NewRiver Regulatory News (NRR)

NewRiver REIT plc Half Year Results

21 November 2019

Robust performance and good progress with strategies to deliver UFFO growth

Allan Lockhart, Chief Executive commented: "We are pleased to report another period of solid performance, as we entered our 10th year of operations. Our diversified and differentiated portfolio continued to outperform the market, delivering sustainable cash flows, robust operational metrics and resilient valuations. We have made good progress with our key strategies to deliver Underlying Funds From Operations growth and a fully covered dividend. In light of this progress, we have maintained our dividend for the first half at 10.8 pence per share, with cover improved from the comparative period.

Since 1 April 2019 to the date of this announcement we have completed, exchanged or are under offer on disposals at a blended yield of 5.4%, and have recycled most of this capital into five retail parks at a blended yield of 9.0%. Our market-leading asset management platform continues to expand, and now covers a growing number of third-party assets, including our most recent appointment by Knowsley Council. In pubs, supply chain benefits continue to drive like-for-like EBITDA growth, and we continue to extract further value from our portfolio. Our strong and unsecured balance sheet, and our ability to recycle capital, leaves us well-positioned to continue our progress to dividend cover."

Good progress with strategies to deliver Underlying FFO growth and re-establish dividend cover

·; So far in FY20, disposals completed, exchanged or under offer total £59.5 million, reflecting a blended NIY of 5.4%; completed disposals on terms in line with March 2019 valuation

·; Capital recycled into new joint venture with BRAVO, which to date has acquired five retail parks for £105.1 million (NRR share: £34.7 million), reflecting a blended NIY of 9.0%; in addition to rental income, joint venture acquisitions generate management fees and promotes, driving higher returns on investment

·; Third-party asset management platform continues to expand, with recent appointment by Knowsley Council to become strategic asset manager for Kirkby Town Centre; agreement includes fees for acquisition due diligence, asset management and a potential development monitoring fee

Proven business model delivering sustainable cash returns, underpinned by unsecured balance sheet

·; Underlying FFO ('UFFO') of £26.4 million (HY19: £25.6 million); UFFO per share of 8.6 pence (HY19: 8.4 pence)

·; H1 Ordinary dividend per share held at 10.8 pence (HY19: 10.8 pence); 80% covered by UFFO (HY19: 78% covered); further cover improvement expected as identified strategies to deliver UFFO growth are executed

·; Q3 FY20 ordinary dividend maintained at 5.4 pence per share (Q3 FY19: 5.4 pence)

·; EPRA NAV per share of 244 pence (March 2019: 261 pence), impacted by 3.3% portfolio valuation decline, due to a reduction in estimated rental values of 2.7% and modest yield expansion

·; Total Property Return +0.3%, +320 bps vs MSCI-IPD benchmark; Total Accounting Return of -2.4% (HY19: +0.6%)

·; Fully unsecured balance sheet, with proportionally consolidated LTV of 38% (March 2019: 37%)

·; IFRS net assets of £745.4 million (March 2019: £796.1 million); IFRS loss after tax £21.3 million (HY19: profit of £2.7 million) due to non-cash valuation decline of £42.5 million; IFRS basic EPS -7.0 pence (HY19: +0.9 pence)

·; Entered pre-planning phase on our residential-led redevelopment of Grays Shopping Centre, Essex

Robust operational metrics show resilience of retail portfolio focused on convenience, value and services

·; Retail occupancy remained high at 95.6% (March 2019: 95.2%)

·; 337,900 sq ft of leasing activity completed; long term deals on terms 2.5% ahead of previous rent and 0.5% ahead of ERV; activity focused on retailers providing convenience, value and services

·; Affordable average retail rent of £12.49 psf (March 2019: £12.52 psf)

·; Like-for-like retail net rental income decline of 3.5%, impacted by CVAs and Administrations

·; Like-for-like footfall across shopping centres outperformed UK benchmark by 70 bps, with a decline of 2.3%

Hawthorn Leisure: growth driven by scale-based synergies secured in FY19 and active asset management

·; Like-for-like EBITDA growth per pub of +5.5%, as the portfolio continued to benefit from the scale-based synergies secured in FY19; rate of growth expected to moderate following annualisation of Hawthorn Leisure integration in January 2020

·; Pub occupancy remained high at 96.7% (March 2019: 97.9%) across our 660 community pubs

·; Highly active six months for capital markets activity in the pub sector, which has been supportive of valuations and presents attractive investment opportunities

Financial Statistics

Notes:

(1) Underlying Funds From Operations ('UFFO') is a Company measure of cash profits which includes realised recurring cash profits and excludes other one off or non-cash adjustments as set out in Note 7 to the Financial Statements and in the Finance Review. UFFO is used by the Company as the basis for ordinary dividend policy and cover

(2) Funds From Operations ('FFO') is a Company measure of cash profits which includes realised recurring cash profits plus realised profits (or losses) on the sale of properties and excludes other one off or non-cash adjustments as set out in Note 7 to the Financial Statements and in the Finance Review

(3) Ordinary dividend cover is calculated with reference to UFFO

(4) Admin cost ratio is net administrative expenses expressed as a proportion of property revenue (including the Group's share of joint ventures)

(5) Interest cover is tested at property level and is the basis for banking covenants. It is calculated by comparing actual net rental income received versus cash interest payable.

(6) IFRS (Loss)/Profit after taxation due to non-cash valuation decline of £42.5 million

(7) Total Accounting Return equals EPRA NAV per share movement during the period plus dividends paid in the period divided by the EPRA NAV per share at the start of the period

(8) GRESB is the leading sustainability benchmark for the global real estate sector, and its annual assessment scores participating companies out of 100

(9) Cost of debt assuming £215 million revolving credit facility is fully drawn

(10) Average debt maturity assumes one-year extension options are exercised and bank approved

The Group has applied IFRS 16 Leases from 1 April 2019, which requires lessees to recognise a right-of-use asset and related lease liability representing the obligation to make lease payments. In accordance with the transition provisions in IFRS 16, the new rules have been adopted retrospectively, with the cumulative effect of initially applying the new standard recognised on 1 April 2019. Comparatives for the year ended 31 March 2019 have not been restated.

For further information

This announcement contains inside information as defined in Article 7 of the EU Market Abuse Regulation No 596/2014 and has been announced in accordance with the Company's obligations under Article 17 of that Regulation. This announcement has been authorised for release by the Board of Directors.

Results presentation

The results presentation will be held at 10.30am today at the offices of CMS Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London EC4N 6AF. The presentation will be broadcast live via webcast and conference call.

A live audio webcast will be available at: https://kvgo.com/IJLO/NewRiver_FY20HYR

A recording of this webcast will be available on the same link after the presentation, and on the Company's website (www.nrr.co.uk) later in the day.

The dial in details for the conference call facility are as follows:

UK Toll Free: 0808 109 0700

Standard International Access: +44 (0)20 3003 2666

Password: NewRiver

About NewRiver

NewRiver REIT plc ('NewRiver') is a leading Real Estate Investment Trust specialising in buying, managing, developing and recycling convenience-led, community-focused retail and leisure assets throughout the UK.

Our £1.3 billion portfolio covers 9 million sq ft and comprises 33 community shopping centres, 24 conveniently located retail parks and over 650 community pubs. Having hand-picked our assets since NewRiver was founded in 2009, we have deliberately focused on the fastest growing and most sustainable sub-sectors of the UK retail market, with grocery, convenience stores, value clothing, health & beauty and discounters forming the core of our retail portfolio. This focus, combined with our affordable rents and desirable locations, delivers sustainable and growing returns for our shareholders, while our active approach to asset management and inbuilt 2.3 million sq ft development pipeline provide further opportunities to extract value from our portfolio.

NewRiver has a Premium Listing on the Main Market of the London Stock Exchange (ticker: NRR) and is a constituent of the FTSE 250 and EPRA indices. Visit www.nrr.co.uk for further information.

Forward-looking statements

The information in this announcement may include forward-looking statements, which are based on current projections about future events. These forward-looking statements reflect the directors' beliefs and expectations and are subject to risks, uncertainties and assumptions about NewRiver REIT plc (the 'Company'), including, amongst other things, the development of its business, trends in its operating industry, returns on investment and future capital expenditure and acquisitions, that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements.

None of the future projections, expectations, estimates or prospects in this announcement should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in the case of the assumptions, fully stated in the document. As a result, you are cautioned not to place reliance on such forward-looking statements as a prediction of actual results or otherwise. The information and opinions contained in this announcement are provided as at the date of this document and are subject to change without notice. No one undertakes to update publicly or revise any such forward looking statements. No statement in this document is or is intended to be a profit forecast or profit estimate or to imply that the earnings of the Company for the current or future financial years will necessarily match or exceed the historical or published earnings of the Company.

Chief Executive's review

I am pleased to report another solid performance, as we entered our 10th year of operations. Since our formation in 2009, NewRiver has grown to become one of the market-leading platforms operating in UK retail real estate, and also the seventh-largest tenanted pub company. We are very proud of the fact that over the last 10 years we have delivered for all our key stakeholders: for our people, we have created a culture that has been supportive of personal development; the communities where we have invested, and our occupiers, have benefitted from the great work that we have done at our assets; and our shareholders have received £286 million of dividends.

During the first half we continued to deliver robust operational metrics across our diversified portfolio and made good progress with our strategies to deliver Underlying FFO ('UFFO') growth and re-establish dividend cover, all whilst maintaining a conservative and fully unsecured balance sheet.

Market backdrop

Despite a relatively resilient consumer backdrop, which has seen modest wage growth and employment at a 40-year high, the retail sector continues to face significant challenges, and there remains a clear divergence in retailer performance as a result. Retailers focused on providing convenience, value or services - which represent the majority of our occupiers - have shown resilience due to their focus on essential spending and the barriers to replicating their business models online. In contrast, retailer underperformance in these market conditions has generally been a result of operating in structurally challenged sub-sectors, mismanagement, or a combination of both factors. Some of these underperforming retailers have entered into Company Voluntary Arrangements ('CVAs') to reduce rent costs, and in extreme cases, have exited the market completely, impacting rental income for retail property owners. Even for those retailers performing well, the market conditions have increased their focus on occupational costs, resulting in more challenging negotiations around new lettings and renewals. However, we feel relatively better positioned in responding to this pressure, due to our affordable rents, our active approach to asset management, and our conveniently located assets.

It remains our belief that the UK has too much retail space. While we have aligned ourselves to the right types of assets, which meet the everyday needs of consumers and the changing needs of successful retailers, this excess of space has led to increased vacancy in town centres, a lack of investment by landlords and lower business rates income for councils, with significant implications for the vitality of town centres. Local Authorities remain the ultimate custodians of these spaces, and they have taken an increasingly interventionist approach in recent years, acquiring retail assets with the aim of delivering much-needed regeneration projects for their communities. With our market-leading asset management platform, we are well positioned to support Local Authorities as they take these steps, bringing our scale, relationships and expertise to help them generate sustainable income from these assets while they realise their ambitions for their town centres.

In the investment market for retail property, the challenges facing the sector have weighed heavily on sentiment, and this has been reflected in a low volume of transactions in the first half, and a decline in valuations. We have not been immune from this negative sentiment, but our portfolio has several differentiating characteristics that have supported our valuations: first, our average lot size, at £23 million for shopping centres and £11 million for retail parks, is significantly smaller than peers, providing better liquidity; secondly, our portfolio yield has been consistently higher than all other MSCI-IPD sectors and has maintained approximately 250 bps of headroom above the IPD equivalent yield benchmark over the past five years, meaning we are less reliant on income growth to drive returns at our assets; and finally, an internal review of our entire retail portfolio has shown that our current valuations are 87% underpinned by the valuation of the next-best alternative use for each of our assets. Against a backdrop of declining retail property values, an increasing number of domestic and overseas buyers are recognising the superior returns offered by retail assets relative to other real estate sectors, which is likely to provide a tailwind for market activity and therefore valuations in the near term.

The pub sector has generally performed well over the period, with data from the Coffer Peach Business Tracker showing like-for-like sales growth of 1.8% across the sector over the 12 months to September 2019, as consumers spend an increasing proportion of their discretionary income on experiential leisure. Wet-led pubs have outperformed those focused on food, as the latter continue to be impacted by the wider challenges facing the casual dining sector, such as overcapacity and the growth of the home delivery market. The generally favourable market conditions in the pub sector resulted in a highly active six months for capital markets activity, with several major deals relating to pub portfolios and operators being transacted. These deals have been supportive of valuations in the sector as a whole and will likely provide further investment opportunities as these new or enlarged operators look to reshape their pub portfolios.

Strategies to deliver UFFO growth and re-establish full dividend cover

At our Full Year Results in May 2019 we announced a number of strategies to deliver UFFO growth and re-establish dividend cover. The strategies are as follows:

1. Disposal of lower yielding assets, targeting around 5% of the portfolio on an annual basis

2. Capital recycling into higher yielding assets, primarily in joint ventures

3. Leveraging our asset management platform

4. Delivering sharper asset management and operational efficiencies

5. Extracting further growth from our pubs business

1. Disposal of lower yielding assets, targeting around 5% of the portfolio on an annual basis

We have a target to dispose of 5% of our portfolio this financial year, which equates to around £64 million based on the portfolio valuation at 31 March 2019. Since 1 April 2019 to the date of this announcement, we have completed £35.3 million of disposals at a blended yield of 5.7%, comprising £32.8 million of disposals in the period and £2.5 million post-period end, and are currently exchanged or under offer on £24.2 million of disposals, at a blended yield of 4.9%. Together, these represent £59.5 million of disposals, at a blended yield of 5.4% and on terms only 2% below March 2019 book value, which underscores the conservative nature of our valuations. So far this year, disposals have been completed across all asset types, which demonstrates the inherent liquidity in our portfolio and the attractiveness of our assets - which typically have small lot sizes and alternative use potential - to a large pool of potential buyers.

2. Capital recycling into higher yielding assets, primarily in joint ventures

In May 2019 we formed a new joint venture relationship with BRAVO, re-establishing a successful partnership that dates back to 2012. The joint venture relationship was formed to acquire and manage a portfolio of retail parks in the UK, as well as to identify and pursue other opportunities in the UK retail sector. To date we have acquired four retail parks in a 50:50 joint venture with BRAVO for £60.5 million (NRR share: £30.2 million) at a blended net initial yield of 9.8%, and one further retail park in a 10% investment with BRAVO for £44.7 million (NRR share: £4.5 million) at a net initial yield of 8.0%.

In addition to a share of the rental income from these assets, the joint venture relationship generates asset management fees and promotes based on financial performance, resulting in a superior return on investment than under full ownership of the asset. The ability to take either 10% or 50% stakes also provides us with increased flexibility, as we can make attractive opportunistic acquisitions whilst maintaining our conservative balance sheet position.

3. Leveraging our asset management platform

Our market-leading platform comprises a highly experienced team of asset managers working alongside finance, development and marketing professionals, and has a track record of delivering growing returns. In addition to servicing our owned assets, this platform manages assets held by our joint ventures and supports third-party owners, which realise the benefits that the scale, relationships and governance credentials of a major asset manager can provide. Over the past year we have been actively marketing our platform to third-party owners of retail assets, particularly Local Authorities, which have become increasingly acquisitive of these assets, as they seek to take control of their town centres and better serve their communities. Few retail asset managers can match our scale and expertise in managing multi-tenanted retail assets, so we consider ourselves to face limited competition in this market, positioning us well for further growth.

To date we have signed four third-party mandates to our asset management platform. Our most recent appointment, by Knowsley Council, relates to Kirkby Town Centre, and encompasses a fee for strategic asset management and business planning advice, as well as the potential for a development monitoring fee relating to the construction of a Morrisons superstore at the site. This demonstrates how our platform can provide support throughout every stage of the asset ownership. During the first half we advanced talks with several councils and embarked on an active marketing programme targeting Local Authorities across the UK.

4. Delivering sharper asset management and operational efficiencies

A key priority is to extract further value from our existing assets through sharper asset management, and achieve operational efficiencies through cost reductions, both centrally and for our occupiers.

Our sharper asset management initiatives are focused on further co-ordinating leasing across our portfolio and deriving better insights from our occupiers and third-party data sources to enhance our business planning capabilities. During the period we took an important step towards achieving this with the appointment of a Head of Asset Management, Emma Mackenzie, to lead our occupier relationships and ensure asset management activity is co-ordinated across our portfolio.

Our operating efficiencies are focused on lowering service charges for occupiers in line with our target reduction of 30% over three years to FY21, mitigating the financial impact of vacancies, and better leveraging our scale, technology and marketing platforms to achieve scale-based efficiencies and avoid duplication of costs. During the first half we reduced service charge budgets across our shopping centre portfolio by 8% through reviews of areas such as staffing, marketing and the monitoring and evaluation of energy consumption. We are also now preparing for the next round of rates reassessments, where we have a track record of delivering significant reductions for our occupiers.

5. Extracting further growth from our pubs business

Following the acquisition of Hawthorn Leisure in May 2018, we now own a market-leading pub management platform, which has the scale and expertise to enable us to further grow our investment exposure to this attractive sector. The integration of Hawthorn Leisure in January 2019 unlocked significant scale-based synergies that have significantly contributed to like-for-like EBITDA growth per pub of 5.5% in the first half. This growth is expected to moderate following the annualisation of the Hawthorn Leisure integration in January 2020, when our active asset management initiatives will become the main driver of future growth.

During the first half we continued our programme of targeted capital investment projects aimed at enhancing the customer experience in our pubs, as well as further improving trade and increasing capital values. We completed 26 such projects at a total cost of £1.4 million during the half, which in aggregate have delivered a return on investment of 24%. We also further advanced our risk-controlled development pipeline across the pub portfolio, including commencing the development of a combined c-store and residential development at the site of the Sea View Inn in Poole, Dorset, which will generate a £275,000 performance fee from the Co-op.

Financial performance

Our financial performance remained resilient during the first half, as Underlying Funds From Operations ('UFFO'), which excludes profit or losses on the disposal of investment properties, increased to £26.4 million, from £25.6 million in the first half of FY19 as growth in net rental income more than offset increased administrative and finance costs. Our IFRS loss after tax was £21.3 million, compared to a profit of £2.7 million in the first half of last year, predominantly due to a non-cash reduction in portfolio valuation of £42.5 million.

The Board approved two quarterly dividends of 5.4 pence per share, resulting in a first half dividend of 10.8 pence per share, in line with the total dividend for the first half of FY19. Achieving dividend cover remains a key priority for the Company, and the increase in UFFO has also resulted in an improved dividend cover of 80% compared to 78% in HY19. We have also announced a third quarter dividend of 5.4 pence, in line with the prior year, and expect dividend cover to further improve as we progress our UFFO-accretive strategies.

Our portfolio valuation reduced slightly during the period, from £1.29 billion to £1.26 billion, primarily due to a 3.3% decline in portfolio valuation. Our EPRA net asset value per share decreased by 17 pence to 244 pence per share, also mainly due to the non-cash reduction in portfolio valuation, and our IFRS net assets declined from £796.1 million to £745.4 million for the same reason.

One of our core strengths is our unencumbered balance sheet, which remains conservatively positioned with an LTV of 38%, a slight increase from the 37% reported at March 2019 but well within our stated guidance. The profitability of our portfolio continues to be underpinned by the significant arbitrage between our portfolio net initial yield of 7.9% and cost of debt of 3.2%, and our efficient cost operating structure, which means that our interest cover is high at 3.8x, significantly ahead of our stated policy of >2.0x.

Operational performance

During the period we acquired four retail parks in a 50:50 joint venture with BRAVO for total consideration of £60.5 million (NRR share: £30.2 million), reflecting a net initial yield of 9.8%. The acquisition comprised Kittybrewster Retail Park, Aberdeen; Glendoe & Telford Road Retail Parks, Inverness, Units in Kingsway East Retail Park, Dundee; and Wakes Retail Park, Isle of Wight. The portfolio has a number of attractive characteristics, including an affordable average rent of £14.77 per sq ft, supportive Rent to Sales ratios ranging from 6.0 to 7.6%, a low land capital value of £57 per sq ft and strong occupier covenants that complement our existing portfolio.

Our retail portfolio continued to deliver robust operational metrics in the first half. Occupancy remained high at 95.6% (March 2019: 95.2%), reflecting our focus on growing and online-resilient retail sub-sectors, and our active approach to asset management. Our average rent remained low at £12.49 psf (March 2019: £12.52 psf), 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 70 bps, with a decline of 2.3% during the first half.

During the period we completed 337,900 million sq ft of new lettings and renewals across our retail portfolio. On average, long-term deals were signed 2.5% ahead of previous passing rent and 0.5% ahead of March 2019 ERV. Our leasing activity continued to reflect our focus on occupiers providing convenience, value and services, as we signed deals with discounters such as Poundland, The Works and OneBelow during the period, and multiple deals with Superdrug, Shoe Zone and WHSmith. In addition, we renewed leases on 29 Amazon Lockers across our shopping centre portfolio, underscoring their importance as Click & Collect destinations.

Retail failures in the form of Company Voluntary Arrangements ('CVAs') or Administrations continue to have a limited impact on our rental income, as we have deliberately limited our exposure to sub-sectors facing structural challenges such as casual dining, department stores and mid-market fashion. During the first half, the cumulative impact of CVAs and Administrations occurring since the beginning of FY19 reduced net rental income by £0.6 million, which included a £0.1 million impact from CVAs and Administrations in the period, relating to Bathstore, Monsoon/Accessorize and Select.

Hawthorn Leisure delivered like-for-like EBITDA per pub growth of +5.5%, largely driven by the scale-based synergies unlocked in January 2019, which included improvements in purchasing terms and reduced administrative costs in areas such as insurance, utilities and legal fees. Elsewhere in the portfolio we continued our programme of targeted capital investment projects aimed at enhancing the customer experience in our pubs, as well as further improving trade and increasing capital values.

We made good progress with our 2.3 million sq ft risk-controlled development pipeline during the period. We further advanced our 465,000 sq ft regeneration of Burgess Hill town centre with the submission of a planning application for a revised scheme which will reduce the retail footprint of the redevelopment and increase its residential provision. We also entered the pre-planning phase on our redevelopment of Grays Shopping Centre, which we acquired in June 2018, and where we are working closely with the Council to submit a planning application for a mixed-use regeneration scheme that will provide a significant amount of new homes at the site, which is located just 35 minutes away from Central London by train.

Our disposal programme resulted in the sale of £35.3 million of assets since the start of the period, comprising an Asda store in Llanelli, one shopping centre, one retail park, eight pubs, eight parcels of land and nine c-stores. Disposals were completed at a blended NIY of 5.7%, and in line with March 2019 valuation.

As an owner of asset 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. At the same time, we aim to be good neighbours by supporting and championing local causes and actively managing our assets to address the needs of communities. We were therefore delighted to have our efforts recognised with the receipt of a GRESB Green Star in September 2019 for the second consecutive year, with a 13% improvement on our GRESB Score from the previous year, and a 94% improvement from our first entry to the benchmark in 2016. GRESB is the leading sustainability benchmark for the global real estate sector, and this achievement underlines the significant progress we have made in this area in a relatively short period of time.

Outlook

The challenges facing the UK retail sector will continue in the near-term, but we remain confident in our differentiated portfolio focused on growing and resilient market sub-sectors, and our ability to execute our strategies to grow UFFO and re-establish a fully covered dividend.

Our market-leading asset management platform will continue to extract value from our portfolio, while enabling us to partner with the growing number of Local Authorities that are acquiring retail assets and taking positive steps to transform their town centres for the benefit of their communities. At the same time, our new joint venture relationship with BRAVO provides a highly profitable and capital efficient opportunity to take advantage of the current dislocation in the pricing of UK retail assets, and deliver growing, sustainable cash flows to our shareholders.

Allan Lockhart

Chief Executive

20 November 2019

Property review

Highlights

·; Portfolio reduced to £1.26 billion (March 2019: £1.29 billion), driven by a 3.3% valuation decline

·; Ungeared total property return of +0.3%, outperforming the MSCI-IPD benchmark by 320 bps

·; Completed £105.1 million of acquisitions (NRR share: £34.7 million) at a blended NIY of 9.0%

·; Retail occupancy remains high at 95.6% (March 2019: 95.2%); average rents remain affordable at £12.49 (March 2019: £12.52); and like-for-like footfall outperformed the UK benchmark by 70 bps

·; Completed 337,900 sq ft of new lettings and renewals across the retail portfolio; long-term deals on average 2.5% ahead of previous passing rent and signed at a 0.5% premium to March 2019 ERV

·; Delivered 5.5% like-for-like EBITDA per pub growth across our community pub portfolio, driven by the scale-based synergies unlocked in January 2019, and high occupancy of 96.7% (March 2019: 97.9%)

·; Risk-controlled development pipeline stands at 2.3 million sq ft; during the first half we progressed 465,000 sq ft redevelopment of Burgess Hill and entered pre-planning at Grays Shopping Centre

·; Completed £35.3 million of disposals during the first half, at a blended NIY of 5.7% and on terms in line with March 2019 valuation

Portfolio overview

During the period our portfolio valuation reduced to £1.26 billion, from £1.29 billion in March 2019, which was predominantly due to a 3.3% decline in portfolio valuation and a like-for-like ERV reduction of 2.7%.The portfolio topped-up net initial yield remained constant over the period at 7.9% as modest outward yield shift in our shopping centre and retail park portfolios was offset by a slight inward shift in our pubs portfolio.

1. Benchmark includes monthly & quarterly valued retails

Our portfolio outperformed the MSCI-IPD benchmark for both income return and capital growth, delivering a total return of 0.3%, compared to the benchmark of -2.8%, an outperformance of 320 bps.

The Company undertook an alternative use value review at the period end 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 September 2019, the total alternative use valuation for our retail portfolio, at £848 million, was just 13% below our retail portfolio valuation of £973 million, which we consider to be an underpin to our valuations. This is a slight increase from the 10% difference reported at March 2019, mainly owing to an increase in construction cost assumptions and net acquisition activity in the first half.

Disciplined stock selection

Retail portfolio

Since the start of the period, we have acquired four retail parks in a 50:50 joint venture with BRAVO for £60.5 million (NRR share: £30.2 million) at a blended net initial yield of 9.8%, and one further retail park in a 10% investment with BRAVO for £44.7 million (NRR share: £4.5 million) at a net initial yield of 8.0%.

Kittybrewster Retail Park, Aberdeen

Kittybrewster Retail Park is 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%, as calculated by Harper Dennis Hobbs.

Telford Retail Park, Inverness

Telford Road Retail Park is 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%, as calculated by Harper Dennis Hobbs, and the site has alternative use potential for hotels and light industrial.

Units at Kingsway East Retail Park, Dundee

Kingsway East Retail Park is 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

Wakes Retail Park is 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%, as calculated by Harper Dennis Hobbs. In addition, the asset has alternative use potential for hotels and residential, supported by a land capital valuation of £66 per sq ft.

Poole Retail Park

Poole Retail Park is located between the town centres of Poole and Bournemouth in Dorset, adjacent to the A35 and in close proximity 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%, as calculated by Harper Dennis Hobbs. 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.

Active asset management

We have developed a market-leading retail asset management platform since NewRiver was founded 10 years ago, and with the acquisition of Hawthorn Leisure in May 2018, we now also have an in-house 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 publicans, 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 asset management platform strategy, which includes managing assets held in joint ventures and owned by third parties.

Retail portfolio

During the first half we completed 337,900 sq ft of new lettings and renewals across our retail portfolio. This high volume of leasing activity means that our occupancy rate remained high at 95.6% despite the challenging market backdrop. On average, long-term deals were signed 2.5% ahead of previous passing rent and 0.5% ahead March 2019 ERV. Our leasing activity has continued to reflect our focus on occupiers offering convenience, value and services, as we signed deals with discounters such as Poundland, The Works and OneBelow during the period, and multiple deals with Superdrug, Shoe Zone and WHSmith. In addition, we renewed leases on 29 Amazon Lockers across our shopping centre portfolio, underscoring their importance as Click & Collect destinations.

Our rental income is well-diversified, with no single retailer accounting for more than 2.1% of contracted rents, and our policy is that no single retailer will account for more than 5% of total rent. The past 18 months have seen a number of retailers impacted by difficult trading conditions and entering CVAs and Administrations as a result. The impact of these restructurings on our portfolio has remained modest due to our focus on growing and resilient market sub-sectors, and deliberately avoiding challenged sub-sectors such as department stores, mid-market fashion and casual dining. The cumulative impact of CVAs and Administrations occurring since the start of FY19 on our first half net rental income was £0.6 million, of which £0.1 million related to those occurring in the period, comprising Bathstore, Monsoon/Accesorize and Select.

The relatively modest impact from these business restructurings is due to our focus on growing and resilient market sub-sectors and our affordable rents, which averaged £12.49 per sq ft in September 2019, compared to £12.52 per sq ft in March 2019.

Pub portfolio

During the period our pub portfolio saw like-for-like EBITDA per pub growth of 5.5%, largely driven by the scale-based synergies unlocked by the integration of Hawthorn Leisure in January 2019, which included improvements in purchasing terms and reduced administrative costs in areas such as insurance, utilities and legal fees. We expect the rate of EBITDA per pub growth to moderate upon the annualisation of the integration, which will occur in January 2020.

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. We completed 26 such projects at a total cost of £1.4 million during the period, which in aggregate have delivered a return on investment of 24%.

Risk controlled development

Our risk-controlled development pipeline totals 2.3 million sq ft (1.9 million sq ft in the near-term) and is a key driver of long-term returns for our shareholders. Our risk-controlled approach means that we will not commit to a new development unless we have pre-let or pre-sold at least 70% by area, and our development strategy includes:

·; Development of sites acquired in portfolio acquisitions

·; Capitalising on opportunities within our ownership above or adjacent to our assets

·; Complete redevelopment of existing assets

The pipeline provides us with flexibility as to how we proceed with developments, and for the majority of our pipeline we intend to either develop projects in joint ventures or sell the sites with planning permission, to crystallise value earlier and in a capital efficient way.

Total development pipeline

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

During the first half we began construction of our 11,700 sq ft development at the Sea View Inn in Poole, Dorset, which will comprise a Co-op c-store and 10 residential units, scheduled for completion in early 2020. We also progressed the two major projects on which we have achieved planning: the 465,000 sq ft regeneration project in Burgess Hill and the 236,000 sq ft residential-driven redevelopment of Templars Square Shopping Centre in Cowley, Oxford. In addition, we moved forward our plans to submit planning application for our development at the Blenheim Shopping Centre, Penge and entered the pre-planning phase on our mixed-use redevelopment of Grays Shopping Centre, which we acquired in June 2018.

Retail

Retail portfolio development pipeline

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

Planning granted

Burgess Hill

During the first half, we submitted a revised planning application for the 465,000 sq ft 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 leisure and residential provision, introduce additional uses such as primary health, 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.

During the first half we made significant progress in pre-letting negotiations at the development, to join existing pre-lets to Travelodge, Cineworld and Nando's. The entire residential element of the development was previously pre-sold to Delph Property Group, and we are now in discussions with them regarding the new scheme.

Cowley, Oxford

In July 2017, Oxford City Council approved plans for our major mixed-use development to regenerate Templars Square Shopping Centre. The 236,000 sq ft development will include 226 new residential apartments, a 71-bed Travelodge 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 already 82% pre-let.

We expect the Section 106 agreement will be signed before the end of the calendar year, which will trigger release of the Planning Decision Notice and completion of the Section 278 Agreement. At this stage we will introduce a delivery partner and advance the technical design phase of the development.

Pre-planning

Blenheim Shopping Centre, Penge

At the Blenheim Shopping Centre, we have plans to revitalise this key Greater London asset and provide a residential development in the airspace above the shopping centre to meet significant local demand for housing. Following positive consultations with Bromley Council we are in discussions to either re-gear our head lease with the Council or buy the freehold of the site. Once this process has been completed, we intend to introduce a delivery partner as we progress to the next stage in the scheme.

Grays Shopping Centre, Grays

We acquired Grays Shopping Centre in June 2018, as we recognised a significant value-creating opportunity for redevelopment at the site, which is located just 35 minutes from Central London by train. The centre was built in the 1960s and has served its community well, but given the changing nature of retail provision in the town and surrounding borough, there is significant scope to reduce the retail footprint of the site and provide much-needed residential units to revitalise the town centre. We are currently working closely with Thurrock Borough 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 500 new homes. Our next step is to submit a Phase 1 joint outline planning application by 2020 to establish the basis for wider proposals.

Early feasibility stages

We believe that our risk-controlled development pipeline will be a key driver of future growth and we are currently reviewing several medium-term opportunities from within our retail portfolio. These opportunities include the potential for a 80,000 sq ft health hub at our shopping centre at Boscombe, a 20,000 sq ft hotel at our shopping centre in Hastings, 236,600 sq ft of residential potential above and adjacent to our shopping centre in Bexleyheath.

Basingstoke Leisure Park

In March 2018, we exchanged contracts with Basingstoke and Deane Borough Council on a development agreement for a 66-acre leisure park in a prominent location in Basingstoke, near Junction 6 of the M3 motorway.

Capitalising on the growing popularity of integrated leisure and retail, our proposals currently comprise approximately 500,000 sq ft of leisure and 200,000 sq ft of designer outlet shopping. We are confident that this unique combination of leisure and designer outlet shopping will appeal to the local community and a catchment significantly beyond Basingstoke in one of the UK's most affluent regions. To facilitate this development, we have entered into a long-term Development Agreement with Basingstoke and Deane Borough Council which is conditional on achieving planning consent and pre-lets as well as a viability assessment, amongst other conditions. In the event that the development becomes unconditional, NewRiver will be granted a 250-year leasehold interest. We are currently developing an outline planning application and aim to submit this in early 2021.

Pubs

Pubs portfolio development pipeline

As well as generating high levels of low risk cash returns, our portfolio of community pubs contains a number of inbuilt value-creating development opportunities. These include the potential to build convenience stores or residential units on surplus land adjacent to pubs which was effectively acquired at zero cost, and opportunities to convert pubs into convenience stores or residential units.

Convenience stores ('c-stores')

We have an overarching agreement with the Co-op to deliver up to 40 c-stores and, based on planning achieved to date and viability assessments, it is our current expectation that we will deliver just under 30 c-stores in total. These stores are let on fixed lease terms of 15 years at rents ranging from £15.00-17.50 per sq ft, with RPI linked increases capped at 4% and collared at 1%. The agreement also includes performance receipts linked to c-store delivery. To date we have delivered 25 c-stores, of which 18 utilised surplus land adjacent to existing pubs, three were the result of pub conversions and four were new builds on sites previously occupied by pubs. As part of our disposal programme, we have sold 17 c-stores to date, leaving eight c-stores remaining in our portfolio

During the period we were on-site with a further development at the site of the Sea View Inn in Poole, Dorset, where we are delivering a scheme comprising 10 residential units and c-store. Once completed, the development will unlock a £275,000 performance receipt from the Co-op. We are currently exploring further c-store opportunities on surplus land across our pub portfolio. 

Profitable capital recycling

Since 1 April 2019, we have completed £35.3 million of disposals, on terms in line with March 2019 valuation. In line with our strategy, these disposals were typically of mature assets where our estimates of forward-looking returns were below target levels, assets where we believe that the risk profile has changed, or assets sold to special purchasers.

Foodstore at St Elli Shopping Centre, Llanelli

In June 2019 we disposed of a 70,000 sq ft Asda foodstore and petrol filling station at St Elli Shopping Centre, Llanelli to a private investor for £17.9 million, representing a net initial yield of 6.9% and a 1% discount to March 2019 valuation.

Pubs and pub land

Since the start of the period, we disposed of eight pubs and eight pieces of pub land. These were sales to special purchasers, mainly the occupiers of pubs, in line with our commitment to working with our pub occupiers to best meet their needs and those of the local community.

C-stores

To date we have completed 25 c-stores for the Co-op. Having disposed of eight of these c-stores in prior periods, we accelerated our disposal programme for these assets since the start of the period, disposing of nine stores for proceeds of £9.8 million, representing a disposal yield of 5.2%, and a 3% discount to March 2019 valuation.

Finance review

Our financial performance remained resilient during the first half, as Underlying Funds From Operations ('UFFO'), which excludes profit or losses on the disposal of investment properties, increased to £26.4 million, from £25.6 million in the first half of FY19 as growth in net rental income more than offset increased administrative and finance costs. Our IFRS loss after tax was £21.3 million, compared to a profit of £2.7 million in the first half of last year, predominantly due to a non-cash reduction in portfolio valuation of £42.5 million.

The Board approved two quarterly dividends of 5.4 pence per share, resulting in a first half dividend of 10.8 pence per share, in line with the total dividend for the first half of FY19. Achieving dividend cover remains a key priority for the Company, and the increase in UFFO has also resulted in an improved dividend cover of 80% compared to 78% in HY19. We have also announced a third quarter dividend of 5.4 pence, in line with the prior year, and expect dividend cover to further improve as we progress our UFFO-accretive strategies.

Our portfolio valuation reduced slightly during the period, from £1.29 billion to £1.26 billion, this was due partly to net disposals but primarily a 3.3% decline in portfolio valuation. Our EPRA net asset value per share decreased by 17 pence to 244 pence per share, also mainly due to the non-cash reduction in portfolio valuation, and our IFRS net assets declined from £796.1 million to £745.4 million for the same reason.

One of our core strengths is our unencumbered balance sheet, which remains conservatively positioned with an LTV of 38%, a slight increase from the 37% reported at March 2019 but well within our stated guidance. The profitability of our portfolio continues to be underpinned by the significant arbitrage between our portfolio net initial yield of 7.9% and cost of debt of 3.2%, and our efficient cost operating structure, which means that our interest cover is high at 3.8x, significantly ahead of our stated policy of >2.0x.

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 on Page 46 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 APMs on which management places most focus, reflecting the Company's commitment to driving cash income returns are UFFO and FFO. FFO is determined by cash profits which includes realised recurring cash profits, realised profits or losses on the sale of properties and excludes other one-off or non-cash adjustments. UFFO is calculated on the same basis, but excludes realised profits or losses on the sale of properties and is the measure we use to calculate dividend cover. We consider these metrics to be the most appropriate for measuring the underlying performance of the business as they are familiar to non-property and international investors, and they exclude non-recurring and non-cash adjustments. They therefore better reflect the Company's generation of cash profits, and it is for this reason that UFFO is used to measure dividend cover.

The relevant sections of this Finance Review contain supporting information, including reconciliations to the financial statements and IFRS measures. Definitions for APMs are also included in the glossary.

Funds From Operations

The following table reconciles IFRS profit after taxation to Funds From Operations ('FFO'), which is the Company's measure of cash profits.

Reconciliation of profit after taxation to FFO

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. 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 following table shows the impact of the adoption of IFRS 16 on the FFO figures presented for the 6 months ended 30 September 2019. See Note 1 to the Financial Statements for further details.

1. Calculated with reference to UFFO

Net property income

On a proportionally consolidated basis, retail net property income increased by 2% to £33.3 million during the period, from £32.5 million in the first half of FY19. Excluding the impact of the implementation of IFRS 16, which removed ground rent payments from property operating expenses and added £1.5 million to net property income in the first half, net property income reduced by 2% to £31.8 million.

The key driver of this reduction was a 3.5% reduction in like-for-like income. Of this £1.1 million reduction, £0.6 million was due to the cumulative impact of CVAs and Administrations occurring since the start of FY19, with Poundworld the largest contributor.

This reduction in like-for-like income was partially offset by a £0.2 million increase in asset management fee income and a £0.2 million contribution from our completed Canvey Island Retail Park development. The increase in asset management fee income reflects our increased focus on leveraging our market-leading asset management platform, by managing assets on behalf of third parties and joint venture partners, with asset management income from Canterbury City Council for the Whitefriars Shopping Centre and from BRAVO, our joint venture partner, the key contributors to this increase.

The impact of our programme to recycle capital from low yielding assets into higher yielding assets was broadly neutral in the first half, with £70.4 million of acquisitions over the last 18 months proving a £1.6 million uplift, principally £0.9 million from the four retail parks acquired in our joint venture with BRAVO in June 2019, and £59.0 million of disposals over the last 18 months reducing net rental income by £1.7 million.

Analysis of pub net property income (£m)

Pub net property income increased by 27% to £13.6 million, from £10.7 million in the first half of last year, principally due to an increase in like-for-like EBITDA per pub of 5.5% and net acquisition activity.

The acquisition of Hawthorn Leisure was completed in May 2018, and therefore the current period benefited from six months of ownership, compared to four 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.

Disposals in the pub portfolio reduced net property income by £0.7 million, due predominantly to the sale in October 2018 of 22 community pubs which were let to Marston's on long-term RPI-linked leases, and the disposal of 16 c-stores since the start of the comparative period. Lastly, convenience store developments completed since the start of the prior period have delivered an additional £0.2 million of income.

Administrative expenses

Administrative expenses increased by 26% in the period, from £7.7 million to £9.7 million, with £0.9 million of this increase due to the fact that the Hawthorn Leisure business was acquired partway through the prior period.

A further £0.9 million of the 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 £0.9 million increase in administrative expenses relating is offset by the £0.9 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 12.9% to 14.6%, reflecting the operational nature of the pub business.

Net finance costs

The increase in net finance costs from £9.4 million to £10.8 million is wholly attributable to the implementation of IFRS 16, which increased net finance costs by £1.4 million during the first half. On an underlying basis, net finance costs have remained in line with the prior period, reflecting the fact that the average level of debt drawn in the first half has remained in line with the prior period.

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. The Group's 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 no tax charge during the first half, compared to £0.5 million in the first half of FY19.

Loss on disposal of investment properties

We completed £31.8 million of capital recycling, disposing of an Asda unit in Llanelli, one shopping centre, one retail park, seven convenience stores, and ten pubs/parcels of land adjacent to pubs. As a result of our disposal activity we made a loss on disposal of £0.8 million.

Dividends

Our dividend policy is driven by two key objectives:

·; our commitment to growing UFFO and UFFO per share so that we can re-establish dividend cover; and

·; the REIT requirement to pay out at least 90% of recurring cash profits

The Board has declared a dividend of 5.4 pence in respect of the third quarter of the year ended 31 March 2020, taking the total dividend declared to 16.2 pence, in line with the prior year.

Ordinary dividend cover, calculated with reference to UFFO, improved to 80% in the period, from 78% in HY19, reflecting the benefit of acquisitions made during the financial year. Ordinary dividend cover is one of our five key Financial Policies which are explained in the 'Financial Policies' section of this Review. 

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.

Net assets

During the period, IFRS net assets decreased from £796.1 million to £745.4 million. The reduction in IFRS net assets was primarily due to a 3.3% 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 6% to £749.5 million, from £799.3 million at 31 March 2019. EPRA NAV per share decreased by 7% to 244 pence per share at September 2019 compared to 261 pence per share in March 2019. The decrease in EPRA NAV and EPRA NAV per share is primarily due to the 3.3% decrease in portfolio valuation.

Properties at valuation

Properties at valuation decreased by £33.1 million during the half to £1,255.3 million, predominantly due to a 3.3% decline in valuations across the portfolio.

Net debt & financing

Analysis of movement in proportionally consolidated net debt (£m)

Net debt increased by £7.4 million over the period to £482.5 million, primarily as a result of our investment activity. Operating activities generated a net cash inflow, before working capital movements, of £31.4 million, compared with UFFO of £26.4 million.

As part of our disposal programme, we received cash proceeds of £36.0 million, largely offset by deployment of capital of £30.2 million to fund acquisitions made in our new joint venture relationship with BRAVO.

Financial Policies

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

3. Calculated with reference to UFFO

Our conservative financial policies were put in place in consultation with shareholders and form a key component of our financial risk management strategy:

·; Loan to Value was 38% at 30 September 2019, an increase from 37% on 31 March 2019. Our guidance is that our LTV will remain below 40%

·; Net debt: EBITDA was 6.6x, reduced from 6.9x in the first half of FY19. Our guidance is that Net debt: EBITDA will remain below 10x

·; Interest cover was 3.8x at 30 September 2019, in line with the 3.8x in HY19 and significantly ahead of our financing policy which requires a minimum cover of 2.0x

·; Ordinary dividend cover, calculated with reference to UFFO per share, was 80% for the first half, increased from 78% in HY19

·; Balance sheet gearing was 63% at 30 September 2019, increased from 60% at 31 March 2019

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:

·; Our largest single retailer concentration at the period end related to Poundland, which represents 2.1% of our gross income

·; Our development expenditure in the last six months as a proportion of total gross asset value was less than 1%.

·; Our risk-controlled approach to development means that we will not commit to a new development unless we have pre-let or pre-sold at least 70% by area, and we are currently 100% pre-let in retail across the two sites that are under construction in the period

·; Our pub weighting is currently 22% excluding c-stores, which is well within our guideline of 30%.

Mark Davies

Chief Financial Officer

20 November 2019

Principal risks and uncertainties

Our approach to risk management

The Board has ultimate responsibility for the risk management and internal control of the Group. Managing risks is an essential part of any business and the Board regularly evaluates the Group's appetite for risk, ensuring our exposure to risk is kept at an appropriate level.

The Audit Committee monitors the adequacy and effectiveness of the Group'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 and delegation of accountability for risk management to senior management. Senior Management manage and report on risk, ensuring that they are within the risk appetite as established by the Board.

Key features of the risk management policy:

·; Ongoing analysis and review of the risk register

·; Delegation of accountability for each risk

·; Use of external advisors regarding risk impacts

·; Quarterly reporting and exposure analysis

·; Training of employees and outsourced staff on policies and regulations

Risk Appetite

There are a number of risks that could impact the ability of the Group to successfully execute its strategy. The Board operates a low tolerance for risk, most notably within regulatory, financial and strategic matters. The Group 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 benefiting the Group with a more diversified debt structure and gaining access to a larger pool of capital to help achieve our strategic goals

·; The disciplined stock selection in which we invest

·; A diverse tenant base in which there is no single tenant exposure of more than 3%

·; Our experienced board and senior management.

Risk monitoring and assessment

The identification of risks is a continual process which is reviewed regularly. The Company maintains a risk register in which a range of categories are considered. These risks are linked to the strategic priorities of the Group and the appetite as described above.

The risk register assesses the impact, likelihood and residual risk of each identified risk specific to the Group. 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-scoring map is used to determine the potential impact and probability of each significant risk prior to mitigation and residual risk after mitigation.

Principal risk areas are:

1. Macroeconomic environment

2. People

3. Corporate strategy and performance

4. Financial

5. Technology changes

6. Asset management

7. Development

8. Environmental

Directors' Responsibility Statement

We confirm to the best of our knowledge:

(a) The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

On behalf of the Board

Allan Lockhart Mark Davies

Chief Executive Chief Financial Officer

21 November 2019

Copies of this announcement are available on the Company's website at www.nrr.co.uk and can be requested from the Company's registered office at 16 New Burlington Place, London W1S 2HX.

Independent Review Report to NewRiver REIT plc

Report on the Condensed Consolidated interim financial statements

Our conclusion

We have reviewed NewRiver REIT plc's Condensed Consolidated interim financial statements (the "interim financial statements") in the Half Year results of NewRiver REIT plc for the six month period ended 30 September 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·; the Condensed consolidated balance sheet as at 30 September 2019;

·; the Condensed consolidated statement of comprehensive income for the period then ended;

·; the Condensed consolidated cash flow statement for the period then ended;

·; the Condensed consolidated statement of changes in equity for the period then ended; and

·; the explanatory notes to the interim financial statements.

The interim financial statements included in the Half Year results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half Year results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Year results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half Year results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, 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.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half Year results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

21 November 2019

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 September 2019

All activities derive from continuing operations of the Group.

\* The comparative figures for the six months ended 30 September 2018 have been restated. Refer to Note 1 for further information on the restatement. 

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 September 2019

The financial statements were approved by the Board of Directors on 21 November 2019 and were signed on its behalf by:

\* The comparative figures for the six months ended 31 March 2019 have been restated. Refer to Note 1 for further information for further information on the restatement.

Allan Lockhart Mark Davies

Chief Executive Chief Financial Officer

NewRiver REIT plc

Registered number: 10221027

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 September 2019

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 30 September 2019

The other reserves included within retained earnings relates to £1.2 million of revaluation of property, plant and equipment, which is non distributable.

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.

These condensed consolidated interim financial statements have been approved for issue by the Board of Directors on 20 November 2019.

Going concern

The Directors of the Company have reviewed the current and projected financial position of the Group making reasonable assumptions about future trading and performance. The key areas reviewed were:

§ Value of investment property

§ Timing of property transactions

§ Capital expenditure and tenant incentive commitments

§ Forecast rental income

§ Loan covenants

§ Capital and debt funding

The Group has cash and short-term deposits, significant undrawn borrowing facilities, as well as profitable rental income streams and as a consequence the Directors believe the Group is well placed to manage its business risks. The Group is currently well within the prescribed financial covenants on its borrowing facilities.

After making enquiries and examining major areas which could give rise to significant financial exposure, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue its operations for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparation of these condensed consolidated interim financial statements.

Statement of compliance

The information for the year ended 31 March 2019 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The annual financial statements are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial statements included in the Half Year results have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

Basis of consolidation

The condensed consolidated interim financial statements incorporate the financial statements of the Company and its subsidiaries. The consolidated financial statements account for interest in joint ventures using the equity method of accounting per IFRS 11. Other than the change due to the adoption of IFRS 16 Leases and the changes in the presentation of service costs, under IFRS 15, the same accounting policies, presentation and methods of computation are followed in the condensed consolidated interim financial statements as applied in the Group's latest audited financial statements, a copy of which can be found on our website www.nrr.co.uk. The Group's financial performance is not seasonal.

The Group have restated their prior period comparatives to reflect the fact that they are principal in the provision of service charge rather than agent. The effect of this on the Condensed Consolidated Statement of Comprehensive Income is an increase in revenue and property operating expenses of £8.6 million and an increase in trade and other receivables and trade and other payables of £10.2 million. Included in the trade and other receivables balance is a restricted monetary asset of £8.6 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 amortisation of tenant incentives and letting costs of £0.7 million have also been offset against revenue rather than property operating expenses. The net effect of this amendment on the profit / (loss) after tax and net assets is £nil.

Changes in accounting policy and disclosures

IFRS 16 Leases

The Group has applied IFRS 16 Leases on 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 three types of leases.

·; Head leases: A number of the investment properties owned by the Group are situated on land held through leasehold arrangements, as opposed to the Group owning the freehold.

·; Pub leases the Group pay ground rents on some of the pub portfolio.

·; Office leases: Office space occupied by the Group's head office.

In applying IFRS 16 for the first time, the Group has used the practical expedients permitted by the standard.

The balance sheet impact of recognising the lease liability and associated ROU asset upon adoption at the 1 April 2019 and subsequently at 30 September 2019 is set out below.

As the head leases meet the definition of investment property, it is initially recognised in accordance with IFRS 16, and then subsequently accounted for as investment property in accordance with IAS 40 and the Group's accounting policy. After initial recognition the ROU head lease asset is subsequently carried at fair value and the valuation gains and losses recognised within net valuation movement in the income statement.

The ROU asset in relation to the head office lease has been recognised as property, plant and equipment. After initial recognition the ROU head office asset is depreciated on a straight-line basis over the period of the lease.

Impact on earnings per share from the adoption of IFRS 16:

The impact of applying IFRS 16 for the six months to 30 September 2019 is set out below:

As shown above, for the period ended 30 September 2019, property operating expenses of £1.5 million which would have been recognised under IAS 17 have been replaced with an increase in finance costs of £1.4 million and a decrease in administrative expenses due to depreciation of £0.1 million, under IFRS 16.

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. The finance cost is charged to profit or loss over the lease period so as to produce a constant rate of interest on the remaining balance of the liability for each period.

The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset. The ROU asset is subject to testing for impairment if there is an indicator of impairment. ROU assets are included in the heading Property, plant and equipment, and the lease liability included in the headings current and non- current Trade and other payables on the balance sheet.

Where the ROU asset relates to land or property that meets the definition of investment property under IAS 40, after initial recognition the ROU asset is subsequently accounted for as investment property and carried at fair value (see Investment properties accounting policy). Valuation gains and losses in a period are taken to the Income Statement.

The Group has elected not to recognise ROU assets and liabilities for leases where the total lease term is less than or equal to 12 months, or for low value leases. The payments for such leases are recognised in the income statement on a straight-line basis over the lease term.

Revenue

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 new standard. However, the standard applies to service charge income and the condensed consolidated statement of comprehensive income and the condensed 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:

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.

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.

Other standardsThere 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

Pub classification

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 £210.8 million at 30 September 2019 (31 March 2019: £212.1 million) have been classified as Investment Property.

The Group has contracts with breweries and drinks distributors for the provision of wet drink 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 £7.5 million (30 September 2018: £6.2 million) in the period representing only the net margin earned on wet product sales, see note4 for further details.

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 9. Small changes in the key estimates, such as the estimated future rental income, can have a significant impact on the valuation of the investment properties, and therefore a significant impact on the balance sheet and key performances measures such as Net Asset Value per share. Certain estimates require an assessment of factors not within management's control, such as overall market conditions.

Rents, ERVs, EBITDA multiples and maintainable earnings have a direct relationship to valuation, while yield has an inverse relationship. Estimated costs of a development project will inversely affect the valuation of development properties. There are interrelationships between all these unobservable inputs as they are determined by market conditions. The existence of an increase in more than one unobservable input could be to magnify the impact on the valuation. The impact on the valuation will be mitigated by the interrelationship of two unobservable inputs moving in directions which have an opposite impact on value e.g. an increase in rent may be offset by an increase in yield.

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.

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 income, 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.