Annual Report
and Accounts 2020
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NewRiver is a leading Real Estate Investment Trust specialising
in buying, managing and developing retail and leisure assets
across the UK. Every day, our shopping centres, retail parks and
pubs provide essential goods and services to communities.
Revenue (proportionally consolidated)
Underlying Funds From Operations
£148.2M
FY19: £127.1M
IFRS (loss) /
profit after tax
£(121.1)M
FY19: £(36.9)M
£52.1M
FY19: £55.1M
Underlying Funds
From Operations per share
17.0P
FY19: 18.1P
Ordinary dividend per share
Portfolio valuation
16.2P
FY19: 21.6P
£1.2BN
FY19: £1.3BN
Contents
Strategic Report
Our investment case ....................................................................01
Our business at a glance ............................................................02
Chairman’s statement ..................................................................06
Chief Executive’s review .............................................................08
Our marketplace ............................................................................16
Impact of COVID-19 .....................................................................18
How we create value ...................................................................20
Our strategy .....................................................................................22
Our KPIs ............................................................................................24
Property review ..............................................................................28
Finance review ...............................................................................38
Our people .......................................................................................46
Our approach to ESG ...................................................................48
Principal risks and uncertainties ...............................................58
Governance
Our leadership team .....................................................................68
Corporate governance report ...................................................72
Audit Committee report ...............................................................82
Nomination Committee report ..................................................86
Remuneration Committee report .............................................88
Directors’ report .............................................................................109
Directors’ responsibilities statement .......................................112
Financial Statements
Independent Auditors’ report ....................................................113
Consolidated Statement of
Comprehensive Income ..............................................................124
Consolidated Balance Sheet .....................................................125
Consolidated Cash Flow Statement .......................................126
Consolidated Statement
of Changes in Equity.....................................................................127
Notes to the Financial Statements...........................................128
Glossary ............................................................................................172
Company information ...................................................................176
Presentation of Financial Information
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.
In addition to information contained in the Group financial
statements, Alternative Performance Measures (`APMs’), being
financial measures that are not specified under IFRS, are also
used by management to assess the Group’s performance.
These APMs include a number of European Public Real Estate
Association (`EPRA’) measures, prepared in accordance with
the EPRA Best Practice Recommendations reporting
framework. We report these 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. Reconciliations
between APMs and their nearest IFRS measures are provided
on page 171, and definitions are provided in the glossary on
page 172. The measures used in this report are all APMs
presented on a proportionally consolidated basis unless
otherwise stated.
OUR
INVESTMENT
CASE
Our assets are
integral to the
communities
they serve
Our community shopping
centres, conveniently-located
retail parks and community pubs
are a key part of daily life for
consumers, providing value for
money on everyday essential goods
and services.
We are focused
on growing sub-
sectors of the retail
& leisure markets
Our portfolio is focused on retailers
providing essential goods and
services alongside wet-led
community pubs. These sub-sectors
are growing and are online resilient.
Our income is
diversified and
sustainable
Our portfolio is diversified by asset
type, geography and tenant base,
with over 800 different occupiers
across our retail portfolio and over
550 individual tenants across our
pub portfolio.
We extract further
value from assets,
through our market-
leading platform
Our active approach to asset
management, our risk-controlled
development pipeline and our
ability to recycle capital profitably
enable us to extract further value
from our assets.
We have a strong
and unencumbered
balance sheet
Our wholly unsecured
balance sheet, with no bank
refinancing events due until
August 2023, provides significant
operational flexibility.
Committed to
our communities
We aim to enhance the lives of
consumers and minimise our
impact on the environment. This
ensures thriving communities,
reduces operating costs and
unlocks opportunities.
NewRiver REIT plc Annual Report and Accounts 2020
1
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
OUR BUSINESS AT A GL ANC E
SPECIALISTS IN
CONVENIENCE & COMMUNITY
NewRiver’s diverse portfolio of shopping centres, retail parks and pubs provides
essential goods and services to communities across the UK.
33
25
Community shopping
centres
Conveniently-located
retail parks
Our community shopping centres are conveniently located
in town centres. They have an occupier line-up focused on
essential goods and services and typically include a value
leisure element. These centres have income-generating car
parks and other commercialisation opportunities, and often
have the potential to develop residential units in the space
above and adjacent to them. Their location also means
these assets have strong alternative use potential.
Our retail parks are typically located on the edge of town
centres and in close proximity to supermarkets. They offer a
diverse line-up of retail and leisure operators and often have
grab & go food provision through a drive-thru pod in the car
park. With free parking and excellent transport links, they
are the ideal location for retailers providing click & collect
and other in-store services.
678k sq ft 94.8% £12.66 7.5%
Leasing deals completed in FY20
Retail occupancy
Average retail rent
per sq ft
Average Rent
to Sales ratio
Top 10 occupiers are focused on essential goods and services
1. Sainsbury’s
2. B&M
3. Poundland
4. Superdrug
5. Wilko
% of rent roll
2.3% 6. Boots
2.1% 7. Primark
1.7% 8. TK Maxx
1.7% 9. New Look
1.6% 10. M&S
% of rent roll
1.5%
1.4%
1.3%
1.2%
1.2%
2
NewRiver REIT plc Annual Report and Accounts 2020
720
Community
pubs
Our pubs are located in the heart of communities, within
walking distance of residential areas and with good
roadside visibility. The vast majority of our pubs are wet-led
and operated through a leased and tenanted model, with
occupiers often living in the free accommodation above.
Many of our pubs have excess land on which we have
received planning consent for residential units or to build
convenience stores (‘c-stores’).
97.0%
Pub occupancy
82%
Operate under Leased & Tenanted model
4
Asset management
mandates
In addition to serving our own assets, our platform manages
those owned by third parties. These owners are
predominantly Local Authorities, which recognise the
benefits of scale, relationships and governance credentials
that a specialist asset manager can provide.
2.5m sq ft
Risk-controlled
development pipeline
Our development pipeline is one of the ways in which we
extract further value from our assets. For most of the projects in
our pipeline, we intend to either develop through capital
partnerships or sell the site with the benefit of planning. For
smaller projects which typically have a lead time of less than
12 months, for example our c-store development programme,
we will fund and manage the construction ourselves, using our
experienced in-house development team.
NewRiver REIT plc Annual Report and Accounts 2020
3
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT OUR BUSINESS AT A GL ANC E
INVESTED IN EVERY
REGION OF THE UK
33
Shopping centres
25
Retail parks
4
Asset
management
mandates
720
Pubs
4
NewRiver REIT plc Annual Report and Accounts 2020
Portfolio by region
Northern Ireland
Scotland
£103M
1
1
£133M
4
4 108
Key developments in the year
Key developments in the year
Acquired Sprucefield Retail
Park in Lisburn in December
2019, and in March 2020
completed a new letting to
B&M on a previously
vacant unit.
Opened a new 34,000 Primark
store and a new 11,000 sq ft
Poundland store at the Abbey
Centre, Newtownabbey. Both
retailers were upsizing from
stores elsewhere at the centre.
Acquired Kittybrewster Retail Park in
Aberdeen, Glendoe & Telford Road
Retail Parks in Inverness, and units in
Kingsway East Retail Park in Dundee
in June 2019 in a joint venture
with BRAVO.
Progressed a planning application
for 36 residential units to be built
adjacent to The Avenue shopping
centre in Newton Mearns, which
is under offer to a local
housing developer.
North West England & the Midlands
£195M
2
6
302
2
Key developments in the year
Acquired Bravo Inns in
December 2019,
comprising 44 wet-led
community pubs
predominantly located
in North West England.
Appointed by Knowsley
Council as strategic
asset manager for
Kirkby Town Centre.
Sold Central Square
Shopping Centre in
Erdington, and a retail
park in Daventry.
Wales
North East England &
Yorkshire
£60M
3
2
31
£325M
8
6
72
Key developments in the year
Developed two new drive-thru
pods at Waterfront Retail Park,
Barry, pre-let to Costa and
Burger King.
Key developments in the year
Completed 43,300 sq ft of
leasing deals at St Elli Shopping
Centre in Llanelli, including
renewals with Poundland and
Wilko, and sold an Asda store at
the site.
A new letting to The
Gym at Victoria Retail
Park, Beverley saw
the brand launch one
of its first ‘small-box’
format gyms.
Received planning
approval for the
development of 58
residential units above
the Prospect Shopping
Centre in Hull, which
will be sold to a
housing developer.
South West England
London & South East England
£101M
3
2
53
£280M
12
4
154
2
Key developments in the year
Key developments in the year
Acquired Poole
Retail Park in
October 2019 in
a 10% investment
with BRAVO.
Completed our 26th
Co-op c-store
development at the site
of the former Sea View
Inn, which also includes
10 residential units.
Appointed by Areli
Real Estate as
asset manager for
Nicholsons
Shopping Centre,
Maidenhead.
Completed over 40,000
sq ft of new lettings at
Priory Meadow Shopping
Centre, Hastings and
gained planning approval
for a new gym and
budget hotel at the site.
Held our first
community
engagement on
our proposed
redevelopment of
Grays Shopping
Centre.
NewRiver REIT plc Annual Report and Accounts 2020
5
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT CHAIRMAN’S STATEMENT
This report provides an
overview of NewRiver’s
performance in the year to
31 March 2020, although
I appreciate that the onset of
COVID-19 in March 2020 has
in short order rendered it out
of date. The subsequent
lockdown has had a significant
impact on all of our lives and
the markets in which the
Company operates, and this is
likely to continue for some
time yet.
In these difficult circumstances I want to thank our
colleagues, occupiers, and other stakeholders for the
way in which they have collectively risen to the
challenges posed by the pandemic. I would like to also
express my gratitude to NewRiver’s leadership team,
whose tireless efforts have deftly steered the Company
through these unprecedented headwinds, and our
Board for their close engagement throughout the crisis.
The safety and wellbeing of all our stakeholders
remains our top priority and will continue to guide our
response as we reopen the portfolio.
We are acutely aware of the loss of value that our
shareholders have faced during the year, particularly
through the period of COVID-19. As we have
meaningful investments in the Company ourselves, the
Board shares this disappointment, but we assure
shareholders that the Company is well positioned to
withstand the impacts of the pandemic. Our unsecured
balance sheet is strong, we have sufficient liquidity and
we have conducted a thorough review across the
business for opportunities to remove costs and support
our occupiers. We stand ready to begin the full
reopening of our portfolio and the rebuilding of our
revenues in the coming months.
6
NewRiver REIT plc Annual Report and Accounts 2020
We stand ready to begin
the full reopening of our
portfolio and the rebuilding
of our revenues in the
coming months.
We also recognise the absolute importance of the
dividend to our shareholders, and the impact of our
decision to suspend dividend payments from the fourth
quarter. We were hugely disappointed to have to do
this but were clear that this was the most prudent
course of action amid the uncertainty caused by the
crisis. As a Board, our focus had to be on maintaining
liquidity and on conserving cash. Some uncertainty still
remains as to the impact of COVID-19 on our
performance and so the Board has also decided not to
pay a dividend in respect of the first quarter of FY21.
But, to be clear: it is our firm intention to resume
dividend payments as quickly as possible, when
conditions allow.
When I wrote to shareholders last year, I expressed my
absolute confidence that NewRiver would emerge
strongly from the structural changes occurring in
traditional retailing. That process of change has been
greatly accelerated by COVID-19 but we are clear that
our strategy remains more relevant than ever. Our
focus on essential retailing and convenience has
proved highly resilient through the crisis. Our
investment bias toward retail parks is bearing fruit as
their vital role in click and collect strengthens. We
continue to develop strong relationships with Local
Authorities and public bodies: together we can reshape
the right amount and type of retail offer in our town
centres and regenerate these spaces into vibrant
multi-use assets. And we are able to do all this by
drawing on our long-term relationships with first class
capital partners.
A commitment to our communities is central to
NewRiver’s culture and strategy. This year we formed
our first charity partnership with the Trussell Trust, the
UK’s largest foodbank operator. We did not realise at
that time how the Trussell Trust’s work would come so
sharply into focus in the wake of the pandemic. I was
humbled by the generous contributions made by our
staff in response to this, both financially and through
volunteering. I was also pleased that the Board were
able to provide extra financial contributions through
salary and fee waivers at this critical time.
On a final note, David Lockhart has informed the Board
of his decision to step down as Executive Deputy
Chairman and not to seek re-election to the Board at
the forthcoming AGM. I am very pleased that David has
agreed to assume a new role as Senior Adviser to the
Company. On behalf of the Board, I would like to thank
David for his wise counsel and very significant
contribution during his tenure, and I am delighted that
we will continue to benefit from his vast knowledge and
expertise as he assumes his new role.
I would like to thank our shareholders for their
continued support and patience and would like to
reiterate our commitment to building a sustainable
business that delivers growing shareholder returns.
Baroness Ford OBE
Non-Executive Chairman
18 June 2020
NewRiver REIT plc Annual Report and Accounts 2020
7
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT CHIEF EXECUTIVE’S
REVIEW
We are reporting these results in extraordinary circumstances, as
COVID-19 has caused significant disruption to occupiers in our key
markets. There remains some uncertainty around the practicalities
of easing the current lockdown restrictions, and the speed at which
retail and pub operations can return to normal, but we are well-
positioned to withstand a prolonged period of disruption.
Dividend per share
16.2P
FY19: 21.6P
In this review we provide an update on how we are
responding to COVID-19, our outlook for the current
financial year, and provide the usual update on our
operational and financial performance for the year
ended 31 March 2020. To reflect this, the report is
divided into three sections:
– Performance overview for the year ended
Underlying Funds From Operations
31 March 2020
£52.1M
FY19: £55.1M
Portfolio valuation
£1.2BN
FY19: £1.3BN
IFRS Net Assets
£610.6M
FY19: £796.1M
8
NewRiver REIT plc Annual Report and Accounts 2020
– Our response to COVID-19
– Outlook for the current financial year
Performance overview for the year
ended 31 March 2020
During the year we continued to deliver robust
operational metrics across our diversified portfolio and
made good progress with our strategies, although their
implementation was impacted by political uncertainty,
particularly in the second half, and the onset of
COVID-19 in March 2020.
We are one of the market-leading platforms operating
in the UK retail real estate market, and the UK’s
seventh-largest tenanted pub company. We used the
scale and expertise of our platform to deliver on the
strategies we outlined at the beginning of the
financial year:
Strategy
Description
Progress in FY20
1 Disposing of
lower yielding
assets
We set a target to dispose of 5%
of our portfolio during the
financial year, equating to
c.£64 million, targeting disposal
net initial yields of 5 to 7%.
– We completed disposals of £48.4 million, reflecting a
blended net initial yield of 5.5% and a modest 1.5%
discount to book value
– We therefore achieved over 76% of our disposal
target, as our progress was impacted in the second
half by political uncertainty and COVID-19
– Disposals were completed across all asset types,
demonstrating the inherent liquidity in our portfolio
– During the year, we completed £172.8 million of
acquisitions (NewRiver share: £102.3 million),
representing a blended net initial yield of 9.5%
– In the retail portfolio, we acquired six retail parks, of
which five were purchased as part of the joint
venture relationship with BRAVO
– We acquired one pub company, Bravo Inns, and one
pub portfolio
– Asset management fees increased to £0.9 million,
from £0.3 million in FY19
– Our annualised management fee income at year-end
was £1.1 million, a 120% increase on the prior year
– This increase has been driven by the acquisition
of properties in our joint venture with BRAVO and
the signing of additional third-party asset
management mandates
– We completed 678,100 sq ft of new lettings and
renewals securing £5.7 million of annualised rent.
Long-term deals were signed 1.2% ahead of previous
passing rent
– We reduced retail service charge budgets by 5% on
average compared to the prior year, identifying
further reductions in response to COVID-19
– We appointed a Head of Asset Management, Emma
Mackenzie, to lead our occupier relationships and
co-ordinate initiatives across our portfolio
In May 2019 we formed a new
joint venture relationship with
BRAVO, primarily to acquire and
manage a portfolio of retail parks
in the UK. We aim to make the
majority of new acquisitions in
joint ventures, as this increases
returns on investment and
ensures we maintain balance
sheet strength.
Our market-leading platform
comprises a highly experienced
team of asset managers and
finance, development and
marketing professionals. We aim
to leverage this platform to
manage assets owned in joint
ventures and support an
increasing number of third-party
owners, such as Local Authorities.
We aim to extract further value
from our assets, using insights
from our occupiers and enhancing
co-ordination of asset
management initiatives across the
portfolio. We aim to lower service
charges for our occupiers,
removing costs and delivering
scale-based synergies.
2
Capital
Recycling,
primarily in
joint ventures
3
Leveraging
our asset
management
platform
4
Sharper asset
management
and
operational
efficiencies
5
Growth
from pubs
In Hawthorn Leisure we have a
pub management platform which
has the scale and expertise to
extract further growth from our
community pubs business. This
growth will be driven by asset
management and development
initiatives across the existing
portfolio, and selective acquisitions
to add further pubs to our platform.
– Until March 2020, Hawthorn Leisure delivered
like-for-like EBITDA per pub growth of +5.9% during
the year. Including March like-for-like EBITDA per
pub performance was +2.3%
– We completed 82 capital investment projects across
the pub portfolio at a cost of £4.3 million and
delivered our 26th c-store to the Co-op
– In December 2019 we acquired Bravo Inns, with its
portfolio of 44 wet-led community pubs, and acquired
a further 28 pubs from Marston’s in January 2020
NewRiver REIT plc Annual Report and Accounts 2020
9
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT CH IEF EX ECUTIVE ’S REVI EW
Financial performance
Our financial performance was relatively robust during
the year, against a challenging market backdrop which
worsened in March 2020 with the onset of COVID-19.
Underlying Funds From Operations (‘UFFO’) were
£52.1 million, compared to £55.1 million in the previous
year. Overall net property income increased, despite
the requirement to include additional provisions relating
to COVID-19 rents in operating expenses. However, this
increase in net property income was more than offset
by an increase in administrative costs, as a result of
accounting for a full year’s ownership of Hawthorn
Leisure and the transfer of pubs from a third-party pub
management platform to Hawthorn Leisure, and
increased finance costs, primarily due to net
acquisitions. Our IFRS loss after tax was -£121.1 million,
compared to a loss of -£36.9 million in the prior year,
predominantly due to a non-cash reduction in
portfolio valuation of £166.9 million, of which 31%
relates to COVID-19.
We paid three quarterly dividends of 5.4 pence per
share during the year. The total dividend in respect of
the year ended 31 March 2020 is therefore 16.2 pence
per share, which is 105% covered by UFFO. In March
2020, the decision was taken not to pay a fourth
quarter dividend due to the impact of COVID-19 on the
Company’s operations. We took the decision that in this
time of unprecedented disruption and uncertainty, our
focus should be on managing cash resources very
carefully and maintaining liquidity in the business.
Uncertainty still remains as to the impact of COVID-19
on our performance and so the Board has also decided
not to pay a dividend in respect of the first quarter of
FY20 TIMELINE
FY21. It is our firm intention to resume dividend
payments as quickly as possible, when conditions allow.
Our portfolio valuation at 31 March 2020 was £1.20
billion, compared to £1.29 billion at 31 March 2019, as
net acquisitions were more than offset by a -12.3%
like-for-like decline in portfolio valuation. The decline
was driven by 70 bps yield expansion and a -5.5%
decline in ERVs, reflecting another challenging year for
the UK retail sector, and the impact COVID-19. The UK
lockdown in response to COVID-19 accounted for 31%
of the overall decline in portfolio valuation, and in
particular impacted pub valuations, for which it
accounted for all of the valuation decline. Our portfolio
outperformed the MSCI-IPD benchmark by +480 bps
for total property return during the year, and
outperformed for both income and capital growth. In
our view, this outperformance is driven by the quality of
our asset management, the affordability of our rents,
our portfolio positioning, and the liquidity of our assets.
At 31 March 2020, we calculated that the total
alternative use valuation (‘AUV’) for our retail portfolio
was £803 million, just 12% below the total valuation of
our retail assets of £916 million, which we consider to
be an underpin to our valuations. In particular, the
AUV for our shopping centres was just 8% below
31 March 2020 valuations, validating the underpin to
our shopping centre valuations and the rationale for
development across the portfolio.
Our EPRA net asset value per share was 201 pence
per share (March 2019: 261 pence), predominantly due
to a non-cash reduction in portfolio valuation, and our
IFRS net assets were £610.6 million (March 2019:
£796.1 million), reduced for the same reason.
Corporate charity
partnership
signed with the
Trussell Trust
Acquisition of Poole Retail
Park in a 10% investment with
BRAVO for £44.7m (NRR
share: £4.5m) (NIY of 8.0%)
2019 May
Jun
Jul
Aug
Sep
Oct
Asset Management
Agreement signed
with Areli Real Estate
for Nicholsons
Shopping Centre,
Maidenhead
Disposal of
Asda foodstore,
Llanelli for
£17.9m (NIY:
6.9%)
Acquisition of 4 retail
parks for £60.5m
(NRR share: £30.2m)
in a JV with BRAVO
(NIY 9.8%)
10
NewRiver REIT plc Annual Report and Accounts 2020
Our LTV increased from 37% at 31 March 2019 to 47%,
with the majority of the increase occurring in the
second half of the financial year, due predominantly to
the decline in our portfolio valuation but also due to a
reduction in the rate of completed disposals in Q4 due
to COVID-19. Whist LTV at this level remains safely
below our covenant thresholds, set at 60% on our
unsecured bank facilities and 65% on our unsecured
bond, our focus will be to improve LTV to be more
in-line with our guidance of being below 40%, through
our disposal programme in the current financial year.
Our disposal programme is covered further in the
“Outlook for the current financial year“ section of
this review.
Operational performance
During the year, we acquired eight assets in five
separate transactions totalling £172.8 million (NewRiver
share: £102.3 million), reflecting a blended net initial
yield of 9.5%. Of these total acquisitions, 60% by value
were made in our BRAVO JV. We acquired these
high-quality assets at attractive prices, which will
provide opportunities for capital growth through active
asset management and development.
Our retail portfolio continued to deliver robust
operational metrics during the year. Occupancy
remained high at 94.8% (March 2019: 95.2%), reflecting
our focus on occupiers providing essential goods and
services, and our active approach to asset
management. Our average rent remained affordable at
£12.66 per sq ft (March 2019: £12.52 per sq ft), reflecting
our commitment to affordability for retailers and
underpinning the sustainability of our income. Our
shopping centre like-for-like footfall outperformed the
UK benchmark by 100 bps, with a decline of -5.0%,
which includes the significant impact of COVID-19 in
March 2020.
During the year we completed 678,100 sq ft of new
lettings and renewals across our retail portfolio. On
average, long-term deals were signed 1.2% ahead of
previous passing rent and 0.8% ahead of March 2019
ERV. Our leasing activity continued to reflect our focus
on occupiers providing essential goods and services,
with deals signed with brands including B&M, Home
Bargains, Wilko, Poundland, Boots and Specsavers. We
made good progress letting vacant space at our
acquisitions during the year, as we signed a 10-year
lease with B&M at Sprucefield Retail Park, Lisburn and a
10-year lease with Iceland at Wakes Retail Park on the
Isle of Wight.
The size of the Hawthorn Leisure community pub
portfolio increased from 665 pubs at 31 March 2019 to
720 at 31 March 2020, as portfolio acquisitions during
the year more than offset our active disposal
programme. Our pub occupancy remained high at
97.0% at 31 March 2020 (31 March 2019: 97.9%), and
we delivered like-for-like EBITDA per pub growth of
+2.3% in the year up until March 2020 (+5.9% excluding
the month of March 2020). This strong performance
was driven predominantly by the scale-based synergies
achieved by the integration of Hawthorn Leisure into
NewRiver in January 2019. Since our acquisition of
Hawthorn Leisure, we have completed 131 capital
expenditure projects aimed at enhancing the customer
experience, further improving trade, and increasing
capital values, at a total cost of £6.1 million, which have
Acquisition of
Sprucefield Retail
Park for £40.0m
(NIY of 8.7%)
Acquisition
of 28 pubs
for £9.7m
(NIY of 9.5%)
Nov
Dec
2020 Jan
Feb
Mar
Asset Management
Agreement signed
with Knowsley
Council for Kirkby
Town Centre
Acquisition of
Bravo Inns for
£17.9m (NIY
of 14.0%)
Sold 14th c-store during FY20,
bringing total proceeds from
c-store disposals in the year
to £15.6m (NIY: 5.2%)
NewRiver REIT plc Annual Report and Accounts 2020
11
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT CH IEF EX ECUTIVE ’S REVI EW
delivered an average return on investment of 16.9%.
Further details on the performance of our community
pub portfolio can be found in the Property and
Finance reviews.
We also made good progress with our 2.5 million sq ft
risk-controlled development pipeline, of which 72%
relates to residential. During the year we completed the
construction of an 11,700 sq ft development at the site
of the former Sea View Inn in Poole, Dorset, comprising
a Co-op c-store and 10 residential units. We also
completed the development of two pods at Waterfront
Retail Park in Barry, Wales which have been pre-let to
Costa and Burger King. In addition, we began the
development of an 85-room Premier Inn in Romford,
Greater London, which has been sold as part of a
pre-let forward funding agreement. Longer-term, we
held our first community engagement on our 630,000
sq ft mixed-use regeneration of Grays Shopping Centre
in Essex during the year, which will be followed by the
submission of an outline planning application later
this year.
Our disposal programme saw us complete £48.4 million
of disposals during the year, reflecting a blended NIY of
5.5% and a modest 1.5% discount to March 2019
valuation. These were across all asset types, reflecting
the liquidity of our assets, which typically have low lot
sizes and alternative use potential, making them
attractive to a wide pool of potential buyers.
Demonstrating leadership in ESG
As an owner of assets located in communities across
the UK, we are committed to enhancing the lives of the
people we serve while minimising our impact on the
environment. This commitment gained even more
relevance in recent months, as we witnessed the
devasting economic and social impact that the
COVID-19 pandemic has had on our communities.
One of consequences of the crisis has been an
increased demand for foodbanks, which we saw
first-hand through our charity partnership with the
Trussell Trust, whose vital work supports over 1,200
food banks across the UK. To date, we have donated
over £100,000 to the Trussell Trust, our team members
have regularly volunteered at Trussell Trust sites, and
our assets have been made available for storage,
awareness campaigns and volunteer recruitment. In
April 2020, I joined my Board colleagues in waiving
20% of our salaries and fees, and donating these to the
Trussell Trust, a gesture of appreciation for their tireless
efforts to help those most in need.
Our partnership with the Trussell Trust is just one of the
pillars of our comprehensive Environmental, Social and
Governance (‘ESG’) programme. The programme has
had its most active year to date, and I was delighted to
see our efforts recognised with the receipt of a GRESB
Green Star in September 2019 for the second
12
NewRiver REIT plc Annual Report and Accounts 2020
consecutive year, with a 13% improvement on our
GRESB Score from the previous year, and a 94%
improvement from our first entry to the benchmark in
2016. GRESB is the leading sustainability benchmark for
the global real estate sector, and this achievement
underlines the significant progress we have made in
this area in a relatively short period of time.
Our response to COVID-19
Cash reserves, liquidity and financial position
We took early and decisive action from the onset of
COVID-19 to prudently manage our cash resources and
increase liquidity in the business. At 31 March 2020 we
had £82 million of cash reserves and £45 million of
undrawn revolving credit facilities, providing sufficient
liquidity of £127 million. On 29 April 2020, we received
confirmation from the Bank of England that we are
eligible to access £50 million of funding under the
Covid Corporate Financing Facility (‘CCFF’), a joint HM
Treasury and Bank of England lending facility. This
facility is currently undrawn, but improves our available
liquidity position to £177 million, and is available to be
drawn at the Bank of England’s discretion for a tenure
of up to 12 months until March 2021.
We are also taking a prudent approach to preserving
cashflow and reducing operational costs. These
measures include the suspension of all non-essential
capital expenditure projects, which will improve
cashflow in FY21 by £24 million, and the suspension of
business rates and marketing in our shopping centres
and our community pubs, which will improve cashflow
by a further £4 million. In-line with our risk-controlled
approach, we have limited contractual capex
requirements across our development pipeline.
Our wholly unsecured balance sheet is one of the
differentiating characteristics of our financial position
and provides significant operational flexibility. We have
no bank refinancing events due prior to August 2023,
and our £300 million corporate bond is not due for
repayment until 2028. We are also compliant with all
debt covenants.
On 1 April, Fitch Ratings affirmed NewRiver’s
Long-Term Issuer Default Rating (‘IDR’) at ‘BBB’ with a
Stable Outlook and senior unsecured rating at ‘BBB+’.
The senior unsecured rating applies to NewRiver’s
£300 million senior unsecured bond dated 2028.
NewRiver was also assigned a new ‘F2’ Short-Term IDR.
Safety and wellbeing
As the UK Government’s response to COVID-19
continues, the safety and wellbeing of our staff,
occupiers, pub partners, and all the customers who visit
our assets, are our top priority. Across our portfolio, our
asset management teams have been working tirelessly
to ensure that our centres are accessible to those who
need them for essential shopping, while taking all
necessary steps to ensure they provide a safe
environment where social distancing measures are
adhered to.
At a corporate level, we were well-prepared for a
prolonged period of remote working. Our head office
employees have all been provided IT equipment to
enable them to work from home and have participated
in regular update calls and initiatives to ensure they are
aware of the latest developments, and to promote their
physical and mental wellbeing. We continue to closely
monitor UK Government guidance and stand ready to
act on the latest advice.
Retail portfolio
Our retail portfolio is focused on occupiers providing
essential goods and services in their local communities,
and almost two-thirds of our retail assets are anchored
by a major food and grocery brand. As a result, almost
40% of our occupiers remained open throughout
lockdown, following the UK Government’s order on 23
March 2020 that all non-essential retail premises
must close.
Since the beginning of COVID-19, we have engaged
constructively with our occupiers to collect contractual
rent due. All our rents are due in advance, but payment
methods vary by occupier, with the majority opting for
quarterly payments.
The table below shows the status of quarterly and
monthly rents with due dates from 25 March to
1 June 2020, which roughly equates to the period
of lockdown. The total rent due for this period
is £17.1 million.
Retail rents with due dates between 25 March and 1 June 2020
Status
Collected
Deferred
Re-gear
Moved to monthly payments
Total collected or alternative payments agreed
Waived
Rent outstanding
Total (%)
Total (£m)
% retail rents due
52%
15%
6%
2%
75%
4%
21%
100%
£17.1m
Of the total rent due, 52% has already been collected
and a further 23% is to be collected through alternative
payments agreed with retailers. These alternative
payments include deferrals, with payment plans
agreed with retailers over periods averaging 10 months,
re-gears, through which occupiers have been offered
concessions in return for committing to longer lease
periods, and moving retailers from quarterly to
monthly collections.
We continue to engage with occupiers representing the
21% of rent outstanding, to either recover late payments
or agree alternative arrangements. We are confident
that rent collection rates for the lockdown period will
improve further as normal trading conditions resume.
Occupiers have benefitted from a business rates
holiday through to March 2021 and significant
reductions in service charges that we have achieved
both prior to and since COVID-19. Both of these will be
conducive to occupiers returning to profitability and
fulfilling their contractual rent obligations once
stores reopen.
Hawthorn Leisure operations
Following the UK Government’s announcement on
20 March 2020 that entertainment and hospitality
premises must close, Hawthorn Leisure temporarily
closed all its sites. We had anticipated pub closures for
some time before the announcement, so were
well-prepared for this outcome.
Since these closures, our Business Development
Managers have been working closely with our pub
partners to ensure they are receiving the support
required for their businesses to emerge from the
lockdown in a strong position. This has included
assistance with applications for the UK Government’s
Retail, Hospitality and Leisure Grant Fund (“RHLGF”).
The RHLGF offers grants of up to £25,000 for
businesses with rateable values up to £51,000,
meaning that almost all of our pub partners are eligible
for these grants. Pub partners have accessed other UK
Government support schemes, including the
Coronavirus Job Retention Scheme, whereby the UK
Government will pay 80% of the wages of employees
who are unable to fulfil their roles due to the impact of
COVID-19, and the 12-month business rates holiday for
businesses operating in the hospitality sector, which
applies automatically. The business rates holiday will
also result in a direct saving to Hawthorn Leisure of
£1 million.
For our Leased & Tenanted pubs, which represent the
majority of our portfolio, rents due from lockdown to
30 June total £3.8 million. Based on a financial appraisal
NewRiver REIT plc Annual Report and Accounts 2020
13
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT CH IEF EX ECUTIVE ’S REVI EW
of all pub tenants we are confident in recovering
£1.7 million of this rent, of which £1.5 million has already
been committed and £1.4m received. The remaining
rent will either be waived as part of our conditional
support grants provided to pub partners, or will be
subject to a claim for the business disruption and loss of
rent caused by COVID-19. We do not receive any rental
income from our operator managed pubs.
We have also focused on mitigating operating costs.
We furloughed the majority of Hawthorn Leisure head
office staff for the duration of lockdown, and we have
topped up the 80% payment under the Coronavirus
Job Retention Scheme to ensure there is no reduction
in regular pay. We have also carefully managed
our supply and distribution contracts and sought
concessions from suppliers such as satellite
TV providers.
Our plans are well-advanced to reopen the pub
portfolio. Pubs will be allowed to reopen in ‘Step 3’ of
the UK Government’s COVID-19 Recovery Strategy,
which the Government expects to implement no sooner
than 4 July 2020. We are confident that we will deliver
an operational business by this date, based on our
comprehensive reopening plan that covers areas such
as safe working practices and the provision of personal
protective equipment, the reopening of supply chains,
and enhancing support for our pub partners throughout
the reopening phase, both operationally and financially.
The phasing of our reopening will be optimised to
achieve a good balance between maintaining cost
efficiencies while ensuring the business is fully
operational as soon as possible.
Our disposal programme across the pub estate
continues to be active despite the current restrictions
on pub operations, reflecting the inherent liquidity of
these assets. Since 1 April 2020, we have completed
six pub disposals and one c-store disposals, generating
total sales proceeds of £2.9 million, demonstrating that
even during a lockdown there is still good liquidity in
local community pubs.
Finally, 93% of our pub tenants and partners have fed
back to us in a recent survey that they felt Hawthorn
had exceeded or met their expectations of support
during the lockdown period. We have had confirmation
from 74% of our Leased and Tenanted pubs that they
intend to open on 4 July 2020, and 22% are awaiting to
see the final Government guidelines. For the pub
business to have collected over a third of rent due
during lockdown and to have generated so much
goodwill from its support actions during this period puts
the Company in a good place to bounce back following
reopening in July and over the summer months.
Outlook for the current financial year
Scenario analysis
Against a backdrop of continued uncertainty, we have
undertaken extensive scenario testing, factoring in the
loss of income from our pub portfolio and reduced
rental income from our retail portfolio. A summary of
some of the most realistic scenarios being tested are
as follows:
Scenario
1
2
3
4
5
FY21 Net Rental Income compared to pre-COVID-19 forecast
Retail
In-line to -10%
-10% to -20%
-20% to -30%
-30% to -40%
-40% to -50%
Pubs
-30% to -50%
-50% to -70%
-50% to -70%
-50% to -70%
-50% to -70%
Group blended
-18%
-30%
-38%
-44%
-50%
Under each of these scenarios, we have also tested a
portfolio valuation decline significantly in excess of that
seen in FY20. We tested on a quarterly basis our debt
covenant metrics for our unsecured bank facilities and
unsecured corporate bond, namely LTV (excluding
unamortised arrangement fees, tested every six
months), interest cover (tested on a rolling 12 month
basis), and asset to debt ratio. We also tested ongoing
cash levels. The analysis demonstrated that even in
Scenario 5, the most extreme of these scenarios, the
business would hold sufficient cash funds and meet all
debt covenant requirements throughout the
financial year.
At the beginning of the crisis, our expected outturn for
the year was in line with Scenario 4 as outlined above.
However, taking account of the fact that we still
collected 52% of rent demanded when less than 40%
of our retail occupiers were open and trading, and the
UK Government’s COVID-19 Recovery Strategy, with
non-essential retailers able to trade from 15 June 2020
meaning 60% of our retail occupiers are now open and
pubs expected to re-open shortly, we expect our FY21
outturn to now be somewhere between Scenario 2 and
Scenario 3, with Group blended net property income
down reduced by 30% to 38%, compared to the
Group’s pre-COVID-19 forecast.
14
NewRiver REIT plc Annual Report and Accounts 2020
In our modelling, we have considered how certain
characteristics of our assets are likely to mean they will
outperform the wider market when lockdown
restrictions are gradually eased. In retail, all of our
assets have remained open throughout the lockdown
for access to essential goods and services. Our
shopping centres are located in town and city centres
with many customers arriving by foot and have typically
lower dwell times, reducing issues around
overcrowding. Our retail parks are large, uncovered
spaces with sizeable car parks, allowing retailers to
easily implement control measures such as queues and
spacing of vehicle parking. In our pub portfolio, our
community focus means that our pubs are often close
to homes rather than workplaces. Most of our pubs are
wet-led rather than food-orientated, and over 70% have
outside spaces, making it easier to implement
enhanced hygiene and social distancing measures.
Adapting our strategies to the
changed operating environment
Disposal programme
As the real estate capital markets recover in the coming
year, we are targeting between £80 million and £100
million of asset disposals, while maintaining discipline in
disposal pricing. The proceeds will predominantly be
used to reduce debt, but we will also recycle into
capital partnerships opportunities where appropriate.
We have made good early progress against this target
as we have completed, exchanged or are under offer
on £30.3 million of disposals so far in FY21.
Capital partnerships
Our asset management platform comprises a dedicated
and highly experienced team of asset managers,
working alongside finance, development, and
marketing professionals. The integration of these teams
provides a powerful platform that can be used to
support private and public partners through every stage
of property ownership. Our capital partnership business
aims to leverage this asset management platform to
grow income in a capital light way.
Through our joint venture relationships to date we
have benefitted from high returns on invested capital
through the receipt of a share of rental income, asset
management fees and promotes. Dislocations in real
estate valuations following COVID-19 will provide
significant opportunities to acquire high quality retail
assets at attractive prices, and we will work closely
with our joint venture partner, BRAVO, to identify
these opportunities and build our existing joint
venture relationship.
Our capital partnerships business is also focused on
supporting Local Authority partners. As the ultimate
custodians of their town and city centres, we believe
Local Authorities are naturally placed to take a
leadership role in addressing a key issue facing many
towns and cities, which is an excess of retail space.
COVID-19 will likely further encourage this intervention,
either because Local Authorities are seeking additional
income streams to address funding shortfalls, or
because asset owners are facing increasing pressure.
Our platform already has extensive experience in
delivering town centre regeneration schemes, such as
our projects in Burgess Hill, Cowley – Oxford, and
Grays, and we aim to partner with many other Local
Authorities in order to transform their own town and
city centres
Growth from pubs
Our first priority in FY21 is to fully reopen our community
pub portfolio, through the successful implementation of
our pub reopening strategy. Once reopened, we intend
to continue our programme of targeted capital
expenditure projects to improve returns and extract
further value from our pub sites through risk-controlled
development, including our c-store programme. We will
also continue our active disposal programme of pubs,
which has been successful at generating good returns
through recycling of capital. Recent COVID-19 surveys
have concluded that consumers are more likely to shop
locally and visit their local neighbourhood pub than a
high street or night time bar, and our community pub
portfolio is well placed to benefit from this when the
lockdown provisions are lifted.
Allan Lockhart
Chief Executive
18 June 2020
NewRiver REIT plc Annual Report and Accounts 2020
15
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT OUR MARKETPLAC E
OUR MARKETPLACE
There are a number of long-term trends which will have a significant impact on
the markets we operate in. We are well-placed to benefit from these trends.
Trend
Drivers
What it means for our stakeholders
NewRiver’s response
COVID-19 impact
Challenging
retail operating
market
– Retailers are facing unprecedented cost headwinds,
relating to business rates, National Living Wage and
investments in store portfolios and supply chains to
retain market share.
– The growth of online retailing has increased
competition and price transparency amongst
consumers, making them less brand-loyal.
– Retailer performance has diverged: those that are
online-resilient have fared well, while department stores
and mid-market fashion operators have struggled.
– Challenged retailers have restructured through a
combination of store closures, CVAs or administrations.
– Successful retailers have become particularly focused
on occupational costs.
A growing and
ageing
population
– The UK’s population is growing, and by 2030, it is
expected that 92% of us will be living in towns and
cities, compared to around 82% today1.
– The UK’s population is ageing, and it is expected that
one in four people will be over the age of 65 by 2050,
compared to one in five today1.
– Local Authorities have been set ambitious targets for
the number and affordability of new homes.
– National planning policy has encouraged residential
development in urban areas, to improve accessibility
and the vibrancy of town centres.
– Health and social care policy is increasingly focused on
delivering services closer to where people live.
Changes to the
way we live and
work
– The proportion of mothers working has grown
from two-thirds at the start of the century to
three-quarters today1.
– Convenience retailing has grown significantly, as
households face increasing constraints on time
and space.
– The average size of a UK house has decreased in
recent decades – at 85 sq m, it is now amongst the
smallest in Western Europe2.
– Smaller houses and more people living alone have also
increased the need for spaces outside the home for
recreation and socialisation.
– The number of single-occupant households in the UK
is expected to increase by 60% by 20313.
Changes in
consumer
behaviour
– UK consumers are spending an increasing amount of
their income on experiences over material goods4.
– UK consumers are increasingly focused on their own
– A rise in demand for low-cost gyms and value leisure
destinations closer to home, as consumers look for
convenient was to socialise and stay fit.
health and wellbeing.
– Increasing recognition of the pub as a place to unwind
– Ethical consumerism is rising up the agenda for
business, consumers and regulators, and plays an
increasing role in spending habits.
and socialise.
– A growing demand for retailers, pub companies and
real estate owners to contribute to the communities
they serve.
Local authority
intervention in
town centres
– Local Authorities have faced cuts in central
government grants and policies encouraging them
to be more independent and forward-thinking.
– Against this backdrop, driven by the availability of
inexpensive financing from the Public Works Loan
Board, Local Authorities have turned to commercial
property to raise additional funds and deliver for
their communities.
– Local Authorities have become much more active in the
commercial real estate market, acquiring £6.6 billion of
commercial properties over the past three years5, over
a third of which was retail property.
– Local authorities also recognise their role as
custodians of their town centres, bringing forward
redevelopment programmes.
– Our retail portfolio is deliberately focused on growing and online-
– COVID-19 has led to further divergence in retailer performance,
resilient retailers focused on convenience, value and services, with
and exacerbated the structural challenges facing department
minimal exposure to department stores, mid-market fashion and
stores, mid-market fashion and casual dining operators. Our focus
casual dining.
on retailers providing essential goods and services has provided
– Our rents are affordable, and we have a track-record of reducing
some insulation from the impact of COVID-19.
service charges for our occupiers. This means we are well-positioned
– As occupiers begin to build back revenues, there will be more
to maintain rental income.
focus than ever on occupational costs, where we are well-placed
to respond.
– Our 2.5 million sq ft development pipeline is focused on residential
– While COVID-19 may have caused short-term disruption to
development above or beside our assets.
– Working with Local Authorities, we are bringing forward plans for new
health hubs at a number of our assets.
development timelines, we expect the construction of new
homes, particularly in urban areas, to resume relatively quickly
after lockdown restrictions are eased.
– We maintain a regular dialogue to ensure our assets are meeting the
– The importance of comprehensive local healthcare systems will
evolving needs of the communities we serve.
has been heightened by the crisis.
– Our retail assets are accessible and typically have a high frequency of
– The increase in home working as a result of the lockdown will
visits and low dwell time, reflecting their purpose of providing
lead to further demand for spaces outside the home to relax,
everyday convenience and services to consumers.
exercise and socialise.
– Our pub assets are part of the fabric of community life, providing
– While online retailing has grown during lockdown, so too has the
spaces for people to come together, relax and socialise.
proportion of people shopping locally at independent and
convenience stores for everyday essentials.
– Our active approach to asset management and provision of
– COVID-19 may cause a short-term reduction in demand for leisure
convenient spaces with affordable rents, has made us a preferred
activities once lockdown restrictions are eased, but drivers of
partner for low-cost gym and value leisure brands.
more experiential spend remain intact in the longer-term.
– Our pubs are focused on meeting the needs of communities, and we
– COVID-19 has shown how vitally important it is that people,
support our pub partners in meeting the needs of their communities.
companies and organisations come together to address some of
– Our comprehensive Environmental, Social & Governance (‘ESG’)
programme ensures we help to develop thriving communities.
relevant than ever.
society’s biggest issues. As a result, our ESG programme is more
– Local Authorities are looking for a partner with the relationships
– COVID-19 is likely to increase levels of intervention, either
and expertise to manage multi-tenanted assets, and NewRiver’s
because Local Authorities are seeking additional income streams
third-party asset management platform is aimed at meeting
to address funding shortfalls, or because asset owners are facing
these needs.
increasing pressure.
– The range of skills within the NewRiver platform makes us a chosen
– COVID-19 has highlighted the reliance of town and city
partner for Local Authorities wanting to take control and effect
centres on retail, further demonstrating the importance of
change within their town and city centres.
mixed-use regeneration.
Technology and
online retail
– Online transactions accounted for 19% of total retail
sales in 20196, and have been steadily rising over the
past decade.
– The physical store remains a key part of retailers’
multi-channel strategies, as the main last mile
distribution channel and as a ‘showroom’.
– Retail parks are an investment focus area for NewRiver, as they
– COVID-19 has undoubtedly led to an increase in online retail, but
provide many characteristics that make them ideal for click & collect,
as the lockdown is eased and less time is spent at home, click &
such as free, surface-level parking and high accessibility.
collect will once again be seen as a convenient fulfilment method.
– Click & collect remains by far the most popular form of
online sales fulfilment, accounting for up to 80%6 of all
sales for some retailers.
– Retailers are investing in ways to broaden their online
reach, by providing click & collect options outside their
physical store footprint.
– As competition increases, customer expectations of
service and convenience has increased.
– We are working with retailers to bring forward innovative click &
collect solutions, such collection pods in car parks.
1. Office for National Statistics (ONS), June 2019.
2. Royal Institute of British Architects (Riba), December 2015.
3. Organisation for Economic Co-operation and Development (OECD).
4. Barclaycard UK consumer spending report, March 2020.
5. National Audit Office, ‘Local Authority Investment in Commercial Property’,
Feb 2020.
6. Mintel, March 2020.
16
NewRiver REIT plc Annual Report and Accounts 2020
Trend
Drivers
What it means for our stakeholders
NewRiver’s response
COVID-19 impact
– Our retail portfolio is deliberately focused on growing and online-
resilient retailers focused on convenience, value and services, with
minimal exposure to department stores, mid-market fashion and
casual dining.
– Our rents are affordable, and we have a track-record of reducing
service charges for our occupiers. This means we are well-positioned
to maintain rental income.
– COVID-19 has led to further divergence in retailer performance,
and exacerbated the structural challenges facing department
stores, mid-market fashion and casual dining operators. Our focus
on retailers providing essential goods and services has provided
some insulation from the impact of COVID-19.
– As occupiers begin to build back revenues, there will be more
focus than ever on occupational costs, where we are well-placed
to respond.
– The UK’s population is growing, and by 2030, it is
– Local Authorities have been set ambitious targets for
– Our 2.5 million sq ft development pipeline is focused on residential
development above or beside our assets.
– Working with Local Authorities, we are bringing forward plans for new
health hubs at a number of our assets.
– While COVID-19 may have caused short-term disruption to
development timelines, we expect the construction of new
homes, particularly in urban areas, to resume relatively quickly
after lockdown restrictions are eased.
– We maintain a regular dialogue to ensure our assets are meeting the
– The importance of comprehensive local healthcare systems will
evolving needs of the communities we serve.
has been heightened by the crisis.
– Our retail assets are accessible and typically have a high frequency of
visits and low dwell time, reflecting their purpose of providing
everyday convenience and services to consumers.
– The increase in home working as a result of the lockdown will
lead to further demand for spaces outside the home to relax,
exercise and socialise.
– Our pub assets are part of the fabric of community life, providing
– While online retailing has grown during lockdown, so too has the
spaces for people to come together, relax and socialise.
proportion of people shopping locally at independent and
convenience stores for everyday essentials.
– Our active approach to asset management and provision of
convenient spaces with affordable rents, has made us a preferred
partner for low-cost gym and value leisure brands.
– Our pubs are focused on meeting the needs of communities, and we
support our pub partners in meeting the needs of their communities.
– Our comprehensive Environmental, Social & Governance (‘ESG’)
programme ensures we help to develop thriving communities.
– COVID-19 may cause a short-term reduction in demand for leisure
activities once lockdown restrictions are eased, but drivers of
more experiential spend remain intact in the longer-term.
– COVID-19 has shown how vitally important it is that people,
companies and organisations come together to address some of
society’s biggest issues. As a result, our ESG programme is more
relevant than ever.
– Local Authorities are looking for a partner with the relationships
and expertise to manage multi-tenanted assets, and NewRiver’s
third-party asset management platform is aimed at meeting
these needs.
– COVID-19 is likely to increase levels of intervention, either
because Local Authorities are seeking additional income streams
to address funding shortfalls, or because asset owners are facing
increasing pressure.
– The range of skills within the NewRiver platform makes us a chosen
partner for Local Authorities wanting to take control and effect
change within their town and city centres.
– COVID-19 has highlighted the reliance of town and city
centres on retail, further demonstrating the importance of
mixed-use regeneration.
Challenging
retail operating
market
– Retailers are facing unprecedented cost headwinds,
– Retailer performance has diverged: those that are
relating to business rates, National Living Wage and
online-resilient have fared well, while department stores
investments in store portfolios and supply chains to
and mid-market fashion operators have struggled.
retain market share.
– Challenged retailers have restructured through a
– The growth of online retailing has increased
combination of store closures, CVAs or administrations.
competition and price transparency amongst
consumers, making them less brand-loyal.
– Successful retailers have become particularly focused
on occupational costs.
A growing and
ageing
population
expected that 92% of us will be living in towns and
the number and affordability of new homes.
cities, compared to around 82% today1.
– National planning policy has encouraged residential
– The UK’s population is ageing, and it is expected that
development in urban areas, to improve accessibility
one in four people will be over the age of 65 by 2050,
and the vibrancy of town centres.
compared to one in five today1.
– Health and social care policy is increasingly focused on
delivering services closer to where people live.
Changes to the
way we live and
work
– The proportion of mothers working has grown
– Convenience retailing has grown significantly, as
from two-thirds at the start of the century to
households face increasing constraints on time
three-quarters today1.
and space.
– The average size of a UK house has decreased in
– Smaller houses and more people living alone have also
recent decades – at 85 sq m, it is now amongst the
increased the need for spaces outside the home for
smallest in Western Europe2.
recreation and socialisation.
– The number of single-occupant households in the UK
is expected to increase by 60% by 20313.
Changes in
consumer
behaviour
– UK consumers are spending an increasing amount of
– A rise in demand for low-cost gyms and value leisure
their income on experiences over material goods4.
destinations closer to home, as consumers look for
– UK consumers are increasingly focused on their own
convenient was to socialise and stay fit.
health and wellbeing.
– Increasing recognition of the pub as a place to unwind
– Ethical consumerism is rising up the agenda for
and socialise.
business, consumers and regulators, and plays an
– A growing demand for retailers, pub companies and
increasing role in spending habits.
real estate owners to contribute to the communities
they serve.
Local authority
intervention in
town centres
– Local Authorities have faced cuts in central
– Local Authorities have become much more active in the
government grants and policies encouraging them
commercial real estate market, acquiring £6.6 billion of
to be more independent and forward-thinking.
commercial properties over the past three years5, over
– Against this backdrop, driven by the availability of
a third of which was retail property.
inexpensive financing from the Public Works Loan
– Local authorities also recognise their role as
Board, Local Authorities have turned to commercial
custodians of their town centres, bringing forward
property to raise additional funds and deliver for
redevelopment programmes.
their communities.
Technology and
online retail
– Online transactions accounted for 19% of total retail
– The physical store remains a key part of retailers’
sales in 20196, and have been steadily rising over the
multi-channel strategies, as the main last mile
past decade.
distribution channel and as a ‘showroom’.
– Retail parks are an investment focus area for NewRiver, as they
provide many characteristics that make them ideal for click & collect,
such as free, surface-level parking and high accessibility.
– COVID-19 has undoubtedly led to an increase in online retail, but
as the lockdown is eased and less time is spent at home, click &
collect will once again be seen as a convenient fulfilment method.
– Click & collect remains by far the most popular form of
– Retailers are investing in ways to broaden their online
online sales fulfilment, accounting for up to 80%6 of all
reach, by providing click & collect options outside their
sales for some retailers.
physical store footprint.
– As competition increases, customer expectations of
service and convenience has increased.
– We are working with retailers to bring forward innovative click &
collect solutions, such collection pods in car parks.
NewRiver REIT plc Annual Report and Accounts 2020
17
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
OUR MARKETPLAC E
IMPACT OF COVID-19
COVID-19 has resulted in significant disruption in our key markets,
given the restricted ability of our occupiers to operate. We took
early and decisive action to protect our financial position and
insulate ourselves from its impact.
Cash reserves, liquidity
and financial position
At 31 March 2020 we had £82 million of cash reserves
and £45 million of undrawn revolving credit facilities,
providing available liquidity of £127 million. On 29 April
2020, we received confirmation from the Bank of
England that we are eligible to access £50 million of
funding under the Covid Corporate Financing Facility
(‘CCFF’), a joint HM Treasury and Bank of England
lending facility. This facility is currently undrawn, but
improves our available liquidity position to £177 million,
and is available to be drawn at the Bank of England’s
discretion for a tenure of up to 12 months until
March 2021.
Immediately prior to lockdown we took a prudent
approach to preserve cashflow and reduce operational
costs. First we drew £50m of our Revolving Credit
Facility in mid-March 2020 to improve our cash flow
position. We then suspended all non-essential capital
expenditure projects and marketing across our
portfolio, and suspended our fourth quarter dividend.
In-line with our risk-controlled approach, we have
limited contractual capex requirements across our
development pipeline.
Our wholly unsecured balance sheet is one of the
differentiating characteristics of our financial position
and provides significant operational flexibility. We have
no bank refinancing events due prior to August 2023.
Fitch Ratings
BBB
NewRiver’s
Long-Term
IDR, with
stable
outlook
BBB+
Senior rating
for £300m
unsecured
bond dated
2028
F2
NewRiver’s
Short-Term
IDR
Available liquidity
£82m
Unrestricted cash reserves
£45m
Undrawn revolving credit
facilities
£50m
Funding under the Covid
Corporate Financing Facility
£177M
Available liquidity position
£28M
Cashflow improvements
£24m
Stopped non-essential
capex
£4m
Suspended business rates
and marketing
Preserving cashflow
18
NewRiver REIT plc Annual Report and Accounts 2020
Retail portfolio
Hawthorn Leisure
Our retail portfolio is focused on occupiers providing
essential goods and services, and almost two-thirds of our
retail assets are anchored by a major food and grocery
brand. As a result, 37% of our retail occupiers by gross
income remained open throughout lockdown.
37%
Of retail occupiers remained open
throughout lockdown
Of the rent with due dates between 25 March and 1 June,
75% has either been collected or is to be collected through
alternative payments agreed with occupiers. We continue
to engage with occupiers representing the rent outstanding,
to either recover late payments or agree alternative
arrangements. We are confident that collection rates will
improve as lockdown eases.
Following the UK Government’s announcement on
20 March 2020 that entertainment and hospitality premises
must close with immediate effect, Hawthorn Leisure
temporarily closed all its sites. We had anticipated pub
closures for some time before the announcement, so were
well-prepared for this outcome.
Since these closures, our Business Development Managers
have been working closely with our pub partners to ensure
they are receiving the support required for their businesses
to emerge from the lockdown in a strong position. We
have also focused on mitigating operating costs within
the business.
For our Leased & Tenanted pubs, which represent 82% of
our portfolio, rents due from lockdown to 30 June total
£3.8 million. We have already recovered £1.4 million of this
rent, and we have received commitments to pay a further
£0.1 million, and are confident of recovering a further
£0.2 million. The remaining rent will either be waived as part
of our conditional support grants provided to pub partners,
or will be subject to a claim for the business disruption and
loss of rent caused by COVID-19. We do not receive any
rental income from our operator managed pubs.
SEE PAGE 13 FOR MORE ON RETAIL PORTFOLIO
SEE PAGE 13 FOR MORE ON PUB PORTFOLIO
Safety and wellbeing
As the situation continues to evolve, the safety and
wellbeing of our staff, occupiers, pub partners, and all of the
consumers who visit our assets, are our top priority. Across
our portfolio, our asset management teams have been
working to ensure that our centres are accessible to those
who need them for essential shopping, while taking all
necessary steps to ensure they provide a safe environment
where social distancing measures are adhered to.
At a corporate level, we were well-prepared for a prolonged
period of remote working. Our head office employees have
all been provided IT equipment to enable them to work from
home and have participated in regular update calls and
initiatives to ensure they are aware of the latest
developments, and to promote their physical and mental
wellbeing. We continue to closely monitor UK Government
guidance and stand ready to act on the latest advice.
Committed to our
communities during
COVID-19
As an owner and operator of community assets throughout
the UK, we have experienced first-hand the very significant
impact that the COVID-19 has had on people across the
country. We have also seen the extraordinary contributions
made by our teams, customers, occupiers, advisers, and
other stakeholders, to support those who are most in need.
In recognition of these circumstances, we announced in
April that our Board of Directors will be waiving 20% of their
base salaries or fees for three month, which will be donated
to NewRiver’s corporate charity partner, the Trussell Trust.
The Trussell Trust’s vital work supports over 1,200 food
banks across the UK, while campaigning to ensure
everyone can afford their own food.
NewRiver’s partnership with the Trussell Trust began in
June 2019, and to date the Company has donated close
to £100,000 to support its efforts. In addition, NewRiver
staff have volunteered at Trussell Trust sites, food
collection points have been installed across NewRiver’s
shopping centre portfolio, and our assets have been
made available for storage, awareness campaigns and
volunteer recruitment.
SEE PAGE 46 FOR MORE ON OUR PEOPLE
SEE PAGE 48 FOR MORE ON OUR ESG PROGRAMME
NewRiver REIT plc Annual Report and Accounts 2020
19
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT HOW WE CREATE VALUE
DELIVERING GROWING CASH
RETURNS AND THRIVING
COMMUNITIES
Our business model
Leveraging our
operating platform with
a conservative
balance sheet
We leverage the scale and expertise of
our platform, underpinned by a
conservative and unencumbered
balance sheet, to drive further returns.
This includes using our platform to
manage assets owned by third parties
or which we own through joint ventures
with third parties.
Disciplined stock selection
We target high yielding assets with low risk characteristics in our key sectors
of community shopping centres, conveniently-located retail parks and
community pubs. We acquire these assets either directly or through joint
ventures. Our significant market experience and in-depth analysis enable us
to price risk appropriately and buy assets at the right prices.
Active asset
management
We enhance and protect
income returns through our
asset management initiatives,
which range from the
deployment of targeted
capex to improve asset
environments to measures to
reduce occupational costs
for occupiers. We draw on
our in-house expertise, a
deep understanding of our
market and strong
relationships with our
occupiers to achieve this.
Growing
cash returns
& thriving
communities
2
Profitable capital
recycling
We regularly assess potential upside
opportunities in disposing of assets
and recycling capital into new
opportunities, and we have a track
record of doing this profitably. These
disposals are typically of mature
assets where our estimates of
forward looking returns are below
target levels, assets where we
believe the risk profile has changed,
or assets sold to special purchasers.
Our ESG objectives
Risk-controlled development
We create income and capital growth through our
risk-controlled development pipeline. Our in-house
development team works with stakeholders to obtain
valuable planning consents, which we can develop
ourselves or sell to crystallise a profit. Our risk-
controlled approach means that we will not commit to
developments without securing significant pre-lets
or pre-sales.
Minimising our
environmental impact
Engaging our staff
and occupiers
Supporting our
communities
Leading governance
and disclosure
20
NewRiver REIT plc Annual Report and Accounts 2020
Our Strategies Our key stakeholders
Disposing
of lower yielding
assets
Capital recycling,
primarily in joint
ventures
Leveraging our
asset
management
platform
Sharper asset
management &
operational
efficiencies
Extracting growth
from our pubs
Stakeholder and
contribution
Staff
The expertise and
commitment of our
employees drives
our success.
How we engage
Our staff are at the heart of our business, and we aim to attract
and retain the very best talent. We put the right people into the
right roles and develop their careers to ensure that they grow with
us. Central to this is our comprehensive staff wellbeing
programme, which aims to support a healthy work-life balance.
SEE PAGE 46 FOR MORE
Occupiers
We have over 800 retail
occupiers and over 550
tenants in our community
pub portfolio.
Our diverse range of occupiers meet the everyday needs of our
customers. We engage closely with our occupiers to ensure our
centres are clean, secure and inviting, that our rents are
affordable, and our occupational costs are low. Our annual
occupier satisfaction survey guides us to how we can
improve further.
SEE PAGE 54 FOR MORE
Local Authorities
We have established
relationships with over
60 Local Authorities
across the UK.
Local Authorities are the ultimate custodians of their town and city
centres, and we are well-placed to help them safeguard the future
of these vitally important places. We already work closely with
councils that are local to our assets, and our third-party asset
management platform allows us to bring our insight and expertise
to many others.
SEE PAGE 15 FOR MORE
Communities
We meet the needs of
UK communities, and
support and champion
local causes.
Our assets are located in communities across the UK and play an
integral role in the lives of our customers. We aim to strengthen
communities through meeting their everyday needs and
supporting the causes that matter to them. During the year we
established a charity partnership with the Trussell Trust, which
operates the UK’s largest food bank network.
SEE PAGE 53 FOR MORE
Lenders
Our relationship banks
and bondholders provide
us with the funding to
execute our strategy.
The support of our lenders has ensured that we are in a strong
financial position with a fully unsecured balance sheet, which is
conservatively geared. This structure is highly efficient and
covenant-light, affording us significant operational flexibility. We
will continue to work closely with our relationship banks and
bondholders to maintain this position.
SEE PAGE 38 FOR MORE
Shareholders
An open and
continuous dialogue
with shareholders
ensures we build and
maintain their support.
As owners of the business, our shareholders are key to our
success. Our Chief Executive, Chief Financial Officer and Head of
Investor Relations engage with them through an active
programme of meetings, presentations and site visits through the
year. Our Chairman and other members of the Board and
Executive Committee also meet investors where appropriate.
SEE PAGE 74 FOR MORE
NewRiver REIT plc Annual Report and Accounts 2020
21
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
OUR STRAT EGY
OUR STRATEGIES TO
DELIVER GROWTH
The execution of our proven business model, and focus on our ESG objectives,
enables us to deliver beneficial outcomes for all our stakeholders.
Disposing of lower
yielding assets
We set a target to dispose of 5% of
our portfolio during the financial year,
equating to c.£64 million, targeting
disposal net initial yields of 5% to 7%.
Our disposal target covers all
asset types.
Progress in FY20
– We completed disposals of £48.4
million, reflecting a blended net
initial yield of 5.5% and a modest
2% discount to book value.
– We therefore achieved over 75%
of our disposal target, as our
progress was impacted in the
second half by political uncertainty
and COVID-19.
– Disposals were completed across
all asset types, demonstrating the
inherent liquidity in our portfolio
and the attractiveness of our
assets to a large pool of
potential buyers.
Priorities for FY21
As the real estate capital markets
recover, we are targeting between
£80 million and £100 million of asset
disposals, while maintaining discipline
in disposal pricing. The proceeds will
predominantly be used to reduce
debt, but we will also recycle into
capital partnerships opportunities
where appropriate.
KPIs
– Total Accounting Return
– Loan to Value
– GRESB Score
Capital recycling,
primarily into joint
ventures
In May 2019 we formed a new joint
venture relationship with BRAVO,
primarily to acquire and manage a
portfolio of retail parks in the UK. We
aim to make the majority of new
acquisitions in joint ventures, as this
increases returns on investment and
ensures we maintain balance
sheet strength.
Progress in FY20
– During the year we completed
£172.8 million of acquisitions
(NewRiver share: £102.3 million),
representing a blended net initial
yield of 9.5%.
– In the retail portfolio, we acquired
six retail parks, of which five were
purchased as part of the joint
venture relationship with BRAVO
– We acquired one pub company,
Bravo Inns, and one pub portfolio.
Priorities for FY21
Dislocations in real estate valuations
following COVID-19 will provide
significant opportunities to acquire
high quality retail assets at attractive
prices, and we will work closely with
our joint venture partner, BRAVO,
and others to identify these
opportunities and build our existing
joint venture relationship.
KPIs
– Underlying Funds
From Operations
– Total Accounting Return
– Total Property Return
– Annualised Rent Roll
– Interest cover
– GRESB Score
Leveraging our asset
management platform
Our market-leading platform
comprises a highly experienced team
of asset managers and finance,
development and marketing
professionals. We aimed to leverage
this platform to manage assets
owned in joint ventures and support
an increasing number of third-party
owners, such as Local Authorities.
Progress in FY20
– Asset management fees increased
to £0.9 million, from £0.3 million
in FY19.
– Our annualised management
fee income at year-end was
£1.1 million, a 120% increase on the
prior year.
– This increase has been driven by
the acquisition of properties in our
joint venture with BRAVO and the
signing of additional third-party
asset management mandates.
Priorities for FY21
Local Authorities are naturally placed
to take a leadership role in
addressing a key issue facing many
towns and cities, which is an excess
of retail space. COVID-19 will likely
further encourage this intervention.
We aim to partner with many other
Local Authorities in order to transform
their own town and city centres.
KPIs
– Underlying Funds
From Operations
– Total Accounting Return
– Annualised Rent Roll
– Admin cost ratio
– GRESB Score
– Total Property Return
22
NewRiver REIT plc Annual Report and Accounts 2020
Sharper asset
management and
operational efficiencies
We aim to extract further value from
our existing assets, using insights
from our occupiers and enhancing
co-ordination of asset management
initiatives across the portfolio. We aim
to lower service charges for our
occupiers, removing costs and
delivering scale-based synergies.
Progress in FY20
– We appointed a Head of Asset
Management, Emma Mackenzie,
to lead our occupier relationships
and co-ordinate initiatives across
our portfolio.
– Completed 678,100 sq ft of new
lettings and renewals representing
£5.7 million of annualised rent.
Long-term deals were signed 1.2%
ahead of previous passing rent.
– We reduced retail service charge
budgets by 8% on average
compared to the prior year,
identifying further reductions in
response to COVID-19.
Priorities for FY21
Our new for retail asset management
team structure will bring benefits to
our occupiers and leasing activity in
the coming year, despite a
challenging market backdrop
post-COVID-19.
KPIs
– Underlying Funds From
Operations
– Total Accounting Return
– Total Property Return
– Annualised Rent Roll
– Admin cost ratio
– Retail occupancy
– Interest cover
– GRESB Score
Growth from pubs
ESG objectives
In Hawthorn Leisure we have a pub
management platform which has the
scale and expertise to extract further
growth from our community pubs
business. This growth will be driven
by asset management and
development initiatives across the
existing portfolio, and selective
acquisitions to add further pubs to our
platform.
Progress in FY20
– Until March 2020, Hawthorn
Leisure delivered like-for-like
EBITDA per pub growth of 5.9% in
the year.
– We completed 82 capital
investment projects across the
pub portfolio at a cost of
£4.3 million and delivered our 26th
c-store to the Co-op.
– In December 2019 we acquired
Bravo Inns and acquired a further
28 pubs from Marston’s in J
anuary 2020.
Priorities for FY21
Our first priority is the successful
execution of our pub reopening
strategy. Once reopened, we
intend to continue our programme
of targeted capital expenditure
projects to improve returns and
extract further value from our pub
sites through development.
KPIs
– Underlying Funds From
Operations
– Total Accounting Return
– Total Property Return
– Annualised Rent Roll
– Loan to Value
– Interest cover
– GRESB Score
Minimising our
environmental
impact
Reducing greenhouse gas emissions in
order to prevent climate change is one
of the biggest challenges facing our
society. We aim to minimise our
environmental impact through
procuring energy from renewable
resources, reducing our consumption
and encouraging stakeholders to be
more sustainable.
Engaging our
staff and occupiers
Our staff and occupiers are key
stakeholders in our business, and their
satisfaction and wellbeing is vital to our
long-term success. We engage our
staff and occupiers through maintaining
and encouraging an open dialogue, in
order to understand and act upon
their needs.
Supporting
our communities
Our assets are located in communities
across the UK and play an integral role
in the lives of our customers. We aim to
enrich lives and strengthen
communities through meeting the
needs of all our customers and
supporting and championing
local causes.
Leading
governance
and disclosure
High standards of corporate
governance and disclosure are
essential to ensuring we operate
effectively, and to instil confident
amongst stakeholders. We aim to
ensure our governance and disclosure
is in-line with best practice.
FOR MORE DETAILS SEE PAGE 49
NewRiver REIT plc Annual Report and Accounts 2020
23
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT OUR KEY PERFORMANCE I NDI CAT O RS
MEASURING OUR
PROGRESS
We measure out progress against our strategic priorities and ESG
objectives with reference to our key performance indicators (KPIs)
KPI
Description
Our performance
Underlying Funds From
Operations
£52.1m
.
5
5
1 5
7
4
.
1
.
5
5
1
.
2
5
.
9
7
3
FY16 FY17 FY18 FY19 FY20
Total Accounting Return
-14.7%
1
.
8
1
1
.
7 8
5
.
.
3
3
-
.
7
4
1
-
FY16 FY17 FY18 FY19 FY20
Total Property Return
-5.4%
.
2
8 8
6
.
/
A
N
3
.
1
.
4
5
-
FY16 FY17 FY18 FY19 FY20
Underlying Funds From
We delivered UFFO of £52.1
Operations (‘UFFO’) measures
recurring cash profits and excludes
other one off or non-cash
adjustments. We consider this to
be the most appropriate measure
of the underlying performance of
the business, as it reflects our
generation of cash profits.
million, including lost income and
provisions specifically relating to
COVID-19 of £2.8 million,
compared to £55.1 million in the
prior year.
Total Accounting Return (‘TAR’) is
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 year. TAR
performance relative to UK-listed
Real Estate Investment Trusts is a
key metric used in setting the
long-term incentive plan.
Our TAR was -14.7% over the
year, compared to -3.3% over the
previous year. This was
principally due to a reduction in
NAV from 261p at 31 March 2019
to 201p at 31 March 2020.
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.
We assess our performance
against the market by comparing
our returns to the MSCI-IPD All
Retail benchmark.
Our portfolio outperformed the
benchmark by 480 bps. In our
view, this outperformance is
driven by the quality of our asset
management, the affordability of
our rents, and the liquidity of
our assets.
£
£
24
NewRiver REIT plc Annual Report and Accounts 2020
KPI
Description
Our performance
Annualised rent roll
£117.9m
.
6
4
1
1
.
9
7
1
1
.
5
6
9
1
.
0
0
1
1
.
5
8
Annualised rent roll is a measure
of the scale of our business and
the success of our active asset
management and risk-controlled
development. It is disclosed on
proportionally consolidated basis,
including rental income from joint
ventures at our share.
Our annualised rent roll
increased 3% to £117.9 million
during the year, as increased
rental income from acquisitions,
including Hawthorn Leisure, and
asset management initiatives
more than offset rental income
lost through disposals.
The admin cost ratio is total
Our admin cost ratio was 15%
administrative expenses as a
proportion of gross revenue on a
proportionally consolidated basis,
including our share of
administrative expenses and
gross revenue from joint
ventures. It is a measure of our
operational efficiency.
during the year, increased from
13% in the previous year. This
was mainly driven by the
recognition of a full year of
Hawthorn Leisure costs, and the
transfer of management of our
existing pub portfolio from a
third-party specialist manager to
the Hawthorn Leisure platform
during the year.
FY16 FY17 FY18 FY19 FY20
Admin cost ratio
15%
9
1
5
4 1
1
5
1
3
1
FY16 FY17 FY18 FY19 FY20
Strategic objectives
Disposing of lower
yielding assets
Sharper asset management
and operational efficiencies
ESG
Environmental, Social
and Governance
Capital recycling primarily
in joint ventures
Extracting growth
from our pubs
£
Remuneration
Leveraging our asset
management platform
NewRiver REIT plc Annual Report and Accounts 2020
25
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
OUR KEY PERFORMANCE I NDI CAT O RS
KPI
Description
Our performance
Retail occupancy
94.8%
.
9
5
9
.
6
6
9
.
5
6
9
.
2
5
9
.
8
4
9
FY16 FY17 FY18 FY19 FY20
Loan to Value
47%
%
7
4
%
7
3
%
7
3
%
8
2
%
7
2
FY16 FY17 FY18 FY19 FY20
Interest cover
3.8x
7
5 4
4
.
.
.
3
4
0
4
.
8
3
.
Retail occupancy is the estimated
rental value of occupied retail units
expressed as a percentage of the
total estimated rental value of the
retail portfolio, excluding
development activities.
Retail occupancy remained high
at 94.8% at year-end. This was
due to our active approach to
asset management, our
affordable rents, and out track
record of reducing occupational
costs for our retailers.
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 five
key Financial Policies.
Our LTV increased over the year,
from 37% at 31 March 2019 to
47% at 31 March 2020, principally
reflecting valuation decline
during the year and net
acquisitions. Reducing debt
levels through our disposal
programme is a priority for FY21.
Our interest cover was 3.8x at
31 March 2020, slightly reduced
from 4.0x at 31 March 2019, but
still significantly ahead of our
stated policy.
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 four key
Financial Policies.
£
£
FY16 FY17 FY18 FY19 FY20
26
NewRiver REIT plc Annual Report and Accounts 2020
KPI
GRESB Score
70
0
7
2
6
6
4
6
3
/
A
N
FY16 FY17 FY18 FY19 FY20
Description
Our performance
NewRiver has been a GRESB
participant since 2016. In our
2019 GRESB assessment we
received a GRESB Score of 70, a
13% improvement compared to
our 2017 score. We also received
our second GRESB Green Star.
GRESB is the leading sustainability
benchmark for the global real
estate sector. Assessments are
guided by factors that investors
and the industry consider to be
material in the sustainability
performance of real asset
investments, resulting in an
overall score marked out of 100.
Improvements in our
GRESB Score can be used to
measure the effectiveness of
our ESG programme.
ESG
Strategic objectives
Disposing of lower
yielding assets
Sharper asset management
and operational efficiencies
ESG
Environmental, Social
and Governance
Capital recycling primarily
in joint ventures
Extracting growth
from our pubs
£
Remuneration
Leveraging our asset
management platform
NewRiver REIT plc Annual Report and Accounts 2020
27
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
PR OPERTY REVI EW
PROPERTY REVIEW
Highlights
– Portfolio valued at £1.20 billion as at 31 March 2020
– Completed 678,100sq ft of new lettings and
(31 March 2019: £1.29 billion).
– Total property return outperformed the
MSCI‑IPD benchmark by 480 bps, with a total
decline of ‑5.4%.
– Completed £172.8 million of acquisitions (New.River
share: £102.3 million) at a blended NIY of 9.5%
– Completed £48.4 million of disposals across all
asset types, at a blended NIY of 5.5%.
– Retail occupancy remained high at 94.8%
(March 2019: 95.2%); average rent remains
affordable at £12.66 (March 2019: £12.52); and
like‑for‑like footfall outperformed the UK benchmark
by 100 bps.
renewals across the retail portfolio; long‑term deals
on average 1.2% ahead of previous passing rent
and 0.8% ahead of March 2019 ERV.
– Hawthorn Leisure portfolio increased from 665 to
720 pubs; occupancy of 97.0% at 31 March 2020
(31 March 2019: 97.9%); EBITDA growth of +5.9%
excluding month of March 2020, +2.3%, including
March 2020.
– Risk‑controlled development pipeline stands at
2.5 million sq ft, of which 1.8 million sq ft relates to
residential development.
28
NewRiver REIT plc Annual Report and Accounts 2020
Valuation
At 31 March 2020, our portfolio was valued at
£1.20 billion (March 2019: £1.29 billion), as net
acquisition activity was more than offset by a ‑12.3%
like‑for‑like decline in portfolio valuation. The decline
was driven by 70 bps outwards yield shift and a ‑5.5%
decline in ERVs. The portfolio is now valued of an
equivalent yield of 8.9%. A breakdown of the key
valuation movements by asset type is provided below.
As at 31 March 2020
Valuation
(NRR share)
(£m)
Portfolio
Weighting
(%)
Regional shopping centres
London shopping centres
Shopping centres
Retail parks
High street
Pubs & c‑stores
Development
Total
472
148
620
224
12
275
66
1,197
39
12
52
19
1
23
6
100
Valuation
surplus/
(deficit)
(%)
(17.6)
(5.3)
(14.9)
(8.9)
(17.0)
(8.2)
14.0
(12.3)
Topped‑up
NIY
(%)
NEY
(%)
LFL ERV
Movement
(%)
8.1
5.8
7.6
7.5
10.1
11.1
–
8.4
9.2
5.9
8.4
7.4
9.3
11.1
–
8.9
(6.7)
(1.8)
(5.8)
(4.0)
(4.5)
–
–
(5.5)
Our valuation performance reflects another challenging
year for the UK retail sector, and the onset of COVID‑19.
The UK lockdown in response to COVID‑19 accounted
for 31% decline in portfolio valuation. It accounted for
20% of the decline in shopping centres and 26% of the
decline in retail parks. All of the valuation mark down on
the pub portfolio was due to COVID‑19, with a modest
mark down for some of our c‑stores.
All our valuation reports include a “material valuation
uncertainty” disclosure. This states that valuers can
attach less weight to previous market evidence for
comparison purposes, and thus less certainty can be
attached to their valuations than would normally be the
case. The valuers clarify that this does not mean that
valuations cannot be relied upon.
As the table below shows, our portfolio outperformed
the MSCI‑IPD benchmark for both income return and
capital growth during the year, delivering a total return
outperformance of +480 bps. In our view, this
outperformance is driven by the affordability of our
rents, which means our ERV decline was much less
than others and our equivalent yields are much higher,
so less impacted by yield expansion. It also reflects the
liquidity of our assets, with an average lot size of just
£20.2 million for our shopping centres and £13.3 million
for our retail parks.
Year ended 31 March 2020
NRR portfolio
MSCI‑IPD Benchmark1
Relative performance
1. Benchmark includes monthly & quarterly valued retails.
Total Return
‑5.4%
‑9.8%
+480 bps
Income Return
7.8%
5.4%
+230 bps
Capital Growth
‑12.4%
‑14.4%
+240 bps
The Company undertook an alternative use value
review at 31 March 2020 across its entire retail portfolio.
This is a detailed internal assessment factoring in
demolition costs, construction costs and a development
profit to calculate the value of the next best alternative
use for our retail assets. Due to our assets being
predominantly located in town centres, the vast
majority of the alternative use potential relates to
residential development.
At 31 March 2020, we calculated that the total
alternative use valuation (‘AUV’) for our retail portfolio,
at £803 million, was just 12% below the total valuation of
our retail assets of £916 million, which we consider to
be an underpin to our valuations. In particular, the AUV
for our shopping centres was just 8% below
31 March 2020 valuations, validating the underpin to
our shopping centre valuations and the rationale for
development across the portfolio.
NewRiver REIT plc Annual Report and Accounts 2020
29
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PR OPERTY REVI EW
Disciplined stock selection
During the year, we acquired eight assets in five
separate transactions totalling £172.8 million (NewRiver
share: £102.3 million), reflecting a blended net initial
yield of 9.5%. This comprises three assets acquired
wholly by NewRiver, a further four acquired in a 50:50
joint venture with BRAVO and one acquired in a 10%
associate investment with BRAVO.
12 months to 31 March 2020
Acquisition price
(£m)
Kittybrewster Retail Park, Aberdeen
Telford Retail Park, Inverness
Units at Kingsway East Retail Park, Dundee
Wakes Retail Park, Newport, Isle of Wight
Poole Retail Park
Sprucefield Retail Park, Lisburn
Bravo Inns
Portfolio of 28 wet‑led community pubs
Total
35.2
15.1
3.6
6.5
44.7
40.0
17.9
9.7
172.8
NewRiver share of
acquisition price
(£m)
17.6
7.5
1.8
3.3
4.5
40.0
17.9
9.7
102.3
Net initial yield
(%)
Equivalent yield
(%)
8.9
12.3
8.4
9.7
8.0
8.6
14.0
9.5
9.5
8.0
9.8
9.7
8.2
7.9
7.9
14.0
9.5
8.9
Kittybrewster Retail Park, Aberdeen
In June 2019, we acquired Kittybrewster Retail Park,
situated one mile north of Aberdeen city centre, beside
the A96 and in close proximity to a Sainsbury’s
superstore. The 13‑unit, fully‑let retail park offers
154,400 sq ft of retail space and 402 car parking
spaces, and has a convenience and value‑led line‑up
including B&M, TK Maxx, Sports Direct, Halfords and
PureGym. The asset has a low Rent to Sales ratio of
6.5%, which provides significant headroom to the
asset’s Affordable Rent to Sales ratio of 8.1%.
Telford Retail Park, Inverness
In June 2019, we acquired Telford Road Retail Park,
located on the north west edge of Inverness city centre,
close to the A82. The retail park provides 179,500 sq ft
of retail space and is anchored by B&M, Go Outdoors,
Oak Furnitureland and Poundstretcher. The asset has a
low Rent to Sales ratio of 6.0% which provides
significant headroom to the asset’s Affordable Rent to
Sales ratio of 7.5%, and the site has alternative use
potential for hotels and light industrial, facilitated by a
low capital value per sq ft of £35.
Units at Kingsway East Retail
Park, Dundee
In June 2019, we acquired Kingsway East Retail Park,
situated two miles north east of Dundee city centre,
close to the junction of the A972 and A92, and is
anchored by an Asda superstore. The acquisition
comprises two units: a 34,500 sq ft store let to B&M
and a 14,700 sq ft store let to home furnishings retailer
Harry Corry, which are adjacent to a 374‑space car
park. The asset has a low and sustainable average rent
of £6.45 per sq ft and a very low land capital valuation
of £23 per sq ft.
Wakes Retail Park, Newport, Isle
of Wight
In June 2019, we acquired Wakes Retail Park, situated
to the north of Newport town centre, beside the A3020
and is located in the main retail park concentration on
the Isle of Wight. The retail park provides 40,800 sq ft
of retail space across three units, and is anchored by
Pets at Home and Currys PC World. The asset has a
low Rent to Sales ratio of 7.6%, which provides
significant headroom to the asset’s Affordable Rent to
Sales ratio of 9.0%. In addition, the asset has alternative
use potential for hotels and residential, supported by a
land capital valuation of £66 per sq ft.
30
NewRiver REIT plc Annual Report and Accounts 2020
Poole Retail Park
In October 2019, we acquired Poole Retail Park, which
is located between the town centres of Poole and
Bournemouth in Dorset, adjacent to the A35 and close
to a large residential area. The fully‑let retail park
comprises 14 units offering 208,000 sq ft of retail
space, with a tenant line‑up including John Lewis at
Home, DW Sports, Next Home, Homesense, Boots and
Home Bargains, and a free car park providing 805
spaces. At acquisition, the asset had an attractive
weighted average unexpired lease term of 6.7 years, an
affordable average rent of £18.24 per sq ft and an
average Rent to Sales ratio of 7.8%. We have identified
a number of opportunities to extract further value and
enhance income streams at the asset, including the
expansion and adaption of units to better meet the
needs of current and prospective occupiers.
Sprucefield Retail Park, Lisburn
In December 2019, we acquired Sprucefield Retail Park.
This asset is located one mile south of Lisburn city
centre, adjacent to the main junction between Northern
Ireland’s M1 motorway and the A1 road, which is the
main route connecting Northern Ireland to the Irish
Republic. The 47‑acre site comprises a five‑unit retail
park providing 231,000 sq ft of retail space, a
1,200‑space free car park and 18 acres of development
land. The retail park is anchored by Sainsbury’s and
B&Q, and has an affordable average rent of £16.11 per
sq ft, with a weighted average unexpired lease term of
7.5 years. We have identified significant opportunities to
extract further value from the asset, which has a total
capital value per sq ft of £19, through active asset
management and the disposal of parcels of land
for development.
Bravo Inns
In December 2019, we acquired Bravo Inns, which
owns 44 wet‑led community pubs, predominantly
located in North West England. Its management team
have established a high‑quality, well‑managed and
well‑invested portfolio which complements our existing
pub portfolio. The acquisition has increased our
exposure to the highly profitable operator managed
pub model, which will provide the Company with
opportunities to drive higher returns through accretive
capital expenditure and other asset management
initiatives. The purchase price of £17.9 million equated
to 6.8x EBITDA. This acquisition has been accounted
for as a business combination under IFRS 3.
Portfolio of 28 wet-led
community pubs
In January 2020 we made an off‑market purchase of a
hand‑picked portfolio of 28 community pubs from
Marston’s PLC. These leased and tenanted pubs offer a
range of opportunities to extract further value, including
through targeted capital expenditure and development
on surplus land.
NewRiver REIT plc Annual Report and Accounts 2020
31
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PR OPERTY REVI EW
2
Active asset management
We have developed a market‑leading retail asset
management platform since NewRiver was founded
over 10 years ago, and with the integration of Hawthorn
Leisure in January 2019, we now also have a highly
experienced pub management platform. Together
these allow us to take a hands‑on approach to asset
management, drawing on our expertise, scale, and
strong relationships with our occupiers and pub
partners to deliver the right space in the right
locations on terms beneficial to all parties. We
believe this platform contains inherent value which
we plan to further extract through our capital
partnerships business.
Retail portfolio
During the first half we completed 678,100 sq ft of new
lettings and renewals across our retail portfolio,
representing £5.7 million of annualised rent. This high
volume of leasing activity means that our occupancy
rate remained high at 94.8% despite the challenging
market backdrop. On average, long‑term deals were
signed 1.2% ahead of previous passing rent and 0.8%
ahead March 2019 ERV, at an average rent of
£15.97 per sq ft. Long‑term deals had an average
lease length of 8.6 years.
Our leasing activity reflected our focus on occupiers
providing essential goods and services in the
discounter space, we agreed deals with B&M, Home
Bargains, The Works, Wilko and Poundland. This
included a new 10‑year lease with Poundland on a
34,000 sq ft unit at the Abbey Centre, near Belfast,
where the retailer was upsizing from an existing unit
elsewhere in the centre to a space vacated by Primark,
following its own upsizing within the centre. In the
health & beauty space, we signed three leases with
Superdrug and further deals with Boots, Grape Tree
and Specsavers. We continue to see demand from
low‑cost gym operators, particularly within our retail
park portfolio, and during the period we signed a new
letting with The Gym Group at Victoria Retail Park
Beverley, where the brand launched one of its first
“small‑box” format gyms. We also made progress
letting vacant space at our new acquisition during the
year, signing a 10‑year lease with B&M on a unit at
Sprucefield Retail Park, Lisburn on a previously vacant
unit and signed a new 10‑year lease with Iceland at
Wakes Retail Park on the Isle of Wight, to open a new
“The Food Warehouse” format store. During the period
we also renewed leases on 29 Amazon Lockers across
our shopping centre portfolio, underscoring their
importance as Click & Collect destinations.
Top retail occupiers
Rank
1
2
3
4
5
6
7
8
9
10
Subtotal
11‑25
26‑100
Total
Occupier
Sainsbury’s
B&M
Poundland
Superdrug
Wilko
Boots
Primark
TK Maxx
New Look
Marks & Spencer
e.g. Next, B&Q, Iceland, Home Bargains
e.g. Greggs, Costa, Tesco, Dunelm
Number of stores in portfolio
3
12
20
16
8
17
4
8
14
4
% Total gross income
2.3
2.1
1.7
1.7
1.6
1.5
1.4
1.3
1.2
1.2
16.0
12.4
19.4
47.8
Our retail rental income is well‑diversified, with 1,800
leases across over 850 different occupiers, and our top
occupiers are focused on providing essential goods
and services. The Company’s policy is that no single
retailer will account for more than 5% of total rent, and
our top tenant in terms of gross rental income at year
end was Sainsbury’s, accounting for 2.3% of total rent.
Alongside this diversification, our affordable rents are
key to ensuring the sustainability of our income, and
our average remained affordable at £12.66 per sq ft at
31 March 2020.
32
NewRiver REIT plc Annual Report and Accounts 2020
Pub portfolio
During the year, the size of our Hawthorn Leisure
community pub portfolio increased from 665 to 720, as
portfolio acquisitions more than offset disposals. The
portfolio is geographically spread throughout England,
Scotland and Wales. Our community pubs are almost all
wet‑led and operated by individuals, typically as a
family business. At over two‑thirds of our pubs, the
operator lives in residential accommodation
provided on‑site.
Across Hawthorn Leisure, 82% of sites operate under a
Leased & Tenanted model, whereby the Company has
an occupational lease with a tenant, who is responsible
for all operating costs of the pub, including staff costs.
Most of our Leased & Tenanted pubs are ‘tied’,
meaning that tenants are required to purchase drinks
from the Company and lease games machines from
Company‑approved suppliers. In return, Hawthorn
Leisure receives rental income, a margin between the
wholesale price and sale price to tenants on drinks
supplied, and a share of machine profits.
The remaining 18% of Hawthorn Leisure sites operate
under an Operator Managed model, whereby the
Company enters into an operator agreement with a pub
partner. The Company incurs all operating costs of
running the pub, except for staff costs, which are borne
by the operator. In return, the Company receives gross
turnover generated by the pub and pays a
management fee to the pub partner, which is on
average around 20% of net revenue.
One of our key strategies is to extract growth from our
pubs, and our 23 Business Development Managers are
on the ground working with our pub partners to find
new ways to grow income, reduce costs and create
thriving pubs that serve local communities. This is
reflected in a high occupancy rate across our pub
portfolio, which was 97.0% at 31 March 2020
(31 March 2019: 97.9%).
During the year, like‑for‑like EBITDA per pub increased
2.3%. Excluding the month of March 2020, during
which the pubs were impacted by the onset of
COVID‑19 and eventually temporarily closed by a UK
Government order on 20 March, like‑for‑like EBITDA
per pub increased 5.9%. This strong performance was
driven predominantly by the scale‑based synergies
achieved by the integration of Hawthorn Leisure into
NewRiver in January 2019.
Across the pub portfolio, we continued our programme
of targeted capital investment projects aimed at
enhancing the customer experience, further improving
trade, and increasing capital values. Since our
acquisition of Hawthorn Leisure, we have completed 131
such projects at a total cost of £6.1 million, which have
delivered an average return on investment of 16.9%.
During the year, we opened a dedicated pub partner
training centre in Macclesfield, which provides a
comprehensive training course encompassing sales,
marketing, business planning and financial control. To
date, almost 50 pub partners have completed
self‑funded training courses at the centre and feedback
has been very positive. In the coming year, we will be
looking to roll out our training platform further across
the business.
Other asset management initiatives have included the
launch of our Online Toolkit, which give pub partners
access to marketing materials and how‑to guides for
drinks offers, entertainment sports events and
functions, and the launch of an EPOS‑integrated loyalty
card scheme across our operator managed pubs, which
now has over 12,000 cards in operation, driving repeat
visits and providing valuable consumer insights.
NewRiver REIT plc Annual Report and Accounts 2020
33
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PR OPERTY REVI EW
3 Risk controlled development
Our risk‑controlled development pipeline totals
2.5 million sq ft (2.1 million sq ft in the near‑term) and is
one of the ways in which we extract further value from
our assets. Reflecting our focus on realising alternative
use potential, over 70% of the pipeline relates to
residential development.
For most of the projects in our pipeline, we intend to
either sell the site with the benefit of planning or
continue with development through capital
partnerships. However, for projects in our pipeline with
a lead time of less than 12 months, such as our c‑store
developments for the Co‑op, we will typically fund and
manage the construction ourselves, using our
experienced in‑house development team.
Total development pipeline
Shopping
Centre
Sq ft
Retail Park
Sq ft
Health &
Social Care
Sq ft
Hotel
Sq ft
C‑store
Sq ft
Residential
Sq ft
Total
Pipeline
Sq ft
–
3,600
–
37,900
3,600
8,100
53,200
Retail &
Leisure
Pre‑let
%
100
Resi
Pre‑sold
%
0
266,300
12,000
–
49,800 10,700
549,100
887,900
57
29
–
–
– 160,000
266,300 175,600
–
54,200
54,200
–
–
28,900
1,090,200
87,700 21,300 1,455,100 2,060,200
25,400
872,500
3,500
3,500
100
52
0
0
–
–
–
50,000
–
378,000
428,000
266,300 175,600
54,200
137,700 21,300
1,833,100 2,488,200
–
700,000
–
–
–
–
–
–
–
–
451,200
–
Completed/
Under
construction
in FY20
Planning
granted
In planning
Pre‑planning
Near-term
pipeline
Early
feasibility
stages
Total
pipeline
Additional
residential
potential1
Basingstoke
Leisure Park
1. A strategic review of our entire retail portfolio identified the potential to deliver residential units adjacent to or above our assets over the
next 5‑10 years
Developments completed or under
construction in the year
During the year we partially completed the construction
of a 11,700 sq ft development at the site of the former
Sea View Inn in Poole, Dorset, comprising a Co‑op
c‑store and 10 residential units. We also completed the
development of two pods at Waterfront Retail Park in
Barry, Wales which have been pre‑let to Costa and
Burger King. We commenced the development of an
85‑room Premier Inn on the site of a high street unit in
Romford, Greater London, which has been sold to a
property investor as part of a pre‑let forward
funding agreement.
34
NewRiver REIT plc Annual Report and Accounts 2020
Overview of key developments
Site details
Site
Status
Size
Burgess Hill
Planning
granted
465,000 sq ft
Description
– Earlier in the year, we submitted a revised planning application for the
mixed‑use regeneration of Burgess Hill town centre to Mid Sussex
District Council.
– Working closely with local stakeholders, we adjusted the design of the scheme
to increase its residential provision, from 142 units to 172, and reduce space
designated for retail, reflecting the changing nature of the retail market and
needs of town centres.
– The revised scheme will include a 16‑lane bowling alley, a 10‑screen multiplex
cinema, and an 85‑bed hotel with a new public café bar.
– In addition, the development will provide a significantly improved public realm
which would provide functional space for managed outdoor events.
– COVID‑19 has had an impact on planning committee schedules but we
understand that the scheme remains a priority for Council to bring to committee
over the summer.
Cowley, Oxford
– Oxford City Council has approved plans for our mixed‑use redevelopment of
Grays
– We acquired Grays Shopping Centre in June 2018, as we recognised a
Site
Status
Planning
granted
Size
236,000 sq ft
Site
Status
Size
Pre‑planning
630,000 sq ft
Site
Status
Size
Site
Status
Size
Poole Retail
Park
Pre‑planning
80,000 sq ft
Rishworth
Centre and
Railway Street
Retail Park,
Dewsbury
Pre‑planning
19,000 sq ft
Templars Square Shopping Centre.
– The scheme will include 226 new residential apartments, a 71‑bed hotel, two
new restaurant units, a modernised car park and major improvements to the
public realm. The hotel and leisure element of the scheme is 82% pre‑let.
– We are about to complete the Section 106 and Section 278 Agreements at the
site and are now identifying a delivery partner to advance the technical design
and deliver the scheme.
– We are also exploring additional phases of development to unlock further
mixed‑use potential from the asset.
significant value‑creating opportunity for redevelopment at the site, which is
located just 35 minutes from Central London by train.
– We are currently working closely with Thurrock Council to bring forward a
redevelopment plan that would reduce and repurpose existing retail
floorspace, increase public open areas and facilitate an improved pedestrian
flow through Grays town centre, as well as providing over 800 new homes.
– At the end of February 2020, we held a Community Planning Weekend at the
site, attended by hundreds of local residents and businesses who shared
thoughts for the vision of a regenerated town centre.
– The community input was collated and produced into a feedback report and
conceptual layout which was presented to the public in the town theatre. The
feedback vision document was then adapted to comprise a pre‑application
presentation which was submitted to Thurrock Council in May 2020. The
outcome of the pre‑app discussions will evolve the vision document further,
which will then be presented back to the community prior to a formal planning
application being prepared.
– We acquired Poole Retail Park in a 10% investment with BRAVO in
October 2019.
– Since acquisition, we have agreed terms with a national retailer to occupy a
new 80,000sq ft unit to be built on a site currently occupied by Homebase.
– We have signed an agreement for lease with Aldi to occupy a 19,000 sq ft unit
at Rishworth Centre and Railway Street Retail Park, Dewsbury, expanding an
existing unit that is currently occupied by Next
NewRiver REIT plc Annual Report and Accounts 2020
35
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PR OPERTY REVI EW
Pubs
Smaller residential developments
During the year we also advanced plans on several
smaller residential projects across our portfolio. In
August 2019, we received planning approval from Hull
City Council for the conversion of vacant office space
above the Prospect Shopping Centre, Hull into 58
residential units, which we now intend to sell to a
residential property developer. We also progressed
planning applications for 36 residential units at The
Avenue shopping centre in Newton Mearns, near
Glasgow, which is under offer to a local housing
developer, and 15 residential units at the Deeping
Centre in Market Deeping, which is also under offer to a
residential developer.
At the Newlands Shopping Centre, Witham we are
producing a masterplan for the centre which would see
the delivery of around 129 new residential units and are
aiming to submit this to Braintree District Council in
summer 2020.
We are currently working on a new residential‑led
masterplan with Bournemouth, Christchurch & Poole
Council as part of the Council’s Towns Fund bid,
through which it expects to receive up to £25 million of
grant funding for Boscombe Town Centre. A
Memorandum of Understanding has been agreed
between us and the Council to work in partnership
across both parties’ properties to deliver a medium to
high density residential led redevelopment of the
whole area.
36
NewRiver REIT plc Annual Report and Accounts 2020
Convenience store (‘c-store’)
developments
To date we have delivered 26 c‑stores to the Co‑op, of
which 18 utilised surplus land adjacent to existing pubs,
three were the result of pub conversions and five were
new builds on sites previously occupied by pubs.
During the period we completed a c‑store development
at the site of the Sea View Inn in Poole, Dorset. Upon
completion, the development unlocked a £275,000
performance receipt from the Co‑op, which is now
under offer to a private investor.
We are currently exploring further c‑store opportunities
on surplus land across our pub portfolio. This includes
one of our sites in Glasgow, where we could deliver a
scheme similar to the development at the Sea View Inn
in Poole, comprising a c‑store and up to 30 apartments.
4
Profitable capital recycling
During the year, we completed £48.4 million of
disposals, reflecting a blended NIY of 5% and a modest
1.5% discount to March 2019 valuation.
In‑line with our strategy, disposals were typically of
mature assets where our estimates of forward‑looking
returns were below target levels, assets where we
believe that the risk profile has changed, or assets sold
to special purchasers.
12 months to 31 March 2020
Number of
transactions
Shopping centres
Retail parks
High Street
Pubs and pub land
C‑stores
Total
2
1
2
30
14
49
Disposal
price
(£m)
20.4
1.9
2.4
8.1
15.6
48.4
March 2019
Valuation
(£m)
20.8
1.9
3.1
7.4
16.0
49.2
Disposal vs
Valuation
(%)
‑2.2
–
‑22.0
+10.5
‑2.6
-1.5
Blended
NIY
(%)
7.0
–
6.4
3.2
5.2
5.5
Blended
IRR
(%)
4.5
5.2
‑10.6
11.3
23.1
11.1
NewRiver REIT plc Annual Report and Accounts 2020
37
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT FIN ANCE REV IEW
FINANCE REVIEW
Our financial performance was
relatively robust during the year,
against a challenging market
backdrop which worsened in
March 2020 with the onset of
COVID-19. Underlying Funds
From Operations (‘UFFO’) were
£52.1 million, including lost
income and provisions
specifically relating to COVID-19
of £2.8 million, compared to
£55.1 million in the prior year.
38
NewRiver REIT plc Annual Report and Accounts 2020
Our IFRS loss after tax was -£121.1 million, compared to
a loss of -£36.9 million in the prior year, predominantly
due to a non-cash reduction in portfolio valuation of
£166.9 million.
We paid three quarterly dividends of 5.4 pence per
share during the year, totalling 16.2 pence. In March
2020, the decision was taken not to pay a fourth
quarter dividend due to the impact of COVID-19 on the
Company’s operations. We took the decision that in this
time of unprecedented disruption and uncertainty, our
focus should be on managing cash resources very
carefully and maintaining liquidity in the business.
The total dividend in respect of the year ended
31 March 2020 is therefore 16.2 pence per share, which
is 105% covered by UFFO. A great deal of uncertainty
still remains as to the impact of COVID-19 on our
performance and so the Board has also decided not to
pay a dividend in respect of the first quarter of FY21. It is
our firm intention to resume dividend payments as
quickly as possible, when conditions allow.
Our portfolio was valued at £1.20 billion at 31 March
2020, compared to £1.29 billion at 31 March 2019, as
net acquisitions were more than offset by a -12.3%
like-for-like decline in portfolio valuation. Our EPRA net
asset value per share was 201 pence per share
(March 2019: 261 pence), also predominantly due to a
non-cash reduction in portfolio valuation, and our IFRS
net assets were £610.6 million (March 2019:
£796.1 million), decreased for the same reason.
Resilient balance sheet and strong
liquidity position
Despite the disruption to operations caused by the
COVID-19 pandemic, our balance sheet remains very
well positioned, due to the hard work we completed in
2017 and 2018 to move to a fully unsecured and
unencumbered capital structure. Our LTV increased
from 37% at 31 March 2019 to 47%, with the majority of
the increase occurring in the second half of the financial
year, due predominantly to the decline in our portfolio
Despite the disruption to
operations caused by the
COVID-19 pandemic, our balance
sheet remains well positioned,
due to the hard work we
completed in 2017 and 2018 to
move to a fully unsecured and
unencumbered debt structure.
valuation, but also due to a reduction in the rate of
completed disposals in Q4 due to COVID-19. While LTV
at this level remains safely below our covenant
thresholds, our focus will be to improve LTV to be more
in-line with our guidance of being below 40%, through
disposals in FY21. We have already completed,
exchanged or are under offer on £30.3 million of
disposals so far in FY21. Our interest cover ratio, the
other covenant common across our unsecured facilities,
remains high at 3.8x, which compares to our stated
policy of >2.0x, and our closest covenant of 1.75x.
Our liquidity position remains strong, and as at 31 March
2020 we had £82.1 million of cash and £45.0 million of
undrawn revolving credit facilities, giving available
liquidity of £127.1 million. The cash position at the year
end is significantly greater than usual, because we
drew an additional £50 million of our revolving credit
facility in March 2020. Looking forward, in order to
preserve this position, the Company is taking a prudent
approach to preserving cashflow and reducing
operational costs. These measures include the
suspension of all non-essential capital expenditure
projects, which will improve cashflow in FY21 by £24
million, and the suspension of business rates and
marketing in our shopping centres and our pubs which
will improve cashflow by a further £4 million.
On 1 April 2020, Fitch Ratings affirmed NewRiver’s
Long-Term Issuer Default Rating (‘IDR’) at ‘BBB’ with a
Stable Outlook and senior unsecured rating at ‘BBB+’.
The senior unsecured rating applies to NewRiver’s
£300 million senior unsecured bond dated 2028.
NewRiver was also assigned a new ‘F2’ Short-Term
IDR. On 29 April 2020, we received confirmation from
the Bank of England that we are eligible to access £50
million of funding under the Covid Corporate Financing
Facility (‘CCFF’), a joint HM Treasury and Bank of
England lending facility. This facility is undrawn at this
stage, but improves our available liquidity position to
£177.1 million, and is available to be drawn at the Bank
of England’s discretion for a tenure of up to 12 months
until March 2021.
Since the UK entered lockdown in March, we have
continued to monitor our liquidity position, and have
undertaken detailed analysis and stress testing which
demonstrates that NewRiver remains a financially
sound business with a capital structure that is well
placed to absorb a prolonged period of uncertainty.
Finally, we have a covenant light capital structure with
all of our balance sheet assets unencumbered. There
are no refinancing events until 2023 and beyond so our
balance sheet is in a strong position in spite of the
challenging market and its higher than guidance loan to
value. This will be a key focus for the new financial year
and beyond.
Key performance measures
The Group financial statements are prepared under
IFRS where the Group’s interests in joint ventures are
shown as a single line item on the income statement
and balance sheet. Management reviews the
performance of the business principally on a
proportionally consolidated basis which includes the
Group’s share of joint ventures on a line-by-line basis.
The Group’s financial key performance indicators are
presented on this basis.
In addition to information contained in the Group
financial statements, Alternative Performance Measures
(‘APMs’), being financial measures that are not specified
under IFRS, are also used by management to assess
the Group’s performance. These include a number of
the financial statistics included on Page 2 of this
document. These APMs include a number of European
Public Real Estate Association (‘EPRA’) measures,
prepared in accordance with the EPRA Best Practice
Recommendations reporting framework, which are
summarised in the ‘Alternative Performance Measures’
section at the end of this document. We report these
measures because management considers them to
improve the transparency and relevance of our
published results as well as the comparability with other
listed European real estate companies. Definitions for
APMs are included in the glossary and the most directly
comparable IFRS measure is also identified. The
measures used in the review below are all APMs
presented on a proportionally consolidated basis
unless otherwise stated.
The APM on which management places most focus,
reflecting the Company’s commitment to driving cash
income returns, is UFFO. UFFO measures cash profits,
which includes recurring cash profits and excludes
other one-off or non-cash adjustments. We consider
this metric to be the most appropriate for measuring the
underlying performance of the business as it is familiar
to non-property investors, and better reflects the
Company’s generation of cash profits. It is for this
reason that UFFO is used to measure dividend cover.
NewRiver REIT plc Annual Report and Accounts 2020
39
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT FIN ANCE REV IEW
The relevant sections of this Finance Review contain
supporting information, including reconciliations to the
financial statements and IFRS measures. The
‘Alternative Performance Measures’ section also provides
references to where reconciliations can be found
between APMs and IFRS measures.
Reconciliation of loss after taxation to UFFO
Loss for the year after taxation
Adjustments
Revaluation of investment properties
Revaluation of joint ventures’ investment properties
Revaluation of derivatives
(Profit) / loss on disposal of investment properties
Gain on bargain purchase
Deferred tax
Exceptional cost in relation to Hawthorn and Bravo Inns
EPRA earnings
Share-based payment charge
Depreciation of properties
Integration costs
Underlying Funds From Operations
31 March 2020
(£m)
(121.1)
31 March 2019
(£m)
(36.9)
162.6
4.3
2.8
1.8
–
0.5
0.4
51.3
–
0.8
–
52.1
88.2
1.3
3.2
(1.3)
(7.0)
–
3.0
50.5
2.5
0.8
1.3
55.1
Underlying Funds From Operations
The following table reconciles IFRS profit after taxation to
UFFO, which is the Company’s measure of cash profits.
Underlying Funds From Operations is represented on a
proportionally consolidated basis in the following table.
The Group has applied IFRS 16 “Leases” from 1 April 2019
which requires lessees to recognise a right-of-use asset
and related lease liability representing the obligation to
make lease payments. The interest expense on the lease
liability and depreciation on the right-of-use asset will be
recognised in the statement of comprehensive income.
Comparatives for the year ended 31 March 2019 have not
been restated, and therefore the impact of the adoption
of IFRS 16 on the UFFO figures presented for the year
to 31 March 2020 as follows:
– Property operating expenses – reduced by
£3.1 million
– Administrative expenses – reduced by £0.1 million
– Net finance costs – increased by £2.9 million
– Overall UFFO impact – increased by £0.3 million
Note that in the following table, figures for the year to
31 March 2019 have been restated to reflect the
adoption of IFRS 15 “Revenue from contracts with
customers”. See Note 1 to the Financial Statements for
further details.
UNDERLYING FUNDS FROM OPERATIONS
Revenue
Property operating expenses
Net property income
Administrative expenses
Net finance costs
Taxation
Underlying Funds From Operations
UFFO per share (pence)
Ordinary dividend per share (pence)
Ordinary dividend cover
Admin cost ratio
Weighted average # shares
31 March 2020
Group
£m
144.8
(55.0)
89.8
(20.5)
(24.2)
0.5
Non-cash
adjustments1
£m
–
–
–
0.8
2.8
0.5
JVs &
Associates
£m
3.4
(0.3)
3.1
(0.1)
(0.6)
–
31 March 2019
(restated)2
Proportionally
consolidated
£m
141.9
(51.4)
90.5
(16.2)
(18.7)
(0.5)
55.1
18.1
21.6
84%
13.1%
304.0
Proportionally
consolidated
£m
148.2
(55.3)
92.9
(19.8)
(22.0)
1.0
52.1
17.0
16.2
105%
14.9%
305.9
1. Adjustments to Group figures to remove non-cash items, principally depreciation of properties £(0.8) million, revaluation of derivatives
£(2.8) million and Deferred tax £(0.5) million
2. The comparative figures for the year ended 31 March 2020 have been restated to reflect the prior year adjustment in relation to service
charge. Refer to Note 1 in the notes to the financial statements for further information on the restatement.
40
NewRiver REIT plc Annual Report and Accounts 2020
Net property income
Analysis of retail net property income (£m)
Retail net property income for the year ended 31 March 2019
Surrender premia
Like-for-like reduction
Asset management fees
Completed development
Acquisitions
Disposals
Rent provisions
Other
IFRS 16 adjustment
Retail net property income for the year ended 31 March 2020
31 March 2019
(£m)
68.6
(1.7)
(3.5)
0.6
0.4
4.8
(3.0)
(0.9)
0.2
65.5
2.9
68.4
On a proportionally consolidated basis, retail net property
income was £68.4 million during the year, compared to
£68.6 million in the year ended 31 March 2019. Excluding
the impact of IFRS 16, which removed ground rent
payments from property operating expenses and added
£2.9 million to net property income in the year, net property
income reduced to £65.5 million.
income reflects our increased focus on leveraging our
market-leading asset management platform, by managing
assets on behalf of third parties and joint venture partners.
Asset management income from BRAVO, our joint venture
partner, and from Canterbury City Council for our
management of the Whitefriars Shopping Centre were the
key contributors to this increase.
The key driver of the reduction was a £3.5 million, or 6.0%
reduction in like-for-like income, of which 2.5% related to
CVAs and Administrations. Over half of this decline related
to just five assets, with £0.7 million relating to the Prospect
Shopping Centre in Hull, where Boots vacated during the
year at lease expiry, and we have since agreed a new
letting to a major discounter on this unit, and £0.5 million
relating to Valegate Retail Park in Cardiff, which was
impacted by tenant CVAs and Administrations.
This reduction in like-for-like income was partially offset by
a £0.6 million increase in asset management fee income
and a £0.4 million contribution from our Canvey Island
Retail Park development, which was completed in
November 2018. The increase in asset management fee
The £4.8 million of additional income from acquisitions
related to the £145.2 million (NewRiver share: £74.7 million)
of retail acquisitions made during the year, and the full year
impact of the £35.5 million of retail acquisitions made in the
prior year. This more than offset the £2.8 million reduction
in net property income relating to the disposal of
£24.6 million of retail assets during the year and the
£36.2 million of retail assets in the previous financial year.
Finally, retail net property income includes a £0.9 million
provision required by IFRS 9 in relation to retail rents that
are deemed unlikely to be received as a result of the
COVID-19 lockdown.
Analysis of pub net property income (£m)
Pub net property income for the year ended 31 March 2019
Like-for-like
Hawthorn Leisure acquisition (full year)
Star Pubs & Bars acquisition (full year)
Bravo Inns acquisition (part year)
Pub, land and c-store disposals
Rent and stock provisions
COVID-19 lockdown impact
Other
IFRS 16 adjustment
Pub net property income for the year ended 31 March 2020
31 March 2019
(£m)
21.9
2.2
2.3
0.6
0.7
(0.6)
(1.6)
(0.8)
(0.4)
24.3
0.2
24.5
NewRiver REIT plc Annual Report and Accounts 2020
41
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT FIN ANCE REV IEW
Pub net property income was £24.5 million during the
year, compared to £21.9 million in the year to 31 March
2019, principally due to an increase in like-for-like
EBITDA per pub of 2.3% and net acquisition activity.
On 16 March 2020, in response to the COVID-19
pandemic, the UK Government advised the UK public
against “non-essential” travel and suggested people
should avoid pubs, clubs, theatres and work from home
if possible. On 20 March 2020, the UK Government
announced the immediate closure of all cafes, pubs,
bars and restaurants across all the formations of the
United Kingdom. Our pubs were therefore unable to
trade for the final two weeks of our financial year,
leading to a loss of £0.8 million of income across our
portfolio of 720 pubs. Our like-for-like EBITDA per pub
of +5.3% reflects the impact of COVID-19, and was
+5.9% excluding the final month of the year. In addition,
pub net property income includes a provision of
£1.6 million, predominantly in relation to rent unlikely to
be collected and stock wastage, required by IFRS 9 and
as a consequence of COVID-19.
The acquisition of Hawthorn Leisure was completed in
May 2018, and therefore the current year benefited
from a full 12 months of ownership, compared to
10 months in the comparative period. In addition, prior
to the Hawthorn Leisure acquisition, the management
of the Trent and Mantle portfolios had been outsourced
to a 3rd party specialist manager, the cost of which was
included within net property income. Our entire pub
portfolio migrated onto the Hawthorn Leisure
management platform in January 2019, and therefore
the associated staff and other management costs are
now included within administrative expenses.
We received a £0.6 million uplift from the acquisition of
a portfolio of 76 pubs from Star Pubs & Bars in
December 2018, and an additional £0.7 million from the
acquisition of Bravo Inns in December 2019, comprising
a portfolio of 44 operator managed pubs.
Disposals in the pub portfolio reduced net property
income by £0.6 million, comprising the sale of 33 pubs
and pieces of pub land during the previous financial
year and 30 in the year to 31 March 2020.
Dividends
FY19 Q4
FY20 Q1
FY20 Q2
FY20 Q3
Total
Administrative expenses
Administrative expenses were £19.8 million, compared
to £16.2 million in the previous year, with £0.9 million of
this increase due to the fact that the Hawthorn Leisure
business was acquired partway through the previous
financial year.
A further £1.5 million of the cost increase was because
since January 2019 the entire pub portfolio, including
the existing Trent and Mantle portfolios, has been
managed by the Hawthorn Leisure platform. Prior to
this, the management of the Trent and Mantle portfolios
had been outsourced to a 3rd party specialist manager,
the cost of which was included within net property
income, rather than administrative expenses. Therefore,
the £1.5 million increase in administrative expenses is
offset by a £1.5 million increase in net property income,
which is included within the “Hawthorn Leisure
acquisition” category in the Analysis of pub net property
income table. The acquisition of Hawthorn Leisure and
the in-housing of the management of the pub portfolio
also increased the administrative expenses ratio from
13.1% to 14.9%, reflecting the operational nature of the
pub business.
Net finance costs
The increase in net finance costs from £18.7 million in
the prior year to £22.0 million is primarily due to the
impact of IFRS 16, which added £2.9 million to net
finance costs. In addition, we drew £125 million or our
revolving credit facility during the year, including a
£50 million drawn down in March 2020 to increase
our cash position to £82.1 million in light of the
COVID-19 pandemic.
Taxation
As a REIT we are exempt from UK corporation tax in
respect of our qualifying UK property rental income and
gains arising from disposal of exempt property assets.
The majority of the Group’s income is therefore tax free
as a result of its REIT status. Our REIT exemption does
not extend to profits arising from the margin made on
the sale of drinks within the pub portfolio and other
sources of income. There was a tax credit of £1.0 million
during the year, refunding surplus payments on account
made in FY19.
Paid in FY20 (pence)
Ordinary
5.4
5.4
5.4
5.4
21.6
Declared in relation to FY20 (pence)
Ordinary
–
5.4
5.4
5.4
16.2
42
NewRiver REIT plc Annual Report and Accounts 2020
As announced on 19 March 2020, the Board took the
decision not to declare a fourth quarter dividend for the
year ended 31 March 2020, due to uncertainty around
the impact of COVID-19 on the Company’s operations.
The total dividend declared in relation to the year
ended 31 March 2020 is therefore 16.2 pence, a 25%
reduction on the prior year.
As a consequence of the decision not to declare a
fourth quarter dividend, ordinary dividend cover,
calculated with reference to UFFO, improved to 105% in
the year, from 84% in the prior year. Ordinary dividend
cover is one of our five key Financial Policies which are
explained in the ‘Financial Policies’ section of
this review.
A great deal of uncertainty still remains as to the impact
of COVID-19 on our performance and so the Board has
also decided not to pay a dividend in respect of the first
quarter of FY21. It is our firm intention to resume
dividend payments as quickly as possible, when
conditions allow.
The Company is a member of the REIT regime whereby
profits from its UK property rental business are tax
exempt. The REIT regime only applies to certain
property-related profits and has several criteria which
have to be met, including that at least 90% of our profit
from the property rental business must be paid as
dividends. We continued to meet these conditions in
FY20, and we intend to continue as a REIT for the
foreseeable future.
Balance sheet
EPRA net assets include a number of adjustments
to the IFRS reported net assets and both measures
are presented below on a proportionally
consolidated basis.
As at 31 March 2020
As at 31 March 2019
(restated)1
Properties at valuation
Right of use asset
Investment in JVs & associates
Other non-current assets
Cash
Other current assets
Total assets
Other current liabilities
Lease liability
Debt
Other non-current liabilities
Total liabilities
IFRS net assets
EPRA adjustments:
Warrants in issue
Unexercised employee awards
Deferred tax
Fair value derivatives
EPRA net assets
EPRA NAV per share
IFRS net assets per share
LTV
Group
£m
1,157.3
87.2
23.0
1.4
80.8
27.4
1,377.1
(46.9)
(86.3)
(628.6)
(4.7)
(766.5)
610.6
JVs &
Associated
£m
39.8
–
(23.0)
1.5
1.3
0.5
20.1
(3.0)
–
(17.1)
–
(20.1)
–
Proportionally
consolidated
£m
1,197.1
87.2
–
2.9
82.1
27.9
1,397.2
(49.9)
(86.3)
(645.7)
(4.7)
(786.6)
610.6
–
–
2.1
2.7
615.4
201p
199p
47%
Proportionally
consolidated
£m
1,288.4
–
–
1.9
27.6
34.5
1,352.4
(51.4)
–
(502.7)
(2.2)
(540.9)
796.1
0.4
1.3
1.6
(0.1)
799.3
261p
261p
37%
1. The comparative figures for the year ended 31 March 2020 have been restated to reflect the prior year adjustment in relation to service
charge. Refer to Note 1 in the notes to the financial statements for further information on the restatement.
NewRiver REIT plc Annual Report and Accounts 2020
43
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT FIN ANCE REV IEW
Net assets
At year end, IFRS net assets were £610.6 million (March
2019: £796.1 million). The reduction was primarily due to a
-12.3% like-for-like decrease in portfolio valuation.
EPRA NAV is calculated by adjusting net assets to reflect
the potential impact of dilutive ordinary shares, and to
remove the fair value of any derivatives held on the
balance sheet. These adjustments are made with the aim
of improving comparability with other European real estate
companies. EPRA NAV decreased by 23% to £615.4 million,
from £799.3 million at 31 March 2019. EPRA NAV per share
decreased by 23% to 201 pence per share at
31 March 2020 compared to 261 pence per share at
31 March 2019. The decrease in EPRA NAV and EPRA NAV
per share is primarily due to the 12.3% like-for-like decrease
in portfolio valuation.
Properties at valuation
Properties at valuation was £1,197.1 million at
31 March 2020, compared to £1,288.4 million at
31 March 2019, as increased acquisition activity was more
than offset by a -12.3% like-for-like decline in valuations.
Net debt & financing
Analysis of movement in proportionally consolidated net debt (£m)
Net debt at 31 March 2019
Operating activities
Net cash inflow from operating activities
Dividends received from joint ventures
Investing activities
Investment in JV & associate assets
Purchase of investment properties
Purchase of Bravo Inns
Disposal of investment properties
Purchase of plant and equipment
Development and other capital expenditure
Financing activities
Ordinary dividends paid
Other
Net debt at 31 March 2020
At 31 March 2020
JVs &
Associates
(0.5)
Proportionally
consolidated
475.1
(2.8)
2.0
17.1
(46.3)
–
33.7
44.1
18.0
(50.7)
10.1
14.1
63.8
15.8
1.7
563.6
Group
475.6
(43.5)
(2.0)
16.6
44.1
18.0
(50.7)
10.1
14.1
63.8
1.7
547.8
Proportionally consolidated net debt increased by
£88.5 million over the year to £563.6 million, primarily
as a result of our investment activity. Operating
activities generated a net cash inflow of £46.3 million,
compared with UFFO of £52.1 million.
As part of our disposal programme, we received cash
proceeds of £50.7 million, which was more than offset
by deployment of capital of £77.8 million to fund
investment property acquisitions and £18.0 million to
fund the acquisition of Bravo Inns The purchase of plant
and equipment and the development and other capex
contributed a further £10.1 million and £14.1 million
respectively. The payment of dividends during the year,
detailed in the ‘Dividends’ section of this review,
resulted in a net cash outflow of £63.8 million.
44
NewRiver REIT plc Annual Report and Accounts 2020
Financial policies
Our conservative financial policies were put in place in consultation with shareholders and form a key component of
our financial risk management strategy. Our LTV increased from 37% at 31 March 2019 to 47%, with the majority of
the increase occurring in the second half of the financial year, due predominantly to the decline in our portfolio
valuation but also due to a reduction in the rate of completed disposals in Q4 due to COVID-19. While LTV at this
level remains safely below our covenant thresholds and our stated policy, our focus will be to improve LTV to be
more in-line with our guidance of being below 40%, through disposals in FY21.
Net debt
Principal value of gross debt
Weighted average cost of debt1
Weighted average debt maturity2
Financial policy
Loan to value
Guidance <40% Policy <50%
Proportionally consolidated
31 March 2020
£563.6m
£652.4m
3.4%
5.9 yrs
31 March 2019
£475.1m
£510.0m
3.2%
6.9 yrs
47%
FY20
7.9x
3.8x
105%
Group
37%
FY19
6.3x
4.0
84%
<10x
>2.0x
>100%
<100%
31 March 2020
90%
31 March 2019
60
Net debt: EBITDA
Interest cover
Ordinary dividend cover3
Balance sheet gearing
1. Cost of debt assuming £215 million revolving credit facility is fully drawn.
2. Average debt maturity assumes one-year extension options are exercised and bank approved. Excluding this option, debt maturity
at 31 March 2020 is 5.3 years.
3. Calculated with reference to UFFO.
Additional guidelines
Alongside our financial policies we have a number of additional guidelines used by management to analyse
operational and financial risk, which we disclose in the following table:
Single retailer concentration
Development expenditure
Risk-controlled development
Pub weighting (excluding c-stores)
Guideline
<5% of gross income
<10% of GAV
>70% pre-let or pre-sold on committed
<30% of GAV
31 March 2020
2.3% (Sainsbury’s)
<1%
100%
23%
To conclude, the Company remains profitable and cash generating, with UFFO of £52.1m. COVID-19 has had an
impact on the results, both in terms of earnings, and asset valuation, and this is expected to continue in the new
financial year. The cash and liquidity position of the Company is very robust and with an unsecured capital structure
the balance sheet is well placed to see through the challenging market conditions. A key priority going forward is to
reduce the loan to value in line with stated guidance of <40%. There are a number of levers available to the company
in achieving this and our stakeholders can take confidence from the disposals we have already advanced since
lockdown and the maintaining of our investment grade credit rating with Fitch Ratings with a stable outlook.
There is a lot to do and we remain focused on delivering value to shareholders including reinstating the dividend
and improving balance sheet metrics via a lower LTV. Our capital structure provides a high degree of flexibility and
time to be able to implement our strategies.
Mark Davies
Chief Financial Officer
18 June 2020
NewRiver REIT plc Annual Report and Accounts 2020
45
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT OUR PEOPLE
OUR PEOPLE
Our culture
Our people are our key asset.
Their hard-work, dedication
and entrepreneurial spirit sit
at the heart of our business.
Our values
Our values mirror our
culture. They are brought
to life and embodied by
our people.
Collaborative
and Supportive
Hardworking
and Adaptable
We are
One Team
Focused
and Flexible
Passionate
and Resilient
Brave
Trusted and
Respected
Smart
Beyond
Expectation
Energetic
Our approach
Our HR strategy places people at the heart of our
business, enabling us to attract and retain our staff. We
put the right people into the right roles and develop
their careers to ensure that they grow with the
business. A positive work environment where
employees feel valued and supported underpins
our strategy.
Communication
Effective communication starts at the top of the
business and permeates throughout the organisation.
It is equally important that our Board has the means
of hearing directly the views and concerns of the
wider team.
NewRiver has established a staff forum, which meets
periodically, to liaise with the Board and to create an
environment to raise and discuss issues. This ensures
that the Board has regard to staff interests in taking its
decisions. We regularly provide opportunities for our
Non-executives to meet the wider staff on a both
informal and informal basis to encourage open dialogue
between the Board and the wider team We ensure
employees can raise concerns in confidence directly
with the Board.
Employee Engagement
During the year we undertook an extensive Employee
Engagement Survey across the business with an
excellent response rate of 86%. The survey covered all
aspects of work life:
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NewRiver REIT plc Annual Report and Accounts 2020
– Leadership and Management
– Company Culture
– Health and Wellbeing
– Personal Growth
– Teams
– Benefits and Recognition
This is a vital tool to test the temperature of the
business to ensure that our HR strategies are effective.
The overwhelmingly positive responses, with approval
ratings in excess of 85% across all categories, will
underpin and guide future refinement and development
of our People Plans.
Recruitment
Our total head count across the Group, including our
Managed Pubs division, is 205. Our gender diversity is
50/50 across the entire business with 102 (50%) female
staff and 103 (50%) male staff. Within our head office
locations in London and Birmingham, we employ a total
of 132 staff. Our Managed Pub division employs a
further 73 staff. Details of the Board and Executive
Committee can be found in the Nomination Committee
report on pages 86 and 87.
Our recruitment policies consider the needs of the
business today and our aspirations for the future,
whilst ensuring that our unique corporate culture
is maintained.
Developing & Retaining
We are committed to maximising the skills, capability
and performance of all employees. We provide all our
colleagues with the opportunity to develop themselves
and progress in their careers. Our support ranges from
funding through professional qualifications including
RICS and ACCA to informal breakfast briefings with
experts on a wide range of topics, which all staff
members are encouraged to participate in. We also
support the Apprenticeships Scheme. Over 55% of our
staff undertook professional training this year and
employees across the business spend an average of
28 hours per employee on training, including
Continuing Professional Development.
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. We have further developed our
appraisal processes investing in an online appraisal and
training platform which will allow managers and staff to
monitor progress in real time and to further facilitate the
identification and completion of relevant training and
development. The support we provide to our staff has
resulted in a high staff retention rate of 79%.
Reward & Recognition
We are committed to ensuring that we reward our
employees through our remuneration policies, which
include bonus entitlements for all staff to reward
excellent performance, and our Long Term Incentive
Plan. Our remuneration policies are tailored to reward
excellence and ensure retention of our talented team.
We currently offer our employees comprehensive
benefits, ranging from paid family medical insurance for
all staff and dependents to income protection. We also
offer enhanced shared parental pay entitlements. Our
benefits packages are tailored and flexible, and all staff
have the opportunity to discuss the benefits available
with specialist advisers to ensure that they are suitable
for their needs. We review these benefits each year to
ensure they are meeting employee expectations.
Health & Wellbeing
We are committed to creating a safe and healthy
environment which improves the quality of our
employees’ lives. We are proud participators in the
“This is me” campaign which is committed to ending
the stigma around mental health in the workplace.
Across our business we have four mental health first
aiders, along with a further four mental health
champions, to ensure open and confidential access to
support where it is needed.
Our Health and Wellbeing Working Group organises
activities throughout the year, devising a
comprehensive health and wellbeing calendar that
promotes regular activities to encourage mental and
physical wellbeing.
Our wellbeing initiatives range from exercise
bootcamps to fresh fruit and healthy snacks for all.
We also offer an Employee Assistance Programme,
which is intended to help employees deal with
personal problems that might adversely impact their
work performance, health and wellbeing. This
programme provides assessment, short-term
counselling and referral services for employees
and their immediate families.
Our flexible working practices enable our staff to work
in a way that is smart, focused and tailored to their
individual needs. The effect of this is visible through our
low absentee rates of less than 0.75%. We will continue
our efforts throughout the year to promote a healthy
work/life balance and provide support to enable all our
staff to thrive.
Impact of Coronavirus (COVID-19)
pandemic on working practices
The Coronavirus (COVID-19) pandemic has had a
significant impact on the working practices of many of
our staff. Having planned for this outcome well in
advance of UK Government guidelines mandating
working from home wherever possible, the business
managed a successful transition to homeworking for all
employees. We continue to monitor guidance closely
and stand ready to advise staff of any changes to
working arrangements.
All head office employees have been equipped with
webcam-enabled laptops and a full suite of
communications and productivity software. Employees
are invited to participate in a weekly all-staff call to
provide them with operational updates from around the
business, and to ensure lines of communication are
kept open. We also understand the importance of
ensuring mental and physical wellbeing during
prolonged periods of self-isolation and working from
home. In response, we have devised an active
programme of remote exercise classes and social
gatherings for staff and provide a bi-weekly newsletter
containing tips for keeping occupied and managing
wellbeing at home. These measures have been well
received by staff, with excellent attendance rates
underlining the close, collaborative culture of NewRiver.
NewRiver REIT plc Annual Report and Accounts 2020
47
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ESG REPORT
OUR APPROACH TO ESG
Our ESG
initiatives
Used to inform
and shape
are applied through our
business model
Used to inform
and shape
External
benchmarks
and
guidance
2
Our ESG
targets
Progress
measured against
to meet
Progress
measured against
Our ESG
objectives
Risk-controlled
development
Profitable capital
recycling
Disciplined stock
selection
2
Active asset
management
Leveraging our operating
platform with a conservative
balance sheet
As an owner of assets located in communities across the UK, we
are committed to enhancing the lives of the people we serve and
minimising our impact on the environment.
At the same time, we want to ensure we are good neighbours in
our communities, supporting and championing local causes and
innovating to address the needs of local people. At a corporate
level, we are passionate about engaging with our staff and our
occupiers and maintaining our high standards of governance, to
ensure we are an excellent employer and the best company to
do business with.
48
NewRiver REIT plc Annual Report and Accounts 2020
Programme structure
ESG oversight
Our ESG initiatives are informed and shaped by both
external benchmarks and guidance, and our own ESG
targets. These initiatives are applied at every stage
of our business model in order to meet our ESG
objectives. Our progress against these objectives is
then measured against our ESG targets and external
benchmarks on an annual basis, and this is used to
determine our ESG activities for the following year. This
approach generates a feedback loop whereby our ESG
programme can adapt as our business changes and as
best practice evolves.
Our ESG programme is headed by Emma Mackenzie,
Head of ESG and Head of Asset Management, who is
also a member of our Executive Committee.
The programme is developed and reviewed by an
internal ESG committee, headed by Emma Mackenzie,
comprising representatives from our retail and pub
asset management teams, our IR and HR functions, and
from Cushman & Wakefield, our environmental
consultants. The committee meets quarterly and its
agenda is supplemented by monthly updates from
Cushman & Wakefield, who are responsible for the
collection and collation of our environmental data.
ESG objectives
Minimising our
environmental impact
Reducing greenhouse gas
emissions and preventing climate
change is one of society’s biggest
challenges. We aim to minimise
our environmental impact through
procuring energy from renewable
resources, reducing consumption
and encouraging stakeholders to
be more sustainable.
Supporting
our communities
Our assets are located in
communities across the UK and
play an integral role in the lives of
our customers. We aim to enrich
lives and strengthen communities
through meeting the needs of all
our customers and supporting
and championing local causes.
Engaging our
staff and occupiers
Our staff and occupiers are key
stakeholders in our business, and
their satisfaction and wellbeing is
vital to our long-term success. We
engage our staff and occupiers
through maintaining and
encouraging an open dialogue, in
order to understand and act
upon their needs.
Leading governance
and disclosure
High standards of corporate
governance and disclosure are
essential to ensuring we operate
effectively, and to instil
confidence amongst
stakeholders. We aim to ensure
our governance and disclosure is
in-line with best practice.
GRESB 2019
Green Star status
and a score of 72
The Trussell Trust
Corporate partner
Taskforce on Climate-
Related Financial
Disclosures
Supporter
BREEAM
Very Good rating
achieved for Canvey
Island Retail Park
UN SDGs
Supporter
NewRiver REIT plc Annual Report and Accounts 2020
49
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ESG REPORT
Applying ESG through our business model
Our ESG programme is aligned to our business model and strategies, and we factor ESG considerations into every aspect of our
operations to meet our four key objectives. Progress against the objectives is measured against a comprehensive set of short, medium,
and long-term internal targets. Our progress is also measured against a set of international benchmarks and frameworks including the UN
Sustainable Development Goals.
ESG
objectives
Disciplined
stock selection
Active asset
management
We undertake environmental
due diligence as part of our stock
selection process, including
assessments of energy efficiency
and flood risks.
We adapt our assets to
improve monitoring, reduce
energy consumption and
procure renewable energy, such
as solar panels, EV chargers and
LED lighting.
Risk-controlled
development pipeline
Across our developments we aim
for the highest sustainability
standards, to reduce energy
consumption and ensure they are
fit for the future.
Minimising our
environmental
impact
Engaging
our staff
and occupiers
Supporting
our
communities
Leading
governance
and disclosure
Acquisition of new assets
involves a thorough engagement
with occupiers and other
stakeholders to assess whether
the asset is meeting their needs.
We work closely with occupiers
to ensure they fit out stores
sustainably and ensure that
staff at our assets receive
thorough training and
development opportunities.
Most of our developments are
pre-let, so our development
team works with occupiers
throughout the development
process to ensure it meet their
needs and specifications.
We invest in assets that are
already part of the fabric of
their communities. We aim to
revitalise assets by providing the
right mix of occupiers and uses
for communities.
We ensure our assets provide
the right mix of convenience,
value and services for customers’
everyday needs. We also use
space in our assets to support
and raise awareness of
local charities.
We work closely with councils
and local groups to ensure
developments address
community needs and provide
the right balance of residential,
retail, workplaces and other
civic amenities.
All acquisition decisions
are subject to a rigorous
review process, including
Executive Committee or Board
sign-off where appropriate,
drawing on expertise from
around the business.
We appointed a Head of Asset
Management during the year to
better co-ordinate asset
management initiatives. The Head
of Asset Management sits on our
Executive Committee.
We ensure that development
adheres to the most stringent
health and safety standards, and
that all suppliers sign up to our
Supplier Code of Conduct.
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NewRiver REIT plc Annual Report and Accounts 2020
Minimising our
environmental
impact
Engaging
our staff
and occupiers
Supporting
our
communities
ESG
objectives
Disciplined
stock selection
Active asset
management
Risk-controlled
development pipeline
Profitable
capital recycling
Leveraging our platform /
conservative balance sheet
UN SDGs
link
We undertake environmental
We adapt our assets to
Across our developments we aim
due diligence as part of our stock
improve monitoring, reduce
selection process, including
energy consumption and
for the highest sustainability
standards, to reduce energy
assessments of energy efficiency
procure renewable energy, such
consumption and ensure they are
and flood risks.
as solar panels, EV chargers and
fit for the future.
LED lighting.
Developments that
we have owned or
developed already
have key environmental
features that allow
their new owners to
operate sustainably.
By opening up our platform to
third parties we can advise
other asset owners on
environmental best practice
in asset management
and development.
Acquisition of new assets
We work closely with occupiers
Most of our developments are
involves a thorough engagement
to ensure they fit out stores
with occupiers and other
sustainably and ensure that
stakeholders to assess whether
staff at our assets receive
the asset is meeting their needs.
thorough training and
pre-let, so our development
team works with occupiers
throughout the development
process to ensure it meet their
development opportunities.
needs and specifications.
When we dispose of an
asset we engage with
the staff and occupiers
at the asst to ensure an
orderly transition to
new ownership.
We ensure that all head office
staff have access to the
training and development
opportunities required to
support their careers and their
physical and mental wellbeing.
We invest in assets that are
already part of the fabric of
We ensure our assets provide
We work closely with councils
the right mix of convenience,
and local groups to ensure
their communities. We aim to
value and services for customers’
developments address
revitalise assets by providing the
everyday needs. We also use
community needs and provide
right mix of occupiers and uses
space in our assets to support
the right balance of residential,
for communities.
and raise awareness of
retail, workplaces and other
local charities.
civic amenities.
All acquisition decisions
are subject to a rigorous
review process, including
We appointed a Head of Asset
We ensure that development
Management during the year to
adheres to the most stringent
better co-ordinate asset
health and safety standards, and
Executive Committee or Board
management initiatives. The Head
that all suppliers sign up to our
of Asset Management sits on our
Supplier Code of Conduct.
Executive Committee.
Leading
governance
and disclosure
sign-off where appropriate,
drawing on expertise from
around the business.
We leave behind
well-invested assets
that are fit for the
future and reinvest
the proceeds into
assets serving
other communities
elsewhere.
Our platform provides advisory
and asset management services
that enables Local Authorities to
revitalise their town centres. Our
staff are encouraged to support
charities through our fundraising
and volunteer programme.
Our Board and its committees
ensure that we work on behalf
of shareholders and other
stakeholders to drive the culture
and discipline necessary for the
Company to meet its goals.
All disposal decisions
are subject to a
rigorous review
process, including
Executive Committee
and Board sign-off
where appropriate,
assessing their impact
on all stakeholders.
Science-Based Performance Targets
In 2018, we established our short, medium (by 2030)
and long-term (by 2050) environmental reduction
targets. For our GHG reduction targets, we used the
Sectoral Decarbonisation Approach to align with the
Science-Based Targets to limit average global
warming to 2°C. Our intention was to set ambitious
targets in line with the latest climate science data,
which form part of our approach of managing our risk
exposure to climate change and provide long-term
resilience for our business.
Since we set our targets, the volume of scientific
studies and climate science data has increased, and
findings updated. Drawing on the latest IPCC Special
Reports, we recognise that we must do more to hold
off some of the worst climate impacts. To that end,
we are reviewing our medium and long-term targets
and the new technical resources published by the
SBTi in 2019 to update our targets from the 2°C
scenario to well below 2°C or 1.5°C. This is in line with
the most ambitious goal under the Paris Agreement
– 1.5°C and our Net Zero strategy.
Short-term (by 2022)
1. 100% of waste generated at our properties
diverted from landfill
2. 85% recycling rate at our managed properties
3. At least 50% of our shopping centres to be
providing annual work experience placements
4. Achieve a 75% response rate to our occupier
satisfaction survey
5. Achieve a 90% response rate to our staff survey
6. All shopping centres to participate in the Quiet
Hour initiative
7. All assets have a community engagement plan in
place, updated on an annual basis
8. 50% of staff participate in our volunteer
programme annually
Medium term targets (by 2030)
1. 75% of waste generated at assets is recycled
2. 75% of energy procured from
renewable resources
3. 20% reduction in NewRiver-procured utilities
4. 20% reduction in GHG emissions
Long term targets (by 2050)
1. Over 25% of NewRiver energy generated from
renewable sources at our own assets
2. 100% energy procured from renewable source
3. 40% reduction in NewRiver-procured utilities
4. 40% reduction in GHG emissions
NewRiver REIT plc Annual Report and Accounts 2020
51
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ESG REPORT
Our ESG initiatives in action
Minimising our
environmental impact
BREEAM Very Good certification for Canvey
Island Retail Park
During the year we received a BREEAM Very Good
certification for our Canvey Island Retail Park
development, which was completed in the prior year.
Measures taken as part of the BREEAM strategy
included developing a pedestrian and cyclist friendly
site design, exceeding regulatory energy performance
requirements, the installation of low-level external
lighting systems that avoid night-time light pollution and
the sourcing of new materials with low embodied
energy. The project development team included a
BREEAM Accredited Professional, who continually
reviewed proposals throughout the development to
ensure the project embodied BREEAM principles.
Elsewhere in our development pipeline, in December
2019 we received a BREEAM pre-assessment for our
forward-funded Romford hotel development, where we
will also be aiming for BREEAM Very Good certification.
We installed additional recycling points with
posters above each to instruct what type of
waste goes into each container and we put
labels on existing bins. The response from our
tenants was fantastic, everyone was engaging
with the process and we have already seen
great results.
Centre Manager –
The Ridings shopping centre, Wakefield
audits significantly ahead of the regulatory deadline, as
understanding the energy flows in our building has
identified opportunities increase energy efficiency at
our assets.
One example is our LED lighting rollout, with saw us
upgrade an additional five shopping centres to new
lighting systems during the year, which use on average
80% less energy than the conventional halogen
sources they were replacing.
Energy broker tender to drive enhanced
co-ordination
In 2019 we ran a comprehensive tender for energy
procurement and management services. We appointed
Zero Trace Procurement (ZTP) due to its industry-
leading capabilities in energy procurement, utility bill
management and energy consumption monitoring and
reporting. With ZTP, we can better monitor energy
consumption patterns through their online platform
where everything related to energy gets captured.
Our property managers will be using the platform to
identify efficiency opportunities and evaluate the
effectiveness of the measures we have taken to
reduce energy consumption.
Improvements to waste data collection
This year we reviewed our waste data collection
processes to enable us to categorise the waste
produced by visitors to our assets and by individual
occupiers. This has provided actionable insights and
allowed us to better gauge the requirements of
occupiers. These have led to the installation of
additional customer recycling points in our centre and
the provision of extra dry mixed recycling bins in our
service yards for use by our occupiers.
Energy audits and management reviews
In 2019, all large companies in the UK were required to
conduct energy audits of their significant energy uses
to comply with the Energy Savings Opportunity Scheme
(ESOS) in the UK. We completed most of the energy
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NewRiver REIT plc Annual Report and Accounts 2020
Optimising cellar cooling power in our
pub portfolio
During the year, we rolled out cellar environmental
monitors across our operator managed pub portfolio.
These devices monitor surrounding influences on cellar
temperature every 15 seconds and switch the cellar
cooler on and off as required, as opposed to running it
continually throughout the day. By switching off the
cellar cooler during the night, when the cellar is not
being used, we have achieved 33% energy savings.
Supporting
our communities
Our partnership with the
Trussell Trust
Our corporate charity partnership with the Trussell
Trust began in June 2019. The Trussell Trust’s vital
work supports over 1,200 food banks across the UK,
while campaigning to ensure everyone can afford
their own food. As the pandemic unfolds, more
people than ever are expected to need a food bank.
Since we started our partnership the Company has
donated close to £100,000 to support its efforts. In
addition, our staff have volunteered at Trussell Trust
sites, food collection points have been installed
across our shopping centre portfolio, and our assets
have been made available for storage, awareness
campaigns and volunteer recruitment.
In light of the very significant impact that the
coronavirus pandemic has had on people across
the country, we announced in April 2020 that our
Board of Directors would be waiving 20% of their
base salaries or fees for three months and donating
these to the Trussell Trust.
We are grateful to NewRiver for our
existing active partnership over the past
year and we are further overwhelmed by
the increasing support from NewRiver in
light of the coronavirus outbreak. This
level of generosity will help us continue
to support our network of food banks to
provide the best possible emergency help
to people referred at an uncertain time.
We’re stronger together and this support
will make a real difference to the lives of
people in crisis – thank you.
Emma Revie –
Chief Executive, the Trussell Trust
Community and charity events across
our portfolio
Our shopping centres hosted over 380 charity events
over the year, and together have partners with over
200 charities.
Most of our centres now participate in the National
Autistic Society’s Autism Hour initiative, ensuring
centres and their occupiers adapt their environments to
make autistic shoppers more comfortable and to
reduce sensory overload. The initiative has proven very
popular with a wide range of shoppers, who appreciate
the more relaxed shopping atmosphere, and we have
plans to increase the frequency of these hours at many
of our centres in the coming year.
We have 10 shopping centres now partnered with Age
UK to combat loneliness amongst the elderly. At the
Cornmill Centre in Darlington, the management team
host a ‘Cuppa with a Copper’ once a month. This event
allows the elderly community to socialise and provides
a platform to talk with local police officers about any
issues they may be facing.
NewRiver REIT plc Annual Report and Accounts 2020
53
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT – Staff social events to encourage a healthy work
life balance.
– Work station assessments and chair massages to
highlight the importance of a healthy desk set-up
and posture.
– Free exercise classes, including online exercise
classes during the coronavirus pandemic.
– Provision of free flu jabs to all staff.
Listening to our occupiers
We have over 800 different occupiers in our retail
portfolio and we are committed to continually improving
the service we provide to these key stakeholders in
the business.
As part of this, we held meetings with over 250
different occupiers during the year to gain a better
understanding of their needs and future plans for their
business and store portfolio. Many of these meetings
take place at the head office of those retailers, which
provides us with better insights into their operations
and culture.
During the year, we continued to implement changes
based on feedback from our occupier satisfaction
survey. These changes are wide-ranging and cover
areas such as:
– Facility and maintenance services.
– Centre manager communication and
responsiveness.
– Cleanliness, safety and security.
– Factors impacting ease of doing business, staff
retention and morale, and energy, water and
waste management.
The coronavirus pandemic meant our lines of
communication with occupiers had to be more open
than ever. At an early stage we devised a
communication plan amongst our asset management
team to understand the pandemic response plans of
our retailers, and take steps to ensure our centres
remained accessible and safe for customers. Our team
also worked with occupiers facing any short-term cash
flow issues to agree alternative payment terms.
ESG REPORT
Promoting local creative talent
During the year we continued our work with The Arts
Council and Charities Commission to allow vacant
spaces across our portfolio to be used as a platform for
local artists. This includes the use of units for exhibition
and gallery space, workshops, temporary studios,
performance spaces and storage.
As part of this agreement, the charities take liability for
the business rates on each unit and we cover any
shortfall not covered by charity business rates relief. In
addition, we make a monthly donation to the charities.
Supporting local employment and providing
job opportunities
Central to our support of communities is creating job
opportunities, either directly or through our occupiers,
and by participating in the Apprenticeship scheme. In
addition to our head office staff, we support a further
15,550 jobs across the UK include those workers
employed at our assets by our property managers, and
our retail occupiers.
Engaging our staff
and occupiers
Improving our staff wellbeing
We now have employee wellbeing groups at NewRiver
and Hawthorn Leisure. These groups meet on a monthly
basis to discuss and implement health and wellbeing
ideas for the benefit of all staff. Amongst the initiatives
introduced by the group during the week were:
– Hydration and Nutrition week, raising awareness of
healthy eating and providing a healthy free lunch for
staff to eat together.
– Provision of free fruit for all staff.
– A refurbishment of the Hawthorn Leisure offices
following feedback from employees. The
refurbishment included new includes breakout areas
and balconies to encourage better work life balance.
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NewRiver REIT plc Annual Report and Accounts 2020
Streamlined energy and carbon
reporting (SECR) disclosures
Under the Companies Act 2006 (Strategic and
Directors’ Reports) Regulations 2013, we are required to
report our annual global GHG emissions for which we
are responsible, one intensity ratio, our total energy use
and a narrative on the energy efficiency measures we
have implemented over the year.
Energy efficiency measures taken
during the year to 31 March 2020
In the year, we continued to roll out LED across the
portfolio, where we now have LEDs installed at nearly
all communal areas in our shopping centre portfolio.
Across our managed pub portfolio, we installed
innovative monitoring equipment to optimise cooler
efficiency in our pub cellars. We also completed Phase
2 of the Energy Savings Opportunity Scheme (ESOS)
assessment and performed additional technical energy
audits of our retail and pub assets, where we identified
over 2,500MWh of potential energy savings. The
insight from the asset-level ESOS reports has been
reviewed by our asset managers and site teams and
the recommendations used to inform our site-specific
energy efficiency action plans for FY21.
SECR disclosure
Our SECR disclosure presents our total energy use
including our use of electricity, gas and fuel used in
personal cars on business use and our carbon footprint
across Scope 1, 2 and 3 emissions, as well as an
appropriate carbon intensity metric.
Sources of greenhouse gas emissions
Scope 1 (tCO2e)
Combustion of fuel & operation of facilities
Scope 2 (tCO2e)
Electricity, heat, steam and cooling purchased for own use
Scope 3 (tCO2e)
Emissions from business travel by private cars
Total footprint (tCO2e)
Carbon intensity ratio (tCO2e/sq m)
Total energy use (kWh)
FY20
1,322
FY19
1,895
3,356
4,022
216
4,894
0.040
21,225,230
45
5,917
0.041
24,697,635
Data notes
Reporting
period
Boundary
Reporting
method
Emission
factor source
Scope 3
emissions
Intensity level
Aligned with our financial reporting, our GHG emissions relate to the financial year ended 31 March 2020.
Emission data from the financial year ended 31 March 2019 has also been included.
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.
We included Scope 3 emissions in the form of emissions from business travel by private cars because,
following our acquisition of Hawthorn Leisure in the previous financial year, we now consider our emissions
from business travel by private cars to be a material source of emissions.
We have measured emissions based on the GHG Protocol Corporate Accounting Standard (revised edition)
and guidance provided by the UK’s Department for Business, Energy & Industrial Strategy and the
Department for Environment, Food and Rural Affairs (‘Defra’) on Streamlined Energy and Carbon Reporting
and greenhouse gas reporting.
The emission factors and conversions used for FY20 reporting are from the Defra greenhouse gas
reporting tool 2019 and the factors and conversions used for FY19 reporting are from Defra’s 2018 reporting
tool. For Scope 1 emissions, we used the Gross calorific value (CV) this year instead of the net CV as we
identified that most energy billing has been provided on a gross CV basis. For reporting consistency, the
FY19 data has been updated using the Gross CV factor.
We used the GHG Protocol Scope 3 Standard to collate and report on our Scope 3 emissions in the form of
emissions from business travel by private cars.
For intensity level reporting, we have used the operationally controlled area of each property as the
denominator. For the retail portfolio, we estimated the floor area to be 28% of the total area of each
property. Emissions from vacant units have been excluded in the intensity measure due to the variability of
emissions and floor area year-on-year. In any event, vacant units represent a de minimis percentage of our
total GHG emissions. We calculated the carbon intensity at a property level to determine the average ratio
of the portfolio.
NewRiver REIT plc Annual Report and Accounts 2020
55
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ESG REPORT
EPRA Sustainability Best Practices Recommendations (sBPR)
The performance disclosures below have been prepared in accordance with the European Real Estate Association’s
Sustainability Best Practices Recommendations Guidelines, September 2017. They aim to bring consistency and clarity to real
estate companies’ disclosures around their environmental, social and corporate governance performance.
Total Portfolio,
Asset Type
Total Portfolio,
Retail, Pubs
Absolute Performance
(Abs)
Like-for-like Performance
(LfL)
FY20
FY19
FY19 % Change
FY20
10,416
8,077
2,339
10,658
8,368
2,289
5,424
2,301
3,123
6,170
2,688
3,481
137
125
148
997
423
574
2,662
2,064
598
0.031
0.031
0.031
53,981
53,981
0.19
0.19
3,895
3,741
154
144
127
161
1,135
495
640
3,017
2,369
648
0.048
0.035
0.060
50,929
50,929
0.18
0.18
3,859
3,683
176
-2%
-3%
2%
-12%
-14%
-10%
-5%
-2%
-8%
-12%
-14%
-10%
-12%
-13%
-8%
-35%
-11%
-48%
6%
6%
6%
6%
1%
2%
-13%
Environmental Performance Measures
EPRA Code
Performance Measure
Unit(s) of Measure
Elec-Abs, Elec-LfL Electricity
consumption
annual MWh
DH&C-Abs & LfL1 District heating and
cooling
annual MWh
Fuels-Abs,
Fuels-LfL
Fuel consumption
annual MWh
Energy-Int
Energy intensity
kWh / m2 / year
GHG-Dir-Abs
Scope 1 emissions
tonnes CO2e
GHG-Indir-Abs
Scope 2 emissions
tonnes CO2e
Scope 3 emissions
tonnes CO2e
GHG-Int
Scope 1 and 2
emissions
tonnes CO2e / m2 / year
Water-Abs,
Water-LfL
Water consumption
annual cubic metres (m3)
Water-Int
Water intensity
m3 consumption /m2
Waste-Abs
Waste-LfL
Total weight of waste
and by disposal route
Tonnes total waste
Tonnes diverted from
landfill
Tonnes waste to energy
Tonnes recycling
Total Portfolio
13,129
14,210
Retail
Pubs
10,005
11,241
3,125
2,969
Total Portfolio
7,189
10,301
Retail
Pubs
Total Portfolio
Retail
Pubs
2,529
4,660
3,894
6,407
91
54
127
124
64
184
Total Portfolio
1,322
1,895
Retail
Pubs
Total Portfolio
Retail
Pubs
Total Portfolio
Total Portfolio
Retail
Pubs
Total Portfolio
Retail
Pubs
Total Portfolio
Retail
Pubs
Total Portfolio
Retail
Pubs
Total Portfolio
Retail
Pubs
Total Portfolio
Retail
Pubs
Total Portfolio
Retail
Pubs
716
1,179
4,022
3,182
840
45
0.041
0.017
0.064
87,545
87,545
0.19
0.19
4,563
4,098
465
465
857
3,356
2,557
799
216
0.040
0.017
0.062
196,459
105,434
91,025
1.66
0.21
3.11
4,310
3,958
325
3,908
3,908
290
2,157
2,157
141
1,455
1,305
150
Cert-ToT2
Certification type and
number of assets
Cert-ToT
1. None of our properties were connected to or benefitted from district heating and cooling.
2. See page 55.
56
NewRiver REIT plc Annual Report and Accounts 2020
Social Performance Measures
EPRA Code
Performance Measure
Unit(s) of Measure
Diversity-Emp
Employee gender diversity
Percentage of employees,
Board Diversity
NewRiver Board
FY20
FY19
29% Female /
71% Male
29% Female /
71% Male
Percentage of employees, All
employee gender diversity
NewRiver & Hawthorn Leisure
head office employees
50% female /
50% male
48% female /
52% male
Diversity-Pay3
Gender pay ratio
Ratio of gender pay
Emp-Training
Employee training and
development
Average hour /employee
Emp-Dev
Employee performance appraisals
Percentage of employees
Emp-Turnover
New hires and turnover
Injury rate
Lost day rate
Total number of new hires
Total number of leavers
Rate of new hires
Rate of employee turnover
Per 100,000 hours worked
Per 100,000 hours worked
H&S-Emp
H&S-Asset
H&S-Comp
Comty-Eng
Absentee rate4
Days per employee
Fatalities
Total number
Asset health and safety
assessments
Percentage of assets
Managed assets
Asset health and safety compliance Number of incidents
Managed assets
Community engagement, impact
assessments and development
programmes
Percentage of assets
Managed assets
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
NewRiver & Hawthorn Leisure
head office employees
28
30
100%
100%
33
27
25%
20%
0
0
2.97
0
100%
0
100%
14
10
12%
8%
0
0
1.42
0
100%
0
100%
3. As we have fewer than 250 employees we are not obliged by The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 to disclose our gender
pay information.
4. Reflects a full year of a larger employee base as a result of the Hawthorn Leisure acquisition.
Governance Performance Measures
EPRA Code
Performance Measure
Gov-Board
Composition of the highest
governance body
Unit(s) of Measure
Number of executive board members
Number of independent/non-executive board members
Average tenure on the governance body
Number of independent/non-executive board
members with competencies relating to environmental
and social topics
FY20
FY19
Gov-Selec
Gov-Col
Process for nominating and selecting the
highest governance body
Narrative on process
Process for managing conflicts of interest
Narrative on process
NewRiver REIT plc Annual Report and Accounts 2020
57
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PR INCIPA L RISKS & UNCERT AI NTI ES
PRINCIPAL RISKS &
UNCERTAINTIES
There are multiple risks that exist in our business, and effective risk
management is key to the delivery of our strategy and operation of
our business model. The Board has ultimate responsibility for the
risk management and internal controls of the Company, and
regularly evaluates our appetite for risk, ensuring our exposure to
risk is kept at an appropriate level.
The Audit Committee monitors the adequacy and
effectiveness of the Company’s risk management and
internal controls and supports the Board in assessing
the risk mitigation processes and procedures. The
Executive Committee is closely involved with day-to-day
monitoring of risk management, ensuring it is
embedded within the Company’s culture and values,
and delegation of accountability for risk management to
senior management. Senior Management manage and
report on risk, ensuring that they are within the risk
appetite as established by the Board.
Key features of the risk management policy:
– Ongoing analysis and review of the risk register
– Delegation of accountability for each risk.
– Use of external advisors regarding risk impacts
– Quarterly reporting and exposure analysis.
– Training of employees and outsourced staff on
policies and regulations.
Asset
Manager
Executive
Committee
Audit
Committee
Board
Risk
oversight
Risk appetite
There are multiple risks that could impact our ability to
successfully execute our strategy. The Board operates
a low tolerance for risk, most notably within regulatory,
financial and strategic matters. The Company is
prepared to operate in an external environment which
is inherently risky, and our experienced leadership
team continuously works to mitigate the risks arising
from the external environment.
Significant factors which contribute to the low risk of our
business include:
– We maintain an unsecured balance sheet, with the
Company benefiting from a more diversified debt
structure and gaining access to a larger pool of
capital to help achieve our strategic goals.
– Our disciplined approach to stock selection.
– Deploying capital in joint ventures, thereby
diversifying risk.
– A diverse tenant base in which there is no single
tenant exposure of more than 3%.
– Our experienced Board and senior management.
58
NewRiver REIT plc Annual Report and Accounts 2020
Risk monitoring and assessment
The identification of risks is a continual process which is
reviewed regularly. The Company maintains a risk
register in which a range of categories are considered.
These risks are linked to the business model and
strategic priorities of the Company and the appetite as
described above.
The risk register assesses the impact, and likelihood of
each identified risk. Where the residual risk is deemed
too high by the Board then actions are taken to further
mitigate the risk, and each action is assigned to an
individual or group. A risk heat map is used to
determine the potential impact and probability of each
significant risk on a gross basis prior to mitigation.
Risk assessment during the year
The general environment in which the Company
operates became riskier in the year ended 31 March
2020. This was largely due to uncertainty associated
with the impact of the COVID-19 pandemic, the
deterioration in the UK retail market, and political and
continued economic uncertainty relating to the UK’s
departure from the EU.
i
h
g
h
y
r
e
V
t
c
a
p
m
I
w
o
L
Low
Principal risks
External risks
Macroeconomic
Climate change
Internal risks
People
Development
Likelihood
Very high
Political and
regulatory
Changes in technology
and consumer habits
Catastrophic
external event
Financing
Acquisition
Asset management
Disposal
NewRiver REIT plc Annual Report and Accounts 2020
59
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
PR INCIPA L RISKS & UNCERT AI NTI ES
External Risks
Risk and impact
Monitoring and management
1. Macroeconomic
Economic conditions
in the UK and changes
to fiscal and monetary
policy may impact
market activity,
demand for
investment assets, the
operations of our
occupiers or the
spending habits of the
UK population.
2. Political and
regulatory
Changes in UK
Government policy,
the adverse effects of
Brexit on our tenants,
or the impact of
political uncertainty on
the consumers’ retail
and leisure spend.
– The Board regularly assesses the
Company’s strategy in the
context of the wider
macroeconomic environment.
– The Board and management team
consider updates from external
advisers, reviewing key indicators such
as forecast GDP growth, employment
rates, interest rates and Bank of
England guidance, and consumer
confidence indices.
– Our portfolio is focused on resilient
market sub-sectors such as essential
retailers and wet-led pubs.
– Through regular stress testing of our
portfolio we ensure our financial
position is sufficiently resilient.
– Closely monitoring rent collection and
cash flow.
– The Board regularly considers political
and regulatory developments and
the impact they could have on the
Company’s strategy and
operating environment.
– External advisers, including legal
advisers, provide updates on emerging
regulatory changes to ensure the
business is prepared and is compliant.
– We regularly assess market research
to gauge the impact of regulatory
change on consumer habits.
– We carry out stress testing on our
portfolio in relation to regulatory
changes which may impact our
operations or financial position.
– Where appropriate, we participate in
industry and other representative
bodies to contribute to policy and
regulatory debate.
Change in risk assessment during
the year
– Macroeconomic risk has increased
during the year and is considered a
medium to high impact risk with a
medium to high likelihood.
– The outlook for the UK was weakened
by uncertainty surrounding Brexit
negotiations and then the economic
impact of the COVID-19 pandemic.
– The uncertainty around the impact of
the COVID-19 pandemic has resulted
in sharp declines in asset valuations,
which has narrowed the headroom on
some of our debt covenants.
– Political and regulatory risk has
increased during the year and is
considered a medium to high impact
risk with a medium to high likelihood.
– An improvement in risk profile
following the decisive UK General
Election result in December 2019 has
been more than offset by political
uncertainty surrounding COVID-19, and
the prospect of a no-deal Brexit.
– We have carried out extensive
scenario testing based on potential
political and regulatory responses to
lifting the current lockdown, and taken
steps to ensure we are able to
respond in each scenario.
60
NewRiver REIT plc Annual Report and Accounts 2020
Risk and impact
Monitoring and management
Change in risk assessment during
the year
3. Catastrophic
external event
An external event
such as civil unrest, a
civil emergency,
including a large-scale
terrorist attack or
pandemic, or a
cyber-attack, could
severely disrupt global
markets and cause
damage and
disruption to our
assets. This risk
has been added
in response to
unprecedented
disruption caused
by the COVID-19
pandemic.
4. Climate change
Adverse impacts from
environmental
incidents such as
extreme weather or
flooding could impact
the operation of our
assets. A failure to
comply with changes
in climate change
regulations, or to meet
our Environmental,
Social and
Governance (“ESG”)
targets, could cause
reputational damage.
– The Board have developed a
comprehensive crisis response plan
which details actions to be taken at a
head office and asset-level.
– Catastrophic external event risk has
increased during the year and is
considered a high impact risk with a
medium likelihood.
– The Board regularly monitors the
– The impact of the COVID-19 has
caused unprecedented economic and
operational disruption. We mitigated
the impact through our portfolio
positioning focused on essential
goods and services, our cash position
and liquidity, and our active approach
to asset management.
– COVID-19 has also demonstrated the
effectiveness of home working for the
business, which will ensure
preparedness for further restrictions to
accessing our assets.
– The Board will review the Company’s
response to the COVID-19 pandemic
and make any necessary amendments
to our crisis response plan.
– Climate change risk has increased
during the year and is considered a
low to medium impact risk with a low
to medium likelihood.
– ESG has risen up the agenda of
many stakeholders, and expectations
of compliance with best practice
have increased.
– Regulatory requirements have also
increased during the year, for example
through the implementation of the
European Energy Efficiency Directive.
– Our ESG committee pre-empted these
changes, and our initiatives and
disclosure continue to evolve in-line
with best practice.
Home Office terrorism threat level and
other security guidance.
– The Board regularly monitors advice
from the UK Government regarding
pandemic responses.
– Emergency procedures at our assets
are regularly tested and enhanced
in-line with the latest UK
Government guidance.
– We have robust IT security
systems which cover data security,
disaster recovery and business
continuity plans.
– The business has comprehensive
insurance in place to minimise the cost
of damage and disruption to assets.
– We have a comprehensive ESG
programme which is regularly
reviewed by the Board and Executive
Committee. A detailed overview of the
programme can be found in our
standalone ESG report.
– One of the key objectives of the
programme is to minimise our impact
on the environment, through
reducing energy consumption,
sourcing from renewable sources,
and increased recycling.
– We regularly assess assets for
environmental risk and ensure
sufficient insurance is in place to
minimise the impact of
environmental incidents.
– ESG performance is independently
reviewed by our external
environmental consultants, and our
performance is measured against
applicable targets and benchmarks.
NewRiver REIT plc Annual Report and Accounts 2020
61
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PR INCIPA L RISKS & UNCERT AI NTI ES
Change in risk assessment during
the year
– Changes in technology and consumer
habits risk has remained stable during
the year and is considered a
medium impact risk with a low to
medium likelihood.
– Although COVID-19 lockdown
restrictions have significantly increased
home working and online shopping,
we expect much of this to unwind
upon easing of the restrictions
– During the year, our acquisition focus
has been on retail parks, which are
ideally suited to click & collect, and
we have worked closely with
retailers as they reshape their physical
store portfolios.
Risk and impact
Monitoring and management
5. Changes in
technology and
consumer habits
Changes in the way
consumers live,
work, shop and use
technology could
have an adverse
impact on demand for
our assets.
– The Board and Executive Committee
regularly assess our overall corporate
strategy, and acquisition, asset
management and disposal decisions in
the context of current and future
consumer demand.
– We closely assess the latest trends
reported by Mintel, our research
provider, to ensure we are aligned with
evolving consumer trends.
– Our retail portfolio is focused on
essential spending on goods and
services which are resilient to the
growth of online retail. Our community
wet-led pubs perform an important
social and societal function, providing
experiences which cannot be
replicated online.
– Our retail parks are ideally positioned
to help retailers with their multi-
channel retail strategies.
– The alternative use valuation of our
portfolio shows we have optionality in
realising value from assets which do
not have a future as retail assets.
6. People
The inability to attract,
retain and develop our
people, and ensure
we have the right skills
in place could prevent
us from implementing
our strategy.
– Attracting, retaining and developing
talent is core to our HR strategy, which
is regularly reviewed by the Board and
Executive Committee.
– People risk has remained stable during
the year and is considered a low to
medium impact risk with a low to
medium likelihood.
– It remains a challenging operating
environment for the Company,
which could present some issues in
attracting and retaining talent, but
this impact is mitigated by an active
employee engagement programme
and the alignment of reward
with both individual and
Company-level performance.
– We undertake an extensive Employee
Engagement Survey once a year to
gauge employee views on leadership,
company culture, health and wellbeing,
personal growth and benefits and
recognition. This informs any changes
to HR policy.
– We regularly benchmark our pay and
benefits against those of peers and the
wider market.
– Succession planning is in place
for all key positions, and is
reviewed regularly by the
Nomination committee.
– Longer notice periods are in place for
key employees.
62
NewRiver REIT plc Annual Report and Accounts 2020
Internal Risks
Risk and impact
Monitoring and management
7. Financing
If gearing levels
become higher than
our risk appetite or
lead to breaches in
bank covenants this
would impact our
ability to implement
our strategy. The
business could also
struggle to obtain
funding or face
increased interest
rates as a result
of macroeconomic
factors.
– The Board regularly assesses
Company financial performance and
scenario testing, covering levels of
gearing and headroom to financial
covenants and assessments by
external rating agencies.
– The Company has a programme of
active engagement with key lenders
and shareholders.
– The Company has a wholly unsecured
balance sheet, which mitigates the risk
of a covenant breach caused by
fluctuations in individual
property valuations.
– The Company has long-dated maturity
on its debt, providing sufficient
flexibility for refinancing.
– Weekly working capital and cash
flow analysis is reviewed by the
Executive Committee.
– Our credit rating is independently
assessed by Fitch Ratings every
six months.
Change in risk assessment during
the year
– Financing risk has increased during
the year and is considered a high
impact risk with a low to
medium likelihood.
– Although macroeconomic
developments, particularly in the wake
of COVID-19 have impacted financial
markets, the strength of the
Company’s balance sheet, and the
results of our extensive scenario
testing, and stress-testing of
headroom, means we have
significantly mitigated the risk of
not being able to secure
sufficient financing.
– On 1 April 2020, Fitch Ratings affirmed
NewRiver’s Long-Term IDR at ‘BBB’
with a Stable Outlook and senior
unsecured rating at ‘BBB+’.
8. Asset management
The performance of
our assets may not
meet with the
expectations outlined
in their business plans,
impacting financial
performance and the
ability to implement
our strategies.
– Asset-level business plans are
regularly reviewed by the asset
management team and the Executive
Committee and detailed forecasts are
updated twice yearly.
– The Executive Committee reviews
whole portfolio performance on a
quarterly basis to identify any trends
that require action.
– Asset management risk has
increased during the year and is
considered a medium impact risk with
a medium likelihood.
– The COVID-19 pandemic has placed
significant restrictions on the
operations of our occupiers and
therefore impacted performance and
rent collection at our assets.
– Our asset managers are in contact with
centre managers and occupiers on a
daily basis to identify potential risks
and improvement area.
– Our COVID-19 response has focused
on supporting occupiers and ensuring
businesses can emerge from the crisis
in robust financial shape.
– Revenue collection is reviewed weekly
by the Executive Committee.
NewRiver REIT plc Annual Report and Accounts 2020
63
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PR INCIPA L RISKS & UNCERT AI NTI ES
Risk and impact
Monitoring and management
9. Development
Delays, increased
costs and other
challenges could
impact our ability to
pursue our
development pipeline,
and therefore our
ability to profitably
recycle development
sites and achieve
returns on
development.
– We apply a risk-controlled
development strategy through
negotiating long-dated pre-lets
(typically at least 70% of assets).
– All development is risk-controlled and
forms only 5% of the portfolio by value
– Capital deployed is actively monitored
by the Executive Committee, following
detailed due diligence modelling
and research.
– An experienced development team
monitors on-site development and
cost controls.
10. Acquisition
The performance of
asset and corporate
acquisitions might not
meet with our
expectations and
assumptions,
impacting our revenue
and profitability.
11. Disposal
We may face difficulty
in disposing of assets
or realising their fair
value, thereby
impacting profitability
and our ability to
reduce debt levels or
make further
acquisitions.
– We carry out thorough due-diligence
on all new acquisitions, using data
from external advisers and our own
rigorous in-house modelling before
committing to any transaction.
– Acquisitions are subject to approval by
the Board and Executive Committee,
who are highly experienced in the
retail and pub real estate sectors.
– Our strategy is to acquire
predominantly in joint ventures,
thereby sharing risk.
– Our portfolio is large and our average
asset lot size is small, meaning that
each asset represents only a small
proportion of revenues and profits,
thereby mitigating any impact of
underperformance.
– Our portfolio is focused on high quality
assets with low lot sizes, making them
attractive to a wide pool of buyers.
– Assets are valued every six months by
external valuers, enabling informed
disposal pricing decisions.
– Disposals are subject to approval by
the Board and Executive Committee,
who are highly experienced in the
retail and pub real estate sectors.
– Our portfolio is large and our average
asset lot size is small, meaning that
each asset represents only a small
proportion of revenues and profits,
thereby mitigating the impact of a sale
not proceeding.
Change in risk assessment during
the year
– Development risk has remained stable
through the year and is considered a
low to medium impact risk with a
low likelihood.
– Although the COVID-19 pandemic has
brought delays to many development
projects, they remain a small part of
our portfolio and committed capex
is low.
– Our largest developments, which
include regeneration schemes in
Burgess Hill and Cowley, Oxford, are
driven by key trends which are likely to
re-emerge after the immediate impacts
of COVID-19 ease.
– Acquisition risk has remained stable
through the year and is considered a
low to medium impact risk with a
low likelihood.
– Market dislocation as a result of retail
sector challenges and political
uncertainty has provided significant
opportunities to acquire high-quality
assets at lower prices, reducing the
risk of future underperformance.
– Disposal risk has remained
increased during the year but remains
a low to medium impact risk with a
low likelihood.
– Political uncertainty and the onset of
COVID-19 in March 2020 has
increased market uncertainty, causing
some purchasers to reconsider or
delay acquisition decisions.
– Our portfolio focus means that our
assets are viewed as resilient
regardless of wider market uncertainty.
64
NewRiver REIT plc Annual Report and Accounts 2020
VIABILI T Y STATE MENT
VIABILITY STATEMENT
Period of assessment
The UK Corporate Governance Code requires the
Directors to appraise the viability of the Group over
what they consider to be an appropriate period of
assessment taking into account the Group’s current
position, its business model (page 20), strategy (page
22) and principal risks and uncertainties (page 58).
In making this assessment, the Directors view the
Group’s focus on resilient sub-sectors (convenience
retail and community pubs), expertise in asset
management and risk-controlled development, disposal
track record and unencumbered balance sheet as the
key aspects supporting the long-term sustainability of
the business.
The Directors consider the appropriate period of
assessment to be three years from the current financial
year end, to 31 March 2023, reflecting the horizon
reviewed in detail by the Directors during the Group’s
annual budget and business planning process. This
period of assessment is also aligned to performance
measurement and management remuneration, and in
the opinion of the Directors, this period of assessment
strikes the optimal balance of allowing the impact of
strategic decisions to be modelled while maintaining
the accuracy of underlying forecast inputs.
Principal risks
In making their viability assessment, the Directors
assessed the potential impacts, in severe but plausible
scenarios, of the principal risks as set out on pages 58
to 64, 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:
– Macroeconomic – Economic conditions in the UK
and changes to fiscal and monetary policy may
impact market activity, demand for investment
assets, the operations of our occupiers or the
spending habits of the UK population, causing
valuation declines.
– Political and regulatory – Changes in UK
Government policy, the adverse effects of Brexit on
our tenants, or the impact of political uncertainty on
the consumers’ retail and leisure spend.
– Catastrophic external event – An external event
such as a civil emergency, including a large-scale
terrorist attack or pandemic could severely disrupt
global markets and cause damage and disruption to
our assets.
– Financing – If gearing levels become higher than
our risk appetite or lead to breaches in bank
covenants this would impact our ability to implement
our strategy. The business could also struggle to
obtain funding or face increased interest rates as a
result of macroeconomic factors.
Although the Board is encouraged that the UK
Government has begun to relax its lockdown
restrictions, at the time of writing there remains
considerable uncertainty surrounding the long-term
impact of the COVID-19 pandemic on the UK economy.
Process
The Group’s annual budget and business planning
process comprises a budget for the next financial year,
together with a forecast for the following two financial
years. This process takes place in the final quarter of
the financial year, and culminates in a Board Strategy
Session in early March, with final budget sign off by the
Board typically taking place early in the new financial
year. The exercise is completed at a granular level, on a
lease-by-lease and pub-by-pub basis and considers the
Group’s profitability, capital values, loan to value, cash
flows and other key financial metrics over the forecast
period. The Group benefits from a wholly unsecured
balance sheet, and has no bank refinancing events until
August 2023.
This year, however, due to the COVID-19 pandemic and
the subsequent lockdown instigated by the UK
Government on 23 March 2020, the process following
the Board Strategy Session has changed. Starting
immediately prior to lockdown and continuing
throughout April, the Directors of the Group held
weekly Board calls, where attention was focused on
operational matters and cash flow and liquidity
management. During the lockdown, 37% of occupiers
by rent in the Group’s retail portfolio continued to trade,
being essential in nature, and 52% of rent due between
25 March and 1 June 2020 was collected. As of 16 June
2020, following the easing of the lockdown restrictions
regarding retailers effective from 15 June 2020, 60% of
occupiers by rent were open and trading. The Group’s
pub portfolio has been closed since 20 March 2020,
when the UK Government announced the immediate
closure of all cafes, pubs, bars and restaurants across
all the formations of the UK. The UK Government is yet
to confirm its plan for the re-opening of pubs, and the
phasing is expected to vary across the formations of the
UK, but it is likely this will occur over the coming
months, and could begin as soon as 4 July 2020.
NewRiver REIT plc Annual Report and Accounts 2020
65
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT VIABILITY STATEMENT
As the UK entered lockdown, the Group focused on
managing cash resources very carefully and
maintaining liquidity in the business. As a consequence
of this, the Board took the decision not to pay a fourth
quarter dividend and the Group’s budget was adjusted
to remove £24 million of non-essential capital
expenditure and £4 million of annual operational
savings. The Directors reviewed detailed liquidity
analysis and stress testing which modelled six different
income scenarios on a quarterly basis in the year ended
31 March 2021. These scenarios ranged from stable
retail income and a 50% reduction in pub income, to a
50% reduction in retail income and a 75% reduction in
pub income. Under even the most pessimistic of these
scenarios, the Group maintained available liquidity of
over £100 million.
The forecast scenario selected by the Directors to
assess the Group’s viability is an evolution of one of
these scenarios, which assumes a blended income
collection rate of 57% of pre-COVID-19 levels. Under
this scenario, the Group is forecast to maintain sufficient
cash & liquidity resources and remain compliant with its
financial covenants. Further sensitivity analysis was
performed on this scenario, including removing all
assumed disposals, assuming a more significant
valuation decline and a lower income collection rate.
Even applying this sensitivity analysis, the Group
maintains sufficient cash and liquidity reserves to
continue in operation throughout the
assessment period.
Viability statement
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.
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. Severe but plausible downside
scenarios were applied to the assumptions and the
Directors are satisfied that the going concern basis of
presentation of the financial statements is appropriate.
The Directors’ Report was approved by the Board
of Directors.
66
NewRiver REIT plc Annual Report and Accounts 2020
SECTI ON 172 STAT EMENT
SECTION 172 STATEMENT
Under Section 172(1) of the Companies Act 2006, a
director of a company must act in the way he or she
considers, in good faith, would be most likely to
promote the success of the company for the benefit of
its members as a whole, and in doing so have regard
(amongst other matters) to:
– the likely consequence of any decision in the
long-term.
– the interests of the company’s employees.
– the need to foster the company’s business
relationships with suppliers, customers and others.
– the impact of the company’s operations on the
community and the environment.
– the desirability of the company maintaining a
reputation for high standards of business conduct.
– the need to act fairly as between members of
the company.
The following disclosure describes how the Directors
have had regard to the matters set out in Section 172(1)
(a) to (f) and forms the Directors’ statement under
section 414CZA of The Companies Act 2006.
The Directors consider, both individually and
collectively, that they have acted in the way they
consider, in good faith, would be most likely to promote
the success of the Company for the benefit of its
members as a whole (having regard to the stakeholders
and matters set out in section 172(1)(a) to (f) of the
Companies Act 2006) in the decisions taken during the
year ended 31 March 2020.
The content on our key stakeholders on page 21
highlights how we consider and engage with our key
stakeholders. Further details of engagement and the
Board activities are set out on pages 73 to 79 providing
insight into how the Board makes decisions and their
link to strategy.
The long term: As a Board of a REIT owning property
assets which also includes a risk-controlled
development pipeline the Board is always conscious of
the long term and this is encompassed in our business
model. The Board is also mindful of the long-term
trends which will have a significant impact on the
markets we operate in and these long term trends are
factored into our long term strategies and indeed can
provide opportunities. In September 2019 the Company
appointed Mintel, one of the world’s leading research
houses as a research partner. The Board receives
regular retail research and trends reports from Mintel.
These include bespoke research projects that are
future looking and investigate how trends will impact
retail and hence retail real estate in the longer term.
These insights and the Board’s own extensive
experience steers the long term strategic direction.
Employees: Our people are our key assets. Their
hard-work, support and motivation is at the heart of our
business. Communication, engagement and the
development of our people is vital to the business and
therefore front of mind in Board decisions. We have a
collaborative and supportive culture that extends from
the boardroom to our people. We are also hardworking
and adaptable as well as passionate and resilient. This
has been especially evidenced in the support and
motivation of our teams across the business during the
COVID-19 crisis. Further details on our communications
and engagement with staff can be found in ‘Our People’
on pages 46 and 47.
Business relationships: The Board is committed to
fostering the Company’s business relationships with
occupiers, local authorities and other stakeholders.
These stakeholders are key to our business model and
therefore members of the Exco (including Board
members) have direct responsibilities for managing and
developing these relationships. Further details
regarding our engagement with our key stakeholders,
including occupiers and local authorities can be found
on page 21.
Community & environment: As set out in our Business
Model the Company’s purpose is growing cash returns
and thriving communities. The Board is committed to
our communities and our assets are integral to the
communities they serve. We aim to enhance the lives of
consumers and minimise our impact on the
environment. These matters are therefore considered
in all strategic decisions and embedded into the
business model. How we support our communities and
our efforts to minimise our environmental impact can be
found on pages 48 to 57.
High standards of business conduct: Our values mirror
our culture and as a team our values are to be trusted
and respected and this is entrenched into Board
decisions. The Board’s focus on human rights (Modern
Slavery policy) and anti-corruption and anti-bribery
policies can be found on page 81.
Shareholders: The Board recognises the importance of
treating all members fairly and monitors the views of the
Company’s shareholders through reports on investor
and analyst communications so that their views and
opinions can be considered when setting strategy.
Further details regarding our engagement with our
shareholders can be found on page 74.
NewRiver REIT plc Annual Report and Accounts 2020
67
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT OUR LE ADERSHIP T EAM
BOARD OF DIRECTORS
Baroness Ford OBE
Allan Lockhart
Mark Davies
David Lockhart
Kay Chaldecott
Alastair Miller
Colin Rutherford
Chair of committee
Member of Audit Committee
Member of Nomination Committee
Member of Remuneration Committee
68
NewRiver REIT plc Annual Report and Accounts 2020
Baroness Ford OBE
Non-Executive Chairman
Appointed July 2017
Key Skills and Experience
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. Margaret has
extensive knowledge across the real
estate market and is an Honorary
Member of the Royal Institute of
Chartered Surveyors. From 2002 to
2008, she was Chairman of English
Partnerships (now Homes England)
and from 2009 to 2012, she was a
member of the Olympic Board and
Chairman of the Olympic Park
Legacy Company. Margaret was
previously a Non-Executive Director
of Taylor Wimpey plc and SEGRO
plc, and the former Chairman of
Grainger plc and May Gurney
Integrated Services plc.
External Appointments
Listed Companies
STV Group plc (Chairman)
Lendlease Corporation (Non-
Executive Director)
Other
Chairman of Challenge Board,
Buckingham Palace Reservicing
Programme
National President of the British
Epilepsy Association
British Olympic Association
Baroness Ford was appointed to the
House of Lords in 2006. She is a
Cross bench peer and is currently on
an extended leave of absence from
Parliament.
Allan Lockhart
Chief Executive Officer
Key Skills and Experience
Allan has over 30 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. In 2002, Allan was
appointed as retail director to
Halladale and was responsible for
coordinating the acquisition and
implementation of the asset
management strategies 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.
External Appointments
None.
Mark Davies
Chief Financial Officer
Key Skills and Experience
Mark is a Chartered Accountant with
over 20 years’ experience who
joined the Company at its inception
in 2009 and has played an integral
part in growing the business to a
FTSE 250 Company. Mark has a
strong track record in Capital
Markets including raising £2 billion of
new capital and as the steward of
the Group balance sheet moving the
Company to an unsecured debt
structure following the issuance of a
£300 million ten-year corporate
bond in 2018. Mark is also Chief
Executive Officer of Hawthorn
Leisure, which is a business of over
700 community pubs and
Convenience Stores. Mark led the
acquisition of Hawthorn in 2018 and
oversaw the successful integration
of the business in early 2019. He
also sits on the Board of the British
Beer and Pub Association ("BBPA").
Prior to joining NewRiver Mark was
CFO of Omega Land which was a
£1 billion private equity fund owned
by Morgan Stanley and prior to that
an Audit and Corporate Finance
Partner at Grant Thornton and BDO.
External Appointments
BBPA (Board member)
David Lockhart
Executive Deputy Chairman
Relevant skills
David Lockhart is a qualified Solicitor
and Chartered Accountant and has
over 40 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.
David practised law in his family law
firm before starting a career in
property, initially founding 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 from its IPO until
being appointed Executive Deputy
Chairman in May 2018.
External Appointments
Listed Companies
None.
Other
Family Trusts and Investments
Kay Chaldecott
Independent Non-Executive
Director
Appointed March 2012
Relevant skills
Kay has over 25 years’ experience
of developing and managing
regional shopping centres
throughout the UK. 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 was Managing
Director of the shopping centre
business of Capital Shopping
Centres Group plc (now Intu
Properties plc) and served as a main
Board Director. She was also
previously a Non-Executive Director
of St. Modwen Properties PLC.
External Appointments
Listed Companies
None.
Other
Lichfields planning and development
consultancy (Board member)
Next Leadership (member of the
Advisory Board)
Alastair Miller
Senior Independent Director
Appointed January 2016
Key skills and Experience
Alastair is a Chartered Accountant
and has significant, recent and
relevant financial experience.
Throughout his career Alastair has
developed skills over risk
management, property, systems,
company secretariat and investor
relations. Having worked for New
Look Group for 14 years, Alastair has
an in-depth understanding of
retailers and the factors that impact
their trading and profitability. Alastair
was formerly Chief Financial Officer
of New Look Group, Group Finance
Director of the RAC, and Finance
Director of a company within the
BTR Group. Alastair qualified as a
Chartered Accountant with Deloitte
Haskins and Sells and was a
management consultant at Price
Waterhouse. In addition to being the
Senior Independent Director Alastair
has responsibility for ensuring that
the Board successfully engages with
our workforce.
External Appointments:
Listed Companies
Superdry Plc (Director and Auditco
Chair)
Other
RNLI (Risk and Audit committee
member)
Colin Rutherford
Independent Non-Executive
Director
Appointed February 2019
Key skills and Experience
Colin is an international listed public
and private company chairman and
independent non executive director,
with relevant sector experience
including asset management,
financials, leisure and real estate.
Colin graduated in accountancy and
finance and qualified with Touche
Ross (now Deloitte) in 1984 and is a
member of the Institute of Chartered
Accountants of Scotland.
External Appointments
Listed Companies
Mitchells & Butlers plc (Director and
Audit Committee Chairman)
Evofem Biosciences Inc, (Director
and Audit Committee Chairman)
Other
Brookgate Limited (Chairman)
NewRiver REIT plc Annual Report and Accounts 2020
69
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
OUR LE ADERSHIP T EAM
EXECUTIVE COMMITTEE
Allan Lockhart
Mark Davies
David Lockhart
Emma Mackenzie
Charles Spooner
Stuart Mitchell
Edith Monfries
Will Hobman
70
NewRiver REIT plc Annual Report and Accounts 2020
Allan Lockhart
Chief Executive Officer
See page 69 for key skills.
Mark Davies
Chief Financial Officer
See page 69 for key skills.
David Lockhart
Executive Deputy Chairman
See page 69 for key skills.
Emma Mackenzie
Head of Asset Management
Head of ESG
Relevant skills
Emma has overarching responsibility
for the financial and operational
performance of the retail portfolio
throughout the UK. Emma’s
responsibilities also include
oversight of NewRiver’s property
management, rent collection and the
Company’s Environmental, Social
and Governance programme. Emma
is a qualified chartered surveyor with
over 25 years’ experience in the
retail property market. In 2018 she
was one of the eight members of the
High Streets Expert Panel chaired by
Sir John Timpson and now sits on
the High Street Task Force Board.
Emma also sits on the Commercial
Committee of the British Property
Federation. Prior to NewRiver Emma
worked in private practice as a retail
agent and asset manager.
Charles Spooner
Head of Capital Markets
Relevant skills
As Head of Capital Markets, Charles
has responsibility for the Company’s
capital markets activity, including
managing NewRiver’s acquisitions
and disposals strategy, as well as
overseeing the implementation of
asset management initiatives within
NewRiver’s retail park portfolio.
Charles is a qualified chartered
surveyor with over 20 years’
experience in the retail real estate
investment and asset management
sector. Charles’ previous experience
includes asset management roles at
F&C REIT and RREEF. He has also
been an adviser at Cushman &
Wakefield and advised Specsavers
on their investment agency and
development activity.
Stuart Mitchell
Asset Management Director
Relevant skills
Stuart is Head of Third Party Asset
Management, has overall
responsibility for the NewRiver
Southern Portfolio and is responsible
for NewRiver’s Leasing and
Commercialisation strategies. Stuart
is a chartered surveyor with over 15
years’ commercial property
experience, specialising in the retail
sector. He started his career at Fuller
Peiser, which was later acquired by
BNP Paribas Real Estate. Stuart is a
member of the British Property
Federation Insolvency Committee,
Revo Asset Management Advisory
Panel, RICS and a Director of several
Business Improvement Districts.
Edith Monfries
Head of HR, NewRiver and Chief
Operating Officer, Hawthorn
Leisure
Relevant skills
Edith has responsibility for HR
strategy for the Group and for the
internal operations of Hawthorn
Leisure, our community pubs
business. Edith is a Chartered
Accountant with over twenty years’
experience, having trained with
Deloitte, Haskins and Sells,
specialising in advising businesses in
strategic and operational matters,
and talent development.
Will Hobman
Finance Director
Relevant skills
Will has responsibility for overseeing
and directing NewRiver’s financial
operations, including Corporate
Finance, FP&A, Financial Reporting,
Investor Relations and Management
Accounting, reporting to Mark
Davies, Chief Financial Officer. Will is
a Chartered Accountant with over 10
years’ experience, having qualified
at BDO LLP working in its Audit and
Corporate Finance departments. Will
previously worked within the
Financial Reporting and FP&A teams
at British Land and joined NewRiver
as Head of Investor Relations.
NewRiver REIT plc Annual Report and Accounts 2020
71
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT COR PORATE GOVERNANCE REPO RT
CORPORATE GOVERNANCE
REPORT
We aim to enrich the lives and
strengthen the communities
where our assets are based. We
are mindful of this aim when
undertaking our work as a Board.
I have pleasure in introducing NewRiver’s corporate governance
statement for the year ended 31 March 2020. The Board continues
to be committed to supporting strong governance and this section
of the Annual Report describes how the Board and its committees
worked on behalf of stakeholders to drive the culture and
disciplines necessary for the Company to achieve its goals.
Last year I reported that the Board had reviewed the new
requirements of the UK Corporate Governance Code (“the Code”),
published in July 2018, which applies to accounting periods
beginning on or after 1 January 2019. This year we have spent time
embedding the new requirements into our governance framework
to ensure that it serves to address the priorities of strategy, risk
management, succession planning and stakeholder engagement.
As part of that process we have reviewed a number of key
documents, such as the terms of reference for all our Board
committees and ensured that they are in line with the
requirements of the Code. We have also given our Senior
Independent Director, Alastair Miller, responsibility for ensuring
that the Board successfully engages with our workforce. We have
also established a staff forum to create an environment for staff to
raise and discuss issues with the Board. We also, as a Board,
receive feedback from the Audit Committee on our Whistleblowing
policy procedures and effectiveness of the policy.
The Code requires that the Board satisfies itself that the purpose,
values and strategy of the Group aligns with its culture. The Board
has dedicated time to considering the Company’s culture and its
values. Site visits and engagement with staff enable the Board to
witness the culture out in the business as well as in the head
office. In early March 2020 the Board held its two day strategy
meeting in Birmingham. As part of these days the Board spent
time visiting some of the pub assets and meeting the pub team.
We believe that NewRiver has a collaborative and supportive
culture which gives every individual who works for us a sense of
purpose and an opportunity to thrive. This is evidenced in our
positive staff engagement responses. Our teams are also
hardworking and adaptable as well as passionate and resilient.
This has been especially evidenced in the support and motivation
of our teams across the business during the COVID-19 crisis. Our
culture and governance systems have supported the business
during this challenge. The accessibility and flexibility of the Board
and senior staff has aided the business and provided it with the
ability to adapt and respond to the fast changing situation and
communicate to employees and other stakeholders.
The Board regularly considers its purpose and strategy is
considered at every board meeting. As set out in the strategic
report our purpose is to grow cash returns and thriving
communities. We aim to enrich the lives and strengthen the
communities where our assets are based. We are mindful of this
aim when undertaking our work as a Board. The execution of our
proven business model, and focus on our ESG objectives enables
us to deliver beneficial outcomes for all our stakeholders.
We believe that we have complied with all the requirements of the
Code during the year under review and we look forward to
continuing to evolve the framework over the coming year.
Baroness Ford OBE
Chairman
18 June 2020
72
NewRiver REIT plc Annual Report and Accounts 2020
COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE CODE
The Board has complied with the principles and provisions
of the UK Corporate Governance Code 2018 issued by the
Financial Reporting Council (FRC) in July 2018 (the 2018
Code), which is available on the FRC website (www.frc.org.
uk). The principles and provisions of the 2018 Code have
applied throughout the year 31 March 2020. It is the
Directors’ view that the Company has applied the principles
and complied with the provisions throughout the year.
In respect of Provision 36, a post-employment shareholding
policy will be introduced as part of the new remuneration
policy to be approved at the forthcoming AGM. Further
details can be found on page 96.
In respect of Provision 38, the steps intended to be taken to
align incumbent Executive Director pension contributions to
those available to the workforce are set on page 94.
Details of the way the Code has been applied can be found
in the following pages:
BOARD LEADERSHIP AND COMPANY PURPOSE
PAGES 68 TO 75
DIVISION OF RESPONSIBILITIES
PAGES 76 TO 79
COMPOSITION, SUCCESSION AND EVALUATION
PAGES 80 TO 81 AND 86 TO 87
AUDIT, RISK AND INTERNAL CONTROL
PAGES 82 TO 85
REMUNERATION
PAGES 88 TO 108
BOARD LEADERSHIP AND PURPOSE
The Role of the Board
The Board’s role is to lead the Group and ensure that it delivers
sustainable and growing returns for our shareholders over the
longer term. The Board establishes the Company’s purpose,
values and strategy. The Board oversees the Group’s active
approach to asset management and the strategy of developing
and recycling convenience-led, community-focused retail and
leisure assets throughout the UK and this in turn contributes to the
community and wider society.
The Board has overall authority for the management and conduct
of the Group’s business, strategy and development and is
responsible for ensuring that this aligns with the Group’s culture.
The Board, supported by the company secretary, ensures the
maintenance of a system of internal controls and risk management
(including financial, operational and compliance controls) and
reviews the overall effectiveness of the systems in place. The
Board delegates the day-to-day management of the business to
the Executive Committee. However, there is a schedule of matters
reserved for the Board’s decision which forms part of a delegated
authority framework, to ensure that unusual or material
transactions are brought to the Board for approval. The schedule
is reviewed regularly to ensure that it is kept up to date with any
regulatory changes and is fit for purpose. The last review and
revision was undertaken in March 2020.
Stakeholder Engagement
The Board considers the Group’s key stakeholders to be its Staff,
Occupiers, Local Authorities, Communities, Lenders and
Shareholders.
The Executive Committee is responsible for the day-to-day
stewardship of all stakeholder relationships and its members
report to the Board on the key metrics and initiatives. The Board,
either directly or through its Executive Committee, engages or
oversees engagement with the Company’s stakeholders through
regular dialogue with the individuals on the Executive Committee,
direct dialogue with the stakeholders themselves and regular
Board reports.
Staff: Our staff are at the heart of our business and our key asset.
We have 205 people across the Group, including our Managed
Pubs division. This small number of people makes engagement
simple and continuous thorough the way we work together in an
environment that is collaborative and supportive and through
flexible employment policies. Alastair Miller is the Non-Executive
Director responsible for ensuring the Board successfully engages
with our workforce. All staff have been briefed on Alastair’s role
and are encouraged to contact him directly. Alastair meets with
the HR Director regularly and we have set up a staff forum, which
meets periodically, to liaise with the Board. An HR report forms
part of the Board pack and regular verbal updates are provided by
the CEO and CFO (for the Pub division) on staff matters and
developments. Further details on our staff engagement and
development can be found in ‘Our People’ on pages 46 to 47.
NewRiver REIT plc Annual Report and Accounts 2020
73
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT COR PORATE GOVERNANCE REPO RT
Occupiers: We have over 800 retail occupiers and over 700
tenants in our community pubs. We engage closely with these
occupiers to ensure we are meeting their needs. Engagement is
through the Executive Committee which includes the function
heads of asset management and third party asset management
and CEO of the Pub division. These individuals report regularly to
the Board and the Board also has sight of the annual occupier
satisfaction survey. Further details on our engagement with
occupiers can be found on page 54.
Local Authorities: We have established relationships with over 60
Local Authorities and we work closely with councils that are local
to our assets. Engagement is through our third party asset
management programme, the head of whom is part of the
Executive Committee. The CEO engages regularly with councils
and details of meetings and discussions are included in his
reporting to the Board. Further details on our engagement with
local councils can be found on page 21 and also page 50 which
sets out how we have also engaged with local councils through
our ESG programme.
Communities: Our purpose is growing thriving communities and
forms part of our business model. Our assets are located in
communities across the UK. We aim to strengthen communities
through meeting their everyday needs and supporting matters that
are important to them. We are committed to enhancing the lives of
people in these communities. This occurs through the revitalisation
of assets that provide the right mix of occupiers and uses for the
communities and the supporting of our communities through our
ESG programme which supports and champions local causes.
Engagement with communities occurs through these programmes,
planning consultations and forums, and our work with the local
councils. The Executive Committee and individual Board members
(CEO and CFO) are involved directly in this engagement and
reports are included at every board meeting.
Lenders: Our relationship banks and bondholders provide us with
the funding to execute our strategy so is a permanent report on
the Board agenda. We work closely with our relationship banks
and bondholders. Executive Committee members, including the
CFO and CEO attend regular meetings with these lenders.
Shareholders: The Board monitors the views of the Company’s
shareholders through reports on investor and analyst
communications prepared by the Head of IR, which are included in
the papers for each Board meeting and are reported on more fully
by the Head of IR in person at most Board meetings. During
2019/20, the Board has spent time discussing and agreeing its IR
strategy and communication programme setting measurable
targets and KPIs in these areas. The Chief Executive Officer and
Chief Financial Officer meet with analysts, hold conference calls
and engage with shareholders by participating in the major
roadshows after preliminary and half-yearly results are announced.
In September 2019 a Capital Markets Day was held in London for
analysts and institutional shareholders at which we provided
further information on our current investment focus and
demonstrated the alternative use value inherent within its portfolio
of retail assets. The capital markets day was also attended by the
CEO, CFO and members of the ExCo. The Head of Investor
Relations is responsible for maintaining existing relations with
analysts and major shareholders on a day-to-day basis, which is
done by way of telephone calls and meetings. When issues are
being considered by a Board Committee for which the Committee
Chair concerned believes that shareholder dialogue would be
useful, contact may be made with leading independent
shareholders to discuss their views on that matter. Such contact
has been made this year with regards to the new Remuneration
Policy which will be put to the shareholders for approval at the
forthcoming AGM.
Conflicts of Interest
The Company Secretary keeps a register of all Directors’ interests.
The register sets out details of situations where each Director’s
interest may conflict with those of the Company (situational
conflicts). The register is considered at and reviewed at each
Board meeting so that the Board may consider and authorise any
new situational conflicts identified. At the beginning of each Board
meeting, the Chairman reminds the Directors of their duties under
sections 175, 177 and 182 of the Companies Act 2006 which relate
to the disclosure of any conflicts of interest prior to any matter that
may be discussed by the Board.
Director Concerns
Directors have the right to raise concerns at Board meetings and
can ask for those concerns to be recorded in the Board minutes.
The Group has also established a procedure which enables
Directors, in relevant circumstances, to obtain independent
professional advice at the Company’s expense.
Board Time Commitments
All Directors pre-clear any proposed appointments to listed
company boards with the Board, prior to committing to them. The
Non-Executive Directors are required, by their letters of
appointment, to devote as much of their time, attention, ability and
skills as are reasonably required for the performance of their
duties. This is anticipated as a minimum of one day a month. The
Board remains satisfied that all of the Directors spend
considerably more than this amount of time on Board and
Committee activity. This has been especially demonstrated during
the COVID-19 crisis. Each Non-Executive Director has made
themselves available at short notice to discuss the Crisis and its
impact as events unfolded. During March and April 2020 the
Board met at least weekly with full attendance.
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NewRiver REIT plc Annual Report and Accounts 2020
Balance between Non-Executive and Executive
Directors
During the year, the Board comprised three independent
Non-Executive Directors (excluding the Chairman) and three
Executive Directors. The Nomination Committee is of the opinion
that the Non-Executive Directors remain independent, in line with
the definition set out in the Code, and are free from any
relationship or circumstances that could affect, or appear to affect,
their independent judgement. The Chairman was independent on
appointment and the Board still consider her to be independent.
Company Secretary
Prism Cosec Limited (“Prism”) was appointed Company Secretary
on 26 November 2019 and a representative of Prism attends all
Board meetings and is responsible for advising the board on all
governance matters. All Directors have access to the advice of the
Company Secretary. The appointment of the Company Secretary
is a matter for the Board.
NewRiver REIT plc Annual Report and Accounts 2020
75
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT COR PORATE GOVERNANCE REPO RT
Division of responsibilities
Role
Responsibilities
Chairman
Margaret Ford
Margaret’s role is to lead the Board and ensure that it operates effectively. Her
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 each new Director receives a full, formal and tailored induction on joining the Board;
– reviewing and agreeing training and development for the Board.
Executive Deputy
Chairman
David Lockhart
David’s responsibilities include:
– providing leadership and acting as an adviser to the Chief Executive Officer and Chief
Financial Officer;
– assisting the Executive Directors with developing and mentoring the senior leadership team;
– working with the Board to develop the Company’s strategy;
– acting as Non-Executive Chairman of Pub Board.
Chief Executive
Officer
Allan Lockhart
Allan’s responsibilities include:
– managing the business of the Group;
– recommending the Group’s strategy to the Board;
– Environment, Social & Governance strategy;
– implementing the strategy agreed by the Board;
– management of the Group’s property portfolio, including developments.
Chief Financial
Officer
Mark Davies
Senior
Independent
Non-Executive
Director
Alastair Miller
Mark’s responsibilities include:
– implementing the Group’s financial strategy, including balance sheet capitalisation;
– overseeing financial reporting and internal controls;
– executive responsibility for the pub portfolio.
Alastair’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;
– ensuring that the Board successfully engages with our workforce.
Non-Executive
Directors
Non-Executive Directors Kay Chaldecott, Alastair Miller and Colin Rutherford 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.
76
NewRiver REIT plc Annual Report and Accounts 2020
Board and Committee Structure
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.
Board
Responsible for leading the
Group, setting the strategy and
monitoring its progress.
It sets policies and monitors
performance.
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.
Executive
Committee (“ExCo”)
To assist the Chief Executive
with the development and
implementation of the Group
strategy, the management of
the business and the discharge
of its responsibilities delegated
by the Board.
Nomination
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.
NewRiver REIT plc Annual Report and Accounts 2020
77
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT COR PORATE GOVERNANCE REPO RT
Attendance
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/video call. Board papers are circulated to Directors in
advance of the meetings via an electronic board portal. This allows
for an efficient and secure circulation of Board papers and if a
Director cannot attend a meeting, he or she is able to consider 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. The Non-Executive Directors meet
without the Executive Directors and the Chairman present, at least
once a year.
Attendance at committee meetings is shown in the respective
committee reports. Attendance at regular Board meetings is
shown below:
Board Members
Margaret Ford: Chairman
Allan Lockhart
Mark Davies
David Lockhart
Kay Chaldecott
Alastair Miller
Colin Rutherford
Attendance
5/5
5/5
5/5
5/5
5/5
5/5
5/5
Since the start of the Coronavirus outbreak the Board has met
regularly (at least weekly) on an ad hoc basis. All directors have
been in attendance (via phone or video call) at all of these short
notice ad hoc meetings.
Board activities
Strategy and culture
Finance
Audit and Risk
Operational and Investor
relations
Stakeholders
Governance
78
NewRiver REIT plc Annual Report and Accounts 2020
Discussion
Link to strategy
– The Board held two full strategy days in March 2020 which also included
visiting some of the Pub assets and presentations from the pub team
– Presentation on Group culture and values
– The Chief Financial Officer presented a financial report at each
Board meeting
– Approval of the annual report and interim report and associated
financial statements
– Approval of the annual budget
– Approval of the quarterly interim dividends
– Discussion and decision to not pay Q4 dividend in light of COVID-19. Further
details can be found in the viability statement on pages 65 and 66
– The Chair of the Audit Committee reported to the Board on the proceedings
of each Audit Committee meeting
– The Board considers the risk register and internal controls at least annually
– Update to the Board on the Whistleblowing procedures
– The CEO presented a report at each Board meeting which also included
– Members of the ExCo are regularly invited to attend the meeting to present
updates on investor relations
on various projects
– Regular Board meetings have been held to consider the implications of
Government announcements during the Coronavirus crisis
– Stakeholders including occupiers, councils and communities, lenders and
shareholders are regularly considered as part of the CEO report
– HR reports are either reported separately or in the CEO’s report
– Cushman and Wakefield joined the Board meeting in November 2019 to
present an update on the NewRiver 2020 ESG programme
– The Committee chairs reported on key matters discussed at the
– The company secretary reported on key governance developments at each
– The Board have kept under review its progress on compliance with the
Board Committees
Board meeting
2018 Code
Board activities
Strategy and culture
Finance
Audit and Risk
Operational and Investor
relations
Stakeholders
Governance
Discussion
Link to strategy
– The Board held two full strategy days in March 2020 which also included
visiting some of the Pub assets and presentations from the pub team
– Presentation on Group culture and values
– The Chief Financial Officer presented a financial report at each
Board meeting
– Approval of the annual report and interim report and associated
financial statements
– Approval of the annual budget
– Approval of the quarterly interim dividends
– Discussion and decision to not pay Q4 dividend in light of COVID-19. Further
details can be found in the viability statement on pages 65 and 66
– The Chair of the Audit Committee reported to the Board on the proceedings
of each Audit Committee meeting
– The Board considers the risk register and internal controls at least annually
– Update to the Board on the Whistleblowing procedures
– The CEO presented a report at each Board meeting which also included
updates on investor relations
– Members of the ExCo are regularly invited to attend the meeting to present
on various projects
– Regular Board meetings have been held to consider the implications of
Government announcements during the Coronavirus crisis
– Stakeholders including occupiers, councils and communities, lenders and
shareholders are regularly considered as part of the CEO report
– HR reports are either reported separately or in the CEO’s report
– Cushman and Wakefield joined the Board meeting in November 2019 to
present an update on the NewRiver 2020 ESG programme
– The Committee chairs reported on key matters discussed at the
Board Committees
– The company secretary reported on key governance developments at each
Board meeting
– The Board have kept under review its progress on compliance with the
2018 Code
ESG £
ESG £
£
ESG
ESG
ESG
NewRiver REIT plc Annual Report and Accounts 2020
79
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
COR PORATE GOVERNANCE REPO RT
Board Evaluation Process
Full external evaluation
interviews included topical
issues and review of
Committee structures and
processes
Internal evaluation
questionnaire used to
follow-up on progress with
work initiated in 2017
Internal evaluation
questionnaire used to
follow-up on progress with
work initiated in 2017 and
2018
2017
2018
2019
Committees reviewed
Board evaluation output
and agreed Committee
specific actions.
Committee questionnaires
used to monitor
development.
Committee questionnaires
used to monitor
development.
d
r
a
o
B
s
e
e
t
t
i
m
m
o
C
Composition, succession and evaluation
Board Composition
Details of the Directors, including the skills and experience that
they bring to the Board, are on pages 68 to 69.
Board Succession
Succession planning is part of the Nomination Committee’s remit
and more information on that Committee’s work is on page 87.
Board Evaluation Process
The Board appointed Prism to conduct a Board Evaluation in 2017.
At that time Prism did not undertake any other work for the
Company. The Board adopted a three-year strategy to its board
evaluations for 2017 to 2019 as illustrated above.
For 2019, a questionnaire-based evaluation was used. The
emphasis of the exercise was to:
– Follow up on actions agreed as a result of the 2018 Board and
Committee evaluations;
– Consider how the Board was working together following
changes to personnel over the last two years;
– Assess the current skills make-up of the Board and Committees
and possible future requirements; and
– Reflect on the Board’s engagement with key stakeholders and
progress in moving towards compliance with the 2018 Code.
The evaluation concluded that good progress had been made
since the 2018 evaluation and the Board was working together
well and the new Board members had settled into their roles
quickly and developing good working relationships. Overall, the
action plan developed in response to the 2018 Board Evaluation
exercise was considered to have been implemented well, again
reflecting good progress. Evaluation recommendations raised
to form an action plan for the rest of 2019 and beyond were
as follows:
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NewRiver REIT plc Annual Report and Accounts 2020
Area
Culture
Recommendation
Conclude the work on establishing the key elements of the corporate
culture and the measurement tools for culture.
Status
Completed
Stakeholders
Agree the approach for the executive team to formally report to the
Board on engagement with occupiers and communities as part of the
Board’s processes for understanding of the needs of all of its key
stakeholder groups.
Investor
relations
Strategy
Allocate time to a Board review of the broader ongoing investor
communications programme, Board responsibilities within that
programme and the feedback and frequency of discussion about
shareholder relations at each Board meeting.
Completed – ExCo members are
regularly invited to update the
Board at Board meetings. The
Board also receive the
ExCo minutes
Completed
Discuss and decide whether any further meetings of the Board
(formal or informal) are needed either generally or specifically to
discuss strategy and/or provide opportunities for off-site visits. If it is
concluded that they are needed, the Board Programme should be
recalibrated accordingly.
Completed (a two day Board
strategy meeting was held along
with asset visits in March 2020)
Employee
Engagement
Conclude planning work on mechanisms for the Board to engage
with employees in order to complete implementation of the
preferred mechanism.
Completed
The Board will be carrying out a further external Board Evaluation
during 2020. The engagement of an external Board evaluation
facilitator was initially delayed by the coronavirus outbreak. A
facilitator has now been appointed and the evaluation process has
commenced and will be reported on in the next annual report.
Induction of New Directors
The Chairman and Company Secretary manage an induction
process to ensure that new Directors are 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 their legal and regulatory
obligations as a Director.
Annual General Meeting (“AGM”)
While in normal circumstances 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, in 2020 this may not
be possible due to the Government’s ‘stay at home’ provisions. A
closed AGM is likely to be held for 2020. The Board will however
make sure that shareholders are able to ask questions ahead of
the AGM.
The notice of AGM is posted to all shareholders at least 20
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.
Anti-corruption and anti-bribery
We are committed to the highest legal and ethical standards in
every aspect of our business. It is our policy to conduct business in
a fair, honest and open way, without the use of bribery or corrupt
practices to obtain an unfair advantage. We provide clear guidance
for suppliers and employees, including policies on anti-bribery and
corruption, anti-fraud and code of conduct. All employees receive
training on these issues appropriate to their roles and
responsibilities.
Human Rights
Being mindful of human rights, the Company has a Modern Slavery
policy to ensure that all of its suppliers are acting responsibly and
are aware of the risks of slavery and human trafficking within their
own organisation and supply chain. The Modern Slavery statement
was updated and published during the year.
NewRiver REIT plc Annual Report and Accounts 2020
81
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT AUD IT COMMITT EE RE PORT
AUDIT COMMITTEE REPORT
The Committee has overseen the
transition to new external auditors
while maintaining our focus on the
assessment and management of key
risks facing the business.
Key responsibilities
– Oversight of financial reporting and
internal controls
– Risk management and review of
control processes
– Managing the external audit process
– Maintaining a whistleblowing
procedure
– Assessment of management
judgements and external values
Key activities in 2019/20
– Oversight of introduction of new
external auditors, managing the
audit process and scope
– Assessing risk management and
internal control procedures and
ensuring emerging risks are
assessed and addressed
– Considering the adoption and
impact of IFRS 16
Area of focus in 2020/21
– Continued oversight of risk management and
internal control practices.
– Expansion of scope of BDO LLP (‘BDO’) engagement
further reviewing the Group’s internal control
systems and providing internal audit services.
– Managing the audit process and scope.
– Monitoring the impact of COVID-19 on the financial
projections of the business.
– Maintaining the integrity of internal controls under
– Review of Group insurances
remote working.
– Monitoring enhanced financial reporting during and
post COVID-19.
Dear shareholders,
As Chairman of the Audit Committee I am pleased to present a
summary of the work of the Committee in the last year.
How the Committee operates
The Committee provides independent review and monitoring of
the risk management and control procedures within the Group.
In addition to the Committee’s regular programme of work, the
main areas of focus for the Committee during the year were
monitoring the transition to PricewaterhouseCoopers LLP (‘PwC’)
as the Group’s new external auditor, and the adoption and impact
of IFRS 16.
We have reviewed the significant financial reporting matters and
judgements identified by the finance team and PwC through the
external audit process, and the approach to addressing those
matters is set out in the table on page 84 of this report.
We have also reviewed the Company’s Whistleblowing Policy, and
recommended updates to the Committee’s terms of reference to
ensure they are aligned with the 2018 UK Corporate Governance
Code and best practice.
Our regular programme of meetings and discussions, supported
by our interactions with the Company’s management, external
auditor and property valuers and the quality of the reports and
information provided to us, enable the Committee members to
effectively discharge our duties and responsibilities.
Audit Committee composition and attendance at Meetings
Committee Members
Alastair Miller: Committee Chairman
Kay Chaldecott
Colin Rutherford
Attendance
4/4
4/4
4/4
Each Committee member is independent and has broad
commercial experience as a director. Alastair Miller is a Chartered
Accountant and previously the Chief Financial Officer of New Look
Group, and has significant, recent and relevant financial
experience. Colin Rutherford also has significant, recent and
relevant financial experience and is currently the Chairman of the
Audit Committee of Mitchells & Butlers plc. The Committee as a
whole have competence relevant to the sector in which the
Company operates.
During the year the Audit Committee held four meetings.
The Chief Financial Officer, Finance Director and the Group’s
auditors were invited to attend the Committee meetings. The
Company Secretary acts as secretary to the Committee.
Alastair Miller
Audit Committee Chairman
18 June 2020
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NewRiver REIT plc Annual Report and Accounts 2020
Responsibilities of the Committee
during the year
During the year, the Committee was responsible for:
– overseeing the Group’s relationship with its auditors, PwC,
including their 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;
– 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; and
– monitoring and annually reviewing the auditor’s independence,
objectivity and effectiveness of the audit process.
Activities during the year
Relationship with the auditors
As reported last year, following a thorough tender process the
Audit Committee recommended that PwC be appointed as the
Company’s external auditor to replace Deloitte who had served as
external auditor for ten years.
During the year, the Committee has overseen the transition from
Deloitte to PwC with particular focus on the development of PwC’s
understanding of the Group and the FY20 audit plan.
Chris Burns was named as the lead audit partner on PwC’s
appointment as external auditor during the year. In line with the
policy on lead audit rotation, he is expected to rotate off the audit
ahead of the 2025 audit.
During the year, the members of the Committee met twice with
representatives from PwC without management present, to
ensure that there are no issues in the relationship between
management and the external auditor which it should address.
There were none.
External auditor
The Committee considers the nature, scope and results of the
external auditor’s work and reviews, develops and implements a
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.
In respect of the audit for the financial year ended 31 March 2020,
PwC presented their audit plan (prepared in consultation with
management) to the Committee. In addition to procedures to
support the introduction of PwC as the Group’s new auditor, the
plan included a planning workshop, assessment of audit risks, and
robust testing procedures.
The Committee approved the implementation of the plan following
discussions with both PwC and management.
Audit & non-audit fees
The Company paid £550,000 in audit fees for the financial
year ended 31 March 2020.
The Company has a non-audit services policy in place which limits
PwC 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 £50,000 in non-audit fees to PwC
for the financial year ended 31 March 2020. The non-audit fees
relate solely to PwC’s review of the interim results for the six
months to 30 September 2019.
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.
As reported previously, following a tender process last year PwC
were appointed to replace Deloitte. This is therefore their first year
of audit. In accordance with the guidance set out in the Financial
Reporting Council’s ‘Practice aid for audit committees’ the
assessment of the external audit has not been a separate
compliance exercise, or an annual one-off exercise, but rather it
has formed an integral part of the Committee’s activities. This has
allowed the Audit Committee to form its own view on audit quality,
and on the effectiveness of the external audit process, based on
the evidence it has obtained during the year.
Sources of evidence obtained and observations during the year:
– By referring to the FRC’s
Practice aid on audit quality.
– Observations of, and
interactions with, the auditors.
– The audit plan, the audit
findings and the auditor’s
external report .
– Input from those subject to
the audit.
The Committee has looked to this
practice aid for guidance and has
ensured that assessment of the
audit is a continuing and integral
part of the Committee’s activities.
The Committee has met with the
Audit Partner without management
several times and has noted that
PwC was performing well and the
working relationship was good.
The Committee scrutinises these
documents and reviews them
carefully at meetings and by doing
so the Committee has been able to
assess the auditor’s ability to explain
in clear terms what work they
performed in key areas, and also
assess whether the description used
is consistent with what they
communicated to the Committee at
the audit planning stage. The
Committee has also regularly
challenged these reports in
the meetings.
The Committee has requested
the insights from the Chief Financial
Officer, the Finance Director and
the Finance team during the
audit process.
NewRiver REIT plc Annual Report and Accounts 2020
83
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
AUD IT COMMITT EE RE PORT
Having regard to these matters the Committee has considered the
effectiveness of the External Audit Process and feels that the
auditor has demonstrated professional scepticism and challenged
management’s assumptions where necessary.
The Committee also reviewed the Group’s adoption of IFRS 16
(Leases) and in particular the discount rate used to assess the
lease liability. The Committee is comfortable with the incremental
borrowing rates applied.
The Audit Committee is satisfied with the scope of PwC’s work,
and that PwC continues to be independent and objective. The
Committee is therefore pleased to recommend that PwC be
re-appointed as the Group’s auditor at the 2020 AGM.
Key judgements and estimates
The Committee reviewed the external reporting of the Group
including the interim review, quarterly announcements and the
annual report. In assessing the annual report, the Committee
considers the key judgements and estimates. The significant
issues considered by the Committee in respect of the year ended
31 March 2020 are set out in the table below:
Significant issues
and judgement
Going Concern
– COVID-19
developments have
increased the going
concern risk. Reduced
trading performance
and cashflows may
arise from tenant
bankruptcies/CVA’s;
the pub estate closure
and an uncertain
phased return to
normalised trading.
Valuation of Properties
– changes in key
estimates can have a
significant impact on
the valuation of
properties. On 19
March 2020, the Royal
Institution of Chartered
Surveyors
recommended that
valuers should strongly
consider including a
Material Uncertainty
Clause (in accordance
with RICS Valuation
Global Standards
VPGA 10) in valuations
undertaken after
that date.
How the issues were addressed
Significant steps have been undertaken to
preserve cash and liquidity, including the
decision not to declare a dividend for the final
quarter of FY20. Management’s Going Concern
forecasts include a downside scenario where
the base case assumptions were sensitised to
capture economic and financial downturn as a
result of COVID-19. Under this downside
scenario none of the Group’s debt covenants
were breached at any time throughout the
forecast period. Sufficient headroom remained
on the interest cover and liquidity was not
considered a concern due to the Group’s
opening cash balance of £82 million and
undrawn credit facility of £45m. The LTV ratio
also had headroom. The Audit Committee and
the Board discussed and challenged all
assumptions in the modelling noting options
available to management.
Both Colliers International Valuation UK LLP
(‘Colliers’) and Knight Frank LLP (‘Knight Frank’)
have included the material uncertainty clause in
their valuation reports on the Group’s
properties as at 31 March 2020. The External
Auditors confirmed with each of the valuers that
the clause does not imply a limitation of scope
and that the valuations as at 31 March 2020 are
reported based on their professional judgement
having considering the evidence available as at
the valuation date.
The Committee and management met with
Colliers and Knight Frank on several occasions
to discuss the valuation of the assets and
understand the process that was followed, the
key estimates used, and to ensure a robust and
independent valuation had taken place. The
meetings were productive and management
and the Committee have confirmed that they
continue to adopt the valuations as being the
fair valuation of the properties as at the
reporting date. In addition the External Auditors
have performed additional audit procedures
over the valuer judgements which were
reported to and discussed with the Committee.
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NewRiver REIT plc Annual Report and Accounts 2020
Risk management and internal controls
Internal control structure
The Board oversees the Group’s risk management and internal
controls and determines the Group’s risk appetite. The Board has,
however, delegated responsibility for review of the risk
management methodology, and the effectiveness of internal
controls, to the Audit Committee. The Group’s system of internal
controls includes financial, operational and compliance controls
and risk management. Policies and procedures, including clearly
defined levels of delegated authority, have been communicated
throughout the Group. Internal controls have been implemented in
respect of the key operational and financial processes of the
business. These policies are designed to ensure the accuracy and
reliability of financial reporting and govern the preparation of the
Financial Statements. The Board is ultimately responsible for the
Group’s system of internal controls and risk management and
discharges its duties in this area by:
– holding regular Board meetings to consider the matters
reserved for its consideration;
– receiving regular management reports which provide an
assessment of key risks and controls;
– scheduling regular Board reviews of strategy including reviews
of the material risks and uncertainties (including emerging risks)
facing the business;
– ensuring there is a clear organisational structure with defined
responsibilities and levels of authority;
– ensuring there are documented policies and procedures in
place; and
– reviewing regular reports containing detailed information
regarding financial performance, rolling forecasts, actual and
forecast covenant compliance, cashflows and financial and
non-financial KPIs.
The process by which the Audit Committee has monitored and
reviewed the effectiveness of the system of internal controls and
risk management during the year has included:
– ongoing analysis and review of the Group’s risk register;
– reviewing the assessment of key risks, the process of reporting
these risks and associated mitigating controls, with particular
emphasis on emerging risks;
– Updates from management; and
– engaging BDO, as an independent third party, to undertake
bespoke reviews of the Group’s internal control systems.
The Committee is satisfied that the risk management framework is
effective and did not identify any failing in the control systems.
Further details of the Company’s risk management process,
together with the principal risks, can be found in the principal risks
and uncertainties report.
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, that the information is presented fairly (including
the calculations and use of alternative performance measures) 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 and going concern
The Committee has reviewed the basis for the Company’s Viability
Statement that is drafted with reference to the financial forecasts
for the next three years. In light of the significant impact of
COVID-19 on the UK economy, and the retail and leisure sectors in
which the Group operates, the Committee placed additional
scrutiny on the assumptions used in the forecasts to ensure they
are appropriate. 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.
Similarly, and again in-light of the significant impact of COVID-19
on the Company’s operations, the Committee placed additional
focus on the appropriateness of adopting the going concern basis
in preparing the Group’s financial statements for the year ended 31
March 2020, and satisfied itself that the going concern basis of
presentation of the financial statements and the related disclosure
is appropriate.
Internal audit function
The Group employs an internal audit team within the pub division,
responsible for conducting inventory and cash counts on a rolling
basis across the managed pub estate, supported by external
inventory auditors for certain geographic regions. This allows the
business greater comfort over inventory balances, monitoring
wastage and where relevant charging operators for any losses
they have incurred. BDO also carried out an internal control review
of the Hawthorn Leisure business in 2019 and made a number of
recommendations. The Group does not have an internal audit
team across its retail operations. The need for this is reviewed
annually by the Committee. Due to the relative lack of complexity
and the outsourcing of the majority of the day-to-day functions, the
Committee continues to be satisfied that there is no requirement
for such a team.
BDO, as an independent third party, is engaged to undertake
bespoke reviews of the Group’s internal control system to ensure
that the Company has sufficient controls in place. These reviews
had previously been conducted on a bi-annual basis, however the
Committee has agreed that BDO will be engaged to carry out
these reviews on an annual basis going forwards, and that the
scope of BDO’s internal audit service will be expanded in 2020/21
to include risk management controls and governance
arrangements and cover all activities associated with the business.
Whistleblowing policy
The Committee conducts an annual review of the Group’s
whistleblowing policy to ensure it remains up to date and relevant
and reports to the Board. There have never been any concerns
raised through the whistleblowing process or through any other
process to the Committee.
Statement of compliance
The Company confirms that it 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 tender 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.
NewRiver REIT plc Annual Report and Accounts 2020
85
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NO MINATION COMMIT TE E RE POR T
NOMINATION COMMITTEE
REPORT
Planning for orderly succession to
both the Board and senior
executive positions has been the
key focus this year.
Key responsibilities
– Identifying and nominating for approval
Key activities in 2019/20
– Considering the skills, knowledge,
candidates to fill Board vacancies
– Evaluating the Board’s diversity and
balance of skills
– Evaluating the performance of the Board
– Planning for orderly succession at Board
and Executive Committee level
experience and diversity of the Board
– Planning for orderly succession for the
Board and for the Executive Committee
– Considering the 2020 externally facilitated
Board evaluation process
Area of focus in 2020/21
– Continuing to update succession plans for
the Board and Executive Committee
– Continued focus on diversity
– Carry out and feedback on the external
Board evaluation process
Dear shareholders,
I am pleased to present the Nomination Committee Report for
2020. Planning for orderly succession to both the Board and
senior executive positions as well as diversity have been at the
forefront of discussions at the Committee this year. Our succession
and diversity discussions have focussed on the need for diversity
of skills, knowledge, background, race and gender. The
Committee will ensure that succession planning and diversity
remains at the top of the agenda in the forthcoming year.
Baroness Ford OBE
Chairman
18 June 2020
Nomination Committee composition and attendance at
Meetings
Committee Members
Attendance
Margaret Ford: Committee Chairman
Kay Chaldecott
Alastair Miller
Colin Rutherford
4/4
4/4
4/4
4/4
How the Committee operates
The Committee meets four times a year and holds ad-hoc
meetings when required. It met four times during the year.
Only members of the Committee are entitled to attend the
meetings. The Chief Executive Officer is invited to attend so that
the Committee can understand the views of executive
management when making its deliberations, especially on
succession planning. The Head of HR is also invited to attend on
occasion to assist with succession planning deliberations.
The Terms of Reference were reviewed and updated during the
year to ensure that they were compatible with the New Corporate
Governance Code 2018 and are available on the Company’s
website at www.nrr.co.uk.
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NewRiver REIT plc Annual Report and Accounts 2020
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 to enable employees and Board members to
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 Committee actively considered the
composition of both the Board and the Executive Committee.
Executive Committee: In September 2019 the Nomination
Committee considered the structure of the Executive Committee
and appointed Charles Spooner as Head of Capital Markets and
Emma Mackenzie as Head of Asset Management and in early
2020 the Executive Committee was further strengthened by the
appointment of Will Hobman.
Board Structure
Board Tenure
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. Kay Chaldecott was appointed in 2012 and will
therefore reach her nine year term in 2021. The Committee is of
the opinion that Kay remains independent after eight years on the
Board and Kay will be offering herself for re-election at the AGM.
Succession plans have been discussed at the Committee and will
be kept under review.
Independence
The Nomination Committee is of the opinion that the Non-
Executive Directors and the Chairman remain independent, in line
with the definition set out in the 2018 Code, and are free from any
relationship or circumstances that could affect, or appear to affect,
their independent judgement.
Diversity Policy
As a Company, we are committed to a culture of diversity and
inclusion in which everyone is given equal opportunities to
progress regardless of gender, race, ethnic origin, nationality, age,
religion, sexual orientation or disability. We have been successful
at recruiting key members of our senior management team from a
range of different backgrounds. We continually strive to provide
the most flexible employment policies to enable all our employees
to have a fulfilling career supported by family-friendly policies.
The Board currently comprises two female Directors and five male
Directors, equivalent to 29% female representation. Below Board
level in the Executive Committee there are two female ExCo
members and six male ExCo members equivalent to 25% female
representation. Direct reports of the Executive Committee are 43%
female and 57% male.
When recruiting, the Company has always considered all aspects
of diversity during the process. The Company is very mindful of
the need to strive to create as diverse a Company as possible, and
to create as many opportunities as possible for nurturing emerging
female talent. The Company always ensures there is a selection of
candidates who have a good balance of skills, knowledge and
experience. The Committee places particular value on experience
of operating in a listed company, experience of the real estate,
retail and leisure sectors, with financial or real estate training. The
Company aims to recruit the best candidates on the basis of their
merit and ability.
Composition of the Board during the year
Independent Directors
Executive Directors
Non-Executive Chairman
(Independent)
Length of Directors’ tenure
Less than three years
Three to six years
Seven to ten years
Director’s core area of expertise
Real Estate
Finance
3
3
1
2
2
3
4
3
NewRiver REIT plc Annual Report and Accounts 2020
87
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
REMUNERATION COMMITTEE
REPORT
We have ensured that there is
consistency of approach across the
entire workforce, including the
Executive Directors, and that
for the most senior executives
we have reflected the recent
shareholder experience.
Introduction
Dear shareholders,
On behalf of the Board, I am pleased to present the Remuneration
Committee Report for the financial year ended 31 March 2020
(FY20). In this statement I have summarised the link between
remuneration and strategy, the proposed changes to the
Directors’ Remuneration Policy for FY21-FY23, the performance
and decisions on remuneration for FY20 and the operation of the
policy in FY21.
It has been a busy year for the Committee. In addition to the
normal business of the Committee, we have conducted a detailed
review of the Remuneration Policy.
The end of our financial year has been impacted by the COVID-19
pandemic and this has affected our financial performance, share
price and our dividend policy. First and foremost we have
considered the welfare of our workforce and stakeholders and
taken steps to ensure that we are doing as much as possible in
this regard. In relation to remuneration, we have ensured that
there is consistency of approach across the entire workforce,
including the Executive Directors, and that for the most senior
executives we have reflected the recent shareholder experience
of the low share price and cancelled fourth quarter dividend.
As a Committee we have used discretion to reduce the value of
the FY20 annual bonus to nil and we have temporarily reduced
base salaries for the Board and senior management, with the
waived salaries donated to charity.
Proposed changes to the Directors’
Remuneration Policy
Our current Remuneration Policy was approved by shareholders
in July 2017. Whilst we believe that the current Remuneration
Policy has worked well, we are proposing some changes in
order to bring the structure of our policy and Executive Directors’
contractual entitlements in line with the updated UK Corporate
Governance Code, latest best practice and evolving
investor views.
Set out below is a summary of our proposed policy changes:
Pension
Company pension contributions for future Executive Directors will
be set in line with most of the UK workforce, currently 4% of salary.
We have reviewed pension arrangements for existing Executive
Directors, considering the overall remuneration package and
believe that current company pension contributions of 15% of base
salary are appropriate for this policy period. However, as part of
this policy approval we will, at the end of the policy period, reduce
the pension rate for Executive Directors so that it matches the
percentage rate applied to the majority of the workforce. New
Executive Directors would have pension rates in line with the rate
applying to the majority of the workforce.
Annual Bonus
The current remuneration policy on bonus deferral gives the
Remuneration Committee the discretion to apply bonus deferral.
Over the past three years, 30% of the bonus has been deferred
into shares for two years. The proposed policy has been tightened
to make this deferral mandatory.
The Remuneration Committee has always reviewed wider
business performance when determining bonus outcomes and,
where appropriate, has operated discretion to reduce the
formulaic pay-out (as the Committee did for the FY20 bonus). The
new policy again tightens our approach further by building in a
specific provision for the Committee to override a formula
based outcome.
Performance Share Plan
The current policy gives the Remuneration Committee the
discretion to apply a two-year holding period on vested awards.
The proposed policy will make this mandatory. In line with normal
practice the shares subject to the holding period are not subject to
an ongoing service requirement.
In addition, Executive Directors will no longer be eligible for grants
of Executive Share Options. Share Options have not been granted
to Executives under this plan for several years.
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NewRiver REIT plc Annual Report and Accounts 2020
The provision whereby performance conditions may be waived
has been removed.
Discretion and recovery provisions
Our clawback and malus provisions have been broadened to
cover additional events such as corporate failure and serious
reputational damage, in line with the 2018 UK Corporate
Governance Code and the discovery period has been extended
from two years to three. The Remuneration Committee will retain
the discretion to adjust the formulaic outcomes of incentive
awards to take into consideration broader performance factors
and exceptional circumstances. Our policy wording will be
updated to reflect these new additions. Plan rules and bonus and
LTIP award documentation will also be reviewed to ensure the
provisions are watertight and enforceable.
Shareholding requirements
The shareholding requirement for the CFO will be increased from
100% to 200% of base salary so that it is aligned with the CEO’s
requirement. The new policy will clarify that Executive Directors
must retain at least half of the net shares vested under the
deferred annual bonus and the PSP until the shareholding
requirement is met. The five-year period to achieve the
requirement will now be removed, although there will remain
strong encouragement for Executives to continue to accumulate
shares on a regular basis.
A post-cessation of employment shareholding will be introduced.
After employment, Executive Directors will be required to retain
the lower of the shareholding requirement during employment or
actual shareholding at cessation for one year and in the second
year, Executive Directors will be required to hold the lower of the
actual shareholding at cessation or half of the shareholding
requirement during employment.
Service Contracts
For historic reasons, there are several unusual features in the
service contracts of the Chief Executive, Chief Financial Officer
and Executive Deputy Chairman, including
– A payment in lieu of notice (PILON) clause of 125% of base
salary, with no requirement to mitigate
– A change of control provision whereby if employment is
terminated within 12 months (other than for cause) or the
executive is constructively dismissed, the executive receives
125% of salary + pro rata bonus plus an amount equal to annual
average of last 3 years’ bonus
– Early payment of bonus if a good leaver
These clauses will be removed with no compensation paid so that,
in line with normal market practice there will be
– A 12 month notice period (each way)
– A company discretion to break the contract by invoking a
PILON and paying 12 months base salary, pension and
benefits in 12 monthly instalments (subject to offset against
earnings elsewhere)
– No different ‘change of control’ provisions
– Standard good/bad leaver provisions in the incentive plan rules
(performance conditions always applicable and usually scale
back on a time pro rata basis) – no ‘early vesting’ except for
death in service, or serious ill-health
Performance in FY20 and incentive plan
payments
During the year the management team continued to deliver robust
performance against operational metrics and made good progress
with the Company’s strategies, although their implementation was
impacted by political uncertainty, particularly in the second half,
and the impact of the COVID-19 pandemic in March 2020. The
Company’s financial performance was also relatively robust,
against a challenging market backdrop which worsened in March
2020 amid the COVID-19 pandemic.
Underlying Funds From Operations (‘UFFO’) were £52.1 million,
compared to £55.1 million in the previous year, mainly due to the
impact of £2.8 million of lost income and provisions relating to
COVID-19, and the challenging operating market.
The Company paid three quarterly dividends of 5.4 pence per
share during the year. In March 2020, the decision was taken not
to pay a fourth quarter dividend due to the impact of COVID-19 on
the Company’s operations. The final dividend in respect of the
year ended 31 March 2020 was therefore 16.2 pence per share,
which is 105% covered by UFFO. The Company’s EPRA net asset
value per share was 201 pence per share at 31 March 2020 (31
March 2019: 261 pence), predominantly due to a –12.3% decline in
portfolio valuation.
The Committee reviewed the results against the performance
targets set for the annual bonus and Performance Share Plan,
which were set to align the Directors’ remuneration with strategy
and shareholders’ interests.
Annual bonus FY20
For the annual bonus the Committee set two growth-based
targets, which rewarded outperformance in terms of Total Property
Return against the IPD All-Retail (50% of salary) and earnings yield
against the Company’s peers (30%). Other performance conditions
related to maintaining the Group’s financial discipline (20%) and
personal performance (25%) resulting in a total potential bonus of
125% of salary
In relation to the targets that were set, our Total Property Return
outperformed the IPD All-Retail benchmark by 45%, which resulted
in a full achievement against that measure and an indicative pay
out of 50% of salary. Our earnings yield was similarly positive, as
we ranked 1st out of the 22 companies in our peer group.
However, our relatively high yield was primarily due to a fall in
NAV performance over the year and particularly towards the end
of the year as a result of COVID-19. So whilst this would have
meant that the target had been achieved in full and delivered an
indicative pay out of 30% of salary, the Committee would have
used discretion on this particular aspect of the performance
criteria to reduce the payment level, had it not been for the fact
that overarching discretion has been used to reduce the total
bonus payment to nil (see later). Our financial discipline was
NewRiver REIT plc Annual Report and Accounts 2020
89
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
relatively strong across a variety of KPIs, resulting in an indicative
pay out of 10.63% of salary out of 20%. Personal performance was
strong, with Allan Lockhart and Mark Davies receiving an indicative
pay out of 18.75% of salary. Based on individual performance and
achievement of the targets, bonuses of just over 100% of salary
were due to be awarded to Allan Lockhart and Mark Davies, out of
the 125% of salary maximum.
However, in light of the shareholder experience over the year the
Committee, with the agreement of the executives, has used its
discretion to determine that no annual bonus should be payable to
Executive Directors. Furthermore, the Committee has reviewed
the measures set as part of the policy review so that there is a
stronger link to the absolute performance of the business (rather
than relative to peers) and which should reduce the likelihood of
needing to use significant discretion to reduce the bonus to an
appropriate level, as has happened in each of the past two years.
LTIP 2017 – 2020
The 2017 PSP award due to vest in 2020 by reference to
performance over the previous three years was based on relative
Total Shareholder return (TSR) against the FTSE All Share Index
and relative Total Accounting Return (TAR) against a sector peer
group. Both measures are unlikely to achieve the minimum
performance threshold, based on performance to date, so the
award will lapse.
Accordingly, overall incentive payments for the year will be nil.
Implementation of the new policy for FY21
Base salary and response to COVID-19
As an owner and operator of community assets throughout the
UK, NewRiver has experienced first-hand the very significant
impact that the Coronavirus (COVID-19) pandemic has had on
people across the country. NewRiver has also seen the
extraordinary contributions made by our teams, customers,
occupiers, advisers, and other stakeholders, to support those who
are most in need.
In recognition of these circumstances, the Board of Directors have
waived 20% of their base salaries or fees for three months
effective from 1 May 2020, which will be donated to NewRiver’s
corporate charity partner, the Trussell Trust. The Trussell Trust’s
vital work supports over 1,200 food banks across the UK, while
campaigning to ensure everyone can afford their own food.
At such time as the immediate impact of COVID-19 eases we
anticipate that base salaries would be reinstated at their current
levels and there will be no further increase to base salary for the
remainder of FY21.
Annual bonus
We have simplified the mix of measures for the annual bonus plan
so that it is better aligned to the business strategy, focused on the
business priorities and provides a more robust link between pay
and performance: we currently intend that 20% will be based on
TAR versus the relevant IPD benchmark, 30% on Underlying
Funds From Operations, 25% on Loan to Value and 25% on
individual strategic objectives and we have reduced the amount of
bonus payable at target for each measure, from 60% to 50%. We
will take great care when we confirm the measures and set the
targets and when we assess their achievement at the year-end, to
ensure that any bonus payments for FY21 are consistent with the
bonus payments for the workforce and the experience over the
year of our shareholders and other stakeholders. There will be a
full narrative of the Committee’s approach in next year’s Directors’
Remuneration Report.
Long Term Incentive Plan
We intend to grant awards after the 2020 AGM and we will
consider the grant levels carefully in light of the share price
prevailing at the time of grant and add additional provisions to
ensure that executives cannot benefit from what the Committee
considers to be a windfall gain should the share price recover
strongly immediately following COVID-19.
Following a careful review of performance conditions we had
intended to include a measure based on absolute Total
Accounting Return (TAR). However, in light of the very significant
market uncertainty, which makes the setting of accurate long term
absolute targets very difficult, the Committee has decided that,
whilst there should be flexibility in the policy to move to a different
measure in the future, the FY21 awards should remain based 50%
on Total Shareholder return (TSR) and 50% based on relative TAR
compared to a sector peer group. In order to provide a closer link
to the performance of the sector (and to avoid any windfall if the
sector as a whole bounces back against the FTSE Index more
generally), the TSR condition will use the same sector peer group
as is used for the relative TAR performance measure, instead of
the FTSE All Share Index.
Closing remarks
I would like to thank my fellow Committee members for their hard
work and support during this busy year. I hope that you find the
report helpful and informative and I look forward to your support at
the AGM in relation to our approach to Directors’ pay.
Kay Chaldecott
Committee Chairman
18 June 2020
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NewRiver REIT plc Annual Report and Accounts 2020
Remuneration at a glance
FY2020 Annual Bonus Performance
FY18-20 Performance Share Plan
Measure
Achievement (% of max)
(Long-Term Incentive)
Relative TSR vs. FTSE All
Share Index
Relative Total Accounting
Return vs. peer group
Total
0%
0%
0%
Corporate (80% weighting)
Measure
Achievement (% of max)
H
T
W
O
R
G
D
E
S
A
B
Total return vs IPD All retail
Earnings yield (FFO)
I
L
A
C
N
A
N
F
I
E
N
I
L
P
C
S
D
I
I
LTV
Gearing
Interest cover
Dividend cover
100%
100%
25%
25%
100%
63%
Personal (20% weighting)
Measure
Achievement (% of max)
Personal objectives
75%
(Committee discretion used to reduce bonus to zero)
Executive Pay in FY2020
)
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
1,000k
750k
500k
250k
0
2020
2019
2020
2019
2020
2019
Allan Lockhart
Mark Davies
David Lockhart
Salary
Benefits
Pension
Annual
bonus
Long-term
Incentive
New three-year remuneration policy: Key
changes
– Compulsory bonus deferral and LTIP post-vesting
holding period.
– Discretionary override to reduce incentive payments.
– Executive pensions to reduce.
– Simpler updated service contracts.
– Stronger clawback provisions.
– Higher shareholding requirement for CFO.
– Post employment shareholding requirement.
Implementation of policy in FY21
Base Salaries
– Salaries have been frozen:
– Allan Lockhart: £470,000
– Mark Davies: £408,000
– David Lockhart: £395,000
Benefits
Pension
– No change
– 15% of salary
Annual Bonus
– Maximum opportunity 125% of salary
– Performance conditions: (to be confirmed)
– 20% relative TAR
– 30% Underlying Funds From
Operations
– 25% Loan to Value
– 25% individual objectives
– 30% deferred into shares for 2 years
– Grant levels will not exceed 100% of salary
– Performance conditions:
– Relative TSR (50%)
– Relative TAR (50%)
– 2 year post-vesting holding period applies
Long Term
Incentive Plan
Shareholding
requirements
– 200% of salary
NewRiver REIT plc Annual Report and Accounts 2020
91
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
RE M UNE RATION C OMMI TT EE RE POR T
Remuneration Policy
In accordance with the remuneration reporting regulations, the remuneration policy as set out below is intended to apply, subject to
shareholder approval at the 2020 AGM to be held on 14 August 2020, for a period of up to three years from that date.
The changes to the current Policy are set out in the Chairman’s statement with the rationale and are summarised here:
Pension
New Executive Directors would have pension rates in line with the rate applying to the majority of the workforce.
At the end of the policy period, the pension rate for Executive Directors will reduce so that it matches the percentage rate applied to the
majority of the workforce.
Annual Bonus
The policy will require that 30% of any bonus will be payable in shares, deferred for three years.
The target level of the annual bonus has reduced from 60% to 50% of the maximum. The maximum level payable for threshold
performance has increased from 20% to 25% of the maximum.
Performance Share Plan
The current policy gives the Remuneration Committee the discretion to apply a two-year holding period on vested awards. The proposed
policy will make this mandatory.
Executive Directors will no longer be eligible for grants of Executive Share Options.
The provision whereby performance conditions may be waived has been removed.
Discretion and recovery provisions
Clawback and malus provisions have been broadened to cover additional events such as corporate failure and serious reputational
damage and the discovery period has been extended from two years to three.
The Remuneration Committee will have specific discretion to adjust the formulaic outcomes of incentive awards.
Shareholding requirements
The shareholding requirement for the CFO will be increased from 100% to 200% of salary.
The new policy will clarify that Executive Directors must retain at least half of the net shares vested under the deferred annual bonus and
the PSP until the shareholding requirement is met. The five-year period to achieve the requirement will now be removed, although there
will remain strong encouragement for Executives to continue to accumulate shares on a regular basis.
A post-cessation of employment shareholding will be introduced. After employment, Executive Directors will be required to retain the
lower of the shareholding requirement during employment or actual shareholding at cessation for one year and in the second year,
Executive Directors will be required to hold the lower of the actual shareholding at cessation or half of the shareholding requirement
during employment.
Service Contracts
For historic reasons, there are several unusual features in the service contracts of the Chief Executive, Chief Financial Officer and
Executive Deputy Chairman. These clauses will be removed with no compensation paid so that, in line with normal market practice there
will be
– A 12 month notice period (each way).
– A company discretion to break the contract by invoking a PILON and paying 12 months base salary, pension and benefits in 12 monthly
instalments (subject to offset against earnings elsewhere).
– No different ‘change of control’ provisions.
– Standard good/bad leaver provisions in the incentive plan rules (performance conditions always applicable and usually scale back on a
time pro rata basis) – no ‘early vesting’ except for death in service, or serious ill-health.
Considerations in relation to the Policy Review
When reviewing the remuneration policy, the Committee considered a wide range of factors, including
– Where practicable improving the consistency of the Executive Directors’ remuneration policy with that of the workforce, for example in
relation to the pension provision.
– Taking into account the latest guidance from our institutional shareholders, investor representative bodies, regulators and
statutory requirements.
– The overall market competitiveness of the senior executives’ packages
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NewRiver REIT plc Annual Report and Accounts 2020
In addition to the decision making process set out above, the Committee addressed the following factors when determining the
remuneration policy and practices, as recommend by the UK Corporate Governance Code:
Principle
Committee approach
Clarity – remuneration arrangements should be transparent
and promote effective engagement with shareholders and
the workforce.
– As noted above there is a consistent approach taken, where
possible, in relation to the application of the remuneration
policy throughout the Company. For instance all employees
participate in an annual bonus plan and the PSP.
– During the year we will be consulting with employees to explain
how the new policy for executive directors aligns with the pay
and conditions of the workforce other than, for instance, where
there are more stringent requirements in the Executive
Directors’ policy for corporate governance reasons.
Simplicity – remuneration structures should avoid complexity and
their rationale and operation should be easy to understand.
– The components of our remuneration policy are consistent
throughout the Company so they are simple to operate
and communicate.
Risk – remuneration arrangements should ensure reputational
and other risks from excessive rewards, and behavioural risks
that can arise from target-based incentive plans, are identified
and mitigated.
– We look carefully at the range of likely performance outcomes
when setting performance target ranges and use discretion
where this leads to an inappropriate pay outcome
– Bonus deferral, holding periods on PSP awards, shareholding
requirement and clawback and malus provisions all help to
mitigate risk.
Predictability – the range of possible values of rewards to
individual directors and any other limits or discretions should be
identified and explained at the time of approving the policy.
– Incentive plans are determined based on a proportion of base
salary so there is a sensible balance between fixed pay and
performance-linked elements.
– There are provisions to override the formula driven outcome of
incentive plans and deferral and clawbacks to minimise the
likelihood of a poor link between reward and performance.
Proportionality – the link between individual awards, the delivery
of strategy and the long-term performance of the company should
be clear. Outcomes should not reward poor performance.
– Incentive plans are determined based on a proportion of base
salary so there is a sensible balance between fixed pay and
performance-linked elements.
Alignment to culture – incentive schemes should drive
behaviours consistent with company purpose, values
and strategy.
– There are provisions to override the formula driven outcome of
incentive plans deferral and clawbacks to ensure that poor
performance is not rewarded.
– Bonus plans operate widely throughout the Company and are
all approved by the Committee to ensure consistency with
Company purpose, values and the performance measures are
linked to the business strategy.
NewRiver REIT plc Annual Report and Accounts 2020
93
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
Remuneration Policy Table
Executive Directors
Element
Purpose &
Link to Strategy
Fixed
Salary
Market competitive
remuneration base
reflecting role,
responsibilities, skills and
experience.
Pension
To provide competitive
post-retirement benefits.
To assist with recruitment
and retention.
Benefits
To provide a competitive
and cost-effective
benefits package.
To assist with recruitment
and retention.
Operation
Maximum
Performance
Target
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.
The Company currently
contributes 15% of base salary for
all existing 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
for existing Executive Directors.
This will reduce to the rate
applicable to the majority of the
workforce at the end of the
policy period.
Future Executive Directors will
receive Company contributions
in line with the UK workforce,
currently 4% of base salary.
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 applicable
Not applicable
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NewRiver REIT plc Annual Report and Accounts 2020
Executive Directors
Element
Purpose &
Link to Strategy
Operation
Maximum
Awards of annual bonus are made
pursuant to the Annual Bonus Plan.
The maximum bonus
is 125% of salary.
Performance
Target
All measures and
targets relate to a
financial year of the
Company and are
reviewed on an
annual basis.
At least 50% of the
bonus will be subject
to financial
performance
conditions.
On target
performance would
result in a bonus
payment of 50% of
maximum bonus.
Threshold
performance would
result in bonus
payment of up to 25%
of maximum bonus.
Variable
Bonus
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 aligns directors’
interests with those of
shareholders and to
discourage short term
decision making.
Performance
Share Plan
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.
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 adjust 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.
Thirty percent of the bonus must be
deferred into shares for two years.
Vesting of the deferred shares will be
subject to continued employment.
The value of the bonus does not
contribute to the pensionable salary.
Clawback and malus provisions apply.
Discretionary grant of nil-cost options.
Awards normally vest three years from
the date of award.
Vesting of awards is subject to
satisfaction of performance targets
normally measured over a
three-year period.
The Committee has discretion to
determine the applicable performance
targets and their weightings to ensure
they are appropriate. Performance
conditions will be based on financial
and stock market based measures.
A holding period of two years will
apply following vesting before
participants are entitled to sell
their shares.
Clawback and malus provisions apply.
The maximum award
level permitted under
the 2016 PSP plan
rules and this policy is
200% of salary. The
normal annual award
is 100% of salary for
all Executive
Directors.
Awards would not be
increased above
100% of base salary
without prior
consultation with
shareholders.
25% of the award is
payable at threshold
performance.
Performance targets
will apply in respect
of a performance
period which will not
be less than three
years.
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.
NewRiver REIT plc Annual Report and Accounts 2020
95
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
Executive Directors
Element
Purpose &
Link to Strategy
Variable
Shareholding
Requirement
To encourage long
term share
ownership and
support alignment of
interests with
shareholders.
Performance
Target
Not applicable
Operation
Maximum
The Company operates a
shareholding requirement which
is subject to periodic review.
At least half of the net shares
vested under the deferred
annual bonus and the LTIP must
be retained until the
shareholding requirement is met.
After employment, shares that
have been purchased voluntarily
may be excluded from the
post-cessation shareholding
requirement.
During employment, Executive
Directors must build up a
shareholding worth 200%
of salary.
After employment, Executive
Directors will be required to
retain the lower of the
shareholding requirement during
employment or actual
shareholding at cessation for one
year. In the second year,
Executive Directors will be
required to hold the lower of the
actual shareholding at cessation
or half of the shareholding
requirement during employment.
The Committee has the
discretion to relax this
requirement in exceptional
circumstances (e.g. serious
ill-health).
Maximum
Fee increases are applied in line
with outcome of the review.
Performance
Target
Not applicable
Chairman and Non-Executive Directors
Operation
Element
Purpose &
Link to Strategy
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 in connection
with the fulfilment of their roles
are reimbursed (including any
personal tax due on such
expenses).
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NewRiver REIT plc Annual Report and Accounts 2020
Notes on the remuneration policy table
Dividend equivalents
Dividend equivalent shares will be added on to unvested awards
under the 2016 DBP and the 2016 PSP on a reinvested basis,
although this can be calculated in an alternative manner at the
discretion of the Committee.
Malus and clawback
In the event of gross misconduct, or the material misstatement of
financial information, or if an error is discovered in the calculation
of any incentive plan payments, or where there has been an issue
in relation to the company’s reputation, or corporate failure, the
Committee has discretion to exercise malus and clawback
provisions in respect of all cash bonus and share awards. The
Committee may reduce the vesting of awards prior to vesting and/
or require the repayment or reimbursement of awards which have
already vested and been exercised across all incentive plans.
The Committee may operate clawback on the terms stated above
during the 36 months following the payment date of the annual
bonus or vesting date of an award granted on the terms of the
2016 PSP.
Discretion
The committee may amend the remuneration policy to
accommodate minor changes for administrative or
legislative purposes.
In relation to the operation of the incentive plans there are
discretions contained within the rules to allow committee
discretion over events such as a change of control or a
capital reorganisation.
Consideration of shareholders’ views
The Committee’s policy is to consult with major Shareholders in
respect of significant decisions on executive remuneration and
has done so regularly.
During the year the Committee consulted extensively in relation to
the new remuneration policy and investor feedback helped shape
the proposals, particularly in relation to our approach to executive
pension provision.
How wider employee pay was considered
during the policy review
The Committee considered carefully the pay and conditions in the
workforce generally, as part of its review of the Directors’
remuneration policy. While there has not yet been any
engagement between the Remuneration Committee and
workforce, the Company has set up a staff forum for the Board to
consult and it is the intention of the Committee to consult with the
forum later in the year to explain how executive pay aligns to that
of the workforce.
participate in the annual bonus plan and Performance Share Plan
and we have a consistent approach in relation to benefits. As
noted elsewhere the pension provision will be aligned by the end
of the policy period.
Service Contracts and payments for loss
of office
Executive Directors have signed new service contracts terminable
by either party giving the other 12 months’ written notice. If notice
is served by either party, the Executive Director may continue to
receive base salary, benefits and pension for the duration of their
notice period during which time the Company may require the
individual to fulfil their current role or may place the individual on
garden leave. The Committee will seek to minimise the level of
payments to a departing Director, having regard to all
circumstances, including the Company’s contractual obligations to
the Director, the reason for departure, and the Company’s policy
on mitigation.
The Company may elect to make a monthly payment of base
salary, plus an amount in lieu of benefits/pension contribution/
equivalent or just base salary, in lieu of notice. Any payments in
lieu of notice would be phased monthly and subject to offset
against earnings elsewhere. Reasonable outplacement and legal
costs may be payable.
Where a Director may be entitled to pursue a claim against the
Company in respect of his/her statutory employment rights or any
other claim arising from the employment or its termination, the
Committee will be entitled to negotiate settlement terms with the
Director that the Committee considers to be reasonable in the
circumstances and is in the best interests of the Company, and to
enter into a settlement agreement with the Director.
In addition to the contractual provisions regarding payment on
termination set out above, the Group’s incentive plans and share
plans contain provisions relating to termination of employment.
Good leaver provisions relate to termination of office or
employment by reason of death, ill-health, injury, incapacity or
disability of the award holder, redundancy or sale or transfer out of
the Group or the Company or undertaking employing that
employee, or any other circumstances stipulated by the
Committee at the date of award.
For any good leaver the approach in relation to the incentive plans
will be as follows:
Annual bonus: bonus may be payable pro-rata for the portion of
the year worked. Outstanding deferred bonus awards would be
retained and would vest at the usual time.
PSP awards: awards would vest at the usual time subject to the
achievement of the performance conditions and would normally
be scaled back pro-rata for the extent of the vesting period
completed at cessation of employment (unless in exceptional
circumstances the committee determines that the award should
not be scaled back). The two year post vest holding period would
usually continue to apply.
Generally the policy for Executive Directors is rolled out on a
consistent basis throughout the workforce. All salaried staff
If an Executive Director is not deemed to be a good leaver, all
bonus entitlements and LTIP awards would normally lapse.
NewRiver REIT plc Annual Report and Accounts 2020
97
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
Non-Executive Directors’ letters of appointment incorporate a
notice period of 3 months.
No payment for compensation for loss of office will be made to
the Chairman or any Non-Executive Director other than where
the Company determines that fees for the notice period should
be paid.
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.
The details of the service contracts for Executive Directors and
Letters of Appointment for the Non-Executive directors are
summarised below:
Ongoing benefits, pension provisions, annual bonus participation
and awards under both the DBP and the PSP will be in line with
those stated in the policy.
Executive
Directors
Date of Appointment
Allan Lockhart
18 August 2016
Mark Davies
18 August 2016
David Lockhart
Margaret Ford
Colin Rutherford
Kay Chaldecott
Alastair Miller
18 August 2016
1 September 2017
5 February 2019
18 August 2016
18 August 2016
Expiry date of service
agreement of letter of
appointment
12 month rolling
contracts
6 month rolling
contract
3 month rolling
contracts
The service agreements are available to shareholders to view at
the Company’s Registered Office on request from the Company
Secretary and at the Annual General Meeting.
External Directorships and Memberships
Executive Directors may 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.
Different performance measures may be set for any initial awards
under the ABP and PSP considering 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.
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 Listing Rule
9.4.2R if necessary to do so. In doing so, the Committee will 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.
Non-Executive directors will be recruited on the basis of a Letter of
Appointment with a three month notice period.
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NewRiver REIT plc Annual Report and Accounts 2020
Illustration of Remuneration Policy
The charts below illustrate the remuneration opportunity provided to each Executive Director in line with the policy at different levels of
performance for the FY21 financial year. Four scenarios have been illustrated for each Executive Director:
Allan Lockhart
2,000k
1,500k
1,000k
500k
£543k
100%
£954k
12.3%
30.8%
56.9%
£1,601k
29.4%
£1,836k
12.8%
25.6%
Mark Davies
2,000k
1,500k
36.7%
32.0%
1,000k
33.9%
29.6%
500k
£471k
100%
£1,389k
29.4%
£1,670k
12.8%
25.6%
36.7%
32.0%
33.9%
29.6%
£879k
12.3%
30.8%
56.9%
Minimum
On Target
Maximum
Maximum with
Share Price
Increase
Minimum
On Target
Maximum
Maximum with
Share Price
Increase
David Lockhart
2,000k
1,500k
1,000k
500k
£466k
100%
£466k
100%
29.4%
£466k
100%
29.4%
£466k
100%
Minimum
On Target
Maximum
Maximum with
Share Price
Increase
Fixed
Bonus
PSP
Share price appreciation
1. Minimum performance:
– comprising the minimum remuneration receivable (being normal base
salary (before the temporary waiver), pension and benefits calculated using
the 2019/20 figures;
2. On target performance:
– comprising fixed pay, annual bonus payment at 50% of the maximum
opportunity and long-term incentive awards vesting at 25% of
maximum opportunity;
3. Maximum performance:
– comprising fixed pay, 100% of annual bonus and 100% vesting of long-term
incentive awards, and
4. Maximum performance with share price increase:
– comprising fixed pay, 100% of annual bonus and 100% vesting of
long-term incentive awards with the value increased for share price
appreciation of 50%.
NewRiver REIT plc Annual Report and Accounts 2020
99
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
Remuneration Report
This section sets out how the Directors’ Remuneration Policy was implemented during the financial year ended 31 March 2020. Where
stated, disclosures regarding Director’s remuneration have been audited by the Company’s external auditor PwC. This section, together
with the Chairman’s Statement, is subject to an advisory vote at the 2020 AGM.
Remuneration Committee Attendance
The Remuneration Committee meets at least four times a year, together with ad-hoc meetings when required. It met six times during the
year and attendance was as follows:
Committee Members
Attendance
Kay Chaldecott: Committee Chairman
Alastair Miller
Margaret Ford
Colin Rutherford
6/6
6/6
6/6
6/6
The Chief Executive Officer and Head of HR were invited to attend all or part of the meetings as relevant. These individuals were not
present when their own remuneration was discussed. The Company Secretary acts as secretary to the Committee.
Role of the Remuneration Committee
The role of the Remuneration Committee is to establish a formal and transparent procedure for developing and implementing the
remuneration policy. The Policy should have regard to the risk appetite of the Company and Executive remuneration should be aligned to
the Company’s purpose and values and be clearly linked to the successful delivery of the Company’s long term strategy. The Committee
also reviews the remuneration of the Chairman and senior executives below Board level.
Other main responsibilities of the Committee are to:
– ensure that the Directors and executive management are provided with appropriate incentives to encourage enhanced performance
and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Company and to align their
interests with those of Shareholders;
– attract, retain and motivate Directors and executive management of the quality required to run the Company successfully without
paying more than is necessary, having regard to views of Shareholders and other stakeholders;
– review and have regard to workforce remuneration and related policies and the alignment of incentives and rewards with culture,
taking these into account when setting remuneration policy for Directors and especially when determining annual salary increases;
– consider the objectives, annual pay and targets for the Directors and executive management; and
– review the operation of the Group’s share incentive schemes and the granting and vesting of the schemes.
Any potential conflicts of interest are managed carefully. No Director is present when their own remuneration is being discussed and
Committee papers are redacted where appropriate to avoid individuals seeing proposals before they are discussed by the Committee.
Each meeting minutes whether there are any potential conflicts for any members or attendees.
Focus of the Remuneration Committee during FY20
The Committee focussed on the following items within its remit during the year
– review and development of the remuneration policy to be put to shareholders at the AGM in 2020;
– reviewing and approving the Committee terms of reference to comply with the 2018 Code;
– reviewing the wider workforce arrangements and pay policies and reviews;
– tracking and updating on the shareholder consultation process;
– reviewing incentive plan performance conditions;
– approving the remuneration report; and
– considering carefully the impact of the COVID-19 pandemic on the application of the remuneration policy
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NewRiver REIT plc Annual Report and Accounts 2020
Remuneration Committee Advisor
The Committee keeps itself fully informed on developments and best practice in the field of remuneration and it seeks advice from
external advisers when appropriate. The Committee appoints its own independent remuneration advisers and appointed Korn Ferry in
2018 following a competitive process. During the year the Committee continued to retain the services of Korn Ferry. Korn Ferry is a
member of the Remuneration Consultants Group and signatory to its Code of Conduct which can be found at
www.remunerationconsultantsgroup.com. During FY20 Korn Ferry did not provide any other services to the Company. Fees charged by
Korn Ferry were on a time and materials basis and totalled £60,126 in the year ended 31 March 2020. The Committee reviews the
performance and independence of its advisers on an annual basis and is satisfied that the advice provided is objective and independent.
Total remuneration payable to Directors for FY20 (audited)
The following tables show a single figure total of remuneration for the year ended 31 March 2020 for each of the Directors and compares
this figure to the prior year.
Executive Directors
Allan Lockhart
Mark Davies
David Lockhart
Financial
Year
2020
2019
2020
2019
2020
2019
Salary £
Benefits1 £
Pension £
Subtotal for
fixed pay £
Cash
bonus £2
470,000
466,250
408,000
408,000
395,000
399,583
2,739
2,784
1,930
2,000
11,400
12,000
70,500
69,938
61,200
61,200
59,250
59,938
543,239
538,972
471,130
471,200
465,650
471,521
–
261,100
–
228,480
–
–
Value of
bonus
deferred
into
shares £2
–
111,900
–
97,920
–
–
Long-term
incentive
plans3 £
Subtotal
for variable
pay £
–
–
–
–
–
–
–
373,000
–
326,400
–
–
Total £
543,239
911,972
471,130
797,600
465,650
471,521
1. Benefits are the Director’s private medical cover.
2. The Committee used discretion to reduce the value of the 2020 bonus (cash and shares) to zero and the Committee also used discretion to reduce the pay-out level
of the 2019 bonus.
3. Although the performance period has not quite finished it is currently estimated that the LTIP awards will not meet the minimum performance hurdle and will lapse.
Non-Executive Directors
Margaret Ford1
Kay Chaldecott
Alastair Miller
Colin Rutherford2
Financial Year
Base Fee £
Audit Committee
Chairman £
Remuneration
Committee
Chairman £
Senior Independent
Non-Executive
Director £
2020
2019
2020
2019
2020
2019
2020
2019
160,000
105,000
50,000
50,000
50,000
50,000
50,000
7,628
–
–
7,500
7,500
–
–
7,500
7,500
–
–
3,750
–
7,500
3,750
–
1. Margaret Ford appointed Chairman effective from 1 October 2018, having previously served as Senior Independent Non-Executive Director.
2. Colin Rutherford was appointed on 5 February 2019.
Salaries
Salaries for Executive Directors remained unchanged during FY20.
Allan Lockhart – Chief Executive Officer
Mark Davies – Chief Financial Officer
David Lockhart – Executive Deputy Chairman
Fees
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
Total £
160,000
108,750
57,500
57,500
65,000
61,250
50,000
7,628
£470,000
£408,000
£395,000
£160,000
£50,000
£7,500
£7,500
NewRiver REIT plc Annual Report and Accounts 2020
101
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
Annual bonus for the year to 31 March 2020 (Audited)
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 % awarded
(before application of
Committee discretion)
Allan
Lockhart
Mark
Davies
At index
12.5 % 10% ahead
31.25% 20% ahead
At index
7.5% Top Quartile
18.75%
Top 5
50%
-5.2%
vs -9.8%
30% 1 out of 22
50%
50 %
30%
30%
<50%
<100%
>2x
100%
1.25%
1.25%
1.25%
1.25%
-<40%
<85%
>2.25x
105%
3.125%
3.125%
3.125%
3.125%
<35%
<75%
>2.5x
110%
5%
5%
5%
5%
47%
90%
3.8x
106%
1.25%
1.25%
5%
3.125%
1.25%
1.25%
5%
3.125%
Corporate
Growth based
Total return vs
IPD All Retail
Earnings yield (UFFO) –
comparative*
Financial discipline
LTV
Gearing
Interest cover
Dividend cover
Personal
Personal objectives
Discretionary Discretionary
Good
performance
in line with
expectations
Very strong
performance
See
below
18.75%
18.75%
25%
75%
125%
109.4%
109.4%
Total: % of salary (before
application of discretion)
Amount awarded by
Committee after applying
downward discretion
* The comparator group for earnings yield was the same as for the TAR comparator group disclosed below.
The objectives of the CEO and CFO for the year were:
Objective
Performance
Allan Lockhart
– To focus on delivering a growing and sustainable
income stream and to grow the business to maximise
the benefits of economies of scale.
– To lead the formulation and regular review of the
vision and strategy of the business.
– To ensure that the Company proactively engages with
its stakeholders at all levels of the business.
– To develop the strength and depth of the leadership
qualities within the Senior Management Team.
– Working with the CFO to develop the Group’s Strategy
to deploy capital in FY20 via structured joint ventures.
The company had been challenged by severe sector
headwinds and the impact of COVID-19 felt particularly
in Hawthorn Leisure in the last few weeks of the
Financial Year.
Strategies have been effectively formulated and driven
despite the challenging headwinds.
An extensive programme of shareholder engagement
continues to be delivered.
The Senior Management Team’s capabilities continue to
mature and develop.
The company had been challenged by severe sector
headwinds and the impact of COVID-19 felt particularly
in Hawthorn Leisure in the last few weeks of the
Financial Year.
102
NewRiver REIT plc Annual Report and Accounts 2020
NIL
NIL
Amount awarded
(before
Committee
discretion)
NIL
6.25%
6.25%
6.25%
NIL
Objective
Performance
Mark Davies
– Ensure that the Balance Sheet is adequately
capitalised and we secure an extension of the
unsecured facility to 2024 and maintain our investment
grade rating.
– Maintain strong working relationships with the Groups
bankers, brokers and financial advisors.
– Working with the CEO to ensure pro-active
engagement in the public equity markets in both the
UK and internationally.
– Lead the pub business to deliver income and capital
growth in FY20.
We have maintained our BBB long term rating and ensured
that the Balance Sheet was protected with the advent of
COVID-19.
A continuing programme of meetings and updates with
key bankers and advisors cements the Company’s
strong relationships.
An extensive programmed of stakeholder engagement
continued throughout the year.
This has been a challenging trading year further undermined
by the adverse impact of COVID-19 which resulted in the
closure of the entire Pub Estate on 20 March 2020.
Amount awarded
(before
Committee
discretion)
6.25%
6.25%
6.25%
NIL
In light of the shareholder experience over the year the Committee, with the agreement of the executives, has used its discretion to
determine that no annual bonus should be payable to Executive Directors.
Long-term Incentive Plans (Audited)
Vesting of Performance Share Plan awards
The performance conditions for the 2017 Performance Share Plan award that is capable of vesting on 22 June 2020 are:
Total Shareholder Return (50%)
Total Accounting Return (50%)
Performance
period start
June 2017
1 April 2017
Performance
period end
Minimum hurdle
Maximum hurdle Achieved / estimated
June 2020
31 March 2020
100% of index
100% of index
150% of index
150% of index
Less than 100%
Less than 100%
Although the performance period has not quite finished it is currently estimated that the awards will not meet the minimum hurdle and will
lapse. Full details of the award are contained in the table of directors’ share interests later in this report.
2019 comparative – the single figure table in the FY19 report included an estimate of the value on vesting of the LTIP awards granted in
FY2017 (July 2016 and January 2017). This was due to the fact that the TSR performance period was not completed until after the report
was published. The final TSR performance has now been assessed and, as predicted, the awards lapsed in full. Accordingly, no
restatement of the 2019 single figure of remuneration is required.
PSP awards granted in the year to 31 March 2020 (Audited)
The following Performance Share Plan awards were granted to Executive Directors as nil cost options on 27 June 2019:
Executive
Allan Lockhart
Mark Davies
Value of awards at grant
date* (% salary)
Number of shares
comprising award
% of award vesting
at threshold
£470,000 (100%)
£408,000 (100%)
266,742
231,555
25%
25%
Vesting Period
End Date
27 June 2022
27 June 2022
* The closing price on the day before the grant date has been used to determine the number of shares comprising the award. This was £1.762.
50% of each award may vest based on the Company’s TSR compared to that of companies within the FTSE All Share index.
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 targets for both performance conditions are as follows:
TSR ranking vs. FTSE All Share Index (50% of
award)
Total Accounting Return ranking
vs. UK REITs (50% of award)
Vesting (% of award)1
Below threshold
Threshold
Maximum
Less than Median (50th percentile)
Equal to Median (50th percentile)
Equal to 62.5th percentile
Equal to Upper Quartile (75th
percentile) and above
Less than Median (50th percentile)
Equal to Median (50th percentile)
Equal to 62.5th percentile
Equal to Upper Quartile
(75th percentile) and above
1. Vesting is calculated on a straight line basis between 25%, 75% and 100%.
0
25
75
100
NewRiver REIT plc Annual Report and Accounts 2020
103
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
The TAR comparator group was composed of the companies set out in the list below.
TAR Comparator Group
SEGRO
LAND SECURITIES GROUP
BRITISH LAND
INTU PROPERTIES
GREAT PORTLAND ESTATES
WORKSPACE GROUP
DERWENT LONDON
BIG YELLOW GROUP
UNITE GROUP
TRITAX BIG BOX REIT
CAPITAL & COUNTIES
PROPERTIES
ST MODWEN PROPERTIES
HAMMERSON
SHAFTESBURY
ASSURA
CLS HOLDINGS
LONDONMETRIC PROPERTY
SAFESTORE HOLDINGS
UK COMMERCIAL PROPERTY
REIT
PRIMARY HEALTH
PROPERTIES
GRAINGER
Summary of Directors Interests (audited)
The beneficial interests of the Executive Directors in share awards and share options as at 31 March 2020 are shown in the following
tables.
Allan Lockhart
Plan
Vesting by
Exercise /
share price at
date of award
£
At
31 March 2019
USOP
USOP
PSP
PSP
PSP
DBP
DBP
PSP
PSP
DBP
Vested
Vested
Vested
Vested
Jun 2020
Vested
May 2020
May 2023
Jun 2024
Jun 2021
2.50
2.35
3.40
2.98
3.46
3.42
2.86
2.98
1.77
1.79
192,686
338,000
131,589
164,634
138,292
41,444
55,648
152,800
1,215,093
Dividend
equivalent
shares added
Lapsed
Exercised
At
31 March 2020
–
–
7,334
4,076
16,267
1,026
6,546
17,972
24,173
5,563
82,957
(192,686)
–
(138,923)
(168,710)
–
–
–
–
–
–
–
–
–
–
(42,470)
–
–
(500,319)
(42,470)
–
338,000
–
–
154,559
–
62,194
170,772
290,915
66,952
1,083,392
Granted
–
–
–
–
–
–
–
–
266,742
61,389
328,131
Plan
PSP
PSP
PSP
PSP
DBP
DBP
PSP
PSP
DBP
Vesting by
Vested
Vested
Jan 2022
Jun 2020
Vested
May 2020
May 2023
Jun 2024
Jun 2021
Mark Davies
Exercise /
share price at
date of award
£
At
31 March 2019
Granted
Dividend
equivalent
shares added
Lapsed
Exercised
At
31 March 2020
3.40
2.98
3.34
3.46
3.42
2.86
2.98
1.77
1.80
112,790
144,055
142,396
130,156
39,008
54,620
143,811
–
–
–
–
–
–
–
231,555
53,720
766,836 285,275
6,285
3,566
16,748
15,309
965
6,424
16,914
20,985
4,867
92,063
(119,075)
(147,621)
–
–
–
–
–
–
–
(266,696)
–
–
–
–
(39,973)
–
–
–
–
(39,973)
–
–
159,144
145,465
–
61,044
160,725
252,540
58,587
837,505
Grant Date
Sep 2009
Sep 2011
Sep 2015
Jul 2016
Jun 2017
Jul 2017
May 2018
May 2018
Jun 2019
Jul 2019
Total
Grant Date
Sep 2015
Jul 2016
Jan 2017
Jun 2017
Jul 2017
May 2018
May 2018
Jun 2019
Jul 2019
Total
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NewRiver REIT plc Annual Report and Accounts 2020
David Lockhart
Exercise /
share price at
date of award
£
At
31 March 2019
Granted
Dividend
equivalent
shares added
Lapsed
Exercised
At
31 March 2020
3.40
2.98
3.46
3.42
2.86
2.98
150,388
174,924
146,428
43,882
48,817
168,052
732,491
–
–
–
–
–
–
–
8,381
4,331
17,223
1,086
5,740
19,767
56,528
(158,769)
(179,255)
–
–
–
–
(338,024)
–
–
–
–
–
–
–
–
–
163,651
44,968
54,557
187,819
450,995
Grant Date
Sep 15
Jul 2016
Jun 2017
Jul 2017
May 2018
May 2018
Total
Plan
PSP
PSP
PSP
DBP
DBP
PSP
Vesting by
Vested
Vested
Jun 2020
Vested
May 2020
May 2023
DBP = Deferred Bonus Plan.
PSP = Performance Share Plan.
USOP = Unapproved Share Option Plan.
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.
There were no exercises of awards or market value share options during the year.
Details of the Directors’ shareholdings and rights to shares (audited)
It is the Board’s policy that Executive Directors build up and retain a minimum shareholding in the Company. Under the new remuneration
policy the required shareholding level of the Chief Financial Officer has been increased to 200% of base salary, the same as the
requirement for the Chief Executive Officer. The net of tax value of vested DBP and PSP awards may be counted towards the value of the
executives’ shareholdings.
The beneficial interests of Directors who served during the year, in the shares of the Company are as follows:
Beneficially
owned shares
held at 31
March 2020
Value of
holding as %
of salary*
Unvested DBP
awards held at
31 March
Unvested PSP
awards held at
31 March
Vested DBP
awards held at
31 March
2020**
2020**
2020**
Vested but
unexercised
PSP awards
held at
31 March 2020
Vested but
unexercised
USOP awards
held at
31 March 2020
Unconverted
warrants
held at
31 March
2020
Total held
as at
31 March
2020
Allan Lockhart
Mark Davies
David Lockhart
Margaret Ford
Kay Chaldecott
Alastair Miller
Colin Rutherford
256,611
243,587
1,855,000
50,640
39,445
35,956
–
33%
36%
280%
–
–
–
–
129,146
119,631
54,557
–
–
–
–
616,246
717,874
351,470
–
–
–
–
–
–
–
–
–
–
–
–
–
44,968
–
–
–
–
338,000
–
–
–
–
–
–
– 1,340,003
– 1,081,092
– 2,305,995
50,640
–
39,445
–
35,956
–
–
–
* based on the closing share price of 59.7p as at 31 March 2020 and salary for 2020/21. Shareholding guidelines, under the new policy, require the CEO and CFO to
hold a minimum number of shares with a value in excess of 200% of 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.
includes dividend equivalent shares added to that date.
**
DBP = Deferred Bonus Plan.
PSP = Performance Share Plan.
USOP = Unapproved (market value) Share Option Plan.
There have been no changes in the number of shares held from 31 March 2020 to 12 June 2020, being the latest practicable date before
the publication of this Annual Report.
Payments to past Directors
There have been no payments to past Directors
NewRiver REIT plc Annual Report and Accounts 2020
105
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
Historic Total Shareholder Return performance and Chief Executive Officer remuneration
The following information allows comparison of the Company’s TSR (based on share price growth and dividends reinvested) with the
remuneration of the CEO over the last ten years, together with bonus and LTIP pay-outs (as a percentage of the maximum).
250
200
150
100
50
0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
NewRiver
FTSE 250
FTSE 350 Retail
The chart shows the Company’s TSR and that of the FTSE250 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 ten-year period to 31 March 2020. These are considered to be appropriate benchmarks for the graph as the Company was a
constituent of these indices during the financial year.
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
David
Lockhart
David
Lockhart
David
Lockhart
David
Lockhart
David
Lockhart
David
Lockhart
David
Lockhart
David
Lockhart
Allan
Lockhart
Allan
Lockhart
337,500
467,500
504,000
642,000
850,000 1,792,205 1,341,958 1,012,946
911,972
543,239
42.0
36.5
32.6
69.0
70.0
100.0
66.7
77.3
64.0
–
–
–
–
–
50.0
76.3
13.1
–
–
–
Total
remuneration (£)
Annual bonus
(% of max)
Total LTIP
vesting
(% of max)
CEO pay ratio
As the Company has less than 250 employees, we are not required to disclose the CEO pay ratio. We however consider it appropriate to
disclose our pay ratios on a voluntarily basis as we are committed to supporting strong governance and transparency. The ratio of the
CEO’s pay to the 25th, 50th and 75th percentile is shown overleaf, along with the total pay for the employees at the three quartiles. The
Group employs the majority of its staff in managed pubs where the average age of its employees is significantly lower than the median for
the rest of the Group’s employees. Positions in managed pubs tend to offer hourly pay based on market rates, without any performance
related bonuses.
106
NewRiver REIT plc Annual Report and Accounts 2020
We have based the calculation on the methodology outlined in Option A under the regulations, although we have chosen not to disclose
the three salary levels for the relevant employees to allow a simpler comparison with the total pay of the CEO.
The ratio (calculated by reference to actual pay rates on 10 June and based on the CEO’s full salary (before the 20% charitable donation)
has reduced significantly compared to the prior year, principally because the CEO pay level has reduced. The total employee pay at the
50th and 75th percentile has changed due to changes to the make up of the workforce (rather than this being reflective of increases to
pay levels in the workforce of this magnitude).
The Committee has used the ratio as part of the overall review of the policy and is comfortable that the ratio is a fair reflection of the
differences to the level of pay of the CEO compared to the workforce generally
Year
FY20
FY19
Method
Option A
Option A
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
8:1
15:1
17:1
35:1
34:1
52:1
The total pay for the individuals identified at the Lower quartile, Median and Upper quartile positions in FY20 and FY19 are set out below:
Upper quartile
Median
Lower quartile
FY2020
Total Pay
68,845
31,542
15,995
FY2019
Total Pay
58,000
24,000
16,286
Chief Executive Officer pay compared to employees
The table below shows the percentage change in salary benefits and bonus for FY19 and FY20 for both the Chief Executive Officer and
for all permanent employees of the Group, excluding joiners and leavers.
Chief Executive
All employees
Salary
0%
4.4%
Benefits
Annual Bonus
0%
0%
-100%
-70%
Relative importance of spend on pay
The table below shows employee pay and distributions to shareholders for FY20 and FY19.
Total spend on employee pay1
Total distributions to shareholders (including share buy-backs)
FY20
£’000
13,172
65,828
FY19
£’000
14,235
64,325
% difference
from prior year
-7.5%
2.3%
Notes:
1. Includes salaries, bonuses, social security costs and pension costs as shown in the notes to the Financial Statements.
What the Executive Directors can earn in FY21
Salaries and fees
As noted in the Chair’s Statement, Directors and senior management have waived 20% of their base salaries temporarily. It is anticipated
that base salaries will revert to the normal level later in FY21:
Allan Lockhart – Chief Executive Officer
Mark Davies – Chief Financial Officer
David Lockhart – Executive Deputy Chairman
£376,000
£326,400
£316,000
£470,000
£408,000
£395,000
(0% increase)
(0% increase)
(0% increase)
Temporary 20% reduction currently
Normal salary for FY21
The non-executive directors’ fees were last increased in April 2018. 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
Additional fee for serving as the Senior Independent Non-Executive Director
£128,000
£40,000
£6,000
£6,000
£160,000
£50,000
£7,500
£7,500
Temporary 20% reduction currently
Normal fee for FY21
NewRiver REIT plc Annual Report and Accounts 2020
107
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT RE M UNE RATION C OMMI TT EE RE POR T
Annual bonus
The annual bonus 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.
The mix of measures for the annual bonus plan has been simplified to focus on the business priorities: we currently intend that 20% will be
based on TAR versus the relevant IPD benchmark, 30% on Underlying Funds From Operations, 25% on Loan to Value and 25% on
individual strategic objectives. Great care will be taken when the measures are confirmed and the targets are set and when they are
assessed at the year-end, to ensure that any bonus payments for FY21 are consistent with the bonus payments for the workforce and the
experience over the year of our shareholders and other stakeholders. There will be a full narrative of the Committee’s approach in next
year’s Directors’ Remuneration Report.
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 2021.
Long-term incentives – Performance Share Plan
We intend to grant awards after the 2020 AGM and we will consider the grant levels carefully in light of the share price prevailing at the
time of grant and add additional provisions to ensure that executives cannot benefit from what the Committee considers to be a windfall
gain should the share price recover strongly immediately following COVID-19. Grant levels will not exceed 100% of base salary.
Awards will be based 50% on TSR versus a sector peer group and 50% based on relative Total accounting return compared to a sector
peer group and will be subject to two year holding period after the vesting date.
2017 and 2019 Annual General Meeting shareholder votes
At the Annual General Meeting held on 26 July 2019, votes cast by proxy and at the meeting in respect of the resolution to approve the
remuneration report were as set out below:
That the Directors’ remuneration
report, be received and approved
219,594,501
99.11%
1,971,932
0.89 221,566,433
72.44
35,081
Votes for
%
Votes against
%
Total shares
for & against
% of total
voting rights
Votes withheld
The remuneration policy was last approved at the Annual General Meeting held on 14 July 2017.
Votes for
%
Votes against
%
Total shares
for & against
% of total
voting rights
Votes withheld
243,604,524
96.3
9,414,395
3.7
253,018,919
84.0
71,795
That the Directors’ remuneration
policy be received and approved
signed on behalf of the Board
Kay Chaldecott,
Committee Chairman
18 June 2020
108
NewRiver REIT plc Annual Report and Accounts 2020
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their report for the year ended
31 March 2020.
Principal activities and status
NewRiver REIT plc (“the Company”) is a premium listed REIT on
the London Stock Exchange. The Company is a specialist real
estate investor, asset manager and developer focused solely on
the UK retail and leisure sector. Details of the Group’s principal
subsidiary undertakings are set out on pages 164 to 165.
Governance
The Financial Reporting Council published a revised UK Corporate
Governance Code in July 2018 (the Code). Further information on
the Code can be found on the Financial Reporting Council’s
website at: www.frc.org.uk. The Company’s Statement on
Governance can be found on page 73.
Additional Information
Additional information which is incorporated by reference into this
Directors’ report, including information required in accordance
with the Companies Act 2006 and the Listing Rule 9.8.4R of the
UK Financial Conduct Authority’s Listing Rules, can be located
as follows:
Directors’ responsibility
statement
s.172 statement
People, culture and
employee involvement
Directors’ interests
Stakeholder engagement
Page 112
Details can be found on page 67
Our people – pages 46 to 47
Details can be found on pages 88
to 108 of the Directors’
Remuneration Report
Strategic report – page 21
Governance report – pages 73
to 74
ESG report – pages 48 to 57
Strategic Report – pages 1 to 67
Environmental policy
Greenhouse gas emissions ESG report – page 55
Future business
developments
Financial risk management
objectives and policies
Governance report
Listing Rule
9.8.4R (1)(2) (5-14)(B)
9.8.4R (4)
Pages 58 to 64
Pages 72 to 81
Not applicable
Long term incentive plans
pages 88 to 108
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 £65.8 million (2019: £64.9 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:
Margaret Ford
Allan Lockhart
Mark Davies
David Lockhart
Kay Chaldecott
Alastair Miller
Colin Rutherford
Non-Executive Chairman
Chief Executive Officer
Chief Financial Officer
Executive Deputy Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
The roles and biographies of the Directors in office as at the date
of this report are set out on pages 68 to 69.
Powers of Directors
Subject to the Company’s Articles of Association, UK legislation
and any directions given by special resolution, the business of the
Company is managed by the Board, which may exercise all the
powers of the Company.
The Board’s role is to provide entrepreneurial leadership of the
Company within a framework of prudent and effective controls
which enables risk to be assessed and managed. It also sets up
the Group’s strategic aims, ensuring that the necessary financial
and human resources are in place for the Group to meet its
objectives and review management performance. The Board also
sets the Groups values, standards and culture. There is also in
place a schedule of matters formally reserved to it for its decision.
NewRiver REIT plc Annual Report and Accounts 2020
109
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT DIR EC TORS ’ RE PORT
Directors’ interests
Details of the Directors’ share interests can be found in the
Remuneration Committee report on pages 88 to 108.
All related party transactions are disclosed in note 27 to the
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.
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.
Significant interests
The table below shows the interests in shares notified to the
Company in accordance with Chapter 5 of the Disclosure and
Transparency Rules issued by the Financial Conduct Authority, As
at 31 March 2020 and as at 10 June 2020 (being the latest
practicable date prior to publication of the Annual Report):
As at 31 March 2020
Shareholder
Invesco
BlackRock
As at 10 June 2020
Shareholder
JPMorgan Asset Management
M&G
Norges
Number of shares
% of issued Share Capital
60,859,540
15,741,568
19.87%
5.14%
Number of shares
% of issued Share Capital
18,985,558
17,768,427
7,896,361
6.20%
5.80%
2.60%
Internal controls review
Taking into account the principal risks and the ongoing work of the
Audit Committee in monitoring the risk management and internal
control systems on behalf of the Board, the Directors:
– are satisfied that they have carried out a robust assessment of
the principal and emerging 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.
Share capital structure
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 2020, are
summarised in note 23 of the financial statements.
The Directors are not aware of any agreements between holders
of the Company’s shares that may result in the restriction of the
transfer of securities or of voting rights. No shareholder holds
securities carrying any special rights or control over the
Company’s share capital.
Branches outside the UK
The Company has no branches outside the UK.
Financial instruments
The Group’s exposure to and management of capital risk, market
risk and liquidity risk is set out in note 25 to the Group’s financial
statements.
Authority for the Company to purchase its
own shares
Subject to authorisation by shareholder resolution, the Company
may purchase its own shares in accordance with the Companies
Act 2006. Any shares which have been bought back may be held
as treasury shares or cancelled immediately upon completion of
the purchase. At the Annual General Meeting held in 2019,
110
NewRiver REIT plc Annual Report and Accounts 2020
shareholders authorised the Company to make purchases (within
the meaning of section 693 of the Companies Act 2006) of the
Company’s ordinary shares, up to a maximum of 10% of the issued
share capital at that time, as well as the allotment of new shares
within certain limits approved by shareholders. The Company has
not repurchased any of its ordinary shares under this authority,
which is due to expire at the AGM in 2020 and appropriate
renewals will be sought.
There are no securities of the Company carrying special rights with
regards to the control of the Company in issue.
Change of control – significant agreements
The Company was not party to any significant contracts that are
subject to change of control permissions in the event of a change
of control, but other agreements may alter or terminate upon such
an event.
Compensation for loss of office
The Company does not have any agreements with any Executive
Director or employee that would provide compensation for loss of
office or employment resulting from a takeover except that the
Group’s incentive plans and share plans contain provisions
relating to termination of employment. Further information is
provided in the Directors’ Remuneration Policy set out on pages
92 to 99.
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.
The confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
Auditor
PricewaterhouseCoopers LLP has indicated their willingness to
continue in office and a resolution seeking to re-appoint
PricewaterhouseCoopers LLP will be proposed at the forthcoming
AGM.
Annual General Meeting
The Annual General Meeting will be held on 14 August 2020. At
the meeting, resolutions will be proposed to receive the Annual
Report and financial statements, approve the Directors’
Remuneration Policy, approve the Directors’ remuneration report,
re-elect Directors and appoint as auditor and determine the
remuneration of PricewaterhouseCoopers LLP. In addition, it will
be proposed that expiring authorities to allot shares and to
repurchase shares are extended. An explanation of the resolutions
to be put to the shareholders at the 2020 AGM and the
recommendations in relation to them will be set out in the 2020
AGM Notice.
Political donations
No political donations were made by the Company or its
subsidiaries during the year (2019: Nil).
Post balance sheet events
On 29 April 2020, the Group received confirmation from the Bank
of England that it is eligible to access £50 million of funding under
the Covid Corporate Financing Facility (‘CCFF’), a joint HM
Treasury and Bank of England lending facility. This facility is
undrawn at this stage, and is available to be drawn at the Bank of
England’s discretion for a tenure of up to 12 months until March
2021.
The Directors’ Report was approved by the Board of Directors on
18 June 2020.
By Order of the Board
Margaret Ford
Chairman
18 June 2020
NewRiver REIT plc Annual Report and Accounts 2020
111
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT DIR EC TORS ’ RE PORT
DIRECTORS’ RESPONSIBILITY
STATEMENT
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS
101 “Reduced Disclosure Framework”, and applicable law).
Under Company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group and Company for that period. In
preparing the financial statements, the Directors are required to:
– select suitable accounting policies and then apply them
consistently;
– state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS
101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in
the financial statements;
– make judgements and accounting estimates that are
reasonable and prudent; and
– prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.
The Directors are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company 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.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Chairman’s Statement, the Business Review and the Financial
Review contain certain forward-looking statements with respect
to the financial condition, results of operations and businesses
of the Group. These statements and forecasts involve risk and
uncertainty because they relate to events and depend on
circumstances that may occur in the future. There are a number
of factors that could cause actual results or developments to differ
materially from those expressed or implied by these forward-
looking statements and forecasts. The forward-looking statements
are based on the Directors’ current views and information known
to them at 18 June 2020. The Directors do not make any
undertaking to update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
Nothing in this report should be construed as a profit forecast.
Directors' confirmations
The Directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group
and Company’s position and performance, business model
and strategy.
Each of the Directors, whose names and functions are listed in the
Governance Report confirm that, to the best of their knowledge:
– the Company financial statements, which have been prepared
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law), give a true and fair view of the assets, liabilities,
financial position and loss of the Company;
– the Group financial statements, which have been prepared
in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and loss of the Group; and
– the Strategic Report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that it faces.
By order of the Board
Margaret Ford
Chairman
18 June 2020
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NewRiver REIT plc Annual Report and Accounts 2020
INDEPENDENT AUDITORS’
REPORT TO THE MEMBERS
OF NEWRIVER REIT PLC
Report on the audit of the financial statements
Opinion
In our opinion:
– NewRiver REIT plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view
of the state of the Group’s and of the Company’s affairs as at 31 March 2020 and of the Group’s loss and cash flows 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 Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); 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, included within the Annual Report and Accounts 2020 (the “Annual Report”), which comprise:
the Consolidated and Company Balance Sheets as at 31 March 2020; the Consolidated Statement of Comprehensive Income, the
Consolidated Cash Flow Statement, and the Consolidated and Company Statements of Changes in Equity for the year then ended; and
the Notes to the Financial Statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to
the Group or the Company.
Other than those disclosed in the Audit Committee report, we have provided no non-audit services to the Group or the Company in the
period from 1 April 2019 to 31 March 2020.
NewRiver REIT plc Annual Report and Accounts 2020
113
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT INDEPEN DENT AUDI T ORS’ REPO RT
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
– Overall Group materiality: £13.7 million (2019: £13.4 million), based on 1% of total assets.
– Specific Group materiality: £2.3 million (2019: £2.6 million), based on 5% of EPRA earnings.
This is applied to all balances excluding investment properties and public houses
included in property, plant and equipment, and their related fair value movements.
– Overall Company materiality: £13.0 million (2019: £13.2 million), based on 1% of total assets.
– We tailored the scope of our audit to ensure that we performed enough work to be able
to give an opinion on the Group financial statements as a whole, taking into account the
structure of the Group, the accounting processes and controls, and the industry in which
the Group operates.
– Impact of Covid-19 (Group and Company)
– Valuation of investment properties and public houses held as property, plant and
equipment (Group)
– Valuation of investments in subsidiary companies (Company)
– Recoverability of trade receivables, accrued income, lease incentives and service charge
debtor balances (Group)
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to tax legislation including the Real Estate Investment Trust (REIT) requirements, and we considered the extent to which non-
compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct
impact on the preparation of the financial statements such as the Companies Act 2006 and Listing rules. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls) and
determined that the principal risks were related to posting inappropriate journal entries to increase revenue, and management bias in
accounting estimates and judgemental areas of the financial statements such as the valuation of investment properties and public houses
held as property, plant and equipment. Audit procedures performed by the Group engagement team included:
– Discussions with management, including consideration of known or suspected instances of non- compliance with laws and regulation
and fraud;
– Understanding of management’s internal controls designed to prevent and detect irregularities;
– Review of tax compliance, with the involvement of our tax specialists in the audit;
– Designing audit procedures to incorporate unpredictability over the nature, timing or extent of our testing, including testing lower value
items and testing unexpected account combinations within our journals testing;
– Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to the
valuation of investment properties and public houses held as property, plant and equipment (see related Key audit matter below); and
– Identifying and testing journal entries, in particular journal entries posted to revenue with unusual account combinations or posted by
senior management.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
114
NewRiver REIT plc Annual Report and Accounts 2020
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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)
identified by the auditors, including 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, and any comments we make on the results of our procedures
thereon, 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. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the Key audit matter
Impact of Covid-19 (Group and Company)
Refer to note 1 to the Group financial statements for the
directors’ disclosures related to going concern; pages 65 and 66
for the directors’ assessment of viability; and pages 84 and 85
for the views of the Audit Committee.
The directors have considered the potential impact of the
pandemic, Covid-19, on the current and future operations of the
Group and the Company. In doing so, the directors have made
estimates and judgements that are critical to the outcomes of
these considerations in particular over the valuation of
investment properties and public houses held as property, plant
and equipment, the valuation of trade receivables, accrued
income, lease incentives and service charge debtors and a
particular focus on the ability of the Group and the Company to
continue as a going concern, and their conclusions in respect
of viability.
Management has performed a detailed assessment of the
impact of Covid-19 on the future cash flows of the Group and the
Company. This analysis has been used to assess the Group's
liquidity headroom and to consider its compliance with the debt
covenants in its financing arrangements. As a result of the
impact of Covid-19 on the sector, the wider economy and the
Group’s share price, we determined management’s
consideration of the potential impact of Covid-19 on going
concern to be a Key audit matter.
Disclosures of the risk to the Group and Company of
Covid-19 and management's conclusions on going concern
and viability have been included within the relevant sections of
the Annual Report.
In assessing the directors’ consideration of the potential impact
of Covid-19, our audit procedures on Going Concern included:
– We obtained management's paper that supports the Board's
assessment and conclusions with respect to the disclosures
provided over going concern.
– We discussed the key assumptions underlying the going
concern review and challenged the rationale for those
assumptions, using our knowledge of the business and
the industry.
– We checked the accuracy of management’s model and
challenged the forecasts to ensure they reflect the latest
expectations of the impact of Covid-19 on the Retail and
Pubs sectors.
– We understood the mitigating actions being taken by
management, including suspending the dividend payment.
– We reviewed management's sensitivity scenarios, which
include further potential mitigating actions available to
management, including property asset disposals.
– We performed our own sensitivity analysis on the forecasts,
focusing on the Loan to Value (LTV) covenant, to identify the
key assumptions and understand the potential impact on the
financial covenants and liquidity headroom.
– We obtained confirmation of the Group's rolling credit facility,
term loan and unsecured bond and checked the Group’s
long-term credit rating.
Other procedures that we performed in relation to the impact of
Covid-19 included:
– Testing the assumptions over debt recoverability under IFRS
9, as explained in the Recoverability of trade receivables,
accrued income, lease incentives and service charge debtors
(Group) Key audit matter.
– Assessing the impact on the valuations of the Group’s
property portfolio, as explained in the Valuation of investment
properties and public houses held as property, plant and
equipment (Group) Key audit matter.
– Assessing the impact on the valuation of investments in
subsidiary companies, as explained in the Valuation of
investments in subsidiary companies (Company) Key
audit matter.
– Examining the directors’ post balance sheet events
disclosure in note 28 to the Group financial statements.
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115
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT INDEPEN DENT AUDI T ORS’ REPO RT
Key audit matter
How our audit addressed the Key audit matter
Based on the results of the procedures performed, and on the
information available as of the date of the directors’ approval of
the financial statements, we consider the forecasts to be
reasonable, that it continues to be appropriate to prepare the
Group and the Company on a going concern basis and that
appropriate disclosures are provided in the Annual Report.
Key audit matter
How our audit addressed the Key audit matter
Valuation of investment properties and public houses
held as property, plant and equipment (Group)
Refer to page 84 (Audit Committee report), pages 128 to 150
(Notes to the financial statements - notes 12, 16 and 1
(Accounting policies) and note 2 (Critical accounting judgements
and estimates)).
The Group owns and manages a portfolio of commercial assets
within the UK which includes shopping centres, retail
warehouses, high street shops, pubs and a number of
development properties. The total value of the portfolio,
excluding right of use assets, as at 31 March 2020 was £1,157.3
million (£1,102.3 million of investment properties and £55.0
million of public houses held as property, plant and equipment)
(2019: £1,281.0 million).
This was identified as a Key audit matter given the valuation of
the portfolio is inherently subjective and complex due to, among
other factors, the individual nature of each property, its location,
and the expected future rental streams for that particular
property. The wider challenges facing the retail real estate
market, including the impact of Covid-19 and the relative lack of
comparable transactions, as well as the Government mandated
closure of Pubs due to Covid-19, further contributed to the
subjectivity for the year ended 31 March 2020. The valuations
were carried out by external valuers, Colliers and Knight Frank,
in accordance with RICS Valuation - Professional Standards and
the Group accounting policies which incorporate the
requirements of International Accounting Standard 40
'Investment Property'.
Material uncertainty clause included in the
valuation reports
The third-party valuers engaged by management have included
material valuation uncertainty clauses in their reports. These
clauses highlight that less certainty, and consequently a higher
degree of caution, should be attached to the valuation as a
result of the Covid-19 pandemic. This represents a significant
estimation uncertainty in relation to the valuation of investment
properties and public houses held as property, plant and
equipment.
Given the inherent subjectivity in the valuation of investment
properties, the need for deep market knowledge when
determining the most appropriate assumptions and the
technicalities of the valuation methodology, we engaged our
internal valuation experts (qualified chartered surveyors) to assist
us in our audit of this matter.
Material uncertainty clause included in the
valuation reports
We considered the adequacy of the disclosures made in notes 2
(Critical accounting judgements and estimates) and 12 and 16
(investment properties and public houses held as property, plant
and equipment) to the financial statements. These notes explain
that there is significant estimation uncertainty in relation to the
valuation of the Group’s property portfolio, excluding right of use
assets, of £1,157.3 million (£1,102.3 million of investment
properties and £55.0 million of public houses held as property,
plant and equipment) (2019: £1,281.0 million) at 31 March 2020.
We discussed this with management and obtained sufficient
appropriate audit evidence to demonstrate that management’s
assessment of the suitability of the inclusion of the valuation in
the Consolidated Balance Sheet and disclosures made in the
financial statements was appropriate.
Assessing the valuers’ expertise and objectivity
We assessed the external valuers' qualifications and expertise
and read their terms of engagement with the Group to
determine whether there were any matters that might have
affected their objectivity or may have imposed scope limitations
on their work. We also considered fee arrangements between
the external valuers and the Group, and other engagement
which might exist between the Group and the valuers. We found
no evidence to suggest that the objectivity of the external
valuers in their performance of the valuations was compromised.
Data provided to the valuers
We checked the accuracy of the underlying lease data, and
capital expenditure used by the external valuers in their
valuation of the portfolio by tracing the data back to the signed
lease agreements on a sample basis. For the pub assets we
traced the EBITDA data back to the underlying accounting
records. We found the data provided by management to the
valuers to be appropriate for the purposes of the valuation.
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NewRiver REIT plc Annual Report and Accounts 2020
Key audit matter
How our audit addressed the Key audit matter
Retail assets
The shopping centres, retail warehouses and high street assets
are valued at investment value, reflecting the fact that the
properties are largely existing operational properties generating
rental income.
In determining the valuation of retail assets, the valuers take into
account property specific information such as the current
tenancy agreements and rental income. They then apply
judgemental assumptions such as estimated rental value ('ERV')
and yield, which are influenced by prevailing market yields and
where appropriate comparable market transactions, to arrive at
the final valuation. Due to the unique nature of each property,
the judgemental assumptions to be applied are determined
having regard to the individual property characteristics at a
detailed tenant by tenant level, as well as considering the
qualities of the property as a whole.
Development assets
Development assets which are subject to active ongoing
development are valued using the residual valuation approach.
Certain operational properties which have development
potential are valued at investment value, adjusted to account for
development potential.
In determining the valuation of development property held
under a residual valuation, the valuers take into account the
property specific information, such as the development plans for
the site. They then apply a number of judgemental assumptions
including ERV and yield within the gross development value,
estimated costs to complete and developers profit to arrive at
the valuation. Due to the unique nature of an ongoing
development, the judgemental assumptions to be applied are
determined having regard to the nature and risks associated
with each development.
In determining the valuation of operational properties with
development potential, the valuers initially follow the same
methodology as described previously to arrive at an investment
value. The likelihood of the development progressing, and the
status of planning consents for the development are taken into
account and the valuers make adjustments to the valuation to
reflect development potential. In determining the value of
development land, valuers primarily take into account recent
comparable land transactions.
Assumptions and estimates used by the valuers
We read the external valuation reports for the property assets
and confirmed that the valuation approach for each was in
accordance with RICS standards and suitable for use in
determining the final value for the purpose of the financial
statements. We met with the external valuers to discuss and
challenge the valuation process, the key assumptions and the
rationale behind the more significant valuation movements
during the year. It was evident from our interaction with the
external valuers and from our review of the valuation reports,
that close attention had been paid to the individual
characteristics of each property, such as the tenant base, overall
quality, latest leasing activity and geographic location,
depending on the type of asset being valued. In addition, we
performed the procedures described below for each type of
property. We were able to obtain sufficient evidence to support
the valuation and did not identify any material issues during our
work.
Retail assets
For retail assets, we obtained details of each property and set an
expected range for yield and capital value movement,
determined by reference to published benchmarks and using
our experience and knowledge of the market. We compared the
yield and capital value movement of each property with our
expected range. We also considered the reasonableness of
other assumptions that are not so readily comparable with
published benchmarks, such as ERV. When assumptions were
outside of the expected range, we undertook further
investigations and, when necessary, obtained corroborating
evidence to support the explanations received. This enabled us
to assess the property specific factors that had an impact on the
value, including recent comparable transactions where
appropriate, to conclude on the reasonableness of the
assumptions utilised.
Development assets
For significant developments valued by the residual method, we
obtained the development appraisal and assessed the
reasonableness of the valuers' key assumptions. This including
comparing the yield to comparable market benchmarks,
comparing the costs to complete estimates to development
plans, and considering the reasonableness of other assumptions
that are not so readily comparable, such as developer profits.
Where necessary, we obtained corroborating evidence to
support explanations received. For operational properties with
development potential we performed the same procedures as
described for retail assets. Additionally, we considered the
reasonableness of any additional value recognised for
development potential by reviewing the stage of progress of the
proposed development, including any planning consent
obtained.
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT INDEPEN DENT AUDI T ORS’ REPO RT
Key audit matter
How our audit addressed the Key audit matter
Pub assets
The pub assets are valued on the fair maintainable trade (‘FMT’)
of the pub. A multiple is then applied to this FMT. The valuers
use actual EBITDA to inform their opinion of FMT. Adjustments
are made between the EBITDA and FMT dependent on a
number of factors, such as management changes and impact of
capital expenditure. In determining the multiples to be applied,
the valuers take into account comparable market transactions.
In forming their assessment of fair value of the Group’s property
portfolio at 31 March 2020 the valuers have had consideration
for the impact of Covid-19.
Pub assets
For the pub assets, we obtained details of the asset portfolio
and set an expected range for multiple and capital value
movement, determined by reference to published benchmarks
and using our experience and knowledge of the market. We
compared the multiple value and capital value movement of
each portfolio with our expected range.
We also considered the reasonableness of other assumptions
that are not so readily comparable with published benchmarks,
such as the EBITDA to FMT assumptions. When assumptions
were outside of the expected range, we performed further
investigation and, where necessary, obtained corroborating
evidence to support the explanations received.
We also tested a sample of asset disposals during the year to
assess the level of profit or loss recognised as a guide to the
historical accuracy of valuations at the individual asset level.
We discussed the impact on the approach and assumptions
applied to the valuations as a result of Covid-19 and performed
additional procedures to sensitise the Covid-19 assumptions
adopted by the valuer and assess the impact based on our
experience and knowledge of the market.
Overall findings
We found that the assumptions used in the valuations were
predominantly consistent with our expectations and comparable
benchmarking information for the asset type and that the
assumptions were applied appropriately and reflected the
comparable market transactions. Where assumptions did not fall
within our expected range, we were satisfied that the variances
were due to property specific factors. We concluded that the
assumptions used in the valuations by the external valuers were
supportable in light of available comparable market evidence.
Key audit matter
How our audit addressed the Key audit matter
Valuation of investments in subsidiary companies
(Company)
Refer pages 162 to 166 (Notes to the financial
statements – note A (Accounting policies) and note B
(Investment in subsidiaries)).
We obtained the Company’s assessment of the valuation of
investments held in subsidiary companies as at 31 March 2020.
– We assessed the accounting policy for investments in
subsidiaries and verified that the methodology used by the
directors in arriving at the value of each subsidiary was
compliant with FRS 101 "Reduced Disclosure Framework".
– We identified the key judgement within the valuation of
investments in subsidiary companies to be the valuation of
investment properties and public houses held as property,
plant and equipment. For details on this, refer to the previous
Key audit matter.
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NewRiver REIT plc Annual Report and Accounts 2020
Key audit matter
How our audit addressed the Key audit matter
The Company has investments in subsidiary companies of
£616.9 million as at 31 March 2020 (2019: £664.9 million). The
Company's accounting policy is to hold its investments in
subsidiary companies at cost less any provision for impairment.
As a result of material reductions in the valuations of investment
properties and public houses held as property, plant and
equipment, management determined that there were indicators
of impairment in the Company carrying values of investments in
subsidiary companies and an impairment of £48.0 million was
recorded as at 31 March 2020. Given the material size of this
investment impairment and the level of judgement involved, we
considered this to be a Key audit matter.
– We verified that the carrying values of investment properties
and public houses held as property, plant and equipment had
been appropriately included in the assessment of the
valuation of investments in subsidiary companies.
No issues were identified as a result of this work.
Key audit matter
How our audit addressed the Key audit matter
Recoverability of trade receivables, accrued income,
lease incentives and service charge debtor balances
(Group)
Refer to pages 128 to 151 (Notes to the financial statements -
notes 17 and 1 (Accounting policies) and note 2 (Critical
accounting judgements and estimates)).
The recoverability of trade receivables, accrued income, lease
incentives and service charge debtors was considered a Key
audit matter in light of the impact of Covid-19 on the level of
outstanding debtors as at 31 March 2020, the uncertainty on
cash collections and the judgement required when calculating
the expected credit loss (ECL). The Group has used historic and
forward-looking information to estimate the probability of default
on the gross value of lease and trade receivables, accrued
income, lease incentives and service charge debtors,
incorporating the debt collection to date, discussions with and
agreements with specific tenants and management’s
expectations of the probability of default.
At 31 March 2020 the Group has an impairment provision of £4.2
million (2019: £1.7 million). In estimating this, management has
applied the ECL model in accordance with the Group’s
accounting policy and IFRS 9 Financial Instruments.
We obtained management’s assessment and calculations over
the IFRS 9 expected credit loss (ECL) which covered trade
receivables, accrued income, lease incentives and service
charge debtor balances.
– We held discussions with management to understand their
approach for calculating the ECL.
– We tested the calculations and assumptions used within the
ECL calculations and obtained supporting evidence to
validate the risk profiling of the balances and the expected
probability of default based on management’s
communications with the tenants and the recoverability of the
debtors to date.
– We performed subsequent receipts testing to support the
recoverability of the balances.
– We performed our own market analysis and used this to
challenge management’s assumptions over the probability
of default.
We found the ECL calculated by management to be a
reasonable estimate, and no issues were identified by
our testing.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Group financial
statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
The Group’s operations and properties are spread across two segments, Retail and Pubs, comprising of its subsidiary statutory entities with
the Group financial statements being a consolidation of these entities, the Company and the Group’s joint ventures and associate. We
identified two significant components, being the legacy Hawthorn business that is included in the Pubs segment and the NewRiver REIT plc
Company, and these components were subject to a full scope audit. Other components were subject to an audit of certain account balances,
based on our assessment of risk and materiality of the Group's operations at each component. This covered 100% of the Group's
property portfolio.
This work, all of which was carried out by the Group engagement team, together with additional procedures performed on the consolidation,
gave us sufficient appropriate audit evidence for our opinion on the Group financial statements as a whole.
NewRiver REIT plc Annual Report and Accounts 2020
119
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT INDEPEN DENT AUDI T ORS’ REPO RT
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
£13.7 million (2019: £13.4 million).
£13.0 million (2019: £13.2 million).
How we determined it
1% of total assets.
Rationale for benchmark
applied
We determined that total assets would be the
most appropriate basis for determining the
overall materiality given that key users of the
Group’s financial statements are primarily
focused on the valuation of the Group’s assets,
principally the investment property and pubs
portfolio.
1% of total assets (capped at 95% of Group
overall materiality).
The Company is primarily a holding company for
investments in subsidiaries of the Group and has
limited trading.
Specific materiality
£2.3 million (2019: £2.6 million)
£0.4 million
How we determined it
5% of EPRA earnings.
5% of EPRA earnings.
Rationale for benchmark
applied
We determined that EPRA earnings would be
the most appropriate basis for determining the
specific materiality, given that EPRA earnings is
a focus of the key users of the Group’s financial
statements. This is applied to all balances
excluding investment properties and public
houses included in property, plant
and equipment and their related fair
value movements.
We determined that a lower level of materiality
based on EPRA earnings was appropriate for the
audit of any balances excluding investments in
subsidiaries and intercompany balances.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was £13.0 million overall materiality and £0.15 million to £1.7 million specific materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.69 million (Group
audit) (2019: £0.27 million) and £0.65 million (Company audit) (2019: £0.27 million) as well as misstatements below those amounts that, in
our view, warranted reporting for qualitative reasons.
In addition, we agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.12
million (Group audit) for misstatements related to all balances excluding investment properties and public houses included in property,
plant and equipment, and their related fair value movements, as well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
120
NewRiver REIT plc Annual Report and Accounts 2020
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention
to in respect of the directors’ statement in the financial statements about
whether the directors considered it appropriate to adopt the going concern
basis of accounting in preparing the financial statements and the directors’
identification of any material uncertainties to the Group’s and the Company’s
ability to continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
We have nothing material to add or to draw
attention to.
However, because not all future events or conditions
can be predicted, this statement is not a guarantee as
to the Group’s and Company’s ability to continue as a
going concern.
We are required to report if the directors’ statement relating to Going Concern
in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form
of assurance 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 an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of 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. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
NewRiver REIT plc Annual Report and Accounts 2020
121
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT INDEPEN DENT AUDI T ORS’ REPO RT
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 March 2020 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we
did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that
would threaten the solvency or liquidity of the Group
We have nothing material to add or draw attention to regarding:
– The directors’ confirmation on page 65 of the Annual Report 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.
– The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
– The directors’ explanation on pages 65 to 66 of the Annual Report 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 have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering
whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment
obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
– The statement given by the directors, on page 112, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the
course of performing our audit.
– The section of the Annual Report on page 82 to 85 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
– The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibility Statement set out on page 112, the directors are responsible for the preparation of
the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The
directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
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NewRiver REIT plc Annual Report and Accounts 2020
Auditors’ 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 auditors’ 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 FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
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 Company, or returns adequate for our audit have not been received from
branches not visited by us; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the directors on 4 July 2019 to audit the financial
statements for the year ended 31 March 2020 and subsequent financial periods. This is therefore our first year of uninterrupted
engagement.
Christopher Burns (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
NewRiver REIT plc Annual Report and Accounts 2020
123
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
F O R T HE Y E AR E ND ED 31 MA R CH 20 2 0
144.8
(55.0)
89.8
(20.5)
(0.4)
(20.9)
2.0
0.1
–
(1.5)
69.5
–
0.1
(24.3)
45.3
1.0
46.3
Revenue
Property operating expenses**
Net property income
Administrative expenses
Acquisition and integration costs
Share of income/(loss) from joint ventures
Share of income/(loss) from associates
Net valuation movement
(Loss)/profit on disposal of investment properties
Operating profit/(loss)
Gain on bargain purchase
Finance income
Finance costs
Profit/(loss) for the year before taxation
Taxation
Profit/(loss) for the year after taxation
Loss for the year after taxation
Other comprehensive income
Revaluation of property, plant and equipment
Total comprehensive loss for the year
(Loss)/earnings per share
Basic (pence)
Diluted (pence)
Notes
4
5
6
6
13
14
12/16
7
8
8
9
10
10
Operating
and
financing
2020
£m
Fair value
adjustments
2020
£m
Total
2020
£m
144.8
(55.0)
89.8
(20.5)
(0.4)
(20.9)
(1.9)
(0.3)
–
–
–
–
–
–
(3.9)
(0.4)
(162.6)
(162.6)
–
(166.9)
–
–
–
(166.9)
(0.5)
(167.4)
(1.5)
(97.4)
–
0.1
(24.3)
(121.6)
0.5
(121.1)
(121.1)
(1.0)
(122.1)
(39.6)
(39.6)
Operating
and
financing
(restated)*
2019
£m
140.2
(51.2)
89.0
(19.4)
(3.3)
(22.7)
0.8
–
–
0.9
68.0
–
–
(21.9)
46.1
(0.5)
45.6
Fair value
adjustments
2019
£m
–
–
–
–
–
–
(1.3)
–
(88.2)
–
(89.5)
7.0
–
–
(82.5)
–
(82.5)
Total
(restated)*
2019
£m
140.2
(51.2)
89.0
(19.4)
(3.3)
(22.7)
(0.5)
–
(88.2)
0.9
(21.5)
7.0
–
(21.9)
(36.4)
(0.5)
(36.9)
(36.9)
1.2
(35.7)
(12.1)
(12.1)
All activities derive from continuing operations of the Group.
* The comparative figures for the year ended 31 March 2020 have been restated. Refer to Note 1 for further information on the restatement.
** Included in property operating expenses is a £2.5 million (2019: £0.3 million) of expected credit loss relating to tenant debtors.
The notes on pages 128 to 159 form an integral part of these financial statements.
124
124
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
CONSOLIDATED BALANCE SHEET
A S AT 31 MAR CH 20 20
Non-current assets
Investment properties
Right of use asset
Investments in joint ventures
Investments in associates
Property, plant and equipment
Goodwill
Derivative financial instruments
Total non-current assets
Current assets
Trade and other receivables
Current taxation asset
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Current liabilities
Trade and other payables
Lease liability
Derivative current liabilities
Current taxation liabilities
Total current liabilities
Non-current liabilities
Derivative financial instruments
Deferred tax liability
Lease liability
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
2020
£m
2019
£m
(restated)*
2018
£m
(restated)*
Notes
12
13
14
16
15
18
17
18
19
20
18
18
9
21
23
23
23
23
10
10
10
1,185.6
3.9
22.1
0.9
56.2
0.2
–
1,268.9
26.7
0.7
–
80.8
108.2
1,377.1
46.8
0.7
0.1
–
47.6
2.6
2.1
85.6
628.6
718.9
610.6
3.1
227.4
(2.3)
382.4
610.6
201p
199p
199p
1,254.1
–
7.6
–
28.1
–
0.7
1,290.5
34.6
–
–
27.1
61.7
1,352.2
50.9
–
–
0.3
51.2
0.6
1.6
–
502.7
504.9
796.1
3.1
225.0
(2.3)
570.3
796.1
261p
261p
261p
1,227.2
–
8.5
–
1.0
–
3.3
1,240.0
45.4
–
0.1
115.8
161.3
1,401.3
49.7
–
–
2.1
51.8
0.1
–
–
457.0
457.1
892.4
3.0
223.3
(2.3)
668.4
892.4
292p
294p
293p
The notes on pages 128 to 159 form an integral part of these financial statements.
* The comparative figures for the year ended 31 March 2020 and the year ended 31 March 2019 have been restated. Refer to Note 1 for further information on
the restatement.
The financial statements on pages 124 to 127 were approved by the Board of Directors on 18 June 2020 and were signed on its behalf by:
Allan Lockhart Mark Davies
Chief Executive
Chief Financial Officer
NewRiver REIT plc
Registered number: 10221027
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
125
125
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
CONSOLIDATED CASH FLOW STATEMENT
F O R T HE Y E AR E ND ED 31 MA R CH 20 2 0
Cash flows from operating activities
Loss for the year before taxation
Adjustments for:
Loss/(profit) on disposal of investment property
Gain on bargain purchase
Net valuation movement
Net valuation movement in joint ventures
Net valuation movement in associates
Share of income from joint ventures
Share of income of associates
Net interest expense
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
Net movement from fair value of derivatives
Cash generated from operations before changes in working capital
Changes in working capital
Decrease in trade and other receivables
(Decrease) / increase in payables and other financial liabilities
Cash generated from operations
Interest paid
Corporation tax paid
Dividends received from joint ventures
Net cash generated from operating activities
Cash flows from investing activities
Interest income
Investment in joint ventures assets
Investment in associate assets
Purchase of investment properties
Business combinations, net of cash acquired
Disposal of investment properties
Development and other capital expenditure
Purchase of plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Repayment of bank loans
New borrowings
Repayment of principal portion of lease liability
Purchase of derivatives
Dividends paid – ordinary
Net cash generated/(used in) 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 128 to 159 form an integral part of these financial statements.
126
126
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
2020
£m
2019
£m
(121.6)
(36.4)
1.5
–
163.0
3.9
0.4
(2.0)
(0.1)
18.7
(2.1)
2.5
(0.2)
1.2
–
2.7
67.9
(1.7)
(5.0)
61.2
(17.7)
–
2.0
45.5
0.1
(15.4)
(1.2)
(44.1)
(6.3)
50.7
(14.1)
(10.1)
(40.4)
(48.7)
161.9
(0.8)
–
(63.8)
48.6
27.1
53.7
80.8
(0.9)
(7.0)
88.2
1.3
–
(0.8)
–
18.7
(2.1)
0.6
0.3
1.0
2.5
3.2
68.6
(4.7)
(10.3)
53.6
(16.3)
(2.1)
0.4
35.6
–
–
–
(51.5)
(46.7)
78.7
(24.6)
(0.7)
(44.8)
(78.6)
62.4
–
(0.2)
(63.1)
(79.5)
115.8
(88.7)
27.1
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
F OR T HE Y E AR E ND ED 31 MA R CH 20 2 0
As at 31 March 2018
Loss for the year after taxation
Revaluation of property, plant and equipment
Total comprehensive income for the year
Transactions with equity holders
Net proceeds from issue of shares
Share-based payments
Dividends paid
As at 31 March 2019
Loss for the year after taxation
Revaluation of property, plant and equipment
Total comprehensive loss for the year
Transactions with equity holders
Net proceeds from issue of shares
Share-based payments
Dividends paid
As at 31 March 2020
Notes
Share
capital
£m
3.0
Share
premium
£m
223.3
Merger
reserve
£m
Retained
earnings and
other reserves
£m
–
–
–
0.1
–
–
3.1
–
–
–
–
–
–
23
11
16
23
11
–
–
–
1.7
–
–
(2.3)
–
–
–
–
–
–
225.0
(2.3)
–
–
–
2.4
–
–
–
–
–
–
–
–
668.4
(36.9)
1.2
(35.7)
–
2.5
(64.9)
570.3
(121.1)
(1.0)
(122.1)
–
–
(65.8)
3.1
227.4
(2.3)
382.4
Total
£m
892.4
(36.9)
1.2
(35.7)
1.8
2.5
(64.9)
796.1
(121.1)
(1.0)
(122.1)
2.4
–
(65.8)
610.6
The other reserves included within retained earnings and other reserves relates to £0.2 million profit (2019: £1.2 million profit) on revaluation
of property, plant and equipment, which is non-distributable.
The notes on pages 128 to 159 form an integral part of these financial statements.
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
127
127
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
General information
NewRiver REIT plc (the ‘Company’) and its subsidiaries (together the ‘Group’) is a property investment group specialising in commercial real
estate in the UK. The Company is registered and domiciled in the UK and its’ registered office of the Company is 16 New Burlington Place,
London, W1S 2HX.
The consolidated financial statements have been approved for issue by the Board of Directors on 18 June 2020.
Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all years presented, other than where new policies have been adopted.
Basis of preparation
In light of the significant impact of Covid-19 on the UK economy, and the retail and leisure sectors in which the Group and Company
operates, the Directors have placed a particular focus on the appropriateness of adopting the going concern basis in preparing the Group’s
and Company’s financial statements for the year ended 31 March 2020. The Group’s and Company’s going concern assessment considers
the Group’s and Company’s principal risks, identified on pages 60 to 64 of this document, and is dependent on a number of factors,
including cashflow & liquidity, continued access to borrowing facilities and the ability to continue to operate the Group’s and Company’s
unsecured debt structure within its financial covenants. The Group’s and Company’s balance sheet is unsecured, which means that none of
its debt is secured against any of its property assets, this type of financing affords significant operational flexibility, and consists of £380
million of unsecured bank facilities and a £300 million unsecured corporate bond with the earliest expiry date being August 2023. The debt
has a number of financial covenants that the Group is required to comply with including an LTV covenant of less than 60%, and a 12 month
historical interest cover ratio of more than 1.75x, and both sources of unsecured financing have cure provisions in the event of a breach.
The going concern assessment is based on a 12 month outlook from the date of the approval of these financial statements, using the
Group’s three year forecast updated for the impact of Covid-19. This forecast is based on a reasonable worst case scenario, which includes
the following key sensitivities:
– A further 20% blended reduction in capital values across the portfolio, in addition to the 12% recorded in the year ended 31 March 2020
– 30% reduction in net income from our retail portfolio, including agreed deferments, on the basis that 52% of rents relating to Q1 of the
year ended 31 March 2021 were collected at the time of reporting
– 70% reduction in net income from our pub portfolio, phased as 100% reduction in Q1 FY20, improving to a 40% reduction in Q4
– £100m of disposal proceeds in FY21, completed at a significant discount to 31 March 2020 book values
– No new financing is assumed, but existing facilities are presumed to remain available (earliest expiry August 2023)
Under this scenario, the Group and Company is forecast to maintain sufficient cash & liquidity resources, and remain compliant with its
financial covenants. Further sensitivity analysis was performed on this scenario, including removing all assumed disposals, assuming a more
significant valuation decline and a lower income collection rate. Even applying this sensitivity analysis, the Group and Company maintains
sufficient cash and liquidity reserves to continue in operation throughout the going concern assessment period.
Based on the consideration above, the Board believes that the Group and Company has the ability to continue in business at least 12
months from the date of approval of the financial statements for the year ended 31 March 2020 and therefore have adopted the going
concern basis in the preparation of this financial information.
Statement of compliance
The Group has restated its prior year comparatives to reflect management’s conclusion that they are principal in the provision of service
charge rather than agent. Management deem themselves as principal in the transaction as they control the provision of service charge
before it is transferred on to the customer. The effect of this on the Consolidated Statement of Comprehensive Income is an increase in
revenue and property operating expenses of £16.6 million and an increase in trade and other receivables and trade and other payables of
£15.4 million. Included in the trade and other receivables balance is a restricted monetary asset of £9.3 million which relates to cash
balances which legally belong to the Group but which the Group cannot readily access. They do not meet the definition of cash and cash
equivalents and consequently are presented separately from cash in the balance sheet. The net effect of this amendment on the profit /
(loss) after tax, basic EPS, diluted EPS and net assets is £nil.
The amortisation of tenant incentives and letting costs of £1.5 million have also been offset against revenue rather than property operating
expenses. The net effect of this amendment on the profit / (loss) after tax, basic EPS, diluted EPS and net assets is £nil.
128
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NewRiver REIT plc Annual Report and Accounts 2020
Cash flow statement
The Group has reported the cash flows from operating activities using the indirect method. Interest received is presented within investing
cash flows; interest paid is presented within operating cash flows. The acquisitions of investment properties are disclosed as cash flows
from investing activities because this most appropriately reflects the Group’s business activities.
Preparation of the consolidated financial statements
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries controlled by the Company,
made up to 31 March each year. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the investee.
The consolidated financial statements account for interest in joint ventures using the equity method of accounting per IFRS 11. The financial
statements for the year ended 31 March 2020 have been prepared on the historical cost basis, except for the revaluation of investment
properties, the revaluation of property, plant and equipment and derivatives which are held at fair value through profit and loss. The
financial statements have also been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and interpretations issued by the IFRS Interpretations Committee (IFRS IC), and therefore comply with article 4 of the EU
IAS regulation, and in accordance with the Companies Act 2006. In the current financial year the Group has adopted a number of minor
amendments to standards effective in the year issued by the IASB and endorsed by the EU, none of which have had a material impact on
the Group. The accounting policies used are otherwise consistent with those contained in the Group’s previous Annual Report and
Accounts for the year ended 31 March 2019.
Changes in accounting policy and disclosures
IFRS 16 Leases
The Group has applied IFRS 16 Leases from 1 April 2019 which requires lessees to recognise a right-of-use asset and related lease liability
representing the obligation to make lease payments. Interest expense on the lease liability and depreciation on the right-of-use asset
(‘ROU’) will be recognised in the statement of comprehensive income.
In accordance with the transition provisions in IFRS 16, the new rules have been adopted retrospectively, with the cumulative effect of
initially applying the new standard recognised on 1 April 2019. Comparatives for the year ended 31 March 2019 have not been restated.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as operating leases
under the principles of IAS 17. The payments made under the operating leases were charged to profit or loss on a straight-line basis over
the period of the lease.
The Group holds two types of leases.
– Head leases: A number of the investment properties and managed houses held as property, plant and equipment owned by the Group
are situated on land held through leasehold arrangements, as opposed to the Group owning the freehold.
– Office leases: Office space occupied by the Group’s head office.
In applying IFRS 16 for the first time, the Group has also adopted the practical expedients relating to short term leases where the total lease
term is less than or equal to 12 months, and low value assets of less than £3,000 which allow these to be expensed through the income
statement.
The balance sheet impact of recognising the lease liability and associated ROU asset upon adoption at the 1 April 2019 and subsequently at
31 March 2020 is set out below.
Right of use asset (Investment property)
Right of use asset (Property, plant and equipment)
Current lease liability
Non-current lease liability
1 April 2019
£m
31 March 2020
£m
83.5
3.6
0.7
86.4
83.3
3.9
0.7
85.6
As the head leases meet the definition of investment property, it is initially recognised in accordance with IFRS 16, and then subsequently
accounted for as investment property in accordance with IAS 40 and the Group’s accounting policy. After initial recognition the ROU head
lease asset is subsequently carried at fair value and the valuation gains and losses recognised within net valuation movement in the income
statement.
The ROU asset in relation to the head office lease has been recognised as property, plant and equipment. After initial recognition the ROU
head office asset is depreciated on a straight-line basis over the period of the lease.
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1. Accounting policies continued
Impact on earnings per share from the adoption of IFRS 16:
The impact of applying IFRS 16 for the year to 31 March 2020 is set out below:
Property operating expenses
Administrative expenses
Finance costs
31 March 2020
Pre IFRS 16
£m
IFRS 16
Adjustment
£m
31 March 2020
Post IFRS 16
£m
58.1
21.0
21.4
(3.1)
(0.1)
2.9
55.0
20.9
24.3
As shown above, for the year ended 31 March 2020, property operating expenses of £3.1 million which would have been recognised under
IAS 17 have been replaced with an increase in finance costs of £2.9 million and a decrease in administrative expenses due to depreciation
of the right of use asset of £0.1 million, under IFRS 16. The expense relating to low value assets which have not been recognised under IFRS
16 was £0.1 million and the expense relating to variable lease payments not included in the measurement of lease liabilities was £nil million.
The total cash outflow in relation to lease commitments for the year was £3.4 million.
Lease liability maturity table
Within one year
One to two years
Two to five years
After five years
2020
£m
0.7
0.7
2.1
82.8
86.3
The difference between the operating ground lease commitments disclosed applying IAS 17 as at 31 March 2020 and the lease liabilities
recognised in the consolidated statement of financial position at the date of initial application is detailed as follows:
Within one year
One to two years
Two to five years
After five years
Effect of discounting
Present value of lease liabilities as at 31 March 2020
2020
£m
3.4
3.4
10.2
256.7
273.7
(187.4)
86.3
New accounting polices
The Group’s new accounting policies for leases under IFRS 16 and the restatement in respect of service charge income and expenses is set
out below.
Leases
At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement about
whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct
the use of the asset.
The Group recognises a right-of-use (“ROU”) asset and the lease liability at the commencement date of the lease. The ROU asset is initially
measured based on the present value of lease payments, plus initial direct costs and the cost of obligations to restore the asset, less any
incentives received.
Lease payments generally include fixed payments and variable payments that depend on an index (such as an inflation index).
Each lease payment is allocated between the liability and finance cost. The lease payments are discounted using the interest rate implicit in
the lease if that rate can be readily determined or if not, the incremental borrowing rate is used at 3.2% The finance cost is charged to profit
or loss over the lease period so as to produce a constant rate of interest on the remaining balance of the liability for each period.
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The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset. The ROU asset is subject to
testing for impairment if there is an indicator of impairment. ROU assets are included in the heading Property, plant and equipment, and the
lease liability included in the headings current and non- current Trade and other payables on the balance sheet.
Where the ROU asset relates to land or property that meets the definition of investment property under IAS 40, after initial recognition the
ROU asset is subsequently accounted for as investment property and carried at fair value (see Investment properties accounting policy).
Valuation gains and losses in a period are taken to the Income Statement.
The Group has elected not to recognise ROU assets and liabilities for leases where the total lease term is less than or equal to 12 months,
or for low value leases of less than £3,000. The payments for such leases are recognised in the income statement on a straight-line basis
over the lease term.
Revenue recognition
IFRS 15 is based on the principle that revenue is recognised when control passes to a customer. The majority of the Group’s income is from
tenant leases and is therefore outside of the scope of the IFRS 15. However, the standard applies to service charge income. Under IFRS 15,
the company needs to consider the agent versus principal guidance. The company is principal in the transaction if they control the
specified goods or services before they are transferred to the customer. In the provision of service charge, the company has deemed itself
to be principal and therefore the consolidated statement of comprehensive income and the consolidated balance sheet have been
amended to reflect service charge income, expenses, trade and other receivables and trade and other payables.
The managed pub income and turnover related rent have also been disaggregated for clearer presentation and the accounting policies for
each of these revenue streams is set out below:
Service charge income
Service charge income is recognised in accordance with IFRS 15. This income stream is recognised in the period in it is earnt and when
performance obligations are met.
Turnover related rent
Turnover related rent relates to the margin earnt on the sale of wet products and is recognised at the fair value of the consideration
received or receivable for goods and services provided in the normal course of business.
Managed pub income
Managed pub income relates to income received in the pub business relating to food, drinks and machine income. The revenue from drink
and food is recognised at the point at which the goods are provided. The revenue earned from machines is recognised in the period in
which it relates.
Rental income
Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight-line basis over the entire lease term. Where
such rental income is recognised ahead of the related cash flow, an adjustment is made to ensure the carrying value of the related property
including the accrued rent does not exceed the external valuation. Initial direct costs incurred in negotiating and arranging a new lease are
amortised on a straight-line basis over the period from the date of lease commencement to the expiry date of the lease.
Where a rent-free period is included in a lease, this is recognised over the lease term, on a straight-line basis, as a reduction of rental
income.
Where a lease incentive payment, or surrender premiums are paid to enhance the value of a property, it is amortised on a straight- line
basis over the period from the date of lease commencement to the expiry date of the lease as a reduction of rental income. It is
management’s policy to recognise all material lease incentives and lease incentives greater than six months. Upon receipt of a surrender
premium for the early determination of a lease, the profit, net of dilapidations and non-recoverable outgoings relating to the lease
concerned, is accounting for from the effective date of the modification, being the date at which both parties agree to the modification,
considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease.
Letting costs are recognised over the lease term on a straight line basis as a reduction of rental income.
In the Group’s pub business, revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
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1. Accounting policies continued
Asset management fees
Management fees are recognised in the statement of comprehensive income as the services are delivered and performance obligations
met. The Group assesses whether the individual elements of service in the agreement are separate performance obligations. Where the
agreements include multiple performance obligations, the transaction price will be allocated to each performance obligation.
Promote payments
The Group is contractually entitled to receive a promote payment should the returns from a joint venture to the joint venture partner exceed
a certain internal rate of return. This payment is only receivable by the Group on disposal of underlying properties held by the joint venture
or other termination events. Any entitlements under these arrangements are only accrued for in the financial statements once the Group
believes the above performance conditions have been met and it is highly probable that the associated revenue will not reverse.
Other standards
The Group has considered amendments to standards endorsed by the European Union effective for the current accounting period and
determined that these do not have a material impact on the consolidated financial statements of the Group. These amendments include,
amendments to IFRS 9 (prepayments features), IAS 28 (long term interests), IAS 19 (plan amendments) and IFRIC 23.
A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current
accounting period.
Amendments to IFRS 3 (Business Combinations) is effective for financial years commencing on or after 1 January 2020. The amendments
relate to changes in the criteria for determining whether an acquisition is a business combination or an asset acquisition. These
amendments will be applied to any future business combinations.
Amendments to IFRS 9 (Financial Instruments) is effective for financial years commencing on or after 1 January 2020. The amendments
offer relief in meeting the criteria for hedge accounting on the transition from LIBOR to IBOR. The adoption of these amendments is not
considered to have a material impact on the financial statements of the Group.
Amendments to References to the Conceptual Framework are effective for financial years commencing on or after 1 January 2020. The
adoption of these amendments is not considered to have a material impact on the consolidated financial statements of the Group.
Amendments to IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) are also effective for financial years commencing
on or after 1 January 2020. The amendments will be applied to any future changes in Accounting Policy, Accounting Estimates or Errors.
Other accounting policies:
Investment properties
These properties include completed properties that are generating rent or are available for rent, and development properties that are
under development or available for development. Investment properties comprise freehold and leasehold properties and are first
measured at cost (including transaction costs), then revalued to market value at each reporting date by independent professional valuers.
Leasehold properties are shown gross of the leasehold payables (and accounted for as right-of-use asset under IFRS 16, see Leases
accounting policy). Valuation gains and losses in a period are taken to the income statement. As the Group uses the fair value model, as per
IAS 40 Investment Properties, no depreciation is provided. An asset will be classified as held for sale within investment properties, in line
with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, where the asset is available for immediate sale in their present
condition and the sale is highly probable.
Business combinations
The Group applies the acquisition method to account for business combinations. The cost of the acquisition is measured at the aggregate
of the fair values, at the date of completion, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in
exchange for control of the acquired. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for
recognition under IFRS are recognised at their fair value at the acquisition. Where the fair value of the consideration is less than the fair
value of the identifiable assets and liabilities then the difference is recognised as a bargain purchase in the statement of comprehensive
income.
Where properties are acquired through corporate acquisitions, each transaction is considered by management in light of the substance of
the acquisition to determine whether the acquisition is a business combination or an asset acquisition. If a transaction is determined to be
an asset acquisition then it is accounted for at cost.
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Joint ventures
Interests in joint ventures are accounted for using the equity method of accounting. The Group’s joint ventures are entities over which the
Group has joint control with a partner. Investments in joint ventures are carried in the balance sheet at cost as adjusted by post-acquisition
changes in the Group’s share of the net assets of the joint venture, less any impairment or share of income adjusted for dividends. In
assessing whether a particular entity is controlled, the Group considers all of the contractual terms of the arrangement, whether it has the
power to govern the financial and operating policies of the joint venture so as to obtain benefits from its activities, and the existence of any
legal disputes or challenges to this control in order to conclude whether the Group controls the joint venture.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised
over the useful lives of the equipment, using the straight-line method at a rate of between 10% to 25% depending on the useful life.
Public houses are initially measured at cost and subsequently measured at valuation, net of depreciation and any impairment losses.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following
bases:
– Buildings 4% on a straight line-basis or the lease term if shorter
– Fixtures and fittings 20% on a straight line-basis depending on the useful life
– IT 33% on a straight line-basis
– Freehold land and assets in the course of construction are not depreciated.
Residual value is reviewed at least at each financial year and there is no depreciable amount if residual value is the same as, or exceeds,
book value.
The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of
the asset.
Lease commitments
Prior to adoption of IFRS 16 the group use to account for leases as follows:
As lessor
The cost of securing an operating lease are capitalised within the carrying amount of the related investment property and amortised over
the lease term. Revenue from operating leases is recognised as per the revenue recognition policy.
As lessee
Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as
operating leases. Payments including prepayments, made under operating leases (net of any incentives received from the lessor) are
charged to statement of comprehensive income on a straight-line basis over the period of the lease.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments
with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an
insignificant risk of change in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the
consolidated statement of financial position.
Financial instruments
Financial assets
The Group classifies its financial assets as fair value through profit or loss or amortised cost, depending on the purpose for which the asset
was acquired and based on the business model test. The Group’s account for financial assets carried amortised cost including tenant
receivables which arise from the provision of goods and services to customers. These are initially recognised at fair value plus transaction
costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost, less provision for impairment.
Impairment provisions for receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the
determination of the lifetime expected credit losses. The probability of tenant default and subsequent non-payment of the receivable is
assessed. If it is determined that the receivable will not be collectable, the gross carrying value of the asset is written off against the
associated provision. If in a subsequent year the amount of the impairment loss decreased and the decrease can be related objectively to
an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the
carrying value of the asset does not exceed its amortised costs at the reversal date. The Group’s financial assets measured at amortised
cost comprise tenant receivables and cash and cash equivalents.
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1. Accounting policies continued
The financial instruments classified as financial assets at fair value through profit or loss include interest rate swap and cap arrangements.
Recognition of the derivative financial instruments takes place when the hedging contracts are entered into. They are recognised at fair
value and transaction costs are included directly in finance costs.
The fair values of derivative financial assets and financial liabilities are determined as follows:
Interest rate swaps and caps are measured using the midpoint of the yield curve prevailing on the reporting date. The valuations do not
include accrued interest from the previous settlement date to the reporting date. The fair value represents the net present value of the
difference between the contracted rate and the valuation rate when applied to the projected balances for the period from the reporting
date to the contracted expiry dates.
Financial assets are derecognised only when the contractual rights to the cash flows from the financial asset expire or the Group transfers
substantially all risks and rewards of ownership.
Financial liabilities
Financial liabilities are classified at fair value through profit or loss or as other liabilities. A financial liability is derecognised when the
obligation under the liability is discharged or cancelled or expires.
All loans and borrowings are classified as other liabilities. Initial recognition is at fair value less directly attributable transaction costs. After
initial recognition, interest bearing loans and borrowings are subsequently measured at amortised costs using the effective interest method.
Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost.
The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year,
discounting is omitted.
Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets. The cost of issuing share capital is recognised
directly in equity against the proceeds from the share capital.
Taxation
Income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the balance sheet.
Tax is recognised in the statement of comprehensive income.
Deferred tax
Any deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates that are expected to apply in the period when the liability is settled or the asset is realised. A deferred tax asset is
recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Value added tax
Revenues, expenses and assets are recognised net of the amount of value added tax except:
Where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the
value added tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
Receivables and payables that are stated with the amount of value added tax included. The net amount of value added tax recoverable
from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
Share-based payments
The cost of equity settled transactions is measured with reference to the fair value at the date at which they were granted. Where vesting
performance conditions are non-market based, the fair value excludes the effect of these vesting conditions and an estimate is made at
each balance sheet date of the number of instruments expected to vest. The fair value is recognised over the vesting period in the
statement of comprehensive income, with a corresponding increase in equity. Any change to the number of instruments with non-market
vesting conditions expected to vest is recognised in the statement of comprehensive income for that period.
Employee Benefit Trust
The Group operates an Employee Benefit Trust for the exclusive benefit of the Group’s employees. The investment in the Company’s
shares held by the trust is recognised at cost and deducted from equity. No gain or loss is recognised in the statement of comprehensive
income on the purchase, sale, issue or cancellation of the shares held by the trust.
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Dividends
Dividends to the Company’s shareholders are recognised when they become legally payable. In the case of interim dividends, this is when
paid. In the case of final dividends, this is when approved by equity holders.
Finance income and costs
Finance income and costs are recognised using the effective interest rate method. The effective interest method is a method of calculating
the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the
financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or financial liability.
Service charge income and expense
Service charge income is recognised in the accounting period in which the services are rendered and the related property expenses are
recognised in the period in which they are incurred.
Other standards
There are no other standards or Interpretations yet to be effective that would be expected to have a material impact on the financial
statements of the Group.
2. Critical accounting judgements and estimates
The preparation of financial statements requires management to make estimates affecting the reported amounts of assets and liabilities, of
revenues and expenses, and of gains and losses. The key assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year, are discussed below. Estimates and judgements are continually evaluated and are based on
historical experience as adjusted for current market conditions and other factors.
Significant judgements
Leased and tied pub classification as investment property
The Directors have exercised judgement in order to determine the appropriate classification of the leased and tied pubs as investment
Property or Property plant and equipment. Under IAS40 ‘Investment Properties’ an entity treats such a property as investment property if
services provided to the occupier are insignificant to the arrangement as a whole. The Directors consider that whilst the relative proportion
of wet income to lease income from a tied pub in quantitative terms is not insignificant other factors should be considered in making the
assessment of whether the services provided to the tenants are insignificant. The income received by the Group in respect of the sale of
wet products is higher than that which would be received by a third party providing the same services and that these pubs pay a lower
fixed rent than they would without the wet product tie. This indicates the margin earned, in substance, predominantly represents turnover
related rent. Accordingly, leased and tied pubs with an aggregate fair value of £219.1 million at 31 March 2020 (31 March 2019: £212.1 million)
have been classified as Investment Property. Managed houses with an aggregate value of £55.0 million at 31 March 2020 (31 March 2019:
£26.9 million) have been classified as Plant, Property and Equipment.
Principal vs agent
The Group has contracts with breweries and drinks distributors for the provision of wet product to its pub tenants. In assessing whether it is
appropriate to recognise revenue as principal or agent, the Directors exercise their judgement in considering the criteria included in IFRS 15
‘Revenue from Contracts with Customers’. The Group is not responsible for the delivery or the quality of the wet drink product and does not
take physical control or assume inventory risk in the arrangement; these factors indicate that the Group is acting as agent and the Directors
have concluded that this outweighs the fact that the Group sets the pricing with the tenant and bears an element of credit risk. In
considering the nature of the relationship with its pub tenants, the Directors are satisfied that the provisions of IFRS 15 indicate that the
Group is not acting as principal and has therefore recognised revenue of £13.8 million (2019: £12.3 million) in the period representing only
the net margin earned on wet product sales, see note 4 for further details.
Business Combinations
Management must assess whether the acquisition of property through the purchase of a corporate vehicle should be accounted for as an
asset purchase or a business combination. Management exercise judgement to determine whether the assets and liabilities acquired
contains processes and inputs in addition to property. On 2 December 2019, the Group acquired Bravo Inns 1 Limited and Bravo Inns 2
Limited (Bravo Inns) (see note 15). It was determined that a business had been acquired and as such the transaction would be accounted for
as a business combination under IFRS 3.
Business combinations are accounted for using the acquisition method and any excess of the purchase consideration over the fair value of
the net assets acquired is recognised as goodwill and if the fair value of the net asset assets is deemed to be higher than the purchase
consideration then this is recognised as a bargain purchase.
The following items are ongoing areas of accounting judgement, however, significant judgment has not been required for any of these
items in the current financial year.
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N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
2. Critical accounting judgements and estimates continued
REIT Status
NewRiver is a Real Estate Investment Trust (REIT) and does not pay tax on its property income or gains on property sales, provided that at
least 90% of the Group’s property income is distributed as a dividend to shareholders, which becomes taxable in their hands. In addition,
the Group has to meet certain conditions such as ensuring the property rental business represents more than 75% of total profits and
assets. Any potential or proposed changes to the REIT legislation are monitored and discussed with HMRC. It is managements judgement
that the Group has met the REIT conditions in FY20.
Sources of estimation uncertainty
Investment property
As noted above, the Group’s investment properties are stated at fair value. The assumptions and estimates used to value the properties are
detailed in note 12. Small changes in the key estimates, such as the estimated future rental income, can have a significant impact on the
valuation of the investment properties, and therefore a significant impact on the balance sheet and key performances measures such as
Net Asset Value per share. Certain estimates require an assessment of factors not within management’s control, such as overall market
conditions. The third party valuers for properties recognised at 31 March 2020 include a material valuation uncertainty clause in their
reports. The clause highlights significant estimation uncertainty regarding the valuation of investment property due to the Covid-19
pandemic.
Rents, ERVs, EBITDA multiples and maintainable earnings have a direct relationship to valuation, while yield has an inverse relationship.
Estimated costs of a development project will inversely affect the valuation of development properties. There are interrelationships
between all these unobservable inputs as they are determined by market conditions. The existence of an increase in more than one
unobservable input could be to magnify the impact on the valuation, see note 12 for sensitivity analysis.
The estimated fair value may differ from the price at which the Group’s assets could be sold. Actual realisation of net assets could differ
from the valuation used in these financial statements, and the difference could be significant.
Impairment of trade receivables
As a result of Covid-19 the Group’s assessment of expected credit losses is inherently subjective due to the forward-looking nature of the
assumptions made, most notably around the assessment over the likelihood of tenants having the ability to pay rent as demanded, as well
as the likelihood of rent deferrals and rent frees being offered to tenants as a result of the pandemic. The expected credit loss which has
been recognised is therefore subject to a degree of uncertainty which may not prove to be accurate given the uncertainty caused by
Covid-19.
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3. Segmental reporting
The Group’s operations are organised into two operating segments, being investment in retail property and in pubs. The retail investments
comprise shopping centres, retail warehouses and high street stores. The pub investments consist of community public houses. All of the
Group’s operations are in the UK and therefore no geographical segments have been identified.
The relevant gross revenue, net rental income and property and other assets, being the measures of segment revenue, segment result and
segment assets used by the management of the business, are set out below. The results include the Group’s share of assets and results
from properties held in joint ventures and associates.
2020
2019
Segment revenues and result
Property rental and related income
Managed pub income
Turnover related rent
Service charge income
Amortisation of tenant incentives and letting costs
Asset management fees
Surrender premiums and commissions
Segment revenue
Service charge expense
Ground rent
Rates
Other property operating expenses
Property operating expenses
Segment result
Administrative expenses
Share of joint ventures’ and associates’ profit after tax
Acquisition and integration costs
Net valuation movement
(Loss) / profit on disposal of investment properties
Finance income
Finance costs
Gain on bargain purchase
Revaluation of derivatives
Taxation
Loss for the year after taxation
Retail
£m
76.8
–
–
16.9
(1.5)
0.9
1.8
94.9
(21.1)
–
(2.3)
(6.2)
(29.6)
65.3
Pubs
£m
13.6
22.5
13.8
–
–
–
–
49.9
–
–
(1.1)
(24.3)
(25.4)
24.5
Retail
(restated)
£m
79.3
–
–
16.6
(1.3)
0.3
3.3
98.2
(21.0)
(2.9)
(2.2)
(5.0)
(31.1)
67.1
Group
£m
90.4
22.5
13.8
16.9
(1.5)
0.9
1.8
144.8
(21.1)
–
(3.4)
(30.5)
(55.0)
89.8
(20.5)
(2.2)
(0.4)
(162.6)
(1.5)
0.1
(21.5)
–
(2.8)
0.5
(121.1)
Group
(restated)
£m
92.8
16.2
12.3
16.6
(1.8)
0.3
3.8
Pubs
£m
13.5
16.2
12.3
–
(0.5)
–
0.5
42.0
140.2
–
–
(0.7)
(19.4)
(20.1)
21.9
(21.0)
(2.9)
(2.9)
(24.4)
(51.2)
89.0
(19.4)
(0.5)
(3.3)
(88.2)
0.9
–
(18.7)
7.0
(3.2)
(0.5)
(36.9)
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3. Segmental reporting continued
Segment assets
Non-current assets
Investment properties
Investments in joint ventures
Investment in associates
Public houses
Property, plant and equipment
Other non-current assets
Total non-current assets
Current assets
Trade and other receivables
Current taxation asset
Cash and cash equivalents
Total current assets
Segment assets
4. Revenue
2020
2019
Retail
£m
Pubs
£m
Unallocated
£m
Total
£m
Retail
£m
Pubs
£m
Unallocated
£m
Total
£m
961.2
224.4
22.1
0.9
–
–
–
23.5
–
–
–
–
55.0
–
–
3.2
–
–
–
–
–
–
1.2
4.1
–
0.7
80.8
1,007.7
282.6
86.8
1,185.6
22.1
0.9
55.0
1.2
4.1
1,268.9
26.7
0.7
80.8
108.2
1,377.1
987.0
7.6
–
–
–
267.1
–
26.9
0.4
–
–
–
–
0.8
0.7
1,254.1
7.6
26.9
1.2
0.7
1,290.5
28.2
6.4
–
34.6
–
–
27.1
27.1
61.7
1,022.8
300.8
28.6
1,352.2
Property rental and related income*
Turnover related rent
Amortisation of tenant incentives and letting costs
Surrender premiums and commissions
Rental related income
Asset management fees
Managed pub income
Service charge income
Revenue
2020
£m
90.4
13.8
(1.5)
1.8
104.5
0.9
22.5
16.9
144.8
2019
(restated)
£m
92.8
12.3
(1.8)
3.8
107.1
0.3
16.2
16.6
140.2
*
Included within property rental and related income is car park income of £7.4 million (2019: £7.1 million) which falls under the scope of IFRS 15. The remainder of the
income is covered by IFRS 16.
Asset management fees, managed pub income and service charge income which represents the flow through costs of the day-to-day
maintenance of shopping centres falls under the scope of IFRS 15. Refer to accounting policies in Note 1.
5. Property operating expenses
Service charge expense
Ground rent
Rates on vacant units
Expected credit loss
Pub operating expenses
Other property operating expenses
138
138
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2020
£m
21.1
–
3.4
2.5
20.3
7.7
55.0
2019
(restated)
£m
21.0
2.9
2.9
–
15.3
9.1
51.2
6. Administrative expenses
Wages and salaries
Social security costs
Other pension costs
Staff costs
Depreciation
Share-based payments
Operating lease payments
Other administrative expenses
Professional fees in relation to the acquisition and integration of Bravo Inns Limited and Hawthorn Leisure
Administrative expenses
Net administrative expenses ratio is calculated as follows
Administrative expenses
Adjust for:
Asset management fees
Share of joint ventures’ and associates administrative expenses
Share-based payments
Depreciation of properties
Less exceptional cost in respect of the acquisition of Bravo Inns Limited
Less exceptional cost in respect of the acquisition of Hawthorn Leisure
Group’s share of net administrative expenses
Property rental and related income*
Share of joint ventures’ and associates’ property income
Net administrative expenses as a % of property income (including share of joint ventures)
* This balance includes an expected credit loss of £2.5 million.
Average monthly number of staff
Directors
Operations and asset managers
Pubs
Support functions
2020
£m
9.9
1.5
0.4
11.8
1.6
–
–
7.1
20.5
0.4
20.9
2020
£m
20.9
(0.9)
0.1
–
(0.8)
(0.4)
–
18.9
124.2
3.4
127.6
14.9%
2020
7
44
52
79
182
2019
£m
7.8
1.9
0.3
10.0
1.0
2.5
0.3
5.6
19.4
3.3
22.7
2019
£m
22.7
(0.3)
0.1
(2.5)
(0.8)
–
(3.3)
15.9
121.3
0.9
122.2
13.0%
2019
7
34
53
55
149
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
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6. Administrative expenses continued
Auditors’ remuneration
Audit of the Company’s financial statements
Audit of subsidiaries, pursuant to legislation
Non-audit fees
Total fees
2020
£’000
315
235
550
50
600
The remuneration in respect of 2019 relates to Deloitte LLP, the Group’s previous respective auditors. No amounts were paid to
PricewaterhouseCoopers in 2019.
7. (Loss)/profit on disposal of investment properties
Gross disposal proceeds
Carrying value
Cost of disposal
(Loss) / profit on disposal of investment properties
8. Finance income and finance costs
Finance income
Income from loans with joint ventures
Finance expense
Interest on borrowings
Finance cost on lease liabilities
Revaluation of derivatives
Net finance expense
9. Taxation
UK Corporation Tax at 19% (2019: 19%)
Current year
Prior year
Taxation (credit) / charge
140
140
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
2019
£’000
126
235
361
35
396
2019
£m
62.5
(60.7)
(0.9)
0.9
2020
£m
48.0
(47.9)
(1.6)
(1.5)
2020
£m
2019
£m
0.1
–
(18.7)
(2.8)
(2.8)
(24.2)
(18.7)
–
(3.2)
(21.9)
2020
£m
2019
£m
0.9
(1.4)
(0.5)
1.2
(0.7)
0.5
The credit for the year recognised in the consolidated statement of comprehensive income relates to a total income tax credit of £1.0 million
and a deferred tax liability movement of £0.5 million.
(Loss) / profit before tax
Tax at the current rate of 19% (2019: 19%)
Revaluation of property
Current year tax charge
Non-taxable profit due to REIT regime
Non-deductible expenditure
Prior year adjustment
Taxation (credit) / charge
2020
£m
(121.6)
(23.1)
30.9
0.9
(9.7)
1.9
(1.4)
(0.5)
2019
£m
(36.4)
(6.9)
16.7
–
(8.6)
–
(0.7)
0.5
Real Estate Investment Trust regime (REIT regime)
The Group is a member of the REIT regime whereby profits from its UK property rental business are tax exempt. The REIT regime only
applies to certain property-related profits and has several criteria which have to be met. The main criteria are:
– the assets of the property rental business must be at least 75% of the Group’s assets;
– the profit from the tax-exempt property rental business must exceed 75% of the Group’s total profit;
– at least 90% of the Group’s profit from the property rental business must be paid as dividends.
The Group continues to meet these conditions and management intends that the Group should continue as a REIT for the foreseeable future.
Deferred tax
Deferred tax asset
Deferred tax liabilities
Net deferred tax
31 March
2019
£m
Movement
£m
31 March
2020
£m
1.2
(2.8)
(1.6)
–
(0.5)
(0.5)
1.2
(3.3)
(2.1)
The following corporation tax rates have been substantively enacted: 19% effective from 1 April 2017. The deferred tax assets and liabilities
have been calculated at the tax rate effective in the period that the tax is expected to crystallise. The Group has recognised a deferred tax
liability calculated at 19% (2019: 17%). As at 31 March 2020, the Group has unrecognised tax losses of £22.5 million (March 2019: £9.0
million). The losses have not been recognised as an asset due to uncertainty over the availability of taxable income to utilise the losses.
The losses do not expire but are reliant on continuity of ownership and source of trade.
10. Performance measures
The Group’s key performance measure is ‘Underlying Funds from Operations’ or ‘UFFO’. This performance measure is intended to
measure the underlying profitability of the Group and as such adds back the non-cash share-based payment expense, unrealised
gains/losses and other one-off items. Management considers this metric to be the most appropriate for measuring the underlying
performance of the business as it is familiar to non-property investors, and better reflects the Group’s generation of cash profits. It is for this
reason that UFFO is used to measure dividend cover.
The measure is not intended to replace the cash measures disclosed in the cash flow statement.
The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in 2014 and additional guidance in
2016, which gives recommendations for performance measures. The EPRA earnings measure excludes investment property revaluations
and gains on disposals, intangible asset movements and their related taxation.
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
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10. Performance measures continued
A reconciliation of the performance measures to the nearest IFRS measure is below:
Loss for the year after taxation
Adjustments
Net valuation movement
Loss/(profit) on disposal of investment properties
Revaluation of derivatives
Gain on bargain purchase
Exceptional cost in relation of Hawthorn and Bravo Inns
Deferred tax
Group’s share of joint ventures’ and associates’ adjustments
Revaluation of investment properties
Loss / (profit) on disposal of investment properties
EPRA earnings
Share-based payment charge
Depreciation on public houses
Integration costs
Underlying Funds From Operations (UFFO)
Number of shares
Number of shares
Weighted average number of ordinary shares for the purposes of Basic EPS, UFFO and EPRA
Effect of dilutive potential ordinary shares:
Deferred bonus shares
Warrants
2020
£m
(121.1)
2019
£m
(36.9)
162.6
88.2
1.5
2.8
–
0.4
0.5
4.3
0.3
51.3
–
0.8
–
52.1
(0.9)
3.2
(7.0)
3.0
–
1.3
(0.4)
50.5
2.5
0.8
1.3
55.1
2020
No. m
305.9
0.3
–
2019
No. m
304.0
0.3
0.2
Weighted average number of ordinary shares for the purposes of diluted EPS, UFFO and EPRA
306.2
304.5
(39.6)
(39.6)
17.0
17.0
16.7
16.7
(12.1)
(12.1)
18.1
18.1
16.6
16.6
Performance measures (pence)
IFRS
Basic EPS
Diluted EPS
UFFO
UFFO per share
Diluted UFFO per share
EPRA
EPRA EPS
Diluted EPRA EPS
142
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The below table reconciles the differences between the calculation of basic, diluted and EPRA NAV.
EPRA NAV per share and Basic NAV per share:
Net assets
Warrants in issue
Unexercised employee awards
Diluted net assets
Fair value derivatives
Deferred tax
EPRA net assets
11. Dividends
Payment date
Year to March 2020
Ordinary dividends
24 May 2019
26 July 2019
15 November 2019
7 February 2020
Year to March 2019
Ordinary dividends
25 May 2018
27 July 2018
16 November 2018
24 January 2019
12. Investment properties
Fair value brought forward
Acquisitions
Capital expenditure
Properties acquired in business combinations
Lease incentives, letting and legal costs
Reclassification to plant property and equipment
Disposals
Net valuation movement
Fair value carried forward
Right of use asset (investment property)
Fair value carried forward
2020
Shares
m
306.2
–
0.3
£m
610.6
–
–
Pence per
share
199p
2019
Shares
m
304.8
0.3
0.9
£m
796.1
0.4
1.3
Pence per
share
261p
610.6
306.5
199p
797.8
306.0
261p
2.7
2.1
–
–
(0.1)
1.6
–
–
615.4
306.5
201p
799.3
306.0
261p
PID
Non-PID
Pence per
share
5.40
5.40
5.40
5.40
21.60
–
–
–
–
–
5.40
5.40
5.40
5.40
21.60
PID
Non-PID
Pence per
share
5.25
5.40
5.40
5.40
21.45
–
–
–
–
–
5.25
5.40
5.40
5.40
21.45
£m
16.3
16.5
16.5
16.5
65.8
£m
15.8
16.4
16.4
16.3
64.9
2020
£m
2019
£m
1,254.1
1,227.2
44.1
14.1
–
2.3
(5.4)
(47.9)
(159.0)
1,102.3
83.3
49.9
23.7
100.2
2.7
(1.3)
(60.7)
(87.6)
1,254.1
–
1,185.6
1,254.1
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
12. Investment properties continued
The Group’s investment properties have been valued at fair value on 31 March 2020 by independent valuers, Colliers International
Valuation UK LLP and Knight Frank LLP, on the basis of fair value in accordance with the Current Practice Statements contained in The
Royal Institution of Chartered Surveyors Valuation – Professional Standards, (the ‘Red Book’). The valuations are performed by
appropriately qualified valuers who have relevant and recent experience in the sector. The pub valuations are each subject to a special
assumption that similar commercial supply contracts would be available to a buyer of the Portfolio, or that the buyer would have
agreements in place with brewers and suppliers which were at least as good as the Group. The valuer considers this assumption to be
standard practice in the pub industry and to be consistent with the Red Books definition of adopting the highest and best use.
The outbreak of Covid-19, declared by the World Health Organisation as a “Global Pandemic” on 11 March 2020, has impacted global
financial markets. Travel restrictions have been implemented by many countries. Market activity is being impacted in many sectors. As at
the valuation date, the external valuers consider that they can attach less weight to previous market evidence for comparison purposes, to
inform opinions of value. The current response to Covid-19 means that external valuers are faced with an unprecedented set of
circumstances on which to base a judgment. The valuations across all asset classes are therefore reported on the basis of “material
valuation uncertainty” as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty – and a higher degree of
caution – should be attached to the valuations provided than would normally be the case. The external valuers have confirmed, the
inclusion of the “material valuation uncertainty” declaration does not mean that valuations cannot be relied upon. Rather, the phrase is used
in order to be clear and transparent with all parties, in a professional manner that – in the current extraordinary circumstances – less
certainty can be attached to valuations than would otherwise be the case. In light of this material valuation uncertainty we have reviewed
the ranges used in assessing the impact of changes in unobservable inputs on the fair value of the Group’s property portfolio.
As a result of the material uncertainty clause included, sensitivities for more extensive changes in assumptions have been included in the
sensitivity analysis. Whilst the property valuations reflect the external valuers’ assessment of the impact of Covid-19 at the valuation date,
we consider +/-10% for ERV, +/-10% for EBITDA +/-100bps for NEY and +/-100bps for multiplier to capture the increased uncertainty in these
key valuation assumptions, and deem it to be a reasonable worst case scenario given the like for like fall in valuations of 12.3% already
recognised in the year.
There has been no change in the valuation methodology used for investment property as a result of Covid-19. The impact of Covid-19 on
the retail valuation has been the impact on yields and the capital deduction based on rental income expectations. Within the pub business,
the valuations have made allowances for a delinquency period.
The fair value at 2020 represents the highest and best use.
The properties are categorised as Level 3 in the IFRS 13 fair value hierarchy. There were no transfers of property between Levels 1, 2 and 3.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
Information about fair value measurements for the investment property and public houses using significant unobservable inputs (Level 3)
Shopping centres
Retail warehouse
High street
Development sites
Property ERV
Property rent
Property
equivalent
yield
EPRA
topped up
net initial
yield
Fair value
(£m)
Min
£ per sq ft
Max
£ per sq ft
Average
£ per sq ft
Min
£ per sq ft
Max
£ per sq ft
Average
£ per sq ft
Average
%
Average
%
614.7
189.0
12.1
62.0
877.8
7.3
8.0
5.0
5.3
31.4
15.7
11.5
15.7
13.1
12.0
8.8
9.7
3.6
2.0
0.0
0.2
21.4
16.0
16.9
15.5
10.3
11.2
7.2
3.9
8.4%
7.1%
8.1%
–
7.6%
7.1%
7.9%
–
144
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NewRiver REIT plc Annual Report and Accounts 2020
Pub portfolio
Convenience store
development portfolio
Total
Fair value
Property Rent (£ per sq ft)
EBITDA multiples (x) /
Net Initial Yield (%)
EBITDA (£ per sq ft)
(£m)
273.8
Min
–
Max
Average
–
–
Min
1.7x
Max
Average
12.2x
7.6x
Min
1.37
Max
115.1
Average
19.65
5.7
19.2
19.4
19.3
5.0%
5.3%
5.2%
–
–
–
279.5
1,157.3
The investments are a portfolio of retail and leisure assets in the UK. The valuation was determined using an income capitalisation method,
which involves applying a yield to rental income streams. Inputs include yield, current rent and ERV. Development properties are valued
using a residual method, which involves valuing the completed investment property using an investment method and deducting estimated
costs to complete, then applying an appropriate discount rate.
The relationship of unobservable inputs to fair value are the higher the rental values and the lower the yield, the higher the fair value In the
pub portfolio, the valuer values the assets on a Profits Method, assessing their opinion of the Fair Maintainable Trade (FMT) that a
Reasonable Efficient Operator (REO) could achieve as at the valuation date having regard to actual trading performance of each asset and
wider market dynamics. In respect of the pub portfolio, these are valued on the highest and best use basis. The valuer makes judgements
on whether to use residual value or a higher value to include development potential where appropriate. Where no conversion opportunity
has been identified at present, the valuer has not specifically considered an alternative use valuation.
The inputs to the valuation include:
– Rental value – total rental value per annum
– Equivalent yield – the net weighted average income return a property will produce based upon the timing of the income received.
– EBITDA multiples and maintainable earnings from each pub
– Estimated development costs
There were no changes to valuation techniques during the year.
The impact of Covid-19 on the retail valuation has been the impact on yields and the capital deduction based on rental income
expectations. Within the pub business, the valuations have made allowances for a delinquency period. Valuation reports are based on both
information provided by the Group, e.g. current rents and lease terms which is derived from the Company’s financial and property
management systems and is subject to the Group’s overall control environment, and assumptions applied by the valuers, e.g. ERVs and
yields. These assumptions are based on market observation and the valuers’ professional judgement.
Revenues are derived from a large number of tenants with no single tenant or group under common control contributing more than 2% of
the Group’s revenue.
Sensitivities of measurement of significant inputs
There are interrelationships between all these unobservable inputs as they are determined by market conditions. The effect of an increase
in more than one unobservable input would be to magnify the impact on the valuation. Expected vacancy rates may impact the yield with
higher vacancy rates resulting in higher yields.
As set out within significant accounting estimates and judgments above, the Group’s property portfolio valuation is open to judgments and
is inherently subjective by nature.
As a result, the sensitivity analysis below illustrates the impact of changes in key unobservable inputs on the fair value of the Group’s properties.
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
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12. Investment properties continued
Sensitivity impact on valuations of a 10% change in estimated rental value and absolute yield of 100 bps.
Asset Type
Retail asset valuation
Shopping centres
Retail warehouses
High street
Development
Impact on valuations of a 10% change in ERV
Impact on valuations of 1.0% change in yield
£m
Increase 10%
£m
Decrease 10%
£m
Increase 1.0%
£m
Decrease 1.0%
54.1
9.6
0.7
3.7
68.1
(51.3)
(17.1)
(0.7)
(3.6)
(72.7)
(70.3)
(21.1)
(0.7)
(3.6)
(95.7)
91.5
28.0
0.8
4.6
124.9
£m
614.7
189.0
12.1
62.0
877.8
Sensitivity impact on valuations of a 10% change in EBITDA and multiplier of 1.0x
Asset Type
Pub asset valuation
Impact on valuations of a 10% change in EBITDA
Impact on valuations of a 1.0x change in multiplier
£m
279.5
£m
Increase 10%
£m
Decrease 10%
£m
Increase 1.0x
£m
Decrease 1.0x
28.0
(25.4)
35.9
(35.9)
2019: Sensitivity impact on valuations of a 5% change in estimated rental value and absolute yield of 150 bps.
Asset Type
Retail asset valuation
Shopping centres
Retail warehouses
High street
Development
Impact on valuations of a 5% change in ERV
Impact on valuations of 50 bps change in yield
£m
Increase 5%
£m
Decrease 5%
£m
Increase 0.5%
£m
Decrease 0.5%
40.4
13.6
1.5
4.4
59.9
(37.1)
(12.4)
(1.3)
(4.4)
(55.2)
(53.5)
(19.1)
(1.8)
(3.6)
(78.0)
70.2
25.7
2.3
4.8
103.0
£m
734.7
164.8
16.7
71.1
987.3
Sensitivity impact on valuations of a 5% change in EBITDA and multiplier of 0.5x.
Asset Type
Pub asset valuation
Impact on valuations of a 5% change in EBITDA
Impact on valuations of a 0.5x change in multiplier
£m
294.0
£m
Increase 5%
14.4
£m
Decrease 5%
(14.4)
£m
Increase 0.5x
£m
Decrease 0.5x
16.6
(16.6)
Reconciliation to net valuation movement in income statement
Net valuation movement in investment properties
Net valuation movement in investment properties
Net valuation movement in property, plant and equipment
Net valuation movement in right of use asset
Net valuation movement in Consolidated Statement of Comprehensive Income
2020
£m
(159.0)
(4.0)
0.4
(162.6)
2019
£m
(87.6)
(0.6)
–
(88.2)
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13. Investments in joint ventures
As at 31 March 2020 the Group has two joint ventures. On the 20 June 2019, the Group completed the acquisition of a portfolio of four
retail parks, in which the Group holds a 50% interest.
Opening balance
Additions to investment in joint ventures
Loan to joint venture
Group’s share of profit after taxation excluding valuation movement
Net valuation movement
Distributions and dividends
Investment in joint venture
Name
NewRiver Retail Investments LP (NRI LP)
NewRiver Retail (Napier) Limited (Napier)
2020
£m
7.6
15.4
3.0
2.0
(3.9)
(2.0)
22.1
2019
£m
8.5
–
–
0.8
(1.3)
(0.4)
7.6
Country of
incorporation
2020
% Holding
2019
% Holding
Guernsey
UK
50
50
50
–
The Group is the appointed asset manager on behalf of these joint ventures and receives asset management fees, development
management fees and potentially performance-related bonuses.
NewRiver Retail Investments LP and NewRiver Retail (Napier) Limited have a 31 December year end. The aggregate amounts recognised in
the consolidated balance sheet and statement of comprehensive income are as follows:
Balance sheet
Non-current assets
Current assets
Current liabilities
Borrowings due in more than one year
Net assets
Statement of comprehensive income
Revenue
Property operating expenses
Net property income
Administration expenses
Net finance costs
Net valuation movement
(Loss) / profit on disposal
Loss after taxation
Add back net valuation movement
Group’s share of joint ventures’ profit before valuation movements
The Group’s share of contingent liabilities in the joint ventures is £nil (March 2019: £nil).
2020
2019
Total
£m
70.7
3.2
(6.0)
(30.0)
37.9
Group’s
share
£m
36.9
1.6
(1.5)
(14.9)
22.1
Total
£m
14.8
1.0
(0.6)
–
15.2
2020
2019
Total
£m
6.4
(0.6)
5.8
(0.3)
(0.9)
4.6
(8.0)
(0.5)
(3.9)
8.0
4.1
Group’s
share
£m
3.2
(0.3)
2.9
(0.1)
(0.5)
2.3
(3.9)
(0.3)
(1.9)
3.9
2.0
Total
£m
1.8
(0.6)
1.2
(0.2)
(0.2)
0.8
(2.6)
0.8
(1.0)
2.6
1.6
Group’s
share
£m
7.4
0.5
(0.3)
–
7.6
Group’s
share
£m
0.9
(0.3)
0.6
(0.1)
(0.1)
0.4
(1.3)
0.4
(0.5)
1.3
0.8
NewRiver REIT plc Annual Report and Accounts 2020
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147
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
14. Investments in associates
As at 31 March 2020 the Group has two associates. On the 16 October, the Group completed an acquisition of a retail park, in which the
Group holds a 10% interest. The Group deem this to be an associate, despite having a 10% interest in the Company, because they hold
significant influence.
Opening balance
Additions to Investment in associate
Group’s share of profit after taxation excluding valuation movement
Net valuation movement
Investment in associate
Name
NewRiver Retail (Nelson) Limited (Nelson)
2020
£m
–
1.2
0.1
(0.4)
0.9
Country of
incorporation
2020
% Holding
UK
10
The Group is the appointed asset manager on behalf of this associate and receives asset management fees, development management
fees and potentially performance-related bonuses.
NewRiver Retail (Nelson) Limited has a 31 December year end. The aggregate amounts recognised in the consolidated balance sheet and
statement of comprehensive income are as follows:
2020
Total
£m
44.0
2.0
(15.0)
(22.0)
9.0
2020
Total
£m
1.7
0.1
1.8
(0.1)
(0.7)
1.0
(3.6)
(2.6)
3.6
1.0
Group’s
share
£m
4.4
0.2
(1.5)
(2.2)
0.9
Group’s
share
£m
0.2
–
0.2
–
(0.1)
0.1
(0.4)
(0.3)
0.4
0.1
Balance sheet
Non-current assets
Current assets
Current liabilities
Borrowings due in more than one year
Net assets
Statement of comprehensive income
Revenue
Property operating expenses
Net property income
Administration expenses
Net finance costs
Net valuation movement
Loss after taxation
Add back net valuation movement
Group’s share of associates’ profit before valuation movements
148
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NewRiver REIT plc Annual Report and Accounts 2020
15. Business combinations
On 2 December 2019, the Group acquired Bravo Inns 1 Limited and Bravo Inns 2 Limited (‘Bravo Inns’) for a cash consideration of £7.8
million. Bravo Inns owned 44 public houses situated across England. From the date of acquisition, Bravo Inns contributed net revenue of
£0.6 million and profit before tax from continuing operations of the Group of £0.4 million if the acquisition had taken place at the beginning
of the year, net revenue from continuing operations would have been £2.4 million and profit before tax from continuing operations for the
Group would have been £1.3 million.
Details of the fair value of the assets and liabilities acquired and the resultant gain on bargain purchase are as follows:
2020
Property, plant and equipment
Current assets
Cash and cash equivalents
Other net current liabilities
Fair value of acquired interest in net assets on subsidiaries
Total purchase consideration
Goodwill
Acquired
£m
Adjustments
£m
Fair value
£m
19.0
0.6
1.5
(13.2)
(0.3)
–
–
–
18.7
0.6
1.5
(13.2)
7.6
7.8
0.2
The goodwill is a result of the fair value determined for the assets purchased not exceeding the gross asset value determined. The goodwill
has been recognised in the Consolidated Balance Sheet. A loan of £11.7 million was repaid as part of the acquisition.
16. Property plant and equipment
Cost or valuation
At 1 April 2019
Additions
Business combinations
Revaluation:
Recognised in the statement of comprehensive income
Recognised in the income statement
Net transfers from investment property
At 31 March 2020
Accumulated depreciation
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Net book value at 31 March 2020
Net book value at 31 March 2019
Office
equipment
£m
Fixtures
and fittings
£m
Public
houses
£m
1.4
0.4
–
–
–
–
0.6
–
–
–
–
–
27.7
9.8
18.7
(1.0)
(4.0)
5.4
Total
£m
29.7
10.2
18.7
–
(1.0)
(4.0)
5.4
1.8
0.6
56.6
59.0
0.3
0.4
–
0.7
1.1
1.1
0.5
–
–
0.5
0.1
0.1
0.8
0.8
–
1.6
1.6
1.2
–
2.8
55.0
26.9
56.2
28.1
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
16. Property plant and equipment continued
Cost or valuation
At 1 April 2018
Additions
Business combinations
Revaluation:
Recognised in the statement of comprehensive income
Recognised in the income statement
Net transfers from investment property
Disposals
At 31 March 2019
Accumulated depreciation
At 1 April 2018
Charge for the year
Disposals
At 31 March 2019
Net book value at 31 March 2019
Net book value at 31 March 2018
Office
equipment
£m
Fixtures
and fittings
£m
Public
houses
£m
0.9
0.4
0.1
–
–
–
–
0.7
–
–
–
–
–
(0.1)
–
25.0
0.8
1.2
(0.6)
1.3
–
Total
£m
1.6
25.4
0.9
–
1.2
(0.6)
1.3
(0.1)
1.4
0.6
27.7
29.7
0.1
0.2
–
0.3
1.1
0.8
0.5
0.1
(0.1)
0.5
0.1
0.2
–
0.8
–
0.8
26.9
–
0.6
1.1
(0.1)
1.6
28.1
1.0
The Group’s public houses have been valued at fair value on 31 March 2020 by independent valuers, Colliers International Valuation UK
LLP, on the basis of fair value in accordance with the Current Practice Statements contained in The Royal Institution of Chartered Surveyors
Valuation – Professional Standards, (the ‘Red Book’). The valuations are performed by appropriately qualified valuers who have relevant
and recent experience in the sector. Please see note 12 for further information on the valuation of the Group’s properties.
The carrying amount of assets which have been revalued would have been £52.7 million had they been carried under the cost model.
17. Trade and other receivables
Trade receivables
Receivable from the sale of investment property
Restricted monetary asset
Service charge receivables*
Other receivables
Prepayments
Accrued income
2020
£m
6.2
–
8.1
5.6
3.8
1.4
1.6
2019
(restated)
£m
7.7
3.3
9.3
6.1
4.5
1.5
2.2
26.7
34.6
*
Included in service charge debtors is £0.9 million of Value Added Taxation, £2.2 million of accrued income, £0.4 million of prepayments and £2.1 million of service
charge debtors.
150
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NewRiver REIT plc Annual Report and Accounts 2020
Trade receivables are shown after deducting a loss allowance of £4.2 million (31 March 2019: £1.7 million). The provision for doubtful debts is
calculated as an expected credit loss on trade receivables in accordance with IFRS 9. The charge to the income statement in relation to
tenant debtors made against doubtful debts was £2.5 million (31 March 2019: £0.3 million). The Group has calculated the expected credit
loss by applying a forward-looking outlook, impacted by the Covid-19 pandemic, to historic default rates.
The Group monitors rent collection in order to anticipate and minimise the impact of default by tenants, which may be impacted by covid-19.
All outstanding rent receivables are regularly monitored. In order to measure the expected credit losses, trade receivables from tenants
have been grouped on a basis on shared credit risk characteristics and an assumption around the tenants ability to pay their receivable,
based on conversations held and our knowledge of their credit history. The expected loss rates are based on historical payment profiles of
tenant debtors and corresponding historical credit losses. These historical loss rates are then adjusted to reflect the current pandemic and
likelihood that tenants will pay.
Opening loss allowance at 31 March
Acquired in business combinations
Increase in loss allowance recognised in profit or loss during the year
Closing loss allowance at 31 March
2020
£m
1.7
–
2.5
4.2
2019
£m
0.8
0.6
0.3
1.7
The restricted monetary asset relates to cash balances which legally belong to the Group but which the Group cannot readily access. They
do not meet the definition of cash and cash equivalents and consequently are presented separately from cash in the balance sheet.
18. Derivative financial instruments
The Group enters into derivative financial instruments to provide an economic hedge to its interest rate exchange risks. These financial
instruments are classified as Level 2 fair value measurements, being those derived from inputs other than quoted prices. There were no
transfers between levels in the current year.
Interest rate swaps
Non-current assets
Current liabilities
Non-current liabilities
2020
£m
–
(0.1)
(2.6)
(2.7)
2019
£m
0.7
–
(0.6)
0.1
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
Average contract interest rate Notional principal amount
Fair value
2020
%
0.4%
–
0.4%
0.5%
0.4%
–
2019
%
0.8%
1.0%
–
2.9%
1.6%
–
2020
£m
13.4
–
274.5
9.7
70.0
–
367.6
2019
£m
13.9
151.1
–
148.7
80.2
–
393.9
2020
£m
2019
£m
(0.1)
–
(2.6
–
–
–
(2.7)
–
0.1
–
–
–
–
0.1
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151
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
2020
£m
2.6
13.7
4.4
13.6
4.4
8.1
46.8
2019
(restated)
£m
6.1
15.4
4.4
12.6
3.2
9.2
50.9
2020
£m
335.0
–
300.0
635.0
2019
£m
–
210.0
300.0
510.0
(6.4)
(7.3)
628.6
502.7
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
19. Cash and cash equivalents
There are no restrictions on cash in place.
20. Trade and other payables
Trade payables
Service charge liabilities*
Other payables
Accruals
Value Added Taxation
Rent received in advance
* Service charge liabilities includes £1.3 million of accruals, £2.9 million of service charge creditors and £9.5 million of deferred income.
21. Borrowings
Maturity of bank facilities:
Between three and four years
Between four and five years
After five years
Less unamortised fees / discount
2020
Unsecured borrowings
Term loan
Revolving credit facility
Corporate bond
Maturity date
August 2023
August 2023
March 2028
Facility
£m
165.0
215.0
300.0
680.0
Facility drawn
£m
Unamortised facility
fees / discount
£m
165.0
170.0
300.0
635.0
(0.9)
(1.5)
(4.0)
(6.4)
£m
164.1
168.5
296.0
628.6
In the year the Group drew down £125m of the revolving credit facility.
22. Lease commitment arrangements
The Group earns rental income by leasing its investment properties to tenants under non-cancellable lease commitments.
At the balance sheet date the Group had contracted with tenants for the following future minimum lease payments on its investment
properties:
Within one year
Between one and two years
In the second to fifth year inclusive
After five years
2020
£m
77.2
71.6
161.8
206.6
517.2
2019
£m
77.9
78.5
209.4
230.0
595.8
The Group’s weighted average lease length of lease commitments at 31 March 2020 was 5.2 years (March 2019: 5.5 years).
152
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NewRiver REIT plc Annual Report and Accounts 2020
23. Share capital and reserves
Share capital
Ordinary shares
1 April 2018
Scrip dividends issued
Shares issued under employee share schemes
Exercise of warrants
31 March 2019
Scrip dividends issued
Shares issued under employee share schemes
Exercise of warrants
31 March 2020
1 April 2018
Exercise of warrants
Exercise of share options
Scrip dividends issued
31 March 2019
Exercise of warrants
Scrip dividends issued
31 March 2020
Number of
shares issued
m’s
Price per
share
pence
Total
m’s
Held by EBT
m’s
Shares in
issue
m’s
0.7
0.9
0.1
0.9
0.2
0.3
252.5
–
124.0
206.8
–
116.0
307.0
307.7
307.7
307.8
307.8
308.7
308.7
309.0
309.0
4.0
4.0
3.1
3.0
3.0
3.0
2.8
2.8
2.8
303.0
303.7
304.6
304.8
304.8
305.7
305.9
306.2
306.2
Share
capital
£’000
Share
premium
£’000
Total
£’000
3,029
223,287
226,316
1
11
9
57
–
58
11
1,649
1,658
3,050
224,993
228,043
3
9
333
2,023
336
2,032
3,062
227,349
230,411
Warrants
Shareholders who subscribed for placing shares in the original share listing of NewRiver Retail Limited’s shares received warrants,
in aggregate, to subscribe for 3% of the fully diluted share capital. The subscription price is adjusted following the payment of dividends
or share issuance and was 115p as at 31 March 2020 nil remain outstanding (31 March 2019: 333,401).
Merger reserve
The merger reserve arose as a result of the scheme of arrangement and represents the nominal amount of share capital that was issued to
shareholders of NewRiver Retail Limited.
Retained earnings
Retained earnings consist of the accumulated net profit of the Group, less dividends paid from distributable reserves, and transfers from
equity issues where those equity issues generated distributable reserves. Dividends are paid from the Company’s distributable reserves
which were approximately £36.7 million at 31 March 2020 (2019: £158.7 million).
Shares held in Employee Benefit Trust (EBT)
As part of the scheme of arrangement and group reorganisation, the Company established an EBT which is registered in Jersey. The EBT,
at its discretion, may transfer shares held by it to directors and employees of the Company and its subsidiaries. The maximum number of
ordinary shares that may be held by the EBT may not exceed 10% of the Company’s issued share capital. It is intended that the EBT will not
hold more ordinary shares than are required in order to satisfy share options granted under employee share incentive plans.
There are currently 2,776,725 ordinary shares held by the EBT.
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
153
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
24. Share-based payments
The Group has three share schemes for employees:
– Share option scheme
– Performance Share Scheme
– Deferred bonus scheme
Share option scheme
Options were granted between 2009 and 2011. The options were priced at the share price at date of issue. No options were granted in
2019 or 2020. The charge for the year recognised in the statement of comprehensive income was nil (2019: nil).
Year issued
2010
2012
Average
exercise price
Outstanding
at start of year
Granted
Number
Exercised
2.54
2.35
192,686
338,000
530,686
–
–
–
–
–
–
Lapsed
(192,686)
Outstanding
at end of year
Number
exercisable
–
–
–
338,000
338,000
(192,686)
338,000
338,000
Average
remaining life
(years)
–
1.5
Performance Share Scheme
Zero priced share options have been issued to senior management and executive directors under the Performance Share Scheme since
2013. The options vest to the extent that performance conditions are met over a three or four-year period. At the end of the period there
may be a further vesting condition that the employee or director remains an employee of the Group. Further details on the scheme and the
performance conditions is provided in the Remuneration Report. The credit for the year recognised in the statement of comprehensive
income was £0.8 million (2019: £1.6 million charge).
Year issued
2016
2017
2018
2019
2020
Average
exercise price
Outstanding
at start of year
494,398
1,263,442
919,557
1,537,006
–
–
–
–
–
Granted
27,552
44,488
106,201
176,392
– 2,250,775
Number
Exercised
Lapsed
Outstanding
at end of year
Number
exercisable
Average
remaining life
(years)
–
(521,950)
–
– (1,029,424)
278,506
–
–
–
(63,263)
962,495
(125,338)
1,588,060
(182,562) 2,068,213
5.5
6.5
7.2
8.3
9.2
–
–
–
–
–
–
4,214,403 2,605,408
– (1,922,537) 4,897,274
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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 £0.8 million (March 2019: £1.2 million).
Year issued
2017
2018
2019
2020
Average
exercise price
Outstanding
at start of year
Granted
Exercised
Lapsed
Outstanding
at end of year
Number
exercisable
Average
remaining life
(years)
–
–
–
14,176
254,472
314,375
–
(14,176)
6,293
(193,749)
33,803
448,633
(67,221)
(28,122)
583,023
488,729
(303,268)
–
–
–
–
–
–
67,016
280,957
420,511
768,484
–
0.3
1.2
2.2
–
–
–
–
–
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.
2020
1.770
Nil
21%
2019
2.885 – 2.715
Nil
18%
0,548 – 0.7%
0.628% – 0.826%
12.2%
7.27% – 7.72%
25. Financial instruments and risk management
The Group’s activities expose it to a variety of financial risks in relation to the financial instruments it uses: market risk including cash flow
interest rate risk, credit risk and liquidity risk. The financial risks relate to the following financial instruments: trade receivables, cash and
cash equivalents, trade and other payables, borrowings and derivative financial instruments.
Risk management parameters are established by the Board on a project-by-project basis. Reports are provided to the Board quarterly and
also when authorised changes are required.
Financial instruments
Financial assets
Fair value through profit or loss
Interest rate swaps
Financial assets at amortised cost
Trade and other receivables
Cash and cash deposits
Financial liabilities
Fair value through profit or loss
Interest rate swaps
At amortised cost
Borrowings
Lease liabilities
Payables and accruals
Valuation
level
2020
£m
2019
(restated)
£m
2
–
0.7
20.2
80.8
101.0
23.8
27.1
51.6
2
(2.7)
(0. 1)
(628.6)
(502.7)
(86.3)
(24.8)
(742.4)
(641.4)
–
(26.6)
(529.4)
(477.8)
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
25. Financial instruments and risk management continued
Market risk
Currency risk
The Group is not subject to any foreign currency risk as nearly all transactions are in Pounds Sterling.
Interest rate risk
The Group’s interest rate risk arises from borrowings issued at floating interest rates (see note 21). The Group’s interest rate risk is reviewed
quarterly by the Board. The Group manages its exposure to interest rate risk on borrowings through the use of interest rate derivatives
(see note 18). Interest rate caps and interest rate swaps are used to both mitigate the risk of an increase in interest rates but also to allow
the Group to benefit from a fall in interest rates. The Group has employed an external adviser when contracting hedging to advise on the
structure of the hedging.
Sensitivity analysis is carried out to assess the impact of an increase in interest rates on finance costs to the Group. Management consider
that a significant movement in interest rates would be 200 bps and have therefore carried out sensitivity analysis of the impact of such a
movement. The impact of a 200 bps increase in interest rates for the year would increase net interest payable in the statement of
comprehensive income by £4.0 million (2019: £0.6 million). The impact of a 200 bps decrease in interest rates for the year would reduce
the net interest payable in the statement of comprehensive income by £3.7 million (2019: £0.3 million). The directors consider this to be a
reasonable sensitivity given historic interest rates and the possibility for short term swings in rates.
Credit risk
The Group’s principal financial assets are cash, trade receivables and other receivables.
The Group manages its credit risk through policies to ensure that rental contracts are made with tenants meeting appropriate balance
sheet covenants, supplemented by rental deposits or bank guarantees from international banks. The Group may suffer a period a void
period where no rents are received. The quality of the tenant is assessed based on an extensive tenant covenant review scorecard prior to
acquisition of the property. The assessment of the tenant credit worthiness is also monitored on an ongoing basis. Credit risk is assisted by
the vast majority of occupational leases requiring that tenants pay rentals in advance. The Group monitors rent collection in order to
anticipate and minimise the impact of default by tenants, which may be impacted by covid-19. All outstanding rent receivables are regularly
monitored. In order to measure the expected credit losses, trade receivables from tenants have been grouped on a basis on shared credit
risk characteristics and an assumption around the tenants ability to pay their receivable, based on conversations held and our knowledge
of their credit history. The expected loss rates are based on historical payment profiles of tenant debtors and corresponding historical credit
losses. These historical loss rates are then adjusted to reflect the current pandemic and likelihood that tenants will pay.
Opening loss allowance at 31 March
Increase in loss allowance recognised in profit or loss during the year
Closing loss allowance at 31 March
2020
£m
1.7
2.5
4.2
2019
£m
0.8
0.9
1.7
The Group monitors its counterparty exposures on cash and short-term deposits weekly. The Group monitors the counterparty credit rating
of the institutions that hold its cash and deposits and spread the exposure across several banks.
The Group’s maximum exposure to credit risk as at 31 March 2020 was £26.7 million (31 March 2019: £30.9 million).
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NewRiver REIT plc Annual Report and Accounts 2020
Liquidity risk
The Group manages its liquidity risk by maintaining sufficient cash balances and committed credit facilities. The Board reviews the credit
facilities in place on a project-by-project basis. Cash flow reports are issued weekly to management and are reviewed quarterly by the
Board. As a result of the Covid-19 pandemic, the Directors took the decision to utilise a further £50m of undrawn revolving credit facility.
Meaning the Group has over £80m of cash in the bank and a further £45m of undrawn RCF as at the 31 March 2020. To preserve cash,
the Group suspended the fourth quarterly dividend payment and suspended all non-essential capital expenditure projects, suspended
business rates and marketing in the shopping centres and public houses, which should improve cashflow by a total of £28 million over the
next 12 months. A summary table with maturity of financial liabilities is presented below:
Less than
one year
One to two
years
Two to five
years
More than
five years
2020 £m
Borrowings
Interest on borrowings
Interest rate swaps
Lease liabilities
Payables and accruals
2019 £m (restated)
Borrowings
Interest on borrowings
Interest rate swaps
Payables and accruals
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 (net of expenses)
Bank loans acquired in business combinations
Bank loans repaid
Amortisation of bank loan fees
Group’s share of joint ventures’ and associates’ cash flow
Net increase in cash and cash equivalents
Bank loans repaid
New bank loans
Group’s share of net debt
Being:
Group borrowings
Joint ventures’ and associates’ borrowings
Group cash
Joint venture and associate cash
Group’s share of net debt
–
(18.8)
(0.9)
(3.4)
(24.8)
(47.9)
–
(15.8)
(0.1)
(26.6)
(42.5)
–
(335.0)
(300.0)
(18.8)
(0.7)
(3.4)
–
(46.7)
(1.3)
(10.2)
–
(30.7)
–
(256.7)
–
Total
(635.0)
(115.0)
(2.9)
(273.7)
(24.8)
(22.9)
(393.2)
(587.4)
(1,051.4)
–
(15.8)
(0.1)
–
(210.0)
(46.0)
(300.0)
(41.2)
–
–
–
–
(510.0)
(118.8)
(0.2)
(26.6)
(15.9)
(256.0)
(341.2)
(655.6)
2020
£m
475.1
(53.7)
162.0
11.7
(48.7)
1.0
(0.9)
–
17.1
2019
£m
344.7
88.7
62.4
60.6
(78.6)
1.4
(0.1)
(4.0)
–
563.6
475.1
628.6
502.7
17.1
(80.8)
(1.3)
–
(27.1)
(0.5)
563.6
475.1
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
157
157
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
25. Financial instruments and risk management continued
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to provide returns to
shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Group is not subject to any external capital
requirements. As detailed in note 9, the Group is a REIT and to qualify as a REIT the Group must distribute 90% of its taxable income from
its property business.
To maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of its gearing
ratio. This ratio is calculated as net debt divided by equity. Net debt is calculated as total borrowings, less cash and cash equivalents.
During the year, the Group’s LTV increased by 10% from 37% to 47% and the gearing ratio from 60% to 90% as at the 31 March 2020 as the
valuation decline caused by the Covid-19 pandemic. The Group continually monitors LTV and will continue to monitor LTV closely, factoring
in disposal activity and further valuation declines as mentioned in Note 1. The Group has remained compliant with all of its banking
covenants during and since the year as discussed in Note 1.
Net debt to equity ratio
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’ and associates’ borrowings
Share of joint ventures’ and associates’ cash and cash equivalents
Group's share of net debt
Carrying value of investment property and public houses
Carrying value of managed houses
Share of joint ventures’ and associates carrying value of investment properties
Group's share of carrying value of investment properties
Net debt to property value ratio (‘Loan to value’)
Reconciliation of financial liabilities
As at 1 April 2019
Adoption of IFRS16
(Decrease)/Increase through financing cash flows
Repayment of Bravo Inns loan
Repayment of bank loans and other costs
Repayment of principal portion of lease liability
New borrowings
Decrease through changes in fair value
Change in fair value of derivative
Increase through business combinations
Acquisition of Bravo Inns
Other changes
Loan amortisation
As at 31 March 2020
158
158
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NewRiver REIT plc Annual Report and Accounts 2020
2020
£m
628.6
(80.8)
547.8
610.6
90%
17.1
(1.3)
563.6
1,102.3
55.0
39.8
2019
£m
502.7
(27.1)
475.6
796.1
60%
–
(0.5)
475.1
1,254.1
26.9
7.4
1,197.1
1,288.4
47%
37%
Lease
liabilities
£m
Borrowings
£m
Derivatives
£m
502.7
–
(11.7)
(37.0)
–
162.0
0.1
–
–
–
–
–
Total
£m
502.8
87.1
(11.7)
(37.0)
(0.8)
162.0
–
(2.8)
(2.8)
11.7
0.9
628.6
–
–
(2.7)
11.7
0.9
712.2
–
87.1
–
–
(0.8)
–
–
–
–
–
86.3
26. Contingencies and commitments
The Group has no material contingent liabilities (2019: None). The Group was contractually committed to £1.0 million of capital expenditure
to construct or develop investment property as at 31 March 2020 (31 March 2019: £4.0 million).
27. Related party transactions
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.
During the year the Company paid £1.4 million in professional legal fees to CMS Cameron McKenna Nabarro Olswang LLP for property
services at commercial market rates. Allan Lockhart, CEO of NewRiver, has a personal relationship with the one of the Partners at CMS who
along with other Partners provides these legal services.
Management fees are charged to joint ventures for asset management, investment advisory, project management and accounting services.
Total fees charged were:
NewRiver Retail Investments LP
NewRiver Retail (Nelson) Limited
NewRiver Retail (Napier) Limited
There were no amounts outstanding at each year end.
2020
£m
0.1
0.1
0.1
2019
£m
0.1
–
–
Key management personnel
The Executive Directors of the Company who served during the year are considered to be key management personnel. The combined
emoluments for the key management personnel (relating to the period they were a Director), based upon amounts included in the Group
financial statements, are set out in the Directors’ remuneration report.
The total compensation of key management personnel was £1.5 million (2019: £2.2 million), which comprised short-term benefits of
£0.1 million (2019: £0.1 million).
The above is a complete list of the company’s related parties. All transfer of resources, services or obligations between the company and
these parties have been disclosed, regardless of whether a price is charged. We are unaware of any other related parties, or transactions
between disclosed related parties.
Related party relationships and transactions have been accounted for and disclosed in accordance with the requirements of IFRSs as
adopted by the European Union or other requirements, for example, the Companies Act 2006.
All members of key management have been identified, as defined by IAS 24, and their remuneration is included in the disclosures of key
management compensation.
28. Post balance sheet events
On 29 April 2020, the Group received confirmation from the Bank of England that it is eligible to access £50 million of funding under the
Covid Corporate Financing Facility (‘CCFF’), a joint HM Treasury and Bank of England lending facility. This facility is undrawn at this stage,
and is available to be drawn at the Bank of England’s discretion for a tenure of up to 12 months until March 2021.
There were no other significant events occurring after the reporting period, but before the financial statements were authorised for issue.
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
159
159
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
COMPANY BALANCE SHEET
A S AT 31 MAR CH 20 20
Non-current assets
Investment in subsidiaries
Interest in associates
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
2020
£m
2019
£m
B
F
616.8
15.4
632.2
664.9
–
664.9
689.4
655.6
0.5
53.1
743.0
1,375.2
1.3
3.3
660.2
1,325.1
–
3.0
2.7
60.6
66.3
628.6
628.6
680.3
3.1
227.4
413.1
36.7
680.3
1.3
2.7
0.2
18.3
22.5
502.7
502.7
799.9
3.1
225.0
413.1
158.7
799.9
The notes on pages 162 to 166 form an integral part of the Company financial statements. The Company has applied the exemption in s408
of the Companies Act for omitting the income statement of the parent company. The loss for the period after taxation was £56.2 million.
The financial statements were approved by the Board of Directors on 18 June 2020 and were signed on its behalf by:
Allan Lockhart Mark Davies
Chief Executive
Chief Financial Officer
160
160
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
STATEMENT OF CHANGES IN EQUITY
F OR T HE Y E AR E ND ED 31 MA R CH 20 2 0
As at 1 April 2018
Profit after taxation
Equity issue
Dividends paid
As at 31 March 2019
Loss after taxation
Equity issue
Dividends paid
As at 31 March 2020
Share capital
£m
3.0
–
0.1
–
3.1
–
–
–
Share
premium
£m
223.3
–
1.7
–
Merger
reserve
£m
413.1
–
–
–
225.0
413.1
–
2.4
–
–
–
–
3.1
227.4
413.1
Retained
earnings
£m
25.9
197.7
–
(64.9)
158.7
(56.2)
–
(65.8)
36.7
Total
£m
665.3
197.7
1.8
(64.9)
799.9
(56.2)
2.4
(65.8)
680.3
The notes on pages 162 to 166 form an integral part of these financial statements. There was no other income in the year therefore the
profit after taxation is the Company’s total comprehensive income for the period.
Retained earnings reflects the Company’s distributable reserves.
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
161
161
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
NOTES TO THE FINANCIAL STATEMENTS
A. Accounting policies
Basis of accounting
The Company’s separate financial statements for the year ended 31 March 2020 are prepared in accordance with Financial Reporting
Standard 101 (FRS 101) “Reduced Disclosure Framework” as issued by the Financial Reporting Council. The financial statements are
presented in pounds Sterling. These financial statements have been prepared under the historical cost convention.
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Directors to exercise
judgement in the process of applying the Company’s accounting policies. Changes in assumptions may have a significant impact on the
financial statements in the period the assumptions changed. The Directors believe that the underlying assumptions are appropriate. The
most critical estimates, assumptions and judgements relate to the determination of carrying value of the investment in the Company’s
subsidiary undertaking. The nature, facts and circumstance of the investment are taken into account on assessing whether there are any
indications of impairment.
For the Company’s going concern assessment, refer to note 1.
Critical estimates
Impairment of intercompany loans
The impairment of intercompany loans is inherently subjective due to the forward-looking nature of the assumptions made. Due to the
current climate the Company is operating in as a result of Covid-19, the Company has recognised an expected credit loss on intercompany
debtors of £0.7m.
Disclosure exemptions
The Company has taken advantage of all disclosure exemptions allowed by FRS 101. These financial statements do not include:
– certain disclosures regarding the Company’s capital;
– a statement of cash flows;
– certain disclosures in respect of financial instruments;
– the effect of future accounting standards not yet adopted; and
– disclosure of related party transactions with wholly-owned members of the Group.
The above disclosure exemptions have been adopted because equivalent disclosures are included in the consolidated Group accounts
into which the Company is consolidated.
Dividends
Dividend information is provided in note 11 to the consolidated accounts.
Investment in subsidiaries
Investments in subsidiary undertakings are stated at cost less provision for impairment.
Financial instruments
Financial assets
Financial assets consist of loans and receivables. The Group determines the classification of its financial assets at initial recognition.
Financial assets are initially measured at fair value plus directly attributable transaction costs. The Group’s financial assets consist of cash,
and loans and receivables.
Financial assets are derecognised only when the contractual rights to the cash flows from the financial asset expire or the Company
transfers substantially all risks and rewards of ownership.
The Company assesses at each financial position date whether there is objective evidence that a financial asset or group of financial assets
is impaired. If there is objective evidence (such as significant financial difficulty of the obligor, breach of contract, or it becomes probable
that the debtor will enter bankruptcy), the asset is tested for impairment. The amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of the estimated future cash flows (that is the effective interest rate computed at initial
recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in
profit and loss.
If in a subsequent period the amount of the impairment loss decreased and the decrease can be related objectively to an event occurring
after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying value of the
asset does not exceed its amortised costs at the reversal date.
162
162
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
Financial liabilities
Financial liabilities are classified as other liabilities. A financial liability is derecognised when the obligation under the liability is discharged or
cancelled or expires.
All loans and borrowings are classified as other liabilities. Initial recognition is at fair value less directly attributable transaction costs. After
initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost.
The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year,
discounting is omitted.
Share-based payments
The cost of equity settled transactions is measured with reference to the fair value at the date at which they were granted. Where vesting
performance conditions are non-market based, the fair value excludes the effect of these vesting conditions and an estimate is made at
each balance sheet date of the number of instruments expected to vest. The fair value is recognised over the vesting period in the
statement of comprehensive income of the company that employs the recipient of the share-based payment, with a corresponding
increase in equity. The Company increases the carrying value of the subsidiary by the value of the share-based payment.
Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets.
Dividends
Dividends to the Company’s shareholders are recognised when they become legally payable. In the case of interim dividends, this is when
paid. In the case of final dividends, this is when approved by equity holders at a general meeting.
Merger reserve
The merger reserve resulted from the acquisition of NewRiver Retail Limited and represents the difference between the value of the net
assets acquired of £524.1 million and the nominal value of the shares issued, less the impairment in NewRiver Retail Limited following the
payment of a dividend to the Company of £111.0 million.
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
163
163
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
B. Investment in subsidiaries
All subsidiaries were acquired by way of the group reorganisation, as detailed in note 1. All subsidiaries are held indirectly except NewRiver
Retail Limited, the former ultimate parent of the Group.
Country of
incorporation
Activity
Proportion of
ownership interest Class of share
Name
C-store REIT Limited
Convenience Store REIT Limited
NewRiver Capital Limited
NewRiver Retail (Burgess Hill) Limited
NewRiver Community Pubs Limited
NewRiver (Darnall) Limited
NewRiver Finance Company Limited
NewRiver REIT (UK) Limited
NewRiver Leisure Limited
NewRiver Public Houses Limited
NewRiver Retail (Bexleyheath) Holdings Limited
NewRiver Retail (Bexleyheath) Limited
NewRiver Retail (Boscombe No. 1) Limited
NewRiver Retail (Broadway Square) Limited
NewRiver Retail (Cardiff) Limited
NewRiver Retail (Carmarthen) Limited
NewRiver Retail (Colchester) Limited
NewRiver Retail (Darlington) Limited
NewRiver Grays S.a.r.l
NewRiver (Grays) UK Limited
NewRiver Retail (GP3) Limited
NewRiver Retail (Leylands Road) Limited
NewRiver Retail (Mantle) Limited
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Jersey
UK
Jersey
UK
UK
UK
UK
Dormant company
Dormant company
Real estate investments
Dormant company
Real estate investments
Real estate investments
Real estate investments
Asset management
Real estate investments
Real estate investments
Group holding company
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Luxembourg Real estate investments
UK
UK
UK
UK
Dormant company
General partner
Real estate investments
Real estate investments
NewRiver Retail (Market Deeping No. 1) Limited
Guernsey
Real estate investments
NewRiver Retail (Morecambe) Limited
UK
Real estate investments
NewRiver Retail (Newcastle No. 1) Limited
Guernsey
Real estate investments
NewRiver Retail (Nominee No.3) Limited
NewRiver Retail (Paisley) Limited
NewRiver Retail (Penge) Limited
UK
UK
UK
Dormant company
Real estate investments
Real estate investments
NewRiver Retail (Portfolio No. 1) Limited
Guernsey
Real estate investments
NewRiver Retail (Portfolio No. 2) Limited
Guernsey
Real estate investments
NewRiver Retail (Portfolio No. 3) Limited
UK
Holding company
NewRiver Retail (Portfolio No. 3) Limited Partnership UK
Real estate investments
NewRiver Retail (Portfolio No. 5) Limited
NewRiver Retail (Portfolio No. 6) Limited
NewRiver Retail (Portfolio No. 4) Limited
NewRiver Retail (Portfolio No. 8) Limited
NewRiver Retail (Portfolio No. 10) Limited
NewRiver Retail (Ramsay Development) Limited
NewRiver Retail (Ramsay Investment) Limited
NewRiver Retail (Skegness Developments) Limited
NewRiver Retail (Skegness) Limited
NewRiver Retail (Wakefield) Limited
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Group holding company
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
164
164
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
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%
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
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
Country of
incorporation
Activity
Proportion of
ownership interest Class of share
Name
NewRiver Retail (Warminster) Limited
NewRiver Retail (Wisbech) Limited
NewRiver Retail (Witham No. 1) Limited
UK
UK
UK
Real estate investments
Real estate investments
Real estate investments
NewRiver Retail (Wrexham) Limited
Guernsey
Real estate investments
NewRiver Retail Academy Limited
NewRiver Retail Holdings Limited
NewRiver Retail Holdings No. 1 Limited
UK
Dormant company
Guernsey
Guernsey
Group holding company
Group holding company
NewRiver Retail Holdings No. 2 Limited
Guernsey
Group holding company
NewRiver Retail Holdings No. 3 Limited
Guernsey
Group holding company
NewRiver Retail Holdings No. 4 Limited
Guernsey
Group holding company
NewRiver Retail Holdings No. 5 Limited
Guernsey
Group holding company
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
NewRiver Retail (Hamilton) Limited
Bravo Inns Limited
Bravo Inns II Limited
NewRiver Retail (Sprucefield) Limited
Shopping Centre REIT Limited
Hawthorn Leisure Holdings Limited
Hawthorn Leisure Limited
Hawthorn Leisure Finco Limited
Hawthorn Leisure Scotco Limited
Hawthorn Leisure Management Limited
Hawthorn Leisure Honey Limited
Hawthorn Leisure Acquisitions Limited
Guernsey
Guernsey
Group holding company
Group holding company
Guernsey
Group holding company
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
UK
UK
UK1
UK1
UK
UK1
UK1
UK1
UK1
UK1
UK1
UK1
UK1
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Dormant company
Dormant company
Real estate investments
Real estate investments
Real estate investments
Dormant company
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
Real estate investments
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%
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 units
Ordinary units
Ordinary units
Ordinary units
Ordinary units
Ordinary units
Ordinary units
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
Registered office addresses:
– UK - 16 New Burlington Place, London W15 2HX
– UK1 - Touchstone Pinewood Business Park, Coleshill Road, Marston Green, Birmingham, B37 7HG
– Luxembourg - Airport Centre, Luxembourg 5, Heienhaff, L1736, Senningerberg
– Jersey - IFC 5, St. Helier, Jersey JE1 1ST
– Guernsey - PO Box 286, Floor 2 Trafalgar Court, Les Banques, St Peter Port GY1 4LYX
The Company’s investments in joint ventures are detailed in note 13. The registered offices of the companies are:
– Guernsey – NewRiver Retail (GP1) Ltd, Floor 2 Trafalgar Court, Les Banques, St Peter Port, GY1 4LY
– UK – NewRiver Retail (Nelson) Limited, 16 New Burlington Place, London, W1S 2HX
– UK – NewRiver Retail (Napier) Limited, 16 New Burlington Place, London, W1S 2HX
NewRiver REIT plc Annual Report and Accounts 2020
NewRiver REIT plc Annual Report and Accounts 2020
165
165
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
N O T ES TO T HE FI NA NC IA L S TA TE ME N TS
Reconciliation of the movement in investment in subsidiaries:
Opening balance
Investment in subsidiaries
Impairment in subsidiaries
Investment in subsidiaries
2020
£m
664.9
–
(48.1)
616.8
2019
£m
693.5
121.4
(150.0)
664.9
The Company has recognised an impairment charge of £48.1 million (2019: £150.0 million) to reflect the decline in the valuation of the
overall assets of the Group as a result of an adverse movement in property valuations.
C. Auditors remuneration
The auditors’ remuneration in respect of the Company is disclosed in note 6.
D. Average staff numbers
The average number of staff employed by the Company’s subsidiaries was:
Directors
Operations and asset managers
Pubs
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
2020
7
44
52
79
182
2020
£m
9.9
1.5
0.4
11.8
2019
7
34
53
55
149
2019
£m
7.8
1.9
0.3
10.0
The Company itself has no direct employees. The Directors emoluments are disclosed in the remuneration report.
E. Borrowings
All borrowings issued by the Group at 31 March 2020 were issued by the Company. See note 21 of the consolidated financial statements
for details.
F. Interest in associates
In the year, the Company invested £15.4million into a joint venture, NewRiver Retail (Napier) Limited. See note 14 of the consolidated
financial statements for details.
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NewRiver REIT plc Annual Report and Accounts 2020
EPRA PERFORMANCE MEASURES
The information in this section is unaudited and does not form part of the consolidated primary statements of the company or the notes
thereto.
Introduction
Below we disclose financial performance measures in accordance with the European Public Real Estate Association (‘EPRA’)
Best Practice Recommendations which are aimed at improving the transparency, consistency and relevance of reporting across
European Real Estate companies.
This section sets out the rationale for each performance measure as well as how it is measured. A summary of the performance measures
is included in following table.
EPRA Earnings per Share (EPS)
EPRA Cost Ratio (including direct vacancy costs)
EPRA Cost Ratio (excluding direct vacancy costs)
EPRA NAV per share
EPRA NNNAV per share
EPRA NIY
EPRA ‘topped-up’ NIY
EPRA Vacancy Rate
EPRA Earnings per Share: 16.7p
Definition
Earnings from operational activities
FY20
16.7p
44.0%
41.4%
March
2020
201p
204p
8.1%
8.5%
5.2%
FY19
16.6p
38.3%
35.8%
March
2019
261p
262p
7.5%
7.9%
4.8%
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
Earnings per IFRS income statement
Adjustments to calculate EPRA Earnings, exclude:
FY20
(£m)
(121.1)
FY19
(£m)
(36.9)
Changes in value of investment properties, development properties held for investment and other interests
162.6
88.2
Profits or losses on disposal of investment properties, development properties held for investment and other
interests
Negative goodwill / goodwill impairment
Changes in fair value of financial instruments and associated close-out costs
Acquisition costs on share deals and non-controlling joint venture interests
Deferred tax in respect of EPRA adjustments
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)
1.5
–
2.8
0.4
0.5
4.6
(0.9)
(7.0)
3.2
3.0
–
0.9
51.3
50.5
305.9m
304.0m
16.7p
16.6p
NewRiver REIT plc Annual Report and Accounts 2020
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
E PRA PER FOR MA NC E M EA SUR ES
Reconciliation of EPRA Earnings to Underlying Funds From Operations (UFFO)
EPRA Earnings
Share-based payment charge
Depreciation on public houses
Integration costs
Underlying Funds From Operations (UFFO)
Basic number of shares
UFFO per share
EPRA NAV per share: 201p
FY20
(£m)
51.3
–
0.8
–
52.1
FY19
(£m)
50.5
2.5
0.8
1.3
55.1
305.9m
304.0m
17.0p
18.1p
Definition
Net Asset Value adjusted to include properties and other investment interests at fair value and to exclude certain items not expected to
crystallise in a long-term investment property business model.
Purpose
Makes adjustments to IFRS NAV to provide stakeholders with the most relevant information on the fair value of the assets and liabilities
within a true real estate investment company with a long-term investment strategy.
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
Deferred tax
EPRA NAV
Fully diluted number of shares
EPRA NAV per share
March
2020
(£m)
610.6
–
610.6
2.7
2.1
March
2019
(£m)
796.1
1.7
797.8
(0.1)
1.6
615.4
799.3
306.5m
306.0m
201p
261p
EPRA NNNAV per share: 204p
Definition
EPRA NAV adjusted to include the fair values of (i) financial instruments, (ii) debt and (iii) deferred taxes.
Purpose
Makes adjustments to EPRA NAV to provide stakeholders with the most relevant information on the current fair value of all the assets and
liabilities within a real estate company.
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
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NewRiver REIT plc Annual Report and Accounts 2020
March
2020
(£m)
615.4
(2.7)
15.0
(2.1)
March
2019
(£m)
799.3
0.1
3.8
(1.6)
625.6
801.6
306.5m
306.0m
204p
262p
EPRA NIY: 8.1%, EPRA ‘topped-up’ NIY: 8.5%
Definition
The basic EPRA NIY calculates the annualised rental income based on the cash rents passing at the balance sheet date, less non-
recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers’ costs.
In respect of the ‘topped-up’ NIY, an adjustment to the EPRA NIY in respect of the expiration of rent-free periods (or other unexpired lease
incentives such as discounted rent periods and step rents).
Purpose
A comparable measure for portfolio valuations to assist investors in comparing portfolios.
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
Grossed 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 incentives
Topped-up net annualised rent
EPRA NIY
EPRA ‘topped-up’ NIY
EPRA Vacancy rate: 5.2%
March
2020
(£m)
March
2019
(£m)
1,157.3
1,281.0
39.8
0.3
(65.9)
1,131.5
74.8
7.4
–
(75.4)
1,213.0
83.9
B
1,206.3
1,296.9
110.0
(11.9)
98.1
4.7
102.8
8.1%
8.5%
107.5
(10.0)
97.5
4.8
102.3
7.5%
7.9%
A
C
A/B
C/B
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
2020
(£m)
£m
4.2
81.4
5.2%
March
2019
(£m)
£m
3.8
80.0
4.8%
A
B
A/B
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
E PRA PER FOR MA NC E M EA SUR ES
EPRA Cost Ratio: 44.0%
Definition
Administrative & operating costs (including & excluding costs of direct vacancy) divided by gross rental income.
Purpose
A key measure to enable meaningful measurement of the changes in a company’s operating costs.
Administrative/operating expenses per IFRS
Net service charge costs/fees
Management fees less actual/estimated profit element
Other operating income/recharges intended to cover overhead expenses less any related profits
Share of Joint Ventures and associates expenses (net of other income)
Exclude (if part of the above):
Investment property depreciation
Ground rent costs
Service charge costs recovered through rents but not separately invoiced
EPRA Costs (including direct vacancy costs)
Direct vacancy costs
EPRA Costs (excluding direct vacancy costs)
Gross Rental Income less ground rents – per IFRS
Less: service fee and service charge costs components of Gross Rental Income (if relevant)
Add: share of Joint Ventures and associates (Gross Rental Income less ground rents)
Gross Rental Income
EPRA Cost Ratio (including direct vacancy costs)
EPRA Cost Ratio (excluding direct vacancy costs)
FY20
(£m)
55.0
4.2
(0.9)
(1.8)
0.4
–
0.6
–
57.5
(3.4)
54.1
127.3
–
3.4
130.7
44.0%
41.4%
A
B
C
A/C
B/C
Reconciliation of EPRA Costs (including direct vacancy costs) to Net Administrative
expenses per IFRS
EPRA Costs (including direct vacancy costs)
Exclude
Ground rent costs
Share of Joint Ventures and associates property expenses (net of other income)
Other operating income/recharges intended to cover overhead expenses less any related profits
Net service charge costs/fees
Operating expenses (excluding service charge cost)
Tenant incentives (included within income)
Letting & legal costs (included within income)
Group’s share of net administrative expenses as per IFRS
EPRA Gross Rental Income
Ground rent costs
Expected credit loss
Gross Rental Income
Administrative cost ratio as per IFRS
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A
D
C
E
D/E
FY19
(£m)
48.4
4.4
(0.3)
(3.8)
0.3
–
(2.9)
–
46.1
(3.0)
43.1
119.6
–
0.8
120.4
38.3%
35.8%
FY19
(£m)
46.1
2.9
(0.2)
3.8
(4.4)
(30.5)
(0.2)
(1.6)
15.9
FY20
(£m)
57.5
(0.6)
(0.3)
1.8
(4.2)
(33.8)
(0.3)
(1.2)
18.9
130.7
120.4
(0.6)
(2.5)
127.6
14.9%
2.9
(1.2)
122.1
13.1%
ALTERNATIVE PERFORMANCE
MEASURES (APMS)
In addition to information contained in the Group financial statements, Alternative Performance Measures (‘APMs’), being financial measures
which are not specified under IFRS, are also used by management to assess the Group’s performance. These include a number of
measures contained in the ‘Financial Statistics’ table at the beginning of this document. These APMs include a number of European Public
Real Estate Association (‘EPRA’) measures, prepared in accordance with the EPRA Best Practice Recommendations reporting framework.
We report these because management considers them to improve the transparency and relevance of our published results as well as the
comparability with other listed European real estate companies.
The table below identifies the APMs used in this statement and provides the nearest IFRS measure where applicable, and where in this
statement an explanation and reconciliation can be found.
APM
Nearest IFRS measure
Explanation and reconciliation
Underlying Funds From Operations (‘UFFO’)
and UFFO per share
(Loss) / Profit for the year after
taxation
Note 10 of the Financial Statements
EPRA Net Asset Value (‘NAV’) and EPRA NAV
per share
Net Assets
Note 10 of the Financial Statements
Dividend cover
Admin cost ratio
Interest cover
EPRA EPS
EPRA NNNAV
EPRA NIY
EPRA ‘topped-up’ NIY
EPRA Vacancy Rate
Total Accounting Return
Weighted average cost of debt
Weighted average debt maturity
Loan to Value
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
‘Financial Policies’ section of the ‘Finance
Review’
Note 6 of the Financial Statements
Glossary
Note 10 of the Financial Statements
‘EPRA performance measures’ section of
this document
‘EPRA performance measures’ section of
this document
‘EPRA performance measures’ section of
this document
‘EPRA performance measures’ section of
this document
Glossary
'Financial Policies' section of the
'Finance Review'
'Financial Policies' section of the
'Finance Review'
Glossary
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
GLOSSARY
Admin cost ratio: Is the Group’s share of net administrative expenses (including its share of JV administrative
expenses) divided by the Group’s share of property income (including its share of JV property income).
Average debt maturity: Is measured in years, when each tranche of Group debt is multiplied by the remaining period
to its maturity and the result is divided by total Group debt in issue at the year end.
Affordable Rent to Sales ratio: Is an estimate of the maximum Rent to Sales ratio that an occupier would deem
affordable in relation to a particular retail unit. It is calculated for NewRiver by retail consultancy Harper Dennis Hobbs.
Balance sheet gearing: Is the balance sheet net debt divided by IFRS net assets.
BRAVO: Is BRAVO Strategies III LLC, with which NewRiver formed a joint venture partnership in May 2019 to acquire
and manage a portfolio of retail parks in the UK.
Book value: Is the amount at which assets and liabilities are reported in the financial statements.
Cost of debt: Is the Group loan interest and derivative costs at the year end, divided by total Group debt in issue at
the year end.
CVA: is a Company Voluntary Arrangement, a legally binding agreement that allows a company to settle debts by
paying only a proportion of the amount that it owes to creditors (such as contracted rent) or to come to some other
arrangement with its creditors over the payment of its debts.
Dividend cover: Underlying Funds From Operations per share divided by dividend per share declared in the year.
EPRA: Is the European Public Real Estate Association.
EPRA earnings: Is the IFRS profit after taxation excluding investment property revaluations, fair value adjustments on
derivatives and gains/losses on disposals.
EPRA net assets (EPRA NAV): Are the balance sheet net assets excluding the mark to market on effective cash flow
hedges and related debt adjustments, deferred taxation on revaluations and diluting for the effect of those shares
potentially issuable under employee share schemes.
EPRA NAV per share: Is EPRA NAV divided by the diluted number of shares at the year end.
ERV growth: Is the change in ERV over a year on our investment portfolio expressed as a percentage of the ERV at
the start of the year. ERV growth is calculated monthly and compounded for the period subject to measurement, as
calculated by MSCI Real Estate (formerly named IPD).
Estimated rental value (ERV): Is the external valuers’ opinion as to the open market rent which, on the date of
valuation, could reasonably be expected to be obtained on a new letting or rent review of a property.
Footfall: Is the annualised number of visitors entering our shopping centre assets.
GAV: Is Gross Asset Value, the total value of all real estate investments owned by the Company
Group: Is NewRiver REIT plc, the Company and its subsidiaries and its share of joint ventures (accounted for on an
equity basis).
Harper Dennis Hobbs is an independent strategic retail adviser which analyses the affordability of rents and other
occupancy costs for assets on NewRiver’s behalf.
Head lease: Is a lease under which the Group holds an investment property.
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IFRS: Is the International Financial Reporting Standards issued by the International Accounting Standards Board and
adopted by the EU.
Income return: Is the income derived from a property as a percentage of the property value.
Interest cover: Is the number of times net interest payable is covered by underlying profit before net interest payable
and taxation.
Interest-rate swap: Is a financial instrument where two parties agree to exchange an interest rate obligation for a
predetermined amount of time. These are used by the Group to convert floating-rate debt obligation or investments
to fixed rates.
MSCI-IPD: MSCI Real Estate Investment Property Databank Ltd or ‘IPD’ produces independent benchmarks of property
returns and NewRiver portfolio returns.
Joint venture: Is an entity in which the Group holds an interest on a long-term basis and is jointly controlled by the
Group and one or more ventures under a contractual arrangement whereby decisions on financial and operating
policies essential to the operation, performance and financial position of the venture require each joint venture
partner’s consent.
Leasing events: Long-term and temporary new lettings, lease renewals and lease variations within investment and
joint venture properties.
Like-for-like ERV growth: Is the change in ERV over a year on the standing investment properties expressed as a
percentage of the ERV at the start of the year.
Like-for-like footfall: Is the movement in footfall against the same period in the prior year, on properties owned
throughout both comparable periods, aggregated at 100% share.
Like-for-like net income: Is the change in net income on properties owned throughout the current and previous
periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes
properties held for development in either period, properties with guaranteed rent reviews, asset management
determinations and surrender premiums.
Loan to Value (LTV): Is the ratio of gross debt less cash, short-term deposits and liquid investments to the aggregate
value of properties and investments. LTV is expressed on a proportionally consolidated basis.
Mark to market: Is the difference between the book value of an asset or liability and its market value.
Net equivalent yield (NEY): Is the net weighted average income return a property will produce based upon the timing
of the income received. In accordance with usual practice, the equivalent yields (as determined by the external
valuers) assume rent received annually in arrears and on values before deducting prospective purchaser’s costs.
Net initial yield (NIY): Is the current annualised rent, net of costs, expressed as a percentage of capital value, after
adding notional purchaser’s costs.
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
GLO SSA RY
Net rental income: Is the rental income receivable in the year after payment of ground rents and net property
outgoings. Net rental income will differ from annualised net rents and passing rent due to the effects of income from
rent reviews, net property outgoings and accounting adjustments for fixed and minimum contracted rent reviews and
lease incentives.
NewRiver share: Represents the Group’s ownership on a proportionally consolidated basis.
Passing rent: Is the gross rent, less any ground rent payable under head leases.
Pre-let: A lease signed with an occupier prior to the completion of a development.
Pre-sale: A sale exchanged with a purchaser prior to completion of a development.
Promote: An incentive return based on the financial performance of a joint venture.
Property Income Distribution (PID): As a REIT the Group is obliged to distribute 90% of the tax-exempt profits. These
dividends, which are referred to as PIDs, are subject to withholding tax at the basic rate of income tax. Certain classes
of shareholders may qualify to receive the dividend gross. See our website (www.nrr.co.uk) for details. The Group can
also make other normal (non-PID) dividend payments which are taxed in the usual way.
Real Estate Investment Trust (REIT): Is a listed property company which qualifies for and has elected into a tax
regime, which exempts qualifying UK property rental income and gains on investment property disposals from
corporation tax.
Rental value growth: Is the increase in the current rental value, as determined by the Company’s valuers, over the 12-
month period on a like-for-like basis.
Rent to Sales ratio: Is the turnover of an occupier relation to a unit as a proportion of the headline rent of that unit. It is
calculated for NewRiver by retail consultancy Harper Dennis Hobbs.
Retail occupancy rate: Is the estimated rental value of let units expressed as a percentage of the total estimated
rental value of the portfolio, excluding development properties.
Reversion: Is the increase in rent estimated by the external valuers, where the passing rent is below the estimated
rental value. The increases to rent arise on rent reviews, letting of vacant space and expiry of rent-free periods.
Reversionary yield: Is the anticipated yield, which the initial yield will rise to once the rent reaches the estimated
rental value.
Risk-controlled development pipeline: Is the combination of all development projects that the Company is currently
pursuing or assessing for feasibility. Our risk-controlled approach means that we will not commit to a new
development unless we have pre-let or pre-sold at least 70% by area.
Tenant (or lease) incentives: Are any incentives offered to occupiers to enter into a lease. Typically the incentive
will be an initial rent-free period, or a cash contribution to fit-out or similar costs. Under accounting rules, the value
of lease incentives given to tenants is amortised through the Income Statement on a straight-line basis to the
lease expiry.
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Total Accounting Return (TAR): Is the increase or decrease in EPRA NAV per share plus dividends paid in the year,
expressed as a percentage of EPRA NAV per share at the beginning of the year.
Total Property Return (TPR): Is calculated as the change in capital value, less any capital expenditure incurred, plus
net income, expressed as a percentage of capital employed over the period, as calculated by MSCI Real Estate
(formerly IPD). Total property returns are calculated monthly and indexed to provide a return over the relevant period.
Total Shareholder Return (TSR): Is calculated by the growth in capital from purchasing a share in the Company
assuming that the dividends are reinvested each time they are paid.
Topped-Up Net Initial Yield: Net initial yield adjusted to include notional rent in respect of let properties which are
subject to a rent free period at the valuation date.
Underlying Funds From Operations (UFFO): is a measure of cash profits which includes recurring cash profits and
excludes other one off or non-cash adjustments. UFFO is used by the Company as the basis for ordinary dividend
policy and cover.
Unsecured balance sheet: The Company’s balance sheet is unsecured, which means that none of its debt is secured
against any of its property assets.
Voids: Are expressed as a percentage of ERV and represent all unlet space, including voids where refurbishment
work is being carried out and voids in respect of pre-development properties. Temporary lettings of up to 12 months
are also treated as voids.
Weighted average lease expiry (WALE): Is the average lease term remaining to first break, or expiry, across the
portfolio weighted by rental income. This is also disclosed assuming all break clauses are exercised at the earliest
date, as stated. Excludes short-term licences and residential leases.
Yield on cost: Passing rents expressed as a percentage of the total development cost of a property.
Yield shift: Is a movement (usually expressed in basis points) in the equivalent yield of a property asset.
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
COMPANY INFORMATION
Financial adviser
Kinmont
5 Clifford Street
London
W1S 2LG
Auditor
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
Legal advisers
CMS Cameron McKenna
Nabarro Olswang LLP
78 Cannon Street
London
EC4N 6AF
Tax advisers
BDO LLP
55 Baker Street
London
W1U 7EU
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Directors
Margaret Ford
(Non-Executive Chairman)
Allan Lockhart
(Chief Executive Officer)
Mark Davies
(Chief Financial Officer)
David Lockhart
(Executive Deputy Chairman)
Kay Chaldecott
(Non-Executive Director)
Alastair Miller
(Non-Executive Director)
Colin Rutherford
(Non-Executive Director)
Company Secretary
Prism Cosec Limited
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
Jefferies International Limited
100 Bishopsgate
London
EC2N 4JL
176
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176
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improving environmental performance is
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NewRiver REIT plc
16 New Burlington Place
London W1S 2HX
+44 (0) 20 3328 5800
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