ahead of March 2017
ERV; retention rate of 95% on 835,200 sq
ft of breaks/expiries in the year
• Delivered a further 10 c-stores to the
Co-op, taking total number developed to
20 and triggering performance receipts of
£1.5 million (recognised in FFO in the year)
Portfolio overview
As at 31 March 2018
Shopping centres
Retail parks
High street
Pubs & c-stores
Development
Total
Valuation
NRR
share
£m
798
164
26
166
85
1,239
Weighting
NRR
share
%
65
13
2
13
7
100
Valuation
surplus/
(deficit)
%
(1.7)
1.8
(7.6)
(2.0)
3.2
(1.1)
Topped
up NIY
%
6.7
6.5
8.3
10.1
N/A
7.2
NEY
%
7.4
6.9
7.3
10.1
N/A
7.7
LFL ERV
Growth
%
0.2
2.2
(7.1)
N/A
N/A
0.2
During the year our portfolio valuation increased to £1.2 billion, from £1.1 billion in March 2017. This was a result
of £147.1 million of acquisitions offset by £57.5 million of disposals and a small decline in valuations of 1.1%.
The portfolio initial yield stood at 7.2% in March 2018, down from 7.5% in March 2017.
NRR portfolio
MSCI-IPD All Retail
Relative performance
Total Return
%
8.2%
6.2%
+190 bps
Income Return
%
7.3%
5.0%
+220 bps
Capital Growth
%
0.8%
1.1%
-30 bps
Our portfolio again outperformed the MSCI-IPD All Retail benchmark in terms of total and income returns,
whilst slightly underperforming the benchmark in terms of capital growth. Our total return of 8.2% compares to
the MSCI-IPD All Retail benchmark of 6.2%, an outperformance of 190 bps.
NewRiver REIT plc Annual Report and Accounts 2018
33
STRATEGIC REPORT PROPERTY REVIEW CONTINUED
1
Dis c i p li n e d stock selectio
n
5
n e fi ts of scale
e
B
t
P
r
o
fi
t
a
b
l
e
c
a
p
C
o
n
s
ervative ba l a n
c
t
e
s
s
a
e
n
e
m
e
g
a
n
Activ
ma
2
e s heet
4
it
al
recycling
sR i
c
k -
d e v
n trolled
m ent
o
e l o
p
3
DISCIPLINED STOCK SELECTION
Since 1 April 2017 we have completed £147.1 million of acquisitions in five separate transactions, at an average
equivalent yield of 7.7%.
Since 1 April 2017
Abbey Centre, Belfast
Priory Meadow Shopping Centre, Hastings
Hillstreet Shopping Centre, Middlesbrough
The Avenue Shopping Centre, Glasgow
BRAVO total
The Rishworth Centre and Railway Street
Retail Park, Dewsbury
Valegate Retail Park, Cardiff
Pubs
Total
BRAVO acquisition
In July 2017, we acquired the remaining 50% share
in the BRAVO joint ventures for a cash consideration
of £59.4 million. The acquisition price implied a total
gross asset value of £240 million, representing an
equivalent yield of 7.7%.
The transaction gave us control over four
convenience-led community shopping centres
which we are very familiar with, having been
responsible for their day to day asset management
since the joint venture was established in 2013.
Importantly, we have a clear understanding of each
asset’s growth potential, and we are confident that
this acquisition will produce attractive long-term
returns.
34
NewRiver REIT plc Annual Report and Accounts 2018
Gross Asset
Value
£m
82.0
62.6
61.0
34.4
240.0
Share
acquired
£m
41.0
31.3
30.5
17.2
120.0
Equivalent
yield
%
7.6
7.2
8.1
8.2
7.7
Net initial
yield
%
7.5
6.4
8.0
7.7
7.4
14.3
2.2
0.6
267.1
14.3
12.2
0.6
147.1
7.7
7.7
9.7
7.7
7.9
10.1
9.7
7.7
Abbey Centre, Belfast
Abbey Centre is a 320,000 sq ft shopping centre
located six miles north of Belfast, providing a
convenient alternative to city centre shopping. The
centre currently has two anchor stores: a 44,000 sq
ft Next flagship store which opened in December
2016 and a 35,000 sq ft Dunnes Sores flagship store
which opened in August 2017.
Having taken 100% control of the Abbey Centre in
July 2017, in August we agreed a new 15-year lease
with Primark on a 40,000 sq ft unit which had been
vacated by BHS. Primark was already an occupier at
Abbey Centre, trading strongly out of a 19,000 sq ft
unit, and this upsize provides further endorsement of
the quality of this centre. We expect to hand over the
unit to Primark for fit-out in Summer 2018. Including
the Primark store, at acquisition in July 2017 the
centre was 95% occupied, with average rents of
£14.68 psf and an unexpired lease term of 5.2 years.
Priory Meadow Shopping Centre, Hastings
Priory Meadow Shopping Centre is a 290,000 sq ft
shopping centre located in the heart of Hastings,
in close proximity to Hastings train station and
featuring a 1,000-space car park which is the main
parking provision in the town. Priory Meadow is
the only covered shopping centre in Hastings and
has a strong catchment with limited leakage. The
centre is anchored by a 43,000 sq ft M&S store with
an occupier line-up including Poundland, Boots
and H&M.
4 Shopping centres
2 Retail parks
2 Community pubs
The Rishworth Centre and Railway Street Retail
Park, Dewsbury
The Rishworth Centre and adjoining Railway Street
Retail Park were acquired from an institutional
investor in February 2018 for £14.3 million, which
equates to a net initial yield of 7.9%. The assets have
an affordable average rent of £12.98 psf and a
weighted average unexpired lease term of 5.7 years.
The assets are located in the main retail warehouse
concentration in Dewsbury, West Yorkshire, adjacent
to a Sainsbury’s superstore and close to the civic
amenities and public transport links of Dewsbury
town centre. The 68,400 sq ft Rishworth Centre
comprises four retail units and 265 free car parking
spaces, and the 23,700 sq ft Railway Street Retail
Park comprises three retail units and 116 free car
parking spaces. The occupier line-up includes Next,
Pets at Home and Iceland.
This acquisition provides several asset management
opportunities, including the extension of an existing
retail unit, with strong interest in the enlarged space
from two national retailers and refurbishment works
to improve the frontages of the Rishworth Centre.
We are also in pre-planning for the construction of a
drive thru coffee pod in the Railway Street car park.
Valegate Retail Park, Cardiff
Valegate Retail Park was acquired from a receiver in
February 2018 for £12.2 million, which equates to a
net initial yield of 10.0%. The asset has affordable
average rents of £13.82 per sq ft and a weighted
average unexpired lease term of 3.1 years.
The asset is prominently located on the edge of
Cardiff city centre, adjacent to the Culverhouse
Cross intersection, which is one of the main link
roads to the M4. The asset sits within Cardiff’s main
concentration of convenience retailing and is directly
opposite a Tesco superstore and an owner-occupied
M&S. The 93,600 sq ft retail park comprises seven
units and 325 free car parking spaces and is
anchored by TK Maxx.
There are a number of asset management
opportunities for this asset, including letting the unit
recently vacated by Dreams, which has already
attracted interest from a national retailer, refurbishing
store entrances and the installation of new totems to
improve visibility.
NewRiver REIT plc Annual Report and Accounts 2018
35
Priory Meadow Shopping Centre, Hastings
Having taken 100% control of Priory Meadow in July
2017, in August we agreed a new 20-year lease with
Primark on the 40,000 sq ft unit vacated by BHS in
August 2016. Including the new Primark store, at
acquisition in July 2017 the centre was 100%
occupied, with average rents of £12.08 psf and an
unexpired lease term of 10.7 years.
Hillstreet Shopping Centre, Middlesbrough
Hillstreet Shopping Centre is a 240,000 sq ft
shopping centre located in the heart of
Middlesbrough and is the dominant shopping
destination in the community. The centre is
anchored by a 62,000 sq ft Primark store with an
occupier line-up including M&S, Sports Direct, and
Home Bargains. At acquisition the centre was 97%
occupied, with average rents of £18.02 psf and an
unexpired lease term of 4.3 years.
The Avenue Shopping Centre, Glasgow
The Avenue Shopping Centre is a 202,000 sq ft
shopping centre located in Newton Mearns, an
affluent suburb of Glasgow. The centre is anchored
by a 103,000 sq ft Asda superstore with an occupier
line-up featuring M&S Foodhall, Boots and a number
of high quality independent retailers. At acquisition
the centre was 96% occupied, with average rents of
£12.56 psf and an unexpired lease term of 4.8 years.
STRATEGIC REPORT 1
1
Dis c i p li n e d stock selectio
n
5
5
n e fi ts of scale
e
B
t
P
r
o
fi
t
a
b
l
e
c
a
p
C
o
n
s
ervative ba l a n
c
t
e
s
s
a
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n
e
m
e
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a
n
Activ
ma
2
2
e s heet
4
4
it
al recycling
sR i
c
k -
d e v
n trolled
m ent
o
e l o
p
3
3
PROPERTY REVIEW CONTINUED
ACTIVE ASSET MANAGEMENT
Our active asset management is a key driver of
long-term capital value and the generation of cash
returns to shareholders. We have a hands-on
approach to asset management utilising our
in-house expertise, scale, a deep understanding of
our market and strong relationships with our
occupiers, which enables us to deliver the right
space in the right locations on terms mutually
beneficial to all stakeholders.
Retail
We continued to sign leases on terms ahead of
valuers’ estimates in the year, completing 985,600
sq ft of new lettings and renewals across our retail
portfolio, with long-term deals secured at on
average 1.3% ahead of March 2017 ERV and a
retention rate of 95% on 835,200 sq ft of breaks/
expiries in the year. This high volume of leasing
activity means that our occupancy rate was
sustained at 97% at March 2018.
Footfall across our shopping centre portfolio proved
resilient declining marginally by 0.9%, outperforming
the UK benchmark by 130 bps and demonstrating
the essential nature of the spend at our assets. Our
portfolio is positioned in the growing sectors of the
retail market, with the grocers, convenience store
operators, and discount and value retailers across
our portfolio all expected to benefit from the shift in
consumer behaviour towards value for money and
frequent spend on non-discretionary everyday
essentials. Having handpicked our portfolio over the
last nine years, we have deliberately avoided the
department store, mid-market fashion and casual
dining sub-sectors of the retail and leisure market
which now appear under structural pressure.
Our rental income is well-diversified, with no single
retailer accounting for more than 2.2% of contracted
rents and our policy is that no single retailer will
account for more than 5% of total rent. Following a
mixed Christmas trading period, a number of
retailers have entered into Company Voluntary
Arrangements (‘CVA’s) or administrations, some of
which will have an impact on our rental income in
the new financial year.
Date of
CVA/Admin
January 2018
February 2018
February 2018
February 2018
March 2018
March 2018
March 2018
April 2018
May 2018
May 2018
May 2018
Total
Operator
Byron Burger
Jamie’s Italian
Toys R Us
Maplin
Prezzo
Select
New Look
Carpetright
Mothercare
House of Fraser
Carluccio’s
% of annualised
rent roll pre–CVA/
Admin
–
–
–
0.1%
–
0.4%
1.9%
0.3%
0.5%
–
–
3.2%
Rent pre–
CVA/Admin
–
–
–
£0.2m
–
£0.4m
£1.9m
£0.3m
£0.5m
–
–
£3.3m
Expected
FY19 FFO
impact
–
–
–
£0.1m
–
£0.1m
£0.6m
–
£0.1m
–
–
£0.9m
In this context, the key leasing deals signed during
the year were both on space formerly occupied by
BHS, which went into administration in 2016. We had
exposure of 1% of total rent roll to BHS, and the
administration provided a great opportunity to
introduce a higher quality retailer to our shopping
centres. Having taken full control of Abbey Centre,
Belfast and Priory Meadow, Hastings, in July 2017 as
part of the BRAVO JV acquisition, in August 2017 we
signed long-term leasing deals with Primark at
both centres.
At Abbey Centre, we agreed a new 15-year lease
with Primark on the 40,000 sq ft unit vacated by
BHS. Primark was already an occupier at Abbey
Centre, trading strongly out of 19,000 sq ft, and this
upsize provides further endorsement of the quality
of this centre, as well as providing a good example
of why, as active asset managers, the BHS
administration provided us with two well-timed
opportunities at this centre. First, we were able to
relocate Dunnes Stores, the leading Irish
independent store operator, temporarily into the unit
while we extended their store by 15,000 sq ft and
secondly, we were able to agree the upsizing with
Primark, a best in class retailer.
At Priory Meadow, we agreed a new 20-year lease
with Primark on the 40,000 sq ft unit vacated by
BHS. Primark is a new entrant to the town, and this
deal is a good example of our active and forensic
approach to asset management. Using the strong
relationship we have established with Primark, our
fifth largest retailer based on current rent roll, and
the detailed analysis we compile on each of our
assets, we were able to approach them proactively
with data convincing them that Hastings would be a
great location for them. For example, we were able
36
NewRiver REIT plc Annual Report and Accounts 2018
Halfords across 30,200 sq ft over the year, as its
stores continue to benefit from the growth of click &
collect. We also welcomed a number of exciting
retailers to our portfolio for the first time during the
year, including Australian stationery brand Smiggle,
cosmetics retailer Lush and continental-style café
brand Patisserie Valerie.
We also made good progress in the year improving
the shopping environment and facilities across our
portfolio. At the Ridings Centre in Wakefield we
completed phase one of the asset management
works identified at acquisition in January 2016,
spending £1.2 million in total. Pre-acquisition the
shopping centre had seen limited capital investment
for a number of years, and so these works included
rebranding the centre and improving basic facilities
such as signage, wayfinding and baby change
facilities. A new food court called ‘The Garden
Kitchen’ opened in December 2017, alongside a new
children’s play area called ‘The Den’. These
improvements have helped to drive a 17% increase
in footfall over the year and contributed to an 8%
uplift in valuation. The next phase of works is
underway, and include improvements to the
entrances, the car parking environment and
signage/wayfinding, and further development of
brand partnerships with our major retail partners.
We remained active across our retail park portfolio,
completing a programme of asset management
works at Coalville Retail Park in Leicestershire during
the year. In July 2015 we paid £7.3 million for the
55,300 sq ft park as part of the Ramsay Portfolio. At
acquisition the park was anchored by B&M, with
Poundstretcher, Ponden Mill, Jollyes Petfood and
Littlewoods Clearance completing the occupier
line-up. With a weighted average unexpired lease
term of 2.2 years at acquisition, we were able to
apply our active asset management approach to
completely reposition the asset, signing new leases
with every retailer in the park. We retained two of
the existing occupiers, agreeing a new 15-year lease
with B&M in the year to March 2017, and a new
10-year lease with Poundstretcher in May 2017, and
improved the rest of the occupier line-up by
introducing Pets at Home, Peacocks and Sports
Direct. Following this work, the weighted average
lease length has increased by 9.0 years to 11.2 years
and rents have increased by 17%.
Our average rents remain affordable at £12.36 per
sq ft, and lower than the average of £12.45 per sq ft
at March 2017. The combination of our high
occupancy and affordable average rents indicates to
us that retailers are trading profitably at our assets,
underpinning the sustainability of our income.
Moreover, over 99% of this rent had been collected
in respect of FY18 one month after the period end.
NewRiver REIT plc Annual Report and Accounts 2018
37
Coalville Retail Park, Leicestershire
to show a projected turnover for Primark of up to
£18 million, compared with just over £3 million
achieved by BHS, and demonstrated that the local
catchment was ideally suited for Primark’s core
shoppers.
Alongside these two key deals, our focus on
convenience and community continued to be
reflected in our leasing activity over the year, with
the majority of new leases relating to the growing,
sustainable sub-sectors of grab & go food, value
clothing, health & beauty and discounters. In the
grab & go food sub-sector, we signed leases on
9,000 sq ft of space across four stores with Costa,
including on a new 1,800 sq ft pod that we built at
Blackburn Retail Park, 3,000 sq ft of space across
three stores with Subway, and other deals with
Greggs, Papa John’s, and Burger King. In value
clothing, we signed leases on 21,700 sq ft of space
across four stores with Bonmarché, including a
10,300 sq ft unit in Wrexham, and signed other deals
with Claire’s Accessories, Sports Direct, and
Peacocks. In health & beauty, we signed leases on
13,100 sq ft across two stores with Boots, 10,300 sq ft
across two stores with Savers, and 10,400 sq ft
across two stores with Superdrug. Amongst the
discounters, we signed new leases on 45,900 sq ft
of space across three stores with Poundstretcher
and on 18,300 sq ft of space across two stores with
Poundland. We signed three new leases with
STRATEGIC REPORT PROPERTY REVIEW CONTINUED
ACTIVE ASSET MANAGEMENT
a
are
COALVILLE RETAIL PARK,
LEICESTERSHIRE
The 55,300 sq ft retail park is located adjacent to a high performing
Morrisons store and was acquired in July 2015 for £7.3 million as part
of the Ramsay portfolio.
During the financial year, we completed a programme of active asset
management initiatives, spending £1.1 million in total.
1
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Upsized
Peacocks
Introduced Pets at
Home and Sports Direct
into former
Littlewoods unit
Renewed B&M
lease for a
term of 15 years
n Way
nso
e
h
p
Ste
aces
97 S
p
6
New facades
and cladding
to improve
elevation
Total return of
Valuation increase
S
F
P
in FY18
34%
+10%
Weighted average
lease length increased
from 2.2 years to
11.2 years
Net income increased
to £0.7m
+17%
38
NewRiver REIT plc Annual Report and Accounts 2018
k R o a d
W h i t w i c
Pubs
Pub portfolio movements
# Pubs
acquired
360
Pubs sold
(9)
Closed for
c-store
conversion
(7)
# Pubs held at
31 March 2017
344
Pubs acquired
2
Pubs sold
(11)
Closed for
c-store
conversion
(4)
# Pubs held at
31 March 2018
331
result we had 331 pubs remaining in our portfolio at
year end.
At the time of the Trent portfolio acquisition, we
signed a four-year leaseback agreement with
Marston’s, which came to an end in December 2017.
We put in place a structured programme to transfer
the management of the Trent pubs from Marston’s to
NewRiver, and, through a detailed estate review
involving all relevant stakeholders, we split the
transfer into small batches in order to manage the
programme effectively.
Throughout the programme, which concluded in
December 2017, our high quality in-house team of
pub specialists visited each site and worked with the
publicans to ensure a smooth transition. Pleasingly,
the majority of publicans chose to remain in their
pubs following the transfer, and our operations
managers and instructed solicitors have ensured
that new leases and tenancies have been
implemented seamlessly. For the minority of pubs
where the publican intends to vacate, we are
utilising our tried and tested lettings programme to
recruit high quality publicans who will continue to
grow the business.
Across the Mantle portfolio we have continued our
programme of targeted capital investment in order
to drive trade and increase values. During the
period, we invested £1.1 million in projects including
external redecoration and improved signage to
enhance curb appeal, internal refurbishment to
enhance the customer experience and extensive
works to improve kitchens, amenities and tenant
accommodation. At the 47 pubs in the Mantle
portfolio where we have completed refurbishment
works, we have seen significant improvements to
both rental income and sales volumes.
NewRiver REIT plc Annual Report and Accounts 2018
39
Bell Inn, Bloxwich
In November 2013, we acquired a portfolio of 202
pubs from Marston’s PLC (the ‘Trent’ portfolio). Each
pub in the portfolio was handpicked by management
for its high roadside visibility, high passing footfall
and prominent location, with the intention of
converting a significant number for retail/residential
use. The pubs had high occupancy and strong
income returns, and consequently in September
2015 we acquired a second portfolio of 158 pubs
from Punch Taverns plc (the ‘Mantle’ portfolio). As
part of our active management of this portfolio, to
date we have sold 20 pubs, including 11 in the
current year, closed 11 for c-store conversion,
including four in the current year, and acquired a
further two pubs, both in the current year, and as a
STRATEGIC REPORT PROPERTY REVIEW CONTINUED
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OUR COMMUNITY PUBS
Our 331 community pubs are spread across England and Wales
catering for the communities in which they are located.
Our pub portfolio provides a high level of cash income which is well diversified by both geography, and by operator.
We work closely with our pub operators, who often live above our pubs, and we receive income through both fixed
rental income (currently approximately 40% of total pub income) and through tied arrangements a share of operating
income (currently approximately 60% of total pub income).
This granular and operational structure means that as active asset managers we can benefit directly from making
targeted capital investments, to generate increased rental and operating income.
Through our wholesale supply agreements we supply nearly all of our pubs with their beer and other drinks giving us
complete visibility over the underlying trading performance of each asset.
I C A L NEWRIVER P
U
P
Y
T
Often excess land
with development
potential (e.g.
c-stores)
B
Publican lives
above
Located in the
heart of the
community
High roadside
visibilty
Typical pub income split
£50,000
total income
per annum
40
NewRiver REIT plc Annual Report and Accounts 2018
£30,000
operating income
per annum
£20,000
rental income
per annum
Completed active asset management
In December 2017 the leaseback agreement with Marston’s, in place since 2013, came to an end and we obtained full operational
control of our estate.
During the year we invested £1.1 million in accretive capex projects and based on our experience to date expect these to generate
an annualised cash return of 20% through increased rent and operating income.
Accretive capex case study
We invested £30,000 in the Leicester Inn in Coalville, refreshing the
external decorations together with refurbishing the bar area and
replacing the outdated external signage.
As a result of the modest spend we were able to increase rent by over
20% and sales are 10% ahead of the comparable period last year.
“ Working with NewRiver has been a breath of fresh air. They were able to
make quick decisions on investing in our pub which has had a positive
effect on my sales and outlook for the future. I see NewRiver as a
partner in our business rather than the traditional owner/ tenant
relationship.” Nick Bray from Leicester Inn, Coalville
Rent
Volume of beer sold
Net income increase
Increase post capex
20%
10%
15%
Fir Tree Inn, Arley – Coventry
Future active asset management
Our pub portfolio presents us with the opportunity to focus investment
on areas that generate the greatest returns. We will remain flexible –
proactively seeking out innovative ways to increase both capital and
income returns.
In the next 12 months we expect to identify in excess of £2.0 million
potential capex projects which meet our return targets of annualised
cash returns of 20%.
The Buckingham Arms – Leighton Buzzard
Our specialist team
Our highly experienced pub team has over 100 years experience in running and managing pubs for some of the largest pub
companies in the UK.
They are experts, focused on maximising the performance of our pub portfolio and driving cash returns for our shareholders by
making sure that each pub is, and will remain, a focal point for the community it serves.
David Shipton
Asset
Development
Director
Simon Hurd
Estate Manager
Steve Bransby
Estate Manager
Sara Shipton
Financial Controller
Chris Downes
Portfolio
Development
Manager
Laurie
Mackenzie-Platt
Project
Manager
FOR MORE ON THE CONVENIENCE STORE DEVELOPMENT PROGRAMME IN OUR PUB PORTFOLIO SEE RISK-CONTROLLED DEVELOPMENT ON PAGE 42
NewRiver REIT plc Annual Report and Accounts 2018
41
STRATEGIC REPORT
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RISK‑CONTROLLED DEVELOPMENT
Total development pipeline
Shopping
Centre
Sq ft
Retail
Park
Sq ft
Hotel
Sq ft
C-stores
Sq ft
Residential
Sq ft
Total
Pipeline
Sq ft
Retail &
Leisure
Pre-let
%
Residential
Pre-sold
%
Completed in period/
Under construction
Planning granted
In planning
Pre–planning
Near–term pipeline
Early feasibility stages
Total pipeline
15,000
286,800
–
129,400
431,200
107,600
538,800
76,800
15,600
–
29,000
121,400
–
121,400
–
87,700
–
–
87,700
30,000
117,700
–
38,200
33,700
7,900
13,200
93,000
3,500
130,000
595,600 1,019,400
102,200
94,300
126,300
297,900
816,200 1,549,500
384,500
243,400
96,500 1,059,600 1,934,000
88
60
100
8
2
N/A
27
–
–
–
During the year we made significant progress across
our risk-controlled development pipeline which
totals 1.9 million sq ft (1.5 million sq ft in the near-
term) including our Retail (1,681,600 sq ft) and Pub
(252,500 sq ft) portfolios, and which we believe will
be a key driver of long-term returns for our
shareholders.
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, and our
development strategy includes:
• Regeneration of existing space (e.g. Abbey
Centre, Belfast)
• Development of sites acquired in portfolio
acquisitions (e.g. Canvey Island Retail Park)
• Capitalising on opportunities within our
ownership above or adjacent to our assets (e.g.
Cowley, Oxford, new build c-store/residential
development)
• Complete redevelopment of existing assets (e.g.
Burgess Hill, c-store/residential pub conversions)
We completed 49,400 sq ft of fully pre-let
development, with 80,600 sq ft currently under
construction. We pre-sold the entire 161,700 sq ft
residential element of our major mixed-use
regeneration in Burgess Hill, and have now pre-let or
pre-sold 70% of the development. We secured
planning permission for 469,400 sq ft of
development, including a 236,000 sq ft mixed-use
regeneration in Cowley, Oxford and outline planning
permission for up to 100 residential units in
Stamford. Additionally, in March 2018 we exchanged
contracts with Basingstoke and Deane Borough
Council on a development agreement for a 66-acre
leisure park in Basingstoke. Due to its long-term
nature, we have excluded this opportunity from the
above table.
Under construction – Canvey Island Retail Park
42
NewRiver REIT plc Annual Report and Accounts 2018
Retail
Retail portfolio development pipeline
Shopping
Centre
Sq ft
Retail
Park
Sq ft
Hotel
Sq ft
Residential
Sq ft
Total
Pipeline
Sq ft
Retail &
Leisure
Pre-let
%
Residential
Pre-sold
%
Completed in period/
Under construction
Planning granted
In planning
Pre–planning
Near–term pipeline
Early feasibility stages
Total Retail pipeline
15,000
286,800
–
129,400
431,200
107,600
538,800
76,800
15,600
–
29,000
121,400
–
121,400
–
87,700
–
–
87,700
30,000
117,700
91,800
–
874,900
484,800
80,100
80,100
124,900
283,300
689,800 1,330,100
351,500
213,900
903,700 1,681,600
84
56
–
–
N/A
33
–
–
Completed in period/Under construction
Planning granted
Abbey Centre, Belfast
At Abbey Centre, which we now own in full having
acquired the remaining 50% interest during the year,
we completed the latest phase of development
works, delivering a 15,000 sq ft extension to create a
35,000 sq ft flagship unit for Dunnes Stores, the
leading Irish department store operator. The store
opened in August 2017, following the new Next
anchor store which opened in December 2016, and
preceding the new flagship Primark store which we
expect to open in the former BHS unit later in
Summer 2018. Footfall across the shopping centre in
the second half of the financial year increased by an
impressive 30% compared with the same period last
year, reflecting the benefit of our risk-controlled
development activities.
Canvey Island Retail Park
During the year we made further progress in leasing
up our 62,000 sq ft Retail Park development in
Canvey Island, Essex, meaning at the year end we
were 75% pre-let, up from 52% in March 2017. We
agreed leases with M&S Foodhall and Costa in the
year, which join a high-quality line-up including B&M
and Sports Direct. Having de-risked the project
through successful pre-letting, we are now on-site,
with practical completion scheduled for late 2018.
Victoria Retail Park, Beverley
During the year we began construction of a 13,000
sq ft extension at Victoria Retail Park in Beverley,
which was acquired in July 2015 as part of the
Ramsay portfolio. The extension has been pre-let to
B&M, who will join the existing retailer line-up of
Halfords, Poundstretcher and Poundland at the retail
park, which will total 38,600 sq ft when extended.
Burgess Hill
In July 2017, we exchanged conditional contracts for
the pre-sale of the entire residential element of the
465,000 sq ft mixed-use regeneration of Burgess
Hill town centre. Delph Property Group, a well-
established family run residential investment
company, agreed to purchase all 142 residential
units for £34 million, which compares to an
estimated construction cost for the entire scheme of
£46 million.
Under the terms of the pre-sale agreement, 10% of
the total consideration was placed in escrow at
exchange, a further 10% will be released to
NewRiver once the construction contract is placed
and a final 10% will be placed in escrow at
construction commencement, with the total balance
remitted to NewRiver on completion, which is
expected in 2020. Simultaneously, we exchanged
on an Agreement for Lease with Mid Sussex District
Council for a new Head Lease on the shopping
centre, which is another important milestone for the
redevelopment.
As well as 142 new residential units, the
redevelopment will provide a 10-screen multiplex
cinema, a 63-bed hotel, an improved retail offer and
new restaurant and leisure provisions, additional car
park spaces, an improved public realm and a new
purpose-built library for the Council. The retail &
leisure element of the scheme is 49% pre-let, with
agreements signed with H&M and Wildwood in the
year which means that the redevelopment is 70%
pre-let/pre-sold overall.
As a consequence of this activity, and in line with our
risk-controlled development approach, during the
period we undertook works to relocate the existing
Lidl and Iceland units away from our shopping
centre. In July 2017, we exchanged contracts with
Lidl to relocate them to an alternative site in the
NewRiver REIT plc Annual Report and Accounts 2018
43
STRATEGIC REPORT PROPERTY REVIEW CONTINUED
RISK-CONTROLLED DEVELOPMENT
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town, which we intend to hand over to them in the
first quarter of the new financial year. In August 2017
we agreed a new 10-year lease with Iceland on a
high street unit opposite the existing centre, which
we have owned since 2011 and which had been let
to Store Twenty One previously. Iceland moved into
the store in February 2018 and is now open
and trading.
In the second half of 2018, once the community
library has been relocated, we plan to commence
the first phase of demolition works on the
existing centre.
Cowley, Oxford
In July 2017, Oxford City Council approved our plans
for our major mixed-use development to regenerate
Templars Square shopping centre, meet strong
demand for new housing in Oxford and add a
much-needed choice of restaurants and hotels to
Cowley. Templars Square shopping centre has been
at the heart of Cowley for over 50 years and is of
great importance to the local community. We have
owned the shopping centre since December 2012
and submitted a planning application in November
2016, following a comprehensive programme of
council and community engagement, before
obtaining planning consent in July 2017.
The 236,000 sq ft development will include 226
new residential apartments, a 71-bed Travelodge
hotel, two new restaurant units, modernised car
parks, a major improvement of the public realm and
new entrances to the centre. The development is in
line with our strategy to capitalise on development
opportunities in the air space above or adjacent to
existing assets. Importantly the shopping centre will
continue to operate throughout the development
and we are confident that its rental tone will benefit
from the improvement works. The hotel & leisure
element of the scheme is already 82% pre-let, and
we have seen good demand for the restaurant units
from a range of operators. We are now working with
Oxford County Council to secure a section 278
agreement for the proposed highways
improvements, with the aim of commencing detailed
design of the scheme in late summer 2018.
Stamford, Lincolnshire
In October 2017 we obtained outline planning
consent for the provision of up to 100 dwellings on a
brownfield site located less than a mile from the
centre of Stamford, having submitted an outline
planning application in March 2017. The eight-acre
site was acquired in July 2015 as part of the Ramsay
portfolio, along with our Canvey Island development
site and two other development sites. With planning
consent secured, it is likely we will look to crystallise
the value we have created for our shareholders
through profitable capital recycling.
Planning Granted – Templars Square, Cowley – Oxford
44
NewRiver REIT plc Annual Report and Accounts 2018
Early feasibility stages
We believe that our risk-controlled development
pipeline will be a key driver of future growth and we
are currently reviewing a number of medium-term
opportunities from within our retail portfolio. These
opportunities include 107,600 sq ft of extensions
across our shopping centre portfolio and over
200,000 sq ft of residential potential above our
shopping centres in Bexleyheath in South East
London, Market Deeping, and across our
pub portfolio.
Pre-planning
Blenheim Shopping Centre, Penge
At Blenheim Shopping Centre, our proposal includes
the provision of a revitalised Greater London
shopping centre, along with a significant residential
element in the air space above the asset. The
shopping centre is located seven miles from Central
London with strong transport links, and was acquired
from an institution in December 2015 for a total
consideration of £6.9 million, reflecting a net initial
yield of 6.2% and an equivalent yield of 7.9%.
During the period, we secured the surrender of the
lease on the car park above the centre, unlocking
the potential to deliver complementary residential
accommodation, with the opportunity to deliver in
excess of 100 apartments on site. We intend to hold
a formal pre-application meeting with Bromley
Council and will submit a planning application
in 2019.
“We believe that our
risk-controlled development
pipeline will be a key driver
of future growth.”
Pre-planning – Blenheim Shopping Centre, Penge
NewRiver REIT plc Annual Report and Accounts 2018
45
STRATEGIC REPORT Existing
2
3
0 S
p
a
c
e
s
Demolition underway
at Leylands Road
(less than 1 mile away)
to relocate Lidl
Residential
element
C
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W
a
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Worked in
partnership with
West Sussex County
Council to provide a
brand new library
PROPERTY REVIEW CONTINUED
RISK-CONTROLLED DEVELOPMENT
INVESTING IN
COMMUNITIES
In Burgess Hill, we are regenerating
the town centre to provide a modern
and vibrant retail and leisure offer, as
well as much-needed new homes.
The Martlets Shopping Centre, Burgess Hill
We acquired the centre in November 2010 from a distressed
seller for £12 million representing a net initial yield of 8.5%.
Burgess Hill is an affluent catchment area located within the
‘Gatwick Diamond’, just 20 minutes from Gatwick Airport and
50 minutes by train to central London.
Our plans for the development
Detailed planning consent was granted for 465,000 sq ft mixed
use re-development in March 2016 to include:
• 63 bed hotel
• 10-screen multiplex cinema
•
• 160 new retail car park spaces and improved public realm
• 142 residential units and a new purpose built library
Improved retail & leisure offer
Risk-controlled development progress to date
• Retail & leisure element 49% pre-let
• Retail element pre-let to H&M, Nandos & Wildwood
• Hotel pre-let to Travelodge
• Cinema pre-let to Cineworld
• Pre-sold entire residential element for £34m in July 2017
• Overall the project is 70% pre-let/pre-sold, and so in line with
our risk-controlled approach to development, we were able to
commence on-site enabling works in Summer 2017
• Demolition works underway at Leylands Road site to relocate
•
Lidl away from the shopping centre
Iceland relocated to an owned unit outside the shopping centre,
previously occupied by Store Twenty One, and is now open
and trading
Pre-lets secured
46
46
NewRiver REIT plc Annual Report and Accounts 2018
THE C O-O PERATIVE
FUNERALCARE
UNDERTAKERS
R
O
H
C
O
R
KIN
S
E
G
A
N
TIQ
U
E
S
C
h
urc
h
W
alk
M
HIL
L
HIN
G
S
LYNNS
CAFE
LAZER FOR YOU
ALEXIA
B
A
R
N
A
D
O’S
d
a
o
s R
u
r
p
C y
FORMER
STORE
TW ENTY
O NE
BARNARD OS
C
h
urc
h R
o
a
d
S
ervic
e Y
ard
TO LET
B
O
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M
A
R
C
H
E
C
A
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D F
A
C
T
O
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Y
T
O
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E
T
PAMPURRED PETS
W
IL
F
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LIA
NIS
THE C O-O PERATIVE
FUNERALCARE
UNDERTAKERS
R
O
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O
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A
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S
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TIQ
G
U
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S
2
3
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p
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W
F
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ALEXIA
C
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W
a
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B
A
R
N
A
D
O’S
Cinema
element
Iceland now relocated
to unit formerly
occupied by Store
Twenty One
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Progress to date –
Iceland relocation
C
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FORMER
STORE
TW ENTY
O NE
BARNARD OS
After
Existing New Look to
remain in occupation
throughout the
development
TO LET
T
O
L
E
T
PAMPURRED PETS
B
O
N
M
A
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C
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E
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h
urc
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o
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C
A
R
D F
A
C
T
O
R
Y
Before
S
ervic
e Y
ard
Planned next steps
•
In the second half of 2018, demolition works will
commence at the shopping centre on the former
Iceland unit and the former library (which will
provide additional parking)
• Once this demolition is complete, construction
works will begin on the cinema element of
the scheme
• Once Lidl has relocated to Leylands Road (in
2019) demolition works will commence on the
former Lidl unit
• Construction works can then commence on the
residential element of the scheme
• Completion targeted for 2020
Secured
planning
consent
Started
off-site
enabling
works
Start on-site
enabling
works
Practical
completion
Mar 2016
Mid 2017
Mid 2018
2020
NewRiver REIT plc Annual Report and Accounts 2018
47
STRATEGIC REPORT
PROPERTY REVIEW CONTINUED
RISK-CONTROLLED DEVELOPMENT
Basingstoke Leisure Park
In March 2018 we exchanged contracts with
Basingstoke and Deane Borough Council (the
‘Council’) on a development agreement for a
66-acre leisure park in a prominent location in
Basingstoke in close proximity to Junction 6 of the
M3 motorway.
Capitalising on the growing popularity of integrated
leisure and retail, our proposals currently comprise
approximately 200,000 sq ft of designer outlet
shopping and 500,000 sq ft of leisure. We are
confident that this unique combination of leisure and
designer outlet shopping will appeal to the local
community and a catchment significantly beyond
Basingstoke in one of the UK’s most affluent regions.
This opportunity will be progressed in line with our
risk-controlled development approach and stated
financial policies.
To facilitate this development, we have entered into
a long-term development agreement with the
Council which is conditional on achieving planning
consent and pre-lets as well as a viability
assessment, amongst other conditions. In the event
that the development becomes unconditional, the
Council will grant NewRiver a 250-year
leasehold interest.
Outline plans for the leisure facilities include the
introduction of new leisure experiences for families
and the wider community with a cinema, popular
family restaurants and hotel. Plans also include a
modern aquatic leisure centre with gym, to be
operated by the Council, and a designer outlet
village which will focus on designer brands at
affordable prices and complement the existing town
retail offer.
On-site works could begin from 2023, subject to
planning consent, representing an exciting long-term
opportunity for NewRiver.
EXPECTED PROJECT MILESTONES
Development
agreement signed
Achieve
planning consent
Submit
planning
application
Scheme
completion
Start on site
Q1 2018
2020
2021
2023
2026
48
NewRiver REIT plc Annual Report and Accounts 2018
1
1
Dis c i p li n e d stock selectio
n
5
5
n e fi ts of scale
e
B
t
P
r
o
fi
t
a
b
l
e
c
a
p
C
o
n
s
ervative ba l a n
c
t
e
s
s
a
e
n
e
m
e
g
a
n
Activ
ma
2
2
e s heet
4
4
it
al recycling
sR i
c
k -
d e v
n trolled
m ent
o
e l o
p
3
3
BASINGSTOKE
LEISURE PARK
In March 2018 we signed a Development Agreement with
Basingstoke and Deane Borough Council to deliver a 200,000 sq
ft Designer Outlet Centre (DOC) with scope for extension and
500,000 sq ft of new leisure on an existing leisure park spanning
66 acres for the Basingstoke community and wider catchment.
Development rationale
• Strong demographics & excellent transportation links
• M3 corridor recognised as one of the strongest DOC opportunities yet unrealised in UK
• Capitalising on the growing integration of leisure and retail
• 11 million people live within a 90 minute drive time
Proposed site layout of Basingstoke leisure park (based on the existing aerial map)
Restaurants
Hotel
500,000 sq ft
leisure
Well located
42 minutes from
London by train
8 minutes from M3
by road
38 minutes from
Heathrow by road
Museum
Ecopark
200,000 sq ft
DOC
A vision of what Basingstoke Leisure Park could look like
NewRiver REIT plc Annual Report and Accounts 2018
49
STRATEGIC REPORT
PROPERTY REVIEW CONTINUED
RISK-CONTROLLED DEVELOPMENT
1
1
Dis c i p li n e d stock selectio
n
5
5
n e fi ts of scale
e
B
t
P
r
o
fi
t
a
b
l
e
c
a
p
C
o
n
s
ervative ba l a n
c
t
e
s
s
a
e
n
e
m
e
g
a
n
Activ
ma
2
2
e s heet
n trolled
m ent
o
e l o
p
3
3
4
4
it
al recycling
sR i
c
k -
d e v
Pubs
Pubs portfolio development pipeline
Completed in period/ Under construction
Planning granted
In planning
Pre–planning
Near–term pipeline
Early feasibility stages
Total Pubs pipeline
As well as generating high levels of low risk cash
returns, our portfolio of 331 pubs contains a number
of in-built value creating development opportunities.
These include the potential to build convenience
stores or residential units on surplus land adjacent to
pubs which was effectively acquired at zero cost,
and opportunities to convert pubs into convenience
stores or residential units.
Convenience stores (‘c-stores’)
We have an overarching agreement with the Co-op
to deliver up to 40 c-stores and, based on planning
achieved to date and viability assessments, it is our
current expectation that we will deliver around 30
c-stores in total. These stores are let on fixed lease
terms of 15 years at rents ranging from £15.00-17.50
per sq ft, with RPI linked increases capped at 4% and
collared at 1%. The agreement also includes
performance receipts linked to c-store delivery, with
the first receipt triggered by the delivery of our 15th
c-store to the Co-op, which took place in January
2018. In total, we recognised performance receipts
of £1.5 million in the year.
C-stores
Sq ft
38,200
33,700
7,900
13,200
93,000
3,500
96,500
Residential
Sq ft
–
110,900
14,300
1,400
126,600
29,500
156,100
Total
Pipeline
Sq ft
38,200
144,600
22,200
14,600
219,600
33,000
252,500
Retail &
Leisure
Pre-let
%
100
100
100
100
Residential
Pre-sold
%
–
–
–
–
100
–
To date we have handed over 20 c-stores to the
Co-op, with 10 c-stores totalling 34,400 sq ft handed
over during the year. Our delivery programme
accelerated in the final quarter of the financial year,
with six c-stores completed, meaning we delivered a
quarter of all c-stores opened by the Co-op in the
final quarter. Of the stores delivered to date, 13
utilised surplus land adjacent to the existing pubs,
three were pub conversions and four were new
builds on sites previously occupied by pubs.
Residential
To date we have received planning consent for 115
residential units across 38 pub sites, with consent
received for 50 units across 16 pub sites in the year.
Using our in-house residential planning expertise,
our strategy with these residential opportunities is to
create value by obtaining planning consent, and
then to realise value by selling on to local
developers.
50
NewRiver REIT plc Annual Report and Accounts 2018
4.85%
Yield on
disposal
Feb 2017
Convenience
store delivery
programme
Dec 2015
Stoke-on-Trent – Heathcote Street
New build
Apr 2016
Chesterfield – Spital Lane
Conversion
Apr 2016
Wrexham – Marford Hill
New build
June 2016
Shifnal – High Street
Conversion
July 2016
Yeovil – St. Michaels Avenue
New build
Aug 2016
Shrewsbury – Sutton Road
New build
Sept 2016
Bodelwyddan – Ty Fry Lane
New build
Sept 2016
Wolverhampton – Griffiths Drive
New build
Oct 2016
Telford – Milners Lane
New build
Jan 2017
Kings Bromley – Manor Road
New build
Apr 2017
Mansfield – Southwell Road West
New build
May 2017
Thorngumbald – Main Road
New build
#15
Triggered
performance
fees from
co-op
Sept 2017
Hull – Greenwood Avenue
New build
Oct 2017
Tuffley – Stroud Road
New build
Jan 2018
Boston – Wyberton
New build
Feb 2018
Worcester – Barker Street
New build
£1.5m
Total performance
fees in FY18
Feb 2018
Dudley – Sedgley Road
New build
Mar 2018
Alvaston – Bembridge Drive
New build
Mar 2018
Chesterfield – Newbold Village
New build
March 2018
Sutton-in-Ashfield – Alfreton Road
Conversion
PROPERTY REVIEW CONTINUED
1
Dis c i p li n e d stock selectio
n
5
n e fi ts of scale
e
B
t
PROFITABLE CAPITAL RECYCLING
P
r
o
fi
t
a
b
l
e
c
a
p
C
o
n
s
ervative ba l a n
c
t
e
s
s
a
e
n
e
m
e
g
a
n
Activ
ma
2
e s heet
4
it
al
recycling
sR i
c
k -
d e v
n trolled
m ent
o
e l o
p
3
During the year we completed £57.5 million of disposals, on terms on average 11% ahead of March 2017
valuation and 23% ahead of total cost (being purchase price plus subsequent capex), generating cash profit of
£10.7 million. In line with our strategy, these 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.
Since 1 April 2017
Shopping Centre
High street
Retail park
Pubs and pub land
Total
Number of
Disposals
2
2
5
16
25
Disposal
price
£m
15.1
14.9
23.8
3.7
57.5
Total
cost
£m
9.3
13.0
21.2
3.3
46.8
Disposal vs
Cost
%
62
15
12
12
23
March 2017
Valuation
£m
11.4
14.4
22.8
3.4
52.0
Disposal vs
Valuation
%
32
3
4
9
11
Blended
NIY
%
6
5
7
N/A
6
Blended
IRR
%
20
11
12
9
15
We completed the disposal of two retail units from
our shopping centre portfolio for a total of
£15.1 million, 32% ahead of March 2017 valuation and
62% ahead of total cost, and two high street assets
for a total of £14.9 million, 3% ahead of March 2017
valuation and 15% ahead of total cost. The two
largest disposals of this group were purchases by
Primark, comprising a unit in the Hillstreet Shopping
Centre in Middlesbrough for £13.6 million 38% ahead
of March 2017 valuation, and a high street unit in
Warrington, which had been occupied on a lease
with an unexpired term of 16 years, for £8.0 million
3% ahead of March 2017 valuation. We made the
decision to sell these assets because there was
limited scope for asset management enhancement
and our estimated forward-looking returns were
below target levels. Importantly, these disposals
demonstrate that we select the right assets in the
right locations for our retailers, because Primark only
looks to buy back its best performing assets.
We also sold five retail park assets during the year,
for a total of £23.8 million, 4% ahead of March 2017
valuation and 12% ahead of total cost. The largest
retail park transaction was the disposal of the
Clough Road Retail Park in Hull. We acquired Clough
Road in June 2014 for £7.5 million as part of the
Linear Portfolio, at which time the 95,500 sq ft park
was only 85% let and in need of investment. Within a
year of acquisition we had let the vacant unit to Go
Outdoors and the park was fully occupied. We then
signed a 10-year lease with Currys and negotiated
the surrender of the adjacent PC World unit, which
we then sub-divided and re-let to Office Outlet and
Halfords at an improved rental level. In November
2016, we completed the construction of a coffee
pod in the car park, with Costa signed on a 15-year
lease, and in July 2017 we sold the asset for
£11.2 million, generating a capital profit on cost of
£1.4 million.
We made a number of disposals across our pub
portfolio, comprising pub sales to tenants and sales
of non-core ancillary land. In total we sold 11 pubs
and five plots of land adjacent to pubs for
£3.7 million.
Clough Road Retail Park, Hull
52
NewRiver REIT plc Annual Report and Accounts 2018
1
1
1
Dis c i p li n e d stock selectio
n
5
5
5
n e fi ts of scale
e
B
Cash
returns
P
r
o
fi
t
a
b
l
e
c
a
p
C
o
n
s
ervative ba l a n
c
e s heet
4
4
4
it
al recycling
sR i
c
k -
d e v
n trolled
m ent
o
e l o
p
3
3
3
t
t
e
s
s
a
e
n
e
m
e
g
a
n
Activ
ma
2
2
2
CLOUGH ROAD
RETAIL PARK, HULL
Acquired for £7.5 million from an institution in June 2014 as part of
the ‘Linear’ retail park portfolio.
Sold for £11.2 million in July 2017 having completed comprehensive
active asset management and risk-controlled development programmes.
1
Acquired from an
institution for £7.5m
in June 2014
Introduced Go
Outdoors to increase
occupancy from 85%
to 100%
2
TBU
O
a
N
H
A
L
F
O
R
D
S
Sold for £11.2m
in July 2017,
generating a total
return of 25%
k
R
o
a
d
4
9
0
S
p
a
c
e
s
1
0
0
S
p
a
c
e
s
Clough Road A1165
Maximised
income by
constructing a 2k
sq ft drive thru Costa
coffee pod in
the car park
3
Amalgamated
adjacent Currys and
PC World units
2
a r k
e t ail P
d R
a
o
h R
g
u
C lo
s
e
c
a
p
0 S
0
3
Introduced
Halfords & Office
Outlet into former
PC World unit
2
NewRiver REIT plc Annual Report and Accounts 2018
53
size
sq ft
7
units
300
total parking
spaces
103
STRATEGIC REPORT
WE HAVE THE FINANCIAL
TO GROW
We have had a highly active year in the debt and equity capital
markets, raising £1 billion of new funding on accretive terms, and
completing the move from a secured to an unsecured debt structure.
In July 2017 we successfully raised £225 million of equity at a 14.7% premium to March 2017 EPRA net asset
value. The equity raise gave us the capacity to grow, but importantly also the scale we required to complete
our long-held ambition to move from a secured to an unsecured debt structure, which meant that we ended
the year with an unencumbered balance sheet, having raised £730 million of unsecured financing.
This included £430m of new unsecured bank facilities, which we raised in August 2017, and our debut
£300 million sterling-denominated corporate bond, which was assigned an investment grade rating of BBB+
by Fitch Ratings. These actions have diversified our sources of funding, increased operational flexibility,
increased debt maturity to 7.9 years and reduced our cost of debt to 3.1%.
With an LTV of 28% at 31 March 2018, safely within our stated guidance of less than 40%, we have capacity to
grow through disciplined stock selection and our risk-controlled development pipeline.
54
NewRiver REIT plc Annual Report and Accounts 2018
Summary debt position following move to unsecured
7.9
Debt maturity (years)
4.5
4.6
4.0
4.0%
Cost of debt
3.1
3.5
2.5
3.9%
3.9%
3.8%
3.7%
£730m of unsecured funding
•
•
• Reduced cost
Increased maturity
Increased flexibility
3.5%
3.1%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
NewRiver REIT plc Annual Report and Accounts 2018
55
STRATEGIC REPORT FINANCIAL REVIEW
Our convenience and community focus and execution of our
business model has delivered another profitable period for
shareholders, with Funds From Operations (‘FFO’) increasing by 3.6%
to £60.3 million (FY17: £58.2 million) delivering an FFO per share of
21.2 pence (FY17: 24.9 pence).
Our ordinary dividend per share increased by 5.0%
to 21.0 pence (FY17: 20.0 pence) and was fully
covered, in line with one of our core financial
policies, and demonstrating our commitment to
delivering sustainable cash returns for shareholders.
IFRS Profit after tax for the year was £45.7 million,
increased by 26% from £36.2 million in FY17
predominantly due to the growth in operating profit
resulting from our acquisition of the PIMCO joint
ventures in July 2017. IFRS net assets increased from
£684.5 million at 31 March 2017 to £892.4 million,
predominantly due to our £225 million equity raise.
EPRA NAV per share held flat on FY17 at 292 pence,
meaning we delivered a Total Accounting Return
of 8.1%.
This has been a transformational year for our
balance sheet, during which we have raised
£1 billion of financing in both the debt and equity
capital markets and completed the move from a
secured to an unsecured debt structure. Our capital
market activity included:
• Completing a significantly oversubscribed
£225 million equity raise in July 2017, at a 14.7%
premium to March 2017 EPRA NAV (292 pence
per share)
• Raising £430 million of new unsecured bank
•
facilities in August 2017, including a £215 million
revolving credit facility (‘RCF’)
Issuing our debut £300 million sterling-
denominated unsecured corporate bond in
March 2018, assigned an investment grade credit
rating of BBB+ by Fitch Ratings
56
NewRiver REIT plc Annual Report and Accounts 2018
Funds from
operations
£60.3m
Fully covered
ordinary dividend
21.0p
Total accounting
return
8.1%
Financing raised
£1bn
Debt maturity
7.9 years
Cost of debt
3.1%
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 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 a
number of 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 and growing the dividend, is
Funds From Operations (‘FFO’). We consider this
measure to be most appropriate when considering
our dividend policy as it is a cash measure and it is
familiar to non-property and international investors.
Funds From Operations is a Company measure
determined by cash profits which includes realised
recurring cash profits, realised profits or losses on
the sale of properties and excludes other one-off or
non-cash adjustments.
The relevant sections of this Finance Review contain
supporting information, including reconciliations to
the financial statements and IFRS measures.
Definitions for APMs are also included in
the glossary.
The transition to an unsecured debt structure has
been a long-held ambition of the Company and its
fulfilment against a difficult market backdrop was a
significant achievement. Completing the move to a
fully unencumbered balance sheet brings the
Company many benefits, including:
• Achieving a more diversified debt structure and
gaining access to a much bigger pool of capital to
help support the balance sheet in the future
Increased operational flexibility
Increased debt maturity to 7.9 years (March
2017: 2.5 years)
•
•
• Reduction in cost of debt to 3.1% when our RCF
fully drawn (March 2017: 3.5%)
• Finally, we know from our analysis an unsecured
debt structure reduces the risk profile of the
Company due to its flexibility and less onerous
covenant and reporting requirements
Furthermore, we have maintained our capital
discipline which means that our loan to value has
reduced to 28% at March 2018 (March 2017: 37%). At
this level, we are safely within the Company’s stated
Financial Policy, with significant firepower to deploy
into accretive acquisitions and our risk-controlled
development pipeline.
Today we announce a first quarterly dividend for the
year ended 31 March 2019 of 5.4p per share, an
increase of 3%, reflecting our continued focus on
delivering growing cash returns to our shareholders,
the strength of our underlying cash flows and our
well-advanced acquisition pipeline.
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.
NewRiver REIT plc Annual Report and Accounts 2018
57
STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
Capital markets activity
This has been a particularly active year for the
Company in both the debt and equity markets, and
in total we raised £1 billion of capital.
In July 2017, we raised £225 million of equity at a
14.7% premium to March 2017 EPRA NAV (292
pence per share). The significantly oversubscribed
equity raise gave us firepower to deploy into
accretive acquisitions and our inbuilt risk-controlled
development pipeline, but also gave us the
additional balance sheet scale required to enable
our transition from a secured to an unsecured
balance sheet.
This meant that in August 2017 we were able to
arrange £430 million of new unsecured debt to
replace the majority of our existing secured debt
facilities, with the new facilities provided by a
syndicate of banks with whom we have enjoyed
long-standing relationships. The new facilities
include a £165 million term loan and a £215 million
revolving credit facility (‘RCF’), which is currently
undrawn, with an initial maturity of five years which
can be extended to a maximum of seven years
subject to lender consent. The margin payable on
the unsecured bank facilities was 185 basis points
for the initial interest period and was 175 basis points
at 31 March 2018 due to the Company’s LTV ratio
of 28%.
In March 2018, we completed our move to an
unsecured balance sheet, by issuing our debut
£300 million sterling-denominated senior unsecured
bond, which was assigned an investment grade
rating of BBB+ by Fitch Ratings. The bond, which
was significantly oversubscribed, has a term of 10
years and a fixed coupon of 3.5%. The majority of
the proceeds were used to repay existing secured
facilities totalling £177 million and existing unsecured
facilities totalling £50 million, with the balance to be
used for general corporate purposes.
By running our average debt maturity down to just
2.5 years at the start of the financial year we were
able to complete the move to unsecured with
minimal breakage costs, maximising the benefit to
our shareholders. The unsecured facilities were
arranged with total cash breakage costs of just
£4.1 million, being £2.2 million of redemption fees on
the secured facilities and payments for interest rate
swap close-outs of £1.9 million. We recognised costs
in respect of our unsecured refinancing in IFRS profit
after tax of £5.3 million, being the sum of the
£2.2 million of cash redemption fees noted above,
and a £3.1 million non-cash write-off of
unamortised fees.
As a result of this activity, the Company’s weighted
average debt maturity, including extension options,
increased from 2.5 years in March 2017 to 7.9 years,
with a well-spread maturity profile. Once the existing
£215 million RCF is fully drawn, the Company’s cost
of debt will reduce to 3.1%, from 3.5% in March 2017.
In addition, we have increased our operational
flexibility, achieved a more diversified debt structure
and, in completing our debut corporate bond, we
have gained access to a much bigger pool of capital
to help support the balance sheet in the future.
58
NewRiver REIT plc Annual Report and Accounts 2018
Funds From Operations
The following table reconciles IFRS profit after taxation to Funds From Operations (‘FFO’), which is the Company’s measure of
cash profits.
Reconciliation of profit after taxation to FFO
Profit for the year after taxation
Adjustments
Revaluation of investment properties
Revaluation of joint ventures’ investment properties
Revaluation of derivatives
Revaluation of joint ventures’ derivatives
Share–based payment charge
Gain on bargain purchase
Cost in respect of unsecured refinancing
Exceptional cost in respect of move to the main market
Funds From Operations
Funds From Operations is represented on a proportionally consolidated basis in the following table.
31 March 2018
Joint
ventures
£’000
3,675
(636)
3,039
(294)
(650)
(114)
–
1,981
Group1
£’000
103,333
(19,229)
84,104
(14,855)
(14,605)
4,893
(1,200)
58,337
Funds from operations
Gross income
Property operating expenses
Net property income
Administrative expenses
Net finance costs
Profit on disposal of investment properties
Taxation
Funds From Operations
FFO per share (pence)
Ordinary dividend per share (pence)
Dividend cover2
Adjusted FFO
Admin cost ratio
Cost of debt
31 March 2018
£’000
45,732
31 March 2017
£’000
36,201
12,902
564
(3,756)
(37)
2,559
(2,964)
5,318
–
60,318
15,030
419
3,607
350
1,434
–
–
1,191
58,232
Proportionally
consolidated
£’000
107,008
(19,866)
87,142
(15,149)
(15,254)
4,779
(1,200)
60,318
21.2
21.0
101%
59,581
15.0%
3.1%
31 March 2017
Proportionally
consolidated
£’000
106,657
(16,917)
89,740
(13,581)
(17,069)
343
(1,201)
58,232
24.9
20.0
108%
56,297
13.6%
3.5%
1. Group excluding JV income
2. Dividend cover calculation in year to March 2017 includes 3.0 pence special dividend
Adjusted FFO (‘AFFO’), a measure which adjusts our FFO reflect maintenance capex incurred during the year (the element
considered to be non-accretive, and which cannot be recovered from occupiers through the service charge) stood at £59.6 million.
Our maintenance capex remained low over the year, representing just 2% of our gross property income and 0.01% of our portfolio
value, reflecting our focus on providing clean, secure and accessible environments for purpose-driven, low-dwell-time shopping.
NewRiver REIT plc Annual Report and Accounts 2018
59
STRATEGIC REPORT 89.7
(11.5)
78.2
6.1
(1.8)
(0.7)
0.5
2.2
6.0
(2.5)
(0.9)
87.1
FINANCIAL REVIEW CONTINUED
Net property income
Analysis of net property income (£m)
Net property income for the year ended 31 March 2017
Less: Sheffield transaction
Retail: Acquisitions
Retail: Disposals
Retail: Held for development
Retail: Like-for-like net property income
Retail: BRAVO JVs promote
Retail: Surrender premia
Pubs & c-store portfolio
Other
Net property income for the year ended 31 March 2018
On a proportionally consolidated basis, net property
income decreased by 2.9% to £87.1 million, from
£89.7 million in the prior year. Adjusting for the
Sheffield transaction, from which we received a
one-off £11.5 million receipt, net property income has
increased by 11.4% from £78.2 million, to £87.1 million.
Retail like-for-like net property income increased by
£0.5 million, or 0.9%, in the year. The increase
reflects the results of a range of asset management
initiatives that have maintained a consistently high
retail occupancy offsetting the loss of retailers such
as BHS from the portfolio in the prior year.
Acquisitions increased net property income by
£6.1 million, principally due to the acquisition of the
remaining 50% share in the BRAVO joint ventures in
July 2017 for a cash consideration of £59.4 million.
The acquisition gave us control over a portfolio of
four convenience-led shopping centres in Belfast,
Glasgow, Hastings and Middlesbrough, and added
£5.6 million of net property income in the year. In
February 2018, the Company completed the
acquisition of two retail parks for a combined
consideration of £26.5 million, representing a net
initial yield of 8.9% and adding £0.3 million of net
property income in the year. The acquisition of a
retail park in Dumfries in June 2016 added a further
£0.2 million to net property income in the
current year.
We completed £53.8 million of retail portfolio
disposals in the year, and this reduced net rent by
£1.8 million. Assets held for development reduced
net property income by £0.7 million. This reduction
occurred due to the progress made across our
risk-controlled development pipeline during the year
securing vacant position of additional units in
preparation for the construction phase of the
developments. For example, we continued to make
progress at our major mixed-use regeneration in
Burgess Hill, including pre-selling the entire
residential element of the scheme to a private
residential investment company for £34 million.
Having been responsible for the management of the
portfolio of shopping centres acquired from the
BRAVO fund since 2013, we also received a
£2.2 million promote in the year based on the
returns generated to date. We received £6.0 million
of surrender premia in the year, £3.5 million of which
related to two units at the Piazza Shopping Centre in
Paisley, where we were motivated to accept the
surrenders due to expressions of interest from a
range of retailers, including leading discounters and
a sports & leisure retailer.
Net property income across the pubs and c-store
portfolio reduced by £2.5 million to £12.7 million
during the year. The key driver of this reduction was
the income disruption experienced as we completed
the transfer of the remaining 123 pubs from
Marston’s. At the time of the Trent portfolio
acquisition, we signed a four-year leaseback
agreement with Marston’s, which came to an end in
December 2017. We started the transfer programme
from Marston’s to the Company’s outsourced pub
manager in November 2016 and it was completed in
December 2017. The transfer was well managed, but
inevitably led to some one off disruption, and we
expect to replace the majority of this income as we
monetise the savings in business rates that we’ve
seen across the pub portfolio, and roll out our
targeted capex programme.
60
NewRiver REIT plc Annual Report and Accounts 2018
Administrative expenses
Administrative expenses increased by 11.5% during
the year to £15.1 million from £13.6 million, principally
because we have invested in our team to build a
scalable platform to deploy the capital raised during
the year.
Net finance costs
Net finance costs reduced by 10.6% during the year,
to £15.3 million from £17.1 million in the prior year. The
reduction in net finance costs was primarily due to
the £225 million of equity raised in July 2017, which
we have not yet fully deployed, meaning that the
weighted average amount of gross debt held during
the year reduced to £412 million from £464 million in
the prior year.
In addition to net finance costs, we recognised costs
of £5.3 million in profit after taxation as a result of the
redemption of the secured debt which was replaced
with the £730 million of unsecured financing raised
during the year. Of these costs, £2.2 million was paid
in early redemption fees and associated costs and
£3.1 million related to the non-cash write-off of
unamortised fees.
Profit on disposals
In the year we completed £57.5 million of property
sales on average 11% ahead of March 2017 valuation,
generating a profit on disposal included within FFO
of £4.8 million. Disposals included five retail parks,
two shopping centre units, two high street assets, 16
pubs and parcels of ancillary land to pubs. These
disposals were 23% ahead of total cost (being
purchase price plus subsequent capital expenditure)
generating a profit on total cost of £10.7 million.
Taxation
As a REIT we do not pay corporation tax on
qualifying UK property rental income and gains
arising from disposal of exempt property assets. We
earn operating income through our pub portfolio
and asset management fees in joint ventures which
are taxable, and therefore during the year we
incurred a corporation tax charge of £1.2 million,
which was in-line with the charge incurred in the
prior year.
Dividends
We are committed to our progressive dividend
policy, and we have a track record of delivering a
growing ordinary dividend to shareholders. Our
dividend policy is driven by two key objectives:
• Growing cash FFO and FFO per share so that we
can continue to pay a growing and fully covered
dividend
• The REIT requirement to pay out at least 90% of
recurring cash profits
Dividends paid and declared in relation to FY18
FY17 Q4
FY17 Special
FY18 Q1
FY18 Q2
FY18 Q3
FY18 Q4
Total
Paid in FY18
Declared in relation to FY18
Ordinary
5.00
–
5.25
5.25
5.25
–
20.75
Special
–
3.00
–
–
–
–
3.00
Total
5.00
3.00
5.25
5.25
5.25
–
23.75
Ordinary
–
–
5.25
5.25
5.25
5.25
21.0
Special
–
–
–
–
–
–
–
Total
–
–
5.25
5.25
5.25
5.25
21.0
During the year we paid 20.75 pence per share of ordinary dividends and a 3.0 pence per share special dividend, relating to the
year ended 31 March 2017.
During the year, we declared a total ordinary dividend of 21.0 pence per share, a 5% increase from 20.0 pence in 2017, which was
101% covered by FFO of 21.2 pence per share.
Today, we also announced our ordinary dividend for the first quarter of FY19 of 5.4 pence, an increase of 3% compared with Q1
FY18. The dividend will be paid on 27 July 2018 to shareholders on the register at close of business on 22 June 2018. The
ex-dividend date will be 21 June 2018. The quarterly dividend will be payable as a REIT Property Income Distribution (PID).
NewRiver REIT plc Annual Report and Accounts 2018
61
STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
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.
Properties at valuation
Investment in joint ventures
Other non–current assets
Cash
Other current assets
Total assets
Other current liabilities
Debt
Other non–current liabilities
Total liabilities
IFRS net assets
EPRA adjustments:
Warrants in issue
Unexercised employee awards
Fair value derivatives
EPRA net assets
EPRA NAV per share
IFRS net assets per share
LTV
As at
31 March 2018
Group
£’000
1,227,212
8,509
4,290
115,801
34,549
1,390,361
(40,856)
(456,952)
(173)
(497,981)
892,380
Joint
ventures
£’000
12,375
(8,509)
–
402
(12)
4,256
(265)
(3,991)
–
(4,256)
–
Proportionally
consolidated
£’000
1,239,587
–
4,290
116,203
34,614
1,394,617
(41,198)
(460,943)
(173)
(502,237)
892,380
As at
31 March 2017
Proportionally
consolidated
£’000
1,130,568
–
351
49,574
6,190
1,186,683
(32,497)
(467,357)
(2,291)
(502,145)
684,538
501
1,276
(3,288)
890,869
292p
294p
28%
535
3,861
4,144
693,078
292p
292p
37%
Net assets
At 31 March 2018, net assets increased by 30.4% to £892.4 million, from £684.5 million at 31 March 2017. This increase was
primarily due to the £225 million equity raise in July 2017.
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 increased by 28.5% to £890.9 million, from £693.1 million at 31 March 2017.
EPRA NAV per share increased by 1.7% to 297 pence per share at September 2017, due primarily to the issue of £225 million of
equity in July 2017 at a 14.7% premium to March 2017 EPRA NAV (292 pence per share). In the second half, EPRA NAV per share
reduced by 1.7% to 292 pence per share at March 2018, due predominantly to a 1.3% decline our portfolio valuation. IFRS net
assets per share increased from 292 to 294 pence per share over the year, as the increase in IFRS net assets more than offset the
impact of the July 2017 equity raise.
Properties at valuation
Properties at valuation increased by £109.0 million in the year from March 2017, predominantly due to acquisitions and capital
expenditure, less disposals and valuation decline. The acquisition of the remaining 50% of the units in the BRAVO joint ventures
added £122.3 million of investment property. We invested £16.4 million of capital expenditure in the year, spending £6.3 million on
our rolling c-store development programme, and £57.5 million of property sales were completed in the year.
62
NewRiver REIT plc Annual Report and Accounts 2018
Net debt & financing
Analysis of movement in proportionally consolidated net debt (£m)
Proportionally consolidated net debt at 31 March 2017
Operating activities
Net cash inflow from operations before working capital movements
Changes in working capital
Investing activities
Purchase of investment properties
BRAVO JV acquisition – Purchase price (net of cash acquired)
BRAVO JV acquisition – Share of debt acquired
Disposal of investment properties
Development and other capital expenditure
Financing activities
Shares issued
Refinancing costs – Cash
Refinancing costs – Non-cash
Purchase of derivatives
Ordinary dividends paid
Special dividends paid
Other
Proportionally consolidated net debt at 31 March 2018
417.9
(53.7)
12.0
31.2
53.6
60.6
(44.2)
19.3
(222.3)
4.1
3.1
1.9
55.1
7.0
(0.9)
344.7
Net debt decreased by £73.2 million over the year,
to £344.7 million, primarily as a result of the
successful equity raise completed during the period,
offset by the subsequent acquisition of BRAVO units.
Operating activities generated a net cash inflow
from operations before working capital movements
of £53.7 million, compared with FFO of £60.3 million.
Investing activities included the acquisition of the
remaining units in the BRAVO joint ventures, which
increased net debt by £114.2 million, being the sum
of the purchase price (net of cash acquired) of
£53.6 million, and the share of debt acquired in the
transaction of £60.6 million.
Proceeds of £44.2 million were received on the
disposal of investment property and land during the
year. These disposals were completed on terms 23%
ahead of total cost (being purchase price plus
subsequent capital expenditure) generating a profit
on total cost of £10.7 million.
Financing activities led to a reduction in net debt,
principally due to shares issued generating
£222.3 million of cash proceeds, being the net
proceeds (after costs) of the equity issue of
£220.0 million, and £2.3 million received from the
exercise of share options. The new unsecured debt
facilities were arranged with total cash breakage
costs of just £4.1 million, being £2.2 million of
redemption fees on the secured facilities replaced
by the new facilities and payments for interest rate
swap close-outs of £1.9 million, and a non-cash
write-off of unamortised fees of £3.1 million. During
the year we paid £55.1 million of ordinary dividends
(20.75 pence per share), and £7.0 million of special
dividends (3.0 pence per share).
NewRiver REIT plc Annual Report and Accounts 2018
63
STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
Financial Policies
Net debt
Principal value of gross debt
Weighted average cost of drawn debt
Weighted average debt maturity of drawn debt
Loan to value
Net debt: EBITDA
Interest cover
Dividend cover
Balance sheet gearing
1. Cost of debt assuming £215 million revolving credit facility is fully drawn
2. Average debt maturity assuming 2-year extension options are bank approved
Financial Policy
Proportionally consolidated
31 March 2018
£344.7m
£469.0m
3.1%1
7.9 yrs2
31 March 2017
£417.9m
£470.9m
3.5%
2.5 yrs
Guidance <40%
Policy <50%
28%
37%
31 March 2018
4.5x
4.7x
101%
31 March 2017
5.5x
4.5x
108%
<10x
>2.0x
>100%
Group
31 March 2018
38%
31 March 2017
52%
<100%
Our conservative financial policies were put in place in consultation with shareholders and form a key component of our financial
risk management strategy. We now report five financial policies, including ‘Net debt: EBITDA’ in this financial year for the first time,
and we are within all of our policies.
• Our Loan to Value was 28% at 31 March 2018, decreased from 37% at 31 March 2017 as we have not yet fully deployed the
£225 million of equity raised in the year. Our guidance is that our LTV will remain below 40%.
• Our interest cover was 4.7x at 31 March 2018, increased from 4.5x in March 2017 and significantly ahead of our financing policy
which requires a minimum cover of 2.0x.
• Our dividend cover, calculated with reference to FFO per share was 101% for the year to 31 March 2018, and it is our policy to
have at least 100% dividend cover.
• Our balance sheet gearing reduced to 38% from 52% at 31 March 2017, again due to the equity raise and refinancing.
64
NewRiver REIT plc Annual Report and Accounts 2018
Additional guidelines
Sitting alongside our financial policies are additional guidelines, used by management when analysing operational and financial
risk, which we disclose in the following table:
Single retailer concentration
Development expenditure
Risk-controlled development
Pub weighting
<5%
<10% of GAV
>70% pre-let or pre-sold on committed
<20% of GAV
Guideline 31 March 2018
2.2%
1%
88%
12%
• Our largest single retailer concentration at the year end was Poundland, with a single retailer concentration, expressed as a
percentage of total rent roll, of 2.2%.
• Our development expenditure in the last 12 months as a proportion of total gross asset value was 1%.
• Our risk-controlled approach to development means that we will not commit to a new development unless we have pre-let or
pre-sold at least 70% by area, and we are currently 88% pre-let on committed developments.
• We are comfortable with our pub weighting, currently 12% excluding c-stores, and we envisage that pubs will remain an
important part of our portfolio.
Mark Davies
Chief Financial Officer
23 May 2018
NewRiver REIT plc Annual Report and Accounts 2018
65
STRATEGIC REPORT WE ARE INVESTED AT THE
OF COMMUNITIES
Our portfolio is located at the heart of communities across the UK,
providing the appropriate mix of retail, leisure and civic services
and acting as an important social hub for local people.
Our Environmental, Social and Governance (‘ESG’) strategy is embedded within our business strategy, and
we believe that by acting responsibly and sustainably we can produce the best outcomes for our occupiers
and the communities they serve, and deliver long-term value for our shareholders.
Since our founding in 2009, we have made significant strides incorporating ESG in to our strategy, risk
management and governance processes. This year we have taken another important step forward,
publishing a standalone ESG report for the first time. Going forward, this report will be published annually,
enabling stakeholders to assess our progress against our key ESG priorities over time.
As a further demonstration of our commitment to placing ESG at the heart of our business, we have this
year introduced an ESG KPI, which is to improve our score in the Global Real Estate Sustainability
Benchmark (‘GRESB’) annual survey which is the global real estate industry’s most rigorous assessment
of sustainability performance.
Launch of
NewRiver’s
inaugural
standalone ESG
Report
66
NewRiver REIT plc Annual Report and Accounts 2018
87%
In-town community
shopping centres and pubs
13%
Conveniently
located retail
parks
NewRiver REIT plc Annual Report and Accounts 2018
67
STRATEGIC REPORT OUR PEOPLE
OUR MOST IMPORTANT
ASSET IS OUR PEOPLE
Without their hard-work, dedication and entrepreneurial spirit we
could not have achieved such significant growth and success over
the past nine years.
For a company of our portfolio size and market
capitalisation we have a relatively low headcount,
with just 55 full time employees, working across
asset management, development, finance,
marketing and support. Having such a lean but
highly effective team brings two key benefits: first,
it ensures operational efficiency which enhances
returns for our shareholders, and secondly, it creates
a uniquely collaborative and supportive culture
which gives every individual a sense of purpose
and an opportunity to thrive.
Recruiting, developing & retaining talent
Our recruitment policies consider the needs of the
business today and our aspirations for the future, all
the time ensuring that our unique corporate culture
is maintained. During the year we hired an additional
7 experienced employees across our portfolio
management, development and finance teams.
We provide all our colleagues with the opportunity
to develop themselves and progress in their careers.
Our support ranges from funding colleagues through
professional qualifications with institutions such as
RICS and ACCA to informal weekly teach-ins with
experts on a wide range of topics, which all staff
members are encouraged to participate in. In
addition, all employees benefit from a tailored
performance review and professional development
plan which allows them to measure their progress
and fulfil their potential. The support we provide to
our staff is reflected in our excellent staff satisfaction
and retention rates, and this allows us to further
attract the best talent.
Strengthening our leadership
Our Executive Committee (ExCo) provide the
leadership and direction to move our business
forward. During the year we made three
appointments to our ExCo to further strengthen
the team and ensure all areas of the business
are represented in high-level decision making.
We would like to congratulate Directors Charles
Spooner, Emma Mackenzie and Stuart Mitchell
on their new appointments, joining existing
ExCo members Allan Lockhart, Chief Executive,
Mark Davies, Chief Financial Officer, David Lockhart,
Executive Deputy Chairman and Nick Sewell, Director.
Our core values
Since our inception, we have always had a core set
of values that guided us through our development
as a business. In 2017, we conducted an exercise
to codify these values into a single framework,
combining our key stakeholders with our five
key values:
One Team
Trusted
Beyond
expectations
Smart
Brave
Charles Spooner
Director
Emma Mackenzie
Director
Stuart Mitchell
Director
68
NewRiver REIT plc Annual Report and Accounts 2018
ESG REPORT
OUR RESPONSIBLE
APPROACH TO BUSINESS
We are open and transparent with our stakeholders about
our approach to ESG risks and opportunities.
Background
The real estate sector is estimated to contribute 36%
of global GHG emissions annually which presents
both risks and opportunity for us to address through
our operations.
Our ESG programme
Our ESG programme has rapidly evolved over
the last few years and is now fully comprehensive,
covering all areas from strategy development to
data management and operations.
We recognise that integrating environmental, social
and governance (ESG) policies into our operational
model can have long-term positive impacts on our
business, and the communities in which we operate.
The programme remains dynamic and fluid – our
ongoing operational performance and management
feeds into our reporting and benchmarking, which
in turn influences our strategy development.
As a result we believe that conducting our activities
in a manner that provides social benefits, and is
sensitive to the environment, enhances the long-
term value of our business.
We are open and transparent with our stakeholders
about our approach to ESG risks and opportunities
and how we are progressing against environmental,
social and governance criteria and benchmarks.
We place a high value on our track record of strong
corporate governance and this is discussed further
on pages 76-110 of this report.
Our ESG strategy
Our key ESG focus areas are aligned with our business model and our five strategic priorities. Each priority area addresses
major social, economic and environmental factors to create value for our stakeholders and the business.
1
1
1
Dis c i p li n e d stock selectio
n
5
5
5
n e fi ts of scale
e
B
Growing cash
returns
+
Thriving
communities
C
o
n
s
ervative ba l a n
c
e s heet
P
r
o
fi
t
a
b
l
e
c
a
p
it
4
4
4
al recycling
n trolled
m ent
o
e l o
p
sR i
c
k -
d e v
t
t
e
s
s
a
e
n
e
m
e
g
a
n
Activ
ma
Incorporating environmental, legislative, energy and
social factors in the pre-acquisition due
diligence process
Reducing asset operating costs through monitoring
and targeting improvements of assets, ensuring
operational consistency across the portfolio
Active engagement with occupiers on sustainability
and tenant satisfaction matters including providing
fit-out guidelines and achieving high
BREEAM ratings
2
2
2
3
3
3
When recycling assets, engaging local stakeholders
to ensure an orderly handover that benefits
the community
Investing with the benefit of our scale into local
communities to maximise stakeholder benefits
NewRiver REIT plc Annual Report and Accounts 2018
69
STRATEGIC REPORT
ESG REPORT CONTINUED
Progress made in FY18
Following the implementation of formal objectives
in FY17, throughout FY18 we have been able to
significantly enhance our disclosures and provide
an update on progress made during the course of
the year.
Set out below are our goals together with how
successful we were in achieving them over the
course of the year.
1. Minimise our environmental impact without
compromising operational efficiency
We are committed to managing our assets in the
most resource efficient and cost effective manner,
reducing both our environmental impact as well
as occupational costs for retailers. Our strategic
approach encompasses both the procurement of
energy as well as intelligent management tools to
monitor and minimise usage.
Our contract with Co-op Power, who centrally
procure our utilities, included the installation of smart
meters which both monitor usage and through our
utility bill management process ensure that our bills
are based on actual consumption. As at
31 March 2018, 50% of all retail portfolio meter
readings were made by smart meters, and we plan
to continue the roll out in FY19 to support enhanced
consumption monitoring.
During the year we implemented our waste
monitoring management system across a total
of seven pilot centres, in parallel appointing a waste
administration, reporting and management solution
provider to improve data collection and identify
efficiency opportunities while we work with partners
to improve recycling rates. This programme is
scheduled to continue through FY19 to support
our long-term recycling objectives.
Measuring our success
In FY18, we achieved a 28% improvement to our
score in the Global Real Estate Sustainability
Benchmark (GRESB).
We are proud to report that our actions in
FY18 resulted in a reduction in both electricity
consumption and GHG emissions by 6% year
on year.
2. Support our local communities
Positive engagement with our local communities
is fundamental in our approach and it is an area
in which we have a strong track record. In FY18 we
continued to support a large number of charities
and hosted charity events at our shopping centres.
Some assets excelled; the Avenue Shopping Centre
in Newton Mearns, Glasgow for example hosted
over 30 community events.
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NewRiver REIT plc Annual Report and Accounts 2018
Overall, last year we supported over 300 charities
and participated in 339 community centred events.
We recognise the significant social and economic
impact our shopping centres have on the local
community and we are proud to announce that last
year, our shopping centres supported over 12,000
jobs through retailer employment as well as our
own shopping centre staff and suppliers.
Our community and social impact is assessed on
a yearly basis, covering all of our shopping centre
portfolio with focus on community engagement and
supporting charities.
Measuring our success
Slower Shopping Tuesdays: St Elli Centre
In collaboration with Alzheimer’s Society, the
centre launched a dementia friendly project -
‘Slower Shopping Tuesdays’ to provide support to
people with dementia to continue shopping after
being diagnosed.
Since November 2017, every Tuesday from
1:30 – 2:30pm participating retailers turn off
loudspeakers, provide slower check-out lines and
offer chairs to allow people to have a rest. Research
by the Alzheimer’s Society shows that 8 out of 10
people with dementia list shopping as their
favourite activity.
However often those with the condition stop
going once diagnosed and their dementia
progresses. St Elli recognises how being
able to go shopping is a critical aspect of
remaining independent and engaging with
their own communities and wanted to help by
implementing the slower shopping programme.
The initiative has been well received by the public
and occupiers with a remarkable response not only
from people who suffer from dementia but also from
people who benefit from a slower and quieter pace
of shopping including people with autism, elderly
and new parents with small children.
3. Drive engagement with stakeholders and
empower our people
Our key stakeholders include retailers, suppliers,
councils, communities, lenders & shareholders as
well as our employees.
We recognise that our managing agents and
property managers have a key part to play in
improving the environmental performance of the
assets and central to our stakeholder engagement
strategy is continuous engagement with our
property managers.
Measuring our success
In FY18 we launched our ESG staff engagement
programme: running training sessions and
workshops on ESG challenges and opportunities
and have been pleased with the engagement we
have received.
In addition to workshops throughout the year,
we gather all managing agents and centre
managers twice-yearly to communicate and discuss
our corporate ESG performance, strategy updates
and objectives.
Next year we will continue to support and nurture
our staff, starting with the implementation of our staff
wellness monitoring procedures due to commence
in the first half of 2019.
Our targets
In support of the embodiment of ESG throughout
NewRiver and to ensure we continue to challenge
ourselves to extend our sustainable approach to all
areas of the business.
We have set our specific GHG and energy reduction
targets for the short (FY21), medium (FY31) and
long-term (FY51) using robust Science Based
Targets (SBTs) providing us an ambitious platform
for NewRiver’s ESG performance.
Performance measures
FY19-FY21: short term targets
1. Expand our data collection on waste
management to encompass all multi-let
retail assets
2. Expand our data collection on water
management to encompass all multi-let
retail assets
3. Encourage sustainability in the community by
increasing the provision of recycling points at
our assets
4. Implement staff wellness monitoring procedures
5. 5% reduction in NewRiver procured utilities
6. 5% reduction in NewRiver GHG emissions
2020-2030: medium term targets
1. Zero waste to landfill across entire portfolio
2. 100% energy procured from renewable sources
3. 20% reduction in NewRiver procured utilities
4. 20% reduction in NewRiver GHG emissions
2030-2050: long term targets
1. Over 25% of energy generated from renewable
sources at assets
2. 100% energy procured from renewable sources
3. 40% reduction in NewRiver procured utilities
4. 40% reduction in NewRiver GHG emissions
Utility consumption and emissions performance measures
Performance
Targets (reduction)
Electricity (kWh)
Gas (kWh)
GHG emissions (tCO2e)
FY18
FY17
12,546,213 13,398,347
2,450,633 2,413,295
5,204
4,912
Like-for-Like
–6%
2%
–6%
Energy
Intensity
FY18 / m2
187.99
36.72
0.0736
2020
5%
–
5%
2030
20%
–
20%
2050
40%
–
40%
NewRiver REIT plc Annual Report and Accounts 2018
71
STRATEGIC REPORT ESG REPORT CONTINUED
Gender diversity
Gender
Male
Female
Total
EPRA environmental sustainability measures
EPRA Code
Elec-Abs
Performance Measure
Total electricity consumption
Like–for–like total electricity
consumption
Total fuel consumption
Like–for–like total fuel
consumption
Building energy intensity
Total direct greenhouse gas
(GHG) emissions
Greenhouse gas (GHG)
emissions intensity from
building energy consumption
Total water consumption
Building water intensity
Elec-LfL
Fuels-Abs
Fuels-LfL
Energy-Int
GHG-Dir-Abs
GHG-Int
Water-Abs
Water-Int
EPRA governance measures
EPRA Code
Gov-Board
Gov-Selec
EPRA social measures
EPRA Code
Diversity-Emp
Emp-Training
Emp-Dev
Emp-Turnover
H&S-Emp
H&S-Asset
H&S-Comp
Comty-Eng
Performance Measure
Composition of the highest
governance body
Process for nominating and
selecting the highest
governance body
Performance Measure
Employee gender diversity
Employee training and
development
Employee performance
appraisals
New hires and turnover
Employee health and safety
Asset health and safety
assessments
Asset health and safety
compliance
Community engagement,
impact assessments and
development programmes
72
NewRiver REIT plc Annual Report and Accounts 2018
Headcount
Total
30
25
55
Board of
Directors
5
2
7
Turnover
(# & rate)
3 (10%)
4 (16%)
7 (13%)
New Hires
(# & rate)
3 (17%)
6 (24%)
9 (16%)
2018
12,546,213
2017
13,398,347
Unit(s) of Measure
annual kWh
-6%
2,450,633
–
2,413,295
annual kWh
annual kWh
2%
224.71
–
236.92
4,912
5,204
annual kWh
kWh/ m2
annual metric tonnes
CO2e
0.074
65,747
0.9851
0.078
tonnes CO2e / m2
– annual cubic metres (m3)
m3 consumption / m2
–
2018
See pages
78-79
See pages
89-91
Unit(s) of Measure
Total number
Narrative on process
2018
See above
Unit(s) of Measure
Percentage of employees
42
Average hours / employee
100%
See above
See
commentary
below
100%
0
100%
Percentage of employees
Total number and rate
Injury rate, absentee rate and number
of work related fatalities
Percentage of assets
Number of incidents
Percentage of assets
Employee health & safety
NewRiver strongly believes that our employees play a central role in our success and our staff programme
goes beyond traditional health and safety initiatives.
In FY18 we launched our staff wellbeing programme which includes aspects such as encouraging physical
activities, supporting flexible working and providing healthy foods. We also support training to allow our staff
to maximise their potential and contribution to our business.
In FY18, each employee participated on average in 42 hours of training and all of our employees receive
annual performance reviews. We also perform regular health and safety checks including workstation
checks. In FY18 we had zero injury and fatalities and total absences days were 77, less than 1% of total
employee workdays.
Greenhouse Gas Emissions
Under the Companies Act 2006 (Strategic and Directors’ Reports) Regulations 2013, we are required to report
on greenhouse gas (GHG) emissions for which we are responsible. The GHG emissions details for the financial
year ending 31st March 2018 are in the table below. Emission data from financial year ending 31st March 2017
has also been included for comparison purposes.
Sources of greenhouse gas emissions
Scope 1
Gas, refrigerants and car fuel
Scope 2
Landlord controlled electricity
Total footprint
Intensity measure
Emissions per sq m
tCO2e 2018
tCO2e 2017
501.46
493.82
4,410.75
4,710.32
4,912.21
5,204.14
tCO2e/sq m tCO2e/sq m
0.074
0.078
We have used the operational control method to outline our carbon footprint boundary. Occupiers’ energy
usage and emissions are not included as this is not deemed to be within our operational control boundary.
Emissions from vacant/void units have been excluded due to inconsistent data availability. We are developing
our data coverage and processes to build a complete dataset for these areas. Vacant units represent a de
minimis percentage of total GHG emissions.
We have measured emissions based on the GHG Protocol Corporate Accounting Standard (revised edition)
and guidance provided by the UK’s Department for Environment, Food and Rural Affairs (Defra) on mandatory
carbon reporting. The emissions factors and conversions used were from the Defra greenhouse gas
reporting tool.
NewRiver REIT plc Annual Report and Accounts 2018
73
STRATEGIC REPORT RISK MANAGEMENT REPORT
OUR APPROACH
TO RISK MANAGEMENT
Risk Appetite
The Group controls its risk and ensures that all developments and investments are undertaken in a risk
controlled environment with evaluations being undertaken before, during and after to ensure that the risks are
understood, managed and evaluated.
Asset
Manager
Executive
Committee
Audit
Committee
Board
R
i
s
k
o
v
e
r
s
ig
ht
• The Board oversees the Group’s risk
management and internal controls. It determines
the Group’s risk appetite.
• The Audit Committee monitors the effectiveness
of the Group’s risk management and internal
controls systems.
• The Executive Committee is responsible for risk
management on a day-to-day basis and monitors
strategic and other risks. It delegates
accountability for risk management to the asset
managers and monitors their performance.
• The asset manager is responsible for risk within
their portfolio of assets and ensures that they are
within the risk appetite set by the Board. Regular
reviews are undertaken of the assets which
include monitoring risk levels
A risk and internal controls assessment register has
been produced covering the following areas:
• General Commercial
• Financial
• Compliance
• Asset Management, including shopping centres,
retail warehouses and pubs
• Development, including health & safety
The register is maintained by the Company
Secretary in consultation with the asset managers
and development team within the Group and is
reviewed at each Audit Committee meeting.
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NewRiver REIT plc Annual Report and Accounts 2018
Principal Risks
Risk
Risk Assessment
Mitigation
General Commercial
Economic recession due to
uncertainty from Brexit and
world events.
Impact
Likelihood
Future Government policy
which adversely affects the
Company’s ability to manage
its assets effectively.
Corporate Strategy and
Performance
Failure to communicate
sufficiently and effectively with
investors, leading to a
depressed share price and
demand for equity.
Growth in online retail spend
could be perceived as a threat
to traditional bricks and
mortar retailers.
How it links to our
strategic priorities
1
2
3
4
5
1
2
3
4
5
Macro-economic and property
market reviews are considered at
each Board meeting and ongoing
updates are evaluated by the
Executive Committee with the view
to limit the impact such a recession
might have on the Group.
The Executive Committee considers
regular updates from its external
advisers and the Company is a
member of various industry bodies,
with representatives on
advisory panels.
4
2
There is a full programme of investor
meetings throughout the year as well
as specific rounds of meetings post
half and full-year results.
The management team are
embracing the digital age as part of
the strategy for the shopping
centres, working with online retailers
such as Amazon to offer “click and
collect” lockers, as well as our
traditional retailers to offer click and
collect facilities. This helps drive
footfall to the centres. Management
also commissioned research on the
future of the retail sector. It found that
the 55+ age bracket is set to account
for 57.5% of all store and click and
collect sales growth in the next ten
years. The same age bracket also
shop more frequently and prefer the
convenience and accessibility of
retails parks and convenience led
shopping centres, all of which are
included within the portfolio. In
addition, 46% of NewRiver’s 150m
annual footfall are shoppers
aged 55+.
NewRiver REIT plc Annual Report and Accounts 2018
75
STRATEGIC REPORT RISK MANAGEMENT REPORT CONTINUED
Risk
Risk Assessment
Mitigation
How it links to our
strategic priorities
Impact
Likelihood
Financial
Breach of debt covenants
could trigger loan defaults and
repayment of facilities putting
pressure on surplus
cash resources.
Ensuring that there is
adequate working capital for
capital expenditure,
development projects
and acquisitions.
Management actively engages with
its key lenders. The team actively
monitor the debt covenants and a
debt analysis is presented at each
Board meeting.
5
1
2
3
5
Management actively engages with
its key lenders, ensuring
transparency when it comes to the
asset management and development
of assets and what funding is
required for these. A weekly working
capital and cash flow analysis is
completed by the finance team and
circulated to management to assist
with this. The financial policies are
monitored regularly, including loan
to value.
Impact
Likelihood
Compliance
Breach of any of the
regulations governing the
business of the Group, such as
listing rules, UK Corporate
Governance Code and The
Pubs Code etc.
n/a
The Company and its advisers
monitor any changes to the relevant
legislations that affect the Group’s
business and how these changes
may affect it. Any breaches would be
resolved accordingly and reported to
the Board.
Key
1
2
3
Disciplined stock selection
Active asset management
4
5
Risk-controlled development
Profitable capital recycling
Maximise benefits of scale/Conservative balance sheet
76
NewRiver REIT plc Annual Report and Accounts 2018
Risk
Risk Assessment
Mitigation
How it links to our
strategic priorities
Asset Management
Failure in performance by
individual assets against their
business plans.
Impact
Likelihood
Impact
Likelihood
Development
Poor control of development
projects could lead to
inadequate returns
on investment.
Over-exposure to
developments could put
pressure on cash flow and
debt financing.
2
3
5
Business plans for each asset are
regularly reviewed by their asset
manager and updated twice yearly.
These revised business plans are
then reviewed by the
Executive Committee.
The Group applies a risk-controlled
development strategy through
negotiating long-dated pre-lets
(typically at least 70% of a
development has to be pre-let prior
to commitment) and tight cost control
help to de-risk our developments.
Each development project is
reviewed and approved by the
Executive Committee following
detailed due diligence modelling and
market research. The financial
policies restrict the exposure to
development and are
monitored regularly.
NewRiver REIT plc Annual Report and Accounts 2018
77
STRATEGIC REPORT BOARD OF DIRECTORS
From left to right: Alastair Miller, Kay Chaldecott, Paul Roy, Margaret Ford
Alastair Miller
Non-Executive Director
Kay Chaldecott
Non-Executive Director
Paul Roy
Non-Executive Chairman
Alastair Miller was Chief Financial Officer of
New Look Group plc from 2000 until 2014
and during that period had a range of other
responsibilities in addition to finance including
property, systems, company secretariat and
investor relations. He was one of the MBO
team who helped take the company private
in 2004 and led a number of subsequent
refinancings.
Previously, he was the Group Finance
Director at RAC for 11 years, having joined
from Price Waterhouse in 1988 where he was
a management consultant. Prior to that, he
was Finance Director of a company within the
BTR Group. Alastair qualified as a Chartered
Accountant with Deloitte Haskins and Sells
(now part of PricewaterhouseCoopers) and
holds a BSc in Economics.
Committees
• Chairman of the Audit Committee
• Member of the Remuneration and
Nomination Committees
Kay Chaldecott has over 25 years’
experience of developing and managing
regional shopping centres throughout the UK
from having worked with Capital Shopping
Centres Group plc (now Intu Properties plc).
Kay was appointed Managing Director of the
Shopping Centre business and served as a
main Board Director from 2005 to 2011.
Kay is a member of the Royal Institution
of Chartered Surveyors and has a breadth
of industry knowledge covering the retail
development process, retail mix and leasing
and shopping centre operations. Kay is a
member of the Board of Lichfields planning
and development consultancy, and is a
member of the Advisory Board of Next
Leadership. She was previously a member
of the Board of St. Modwen Properties PLC.
Committees
• Chairman of the Remuneration Committee
• Member of the Audit and Nomination
Committees
Paul Roy has over 40 years’ experience in the
banking, brokerage and asset management
industries. In 2003, he co-founded NewSmith
Capital Partners LLP, an independent
investment management company which
was acquired by Man Group in 2015. Prior to
founding NewSmith, he was Co-President of
the Global Markets and Investment Banking
division at Merrill Lynch & Co and had
responsibility for worldwide Investment
Banking, Debt and Equity Markets. Paul
joined Merrill Lynch in 1995 when it acquired
Smith New Court Plc a leading market making
and brokerage firm on the London Stock
Exchange where he was Chief Executive
Officer. He joined Smith New Court in 1988,
having previously been a Senior Partner in
the leading stock broking firm Citicorp
Scrimgeour Vickers.
Between 2007 and 2013, Paul served as
Chairman of the British Horseracing Authority
responsible for governance and regulation of
the sport and is now Chairman of Retraining
76
78
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
From left to right: David Lockhart, Allan Lockhart, Mark Davies
of Racehorses, racing’s main equine charity.
In 2015, he became Chairman of Sky Bet after
CVC acquired a majority stake in the company
from SKY PLC.
Committees
• Chairman of the Nomination Committee
• Member of the Remuneration Committee
Baroness Margaret Ford
Non-Executive Director
Baroness Ford has over 20 years’ experience
as a Non-Executive Director and Chairman of
private and Stock Exchange listed companies
and extensive experience of working with
the Government. She is currently Chairman
of STV Group plc. Margaret was previously a
Non-Executive Director of Taylor Wimpey plc,
the former Chairman of Grainger plc and
May Gurney Integrated Services plc, and
Senior Independent Non-Executive Director
of SEGRO plc.
Margaret is Chairman of the Tennis Foundation
and National President of the British Epilepsy
Association. From 2002 to 2008, she was
Chairman of English Partnerships and from
2009 to 2012, she was a member of the
Olympic Board and Chairman of the Olympic
Park Legacy Company. Margaret is an
Honorary Member of the Royal Institute of
Chartered Surveyors. In 2006, Margaret was
appointed to the House of Lords and sits as
an Independent Peer.
Committees
• Senior Independent Director
• Member of the Audit Committee
Remuneration and Nomination Committees
David Lockhart
Executive Deputy Chairman
Allan Lockhart
Chief Executive Officer
David Lockhart is a qualified Solicitor and
Chartered Accountant and has over 35 years’
operating experience in the UK real estate
market. David is an experienced and
successful entrepreneur, having founded
several property businesses across the United
Kingdom. He practised law in his family law
firm until 1981 when he resigned to found
Caltrust Limited, a property development
company based in Scotland. David served as
Executive Chairman of Caltrust Limited until
1987 when the company was acquired by
Sheraton Securities International plc, following
which he served as managing director of
newly formed Sheraton Caltrust plc until 1990.
In 1991, David founded Halladale, a business
which he ran as CEO. Halladale floated on
AIM in 2001 and was acquired by Stockland
Corporation in 2007. In 2009, he co-founded
NewRiver and served as its Chief Executive
since its IPO until being appointed Executive
Deputy Chairman in May 2018.
Allan Lockhart has over 25 years’ experience
in the UK real estate market specialising in
the retail sector. He started his career with
Strutt & Parker in 1988 advising major property
companies and institutions on retail investment
and development. Allan was appointed as
retail director to the principal trading subsidiary
of Halladale (now Stockland) in January 2002
and was responsible for co-ordinating the
acquisition of, and implementation of the asset
management strategies in respect of, over
20 shopping centres as well as acquiring
and completing several profitable retail
developments. In 2009, he co-founded
NewRiver and served as Property Director
since its IPO until being appointed Chief
Executive Officer in May 2018.
Mark Davies
Chief Financial Officer
Mark is a Chartered Accountant who joined the
Company at its inception in 2009. Mark has over
20 years’ experience in Finance, including over
10 years in the UK real estate sector. He started
his property finance career with Grant Thornton
before joining BDO LLP as an Audit and
Corporate Finance Partner and Head of Real
Estate. Prior to joining NewRiver, Mark was
Chief Financial Officer of Exemplar Properties
and Omega Land, a property investment and
development company which was owned by
Morgan Stanley Real Estate Funds.
Mark has experience in many areas of property
and Corporate Finance including debt and
equity capital markets.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
77
79
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CORPORATE GOVERNANCE REPORT
“2018 was a productive year for
the company from a governance
perspective. NewRiver managed
change very effectively and emerged
stronger as a result.”
David’s decision, subsequently, to step down from the role
of Chief Executive, further tested the Board’s approach to
succession planning. Again, I am pleased to report a good
outcome for the Company. Our external advisers helped
us to benchmark the internal candidate for the CEO role
against suitably qualified individuals from outside the
Company. This process confirmed Allan Lockhart to be
the Board’s clear and unanimous choice as Chief Executive.
Further details on the process are included in the report of
the Nominations Committee.
2018 was, in sum, a productive year for the Company from a
governance perspective. NewRiver managed the changes very
effectively and emerged stronger as a result. The Board looks
forward to continue working on behalf of stakeholders’ to
ensure that this positive momentum is maintained.
Paul Roy
Chairman
23 May 2018
Welcome to NewRiver’s Governance Report for the year
ended 31 March 2018 - our first full year of operation as a
FTSE 250 company. I am pleased to report that we were
compliant with the requirements of the UK Corporate
Governance Code, published in April 2016, throughout
the year.
This report describes how the Board and its Committees
worked on behalf of shareholders and other stakeholders,
driving the culture and discipline necessary for the Company
to achieve its goals.
The Board and its advisers have continued to develop a
governance framework that facilitates NewRiver’s progress
whilst recognising and respecting the interests of its
stakeholders in a fair and balanced manner.
I was pleased to welcome Margaret Ford as the Board’s
new Senior Independent Director in September 2017.
As anticipated, Baroness Ford has made a valuable
contribution to our work, having brought a fresh wealth
of knowledge and business experience to the role.
The robustness of our corporate governance was tested
during the year when David Lockhart took temporary leave
of absence as Chief Executive. I am pleased to say that the
Board, its Committees and executive management were highly
effective in working together to minimise any disruption to
operations and performance. The financial results for the year
in part testify to our success in working as a disciplined team
within a strong governance framework.
78
80
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
Board and Committee Structure:
Board
Responsible for leading & controlling the Group and has overall authority for the management
and conduct of the Group’s business, strategy and development
Audit Committee
Reviews and monitors the Group’s
risk management processes.
Monitors the integrity of the
half-year and annual financial
statements before submission
to the Board.
Monitors the effectiveness of the
audit process.
Remuneration Committee
Implements the remuneration
policy of the Group which is to
ensure that Directors and senior
management are rewarded in a
way that attracts, retains and
motivates them and aligns the
interests of both shareholders
and management.
Nominations Committee
Reviews the succession planning
requirements of the Group and
operates a formal, rigorous and
transparent procedure for the
appointment of new Directors
to the Board.
Executive Committee
To assist the Chief Executive with the development & implementation of the Group strategy,
the management of the business and the discharge of its responsibilities delegated by the Board.
Board Membership
Details of the Directors, including the skills and experience that they bring to the Board, are on pages 78 to 79. During the year, the
Board comprised a Non-Executive Chairman, three Executive Directors and three Non-Executive Directors. In accordance with the
UK Corporate Governance Code, each of the Non-Executive Directors was considered independent during the year. The Chairman
was independent on appointment and the Board still considers him to be independent.
Responsibilities of the Board
The Board is responsible for leading and controlling the Group and has overall authority for the management and conduct of the
Group’s business, strategy and development. The Board, supported by a company secretariat, is also responsible for ensuring the
maintenance of a system of internal controls and risk management (including financial, operational and compliance controls) and
for reviewing the overall effectiveness of systems in place, as well as for the approval of any changes to the capital, corporate or
management structure of the Group.
There is a clear division of responsibility between the Chairman, who is responsible for the leadership of the Board, and the
Chief Executive, who is responsible for managing and leading the business.
The Executive Directors’ responsibilities were re-balanced during the year to compensate for David Lockhart’s leave of absence
from August 2017. The Chief Executive’s role was delegated to the Property Director, Allan Lockhart, and the Chief Financial
Officer, Mark Davies, during this period.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
79
81
GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
In February 2018, David Lockhart signalled his intention to step down from the Chief Executive’s role. Following a period of external
consultation and benchmarking, the Board decided to appoint Allan Lockhart as Chief Executive from 1 May 2018. Further details
on the process are included in the report of the Nominations Committee. A summary of the Directors’ responsibilities following
these changes is shown below:
Chairman
Paul Roy’s role is to lead the Board and ensure that it operates effectively. His responsibilities include:
• setting the agenda, style and tone of Board meetings to ensure that all matters are given due consideration;
• maintaining a culture of openness, debate and constructive challenge in the Board room;
• ensuring the Board’s effectiveness and ensuring it receives timely information;
• ensuring a new Director receives a full, formal and tailored induction on joining the Board;
• reviewing and agreeing training and development for the Board.
David Lockhart’s responsibilities include:
• providing leadership and acting as an adviser to the Chief Executive Officer and Chief Financial Officer;
• assisting the Executive Directors with shareholder and stakeholder enagement;
• working with the Board to develop the Company’s strategy.
Allan Lockhart’s responsibilities include:
• managing the business of the Group;
• recommending the Group’s strategy to the Board;
•
implementing the strategy agreed by the Board;
• management of the Group’s property portfolio, including developments.
Mark Davies’ responsibilities include:
implementing the Group’s financial strategy, including balance sheet capitalisation;
•
• overseeing financial reporting and internal controls;
• Environment, Social & Governance strategy;
• executive responsibility for the pub portfolio.
Margaret Ford’s responsibilities include:
• acting as a sounding board for the Chairman;
• evaluating the Chairman’s performance as part of the Board’s evaluation process;
• serving as an intermediary for the other Directors when necessary;
• being available to shareholders should the occasion occur when there was a need to convey concern to the
Board other than through the Chairman or the Chief Executive;
• membership of the Audit, Remuneration and Nomination Committees.
Executive
Deputy
Chairman
Chief
Executive
Officer
Chief
Financial
Officer
Senior
Independent
Non-
Executive
Director
Non-
Executive
Directors
Kay Chaldecott, Margaret Ford and Alastair Miller bring independent judgement, knowledge and varied
commercial experience to the meetings and in their oversight of the Group’s strategy. Kay and Alastair chair the
Remuneration and Audit Committees respectively.
Attendance
All Directors are expected to attend Board and Committee meetings of which they are a member. Each of the Directors has
committed to attend all scheduled Board and relevant Committee meetings and have committed to make every effort to attend ad
hoc meetings, either in person or by telephone. If a Director cannot attend a meeting, he or she will be provided with the papers in
advance of the Meeting as usual and will have the opportunity to discuss them with the Chairman or Chief Executive and to provide
comments.
Attendance at Committee meetings is shown in the respective Committee reports. Attendance at Board meetings is shown below:
Paul Roy
David Lockhart
Allan Lockhart
Mark Davies
Kay Chaldecott
Alastair Miller
Margaret Ford1
1. Margaret Ford was appointed to the Board during the year.
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NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
6/6
2/6
6/6
6/6
6/6
6/6
3/3
Business of the Board during 2018
Routine Business
Q1
• Quarterly finance update
• Quarterly review of the Group’s portfolio
• Approval of the 2017 Annual Report
• Approval of the 2018 budget
• Quarterly finance update
• Quarterly review of the Group’s portfolio
• Quarterly finance update
• Quarterly review of the Group’s portfolio
• Quarterly finance update
• Quarterly review of the Group’s portfolio
• Group strategy
Q2
Q3
Q4
Q2
Q4
Additional Business
Q1
• Review and approve capital raise
• Review and approve acquisition of joint venture interests from joint venture partner
• Review and approve new unsecured bank facility
• Decision on allocation of responsibilities during CEO’s absence
• Review and approve issue of unsecured corporate bonds
• Appointment of Executive Deputy Chairman and CEO
Board Evaluation Process
Following its first external Board evaluation last year, the Board decided to conduct a further “light touch” external evaluation in
2018. Prism Boardroom, who conducted the 2017 evaluation and do not undertake any other work for the Company, were asked
to carry out this year’s evaluation. The scope of and methodology for the evaluation was discussed and agreed between the
evaluator and the Chairman, in the context of a three-year evaluation plan agreed last year. Directors were asked to respond to
a number of open questions about the operation of the Board and its Committees before completing detailed questionnaires on
the same. The evaluator then reviewed all the questionnaires and drew up a report thereon.
Prism Boardroom presented its recommendations to the Board in May and a plan is now being drawn up to address them. The
findings of the report were that the Board and its Committees have functioned well during a busy year and remained cohesive,
despite the changes around the Board table. A number of suggestions for enhancing the effectiveness of the Board and its
Committees were made and were positively received. These included looking forward to how the Board and its Committees will
meet its extended obligations under future legislative and Code requirements, considering how to improve the support given to
directors via the induction, training and development processes, and enhancing existing processes to ensure that the Committees
approach their remit over the annual cycle in the most effective manner.
Induction of New Directors
Margaret Ford joined the Board in September 2017. The Chairman and Company Secretary implemented an induction process to
ensure that Baroness Ford was fully briefed about the Company and its operations. This process included asset visits and meetings
with members of the executive management team as well as specific briefing with regard to her legal and regulatory obligations as
a Director of the Company.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
81
83
GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
Corporate Culture
The Chairman and the Board are aware of the importance of corporate culture in achieving high standards of corporate
governance. Our culture is discussed in detail on page 68.
Shareholder Engagement during 2017/2018
The Board is committed to providing investors with regular announcements of significant events affecting the Group.
The Chief Executive, Chief Financial Officer and Head of Investor Relations are the Company’s principal spokesmen responsible for
communication with investors, fund managers, analysts and the press. The Company organises a twice-yearly investor roadshow
for its institutional investors after the half-year and full-year results and holds one-on-one and group investor meetings throughout
the year as required. During the year ended 31 March 2018, the Company held 130 investor meetings, reaching 172 investors.
The Chairman and Senior Independent Non-Executive Director are available to meet with shareholders to discuss governance or
any other concerns which are not appropriate to discuss through normal channels of communication, or where normal channels of
communication have failed to allay the concern. No shareholder has requested such a meeting to date.
The Board is kept regularly updated of the meetings that the Executive Directors have with shareholders and analysts. The Head of
Investor Relations provides the Board with a regular report updating them of the market for the Company’s shares, what its peers
are doing and any reports issued about the sector generally and the Company specifically.
Key shareholder engagement during the year ended 31 March 2018:
Investor presentations
• Full year results
• Half year results
• Equity sales presentations (x10)
• Trading updates (Q1 and Q3)
• Annual General Meeting
• Capital Markets Day
Investor roadshows
• Amsterdam
• Edinburgh (x2)
• Helsinki
• London (x2)
• Stockholm
• Zurich
Investor conferences
• Amsterdam
• Cape Town
• London (x2)
Annual General Meeting (“AGM”)
The AGM is the annual opportunity for all shareholders to meet with the Directors and to discuss with them the Company’s
business and strategy. Directors are available to meet informally with shareholders before and after the meeting.
The notice of AGM is posted to all shareholders at least 21 working days before the meeting. Separate resolutions are proposed on
all substantive issues and voting is conducted by a poll. The Board believes this method of voting is more democratic than voting
via a show of hands since all shares voted at the meeting, including proxy votes submitted in advance of the meeting, are counted.
For each resolution, shareholders will have the opportunity to vote for or against or to withhold their vote. Following the meeting,
the results of votes lodged will be announced to the London Stock Exchange and displayed on the Company’s website.
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NewRiver REIT plc Annual Report and Accounts 2018
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
For the year ended 31 March 2018
Audit Committee composition and attendance
at Meetings
Alastair Miller: Committee Chairman
Kay Chaldecott
Margaret Ford1
3/3
3/3
2/2
1. Margaret Ford was appointed to the Audit Committee during the year.
The following were invited to attend the Meetings:
Mark Davies – Chief Financial Officer
The Financial Controller
Representatives of Deloitte, the Company’s auditor
The Company Secretary, as secretary to the Committee
“The Audit Committee has operated
effectively during the year, monitoring
the Group’s risk management and
ensuring appropriate processes are in
place for financial reporting, audit and
external valuation.”
Alastair Miller
Committee Chairman
Key activities in 2017/18:
• Reviewing and monitoring the Group’s risk
management processes
• Monitoring the integrity of the preparation of half-year
and annual financial statements before submission to
the Board
• Reviewing of the financial reporting processes and
controls
• Meeting with the external valuers to review their
valuation processes
• Commencement of an audit tender process
Areas of focus for 2018/19:
• Completion of an audit tendering process
• Developing the reporting and ownership of risk
management and internal control processes
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
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GOVERNANCE
How the Committee operates
The principal role for the Committee is to provide independent
review and monitoring of the risk management and control
procedures within the Company. The risk management
process reviews both external risks as well as internal control
risks and ensures that risks are being properly identified,
their potential impact on the company measured and
then adequately managed and mitigated. Each identified
risk is assigned to a specific Director or Directors who
are responsible for monitoring that risk and taking
mitigating actions.
The Committee meets at least three times a year but also holds
ad-hoc meetings when required. It met three times during the
year to discuss the half-year and annual financial statements,
risk management reviews and internal control processes.
Only members of the Committee are entitled to attend the
meetings, however a standing invitation is extended to Mark
Davies, CFO; the Company Secretary and representatives of
Deloitte, the Company’s external auditor.
Responsibilities of the Committee during the year
During the year, the Committee was responsible for:
• overseeing the Group’s relationship with Deloitte, including
its remuneration;
• monitoring the integrity of the half-year and annual financial
statements before submission to the Board;
• discussing any issues arising from the half-year review and
year-end audit of the Group;
• reviewing significant financial reporting matters and
judgments, with a particular focus on matters of material
financial impact on the Group;
• reviewing the effectiveness of the Group’s system of
internal controls;
• reviewing and monitoring the Group’s risk management
processes;
• conducting an annual review of the need to establish an
internal audit function;
• monitoring and annually reviewing the auditor’s
independence, objectivity and effectiveness of the audit
process; and
• evaluating the Committee’s own performance, which was
undertaken as part of the Board evaluation.
AUDIT COMMITTEE REPORT CONTINUED
Dear Shareholders,
This was my first full year of chairing the Audit Committee and
my primary objective was to ensure that the committee was
managed effectively. As I reported last year, two areas of focus
for 2018 were to consider the best timing to commence an
audit tender process and to review the risk management and
internal control processes.
The Committee agreed to commence the audit tender process
which will be completed in the financial year ending March
2019. The audit of the financial statements for that year will be
the tenth year that the current auditors, Deloitte, have audited
the Group’s results. The audit tender process should conclude
by December 2018.
The Committee reviewed the method used to identify and
quantify risks, and the process of reporting the risks and
associated mitigating controls to the Committee during the
year. The Committee is satisfied that the risk management
framework is effective and did not identify any failing in the
control systems.
As the auditors highlight in their audit report, a key risk is the
valuation of the property portfolio. As we have in prior years,
the Committee met the valuers independently of management.
This provides the opportunity for the valuers to explain the
process they follow to value the portfolio and for the
Committee to challenge the key assumptions. The meetings
were productive and the Committee concluded that the
valuations were independent and an appropriate basis for the
year-end financial accounts.
The Committee has reviewed the basis for the Company’s
viability statement that is based on financial forecasts for the
next three years. The Committee is satisified that the
assumptions used in the forecasts and the basis of the viability
statement are appropriate.
Each Committee member is independent and has broad
commercial experience as a director. Kay Chaldecott and
Margaret Ford have provided strong and relevant property
experience which has complimented my relevant financial
experience thereby ensuring that the Committee has the right
balance of skills and experience to properly discharge its
responsibilities. As a Chartered Accountant and previously
the Chief Financial Officer of New Look Group, the Board
considers that I have significant, recent and relevant
financial experience as required by the UK Corporate
Governance Code.
I consider that the regular meetings that are held by the
Committee, and the robust discussions that the Committee has
with the Company’s management, the auditor and property
valuers, together with the quality of the reports and information
prepared for the Committee meetings, has enabled the
Committee members to discharge their duties and
responsibilities.
Alastair Miller
Committee Chairman
23 May 2018
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NewRiver REIT plc Annual Report and Accounts 2018
The principal matters discussed during the year were
as follows:
• Valuation of assets: The 2018 year-end balance sheet
shows assets under management of £1,227 million. The
Committee, independently of management, met with
Colliers International and Knight Frank to discuss the
valuation of the assets, to understand the process that was
followed and to ensure that a robust and independent
valuation had taken place.
• Risk management: The Committee reviewed the risk
register and challenged the risk management processes
developed by management. The Committee considered the
key risks of the Group and the appropriateness of the
mitigating controls.
• Taxation and REIT compliance: The Committee reviewed
the results of the REIT tests and considered the Company’s
tax strategy.
• Audit process: The Committee met with the extenal auditors
to discuss the plan for the audit of the financial statements
and to consider the auditors’ assessment of the key risks of
the Group.
• Accounting judgements: The accounting for the acquisition
of the former joint ventures.
Risk management
The Board oversees the Group’s risk management and internal
controls and determines the Group’s risk appetite. The Audit
Committee at each of its meetings monitors the effectiveness
of the Group’s risk management and internal controls systems.
Further details of the Company’s risk management process,
together with the principal risks, can be found in the Risk
Management report.
Internal control structure
The Group does not have an internal audit team. The need for
this is reviewed annually by the Committee, however due to
the Group’s size and relative lack of complexity, it is felt that
there is no requirement for such a team just yet.
Although there is not be an internal audit team in place, BDO,
as an independent third party, are engaged to undertake
bespoke reviews of the Group’s internal control system to
ensure that the Company has sufficient controls in place.
External auditor
The Committee considers the nature, scope and results of the
external auditor’s work and reviews, develops and implements
policy on the supply of any non-audit services that are to be
provided by the external auditor. It receives and reviews
reports from the Group’s auditors relating to the Group’s
annual report and accounts and the external audit process.
Audit plan
In respect of the audit for the financial year ended 31 March
2018, Deloitte presented their audit plan (prepared in
consultation with management) to the Committee. The audit
plan took into account key changes in the business, materiality
levels, valuation of the portfolio, especially focusing on how the
pub element was valued, and the development pipeline.
Following discussions with both Deloitte and management, the
Committee approved the implementation of the plan.
Audit & non-audit fees
The Company paid £328,000 in audit fees for the financial year
ended 31 March 2018.
The Company has a non-audit services policy in place which
limits Deloitte to working on the audit or such other matters
where their expertise as the Company’s auditor makes them
the logical choice for the work. This is to preserve their
independence and objectivity. The Company paid £188,000 in
non-audit fees to Deloitte for the financial year ended 31 March
2018. The non-audit fees relate to Deloitte’s work as a
reporting accountant for the corporate bond and for the
prospectus required for the equity raise.
Effectiveness and independence
The Chair of the Committee speaks regularly to the audit
partner to ascertain if there are any concerns, to discuss the
audit reports and to ensure that the auditor has received
support and information requested from management.
The Committee reviewed the effectiveness of the 2017
external audit process by considering the extent to which the
audit plan was met, the degree of challenge involved in the
process, the depth of understanding, the review of key
accounting policies and audit judgements, and the content of
the auditor’s reports to the Committee. It was noted that the
audit had been completed to a high standard.
Having considered the effectiveness and independence of
the auditors in the services it provides, the Committee has
recommended to the Board that a resolution is proposed at
the forthcoming Annual General Meeting to reappoint Deloitte
as the Group’s external auditor.
Tenure
Deloitte has been the Group’s auditor since 2010 and therefore
the Group is required to conduct an audit tender process for
the audit of the financial year to March 2020. The Committee
commenced the tender process in 2018 and met with
representatives of five audit firms, including firms inside and
outside of the ‘big 4’ firms. Three firms will be invited to
formally tender for the audit services and these firms will
present to the audit committee in 2018. A decision will be
made by the Board after assessing the recommendation of the
Committee in the year ending 31 March 2019.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
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GOVERNANCE
AUDIT COMMITTEE REPORT CONTINUED
Statement of compliance
The Company confirms that is has complied with terms of
The Statutory Audit Services for Large Companies Market
Investigation (Mandatory User of Competitive Tender
Processes an Audit Committee Responsibilities) Order 2014
(“the Order”) throughout the year.
In addition to requiring mandatory audit re-tendering at least
every ten years for FTSE 350 companies, the Order provides
that only the Audit Committee, acting collectively or through its
Chair, and for and on behalf of the Board is permitted:
•
•
•
•
•
to the extent permissible in law and regulation, to negotiate
and agree the statutory audit fee and the scope of the
statutory audit;
to initiate and supervise a competitive tender process;
to make recommendations to the Directors as to the auditor
appointment pursuant to a competitive tended process;
to influence the appointment of the audit engagement
partner; and
to authorise an auditor to provide any non-audit services
to the Group, prior to the commencement of those non-
audit services.
Fair, balanced and understandable
The Directors are required to confirm that they consider,
taken as a whole, that the Annual Report is fair, balanced and
understandable and that it provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy.
The Committee has satisfied itself that the controls over the
accuracy and consistency of information presented in the
Annual Report are robust and has confirmed to the Board that
the processes and controls around the preparation of the
Annual Report are appropriate allowing the Board to make the
“fair, balanced and understandable statement” in the Directors’
Responsibilities Statement.
Viability statement
The Committee provides advice to the Board on the Viability
Statement.
The Committee ensured sufficient review was undertaken
of the adequacy of the financial arrangements, cash flow
forecasts and lender covenant compliance. Accordingly, the
Committee recommended to the Board that the statement
be approved.
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NewRiver REIT plc Annual Report and Accounts 2018
NOMINATION COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
For the year ended 31 March 2018
“Our focus in the year continues to be
on monitoring the effectiveness of
NewRiver’s Board, whilst helping the
Company to build its talent pool.”
Paul Roy
Committee Chairman
Principle Roles:
•
to review the succession planning requirements for
the Group;
to ensure that it operates a formal, rigorous and
transparent procedure for the appointment of new
Directors to the Board;
to regularly review the composition of the Board and its
various committees (including their chairmanships); and
to evaluate the performance of these committees and
that of the Board as a whole.
•
•
•
Key activities in 2017/18:
• appointment of an independent Non-Executive Director;
• supporting the implementation of the recommendations
•
resulting from the Board evaluation process;
implementation of the Board’s succession plan resulting
in CEO and Executive Deputy Director appointments;
and
• Assessing appointments to Executive Committee.
Areas of focus for 2018/19:
• continue the focus on succession planning; and
• monitor the Group’s diversity policy.
Nomination Committee composition and attendance
at Meetings
Paul Roy: Committee chairman
4/4
Kay Chaldecott
Alastair Miller
Margaret Ford1
4/4
4/4
3/3
1. Margaret Ford was appointed to the Nomination Committee during the year.
Dear Shareholders,
The Committee had an active year, working on the
appointments of a new Chief Executive Officer and a new
Senior Independent Director, together with related matters.
Driving the process of finding a successor to David Lockhart as
CEO of the Company was the biggest responsibility that the
Nominations Committee has had to date and I am pleased to
report that it handled the job very well.
This was in part down to the Committee’s earlier preparation
with regard to succession planning, together with the
professionalism, skill and insight of Committee members.
The processes already in place prior to David’s decision meant
that the Company could complete an optimal succession after
careful consideration with minimal disruption to the business.
The Committee applied the same professional qualities to no
less a degree in the appointment of our new Senior
Independent Director and Nominations Committee member,
Baroness Ford of Cunninghame, in September 2017.
I would like to thank all Committee members for their hard
work during the year, and to thank our professional advisers
who contributed to our decision-making.
Our focus in the current year continues to be on monitoring the
effectiveness of NewRiver’s Board, whilst helping the Company
to build its talent pool.
Paul Roy
Committee Chairman
23 May 2018
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GOVERNANCE
NOMINATION COMMITTEE REPORT CONTINUED
How the Committee operates
The Committee meets at least twice a year and holds ad-hoc
meetings when required. It met 4 times during the year.
Only members of the Committee are entitled to attend the
meetings, with the Chief Executive Officer having a standing
invitation to attend. This is so that the Committee can
understand the views of executive management when making
its deliberations, especially on succession planning.
Activities of the Committee during the year
Succession planning
The Committee considers succession planning a key part
of its remit. It recognises the importance of creating robust
succession plans for both the Board and executive
management so that they can fulfil the Company’s
long-term strategy.
The Committee acknowledges that succession plans should
be regularly reviewed so that employees and Board members
continue to have the skills and experience necessary to ensure
the continuing success and good governance of the Company.
The Committee works with the Executive Directors to nurture a
pipeline of talented employees below board level who will be
able to serve as the next generation of plc Board directors.
During the year the succession plan was put into active service
on two occasions, first to identify and appoint a new Senior
Independent Director and later to appoint a new Chief
Executive Officer.
Recruitment of a new Chief Executive Officer
Our former Chief Executive Officer, David Lockhart, decided
in February to step down as CEO from the beginning of
May 2018.
In line with the Group’s succession plan, the Committee
immediately commenced its discussion on how David’s
decision would impact the effectiveness and operation of the
Board and the Company, and establishing key deliverables in
the process of appointing his successor.
The Committee commissioned an external assessment and
review of possible candidates for the role. Having studied this
assessment to provide a detailed consideration of alternative
candidates, and considered the results of the executive
assessment of the internal candidates, the Board reached the
conclusion that it should appoint Allan Lockhart, the
Company’s Property Director, as its new CEO. Allan’s
knowledge and experience of the Company contributed to this
recommendation, alongside favourable comparisons with the
available external candidates identified by our professional
search adviser.
The Committee also worked with the Board to enlarge the
Executive Committee to include three new members, drawn
from the Company’s senior, non-Board management. These
new members reflect the increasing strength-in-depth of
NewRiver’s management team and form a key part of the
talent pool for future succession events.
In addition, as a further rationalisation of executive
responsibilities, Mark Davies, the Company’s Chief Financial
Officer, was given executive responsiblility for the pub portfolio.
The Board decided, in light of these appointments that it
was unnecessary to appoint a new Property Director to
replace Allan.
Appointment of an Executive Deputy Chairman
The new role of Executive Deputy Chairman, enabled the
Company to retain the skills, knowledge and experience of its
founding CEO, David Lockhart.
The Nominations Committee and the Board considered that
this new role would enable David to strengthen the Company’s
leadership cadre by providing support for the Chief Executive
Officer and the Chief Financial Officer, by advising on strategy,
business development and investor relations and by helping to
mentor talent within the Company.
Recruitment of a new Non-Executive Director
As reported last year, the Company appointed an executive
search firm to assist in the process of identifying and
appointing a suitable successor to Chris Taylor, our former
Senior Independent Director.
The Commitee met proposed candidates and arranged for
four of them to meet each member of the Board prior to the
appointment decision being made.
After thorough consideration, the Board appointed Baroness
Ford of Cunninghame’s in view of her extensive experience of
the real estate and other sectors, her 20 years of experience
as a Non-Executive Director/Chair of both private and listed
companies and her deep knowledge of working with
Government and the public sector.
Chairman’s succession planning
Under the UK Corporate Governance Code an appointment
term of longer than nine years from election to the Board is a
factor that may affect whether a Non-Executive Director is
considered independent. The Nominations Committee and
Board are mindful that the Chairman will reach the ninth
anniversary of his appointment in July 2019 and have
commenced an appropriate succession plan.
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NewRiver REIT plc Annual Report and Accounts 2018
Diversity policy
The Company has developed a culture which recognises
the benefits of diversity and has been successful at recruiting
key members of its senior management team from a range
of different backgrounds. The Board currently comprises
two female Non-Executive Directors and two male Non-
Executive Directors.
When recruiting, the Company has always considered all
aspects of diversity during the process. The Company ensures
there is a selection of candidates who have a good balance
of skills, knowledge and experience. The Company aims
to recruit the best candidates on the basis of their merit
and ability.
The Group does not have sufficient number of employees to
require it to report a gender pay gap.
Composition of the Board during the year
Independent Directors: 3
Executive Directors: 3
Non-Executive Chairman (independent): 1
Length of Directors’ tenure
Less than three years: 1
Three – Six years: 2
Seven to Eight years: 4
Directors’ core area of expertise
Real Estate experience: 4
Finance experience in the line
management or audit capacity: 2
Banking/City experience: 1
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NewRiver REIT plc Annual Report and Accounts 2018
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GOVERNANCE
REMUNERATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
For the year ended 31 March 2018
The following were invited to attend the Meetings:
• David Lockhart – Chief Executive Officer;
• Representative of h2glenfern, the Company’s
remuneration adviser;
• Representatives of Eversheds Sutherland, the Company’s
corporate legal adviser; and
• The Company Secretary, who acts as secretary to
the Committee.
Summary
The remuneration report contains
• A summary of the Committee and how it operates
• The key elements of the remuneration policy that was
approved by shareholders in 2017
• The annual report on remuneration for 2018
NewRiver’s remuneration structure
Fixed
remuneration
Variable
remuneration
Salary
Pension
Benefits
Bonus
PSP
Total remuneration
The Committee’s responsibilities
The Committee’s responsibilities during the year were:
• To consider the objectives, annual pay and targets for the
Executive Directors;
• Review and agree changes to the allocation basis for the
staff bonus pool; and
• Review the operation of the Group’s share incentive
schemes and the granting and vesting of options.
“This year’s remuneration report is the
first report following the approval of
the remuneration policy by
shareholders. It focuses on the
implementation of that policy and the
decisions made in the year within the
approved framework.”
Kay Chaldecott
Committee Chairman
Areas of focus for 2018/19:
• Monitoring the bonus plan objectives
• Monitoring the performance conditions for the
performance share plan
Remuneration Committee operation, composition and
attendance at meetings
The Committee meets at least three times a year, together with
ad-hoc meetings when required. It met four times during the
year and attendance was as follows:
Kay Chaldecott: Committee Chairman
Paul Roy
Alastair Miller
Margaret Ford1
1. Margaret Ford was appointed to the Remuneration Committee during
4/4
4/4
4/4
3/3
the year.
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NewRiver REIT plc Annual Report and Accounts 2018
Dear Shareholders,
Introduction
I am pleased to introduce the Remuneration Committee report
for the financial year ended 31 March 2018. This is the first
remuneration report following the approval of the remuneration
policy by shareholders at the AGM in July 2017 and its
subsequent adoption. This year’s report provides a summary of
the approved remuneration policy that will be applied for the
next financial year and shows the results of the policy as it
applied to the financial year ended 31 March 2018.
This was the first year of the new structured annual bonus plan.
Linked between remuneration and strategy
The principal role for the Committee is to operate the Group’s
remuneration policy which is to ensure that the Directors and
senior managers are paid in a way that attracts, retains,
motivates and rewards management of the highest quality,
aligns Shareholders’ and executives’ interests and promotes a
direct relationship between results and reward, reflecting best
practice appropriate to the size and stature of the Group. The
strategy of the Company is to deliver superior returns to
shareholders, both in dividends and capital growth, over the
long term and within a prudent risk management framework.
The remuneration policy of the Company supports this in its
choice and pitching of performance targets for annual bonus
and performance share awards, the policies on bonus deferral
into shares, the two-year holding period following vesting for
performance share awards and the shareholding guideline.
The principles behind these policies are disseminated in the
remuneration arrangements of all employees as appropriate in
the light of seniority.
Performance and decisions on remuneration taken
in 2017/18
As the Chairman notes in the introduction to this annual report,
the Company’s first full year of operation as a FTSE 250
company demonstrated the strength of our business model in
a challenging environment. Our convenience-led, community
focused portfolio of shopping centres delivered strong relative
performance in what was, on aggregate, a difficult twelve
months for UK retailers. NAV was maintained at 292p, the
same level as March 2017, despite the market conditions and
FFO grew 3.6% to £60.3 million. NewRiver has delivered fully
covered dividend growth of 5%, and the Company continued
to be active in both equity and debt capital markets over the
reporting period. We raised gross proceeds of £225m through
an equity share issue, and re-financed our secured debt
through new, unsecured credit facilities and a maiden issue
of investment grade bonds.
During the year the Committee implemented and operated the
Company’s new structured annual bonus plan, reviewed the
vesting of LTIP awards granted during 2014/15, and made new
LTIP awards. In addition to the normal review of the salary
levels of the Executive Directors for 2018/19, the Committee
specifically considered changes in the salaries of David
Lockhart and Allan Lockhart in view of their change in roles to
Executive Deputy Chairman and Chief Executive Officer,
respectively, announced in February 2018, and which was
effective 1 May 2018.
The Committee reviewed the results against the targets set for
the annual bonus plan which were set to align the Director’s
remuneration with strategy and shareholder’s interests. The
Committee retained overall discretion over the bonus payment
amounts and the Committee is not bound by overall or
individual performance against specific parameters.
The Committee set two growth-based targets which were
objective and comparative to a peer group. The core objective
was to reward outperformance in terms of total accounting
return and earnings yield against the market and the
Company’s peers. Other performance conditions related to
compliance with financing policies and personal performance.
Details of performance against the targets is set out in the
Annual Report section below. The annual bonuses awarded to
David Lockhart, Allan Lockhart and Mark Davies were 97%,
117% and 122% of salary, respectively.
The Committee considered the overall performance of the
Company and the level of the bonus for the year and decided
to defer 30% of the bonus in to shares in line with the guidance
provided in the approved policy last year.
During the year, performance share awards made to Executive
Directors in July 2014 were due for testing and vesting.
Following measurement of performance against the targets,
76.3% of awards vested and 23.7% lapsed. Details on
performance against the targets and number of awards held
by each Director which vested are set out below.
In June 2017, the Committee granted awards under the
Performance Share Plan. The performance conditions are in
line with the conditions disclosed last year. Further details on
these awards and the attached performance conditions can be
found on pages 102 to 103.
The Committee reviewed the salaries of the Executive
Directors annually with any changes effective normally
effective 1 April. In respect of 2018/19, the Committee
specifically considered changes in the salaries of David
Lockhart and Allan Lockhart in view of their change in roles
to Executive Deputy Chairman and Chief Executive Officer
announced in February 2018 and which was effective 1 May
2018. In the light of this change, the Committee appointed
h2glenfern, an independent remuneration consultant, to
benchmark Board-level salaries amongst the Companies
peers. Based on the benchmarking the Committee agreed
upon a base salary of £395,000 for the Executive Deputy
Chairman, noting that the role would not be eligible for future
annual bonuses or long term incentives. The salary of the
Chief Executive role was below the median of comparable
companies. The salary of Allan Lockhart was set at £470,000,
an increase of 4.4% to the salary of the Chief Executive Officer
in 2017/18. The Chief Financial Officer received an inflationary
increase to his base salary, an increase of 2.0% to £408,000.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
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GOVERNANCE
REMUNERATION COMMITTEE REPORT CONTINUED
The Board also considered the remuneration of the Non-
Executive Directors. The Committee (without the Chairman of
the Board) determines the Chairman of the Board’s fee and
recommends it to the Board. The Chairman of the Board and
Executive Directors determine the non-executive directors’
fees. The Non-Executive Directors’ fees were last increased in
April 2016. After considering the time requirements of the
Board of a growing company, the Company’s status as a
FTSE250 constituent and a benchmark of Non-Executive fees
in comparable companies an increase of £2,500 for the fees
for being the Senior Independent Director or Chairman of a
Committee were approved by the Board. The base fee was
unchanged. The Chairman’s fee has been reviewed based on
the benchmarking and will be negotiated as part of the
succession process.
Shareholder consultation
The Committee undertook an extensive consultation with
shareholders in advance of proposing the Remuneration Policy
to shareholders at the 2017 AGM as a result of which a number
of changes were made. The Committee was pleased that
96.3% of the shares voted were in favour of the policy. The
next policy vote is due in 2020. The Committee welcomes
shareholder feedback on remuneration matters.
Focus areas for 2018/2019
The Committee has set the targets for the annual bonus plan
for 2018/2019 after considering the Company’s budget, market
expectations and the results of the 2017/18 bonus. The
Committee anticipates making LTIP awards to Executive
Directors in line with the Company’s policy during the second
quarter of 2018.
Kay Chaldecott
Committee Chairman
23 May 2018
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Remuneration Policy
This section of the report summarises the Group’s Remuneration Policy, which was approved by shareholders at the 2017 Annual
General Meeting. The full Remuneration Policy can be found in the 2017 Annual Report which is available at www.nrr.co.uk.
Remuneration Policy Summary Table
Element
Fixed
Salary
Pension
Benefits
Purpose &
Link to Strategy
Operation
Maximum
Performance Target
Executive Directors
Market
competitive
remuneration
base reflecting
role,
responsibilities,
skills and
experience.
Normally reviewed annually, effective
1 April although salaries may be
reviewed more frequently or at
different times of the year if the
Committee determines this is
appropriate.
Paid in cash monthly.
Reviewed in context of the salary
increases across the Group.
Reviewed periodically against peer
companies.
To provide
competitive post-
retirement
benefits.
To assist with
recruitment and
retention.
To provide a
competitive and
cost-effective
benefits
package.
To assist with
recruitment and
retention.
There is no Group pension scheme.
The Group has set up a Group
personal pension plan.
The Company currently contributes
15% of base salary for all Executive
Directors.
The Company reserves the right to
pay a non-pensionable cash
supplement in lieu of pension
contributions.
The Company provides a range of
non-pensionable benefits to
Executive Directors which may
include medical insurance, life
assurance, permanent health
insurance, holiday and sick pay.
Other benefits such as relocation
allowances may be offered if
considered appropriate and
reasonable by the Committee.
There is no prescribed maximum.
Not applicable
Increases will typically be dependent
on the results of an annual review in
the context of the average increase
for the wider work force, inflation
and market data.
Increases will not normally be above
the level implemented across the
wider workforce. Increases may be
above this level, for example if there
is an increase in the scale, scope or
responsibility of the role.
The maximum Company contribution
is 15% of base salary.
Not applicable
Not applicable
Benefits are set at a level which
the Committee considers
appropriate when compared to
the Company’s listed real estate
investment trust peers.
There is no prescribed maximum.
For David Lockhart, the Company
will reimburse him on a tax grossed-
up basis for the cost of his personal
private medical insurance policy not
exceeding £12,000 per annum,
subject to upward adjustments to
reflect only any future increases in
premium which are in line with
general increases in market rates.
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Element
Variable
Bonus
Purpose &
Link to Strategy
Operation
Maximum
Performance Target
To incentivise
performance in
the reporting
year through the
setting of targets
at the beginning
of the year.
These annual
targets are
intended to be
consistent with
the Group’s long
term strategy.
The deferral of a
proportion of the
bonus in shares
seeks to align
Directors’
interests with
those of
shareholders
and to
discourage short
term decision
making.
All measures and
targets relate to a
financial year of
the Company and
are reviewed on
an annual basis.
For 2018/19, 80%
of bonus will be
paid on the basis
of corporate
targets and 20%
of bonus on the
basis of personal
performance
targets. Corporate
targets include
relative property
performance,
relative earnings
yield and meeting
the Group’s
financing policies
in respect of loan
to value, balance
sheet gearing,
interest cover and
dividend cover.
Awards of annual bonus are made
pursuant to the Annual Bonus Plan.
The maximum bonus is 125%
of salary.
On target performance would result
in a bonus payment of 60% of
maximum bonus. Threshold
performance would result in bonus
payment of 20% of maximum bonus.
There is no maximum or minimum
percentage of the bonus which is
deferred into shares. The
Committee has discretion to vary
this percentage from year to year
based on its assessment of
circumstances at the time.
All measures and targets will be
reviewed and set annually by the
Committee at the beginning of the
financial year and levels of award
determined by the Committee after
the year end are determined based
on achievement of performance
against the stipulated measures
and targets.
The Committee retains an overriding
discretion to reduce pay-outs from
formulaic outcomes to ensure that
overall bonus payments reflect its
view of corporate performance
during the year and are fair to both
shareholders and participants. Paid
in cash and in shares. The cash
element is paid shortly following the
completion of the audit for the year.
Currently 30% of bonus is deferred
into shares but this percentage is at
the discretion of the Committee.
The share element is deferred for a
period which is currently two years
(but this may be increased at the
discretion of the Committee).
Deferral of bonuses is achieved by
means of awards of nil-cost options
over shares pursuant to the Deferred
Bonus Plan.
Vesting of the deferred shares
will normally be subject to
continued employment.
Non-pensionable.
Clawback and malus
provisions apply.
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Element
Variable
Share Option
plans.
Performance
Share Plan.
Purpose &
Link to Strategy
Operation
Maximum
Performance Target
Participation in a tax-
advantaged Sharesave
Plan or Share Incentive
Plan and/or in the
Company Share Option
Plan will be limited by
reference to limits
imposed by the
applicable legislation
from time to time.
The maximum award
level permitted under
the 2016 PSP plan rules
is 200% of salary. The
normal annual award is
100% of salary for all
Executive Directors.
Awards currently vest
on the following basis:
• on target
performance delivers
25% of the shares
awarded; and
• maximum
performance delivers
100% of the shares
awarded.
Aligns the
Executive
Directors’
interests with
those of
shareholders.
To incentivise
and reward the
delivery of
returns to
shareholders
and sustained
long-term
performance.
Aligns the
Executive
Directors’
interests with
those of
shareholders.
Rewards and
helps
retain/recruit
Executives.
The Executive Directors may
participate in all-employee share
incentive plans established by the
Company from time to time such as
a tax-advantaged Sharesave Plan or
Share Incentive Plan.
The Executive Directors may also be
granted options under the Company
Share Option Plan and the
Unapproved Share Option Plan.
However, it is the Company’s current
intention not to make any further
awards under this type of plan.
Discretionary grant of nil-cost
options under the 2016 PSP and
historically the 2009 PSP.
Currently awards normally vest three
years from the date of award. The
vesting period may be increased at
the discretion of the Committee.
Vesting of awards is subject to
satisfaction of performance targets.
Targets are currently measured
over a three-year period but this
may be increased at the discretion
of the Committee.
In relation to each grant of awards,
the Committee has discretion
to determine the applicable
performance targets and their
weightings to ensure they
are appropriate.
Unless the Committee determines
otherwise, following the conclusion
of the vesting period, a holding
period of two years will apply before
participants are entitled to receive
their shares (normally subject to
continued employment).
Clawback and malus
provisions apply.
Not applicable
Performance targets will apply
in respect of a performance
period which will not be less
than three years.
Currently, awards are subject
to the following targets:
•
•
the target applicable to 50%
of the shares which are
subject to an award is based
on Total Accounting Return
relative to certain UK-REITs
that report on an EPRA
accounting basis; and
the target applicable to 50%
of the shares which are
subject to an award is based
on Total Shareholder Return
relative to the FTSE All
Share index.
Notwithstanding the extent to
which the performance targets
are met, awards shall only vest
if the Committee (in its
absolute discretion) is satisfied
that performance against the
conditions is a fair reflection of
underlying performance.
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GOVERNANCE
REMUNERATION COMMITTEE REPORT CONTINUED
Element
Shareholding
Requirement.
Purpose &
Link to Strategy
To encourage
long term share
ownership and
support
alignment of
interests with
shareholders.
Operation
The Company operates a
shareholding requirement which is
subject to periodic review.
Performance Target
Not applicable
Maximum
Executive Directors are expected to
build up a shareholding within five
years of appointment worth 200%
of base salary for the CEO and
100% of base salary for other
Executive Directors.
Unvested share options and shares
which are subject to awards do not
count for the purposes of the
shareholding requirement.
Chairman and Non-Executive Directors
Fee increases are applied in line with
outcome of the review.
Not applicable
Fees.
To provide
market-
competitive
Director fees.
Annual fee for the Chairman.
Annual base fee for the Non-
Executive Directors. Additional fees
are paid to Non-Executive Directors
for additional responsibilities such as
being the Senior Independent Non-
Executive Director or chairing a
Board Committee.
Fees are reviewed from time
to time taking into account time
commitment, responsibilities and
fees paid by companies of a similar
size and complexity.
Payable in cash.
Expenses incurred by Non-Executive
Directors fulfilling their roles are
reimbursed.
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Illustration of Remuneration Policy
The table below illustrates the remuneration opportunity
provided to each Executive Director in line with the policy
at different levels of performance for the 2018/19 financial
year. Three scenarios have been illustrated for each
Executive Director:
The illustrations do not take into account share price
appreciation or dividends.
Allan Lockhart
Allan Lockhart
2000k
1500k
1000k
500k
0
£1,013k
11.6%
34.8%
53.6%
£543k
100%
£1,601k
29.4%
36.7%
33.9%
Minimum
On Target
Maximum
Mark Davies
Mark Davies
2000k
1500k
1000k
500k
0
£879k
11.6%
34.8%
53.6%
£471k
100%
£1,389k
29.4%
36.7%
33.9%
Minimum
On Target
Maximum
David Lockhart
David Lockhart
1000k
750k
500k
250k
0
£466k
100%
£466k
100%
29.4%
£466k
100%
Minimum
On Target
Maximum
Fixed
Bonus
PSP
1. Minimum
performance:
2. On target
performance:
comprising the minimum remuneration
receivable (being base salary and pension
allowances for the 2018/19 financial year
and benefits calculated using the 2017/18
figures as set out in the table on page 101;
comprising fixed pay, an annual bonus
payment at 60% of the maximum
opportunity (75% of salary) and long-term
incentive awards vesting at 25% of
maximum opportunity (25% of salary); and
3. Maximum
performance:
comprising fixed pay, 100% of annual bonus
(125% of salary) and 100% vesting of long-
term incentive awards (100% of salary).
External Directorships and Memberships
Executive Directors’ are encouraged to take up one external
directorship, subject to the prior approval of the Board. In
considering the appointment, the Board will consider whether
the appointment will have an adverse impact on the Director’s
role within the Company and whether it will be a conflict of
interest. Fees earned may be retained by the Director. At
present, no Executive Director has an external directorship.
Executive Directors’ are encouraged to join, when invited,
advisory committees of industries and professional bodies
directly related to the Company’s business. This helps to keep
the Company informed of any future regulations or trends
which may affect it in the future, as well as providing the
opportunity to influence future decision making.
Recruitment Arrangements
The Committee will apply the same remuneration policy and
principles when setting the remuneration package for a new
executive director. The Committee will take into consideration
all relevant factors to ensure that pay arrangements are in the
best interests of the Company and its shareholders.
Ongoing benefits, pension provisions, annual bonus
participation and awards under both the deferred bonus plan
and the performance share plan will be in line with those stated
in the policy. Different performance measures may be set for
any initial awards under the annual bonus plan and
performance share plan taking into account the responsibilities
of the individual and the point in the year that they joined and
the rules of the applicable plan. The rationale will be clearly
explained in the annual report following such recruitment. The
level of bonus which may be paid will be pro-rated to reflect
the time in the year when the Executive Director joins.
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GOVERNANCE
REMUNERATION COMMITTEE REPORT CONTINUED
In addition, the Committee will have discretion to make
payments or awards to buy out incentive arrangements
forfeited on leaving a previous employer, i.e. over and above
the approach outlined in the table above and may exercise the
discretion available under the listing rules if necessary to do so.
In doing so, the Committee will seek, to the best possible
extent, to do no more than match the fair value of the awards
forfeited, taking account of the applicable performance
conditions, the likelihood of those conditions being met and
the proportion of the applicable vesting period remaining.
Where an Executive Director appointment is an internal
candidate, the Committee will honour any pre-existing
remuneration obligations or outstanding variable pay
arrangements that relate to the individual’s previous role.
The Committee retains the discretion to offer appropriate
remuneration outside the standard policy where an interim
appointment is made to fill an executive role on a short-term
basis or where exceptional circumstances require that
the Chairman or a Non-Executive Director takes on an
Executive function.
Other contractual matters
Further details on service contracts, Non-Executive Director’s
letter of appointment, termination of employment and change
of control, and arrangements for the founding Executive
Directors are detailed in the annual report for the year ended
31 March 2017.
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NewRiver REIT plc Annual Report and Accounts 2018
Remuneration report
This section is subject to an advisory vote at the AGM.
Single figure total remuneration for Directors (audited)
The following tables show a single figure total of remuneration for the 2018 financial year for each of the Directors and compares
this figure to the prior year.
Executive Directors
Year
Salary £ Benefits1 £
Pension £
Subtotal for
fixed pay £
Cash
bonus £
Value of
bonus
deferred
into
shares £
Long-term
incentive
plans2 £
Subtotal
for variable
pay £
Total £
David Lockhart
2018 450,000
431,250
2017
12,000
–
67,500 529,500 304,369
301,875
64,688 495,938
160,877 595,690 1,125,190
130,444
129,375 250,734 681,984 1,177,922
Allan Lockhart
Mark Davies
2018 425,000
2017 406,250
2,536
2,342
63,750
60,938 469,530
491,286 346,959
284,375
148,697
141,178 636,834 1,128,120
121,875 220,107 626,357 1,095,886
2018 400,000
2017 362,500
1,856
1,760
60,000
54,375
461,856 340,550
418,635 253,750
145,950
108,750
120,384 606,884 1,068,740
187,571 550,071 968,706
1. Benefits are the Directors’ private medical cover.
2. For details of the awards and their performance conditions, see pages 102 to 103.
Non-Executive Directors
Paul Roy
Kay Chaldecott
Alastair Miller
Margaret Ford1
Chris Taylor2
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Base Fee £
100,000
100,000
50,000
50,000
50,000
50,000
29,167
–
962
50,000
Audit Committee
Chairman £
Remuneration
Committee
Chairman £
Senior Independent
Non-Executive
Director £
–
–
–
–
4,872
–
–
–
96
5,000
–
–
5,000
5,000
–
–
–
–
–
–
–
–
–
–
–
–
2,916
–
96
5,000
Total £
100,000
100,000
55,000
55,000
54,872
50,000
32,083
–
1,154
60,000
1. Margaret Ford was appointed as a Director on 1 September 2017.
2. Chris Taylor resigned as a Director on 9 April 2017.
Salaries
The salaries of the Executive Directors were changed effective 1 January 2017 and not changed during the 2018 financial year.
Salaries were benchmarked to market data and the Committee recommended to the Board that base salaries effective during 2018
were as follows:
David Lockhart – as Chief Executive Officer
Allan Lockhart – as Property Director
Mark Davies - Chief Financial Officer
£450,000
£425,000
£400,000
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GOVERNANCE
REMUNERATION COMMITTEE REPORT CONTINUED
Fees
Non-Executive fees were increased on 1 April 2016. Fees payable to the Chairman and Non-Executive Directors during 2017/18
were as follows:
Chairman
Basic fee for a Non-Executive Director
Additional fee for serving as Chairman of the Audit and Remuneration Committees
Additional fee for serving as the Senior Independent Non-Executive Director
£100,000
£50,000
£5,000
£5,000
Annual bonus for the year to 31 March 2018
The annual bonus arrangements for the year ended 31 March 2018 operated as laid out in the policy section of this report.
Executive Directors had the opportunity to earn a bonus up to a maximum of 125% of salary on the basis of the achievement of the
following measures.
Threshold
Potential
% salary
On
target
Potential
% salary Stretch
Potential
% salary
Actual
result
Actual % salary awarded
David
Lockhart
Allan
Lockhart
Mark
Davies
At index
12.5%
10% ahead
31.25%
20% ahead
50%
8.2% vs
6.2%
50.0%
50.0%
50.0%
At index
7.5%
Top quartile
18.75
Top 5
30%
Top 5
30.0%
30.0%
30.0%
Corporate
Growth based
Total return vs IPD
All Retail
Earnings yield (FFO)
– comparative*
Financial compliance
Compliance with financing policies (each element equally weighted)
LTV
Gearing
<50%
<100%
Interest cover
+2x
Dividend cover
100%
<40%
<85%
>2.25x
105%
<35%
<75%
>2.5x
110%
5%
12.5%
Personal
Personal objectives Discretionary
Discretionary
Good performance
in line with
expectations
12.5%
Very strong
performance
28%
38%
4.7x
101%
See
below
20%
25%
16.6%
16.6%
16.6%
-
20.0%
25.0%
Total: % of salary
25%
75%
125%
96.6%
116.6%
121.6%
* The comparative group for earnings yield was the same as for the TAR comparator group disclosed below excluding Real Estate Investors and Schroder European
Real Estate and adding Custodian REIT, Edison Property Investment, Capital & Regional, F&C UK Real Estate Investment, Unite Group, Town Centre Securities and
Ground Rents Income Fund.
All three Executive Directors were set the objective of delivering a growing and sustainable income stream and to grow the
business to maximise the benefits of economies of scale.
David Lockhart’s personal objectives were to lead the strategy of the business; engagement with stakeholders and to develop the
senior management team. David Lockhart was intimately involved in the Company despite his leave of absence during the year
although certain duties in relation to strategy and stakeholder management were delegated to Mark and Allan during the year. As
such the Committee determined that he should participate in the corporate and financial compliance portions of annual bonus but
not in the portion relating to personal performance.
Allan Lockhart’s personal objectives were to lead the property teams, develop property strategy and key asset management and
development initiatives; to foster good working relationships with stakeholders and to support with investor and analyst
relationships. Following an assessment of performance against these objectives, the Committee determined that his bonus in
respect of these objectives be paid at 80% of maximum.
Mark Davies’ personal objectives were to ensure that the balance sheet is adequately capitalised; management of the finance and
corporate teams; engagement with shareholders, to extend the investor relations reach into Europe and the USA. Following an
assessment of performance against these objectives, the Committee determined that his bonus in respect of these objectives be
paid at maximum.
70% of the annual bonus was paid in cash and 30% in nil-cost share options, deferred for two years.
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Long-term Incentive Plans
Vesting of Performance Share Plan awards
The performance conditions for the 2014 award were based on a three-year performance period in relation to Total Shareholder
Return (“TSR”) and growth in adjusted EPRA earnings per share (“EPS”). The measures were weighted 50:50 so that half of the
award depended on the performance of TSR and half on the growth in EPS. The threshold targets were CAGR of 10% for TSR and
4% for EPS. The maximum targets were 13% for TSR and 8% for EPS. The TSR met the threshold target and 52.7% of this portion of
the award vested during the year. The EPS performance condition met the maximum target and 100% vested. In total 76.3% of the
2014 PSP award vested during the year.
PSP awards for the year to 31 March 2018
On 22 June 2017, the following Performance Share Plan awards were granted to Executive Directors as nil cost options:
Executive
David Lockhart
Allan Lockhart
Mark Davies
Value of awards
at grant date*
(% salary)
£450,000 (100%)
£425,000 (100%)
£400,000 (100%)
Number of shares comprising
award
% of award vesting
at threshold
129,983
122,761
115,540
25%
25%
25%
Vesting Period
End Date
22 June 2020
22 June 2020
22 June 2020
* The closing price on the day before the grant date has been used to determine the value of the awards at grant date. This was £3.462.
Each award is subject to clawback and malus provisions in line with the Company’s policy.
Each award is subject to two performance conditions which will be tested over a three-year period.
50% of each award may vest based on the Company's TSR compared to that of the FTSE All Share index (the TSR Benchmark).
50% of each award may vest based on the Company's Total Accounting Return (“TAR”) compared to a group of UK REITs that
report their NAV on an EPRA basis. TAR is defined as the annualised return over the performance period based on the change in
EPRA NAV per share and the level of dividends paid per share.
The range of targets, for both performance conditions, is as follows:
Range
Less than 100% of the index
Equal to 100% of the index
More than 100% but less than 125% of the index
More than 125% but less than 150% of the index
Equal to 150% of the index or more
% award vesting
0
25
between 25 and 75 on a straight line basis
between 75 and 100 on a straight line basis
100
The TAR comparator group was composed of the companies set out in the list below.
Land Securities Group plc
British Land Company plc
Hammerson plc
Intu Properties plc
Segro plc
Derwent London plc
Shaftesbury plc
Great Portland Estates plc
Big Yellow Group plc
Workspace Group plc
Tritax Big Box REIT plc
Londonmetric Property plc
Assura plc
Hansteen Holdings plc
Redefine International plc
Real Estate Investors plc
Safestore Holdings plc
Primary Health Properties plc
Empiric Student Property plc
Secure Income REIT plc
GCP Student Living plc
Standard Life Investments Property Income Trust Limited
Regional REIT Limited
Target Healthcare REIT Limited
A&J Mucklow Group plc
McKay Securities plc
Schroder European Real Estate Investment Trust Limited
NewRiver REIT plc Annual Report and Accounts 2018
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GOVERNANCE
REMUNERATION COMMITTEE REPORT CONTINUED
Summary of Directors Interests (audited)
The beneficial interests of the Executive Directors in share awards and share options as at 31 March 2018 are shown in the
following tables:
Grant Date
Plan
Vesting by
Exercise /
share price
at date of
award £
At
1 April
2017
Granted
Dividend
equivalent
shares
added
Lapsed
Exercised
At
31 March
2018
David
Lockhart
Allan
Lockhart
USOP
Sept 2009
USOP
Sept 2011
PSP
Jan 2013
PSP
July 2014
DBP
July 2015
PSP
Sept 2015
Sept 2015
PSP
March 2016 DBP
PSP
July 2016
DBP
June 2016
PSP
June 2017
DBP
July 2017
Total
Vested
Vested
Vested
Vested
Vested
Sept 2018
Sept 2019
March 2018
July 2019
June 2018
June 2020
July 2019
2.50
2.35
2.04
3.06
3.00
3.40
3.40
3.26
2.98
3.16
3.46
3.42
272,286
348,000
71,937
153,537
43,718
128,512
128,512
162,135
149,429
59,699
–
–
–
–
–
–
–
–
–
–
– 129,983
– 38,956
–
–
–
2,391
637
9,604
9,604
12,188
11,221
4,483
4,496
1,347
1,517,765 168,939
55,971
– (272,286)
– (348,000)
(71,937)
–
(119,016)
(36,912)
(44,355)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
138,116
138,116
174,323
160,650
64,182
134,479
40,303
(36,912) (855,594) 850,169
Grant Date
Plan
Vesting by
Exercise /
share price
at date of
award £
At
1 April
2017
Granted
Dividend
equivalent
shares
added
Lapsed
Exercised
At
31 March
2018
USOP
Sept 2009
USOP
Sept 2011
PSP
Jan 2013
PSP
July 2014
DBP
July 2015
PSP
Sept 2015
Sept 2015
PSP
March 2016 DBP
PSP
July 2016
DBP
June 2016
PSP
June 2017
DBP
July 2017
Total
Vested
Vested
Vested
Vested
Vested
Sept 2018
Sept 2019
March 2018
July 2019
June 2018
June 2020
14 July 2019
2.50
2.35
2.04
3.06
3.00
3.40
3.40
3.26
2.98
3.16
3.46
3.42
192,686
338,000
71,937
134,783
53,555
112,447
112,447
138,003
140,638
52,236
–
–
–
–
–
–
–
–
–
–
– 122,761
36,792
–
–
–
–
–
–
–
2,100 (32,403)
–
–
–
–
–
–
–
–
782
8,404
8,404
10,374
10,561
3,922
4,246
1,272
1,346,732 159,553 50,065 (32,403)
–
192,686
– 338,000
–
71,937
–
104,480
(54,337)
–
–
120,851
–
120,851
–
148,377
–
151,199
–
56,158
–
127,007
–
38,065
(54,337) 1,469,610
102
104
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
Mark
Davies
Grant Date
Plan
Vesting by
July 2014
PSP
July 2015
DBP
Sept 2015
PSP
PSP
Sept 2015
March 2016 DBP
PSP
July 2016
DBP
June 2016
PSP
Jan 2017
PSP
June 2017
DBP
July 2017
July 2017
May 2017
Sept 2018
Sept 2019
March 2018
July 2019
June 2018
Jan 2022
June 2020
July 2019
Total
DBP = Deferred Bonus Plan
PSP = Performance Share Plan
USOP = Unapproved Share Option Plan
Exercise /
share price
at date of
award £
At
1 April
2017
Granted
Dividend
equivalent
shares
added
Lapsed
Exercised
At
31 March
2018
3.06
3.00
3.40
3.40
3.26
2.98
3.16
3.34
3.46
3.42
114,860
43,718
96,381
96,381
87,034
123,058
44,773
119,850
–
–
–
–
–
–
–
–
– 115,540
– 34,628
1,789
637
7,205
7,205
6,540
9,242
3,363
10,926
3,996
1,197
(27,614)
–
–
–
–
–
–
–
–
–
(89,035)
(44,355)
–
–
– 103,586
– 103,586
–
93,574
– 132,300
–
48,136
–
130,776
–
119,536
–
35,825
767,319
726,055 150,168
52,100
(27,614) (133,390)
Unapproved Share Option Plan
Awards made under the Unapproved Share Option Plan have vested and the participants have until the tenth anniversary from the
date of grant for each award in which to exercise the options. The exercise price per share to be paid upon exercise is shown
against each award.
Details of the Directors’ shareholdings and rights to shares (audited)
Vested
DBP awards
Unvested
DBP awards
Shares held at
31 March 2018
1,752,626
277,944
139,727
240,000
3,774
25,000
35,956
Value of
holding as %
of salary*
1278%
170%
100%
–
–
–
–
held at
31 March
2018**
104,485
94,222
83,961
–
–
–
–
David Lockhart
Allan Lockhart
Mark Davies
Paul Roy
Kay Chaldecott
Margaret Ford
Alastair Miller
Unvested
PSP awards
held at
31 March
2018**
571,361
519,908
589,784
–
–
–
–
held at
31 March
2018**
174,323
148,377
93,574
Vested but
unexercised
PSP awards
held at
31 March 2018
–
176,417
–
–
–
–
–
Vested but
unexercised
USOP awards
held at
31 March 2018
–
530,686
–
–
–
–
–
Unconverted
warrants
held at
31 March 2018
122,021
12,309
–
–
–
–
–
Total held
as at
31 March 2018
2,724,816
1,759,863
907,046
240,000
3,774
25,000
35,956
* based on the closing share price of £2.88 as at 31 March 2018 and salary for 2018/19. Shareholding guidelines are for the CEO to hold a minimum number of shares
with a value in excess of 200% of his base salary and for the other Executive Directors to hold a minimum number of shares with a value in excess of 100% of their base
salary. Allan Lockhart and Mark Davies also hold nil price share options with no performance conditions.
**
includes dividend equivalent shares added to that date.
DBP = Deferred Bonus Plan
PSP = Performance Share Plan
USOP = Unapproved Share Option Plan
There have been no changes in the number of shares held from 31 March 2018 to 22 May 2018, being the latest practicable date
before the publication of this Annual Report.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
103
105
GOVERNANCE
REMUNERATION COMMITTEE REPORT CONTINUED
Historic performance and Chief Executive remuneration
The following information allows comparison of the Company’s TSR (based on share price growth and dividends reinvested) with
the remuneration of David Lockhart, CEO, over the last eight years.
250
200
150
100
50
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
NewRiver
FTSE 250
UK IPD Retail
FTSE 350 REIT
The chart shows the Company’s TSR and that of the FTSE250, the UK IPD Retail Index, and the FTSE350 REIT Indices based on an initial investment of £100 on 1 April 2010
and values at intervening financial year ends over a eight-year period to 31 March 2018. These are considered to be appropriate benchmarks for the graph as the Company
was a constituent of these indices during the financial year.
Chief Executive Officer remuneration for year ended 31 March 2018
Total
remuneration (£)
Annual bonus
(% of max)
Total LTIP vesting
(% of max)
2011
2012
2013
2014
2015
2016
2017
337,500
467,500
504,000
642,000
1,095,307
1,547,200
1,177,922
42
–
36.5
32.6
69.0
70.0
100.0
66.7
–
–
–
0.0
100.0
100.0
2018
1,125,190
77.3
33.6
Chief Executive Officer pay compared to employees
The table below shows the percentage change in salary benefits and bonus for 2017 and 2018 for both the Chief Executive Officer
and for all permanent employees of the Group, excluding joiners and leavers.
Chief Executive
All employees
Relative importance of spend on pay
The table below shows employee pay and distributions to shareholders for 2018 and 2017.
Total spend on employee pay1
Total distributions to shareholders
Notes:
1.
Includes salaries, bonuses, social security costs and pension costs as shown in the notes to the Financial Statements.
Salary
4.3%
6.9%
Benefits
-
2.0%
Annual Bonus
0.8%
-12.9%
2018
£’000
9,853
62,734
2017
£’000
% difference
from prior year
8,707
46,645
13%
34%
104
106
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
What the Executive Directors can earn in 2018/19
Salaries and fees
David Lockhart was appointed to a new role as Executive Deputy Chairman on 1 May 2018. Allan Lockhart was appointed as Chief
Executive Officer on 1 May 2018. The salaries of these individuals were set following a broad and detailed consideration of the
circumstances and market data. The Committee recommended to the Board that base salaries were as follows:
Allan Lockhart – Chief Executive Officer
Mark Davies - Chief Financial Officer
David Lockhart - Executive Deputy Chairman
£470,000
£408,000
£395,000
(4.4% increase from previous CEO’s salary)
(2.0% increase from £400,000)
(new role from 1 May 2018)
Fees
The Board considered the remuneration of the non-executive directors during the year. The Committee (without the Chairman of
the Board) determines the Chairman of the Board’s fee and recommends it to the Board. The Chairman of the Board and Executive
Directors determine the Non-Executive Directors’ fees. The Non-Executive Directors’ fees were last increased in April 2016. After
considering the time requirements of the Board of a growing company, the Company’s status as a FTSE250 constituent and a
benchmark of Non-Executive fees in comparable companies an increase of £2,500 for the additional fees for Non-Executive
Directors was approved.
Fees payable to the Chairman and Non-Executive Directors are as follows:
Chairman
Basic fee for a Non-Executive Director
Additional fee for serving as Chairman of the Audit and Remuneration Committees (increase of £2,500)
Additional fee for serving as the Senior Independent Non-Executive Director (increase of £2,500)
£100,000
£50,000
£7,500
£7,500
Annual bonus
The annual bonus arrangements for the financial year ending 31 March 2019 will operate as laid out in the remuneration policy.
Executive Directors will have the opportunity to earn a bonus up to a normal maximum of 125% of salary on the basis of the
achievement of the following measures.
Measure
Corporate
Performance
Personal
Total Accounting Return v IPD All Retail
Earnings (FFO) yield v comparative peer group
Compliance with financing policies
Achievement against a number of business, strategic,
organisational, stakeholder and financial targets tailored
to the role of each Executive Director
Proportion of salary payable
For on target performance: 62.5%
For stretch performance: 100%
For on target performance: 12.5%
For stretch performance: 25%
The measures have been selected to reflect a range of key financial and operational goals which support the Company’s strategic
objectives. The respective targets have not been disclosed as they are commercially sensitive. However, retrospective disclosure
of the targets and performance against them will be set out in the Remuneration Report for the year ending 31 March 2019
provided that they do not remain commercially sensitive at that time.
Long-term incentives – Performance Share Plan
Performance Share Plan awards granted to Executive Directors in the financial year ended 31 March 2019 will be over shares worth
100% of salary and will be consistent with the long-term incentives policy detailed on page 103.
The targets and weightings will be the same as those described on page 103.
Awards will be subject to two year holding period after the vesting date, i.e. for a period of five years from the grant date.
External advice to the Committee
During the year the Committee received advice on Executive remuneration from h2glenfern, which has previously provided advice
to the Committee. Fees are charged on a cost incurred basis, with a fixed fee for benchmarking, and totalled £38,400 in the year to
31 March 2018.
Another division within h2glenfern provides corporate advice to the Company and it has confirmed that it has operated in
accordance with the Code of Conduct of the Remuneration Consultants’ Group in relation to executive remuneration consulting in
the United Kingdom. The Committee has therefore satisfied itself that all advice provided by h2glenfern was objective and
independent.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
105
107
GOVERNANCE
REMUNERATION COMMITTEE REPORT CONTINUED
2017 Annual General Meeting shareholder vote
At the Annual General Meeting held on 14 July 2017, votes cast by proxy and at the meeting in respect of the remuneration report
and policy were as set out below:
Votes for
%
Votes
against
Total shares
for & against
% of total
voting rights
%
Votes
withheld
242,897,409
96.1
9,916,215
3.9 252,813,624
83.9
277,090
243,604,524
96.3
9,414,395
3.7 253,018,919
84.0
71,795
That the Directors’ remuneration report,
be received and approved
That the Directors’ remuneration policy
be received and approved
Signed on behalf of the Board
Kay Chaldecott,
Committee Chairman
23 May 2018
106
108
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
REMUNERATION COMMITTEE REPORT CONTINUED
DIRECTORS’ REPORT
2017 Annual General Meeting shareholder vote
and policy were as set out below:
At the Annual General Meeting held on 14 July 2017, votes cast by proxy and at the meeting in respect of the remuneration report
Votes for
%
Votes
against
Total shares
% of total
%
for & against
voting rights
Votes
withheld
be received and approved
242,897,409
96.1
9,916,215
3.9 252,813,624
83.9
277,090
That the Directors’ remuneration report,
That the Directors’ remuneration policy
be received and approved
243,604,524
96.3
9,414,395
3.7 253,018,919
84.0
71,795
Signed on behalf of the Board
Kay Chaldecott,
Committee Chairman
23 May 2018
DIRECTORS’ REPORT
For the year ended 31 March 2018
The Directors present their report and Group financial
statements for the year ended 31 March 2018.
Principal activities and status
NewRiver REIT plc (“the Company”) is a premium listed REIT on
the London Stock Exchange and a constituent of the FTSE250
and EPRA Indices. The Company is a specialist real estate
investor, asset manager and developer focused solely on the
UK retail and leisure sector.
Strategic Report
The Strategic Report for the year ended 31 March 2018 is set
out on pages 1 to 77 and contains a fair review of the business
of the Group during the year including a description of the
principal risks and uncertainties, an indication of likely future
developments in the business on page 42 and disclosures
concerning Greenhouse Gas Emissions on page 71.
Results and dividend
The results for the year are set out in the Financial
Statements. During the year the Group paid quarterly interim
dividends totalling £63 million (2017: £47 million). Further
details on the dividend payments are set out in note 11 to
the Financial Statements.
The Board
The Directors, who served throughout the year unless stated
otherwise, are detailed below:
Paul Roy
Non-Executive Chairman
Allan Lockhart
Chief Executive Officer
Mark Davies
Chief Financial Officer
David Lockhart
Executive Deputy Chairman
Margaret Ford
Senior Independent Non-Executive
Director – appointed 1 September 2017
Kay Chaldecott
Non-Executive Director
Alastair Miller
Non-Executive Director
Chris Taylor resigned on 9 April 2017. The Board recognises
the requirement of the UK Corporate Governance Code
regarding the segregation of roles and division of
responsibilities between the Chairman and Chief Executive
and has complied with this requirement during the year.
The Board has determined that a major part of its role is the
overall strategy of the Group and to consider the following
matters which are key to the performance of the Group:
•
implementation of the agreed business strategy to focus on
value creating retail and leisure property opportunities;
• ensuring adequate funding is in place to implement the
Group’s business model;
• monitoring of cash management policies and cash
•
flow forecasts;
the methodology and results of three year business plans
for each asset held;
• responsibility for the financial reporting procedures
and safeguarding the Group’s assets and those held in
joint ventures;
• approval of the annual and interim financial statements and
annual budget;
• review of quarterly management accounts
including forecasts;
• dividend policy and approval of all dividend payments;
the performance of and relationships with key service
•
providers including corporate brokers and advisers;
• any significant fees payable to any related party;
• monitoring key performance indicators; and
• establishing and maintaining appropriate delegated
authorities, internal controls and risk management policies
and procedures.
Articles of Association
The rules governing the appointment and replacement of
Directors are contained in the Company’s Articles of
Association. Changes to the Articles of Association must be
approved by shareholders in accordance with legislation in
force from time to time. A copy of the Company’s Articles of
Association can be found on the Company’s website,
www.nrr.co.uk.
Substantial shareholdings
As at 31 March 2018, the Company has been advised under
DTR5 by shareholders with holdings of more than 3% of the
total voting rights of the Company as follows:
Shareholder
Woodford Investment
Management
Invesco Perpetual Asset
Management
BlackRock Investment
Management
Number of
ordinary shares
% of Issued
Share Capital
84,829,167
28.00
45,534,604
15.03
14,902,156
4.92
106
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
107
109
GOVERNANCE
DIRECTORS’ REPORT CONTINUED
Directors’ interests
Directors in the shares of the Company as at 31 March 2018 were:
Paul Roy
David Lockhart
Mark Davies
Allan Lockhart
Margaret Ford
Kay Chaldecott
Alastair Miller
31 March 2018
Number of
Ordinary Shares
31 March 2017
Number of
Ordinary Shares
240,000
1,752,626
240,000
1,554,600
139,727
277,944
25,000
3,774
35,956
124,838
277,944
–
3,774
30,000
All related party transactions are disclosed in note 26 to the
financial statements.
Financial instruments
The Group’s exposure to and management of capital risk,
market risk and liquidity risk is set out in note 24 to the Group’s
financial statements.
Directors’ indemnification and insurance
The Company’s articles of association provide for the Directors
and officers of the Company to be appropriately indemnified,
subject to the provisions of the Companies Act 2006. The
Company purchases and maintains insurance for the Directors
and officers of the Company in performing their duties, as
permitted by section 233 Companies Act 2006.
Share capital
The Company has one class of share capital, being ordinary
shares with a nominal value of one penny each. Details of the
share capital, including the rights and obligations attached to
the ordinary shares issued during the year ended 31 March
2018, are summarised in note 21 of the financial statements.
At the Annual General Meeting held in 2017, shareholders
authorised market purchases of the Company’s ordinary
shares, limited to 14.99% of the issued share capital at that
time, as well as the allotment of new shares within certain limits
approved by shareholders. These authorities expire are the
AGM in 2018 and appropriate renewals will be sought.
The Company has 380,000 warrants to subscribe for ordinary
shares in issue. These warrants were issued when NewRiver
Retail Limited listed in 2009 and were converted across on the
same terms and conditions to warrants in NewRiver REIT plc
when the Company listed on the Main Market in August 2016.
Each warrant can be surrendered for one ordinary share at a
current subscription price of 132p per share. The warrants in
issue have to be exercised by 1 September 2019 otherwise
they will lapse.
There are no securities of the Company carrying special rights
with regards to the control of the Company in issue.
Disclosure of information to Auditors
The Directors who held office at the date of approval of this
Directors’ report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s
auditor is unaware and that each Director has taken all the
steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and ensure
that the auditor is aware of such information.
Auditor
Deloitte LLP has expressed its willingness to continue in office
as auditor and a resolution to reappoint them will be proposed
at the forthcoming Annual General Meeting.
Political Donations
No political donations were made by the Company or its
subsidiaries during the year (2017: Nil).
Pubs Code Regulations
In accordance with the Pubs Code Regulations 2016 the
Company has produced an annual compliance report to be
submitted the Pubs Code Adjudicator (PCA). The report details
the Company’s compliance with the Pubs Code where
applicable; instances of breaches and alleged breaches; and
additional steps taken to ensure compliance. The Company
has complied with the regulations and there have been no
breaches or alleged breaches during the period. The Company
has conducted additional staff training to ensure continued
compliance. The Company’s annual compliance report will be
submitted to the PCA on 31 July 2018.
Annual General Meeting
The Annual General Meeting will be held at 11:00a.m on
4 July 2018 at the offices of Eversheds Sutherland LLP, One
Wood Street, London, EC2V 7WS. At the meeting, resolutions
will be proposed to receive the Annual Report and financial
statements, approve the Directors’ remuneration report,
re-elect Directors and reappoint and determine the
remuneration of Deloitte. In addition, it will be proposed that
expiring authorities to allot shares and to repurchase shares
are extended.
Internal controls review
Taking into account the principal risks provided on pages 75 to
77 and the ongoing work of the Audit Committee in monitoring
the risk management and internal control systems on behalf of
the Board as described on pages 85 to 88, the Directors:
• are satisfied that they have carried out a robust assessment
of the principal risks facing the Group, including those that
would threaten its business model, future performance,
solvency or liquidity; and
• have reviewed the effectiveness of the risk management
and internal control systems and no significant failings
were identified.
108
110
NewRiver REIT plc Annual Report and Accounts 2017
NewRiver REIT plc Annual Report and Accounts 2018
VIABILITY STATEMENT
For the year ended 31 March 2018
Going concern
The Directors of NewRiver REIT plc have reviewed the
current and projected financial position of the Group making
reasonable assumptions about future trading and performance.
Further details of the process followed are on page 126.
The Directors’ Report was approved by the Board of Directors
and is signed on its behalf by:
Mark Davies
Chief Financial Officer
23 May 2018
The Board, as part of its strategy process, has assessed the
viability of the Group over a three-year period to March 2021
as this timeframe gives greater certainty over the forecasting
used. When assessing the Group’s long-term viability,
the Board considered the Group’s existing investment
commitments, available financial resources and long-term
financing arrangements. They also considered profits; the
three-year cash flow forecast for the portfolio, the Group’s
funding requirements, REIT compliance and other key financial
ratios over the period, as well as the headroom in the financial
covenants contained in our various loan agreements.
In making their assessment, the Directors assessed the
potential impacts, in severe but plausible scenarios, of the
principal risks as set out on pages 75 to 77 together with the
likely degree of effectiveness of mitigating actions reasonably
expected to be available to the Group.
The most relevant, with the highest potential impact, of these
risks on viability were considered to be:
• market/economic changes such as higher interest rates,
reduced availability of credit and increasing investment
yields restricting development and causing valuation falls;
• a decline in property valuations as a result of investment
decisions could result in lower income and capital returns to
shareholders than forecast and expose them to unforeseen
risks and liabilities; and
• poor control of development projects could lead to
inadequate returns on investment and over exposure
to developments could put pressure on cash flow and
debt financing.
The nature of the Group’s business as the owner and asset
manager of a diverse income producing portfolio of shopping
centres, retail warehouses, high street assets, and public
houses located throughout the UK and let to a wide variety of
national tenants reduces the impact of adverse changes in the
general economic environment or market conditions in any
one sector on the Group.
On the basis of this and other matters considered by the Board
during the year, the Board has a reasonable expectation that
the Group will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their
detailed assessment.
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
109
111
GOVERNANCE
DIRECTORS’ REPORT CONTINUED
DIRECTORS’ RESPONSIBILITIES
STATEMENT
We confirm that, to the best of our knowledge:
•
•
•
the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by
the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as
a whole;
the strategic report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included in
the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and
the annual report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
This responsibility statement was approved by the Board of
Directors and is signed on its behalf by:
Allan Lockhart
Chief Executive Officer
23 May 2018
Mark Davies
Chief Financial Officer
The Directors are responsible for preparing the Annual
Report, the Directors’ Remuneration Report and the Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the Group’s financial statements in
accordance with International Financial Reporting Standards as
adopted by the European Union. Under company law the
Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of affairs
of the Group and of the profit or loss of the Group for that
period.
In preparing these financial statements, the Directors are
required by International Accounting Standard 1 to:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the entity’s financial position
and financial performance; and
• make an assessment of the Company’s ability to continue
as a going concern.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain the
Group’s transactions and disclose with reasonable accuracy at
any time the financial position of the Group and enable them to
ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006
and, as regards the Group Financial Statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the
assets of the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included on
the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
110
112
NewRiver REIT plc Annual Report and Accounts 2017
NewRiver REIT plc Annual Report and Accounts 2018
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEWRIVER REIT PLC
REPORT ON THE AUDIT OF THE
FINANCIAL STATEMENTS
Opinion
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 March
2018 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice including Financial Reporting Standard 101 “Reduced Disclosure Framework; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of NewRiver REIT plc (the ‘parent company’) and its subsidiaries (the ‘Group’)
which comprise:
the Consolidated Statement of Comprehensive Income;
the Consolidated and Company Balance Sheets;
the Consolidated Cash Flow Statement;
the Consolidated and Company Statements of Changes in Equity; and
the related notes 1 to 27 and A to E.
•
•
•
•
•
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent
company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure
Framework" (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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111
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FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEWRIVER REIT PLC CONTINUED
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Key judgements within the valuation of the shopping centre, high street and retail warehouse portfolio,
including development properties;
• Key judgements within the valuation of the pub portfolio, including C-store development; and
• The accounting treatment of the acquisition of the PIMCO joint ventures.
Within this report, any new key audit matters are identified with
same as the prior year identified with
.
and any key audit matters which are the
Materiality
Scoping
The materiality that we used for the Group financial statements was £14.05 million which was determined
on the basis of approximately 1% of total assets.
We performed a full scope audit to respond to the risks of material misstatement for the Group and
performed an audit of specified account balances for the joint venture entities.
Together these elements account for 100% of the Group's net assets and 100% of profit before tax.
Significant changes
in our approach
There have been no significant changes to our audit approach in 2018. We have continued to focus on the
key judgements within the investment property valuations. The key audit matter related to accounting for
investment property acquisitions has been specified to the PIMCO joint ventures transaction.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in note 1 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing them and
their identification of any material uncertainties to the Group’s and company’s ability to continue to
do so over a period of at least twelve months from the date of approval of the financial statements.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
We are required to state whether we have anything material to add or draw attention to in relation
to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially
inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in
the evaluation of the directors’ assessment of the Group’s and the company’s ability to continue as
a going concern, we are required to state whether we have anything material to add or draw
attention to in relation to:
•
•
•
the disclosures on pages 74 to 77 that describe the principal risks and explain how they are
being managed or mitigated;
the directors' confirmation on page 110 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity; or
the directors’ explanation on page 126 as to how they have assessed the prospects of the
group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the
Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in
the audit.
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Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key judgements within the valuation of the shopping centre, high street and retail warehouse portfolio,
including development properties
Key audit matter
description
NewRiver REIT plc owns and manages a portfolio of commercial assets. The valuation of the shopping
centre, high street and retail warehouse portfolio (including a number of development properties) is a
significant judgement area and is underpinned by a number of assumptions.
The Group uses professionally qualified external valuers to fair value its portfolio at six-monthly intervals.
The portfolio (excluding development properties) is valued using the ‘investment method’ of valuation, in
which the principal assumptions include estimated rental values and capitalisation yields. Development
properties are valued by applying the same methodology, but with a deduction for all future costs
necessary to complete the development together with an allowance for remaining risk, developers’ profit
and purchasers’ costs (‘the residual method’).
Due to the high level of judgement in the estimates outlined above, we consider this to be a risk of material
misstatement as well as a potential fraud risk.
The Group's share of property assets are valued at £1,059.7 million (2017: £952.8 million) of which
£1,047.3 million are held by subsidiaries (2017: £995.9 million) and £12.4 million by joint ventures
(2017: £134.6 million).
Please see note 1 and 12 to the financial statements and discussion in the report of the Audit Committee on
page 87.
We assessed, in consultation with our property valuation specialists, management’s process for reviewing
and challenging the work of the external valuer and development appraisals. We also assessed the
competence, independence and integrity of the external valuer.
In consultation with our property valuation specialists, we performed detailed analysis of the valuations
for a sample of properties in the portfolio. We performed audit procedures to assess the integrity of
information provided to the independent valuer including agreement on a sample basis back to underlying
lease agreements.
Alongside our property valuation specialists, we held discussions with the external valuers of the portfolio
to understand the valuation process, performance of the portfolio and significant assumptions and critical
judgement areas, including estimated rental values and yields. We benchmarked these assumptions to
relevant external industry data and comparable property transactions, in particular the yield.
For development properties we assessed future costs to complete based on development appraisals.
We assessed the classification of development properties and whether the methodology applied (i.e.
investment or residual method) was appropriate. We also assessed the allowances in the valuation for
developers’ profit.
How the scope
of our audit
responded to the
key audit matter
Key observations
We have concluded that the assumptions applied in arriving at the fair value of the Group's shopping
centre, high street and retail warehouse portfolio were appropriate and that resulting valuations were
within an acceptable range.
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113
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FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEWRIVER REIT PLC CONTINUED
Key judgements within the valuation of the pub portfolio, including C-store development
Key audit matter
description
NewRiver REIT plc owns a pub portfolio comprising of approximately 331 pubs (2017: 350) with a fair value
of £179.9 million (2017: £177.8 million).
The extent and variety of judgements involved in the valuation of the pub portfolio is different to the rest of
the investment property portfolio due to the specific operational nature of the properties, as well as the
contractual arrangements in place with Marston’s, the Co-op and LT Pub Management.
Due to the high level of judgement in the estimates outlined below, we consider this to be a risk of material
misstatement as well as a potential fraud risk.
The Group uses professionally qualified external valuers to fair value its portfolio at six-monthly intervals.
Within the portfolio, 280 pubs (fair value of £121.5 million) are valued as income producing pubs using the
‘investment method’ of valuation, whereby the principal assumptions include income from fair maintainable
trade ("FMT") and capitalisation multiples.
In addition, a rental agreement is in place with Marston’s for 22 properties (fair value of £15.3 million) and a
total of 19 properties have been delivered to the Co-op (fair value of £21.5 million). These properties are
valued using the ‘investment method’ of valuation, where principal inputs include rental values and
capitalisation yields.
The remaining 18 properties outlined for development (fair value of £14.3 million) are valued using a gross
development value calculated as initial rent due upon completion of the development with an applied
capitalisation yield; less a deduction for future costs to complete and an allowance for planning risk,
developers’ profit and purchasers’ costs (‘the residual method’).
Please see note 1 and 12 to the financial statements and discussion in the report of the Audit Committee on
page 87.
How the scope of
our audit responded
to the key audit
matter
We assessed, in consultation with our property valuation specialists, management’s process for reviewing
and challenging the work of the external valuer and development appraisals. We also assessed the
competence, independence and integrity of the external valuer.
Alongside our property valuation specialists, we held discussions with the external valuers of the portfolio to
understand the valuation process, performance of the portfolio and significant assumptions and critical
judgement areas. This included the following specific procedures for each part of the pub portfolio:
In respect of the income producing pubs:
• We engaged with our internal valuation specialists in order to benchmark the capitalisation multiples
applied by the external valuers against relevant industry data and market transactions.
• For a sample of pubs we benchmarked FMT adopted by the external valuer against actual historic
performance (including contracted fixed rent, beer volumes and beer margin), corroborating
explanations for any differences.
In respect of the development properties:
• For a sample of development properties and alongside our internal valuation specialists, we challenged
and corroborated movements in valuations.
• This included verification of underlying costs and stage of completion to reports from the Group's
external quantity surveyors and agreeing planning risk assumptions to reports provided by the Group's
external planning consultants.
• For a sample of development properties, we also performed a retrospective review of budgeted vs
actual costs incurred in order to assess the reliability of estimates.
In respect of the remaining properties:
• We engaged with our internal valuation specialists in order to benchmark the capitalisation yields
applied by the external valuers for the Marston's and Co-op leases against relevant industry data and
comparable property transactions.
• We agreed contracted rent back to underlying lease agreements with Marston's and the Co-op.
Key observations
We have concluded that the assumptions applied in arriving at the fair value of the Group's pub portfolio
were appropriate and that resulting valuations were within an acceptable range.
114
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The accounting treatment of the acquisition of the PIMCO joint ventures
Key audit matter
description
The Group has completed the acquisition of the PIMCO joint ventures for a cash consideration of £59.4m.
The transaction was completed under a single agreement for the purchase of the equity in 4 corporate
vehicles.
Consistent with the acquisition of previous joint venture structures, the transactions have been accounted
for as a business combination. Judgement is required to determine whether the transaction was the
acquisition of a group of assets, or a business combination within the scope of IFRS 3 Business
combinations.
Please see note 2 and 22 to the financial statements and discussion in the report of the Audit Committee
on page 87.
How the scope of
our audit responded
to the key audit
matter
We considered management’s analysis of the transaction and assessed their rationale for concluding that it
represented a business combination. In particular, we challenged management to demonstrate that the
assets and liabilities acquired through corporate vehicles are capable of being conducted and managed as
a business.
We have examined relevant documents including the sale and purchase agreement to confirm the
consideration paid and other particulars of acquisition.
We have verified the valuation estimates and the inputs to the recorded gain on bargain purchase of £2.96
million.
We also reviewed the completeness and accuracy of disclosures presented in the financial statements in
relation to business combinations.
Key observations
We have concluded that the analysis of the transaction conducted by management identifying that the
acquisition of the PIMCO joint ventures should be accounted for as a business combination was consistent
with the principles of IFRS 3.
NewRiver REIT plc Annual Report and Accounts 2018
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115
117
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEWRIVER REIT PLC CONTINUED
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Materiality
£14.05 million (2017: £13.96 million) and a lower materiality of £2.65 million
(2017: £2.26 million) for balances affecting EPRA earnings.
Parent company
financial statements
£13.91 million
Basis for
determining
materiality
We determined materiality for the Group based on approximately 1% of total assets
(2017: 2% of shareholders' equity).
The change in the basis for determining materiality reflects the new unsecured
financing structure of the Group and the reduced level of gearing.
The lower materiality used for balances impacting EPRA earnings was determined
based on approximately 5% (2017: 5%) of EPRA earnings.
We determined materiality
for the company based on
approximately 1% of total
assets. Materiality
however was capped at
99% of Group materiality.
Rationale for the
benchmark
applied
We determined that total assets would be the most appropriate basis for
determining overall materiality given that key users of the Group’s financial
statements are primarily focussed on the valuation of the Group’s assets; principally
the investment property portfolio (whether held directly or through joint ventures).
In addition to total assets, we consider EPRA earnings per share to be a critical
financial performance measure for the Group on the basis that it is a key metric for
analysts and investors. EPRA earnings per share is based on the Group’s EPRA
earnings which is reconciled to IFRS profit after taxation in note 10. We applied this
lower threshold for testing all balances impacting EPRA earnings.
The parent company is
primarily a holding
company for investments
in subsidiaries of the
Group and has limited
trading.
Group materiality £14.05m
and Parent materiality £13.91m
Audit Committee reporting threshold £0.281m
Total assets £1,390.4m
Total assets
Group materiality
Group materiality £2.26m
Audit Committee reporting threshold £0.281m
EPRA earnings £53m
EPRA earnings
Group materiality
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NewRiver REIT plc Annual Report and Accounts 2018
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £281,000 (2017:
£273,000) for the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including group-wide controls, and
assessing the risks of material misstatement at the Group level.
We performed a full scope audit to respond to the risks of material misstatement for the Group and performed an audit of specified
account balances for the joint venture entities. Together these elements account for 100% (2017: 100%) of the Group's net assets
and 100% (2017: 100%) of Group’s profit before tax. Our audit work was executed at levels of Group or EPRA earnings materiality
applicable to each account balance.
The audit of the Group’s joint venture with Morgan Stanley Real Estate Fund (“MSREF”), which has a 31 December 2017 year end, is
carried out by BDO LLP. We have obtained and reviewed the audited financial statements.
At the parent entity level we also tested the consolidation process. We have obtained an understanding of the Group’s system of
internal controls and undertaken a combination of procedures, all of which are designed to target the Group’s identified risks of
material misstatement in the most effective manner possible.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider
the annual report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the group’s
position and performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules relating to the company’s compliance with
the UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
NewRiver REIT plc Annual Report and Accounts 2018
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117
119
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF NEWRIVER REIT PLC CONTINUED
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
•
In the light of the knowledge and understanding of the group and of the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns.
•
We have nothing to
report in respect of
these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of
directors’ remuneration have not been made or the part of the directors’ remuneration report to be audited is
not in agreement with the accounting records and returns.
We have nothing to
report in respect of
these matters.
118
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NewRiver REIT plc Annual Report and Accounts 2017
NewRiver REIT plc Annual Report and Accounts 2018
Other matters
Auditor tenure
We were appointed by the Board of Directors on 25 May 2010 to audit the financial statements of NewRiver Retail Limited (the
previous parent company of the Group) for the period from incorporation ending 31 March 2010 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 9 years, covering the
period/years ending 31 March 2010 to 31 March 2018.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
David Becker ACA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
St Peter Port, Guernsey
23 May 2018
NewRiver REIT plc Annual Report and Accounts 2018
NewRiver REIT plc Annual Report and Accounts 2018
119
121
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2018
Gross income
Property operating expenses
Net property income
Administrative expenses
Share of income from joint ventures
Net valuation movement
Profit on disposal of investment properties
Operating profit
Finance income
Finance costs
Revaluation of derivatives
Profit for the year before taxation
Taxation
Profit for the year after taxation
Earnings per share
Basic (pence)
Diluted (pence)
Operating
and
financing
2018
£’000
106,297
(19,229)
87,068
(17,414)
1,981
–
4,893
76,528
63
(16,874)
–
59,717
(1,200)
58,517
Fair value
adjustments
2018
£’000
–
–
–
–
(527)
(12,902)
–
(13,429)
–
(3,112)
3,756
(12,785)
–
(12,785)
Notes
4
5
6
13
12
7
8
8
8
9
10
10
Profit for the year after taxation
Other comprehensive income
Revaluation of derivatives reclassified to profit or loss
Group’s share of joint ventures’ other comprehensive income
Revaluation of derivatives reclassified to profit or loss
Total comprehensive income for the year
All activities derive from continuing operations of the Group.
The notes on pages 126 to 151 form an integral part of these financial statements.
Operating
and
financing
2017
£’000
96,100
(15,705)
80,395
(15,375)
6,033
–
894
71,947
61
(15,200)
–
56,808
(1,201)
55,607
Fair value
adjustments
2017
£’000
–
–
–
–
(769)
(15,030)
–
(15,799)
–
–
(3,607)
(19,406)
–
(19,406)
Total
2018
£’000
106,297
(19,229)
87,068
(17,414)
1,454
(12,902)
4,893
63,099
63
(19,986)
3,756
46,932
(1,200)
45,732
16.0
16.0
2018
£’000
45,732
–
–
45,732
Total
2017
£’000
96,100
(15,705)
80,395
(15,375)
5,264
(15,030)
894
56,148
61
(15,200)
(3,607)
37,402
(1,201)
36,201
15.5
15.4
2017
£’000
36,201
1,959
(117)
38,043
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NewRiver REIT plc Annual Report and Accounts 2018
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2018
Non-current assets
Investment properties
Investments in joint ventures
Property, plant and equipment
Derivative financial instruments
Total non-current assets
Current assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Current liabilities
Borrowings
Trade and other payables
Current taxation liabilities
Derivative financial instruments
Total current liabilities
Non-current liabilities
Derivative financial instruments
Borrowings
Total non-current liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Total equity
Net Asset Value (NAV) per share (pence)
EPRA
Basic
Diluted
Notes
2018
£'000
2017
£'000
12 1,227,212 995,928
71,763
13
351
14
626
16
1,240,011 1,068,668
8,509
951
3,339
15
16
17
34,427
122
115,801
150,350
1,390,361
5,373
–
45,956
51,329
1,119,997
19
18
16
–
38,731
2,125
–
40,856
100,084
28,729
1,200
160
130,173
2,291
16
173
19 456,952 302,995
457,125 305,286
892,380 684,538
2,340
21
3,029
1,691
21 223,287
21
(2,335)
(2,335)
21 668,399 682,842
892,380 684,538
10
10
10
292p
294p
293p
292p
292p
290p
The notes on pages 126 to 151 form an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 23 May 2018 and were signed on its behalf by:
Allan Lockhart
Chief Executive
NewRiver REIT plc
Registered number: 10221027
Mark Davies
Chief Financial Officer
NewRiver REIT plc Annual Report and Accounts 2018
123
FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2018
Cash flows from operating activities
Profit for the year before taxation
Adjustments for:
Profit on disposal of investment property
Net valuation movement
Net valuation movement in joint ventures
Share of income from joint ventures
Gain on bargain purchase
Net interest expense
Net interest expense – write off of unamortised fees
Revaluation of derivatives
Rent free lease incentives
Movement in provision for bad debts
Amortisation of legal and letting fees
Depreciation on property plant and equipment
Share based-payment expense
Cash generated from operations before changes in working capital
Changes in working capital
(Increase)/decrease in receivables and other financial assets
(Decrease)/increase in payables and other financial liabilities
Cash generated from operations
Interest paid
Corporation tax paid
Dividends received from joint ventures
Net cash inflow from operating activities
Cash flows from investing activities
Interest income
Purchase of investment properties
Business combinations
Disposal of investment properties
Development and other capital expenditure
Investment in joint venture
Purchase of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of new shares
Repayment of bank loans
New borrowings
Purchase of derivatives
Dividends paid – special
Dividends paid – ordinary
Net cash generated from financing activities
Cash and cash equivalents at beginning of the year
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 31 March
The notes on pages 126 to 151 form an integral part of these financial statements.
124
NewRiver REIT plc Annual Report and Accounts 2018
2018
£'000
2017
£'000
46,932
37,402
(4,893)
12,902
564
(2,018)
(2,964)
16,811
3,112
(3,756)
(3,321)
81
346
313
2,559
66,668
(10,808)
(1,176)
54,684
(15,069)
(275)
2,329
41,669
(894)
15,030
419
(5,683)
–
15,139
–
3,607
(1,949)
(98)
345
106
1,434
64,858
873
1,132
66,863
(13,273)
(137)
6,050
59,503
63
(31,238)
(53,621)
44,211
(17,267)
–
(913)
(58,765)
61
(162,208)
–
10,012
(15,511)
(2,541)
(138)
(170,325)
222,285
(577,511)
506,152
(1,896)
(7,019)
(55,070)
86,941
45,956
69,845
115,801
1,839
(65,943)
153,630
(819)
–
(46,000)
42,707
114,071
(68,115)
45,956
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AS AT 31 MARCH 2018
As at 31 March 2016
Profit for the period after taxation
Fair value on financial derivatives
Total comprehensive income for the period
Transactions with equity holders
Net proceeds of issue from new shares
Share-based payments
Dividend paid
As at 31 March 2017
Profit for the year after taxation
Total comprehensive income for the year
Transactions with equity holders
Net proceeds of issue from new shares
Cost of issue of new shares
Share-based payments
Dividends paid
As at 31 March 2018
Notes
21
23
11
21
23
11
Share
capital
£'000
2,334
–
–
–
6
–
–
2,340
–
–
Share
premium
£'000
–
–
–
–
1,691
–
–
1,691
–
–
689
–
–
–
227,186
(5,590)
–
–
3,029 223,287
Merger
reserve
£'000
(2,334)
–
–
–
(1)
–
–
(2,335)
–
–
–
–
–
–
(2,335)
Hedging
reserve
£'000
Retained
earnings
£'000
(1,842) 691,709
36,201
–
36,201
–
1,842
1,842
Total
£'000
689,867
36,201
1,842
38,043
143
1,434
(46,645)
1,839
–
1,434
–
–
(46,645)
– 682,842 684,538
–
–
45,732
45,732
45,732
45,732
–
–
2,559
(62,734)
227,875
–
(5,590)
–
2,559
–
–
(62,734)
– 668,399 892,380
The notes on pages 126 to 151 form an integral part of these financial statements.
NewRiver REIT plc Annual Report and Accounts 2018
125
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies
General information
Scheme of arrangement
During the prior period, the Group completed its move from AIM to the premium listing segment of the official list, trading on the
Main Market of the London Stock Exchange. NewRiver REIT plc became the ultimate parent company, with the former parent
company, NewRiver Retail Limited, becoming a direct subsidiary of NewRiver REIT plc, in a scheme of arrangement on 18 August
2016. The principal steps of the group reorganisation were as follows:
NewRiver REIT plc was incorporated in the United Kingdom on 8 June 2016 under the Companies Act 2006 as a public company.
On incorporation, the share capital of NewRiver REIT plc was £50,000.02 divided into 2 ordinary shares of 1 pence and 50,000
redeemable preference shares of £1. The preference shares were redeemed on 12 October 2016.
As part of a scheme of arrangement under Guernsey law, all issued ordinary shares in the capital of NewRiver Retail Limited, the
former holding company of the Group, were cancelled by way of a reduction of capital on 18 August 2016. Following the
cancellation of the shares, NewRiver Retail Limited issued a corresponding number of ordinary shares to the Company, such that
the Company held all of the issued shares in the capital of NewRiver Retail Limited. The Company, in turn, issued ordinary shares to
the former shareholders of NewRiver Retail Limited on a one-for-one basis. The result of the share cancellation and share issue was
that the Company became the ultimate parent company of the Group.
Throughout the period from incorporation to 18 August 2016, NewRiver REIT plc was a dormant company with no revenues and no
assets and did not constitute a business as defined by IFRS 3 Business Combinations. The transaction therefore falls outside the
scope of that standard. Following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors, the transaction has been accounted for using the principles of
merger accounting, allowed for group reconstructions, as set out in FRS 102, the Financial Reporting Standard applicable in the UK
and Republic of Ireland.
This policy, which does not conflict with IFRS, reflects the economic substance of the transaction as a continuation of the previous
Group. The comparatives presented in these consolidated financial statements include the consolidated results and financial
position of NewRiver Retail Limited for the period from 1 April 2016 to 18 August 2016.
Going concern
The Directors of NewRiver REIT plc have reviewed the current and projected financial position of the Group making reasonable
assumptions about future trading and performance. The key areas reviewed were:
• Value of investment property
• Timing of property transactions
• Capital expenditure and tenant incentives
• Rental income
• Loan covenants
• Capital and debt funding
The Group has cash and short-term deposits, as well as profitable rental income streams and as a consequence the Directors
believe the Group is well placed to manage its business risks. Whilst the Group has borrowing facilities in place, as detailed in note
19, the Group is currently within all financial covenants. The Group has undrawn bank facilities to fund any future acquisitions and
risk-controlled developments. During the year, the Group completed its move from secured to unsecured financing.
After making enquiries and examining major areas which could give rise to significant financial exposure, the Board has a
reasonable expectation that the Company and the Group have adequate resources to continue its operations for the foreseeable
future. Accordingly, the Group continues to adopt the going concern basis in preparation of these financial statements. The Group’s
viability statement is on page 111.
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.
Basis of preparation
Statement of compliance
These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting
Standards, as adopted by the European Union (‘IFRS’), therefore the Group financial statements comply with Article 4 of the EU IAS
Regulation. The financial statements are presented in pounds Sterling. The financial statements have been prepared under the
historical cost convention, as modified by the revaluation of investment properties and derivatives which are stated at fair value.
126
NewRiver REIT plc Annual Report and Accounts 2018
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 where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its activities. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intra group transactions
are eliminated in full.
Changes in accounting policy and disclosure
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have
been issued but are not yet effective:
•
•
•
•
•
•
•
•
•
•
IAS 7 (Amendments) Disclosure Initiative
IAS 12 (Amendments) Recognition of Deferred Tax Assets for Unrealised Losses
IAS 40 (Amendments) Transfers of Investment Property
IFRS 2 (Amendments) Classification and Measurement of Share-based Payment Transactions
IFRS 4 (Amendments) Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
IFRS 9 Financial Instruments
IFRS 14 Regulatory Deferral Accounts
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
IFRIC 22 Foreign Currency Transactions and Advance Consideration
Impact assessment of adopting new accounting Standards and Interpretations
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of
the Group in future periods. Further details of IFRS 9, IFRS 15 (both mandatory for financial years commencing on or after 1 January
2018) and IFRS 16 (mandatory for financial years commencing on or after 1 January 2019) are given below.
IFRS 9 Financial Instruments
This standard deals with the classification, measurement and recognition of financial assets and liabilities and replaces the
guidance in IAS 39 Financial instruments: Recognition and Measurement. The impairment model under IFRS 9 reflects expected
credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary
for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit
losses and changes in those expected credit losses. The new impairment model will apply to the Group’s financial assets including
trade and other receivables and cash and cash equivalents. The Directors expect to apply the simplified approach to recognise
lifetime expected credit losses for these current assets. As such, the Directors do not currently expect there to be any material
impact on the adoption of IFRS 9. There will also be no change in the accounting for financial liabilities. Derivative financial
instruments continue to qualify for designation as at fair value through the profit and loss under IFRS 9. Having carried out an
assessment of the standard the impact is immaterial from an earnings and net asset value perspective as the Group settled the
majority of their derivatives during the refinance.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 combines a number of previous standards, setting out a five-step model for the recognition of revenue and establishing
principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of
revenue. The standard is applicable to service charge income, car park income and asset management income. The Group do not
consider that its adoption will have a material impact on the financial statements.
NewRiver REIT plc Annual Report and Accounts 2018
127
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
IFRS 16 Leases
This standard 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 will be recognised in the statement of
comprehensive income. The Group is undertaking detailed analysis of the impact of IFRS 16.
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.
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.
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.
Investment property
Property held to earn rentals or for capital appreciation, or both, is classified as investment property. Investment property comprises
both freehold and leasehold land and buildings.
Investment property is recognised as an asset when:
It is probable that the future economic benefits that are associated with the investment property will flow to the Company;
•
• There are no material conditions precedent which could prevent completion; and
• The cost of the investment property can be measured reliably.
Investment property is measured initially at its cost, including transaction costs. After initial recognition, investment property is
carried at fair value. Additions to properties include costs of capital nature only. Expenditure is classified as capital when it results in
future economic benefits which are expected to accrue to the Group. All other property expenditure is written-off in the Statement
of Comprehensive Income as it is incurred. Premiums payable to tenants in connection with the surrender of their lease obligations
are capitalised if they arise in connection with a value-enhancing project, otherwise they are recognised immediately in the
Statement of Comprehensive Income.
Gains or losses arising from changes in the fair value of investment property are included in the Statement of Comprehensive
income in the period in which they arise.
When the Group begins to redevelop an investment property for continued future use as an investment property, the property
remains an investment property.
Investment property is derecognised when the risk and rewards of the property is transferred to the purchaser. Gains or losses on
the sale of properties are calculated by reference to the carrying value at the end of the previous year, adjusted for subsequent
capital expenditure.
128
NewRiver REIT plc Annual Report and Accounts 2018
Capital expenditure, being costs directly attributable to the redevelopment or refurbishment of an investment property, up to the
point of it being completed for its intended use, are capitalised in the carrying value of that property. The costs of properties in
the course of development includes attributable interest and other associated outgoings including attributable development
personnel costs.
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.
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.
Operating leases
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 comprise cash and short-term bank deposits with an original maturity of three months or less which are
readily accessible.
Financial instruments
Financial assets
Financial assets are classified as financial assets at fair value through profit or loss or loans and receivables as appropriate. The
Group determines the classification of its financial assets at initial recognition. Financial assets are recognised upon becoming party
to the contractual terms and are initially measured at fair value plus, in the case of investments not at fair value through profit or
loss, directly attributable transaction costs. The fair value of a non-interest bearing asset is its discounted receivable amount. If the
due date of the asset is less than one year, discounting is omitted.
The Group’s financial assets consist of cash, loans and receivables and derivative instruments.
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.
The Group 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 the Statement of Comprehensive Income.
Trade receivables are carried at amortised cost less a provision for impairment where there is objective evidence (such as the
probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts
due under the original terms. Impaired debts are derecognised when they are assessed as uncollectible.
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.
NewRiver REIT plc Annual Report and Accounts 2018
129
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
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.
130
NewRiver REIT plc Annual Report and Accounts 2018
Revenue recognition
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, the rental income foregone is allocated evenly over the period from the date of
lease commencement to the expiry date of the lease.
Where a lease incentive payment or surrender premium is 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. 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
immediately reflected in income.
Asset management fees
Management fees are recognised in the Statement of Comprehensive Income as the services are delivered.
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 that crystallisation of the fee is virtually certain.
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.
Exceptional items
Performance measures are adjusted to exclude exceptional items. Exceptional items are items that are significant in size or nature,
or are non-recurring and are adjusted to explain the performance of the Group. In the comparative year exceptional items
consisted of the Group’s expenses in relation to the move from AIM to the Main Market.
NewRiver REIT plc Annual Report and Accounts 2018
131
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
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 17 July 2017, the Group acquired the remaining 50%
share in its BRAVO joint ventures, NewRiver Retail Property Unit Trusts No,2 No.5, No.6 and No.7 for a cash consideration of
£59.4million. It was determined that a business had been acquired on the basis that the group of assets and liabilities acquired
could be managed. This is consistent with treatment of acquiring the Group’s other Property Unit Trust interests. All other
acquisitions have been accounted for as an asset acquisition on the basis that none of their processes had been acquired. When
management conclude that processes and inputs are being acquired in addition to the property then the transaction is accounted
for as a business combination. Where there are no such items, the transaction is treated as an asset purchase.
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 reviewed annually for impairment. Any discount received or
acquisition related costs are recognised in the Statement of Comprehensive Income.
Sources of estimation uncertainty
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.
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. The impact on the valuation will be
mitigated by the interrelationship of two unobservable inputs moving in directions which have an opposite impact on value e.g. an
increase in rent may be offset by an increase in yield, resulting in no net impact on the valuation.
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.
132
NewRiver REIT plc Annual Report and Accounts 2018
3 Segmental reporting
The chief operating decision maker is the Board of Directors. The Board of Directors are of the opinion that the principal activity of
the Group is to invest in commercial real estate in the UK.
IFRS requires operating segments to be identified on the basis of internal financial reports about components of the Group that are
regularly reviewed by the chief operating decision maker i.e. the Board of Directors. The internal financial reports received by the
Board contain financial information at a Group level and there are no reconciling items between the results contained in these
reports and the amounts reported in the financial statements.
The property portfolio includes investment properties located throughout the UK, predominantly regional investments outside
London and comprises a diverse portfolio of commercial buildings including shopping centres, retail warehouses, high street
assets, convenience stores and pubs. The Directors consider that these properties all contribute to delivering on a strategy of
targeting higher-yielding property that offer attractive returns through rental income. Therefore, these individual properties have
been aggregated into a single operating segment.
All of the Group’s properties are based in the UK. No geographical grouping is contained in any of the internal financial reports
provided to the Board and, therefore, no geographical segmental analysis is disclosed.
4 Gross income
Property rental and related income
Asset management fees
Realised gain received from joint venture
Surrender premiums and commissions
Gross income
5 Property operating expenses
Service charge expense
Amortisation of tenant incentives and letting costs
Ground rent
Rates on vacant units
Other property operating expenses
Property operating expenses
2018
£'000
92,597
422
5,201
8,077
106,297
2018
£'000
6,258
1,416
2,751
2,460
6,344
19,229
2017
£'000
83,276
815
–
12,009
96,100
2017
£'000
4,888
1,456
3,187
2,013
4,161
15,705
Property operating expenses have increased year on year by 22% whilst property rental and related income has increased by 11%.
The principal reasons for the increase is presentation of costs in relation to the pub portfolio. An element of the pub portfolio
transitioned during the year from receiving a net rent to a leased model whereby the Group receives gross income and pays
operating expenses.
NewRiver REIT plc Annual Report and Accounts 2018
133
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6 Administrative expenses
Wages and salaries
Social security costs
Other pension costs
Staff costs
Depreciation
Share-based payments
Operating lease payments
Other administrative expenses
Exceptional cost in respect of move from AIM to the main market
Administrative expenses
Net administrative expenses ratio is calculated as follows:
Administrative expenses
Asset management fees
Less main market move costs
Share of joint ventures' administrative expenses
Less share based payments
Group's share of net administrative expenses
Property income
Realised gain received from joint ventures
Less gain on bargain purchase
Share of joint ventures’ property income
Net administrative expenses as a % of property income (including share of joint ventures)
Number of staff
Directors
Asset managers
Support functions
Auditor’s remuneration
Audit of the Company’s financial statements
Audit of subsidiaries, pursuant to legislation
Non-statutory audit fee
Audit related assurance services
Non-audit fees
Total fees
2018
£'000
7,586
1,888
137
9,611
313
2,559
136
4,795
–
17,414
£'000
17,414
(422)
–
294
(2,559)
14,727
92,597
5,201
(2,964)
3,666
98,500
15.0%
7
23
26
56
2018
£'000
155
138
–
35
328
188
516
2017
£'000
6,767
1,815
125
8,707
106
1,434
213
3,724
1,191
15,375
£'000
15,375
(815)
(1,191)
831
(1,434)
12,766
83,276
–
–
10,518
93,794
13.6%
7
21
25
53
2017
£'000
110
130
8
39
287
220
507
Non-audit fees payable to the Company’s auditor in the prior year are for reporting accountant services provided in respect of the
move from AIM to the Main Market. In the current year these relate to reporting accountant services in relation to the corporate
bond and the prospectus required for the equity raise.
134
NewRiver REIT plc Annual Report and Accounts 2018
7 Profit on disposal of investment properties
Gross disposal proceeds
Costs of disposal
Carrying value
Profit on disposal of investment properties
8 Finance income and expense
Finance income
Income from cash and short-term deposits
Finance expense
Interest on borrowings
Early redemption fees and associated costs
Write off of unamortised fees due to refinance
Revaluation of derivatives
Revaluation of derivatives previously recognised in other comprehensive income
Revaluation of derivatives in the year
Net finance expense
9 Taxation
UK Corporation Tax at 19% (2017: 20%)
Current year
Prior year
Taxation
2018
£'000
57,841
(1,056)
(51,892)
4,893
2017
£'000
10,012
(480)
(8,638)
894
2018
£'000
2017
£'000
63
61
(14,668)
(2,206)
(3,112)
(19,986)
(15,200)
–
–
(15,200)
–
3,756
(16,167)
(1,959)
(1,648)
(18,746)
2018
£'000
1,200
–
1,200
2017
£'000
923
278
1,201
The charge for the year can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
Profit before tax
Tax at the current rate of 19% (2017: 20%)
Revaluation of property
Non-deductible expenses
Other timing differences
Non-taxable profit due to REIT regime
Prior year adjustment
Taxation
2018
£'000
46,932
8,917
2,559
–
178
(10,454)
–
1,200
2017
£'000
37,402
7,480
3,090
1,408
221
(11,276)
278
1,201
As at 31 March 2018, the Group has unrecognised tax losses of £1.0 million (March 2017: £1.0 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.
NewRiver REIT plc Annual Report and Accounts 2018
135
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9 Taxation continued
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; and
•
•
• 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.
10 Performance measures
The Group’s key performance measure is ‘Funds from Operations’ or ‘FFO’. This performance measure is intended to measure the
underlying profitability of the Group and as such includes realised cash gains on disposals and adds back expense recognised for
non-cash share-based payment, unrealised gains/losses and the one-off cost in respect of the costs to refinance debt and in the
prior year cost of the move to the main market. 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:
Profit for the year after taxation
Adjustments
Revaluation of investment properties
Profit on disposal of investment properties
Revaluation of derivatives
Gain on bargain purchase
Refinance costs – write off of unamortised fees*
Refinance costs – early redemption and associated fees
Group’s share of joint ventures’ adjustments
Revaluation of investment properties
Loss on disposal of investment properties
Revaluation of derivatives
EPRA earnings
Profit on disposal of investment properties
Loss on disposal of joint ventures’ investment properties
Share-based payment charge
Exceptional cost in respect of move to the main market
Funds From Operations (FFO)
2018
£'000
45,732
2017
£'000
36,201
12,902
(4,893)
(3,756)
(2,964)
3,112
2,206
15,030
(894)
3,607
–
–
–
564
114
(37)
52,980
4,893
(114)
2,559
–
60,318
419
551
350
55,264
894
(551)
1,434
1,191
58,232
* As shown in the Statement of Comprehensive Income, the Group has recognised an expense of £3.1 million in relation to writing off unamortised fees following the
early repayment of certain borrowings. See note 19 for details.
136
NewRiver REIT plc Annual Report and Accounts 2018
Number of shares
Number of shares
Weighted average number of ordinary shares for the purposes of Basic EPS, FFO and EPRA
Effect of dilutive potential ordinary shares:
Share options
Deferred bonus shares
Performance share plan
Warrants
Weighted average number of ordinary shares for the purposes of diluted EPS, FFO and EPRA
Performance measures (pence)
IFRS
Basic EPS
Diluted EPS
FFO
FFO per share
Diluted FFO per share
EPRA
EPRA EPS
Diluted EPRA EPS
EPRA NAV per share and Basic NAV per share:
2017
2018
No. 000s
No. 000s
284,961 233,826
145
283
487
229
400
526
815
211
286,105 235,778
15.5
15.4
24.9
24.7
23.6
23.4
16.0
16.0
21.2
21.1
18.6
18.5
2017
Shares
2018
Shares
£'000s
No'000s
501
1,276
892,380 303,655
380
1,301
894,157 305,336
–
890,869 305,336
(3,288)
Net assets
Warrants in issue
Unexercised employee awards
Diluted net assets
Fair value derivatives
EPRA net assets
11 Dividends
Payment date
Special dividends
4 August 2017
Ordinary dividends
11 May 2017
4 August 2017
1 November 2017
9 February 2018
2017
13 May 2016
17 August 2016
28 October 2016
1 January 2017
Pence per
£'000s
No'000s
share
294p 684,538
234,119
535
377
2,938
3,861
293p 688,934 237,434
4,144
–
292p 693,078 237,434
Pence per
share
292p
290p
292p
PID
Non-PID
Pence per
share
£'000
3.00
–
3.00
7,019
5.00
5.25
5.25
5.25
23.75
2.75
5.00
5.00
5.00
17.75
–
–
–
–
–
2.00
–
–
–
2.00
5.00
5.25
5.25
5.25
23.75
4.75
5.00
5.00
5.00
19.75
11,699
12,284
15,922
15,810
62,734
11,086
11,673
11,677
11,696
46,132
NewRiver REIT plc Annual Report and Accounts 2018
137
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12 Investment properties
Fair value brought forward
Acquisitions
Capital expenditure
Properties acquired in business combinations
Lease incentives, letting and legal costs
Disposals
Net valuation movement
Fair value carried forward
2018
£'000
2017
£'000
995,928
31,238
16,393
244,657
3,790
(51,892)
(12,902)
839,107
162,146
15,572
–
2,771
(8,638)
(15,030)
1,227,212 995,928
The Group’s investment properties have been valued at fair value on 31 March 2018 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 fair value at 2018 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 using significant unobservable inputs (Level 3)
Property ERV
Property rent
Fair value
(£’000)
Min
£ per sq ft
Max
£ per sq ft
Average
£ per sq ft
Min
£ per sq ft
Max
£ per sq ft
Average
£ per sq ft
6.1
4.9
9.0
10.4
40.1
13.9
23.6
18.8
14.4
9.7
13.8
13.9
2.1
2.0
3.9
2.9
31.2
16.9
21.4
7.7
11.6
8.9
12.2
4.7
Property
equivalent
yield
Average
%
EPRA topped
up net initial
yield
Average
%
7.3%
7.4%
7.1%
–
6.8%
8.1%
6.3%
–
Property Rent
(£ per sq ft)
EBITDA multiples /
Net Initial Yield (%)
EBITDA
(£ per sq ft)
Min
–
Max
–
Average
–
Min
3.2x
Max
14.3x
Average
9.1x
Min
2.5
Max
79.2
Average
18.5
15.0
17.5
17.1
4.9%
5.3%
5.0%
–
–
–
Shopping centres
High street
Retail warehouse
Development sites
795,742
22,110
164,075
65,354
1,047,281
Pub portfolio
Convenience store
development
portfolio
Total
Fair value
(£’000)
158,405
21,526
179,931
1,227,212
The investments are several retail and leisure assets in the UK with a total carrying amount of £1,227 million. 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.
138
NewRiver REIT plc Annual Report and Accounts 2018
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 respect of the
pub portfolio 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.
These inputs include:
• Rental value – total rental value per annum
• Equivalent yield – the discount rate of the perpetual cash flow to produce a net present value of zero assuming a purchase at
the valuation
• EBITDA multiples and maintainable earnings from each pub
There were no changes to valuation techniques during the year.
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 valuer, e.g. ERVs and yields. These assumptions are based on market observation and the valuer’s
professional judgement.
Revenues are derived from a large number of tenants with no single tenant or group under common control contributing more than
3% of the Group’s revenue.
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. The impact on the valuation will be
mitigated by the interrelationship of two unobservable inputs moving in opposite directions, e.g. an increase in rent may be offset
by an increase in yield, resulting in no net impact on the valuation. Expected vacancy rates may impact the yield with higher
vacancy rates resulting in higher yields.
13 Investments in joint ventures
Opening balance
Effective disposal of investments
Group’s share of profit after taxation excluding valuation movement
Net valuation movement
Distributions and dividends
Investment in joint ventures
Losses on cash flow hedges
Investments in joint ventures
In the year there are were five joint ventures which are equity accounted for:
NewRiver Retail Investments LP and NewRiver Retail Investments (GP) Ltd*
NewRiver Retail Property Unit Trust No.2
NewRiver Retail Property Unit Trust No.5
NewRiver Retail Property Unit Trust No.6
NewRiver Retail Property Unit Trust No.7
2018
£'000
71,763
(62,379)
2,018
(564)
(2,329)
–
–
8,509
2017
£'000
70,125
–
5,683
(419)
(6,050)
2,541
(117)
71,763
Country of incorporation
Guernsey
Jersey
Jersey
Jersey
Jersey
2018
% Holding
50
100
100
100
100
2017
% Holding
50
50
50
50
50
* NewRiver Retail Investments (GP) Limited and its Limited partner (NewRiver Retail Investments LP) has a number of 100% owned subsidiaries which are NewRiver Retail
(Finco No 1) Limited and NewRiver Retail (GP1) Limited, acting in its capacity as General Partner for NewRiver Retail (Holding No 1) LP and NewRiver Retail (Portfolio No 1)
LP. The registered office of each of these entities is Old Bank Chambers, La Grande Rue, St Martin's, Guernsey, Channel Islands, GY4 6RT.
NewRiver REIT plc Annual Report and Accounts 2018
139
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 Investments in joint ventures continued
NewRiver Retail Property Unit Trusts No.2, No.5, No.6 and No.7 were jointly controlled Jersey property unit trusts set up by the
Group and PIMCO BRAVO II Fund LP. In July 2017, the Group purchased the remaining 50% of the interests in the joint ventures
and from this date equity accounting ceased. The registered office of each of these entities is 13 Castle Street, Jersey JE4 5UT.
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 Investments (GP) Ltd have a 31 December year end. The aggregate amounts
recognised in the consolidated balance sheet and income statement are as follows:
Balance sheet
Non-current assets
Current assets
Current liabilities
Borrowings
Other non-current liabilities
Net assets
Income statement
Net property income
Administration expenses
Net finance costs
Net valuation movement
Derivative fair value movement
Profit on disposal
Profit after taxation
Add back net valuation movement
Add back derivative fair value movement
Group's share of associates' FFO
2018
2017
Total
£'000
24,750
779
(528)
(7,982)
–
17,019
Group's
share
£'000
Total
£'000
12,375 269,280
7,617
(4,814)
(128,556)
–
143,527
390
(265)
(3,991)
–
8,509
2018
2017
Total
£'000
6,078
(588)
(1,300)
4,190
(1,128)
74
(228)
2,908
1,128
(74)
3,962
Group's
share
£'000
3,039
(294)
(650)
2,095
(564)
37
(114)
1,454
564
(37)
1,981
Total
£'000
18,690
(1,662)
(3,860)
13,168
(838)
(700)
(1,102)
10,528
838
700
12,066
Group's
share
£'000
134,640
3,809
(2,408)
(64,278)
–
71,763
Group's
share
£'000
9,345
(831)
(1,930)
6,584
(419)
(350)
(551)
5,264
419
350
6,033
The Group’s share of contingent liabilities in the joint ventures is £nil (March 2017: £nil).
Maturity of borrowings:
Group's share of joint venture borrowings
Less than one year
Between one and two years
Between two and three years
Less unamortised facility fees
140
NewRiver REIT plc Annual Report and Accounts 2018
2018
Total
£'000
Group's
share
£'000
2017
Total
£'000
Group's
share
£'000
8,000
–
–
8,000
(18)
7,982
4,000
–
–
4,000
(9)
3,991
–
35,170
94,000
129,170
(614)
128,556
–
17,585
47,000
64,585
(307)
64,278
14 Property, plant and equipment
Cost
At 1 April 2016
Additions
Disposals
At 31 March 2017
Additions
Disposals
At 31 March 2018
Depreciation
At 1 April 2016
Disposals
Depreciation charge for the year
At 31 March 2017
Depreciation charge for the year
At 31 March 2018
Book value at 31 March 2018
Book value at 31 March 2017
15 Trade and other receivables
Trade receivables
Other receivables
Prepayments
Accrued income
£’000
876
138
(286)
728
913
–
1,641
(325)
54
(106)
(377)
(313)
(690)
951
351
2017
£’000
3,481
–
1,483
409
5,373
2018
£’000
8,580
20,869
3,052
1,926
34,427
The provision for doubtful debts was £975,000 at 31 March 2018 (31 March 2017: £695,000). Other receivables principally consist of
amounts owed due to the disposal of an investment property and surrender premia due but received after 31 March 2018.
NewRiver REIT plc Annual Report and Accounts 2018
141
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16 Derivatives
The Group enters into derivative financial instruments to provide an economic hedge to its interest rate exchange risks. Further
details on interest rate risks are included in note 24. 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.
Interest rate caps
Non-current assets
Current assets
Interest rate swaps
Non-current assets
Current assets
Non-current liabilities
Current liabilities
2018
£’000
381
122
2,958
–
(173)
–
3,288
2017
£’000
626
–
–
–
(2,291)
(160)
(1,825)
Average contract
interest rate
Notional principal
amount
Fair value
Interest rate swaps – receive floating pay fixed
In less than one year
In more than one year but less than two
In more than two years but less than five
Interest rate caps – receive floating pay fixed
In less than one year
In more than one year but less than two
In more than two years but less than five
17 Cash and cash equivalents
2018
%
–
0.8%
0.8%
2.0%
2.9%
1.6%
2017
%
1.9%
0.8%
1.3%
2018
£’000
2017
£’000
2018
£’000
2017
£’000
–
13,865
151,133
100,584
7,999
98,701
–
107,250
2.1% 148,674
1.9%
80,169
501,091
–
131,247
140,252
478,783
–
43
2,742
122
9
372
3,288
(351)
(40)
(2,060)
–
81
545
(1,825)
Due to the repayment of the secured borrowing arrangements during the year, there are no restrictions in place over cash. In the
prior year a number of the Group’s borrowing arrangements placed certain restrictions on the rent received each quarter. These
did not prevent access to or use of this funding within the borrowing entities, however they did place certain restrictions on moving
those funds around the wider group, typically requiring debt servicing costs to be paid before restrictions are lifted. The cash
deposited under such arrangement totalled £21.2 million as at 31 March 2017.
18 Trade and other payables
Trade payables
Other payables
Accruals
Rent received in advance
142
NewRiver REIT plc Annual Report and Accounts 2018
2018
£’000
3,252
7,754
15,643
12,082
38,731
2017
£’000
2,140
3,970
12,501
10,118
28,729
19 Borrowings
Maturity of bank loans:
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years
Less unamortised fees / discount
Due in less than one year
Due after one year
2018
£’000
2017
£’000
–
–
–
–
165,000
300,000
465,000
(8,048)
456,952
–
100,584
61,996
141,271
34,029
68,461
–
406,341
(3,262)
403,079
100,084
456,952 302,995
During the year the Company secured £680 million of new unsecured borrowing facilities to replace its secured borrowings. The
refinancing exercise provided the Company with a reduced cost of debt, increased flexibility and an increased borrowings maturity.
The new facilities include a £165 million term loan and a £215 million revolving credit facility, with an initial maturity of five
years which can be extended to a maximum of seven years, subject to lender consent. The facility agreement contains financial
covenants based on loan to value ratio, interest cover and the level of secured borrowings. The floating rate interest on the loan
must be substantially hedged and the Group has entered into interest rate swaps to fix the interest on the five-year term loan.
In February 2018, the Group issued a £300 million publicly listed corporate bond with a maturity of 10 years to March 2028 and
a coupon of 3.5%. The unsecured corporate bond was rated BBB+ by Fitch.
Unsecured borrowings:
Term loan
Revolving credit facility
Corporate bond
Maturity date
August 2022
August 2022
March 2028
Facility
£'000
Facility drawn
£'000
165,000
215,000
300,000
680,000
165,000
–
300,000
465,000
Unamortised
facility fees /
discount
£'000
(1,378)
(1,795)
(4,875)
(8,048)
£'000
163,622
(1,795)
295,125
456,952
NewRiver REIT plc Annual Report and Accounts 2018
143
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20 Operating lease arrangements
The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases.
At the balance sheet date the Group had contracted with tenants for the following future minimum lease payments on its
investment properties:
Within one year
Between one and two years
In the second to fifth year inclusive
After five years
2018
£’000
2017
£’000
65,717
79,819
55,740
73,332
136,033
151,621
214,360 240,894
519,132 498,384
The Group’s weighted average lease length of operating leases at 31 March 2018 was 6.0 years (March 2017: 6.0 years).
Operating lease payments payable by the Group were as follows:
Within one year
One to two years
Two to five years
After five years
2018
£’000
2017
£’000
2,677
2,678
7,933
2,677
2,678
7,933
227,428 229,856
243,144
240,716
Operating lease obligations exist over the Group’s offices and for head leases on the Group’s retail portfolio. The expense for the
year was £2.9 million (March 2017: £3.4 million).
21 Share capital and reserves
Share capital
On 6 July 2017, the Company issued 67,164,179 ordinary shares at an issue price of 335 pence per ordinary share, with total share
issue costs of £5.6 million, after a firm placing and open offer. The new shares were not entitled to receive the special dividend of
3 pence per ordinary share in respect of the financial year ended 31 March 2017 or the first quarterly dividend of 5.25 pence per
ordinary share in respect of the first quarter of the financial year to 31 March 2018. The shares rank pari passu in all respects with
the other ordinary shares in issue.
Ordinary shares
Issued upon incorporation
Issued pursuant to scheme of arrangement
Exercise of share options
Shares issued under employee share schemes
31 March 2017
Issue of shares in firm placing and open offer
Exercise of share options
Scrip dividends issued
Shares issued under employee share schemes
31 March 2018
Number
issued
000’s
Price per
share
pence
Total
000’s
–
238,589
328
133
67,164
1,066
87
657
–
1
1 238,589
240 238,589
– 238,589
238,589
305,753
335
242
306,819
335 306,906
– 306,906
306,906
Held
by EBT
000’s
Shares in
issue
000’s
–
–
5,075
233,514
4,747 233,842
4,614 233,975
4,614 233,975
4,614
301,139
4,614 302,205
4,614 302,292
3,957 302,949
3,957 302,949
144
NewRiver REIT plc Annual Report and Accounts 2018
Issued upon incorporation
Issued pursuant to scheme of arrangement
Exercise of share options
Shares issued under employee share schemes
31 March 2017
Issue of shares in firm placing and open offer
Exercise of share options
Shares issued under employee share schemes
31 March 2018
Share
capital
£'000
Share
premium
£'000
–
2,335
4
1
2,340
–
–
1,691
–
1,691
672 219,028
2,568
–
10
7
Total
£'000
–
2,335
1,695
1
4,031
219,700
2,578
7
3,029 223,287
226,316
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 132p as at 31 March 2018. 380,000 remain outstanding (31 March 2017: 377,000).
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 £26 million at 31 March 2018. The Company received a dividend from its
subsidiary of £300 million in May 2018 and its subsidiaries have significant distributable reserves in which to pay future dividends.
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 3,957,165 ordinary shares held by the EBT.
NewRiver REIT plc Annual Report and Accounts 2018
145
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22 Business combinations
On 17 July 2017, the Group acquired the remaining 50% share in its BRAVO joint ventures, NewRiver Retail Property Unit Trusts
No.2, No.5, No.6 and No.7 for a cash consideration of £59.4 million. The transaction allowed the Group to gain control over 4
convenience-led community shopping centre assets in Belfast, Glasgow, Hastings and Middlesbrough with a total gross asset
value of over £240 million, representing a topped-up net initial yield of 7.3%.
The fair value of the Group’s 50% equity interest in the unit trusts held before the business combination amounted to £62.4 million.
No gain or loss was recognised as a result of remeasuring to fair value the equity interest in the unit trusts. The properties in the
unit trust contributed net revenue of £3.2 million and profit of £3.4 million to the Group for the period from the date of acquisition to
31 March 2018. If the acquisition had occurred on 1 April 2017, with all other variables held constant, gross income for the year
ended 31 March 2018 would have increased by £2.7 million and profit before taxation would have increased by £1.5 million.
Details of the assets and negative goodwill arising are as follows:
Investment property
Current assets
Other net current liabilities
Cash and cash equivalents
Borrowings
Fair value of acquired interest in net assets of subsidiaries
Gain on bargain purchase
Total purchase consideration
Less: fair value of previously held interest
Total acquisitions
Fair value
£'000
244,657
2,429
(7,429)
5,769
(120,668)
124,758
(2,964)
(59,415)
(62,379)
–
The bargain purchase is a result of the fair value determined for the assets purchased exceeding the gross asset value implicit in
the sale and purchase agreement. The negative goodwill was recognised in the statement of comprehensive income in gross
income. The fair value of cash and cash equivalents was considered equal to the carrying value representing the entity’s bank
deposits. The fair value of borrowings and trade and other payables was considered materially equivalent to their amortised cost
based on discounted cash flow models. The borrowings acquired have no recourse to other companies or asset in the Group.
23 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 2018 or 2017. The charge for the year recognised in the statement of comprehensive income was nil (March 2017: nil).
Year
issued
2010
2011
2012
Average
exercise price
(£)
Outstanding at
start of year
2.54
2.44
2.35
567,619
15,000
1,014,000
1,596,619
Granted
Exercised
Lapsed
Outstanding at
end of year
Number
exercisable
Average
remaining life
(years)
–
–
–
–
(374,933)
(15,000)
(676,000)
(1,065,933)
–
–
–
–
192,686
–
338,000
530,686
192,686
–
338,000
530,686
4.4
4.7
6.5
146
NewRiver REIT plc Annual Report and Accounts 2018
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 charge for the year recognised in the
Statement of Comprehensive Income was £1,095,000 (March 2017: £807,000).
Year
issued
2013
2015
2016
2017
2018
Average
exercise price
(£)
–
–
–
–
–
Outstanding at
start of year
143,875
664,482
1,098,491
1,126,574
–
3,033,422
Granted
–
10,347
82,074
83,963
880,908
1,057,292
Exercised
(71,938)
(410,602)
–
(7,700)
–
(490,240)
Lapsed
–
(159,747)
–
(19,935)
(14,670)
(194,352)
Outstanding at
end of year
71,937
104,480
1,180,565
1,182,902
866,238
3,406,122
Number
exercisable
71,937
104,480
–
–
–
176,417
Average
remaining life
(years)
4.8
6.3
7.5
8.3
9.3
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 £1,464,000
(March 2017: £627,000).
Year
issued
2016
2017
2018
Average
exercise price
(£)
–
–
–
Outstanding at
start of year
666,160
191,178
–
857,338
Granted
40,140
14,346
235,917
290,403
Exercised
(166,333)
–
–
(166,333)
Lapsed
–
–
(2,180)
(2,180)
Outstanding at
end of year
539,967
205,524
233,737
979,228
Number
exercisable
539,967
–
–
539,967
Average
remaining life
(years)
0.8
1.2
2.3
Fair value
The fair value of the share options has been calculated based on a Monte Carlo Pricing Model using the following inputs:
Share price
Exercise price
Expected volatility
Risk free rate
Expected dividends*
* based on quoted property sector average.
2018
3.4870
Nil
17%
2017
2.6875 – 3.34
Nil
17.0%
0.2410% 0.2255% – 0.5301%
6.00% – 7.00%
6.35% – 7.07%
24 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.
NewRiver REIT plc Annual Report and Accounts 2018
147
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 Financial instruments and risk management continued
Financial instruments
Financial assets
Fair value through profit or loss
Interest rate caps
Interest rate swaps
Loans and receivables
Trade and other receivables
Cash and cash deposits
Financial liabilities
Fair value through profit or loss
Interest rate swaps
At amortised cost
Borrowings
Payables and accruals
Valuation
level
2018
£'000
2017
£'000
2
503
2,958
626
–
29,449
115,801
148,711
3,481
45,956
50,063
2
(346)
(2,451)
(456,952) (403,079)
(18,611)
(424,141)
(374,078)
(26,649)
(483,947)
(335,236)
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 19). 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 16). 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. As at 31 March 2018 all of the Group’s interest rate exposure
was fixed through interest rate swaps. 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 by 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 not impact net interest payable in
the Statement of Comprehensive Income (March 2017: increased expense of £6.2 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 £0.4 million (March
2017: £7.7 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 amounts presented
in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is objective
evidence that the Group will not be able to collect all amounts due according to the terms of the receivables concerned.
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 2018 was £149 million (31 March 2017: £49 million).
148
NewRiver REIT plc Annual Report and Accounts 2018
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. A summary table with maturity of financial liabilities is presented below:
2018
Borrowings
Interest on borrowings
Interest rate swaps
Payables and accruals
2017
Borrowings
Interest on borrowings
Interest rate swaps
Payables and accruals
Less than
one year
£'000
One to two
years
£'000
Two to five
years
£'000
More than
five years
£'000
Total
£'000
–
(14,295)
(469)
(26,649)
(41,413)
(100,584)
(11,215)
(1,372)
(18,611)
(131,782)
–
(14,295)
(462)
–
(14,757)
(61,996)
(8,901)
(1,056)
–
(71,953)
(165,000)
(40,369)
(819)
–
(206,188)
(300,000)
(51,666)
–
–
(351,666)
(465,000)
(120,625)
(1,750)
(26,649)
(614,024)
(243,761)
(10,717)
(960)
–
(255,438)
–
–
–
–
–
(406,341)
(30,833)
(3,388)
(18,611)
(459,173)
Reconciliation of movement in the Group’s share of net debt in the year
Group’s share of net debt at beginning of year
Cash flow
Net (increase)/decrease in cash and cash equivalents
New bank loans raised (net of expenses)
Borrowings acquired in business combinations
Bank loans repaid
Group’s share of joint ventures’ cash flow
Net decrease/(increase) in cash and cash equivalents
New bank loans raised (net of expenses)
Bank loans repaid
Borrowings disposed of
Other
Amortisation of bank loan fees
Group’s share of joint ventures’ amortisation of bank loan fees
Group’s share of net debt
2018
£'000
2017
£'000
417,877
261,673
(69,845)
506,152
120,668
(577,511)
68,115
153,630
–
(65,943)
3,122
–
–
(60,334)
(95)
1,500
(2,400)
–
4,551
60
344,740
1,184
213
417,877
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.
NewRiver REIT plc Annual Report and Accounts 2018
149
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 Financial instruments and risk management continued
Net debt to equity ratio
Borrowings
Cash and cash equivalents
Net debt
Equity attributable to equity holders of the parent
Net debt to equity ratio (‘Balance sheet gearing’)
Share of joint ventures’ borrowings
Share of joint ventures’ cash and cash equivalents
Group's share of net debt
Carrying value of investment properties
Share of joint ventures’ carrying value of investment properties
Group's share of carrying value of investment properties
Net debt to property value ratio (‘Loan to value’)
25 Contingencies and commitments
2018
£'000
2017
£'000
456,952 403,079
(45,956)
(115,801)
357,123
341,151
892,380 684,538
52%
38%
64,278
3,991
(3,524)
(402)
417,877
344,740
1,227,212 995,928
134,640
1,239,587 1,130,568
37%
12,375
28%
The Group has no material contingent liabilities (2017: None). The Group was contractually committed to £14.9 million of capital
expenditure to construct or develop investment property as at 31 March 2018 (31 March 2017: £1.9 million).
26 Related party transactions
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.
Management fees are charged to joint ventures for asset management, investment advisory, project management and accounting
services. Total fees charged were:
NewRiver Retail Investments LP
NewRiver Retail Property Unit Trust No.2
NewRiver Retail Property Unit Trust No.5
NewRiver Retail Property Unit Trust No.6
NewRiver Retail Property Unit Trust No.7
The amounts outstanding at each year end were:
NewRiver Retail Investments LP
NewRiver Retail Property Unit Trust No.2
NewRiver Retail Property Unit Trust No.5
NewRiver Retail Property Unit Trust No.6
NewRiver Retail Property Unit Trust No.7
2018
£'000
113
42
44
185
38
2018
£'000
–
–
–
–
–
2017
£'000
111
207
199
202
97
2017
£'000
27
62
59
55
29
Total emoluments of key management during the year are disclosed in the remuneration report.
27 Post balance sheet events
The first quarter dividend in relation to the year ended 31 March 2019 will be 5.4 pence per share (March 2018: 5.25 pence per share)
and will be paid in July 2018 to shareholders on the register at 22 June 2018. The ex-dividend date will be 21 June 2018.
150
NewRiver REIT plc Annual Report and Accounts 2018
COMPANY BALANCE SHEET
AS AT 31 MARCH 2018
Non-current assets
Investment in subsidiaries
Total non-current assets
Current assets
Amounts owed from subsidiary undertakings
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Current liabilities
Trade creditors
Accruals
Other creditors
Amounts owed to subsidiary undertakings
Total current liabilities
Non-current liabilities
Borrowings
Total non-current liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Total equity
Notes
2018
£'000
2017
£'000
B 693,537
693,537
415,465
415,465
88,473
748,130
50
3,412
1,716
1,708
90,239
753,250
1,446,787 505,704
332
3,095
364
320,647
324,438
–
645
–
–
645
–
456,952
456,952
–
665,397 505,059
3,029
223,287
413,180
25,901
2,340
1,691
413,180
87,848
665,397 505,059
The notes on pages 154 to 158 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 profit for the period after taxation was
£787,000.
The financial statements were approved by the Board of Directors on 23 May 2018 and were signed on its behalf by:
Allan Lockhart
Chief Executive
Mark Davies
Chief Financial Officer
NewRiver REIT plc Annual Report and Accounts 2018
151
FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN EQUITY
AS AT 31 MARCH 2018
As at incorporation on 8 June 2016
Profit after taxation
Group reorganisation
Exercise of share options
Transfer between reserves
Dividends paid
As at 31 March 2017
Profit after taxation
Net proceeds of issue from new shares
Cost of issue of new shares
Dividends paid
Share
capital
£'000
–
–
2,335
5
–
–
2,340
–
689
–
–
3,029
Share
premium
£'000
–
–
–
1,691
–
–
1,691
–
227,186
(5,590)
–
223,287
Merger
reserve
£'000
–
–
524,180
–
(111,000)
–
413,180
–
–
–
–
413,180
Retained
earnings
£'000
–
221
Total
£'000
–
221
– 526,515
1,696
–
–
111,000
(23,373)
(23,373)
87,848 505,059
787
– 227,875
(5,590)
–
(62,734)
(62,734)
25,901 665,397
787
The notes on pages 154 to 158 form an integral part of these financial statements. There was no other income in the period
therefore the profit after taxation is the Company’s total comprehensive income for the period.
Retained earnings reflects the Company’s distributable reserves.
152
NewRiver REIT plc Annual Report and Accounts 2018
NOTES TO THE FINANCIAL STATEMENTS
A. Accounting policies
Basis of accounting
The Company’s separate financial statements for the year ended 31 March 2018 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.
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;
•
• disclosure of related party transactions with wholly-owned members of the Group.
the effect of future accounting standards not yet adopted; and
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.
NewRiver REIT plc Annual Report and Accounts 2018
153
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 income statement 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 £526 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 £111 million.
154
NewRiver REIT plc Annual Report and Accounts 2018
B. Investment in subsidiaries
All subsidiaries were acquired by way of the group reorganisation, as detailed in note 0. All subsidiaries are held indirectly except
NewRiver Retail Limited, the former ultimate parent of the Group, and NewRiver Capital Limited.
Name
Country of
incorporation Activity
Proportion of
ownership
interest
Dormant company
UK
C-store REIT Limited
Dormant company
UK
Convenience Store REIT Limited
Dormant company
UK
NewRiver Capital Limited
Dormant company
UK
NewRiver Retail (Burgess Hill) Limited
Real estate investments
UK
NewRiver (Darnall) Limited
Real estate investments
UK
NewRiver Finance Company Limited
Asset management
UK
NewRiver REIT (UK) Limited
Real estate investments
UK
NewRiver Leisure Limited
Real estate investments
UK
NewRiver Public Houses Limited
Group holding company
UK
NewRiver Retail (Bexleyheath) Holdings Limited
Real estate investments
Jersey
NewRiver Retail (Bexleyheath) Limited
Real estate investments
UK
NewRiver Retail (Boscombe No. 1) Limited
Real estate investments
Jersey
NewRiver Retail (Broadway Square) Limited
Real estate investments
UK
NewRiver Retail (Cardiff) Limited
Real estate investments
UK
NewRiver Retail (Carmarthen) Limited
Real estate investments
UK
NewRiver Retail (Colchester) Limited
Real estate investments
UK
NewRiver Retail (Darlington) Limited
General partner
UK
NewRiver Retail (GP3) Limited
Real estate investments
UK
NewRiver Retail (Leylands Road) Limited
Real estate investments
UK
NewRiver Retail (Mantle) Limited
Guernsey Real estate investments
NewRiver Retail (Market Deeping No. 1) Limited
UK
Real estate investments
NewRiver Retail (Morecambe) Limited
Guernsey Real estate investments
NewRiver Retail (Newcastle No. 1) Limited
Dormant company
UK
NewRiver Retail (Nominee No.3) Limited
Real estate investments
UK
NewRiver Retail (Paisley) Limited
UK
Real estate investments
NewRiver Retail (Penge) Limited
Guernsey Real estate investments
NewRiver Retail (Portfolio No. 1) Limited
Guernsey Real estate investments
NewRiver Retail (Portfolio No. 2) Limited
Holding company
NewRiver Retail (Portfolio No. 3) Limited
UK
Real estate investments
NewRiver Retail (Portfolio No. 3) Limited Partnership UK
Real estate investments
UK
NewRiver Retail (Portfolio No. 5) Limited
Real estate investments
UK
NewRiver Retail (Portfolio No. 6) Limited
Real estate investments
UK
NewRiver Retail (Portfolio No. 4) Limited
Real estate investments
UK
NewRiver Retail (Portfolio No. 8) Limited
Dormant company
UK
NewRiver Retail (Portfolio No. 9) Limited
Real estate investments
UK
NewRiver Retail (Ramsay Development) Limited
Real estate investments
UK
NewRiver Retail (Ramsay Investment) Limited
Real estate investments
UK
NewRiver Retail (Skegness Developments) Limited
Real estate investments
UK
NewRiver Retail (Skegness) Limited
Real estate investments
UK
NewRiver Retail (Wakefield) Limited
Real estate investments
UK
NewRiver Retail (Warminster) Limited
Real estate investments
UK
NewRiver Retail (Wisbech) Limited
Real estate investments
UK
NewRiver Retail (Witham) Limited
Guernsey Real estate investments
NewRiver Retail (Wrexham No.1) Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Class of share
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Partnership
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
NewRiver REIT plc Annual Report and Accounts 2018
155
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Name
NewRiver Retail Academy Limited
NewRiver Retail Holdings Limited
NewRiver Retail Holdings No. 1 Limited
NewRiver Retail Holdings No. 2 Limited
NewRiver Retail Holdings No. 3 Limited
NewRiver Retail Holdings No. 4 Limited
NewRiver Retail Holdings No. 5 Limited
NewRiver Retail Holdings No. 6 Limited
NewRiver Retail Holdings No. 7 Limited
NewRiver Retail Limited
NewRiver Retail Property Unit Trust
NewRiver Retail Property Unit Trust No. 2
NewRiver Retail Property Unit Trust No. 3
NewRiver Retail Property Unit Trust No. 4
NewRiver Retail Property Unit Trust No. 5
NewRiver Retail Property Unit Trust No. 6
NewRiver Retail Property Unit Trust No. 7
Pub REIT Limited
Shopping Centre REIT Limited
Dormant company
Country of
incorporation Activity
UK
Guernsey Group holding company
Guernsey Group holding company
Guernsey Group holding company
Guernsey Group holding company
Guernsey Group holding company
Guernsey Group holding company
Guernsey Group holding company
Guernsey Group holding company
Guernsey Group holding company
Real estate investments
Jersey
Real estate investments
Jersey
Real estate investments
Jersey
Real estate investments
Jersey
Real estate investments
Jersey
Real estate investments
Jersey
Real estate investments
Jersey
Dormant company
UK
Dormant company
UK
Proportion of
ownership
interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Class of share
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary units
Ordinary units
Ordinary units
Ordinary units
Ordinary units
Ordinary units
Ordinary units
Ordinary Shares
Ordinary Shares
The Company’s investment in joint venture entities is detailed in note 13. The registered offices of the companies are:
UK – 16 New Burlington Place, London, W1S 2HX
Jersey – 13 Castle Street, Jersey, JE4 5UT
Guernsey – Old Bank Chambers, La Grande Rue, St Martin's, Guernsey, Channel Islands, GY4 6RT (excluding NewRiver Retail
Holdings Limited to NewRiver Retail Holdings Limited No.7)
Guernsey – Third Floor, La Plaiderie Chambers, La Plaiderie, GY1 1SU, Guernsey (NewRiver Retail Holdings Limited to NewRiver
Retail Holdings Limited No.7)
Reconciliation of the movement in investment in subsidiaries:
Opening balance
Subsidiary acquired in scheme of arrangement
Impairment of subsidiary due to dividend received
Investment in subsidiaries
Investment in subsidiaries
2018
£'000
2017
£'000
415,465
–
– 526,465
(111,000)
–
–
278,072
415,465
693,537
156
NewRiver REIT plc Annual Report and Accounts 2018
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:
Directors
Asset managers
Support functions
The staff costs of the staff employed by the Company’s subsidiaries were:
Wages and salaries
Social security costs
Other pension costs
Staff costs
2018
7
23
26
56
2018
£'000
7,586
1,888
137
9,611
2017
7
21
25
53
2017
£'000
6,767
1,815
125
8,707
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 2018 were issued by the Company. See note 19 of the consolidated financial
statements for details. The Company had no borrowings as at 31 March 2017.
NewRiver REIT plc Annual Report and Accounts 2018
157
FINANCIAL STATEMENTS
EPRA PERFORMANCE
MEASURES
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
The Group discloses 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.
Performance Measure
EPRA Earnings per Share (EPS)
EPRA NAV per share
EPRA NNNAV per share
EPRA NIY
EPRA ‘topped-up’ NIY
EPRA Vacancy Rate
A. EPRA Earnings per Share: 18.6p
Definition
Earnings from operational activities
March
2018
18.6p
292p
293p
6.8%
7.2%
3%
March
2017
23.6p
292p
290p
7.1%
7.5%
3%
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
Calculation of EPRA Earnings
Earnings per IFRS income statement
Adjustments to calculate EPRA Earnings, exclude:
Changes in value of investment properties, development properties held for investment and
other interests
Profits or losses on disposal of investment properties, development properties held for
investment and other interests
Negative goodwill / goodwill impairment
Changes in fair value of financial instruments and associated close-out costs
Exceptional costs in respect of refinancing
Adjustments to above in respect of joint ventures (unless already included under
proportional consolidation)
EPRA Earnings
Basic number of shares
EPRA Earnings per Share (EPS)
B.
EPRA NAV per share: 292p
March
2018
£m
45.7
March
2017
£m
36.2
12.9
15.0
(4.8)
(3.0)
(3.8)
5.3
(0.9)
–
3.6
–
0.6
53.0
285.0m
18.6p
1.3
55.3
233.8m
23.6p
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.
158
NewRiver REIT plc Annual Report and Accounts 2018
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.
Calculation of EPRA Net Asset Value
NAV per the financial statements
Effect of exercise of options, convertibles and other equity interests (diluted basis)
Diluted NAV, after the exercise of options, convertibles and other equity interests
Exclude:
Fair value of financial instruments
EPRA NAV
Fully diluted number of shares
EPRA NAV per share
C. EPRA NNNAV per share: 293p
March
2018
£m
892.4
1.8
894.2
(3.3)
890.9
305.3
292p
March
2017
£m
684.5
4.4
688.9
4.2
693.1
237.4
292p
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.
Calculation of EPRA Triple Net Asset Value (NNNAV)
EPRA NAV
Include:
Fair value of financial instruments
Fair value of debt
Deferred tax
EPRA NNNAV
Fully diluted number of shares
EPRA NNNAV per share
March
2018
£m
890.9
3.3
(0.3)
–
893.9
305.3
293p
March
2017
£m
693.1
(4.2)
–
–
688.9
237.4
290p
D. EPRA NIY: 6.8%, EPRA ‘topped-up’ NIY: 7.2%
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).
NewRiver REIT plc Annual Report and Accounts 2018
159
FINANCIAL STATEMENTS
EPRA PERFORMANCE MEASURES CONTINUED
Purpose
A comparable measure for portfolio valuations to assist investors in comparing portfolios.
Calculation of EPRA NIY and 'topped-up' NIY
Investment property – wholly owned
Investment property – share of JVs/Funds
Trading property (including share of JVs)
Less: developments
Completed property portfolio
Allowance for estimated purchasers’ costs and capital expenditure allowed for
Gross up completed property portfolio valuation
Annualised cash passing rental income
Property outgoings
Annualised net rents
Add: notional rent expiration of rent free periods or other lease incentives1
Topped-up net annualised rent
EPRA NIY
EPRA ‘topped-up’ NIY
March
2018
£m
1,226.3
12.4
-
(78.7)
1,159.9
76.3
1,236.3
95.4
(11.1)
84.3
4.5
88.8
6.8%
7.2%
March
2017
£m
992.1
134.6
-
(57.9)
1068.8
66.3
1135.1
91.6
(11.3)
80.2
5.2
85.4
7.1%
7.5%
B
A
C
A/B
C/B
1. The weighted outstanding rent-free period was less than one year in respect of March 2018 and 1.25 yrs in respect of March 2017
E.
EPRA Vacancy rate: 3%
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.
Calculation of EPRA Vacancy Rate
Estimated Rental Value of vacant retail space
Estimated Rental Value of the retail portfolio
EPRA Vacancy Rate
March
2018
£m
2.8
80.1
3%
March
2017
£m
2.4
70.7
3%
A
B
A/B
160
NewRiver REIT plc Annual Report and Accounts 2018
EPRA PERFORMANCE MEASURES CONTINUED
Purpose
A comparable measure for portfolio valuations to assist investors in comparing portfolios.
Calculation of EPRA NIY and 'topped-up' NIY
Investment property – wholly owned
Investment property – share of JVs/Funds
Trading property (including share of JVs)
Less: developments
Completed property portfolio
Allowance for estimated purchasers’ costs and capital expenditure allowed for
Gross up completed property portfolio valuation
Annualised cash passing rental income
Add: notional rent expiration of rent free periods or other lease incentives1
Property outgoings
Annualised net rents
Topped-up net annualised rent
EPRA NIY
EPRA ‘topped-up’ NIY
E.
EPRA Vacancy rate: 3%
Definition
Purpose
Calculation of EPRA Vacancy Rate
Estimated Rental Value of vacant retail space
Estimated Rental Value of the retail portfolio
EPRA Vacancy Rate
1. The weighted outstanding rent-free period was less than one year in respect of March 2018 and 1.25 yrs in respect of March 2017
Estimated Market Rental Value (ERV) of vacant space divided by ERV of the whole portfolio, excluding pub and development assets.
A 'pure' (%) measure of investment property space that is vacant, based on ERV.
March
2018
£m
1,226.3
12.4
-
(78.7)
1,159.9
76.3
95.4
(11.1)
84.3
4.5
88.8
6.8%
7.2%
March
2017
£m
992.1
134.6
-
(57.9)
1068.8
66.3
1135.1
91.6
(11.3)
80.2
5.2
85.4
7.1%
7.5%
B
1,236.3
A
C
A/B
C/B
March
2018
£m
2.8
80.1
3%
March
2017
£m
2.4
70.7
3%
A
B
A/B
ALTERNATIVE PERFORMANCE
MEASURES (APMS)
APM
Funds From Operations (‘FFO’)
and FFO per share
EPRA Net Asset Value (‘NAV’)
and EPRA NAV per share
Dividend cover
Admin cost ratio
Interest cover
EPRA EPS
EPRA NNNAV
EPRA NIY
EPRA ‘topped up’ NIY
EPRA Vacancy Rate
Total Accounting Return
Cost of debt
Average debt maturity
Loan to Value
Nearest IFRS measure
Profit for the
year after taxation
Net Assets
N/A
N/A
N/A
IFRS Basic EPS
Net Assets
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Exaplanation and reconciliation
Note 10 and page 59
Note 10 and page 62
Glossary and page 59
Glossary
Glossary
Note 10 and page 158
Page 159
Page 159
Page 159
Page 160
Glossary and page 26
Glossary
Glossary
Glossary
NewRiver REIT plc Annual Report and Accounts 2018
161
FINANCIAL STATEMENTS
GLOSSARY
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).
Assets under Management (AUM): Is a measure of the total
market value of all properties managed by the Group.
Balance sheet gearing: Is the balance sheet net debt divided by
IFRS net assets.
Book value: Is the amount at which assets and liabilities are
reported in the financial statements.
BREEAM: (Building Research Establishment Environmental
Assessment Method) assesses the sustainability of buildings
against a range of social and environmental criteria.
Capital return: Is calculated as the change in capital value less
any capital expenditure expressed as a percentage of capital
employed over the period.
Capped rents: Are rents subject to a maximum level of uplift at
the specified rent reviews as agreed at the time of letting.
Collared rents: Are rents subject to a minimum level of uplift at
the specified rent reviews as agreed at the time of letting.
Dividend cover: Funds From Operations per share divided by
dividend per share declared in the period.
EPRA: Is the European Public Real Estate Association.
EPRA earnings: Is the IFRS profit after taxation excluding
investment property revaluations 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 period end.
Equivalent yield: 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.
ERV growth: Is the change in ERV over a period on our
investment portfolio expressed as a percentage of the ERV at
the start of the period. 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.
Exceptional item: Is an item of income or expense that is
deemed to be sufficiently material, either by its size or nature, to
require separate disclosure and is one off in nature.
Fair value in relation to property assets: Is the estimated amount
for which a property should exchange on the date of valuation
between a willing buyer and a willing seller in an arm’s-length
transaction after proper marketing, wherein the parties had each
acted knowledgeably, prudently and without compulsion (as
determined by the Group’s external valuers). In accordance with
usual practice, the Group’s external valuers report valuations
net, after the deduction of the prospective purchaser’s costs,
including stamp duty land tax, agent and legal fees.
Footfall: Is the annualised number of visitors entering our
shopping centre assets.
Funds From Operations: Is a measure of cash profits which
includes realised recurring cash profits, realised cash profits or
losses on the sale of properties and excludes other one off or
non-cash adjustments.
Group: Is NewRiver REIT plc, the Company and its subsidiaries
and its share of joint ventures (accounted for on an equity basis).
Head lease: Is a lease under which the Group holds an
investment property.
IAS/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 Real Estate: MSCI Real Estate (formerly 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.
LIBOR: Is the London Interbank Offered Rate, the interest rate
charged by one bank to another for lending money.
Like-for-like ERV growth: Is the change in ERV over a period on
the standing investment properties expressed as a percentage
of the ERV at the start of the period.
Like-for-like footfall growth: Is the movement in footfall against
the same period in the prior year, on properties owned
162
NewRiver REIT plc Annual Report and Accounts 2018
throughout both comparable periods, aggregated at
100% share.
Like-for-like net rental income: Is the change in net rental
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 administrative expenses ratio: Is the Group’s share of net
administrative expenses, excluding exceptional items, divided
by the Group’s share of property income.
Net asset value (NAV) per share: Is the equity attributable to
owners of the Group divided by the number of Ordinary Shares
in issue at the period end.
Net equivalent yield: Is the weighted average income return
(after adding notional purchaser’s costs) 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 is received annually in arrears.
Net initial yield: 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 period
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.
NRR share: Represents the Group’s ownership on a
proportionally consolidated basis.
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.
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.
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.
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.
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, and this can be
expressed as a percentage of EPRA NAV per share at the
beginning of the period.
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.
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 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 period end.
Weighted average interest rate: Is the Group loan interest and
derivative costs pa at the period end, divided by total Group
debt in issue at the period end.
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.
NewRiver REIT plc Annual Report and Accounts 2018
163
FINANCIAL STATEMENTS COMPANY INFORMATION
COMPANY INFORMATION
Auditor
Deloitte LLP
Regency Court
Glategny Esplanade
St. Peter Port
Guernsey
GY1 3HW
Legal advisers
Eversheds Sutherland (International) LLP
One Wood Street
London EC2V 7WS
DWF LLP
5 St Paul’s Square
Old Hall Street
Liverpool L3 9AE
Tax advisers
BDO LLP
55 Baker Street
London W1U 7EU
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Directors
Paul Roy
(Non-Executive Chairman)
David Lockhart
(Executive Deputy Chairman)
Allan Lockhart
(Chief Executive Officer)
Mark Davies
(Chief Financial Officer)
Kay Chaldecott
(Non-Executive Director)
Alastair Miller
(Non-Executive Director)
Margaret Ford
(Non-Executive Director)
Company Secretary
Rob Marcus
Registered office
16 New Burlington Place
London
W1S 2HX
Company Number
10221027
Brokers
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street London
EC2Y 9LY
Peel Hunt LLP
Moore House
120 London Wall
London
EC27 5ET
Financial adviser
Kinmont
5 Clifford Street
London W1S 2LG
164
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www.nrr.co.uk
NewRiver REIT plc
16 New Burlington Place
London
W1S 2HX
+44 (0) 20 3328 5800