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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Newriver Reit Plc | LSE:NRR | London | Ordinary Share | GB00BD7XPJ64 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.20 | -0.26% | 75.80 | 75.60 | 75.90 | 76.00 | 75.30 | 76.00 | 611,651 | 16:14:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 73.6M | -16.8M | -0.0537 | -14.12 | 236.95M |
From Apr 2019 to Apr 2024
TIDMNRR
RNS Number : 1517N
NewRiver Retail Limited
14 May 2015
NewRiver Retail Limited
("NewRiver" or the "Company")
Final Results for the 12 months ended 31 March 2015
NewRiver Retail Limited (AIM: NRR), the UK REIT specialising in value-creating retail property investment and active asset management, is pleased to announce annual results for the 12 month period to 31 March 2015.
Strong market and best financial year to date
Financial highlights (1)
Delivering strong returns to shareholders
-- EPRA adjusted profit(2) of GBP20.9 million (2014: GBP9.5 million)
-- EPRA adjusted earnings per share of 19.8 pence (2014: 15.7 pence)
-- Profit before tax of GBP39.5 million (2014: GBP23.1 million)
-- Total Shareholder Return of 16% (2014: 55%)
-- Dividends increased by 6.25% to 17 pence fully covered (2014: 16 pence).
-- EPRA NAV of 265 pence increased by 10.5% (2014: 240 pence)
-- Basic EPS of 37.5 pence (2014: 38.0 pence)
-- Successful equity placing of GBP75 million to fund GBP71 million acquisition from Bravo I
Operational highlights (1)
Portfolio growth is driving value
-- Total Acquisitions of GBP330 million
-- 42% increase in assets under management to GBP848 million (NRR share: GBP626m)
-- Successful GBP40.2 million recycling of equity
-- 216 total leasing events; all new long-term lettings 10.1% above ERV
-- Strong progress on Marston's portfolio
-- Growing 1.25 million sq ft development programme
-- 52 planning applications submitted; 24 consents received
-- Enhanced occupancy of 96% (2014: 95%)
-- Estates Gazette Property Company of the Year - Retail & Leisure Awards 2014
(1) Unless otherwise stated all figures include share of joint ventures
(2) EPRA Adjusted Profit is the total of EPRA recurring Profit plus Profit/Loss on disposal of Investment Properties
Financial statistics
Delivering sustainable income growth and enhancing value across the portfolio
Hot Features
Premium
Movement/
Performance Note 2015 2014 Growth
------------------------------------------ ---- -------- -------- ---------
Total Shareholder Return +16% +55% -
------------------------------------------ ---- -------- -------- ---------
EPRA adjusted profit (1) GBP20.9m GBP9.5m +120%
------------------------------------------ ---- -------- -------- ---------
Profit before tax GBP39.5m GBP23.1m +71%
------------------------------------------ ---- -------- -------- ---------
EPRA Adjusted (Pence Per Share) (1) 19.8 15.7 +26.1%
------------------------------------------ ---- -------- -------- ---------
EPRA Basic (Pence Per Share) (1) 17.6 12.0 +46.7%
------------------------------------------ ---- -------- -------- ---------
Basic EPS (Pence Per Share) 37.5 36.0 +4.2%
------------------------------------------ ---- -------- -------- ---------
Dividends per share 17 pence 16 pence 6.25%
------------------------------------------ ---- -------- -------- ---------
Dividend cover (1) 116% 98% +17%
------------------------------------------ ---- -------- -------- ---------
Like-for-like net income growth 1.6% 0% +1.6%
------------------------------------------ ---- -------- -------- ---------
Like-for-like Capital return 5.6% 5.4% +0.2%
------------------------------------------ ---- -------- -------- ---------
Property valuation movement and disposals GBP21.0m GBP15.7m +GBP5.3m
------------------------------------------ ---- -------- -------- ---------
Interest Cover (2) 3.9 3.9 -
------------------------------------------ ---- -------- -------- ---------
Movement/
Balance Sheet (proportionally consolidated) Note 2015 2014 Growth
-------------------------------------------- ---- --------- --------- ----------
Net Asset Value GBP339.7m GBP239.6m +42%
-------------------------------------------- ---- --------- --------- ----------
EPRA NAV per share 265 pence 240 pence +10.5%
-------------------------------------------- ---- --------- --------- ----------
Secured debt facilities (3) GBP272.5m GBP185.5m +GBP87.1m
-------------------------------------------- ---- --------- --------- ----------
Cash GBP21.1m GBP92.6m (GBP71.5m)
-------------------------------------------- ---- --------- --------- ----------
Net debt GBP251.4m GBP92.9m GBP158.1m
-------------------------------------------- ---- --------- --------- ----------
Cost of debt 3.8% 3.9% +0.1%
-------------------------------------------- ---- --------- --------- ----------
Average debt maturity 4.6 years 4.5 years +0.1 years
-------------------------------------------- ---- --------- --------- ----------
Loan to value (4) 39% 25% +14%
-------------------------------------------- ---- --------- --------- ----------
Balance Sheet Gearing 49% 18% +31%
-------------------------------------------- ---- --------- --------- ----------
% of debt at fixed/capped rates 83% 74% +9%
-------------------------------------------- ---- --------- --------- ----------
Explanatory Notes:
(1) EPRA is the benchmark profit ratio for the property sector and includes realised recurring profits plus realised profits on the sale of properties above valuation. This is a true cash profit earned by the company during the year and the basis for dividend payments and cover.
(2) 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.
(3) Secured debt facilities are secured directly against properties and are shown in the table on a look-through basis to include the Company's share of joint venture debt and exclude convertible unsecured loan stock.
(4) Loan to value measures the value of properties compared to the secured debt facilities net of cash balances.
David Lockhart, Chief Executive at NewRiver Retail commented:
"The year under review has been the most successful for NewRiver since its inception five years ago. The Company has delivered on a wide range of key metrics and is now recognised as one of the leading value-creating property companies in the UK. Our proven active asset management and risk controlled development skills are making a real difference to town centres and in doing so are creating significant value for the company and its shareholders. We have created a strong platform and a firm foundation for further growth. We enter the next phase of our journey with confidence and optimism."
Chairman's statement
Overview
NewRiver Retail celebrated its fifth year as a UK-listed Real Estate Investment Trust during the period and I am pleased to report that our team delivered another year of significant, transformational growth.
Since listing its shares on AIM in September 2009, NewRiver has grown every year to become one of the largest owner/managers of shopping centres across the UK, managing 5.5 million sq ft of retail real estate. The Company has nearly 1400 occupiers across 29 shopping centres, 9 retail warehouses, 19 high streets assets and a portfolio of 202 public houses. Having started life with initial seed capital of GBP25 million, the stock market values the Company today at almost GBP400 million.
NewRiver is committed to delivering strong returns to shareholders. This financial year has been consistent with the five year history, with another set of record results achieved.
For the year ended 31 March 2015, gross assets under management grew by 42% to GBP848 million while EPRA Adjusted Profit more than doubled to GBP20.9 million from GBP9.5 million in the previous year. EPRA adjusted earnings per share, a key metric for the Company, jumped from 15.7 pence in 2014 to 19.8 pence per share at the year end. Total dividends, for the year were fully covered and grew to 17 pence per share, increasing from 16 pence per share in 2014.
The Company's share capital was significantly enlarged following the issue of GBP75 million of new equity in December 2014. Our balance sheet remains strong, with a loan to value ratio of 39% leaving further headroom for expansion. NewRiver continues to benefit from historically low borrowing costs of below 4% and average debt maturity is 4.6 years.
In total the Company completed GBP330 million (NewRiver share: GBP259.9 million) of acquisitions over the course of the year, with a weighted net initial yield of 8.12%. The Company also re-cycled capital via the disposal of 8 properties for GBP40.2 million (NewRiver share: GBP35.1 million). Most of the new equity capital raised during the year was deployed through the GBP71 million acquisition of a controlling stake in an attractive and profitable shopping centre portfolio.
Good progress was made with regard to the 202 public houses acquired from Marston's in November 2013. Through this transaction, the NewRiver team identified a unique opportunity to offer well-located convenience store space to major food store operators. The Co-operative Group signed a conditional agreement to lease 63 convenience stores. The development programme has succeeded in securing 10 planning consents to date from the 39 planning applications submitted.
As the Company's asset base has grown, so has its diversity and scale. Our strategy remains focused on targeting high yielding retail sub-sectors and extending our programme of town centre mixed-use developments, principally from within the portfolio. NewRiver's increasing stature in UK retail property was recognised at the prestigious Estates Gazette Property Awards in December, when the Company was named Retail & Leisure Property Company of the Year 2014.
The Board believes that there are still many value-enhancing, retail real estate buying opportunities in the present climate, with purchase yields likely to outstrip the cost of debt by a healthy margin for the foreseeable future.
This year's success is in no small part thanks to our management, team, advisers and shareholders for their hard work, support and enthusiasm for the Company, to which the Board extends its gratitude.
NewRiver is on a continuing upward trajectory. It remains in an excellent position to further capitalise on opportunities and continue its impressive expansion. The Board is delighted with the significant progress to date and looks forward to the future with confidence.
Paul Roy
Chairman
13 May 2015
Chief executive's review
The period under review was the most active for NewRiver in its short life as a public company. So much has been achieved in the five years since the Company first listed its shares on AIM and shareholders can look back on a strong track record of achievement and delivery. The facts speak for themselves. NewRiver is now one of the UK's leading REITs, with a specialist focus on the retail market. Since its Initial Public Offering in September 2009, the Company has grown to become one of the leading value creating investment platforms in the retail sector.
Today NewRiver is the UK's third largest shopping centre owner/manager by number with GBP848 million (NewRiver share: GBP626 million) of gross assets under management benefitting from our highly active asset management and risk-controlled development business model. The fact that our retail portfolio has a 96% occupancy rate and a weighted average lease length of 7.4 is testament to our strategic stock selection and proven asset management skills.
NewRiver was one of the first new specialist property companies to emerge from the 2008 banking crisis and resulting recession. From day one, the Company has consistently rolled out its strategy across the UK retail sector, acting quickly and often off-market, to acquire scale and build a high quality portfolio, deliberately targeting the over-sold regions. We were among the first to focus on the retail sector with a targeted strategy and have reaped the benefits ever since.
With its customer-first commitment, NewRiver has grown from its first single acquisition to a UK-wide portfolio made up of 29 shopping centres, 9 retail warehouses, 19 high street assets and a portfolio of 202 public houses. In total, amounting to 5.5 million sq ft with nearly 1400 tenants and generating annual footfall of 121 million.
For the fifth consecutive financial year the Company has delivered strong financial and operational results. Gross revenues increased by 85% to GBP46.7 million (2014: GBP25.2 million) resulting in 120% growth in EPRA adjusted profit to GBP20.9 million (2014: GBP9.5 million) and 26% growth in EPRA adjusted earnings per share to 19.8 pence (2014: 15.7 pence). With our focus on cash flow as part of a total return strategy, we are particularly pleased to have increased the total dividend to 17 pence per share (2014: 16 pence), now fully covered on an enlarged issued share capital following the GBP75 million fund raising. Our commitment to quarterly dividends has been well received and reflects our confidence in the sustainability of our income streams. We are also pleased to announce a 10.5% increase in EPRA NAV to 265 pence per share (2014: 240 pence), after absorbing exceptional costs of 10 pence per share (fundraising and acquisition costs). The Company also delivered a strong total shareholder return of 16% (2014: 55%).
A key highlight of the year has been the further strong support from new and existing shareholders for management and the Company's growth strategy. NewRiver completed a major placing of new shares to raise a total GBP75 million which further increased its market capitalisation to stand at nearly GBP400 million at the year end. The fund raising was immediately deployed through the acquisition of 90% of a major shopping centre portfolio not already owned by the Company, providing 100 per cent ownership on our own balance sheet. Additionally, over the course of the financial year the Company was successful in raising GBP278 million of debt to provide new and replacement debt capital through a variety of long standing banking relationships.
During the period the portfolio grew significantly through acquisitions but our core strategy of active asset management to drive overall returns continued at pace. The total number of leasing events grew significantly to more than 216 from 141 last year. On average the outcome of a new long-term letting or lease renewals was 10.1% above estimated values, which compared to 1.7% in 2014. This demonstrates that our growing scale, excellent retailer relations and active asset management programme is delivering real value. Importantly, it also reflects an improving economic environment and stronger consumer confidence, particularly in the regions, which is feeding through to new demand for space. We are seeing early signs of rental growth which together with declining occupier incentives are positive indicators for the medium term outlook. The fact that our average rent is just GBP12.36 per sq ft, further illustrates the affordability and sustainability of our rent roll and the opportunity for additional income growth.
In terms of acquisitions, we deployed GBP330 million (NewRiver share: GBP259.9 million) of capital across a range of shopping centres and retail warehouses during what was an extremely active period. The weighted net initial yield of 8.12% was in line with our stated strategy of acquiring higher yielding retail property assets using our own debt and cash resource, together, where appropriate with our joint venture partner. The GBP140 million acquisition of the Swallowtail Portfolio was our largest to date, comprising three shopping centres totalling 785,000 sq ft. The acquisition was funded through our joint venture with Bravo II, a fund advised or managed by the Pacific Investment Management Company LLC, with both parties investing a 50% stake.
As our portfolio grows, we are beginning to recycle more capital and this year GBP40.2 million (NewRiver share: GBP35.1 million) of cash proceeds were realised through eight disposals where it was deemed that our asset management strategy had been completed or that the risk profile had changed. These sales achieved a weighted net initial yield of 7.03% and, taking into account the income received during ownership, generated attractive returns ahead of business plan targets. The largest disposal was the Bramley shopping centre in Leeds to a UK institution for GBP18.5 million, reflecting a net initial yield of 7.2% and an IRR of 13.2%. NewRiver is committed to recycling capital by channelling it into identified strategic growth opportunities.
Our risk-controlled development programme is growing significantly and the pipeline now spans 1.25 million sq ft. During the period a total of 52 planning applications were submitted and 24 consents received. We are pleased to report that the pub portfolio and convenience store programme for the Co-operative is advancing well and 39 of these 52 planning applications pertain to the pub portfolio. We are pleased to have received 10 consents to date totalling 100,000 sq ft for convenience store development and two further for residential use in relation to the pub portfolio. Within our retail portfolio we are awaiting the outcome of two planning applications for projects in Middlesbrough and Wymondham whilst consents were secured for schemes in Hull and Wallsend. We are making good headway on major town centre developments in Burgess Hill and Cowley, Oxford where planning applications are shortly due to be submitted.
As NewRiver has grown it has become more and more apparent how important the Company is to local communities. Owning or managing the main shopping centre in a town makes the Company a major stakeholder in the community and the strength of our relationships with local authorities has grown accordingly. We are proud that we are increasingly viewed and treated as their partners. Town centres are changing; they are now far more mixed use hubs incorporating retail, leisure, dining and residential, which come together to create vibrant communities. NewRiver is at the heart of that change.
The digital age has invigorated the retail sector and at NewRiver we are excited by the wealth of opportunities this presents us especially in the regions where there is potential for further enhanced digital marketing and technology to drive higher footfall within our centres. We are continuously exploring new technologies that will enhance our shopper journeys, increase basket spend for our retailers and create a digitally connected customer experience. The introduction of free wifi and click and collect lockers are examples of these initiatives and we are in early trials of beacon and transaction-generated technologies.
In winning the coveted 2014 Estates Gazette Retail and Leisure Company of the year, we were recognised by our peers for our achievements. This could not have happened without the passion and dedication of the NewRiver team and our key advisors. I thank them for their hard work throughout this dynamic year.
The improving economic environment adds impetus to our business model of focusing on retail in the regions. This is evidenced by growing investor interest and improving retailer confidence. Our proven asset management and development skills are making a real difference to shopping and town centres around the country, and in so doing are creating significant value for the Company and its stakeholders.
Our fifth full financial year marks an important milestone in the journey of NewRiver since its launch in 2009. We are proud of all that we have achieved and the strong growth which we have delivered during that period. We have created a strong platform and a firm foundation for further growth. We view the next phase in our journey with confidence and optimism.
David Lockhart
Chief Executive
13 May 2015
Property review
Focus on retail
Once again, the last 12 months have been an intensively active period for the Company in which we have deployed our shareholders capital into accretive transactions, generated capital growth from within our portfolio through active asset management and made good progress with the delivery of our growing development pipeline.
NewRiver is regarded as one of the leading real estate companies operating in the UK retail sector and much of what we have achieved in the last 12 months and the five years since our establishment was recognised by the real estate industry, with the Company being named Estates Gazette's Retail and Leisure Property Company of the Year.
Notwithstanding that over the last 12 months we have faced increasing competition for investment opportunities from both institutional and private equity capital, we have successfully completed GBP330 million (NewRiver share: GBP259.9 million) of acquisitions at a weighted net initial yield of 8.12%.
These acquisitions will provide the Company with attractive cash on cash returns of 12.16% underpinned by a secure and sustainable income stream given the low average rent of GBP12.36 psf (excludes pub portfolio), a weighted average lease expiry profile of 7.4 years and a high occupancy rate of 96.3%.
In line with our commitment to recycle our capital, this year we have completed GBP40.2 million (NewRiver share: GBP35.1 million) of disposals representing a significant increase over the last reporting period.
We are delighted to have been able to dispose of assets at a weighted net initial yield of 7.03% whilst acquiring assets at a weighted net initial yield of 8.12%.
Taking account of this year's acquisitions, disposals and valuation movement, assets under management are now GBP848 million representing a 42% increase from 2014. Our portfolio now comprises: 29 shopping centres, 9 retail warehouse assets, 19 high street assets and 202 pubs principally for retail conversion.
We pride ourselves on our active asset management of our portfolio and this is reflected in the number of leasing events that we have completed in the last 12 months. In total we have completed 216 leasing events, for which new long-term leasing events were on average 10.1% above Valuation ERV (2014: 1.7%) and with a weighted average lease expiry profile of 10.7 years (2014: 10.5 years).
Whilst our core investment portfolio continues to generate significant surplus cash, our increasing development portfolio is delivering valuation growth as we progress our development projects through the pre-let and planning stages.
To date we have submitted 39 planning applications totalling circa 100,000 sq ft for convenience store developments and two applications for the development of 15 residential units in respect of our pub portfolio. Furthermore planning applications that are awaiting determination include our projects in Middlesbrough and Wymondham. Consents have been secured for our projects in Hull and Wallsend.
Strategic stock selection
Acquisitions
Despite a more competitive investment market we have been able to deploy GBP330 million (NewRiver share: GBP259.9 million) of capital whilst maintaining an attractive weighted net initial yield of 8.12%.
Shopping centres represented 84% of our total acquisitions completed during the period at a weighted net initial yield of 7.93%. This level compares very favourably with the weighted net initial yield for transactions within the shopping centre market during the last 12 months at 6.14%.
Retail warehouse acquisitions represented 14%, completed at a weighted net initial yield of 8.76%. The remaining 2% of our acquisitions included a small high street portfolio and two strategic acquisitions adjacent to existing assets.
Shopping centres
Swallowtail Portfolio
The highlight of the year was our acquisition of a high quality shopping centre portfolio that was sold by a UK bank. The 'Swallowtail Portfolio' was acquired for GBP140 million equating to a net initial yield of 7.9%.
The portfolio was funded through the Company's joint venture with Bravo II (a fund advised or managed by the Pacific Investment Management Company LLC) with the Company taking a 50% equity stake.
This high-quality shopping centre portfolio comprises 785,000 sq ft of retail space located in Hastings, Newton Mearns, an affluent town south west of Glasgow and Newtownabbey, an affluent district north of Belfast.
With an annual footfall in excess of 15 million, the key retailers trading within this portfolio include major brands such as Marks & Spencer, Asda, Primark, Next, H&M, Top Shop and Poundland.
Priory Meadow, Hastings, East Sussex, has limited retailing competition from other towns/cities and provides the dominant retailing offer within Hastings. Priory Meadow opened in 1997 and comprises 292,000 sq ft of retail space, the town's best car park with 1,086 spaces and a range of food, fashion and value retailers. Key high quality retailers include: Marks & Spencer, New Look, Poundland and a new H&M store. The centre benefits from a stable income stream with a WALE of 8.7 years.
The Avenue, Newton Mearns, is located in one of the most affluent districts of Glasgow. The town has experienced higher population growth than the UK average which is set to continue with an additional 1,000 homes planned over the next 5 years. The Avenue is the dominant retail offer within Newton Mearns and comprises 202,000 sq ft of retail space, 1,085 free car parking spaces and is a classic convenience led shopping centre anchored by Asda and Marks and Spencer. Other major brand retailers include Boots, Superdrug, O2 and Costa Coffee. This popular shopping centre generates over 4.3 million customer visits pa and is underpinned by an income stream that has a WALE of 7.2 years.
Abbey Centre, Newtownabbey, Northern Ireland, is ranked the third most dominant shopping centre in Northern Ireland. This dominance reflects that the catchment area is one of the most affluent in the region and has the second highest spend per head of population in Northern Ireland. The Abbey Centre provides the main retailing provision within the Newtownabbey catchment and comprises 264,000 sq ft of retail, 1,100 free car parking spaces and a range of high quality fashion retailers such as Primark, River Island, Next, JD Sports and Top Shop. The combination of a balanced retail mix including fashion, health and beauty, food and value supports an annual footfall in excess of six million. The centre is underpinned by a WALE of 5.1 years.
In a series of transactions completed during the course of the year the Company acquired a further eight shopping centres totalling GBP138.17 million at a weighted net initial yield of 7.95%.
Camel II
The largest of these transactions was the acquisition of the Camel II portfolio. The Company originally acquired this portfolio in December 2012 in a joint venture with Bravo I (a fund advised or managed by the Pacific Investment Management Company). At that time the Company took a 10% equity stake in the portfolio and in January 2015, following a successful GBP75 million equity raise, the Company acquired the remaining 90% for a total consideration of GBP71.1 million which equated to a net initial yield of 7.75%.
The underlying property portfolio comprises five shopping centres located in Oxford, Hull, Bridlington, Kilmarnock and Leamington Spa; and a single high street asset also in Hull. Together these assets have a net lettable area of almost one million square feet across over 200 tenancies with an average WALE at acquisition of 7.2 years. Since our acquisition of the original 10% interest in 2012, the assets have performed well and have benefited from the Company's active asset management. Looking forward, the assets present a range of significant opportunities to enhance value through further asset management initiatives and risk-controlled development which are already being advanced by the Company.
In September 2014, the Company completed the acquisition of the Three Horseshoes Walk Shopping Centre in Warminster, Wiltshire, for a total consideration of GBP9 million, reflecting a net initial yield of 9%. Forming the principal part of the town's retail offer, this food, value and convenience-led shopping centre comprises 61,000 sq ft and at acquisition had a WALE of 4.8 years. With a high occupancy rate of 95%, the centre has a good range of national retailers including Poundland, Iceland, Peacocks, Superdrug, Greggs and Costa Coffee.
In November 2014, the Company acquired the Montague shopping centre in Worthing from a UK institution for a total consideration of GBP5.82 million, reflecting a net initial yield of 7.7%. Forming the principal part of this coastal town's retail offer, the Montague centre, a food, value and convenience-led shopping centre comprises 67,000 sq ft with a WALE of 3.1 years, high occupancy rate of 92.5% and a good range of national retailers including Laura Ashley, Game, Boots, TK Maxx and McDonald's.
In December 2014, the Company acquired the Arndale Shopping Centre in Morecambe from a UK bank for GBP14 million reflecting a net initial yield of 8.9%. This centre includes 40 retail units comprising 107,300 sq ft of lettable space and is underpinned by a strong income stream with a WALE of 9.3 years. A value and convenience-led shopping centre, 85% of the rent is secured against a good range of national occupiers, including Poundland, Boots, Iceland, Argos, Travelodge, Halifax, Greggs and a Tesco Metro.
As part of this transaction, the Company acquired five high yielding High Street retail assets in Rugby, Nuneaton, Spalding, Blackpool and Perth. The five High Street assets in total comprise 33,800 sq ft and were acquired for GBP5 million at a weighted net initial yield of 12.2%. Retailers within the High Street portfolio include: Boots, McDonald's, Halifax, Monsoon and Topshop.
Retail warehouses
As stated in last year's annual report, we intended to increase our investment into opportunistic purchases and during the reporting period we have acquired GBP45.25 million of retail warehouse investments. We have been targeting retail warehouse opportunities let to good covenants, where the underlying rents are below GBP15 per sq ft and offer a range of opportunities to add value. Typically we have been acquiring retail warehouse assets within a capital range of GBP1.5 million to GBP5 million where with limited competition from other investors, we have been able to acquire our assets at a weighted net initial yield of 8.76%, an average rent of GBP10.00 per sq ft and a weighted average lease expiry profile of 6.43 years.
Our first acquisition into the retail warehouse sector was the acquisition of a portfolio of four retail warehouse properties ('Linear Portfolio') from a UK institution for a total consideration of GBP17.3 million. The freehold assets were acquired at an attractive net initial yield of 9.12%. The Linear Portfolio comprises two multi-let retail park properties and two retail warehouse properties located in high catchment areas across the UK. The portfolio in total comprises 196,000 sq ft and is let to six tenants off an average rent of GBP8.48 per sq ft and providing a weighted average unexpired lease term of 7.4 years.
The Linear Portfolio includes the following assets:
Clough Road Retail Park, Hull is a 95,000 sq ft retail warehouse park let to electrical and computer retailers Curry's and PC World as well as Smyths Toys, a leading children's entertainment retailer. Located close to Hull city centre, Clough Road is an established retail, leisure and commercial destination.
Wymondham near Norwich, is a 26,300 sq ft modern retail warehouse unit let to discount retailer Poundstretcher on a ten year lease. The asset is the only retail warehouse in this historic market town.
Halfords Paisley near Glasgow is a 20,100 sq ft retail warehouse unit let to car and bike specialist Halfords on an 7.6 year unexpired lease. The asset benefits from a prominent location close to Paisley town centre.
Mount Street Retail Park in Wrexham in North Wales is a 54,900 sq ft retail park located close to the town centre with key retailers including fashion retailer Matalan, homeware and garden centre operator Colour Supplies. The average weighted average lease length is 8.75 years.
In September 2014, the Company acquired a 22,000 sq ft retail warehouse on Eastern Avenue, Gloucester, for GBP4.25 million reflecting a net initial yield of 8.3%. Let to Magnet and PC World, the retail warehouses are fully let with a WALE of 7.9 years.
In January 2015, the Company acquired the Orritor Road Retail Park, Cookstown, Northern Ireland for a total consideration of GBP3.04 million, reflecting a net initial yield of 7.8%. The 25,045 sq ft site provides a core retail offer for the town and is 100% let to three strong covenants, Halfords, Iceland and B&M, with an average WALE of 8.45 years.
Also in the same month, the Company acquired the Eastham Point retail park, located eight miles south-east of Liverpool, for GBP2.4 million reflecting a net initial yield of 8.6%. The 10,202 sq ft retail park was constructed in 2005 to a high specification and striking design and is let to Snow & Rock and Bathstore with a combined average WALE of 4.03 years.
In February 2015, NewRiver completed the acquisition of Lower Audley Street Retail Park, Blackburn from a private property company for a total consideration of GBP14.6 million, reflecting a net initial yield of 8.85%. Located within the town's core retail warehouse provision, the retail park comprises 114,000 sq ft of retail and leisure space, a 403 space car park and trades alongside major national retailers including ASDA, B&Q, TK Maxx, Matalan and Next. The retail park, which is fully let, offers a broad range of food, fashion, electronics, home and Leisure outlets including B&M, Maplin, Mothercare, Halfords, Burger King, Chiquitos, Frankie & Benny's and the town's only enclosed ice rink.
Our final two retail warehouse acquisitions during the reporting period included Felixstowe's only retail warehouse unit, a 17,180 sq ft unit let to Homebase acquired for GBP1.56 million reflecting a net initial yield of 7.84% and the 10,591 sq ft retail warehouse unit let to Staples in Chester, for GBP2.1 million reflecting a net initial yield of 8.24%. This asset is ideally located, being 1.2 miles north-west of Chester City Centre and forming part of the prime retail warehouse destination of the City.
Finally, the Company made three small strategic acquisitions of assets adjacent to three of our shopping centres.
Firstly we acquired in May 2014 the former TJ Hughes department store building adjacent to the Sovereign Centre, Boscombe from Receivers for GBP550,000. The vacant 45,000 sq ft store is a key acquisition allowing the Company to advance its redevelopment strategy for the centre.
Secondly we acquired 119/121 Ferensway, Hull a prominent 49,000 sq ft former department store for GBP1.92 million, reflecting a net initial yield of 6.3% but based off a low capital value per square foot of GBP39. The purchase is strategic and extends the Company's investment in Hull where we have in-depth occupational knowledge through our ownership of the Prospect Centre which is adjacent to the property.
Finally, as part of the wider development plans for our centre in Cowley, Oxford, the Company acquired for GBP700,000 the formerly vacant Nelson Pub which sits adjacent to the main entrance of our centre.
Recycling capital
Disposals
NewRiver is committed to recycling our capital out of assets where we have either completed our asset management strategy or the risk profile changes. During the reporting period we have completed eight disposals for a total consideration of GBP40.2 million (NewRiver share: GBP35.1 million) which equates to a weighted net initial yield of 7.03%.
Following our purchase of the Poundland store in Crawley in March 2014 for GBP4.25 million and the subsequent re-gear of the Poundland lease, we completed the sale of the property to a private investor for GBP5.95 million in April 2014 reflecting an IRR of 320%.
Our largest disposal during the reporting period was the sale of the Bramley shopping centre in Leeds to a UK institution for GBP18.5 million reflecting a net initial yield of 7.2%. This asset was purchased as part of a portfolio in November 2010 and given that 30% of the rental income was secured against Tesco Plc and that Tesco traded over two levels, we concluded that the prospects for future capital and income growth had diminished. The sale of this asset delivered an IRR of 13.2%.
We completed two high street disposals that were in our joint venture with MSREI. The Norwich asset was predominately let to Tesco Plc and in Andover the key tenants are Poundland, Superdrug and Caffè Nero. The combined sale price was GBP9.9 million reflecting a weighted net initial yield of 6.96%. Combined, these two assets delivered an IRR of 17.1%.
In North Shields we completed a small sale of a vacant freehold shop opposite our shopping centre to a Costa Coffee franchisee for GBP330,000 which compares to our apportioned price at acquisition of GBP91,000.
Following the acquisition of the retail warehouse portfolio ('Linear Portfolio') earlier in the year, we completed the sale of the Halfords unit in Paisley to a private investor for GBP1.8 million which compares favourably to our purchase price of GBP1.39 million.
In Poole we completed the sale of our long leasehold interest in the Wilkinson unit located with the Dolphin Square shopping centre to the institutional owners of that centre for GBP2.3 million reflecting a net initial yield of 7.27%. The resultant IRR was 15.5%.
Having completed the construction works to complete the letting to J Sainsbury Plc in Preston, the asset was sold to a private investor for GBP1.43 million delivering a profit on cost of 45%.
Active asset management
Notwithstanding it has been a very active year in terms of acquisitions and disposals our commitment to asset management remains at the core of our business model. Our portfolio has grown significantly in the last 12 months to the point where we are managing circa GBP848 million of assets, an annual rent roll of GBP52.7 million (NewRiver share), 1,377 occupiers and circa 5.5 million sq ft of managed space.
To meet the demands of our increasing portfolio and to ensure that we deliver the added value embedded within our portfolio, we have strengthened our asset management team.
Given the size of our portfolio, it is not surprising that the portfolio generates considerable leasing activity on annual basis and this reporting period has been no different. In total we have completed 216 leasing events for which all new long-term lettings or lease renewals were 10.1% above estimated values, compared to 1.7% in 2014, which reflects the quality and affordability of our retail assets. That confidence is also shared by our retail occupiers with their commitment reflecting in an average lease length of 10.7 years.
The improvement in the UK economy and consumer confidence is feeding through to an increase in retailer demand for new space and units. This is being reflected in our leasing transactions where our tenant incentives are now less than six months and we have a lease renewal/break rate exceeding 78%.
There is much more to asset management than simply undertaking leasing events. Our approach to asset managing our multi let retail assets, is to increase footfall and dwell times with a view to improving sales and profitability for our retailers, restaurateurs and leisure operators. We believe that by focusing on our retailers and consumers will increase occupational demand for our assets which will ultimately lead to rental and growth.
Ten key operating objectives
Our asset management strategy is focused on delivering ten key operating objectives:
1. Achieving high rent collection rates
2. Aiming to deliver sustainable rental growth
3. Reducing void rates
4. Reducing property costs such as service charge, business rates and utilities
5. Improving the quality and efficiency of our property management
6. Reducing the cost and time of our leasing transactions
7. Increasing footfall, dwell times and basket spend for our retailers
8. Improving retail mix
9. Enhancing our retailer relationships
10. Improving our digital, marketing and commercialisation capability
As we set out in last year's annual report our asset management strategy is centred on delivering improvements in ten key operating areas. We are pleased to report good progress with the following highlights:
1 Rent collection
We consistently achieve high rent collection rates and within each quarter of the financial year, 100% of our forecasted rent had been collected. This year we have installed a new property management software system that allows our finance and asset management teams real time access to the cash position on a tenant by tenant basis. We believe that this new system will improve our rent collection efficiency
2 Rental growth
In total we completed a total of 216 leasing events for which new long-term leasing events were an average 10.1% above our independent valuer's estimated rental value
3 Voids
Our occupancy rate has remained at a consistently high level of 96%. According to the Local Data Company, NewRiver's vacancy rate, at 4%, is 14% better than the UK shopping centre average
4 Property costs
Maintaining low operational costs for our retailers is a fundamental part of the NewRiver business model. This year we continued to drive efficiencies, delivering an aggregate reduction in service charge budgets of GBP240,000 of annual savings, reducing the cost burden on our retailers and helping to secure increased investment into our assets. On the acquisition of a new centre, we analyse the service charge budget to determine areas where we can reduce operational costs and apply our scale to increase efficiencies. We are confident that significant further savings can be made across the portfolio on core budget expenditure.
We have continued our success in appealing business rates on behalf of our retailers achieving a reduction in rateable values of over GBP234,000, saving over GBP100,000 of rates payable in the financial year. In total we have saved nearly GBP500,000 in rates payable over the life of the 2010 Rating List. Our rates liability management programme has saved a further GBP495,000 during the period.
5 Property management
We work very closely with our managing agents to scrutinise the operational costs of our assets. We analyse all areas from compliance and energy, to procurement and community engagement. In terms of procurement, we recognise that operational costs remain a key concern of retailers. Through an ongoing review of process and suppliers, we are proud that in the vast majority of cases, overall budgets have remained at the same levels or lower than they were three years ago. We do this by going beyond the simple retender of contracts, but by reviewing services at a more fundamental level. An example of this is at Templars Square, Cowley, where works were undertaken to successfully re-route a fire escape which had formerly required the mall to remain open 24 hours a day and therefore required a constant security presence. This has led to a saving of GBP117,000 per annum which is passed on to our retail partners.
6 Leasing
Successful, efficient leasing at NewRiver is at the core of the business. This year we have invested in maximising the service and quality of our leasing and legal advice to ensure that consistency and economies of scale are being delivered. We have adopted the Model Commercial Lease, as recommended by the British Property Federation, across the portfolio which is a contemporary institutionally acceptable lease which will generate time and cost savings leading to earlier income generation. Using our scale as leverage, portfolio deals have been achieved with various retailers including Warren James, Pep&Co and Burger King.
7 The consumer
With a customer-first approach, our asset management strategy is highly research and insight led. Our CACI consumer surveys demonstrated that as a result of our asset management the average portfolio dwell time has improved from 31 minutes in 2013 to 43 minutes this year. Our shoppers visit our centres frequently with a portfolio average of 83 visits per annuma, 27 more occasions than the average CACI Shopper Dimensions average. Ease of access and parking are important factors for our customers, the average drive time to our centres is less than 15 minutes at 12.8 minutes. These key customer metrics confirm the high frequency and convenience attraction of our strong neighbourhood community shopping centres.
Our shopping centres are everyday shopping destinations, places where the UK family spend their weekly budget day in day out with our portfolio average retail spend per visit totalling GBP27.56, for which the average grocery spend accounts for GBP17.47 and our average catering is GBP6.13. A core opportunity of growth that we have identified is attracting and providing for the modern click and collect customer who spend an average GBP48.69 per visit.
Our combined annual footfall now totals 121 million across our 29 shopping centres, a 21% increase year on year and 1% in like for like footfall.
8 Retail mix
Retail mix is about so much more than just a varied choice of shops; it is about extended trading hours, accessibility, the look and feel of the store in order to create retail theatre, pricing and of course merchandising. In recognition of changing consumer behaviour and informed by our own consumer surveys we have introduced a greater food and beverage offer across our assets to enhance dwell time and experience. We have introduced additional fashion retailers that offer new concepts complimentary to the everyday convenience that our shoppers demand.
9 Retailer relationships
We regard our retailers as partners and seek to engage both at the corporate and local level to help drive retail sales at our assets. We invest in our assets to improve and modernise the physical environment, introduce new design, technology and events to ensure footfall growth. Our strong relationships result in our retail partners sharing turnover data and store performance allowing us to identify opportunities for growth as well as remedy pressure points or issues that we can proactively manage.
10 Marketing, digital & commercialisation
Our shopping centres are more than just retail venues, they are community hubs, multi-channel event spaces for all ages, gig venues, art galleries and start-up incubators. In partnership with our retailers we curated a varied programme of family, seasonal and speciality events including the now infamous Student Lock-In at the Piazza, sensory soft-play with HartBeeps, characters appearances from box-office hit Frozen and even transported shoppers in Middlesbrough by bespoke rickshaws. This year we have begun beacon and transaction-generated mobile trials to further help drive footfall, dwell time, loyalty and basket spend.
Commercialisation is an important income stream for NewRiver and a platform to offer enhanced shopper experience, customer service and convenience. With 29 shopping centres spread across a wide geographical reach of the UK, our portfolio presents an attractive proposition for brands to leverage national coverage through retail, promotions and advertising. We have delivered impressive year-on-year growth in commercialisation income achieving GBP1.75m for the year, representing an uplift of 52% (FY14: GBP1.15 million) with like for like income increasing 13.5%.
Responsible property management
Energy conservation
We are part way through an ongoing programme to identify opportunities to reduce energy and water consumed on site and this year has seen significant investment in a number of sites in areas such as LED lighting, rainwater harvesting and other initiatives. These projects are rigorously analysed to ensure an appropriate return on investment whether funded by NewRiver or via the service charge. These schemes make good business sense as well as improving the carbon profile of the centres. An example is re-lamping of the car park at the Hill Street Centre in Middlesbrough which is generating savings which should ensure a payback period of three years whilst at the same time improving the customer experience through enhanced lighting levels within the car park.
Active asset management: key highlights
Priory Meadow, Hastings
Acquired in August 2014, we swiftly put our asset management skills into action securing three new lettings strengthening the retail offer and demonstrating our ability to enhance value. Cards Direct took a 2,803 sq ft unit on a 10 year lease at a rent of GBP60,000 pa. Deichmann took a 3,500 sq ft unit reactivating a unit formerly vacant prior to our ownership, paying a rent of GBP100,000 pa on a new 10 year lease. Finally, Schuh took a 3,855 sq ft unit on a 10 year lease paying GBP50,000 pa. These new lettings are ahead of forecast rental value.
Horsefair, Wisbech
Our strategy to improve the catering offer at Horsefair has been well-advanced securing lettings to two national food and beverage operators and two local cafe operators kiosks. Costa Coffee have taken a 1,490 sq ft unit on a 10 year lease at GBP35,000 pa and Burger King took a 2,360 sq ft unit for 20 years on GBP65,000 pa.
Three Horseshoes Walk, Warminster
Acquired in September 2014, we swiftly agreed terms with, new to the UK, value family fashion retailer Pep&Co, on a new 10 year lease for a 4,528 sq ft unit at a rent of GBP75,000 pa. Pep&Co launches in the UK this summer selling a range of affordable fashion products similar to the fashion lines offered within British supermarkets. To date Pep&Co has taken two stores within the NewRiver portfolio, in Boscombe and Warminster, and we are in advanced negotiations on a number of other locations as part of the retailer's roll-out of its first 50 stores within the UK by July 2015.
Gloucester Green, Oxford
Acquired in 2013, we are advancing our strategy to re-position this open air market square in the heart of Oxford into a leading retail and leisure destination. El Mexican has taken a 10 year lease for a 1,099 sq ft unit at a rent of GBP45,000 pa. Finally we have exchanged an Agreement for Lease with Grillstock for a 2,318 sq ft new restaurant at GBP45,000 pa for 20 years.
We also extended the existing weekday market to Saturdays creating added interest and generating greater footfall.
Regent Court, Leamington Spa
We are near-completion of our strategy to reposition Regent Court to become Leamington Spa's principle food & leisure destination. Joining Nando's, Las Iguanas and Turtle Bay, we secured key lettings to further leading national restaurant operators. Following reconfiguration and amalgamation works for each, Yo! Sushi took a 2,900 sq ft unit at a rent of GBP72,500 pa on a 20 year lease. GBK took a 2,500 sq ft unit for 20 years paying GBP68,750 pa. We exchanged an Agreement for Lease with Cote for a 3,500 sq ft unit on a term of GBP85,000 pa for 20 years.
Prospect Centre, Hull
We continued our strategy of developing the food & beverage offer through the strategic purchase of 121 Ferensway, a prominent former C&A department store, where we secured a mixed leisure planning consent in January. We also secured A3 planning consent and a pre let to a restaurant operator Your Gourmet Burger who agreed a 15 year lease at GBP35,000 pa kick starting our F&B strategy on the Brook street elevation. We secured a new letting to Cardzone on a 10 year lease at GBP32,500 per annum and a re-gear to Clintons on a 5 year reversionary lease from December 2016 paying GBP50,000 pa together with Clintons undertaking an extensive shop refurbishment.
Packhorse Centre, Huddersfield
We exchanged contracts to introduce the 'Packhorse Kitchen', a new anchor venue including Burger King and six other food and drink offers located on the first floor, re-activating 6,500 sq ft of formerly vacant space. Furthermore, we relocated Peters Department store within the centre and secured planning consent to allow phased development plans, including the extension of a restaurant offer throughout the centre, the modernisation of several existing units and the three external elevations. Phase 1 (Kirkgate/Cross Church St) of the refurbishment is now completed including the pre let to Rivers Chinese at GBP25,000 on a 25 year lease.
Albert Square, Widnes
We successfully completed the redevelopment and reactivation of the formerly vacant Prince of Wales pub handing over to 99p Stores who opened in July 2014. The introduction of a new anchor store resulted in a positive 10% uplift in footfall for the July/August period on a like-for-like basis, with footfall continuing to grow throughout the year. The 99p Stores unit comprises a brand new 10,800 sq ft store on a new lease at GBP135,000 pa on a 10 year term.
The Promenades, Bridlington
Following successful planning consent for a proposed new food court, we have agreed terms with Millcliffe Ltd for a new 20 year lease at a base rent of GBP65,000 pa with turnover top up. Millcliffe will introduce and operate a Burger King and Roosters Fried Chicken. Development works have begun on site and we are due to complete mid summer.
Mount Street Retail Park, Wrexham
In June 2014 we acquired Mount Street Retail Park in Wrexham, part of a strategic portfolio of retail warehouses. Reflective of our active asset management, we secured a new letting to Euro Car Parts for an 8,000 sq ft unit on a 10 year lease at a rent of GBP89,628 pa ahead of business plan forecast. The unit had been vacant for over three years prior to our acquisition.
Burns Mall, Kilmarnock
We completed the amalgamation of two units to create a 2,831 sq ft unit, for JD Sports on a new 10 year lease from October 2014 with turnover expected to generate a rent of GBP90,000 pa. A second new letting to Warren James was completed on a 10 year lease from January 2015 at GBP22,500 pa. Finally, we agreed a lease extension with East Ayrshire Council at GBP115,000 pa for 12,000 sq ft of office space with the council undertaking a GBP1 million refurbishment.
Piazza, Paisley
We completed two new lettings and a lease renewal at The Piazza. The first letting was to Warren James at GBP24,000 pa on a 10 year lease and the second to Vaporized on a 5 year lease at GBP25,000 pa from October 2014. Finally, we agreed a 5 year lease extension with Ladbrokes on GBP41,750 pa for their existing store.
Newkirkgate, Leith, Edinburgh
We have made good progress on the enhancement of this uncovered shopping centre in Edinburgh securing a new letting to Store 21 on an open turnover basis for 16 months. We removed the break and agreed a five year lease extension to 2025 with City of Edinburgh Council in relation to a 6,800 sq ft office space at GBP74,000 pa. Finally our extensive refurbishment programme including new lighting, branding, signage, raised level panelling, redecoration and mall surface works commenced at the start of 2015.
The Beacon, North Shields
We have secured four new lettings and two lease renewals beginning with a 5 year lease to JJ's Cafe at GBP25,000 from August 2014 followed by a new letting to O2 for 10 years from September 2014 at GBP35,000 pa. We secured a five year lease to Nail Fairy at GBP25,000 pa and completed a new 10 year lease with Poundland at GBP70,000 pa. Our lease renewals included a five year extension to Dicksons Butchers at GBP13,000 pa from July 2014 and with Card Factory for a five year lease at GBP27,800 pa.
The Hildreds, Skegness
At the Hildreds in Skegness we completed several lease renewals securing the long-term sustainable income of this popular seaside destination. Key lettings were to Wilkinsons for a five year lease at GBP37,600 pa on their existing 9,256 sq ft store and to Boots Optician on a five year lease at GBP44,000 pa for their 1,290 sq ft store. It has been a record year for visitors to the Hildreds with footfall increasing by 9% and sales increasing by 5%.
Merlin's Walk, Carmarthen
We secured four new lettings at Merlin's Walk. Saltrock has taken a 10 year lease for a 1,300 sq ft unit at a rent of GBP25,000 pa. Mobile Accessories a five year lease for a 1,280 sq ft unit at a rent of GBP22,500 pa. Finally, expanding the catering provision for the centre, a Burger King franchisee have taken 20 year lease for a 3,410 sq ft unit at a rent of GBP57,500 pa.
Risk-controlled development
We have made good progress during the period with our risk-controlled development programme submitting 52 planning applications and receiving 24 consents with the pipeline now spanning over 1.25 million sq ft.
Pub portfolio
We are pleased to report significant progress in the pub portfolio conversion programme with major acceleration during Q4 with a total of 39 planning applications submitted for which we have achieved 10 consents to date totalling over 100,000 sq ft of space for convenience store development. A further 24 applications will be submitted in late spring. We expect to be on site to begin works in late summer with an ongoing two year phased delivery programme for both conversions and new builds.
The progress follows the Agreement for Lease with The Co-operative Group Limited in September 2014 to lease 63 new convenience stores from our original portfolio of 202 pubs acquired from Marston's. The underlying performance from our pub portfolio is strong with the current portfolio EBITDA 1.1% above the guaranteed income received from Marston's Plc. Development plans for the remainder of the portfolio are underway and the Company is pleased to report interest from operators including national coffee shop brands, leading drive thru operators, care homes and restaurants as well as further national retailers seeking to expand their footprint by growing their convenience store penetration.
Furthermore, our pub portfolio offers significant residential development opportunities. To date, we have submitted two planning applications, with Local Authority support, to provide 15 detached and semi-detached houses. Approvals are anticipated mid summer. Pre-applications are underway on a further six pub sites to provide a further 32 houses; five of which have received positive Local Authority support with the sixth pending.
Burgess Hill
Following substantial pre-planning work with the support of the Council, we are pleased to report that we are on target to submit a major planning application in July 2015 to create a high-quality, mixed-use retail and leisure destination in the heart of Burgess Hill that lies within the Gatwick triangle.
The development plans will transform the town centre where our existing asset, The Martlets Shopping Centre, a 123,000 sq ft uncovered shopping centre acquired in 2010, already forms part of the town's retail core.
The new proposed plans comprise an 8 screen multiplex cinema, 63 bed Travelodge hotel, 136 new residential apartments, new modern library, five restaurants and 170,000 sq ft of new aspirational and fashion retail. In total this exciting town-regenerative redevelopment will have a Gross Development Value of GBP68 million. Following planning submission, the project is scheduled to take three years on a phased basis with works beginning on site in 2016.
Cowley, Oxford
We are well-advanced to deliver a major new mixed-use development at our shopping centre, Templars Square, Oxford's only covered shopping centre. The formal pre-application process is well underway and we are due to submit planning in late summer 2015 to create over 200 new residential units, a new fit-for-purpose 350 space car park, 60 room hotel and attractive new restaurant destination.
Templars Square was acquired in 2012, part of the Camel II portfolio JV with LVS, a subsidiary of Bravo II (a fund advised or managed by Pacific Investment Management Company LLC). Following our successful GBP75 million equity raise in December 2014, we acquired the remaining 90% of the Camel II portfolio in January 2015 bringing the entire portfolio of four shopping centres under our full control.
Changing consumer habits led to the reinvention of our original strategy for a superstore. The revised 330,000 sq ft mixed-use master-plan will unlock GBP57 million of additional value through the creation of significant new residential and restaurant space. Plans will also include improved access, linkage and way-finding together with and complete redesign of the public realm. Subject to planning, the development will take three years with works beginning on site in 2016.
Wallsend
In last year's report we confirmed the completion of Phase One of our major town centre regenerating development in Wallsend, in partnership with North Tyneside Council, through the delivery of the Customer First Centre & Library and the creation of a total of 50,000 sq ft of new retail space for Home Bargains, Iceland and 99p Stores. Phase One has been a great success with the retailers performing well, footfall for the centre increasing by 22% and the Customer First Centre achieving record membership growth for the area.
We are pleased to report that we are well-advanced with Phase Two. We have made good progress with the development, adjacent to the shopping centre, to provide 17,000 sq ft for an a discount food retailer, 1,474 sq ft for a new drive thru fast-food restaurant and new 214 bay car park. The plans will create 20,000 sq ft of further retail. Following successful planning consent in January 2015 and agreements reached with the Council, works are due to begin on site in summer 2015 and expected to complete 12 months later in the summer of 2016.
We will simultaneously improve the existing centre through a comprehensive internal refurbishment that will include internal and external improvements to the flooring, roof, entrances, signage and a rebrand together with the introduction of LED lighting.
Romford
During the period we completed the structural remodelling of the former TJ Hughes store to create a 13,098 sq ft ground floor unit for B&M who opened in February 2015 on terms of GBP125,000 pa for 10 years. The appraisal is underway for the redevelopment of the upper parts and we are in discussions with potential residential and hotel occupiers to provide 50 flats or 80 hotel rooms.
Newtownabbey, Belfast
Acquired in August 2014, part of the Swallowtail portfolio of three shopping centres, we rapidly secured a key letting to Next to create a brand new anchor store at Abbey Centre in Newtownabbey, Belfast. In October 2014 we exchanged a 15 year Agreement for Lease with Next to create a brand new 45,000 sq ft retail store at a rent of GBP475,000 pa. The new development involves the demolition of three existing units and a mall entrance. With the tender process complete, contractual works will begin in June 2015 and we expect to handover to Next in 12 months time.
The swift exchange is demonstrative of our ability to move quickly and deliver on our strategy to unlock further asset value.
Witham, Essex
Negotiations are underway to redevelop part of the existing centre to create a new anchor store and we are in discussions with leading value and food retailers. Our proposals include significant improvement of the common parts and a wider refurbishment of the centre.
40 Fishergate, Preston
Following the Company's freehold acquisition in April 2014 of the 10,000 sq ft former HSBC bank for GBP650,000, listed planning consent was granted to convert the building to a city centre convenience store. We simultaneously secured Sainsbury's on a new 15 year lease at a rent of GBP90,000 pa and following enabling works to convert the building to a new C-Store, the premises were handed over to Sainsbury's in late August 2014 who opened for trade at the end of September 2014.
Ferensway, Hull
In September 2014 we acquired 119/121 Ferensway, a former department store located adjacent to our existing shopping centre asset, The Prospect Centre in Hull. Following planning submission we have successfully secured flexible A3/D2 consent to create 440,000 sq ft of new restaurant and leisure space in heart of the City Centre.
Fareham
Negotiations are ongoing with the Council and potential new occupiers for the development of a 24,000 sq ft food store in the car park and relocation of the library to facilitate two further retail units. Proposals would also potentially include new residential flat above the food store. The plans will include the substantial reorganisation of the common parts and car park which would also be improved.
Boscombe
The development appraisal is underway for the remodelling of the newly acquired and vacant TJ Hughes unit adjacent to our existing centre into 30,000 sq ft of new retail and a 10,000 sq ft restaurant at ground floor level with potential for a cinema or gym on the second and upper levels.
Middlesbrough
We have agreed terms with a fast food restaurant operator to introduce a new multi-restaurant food court at the centre. Following successful tenders, works are due to begin in early spring 2015 to amalgamate two existing units and form a new restaurant quarter. We are simultaneously exploring development plans to activate vacant space on the first floor of the centre to extend the restaurant offer further. The development works will not only introduce a new restaurant destination but will include the upgrade and modernisation of the centre's entrance.
North Shields
We will shortly begin a full refurbishment of the existing centre to include new LED lighting, improved interior decoration and new branding together with an upgrade to entrances and exterior facades. Plans are being developed for the installation of new staff facilities for the existing Home Bargains in the upper floors.
Valuations
The March 2015 portfolio valuation is GBP847.7 million of which NewRiver's share is GBP625.5 million. NewRiver's share of the valuation gain is GBP34.7 million (GBP19.3 after purchases costs) representing an increase of 6.0% from the March 14 valuation and takes account of acquisitions and disposals transacted during the reporting period.
Based on NewRiver's share of the March 15 valuation, the net initial yield(1) is 7.34% and the net equivalent yield is 7.82%. Approximately 70% of NewRiver's portfolio is invested in shopping centres and the net initial yield for our shopping centre portfolio is 7.07%(1) with a net equivalent yield of 7.47%.The yield profile for NewRiver's share of the portfolio is depicted in the table below:
NET INTIAL NET EQUIVILENT
NEWRIVER SHARE YIELD YIELD
Shopping Centre 7.1% 7.6%
High Street 7.0% 7.1%
Retail Warehouse 7.9% 7.7%
Pubs 10.0% 10.0%
TOTAL 7.34% 7.82%
Of the valuation gain generation during the period, the pub portfolio recorded a gain of 12% reflecting the excellent progress of our c-store conversion programme and that the underlying trading performance of the pub portfolio has resulted in EBITDA growth. Our shopping centre portfolio including the shopping centres acquired during the reporting period recorded a valuation gain of 5.6%.
Our decision to invest into retail warehouse sector during the reporting period has proved to be accretive as the valuation gain is 9% notwithstanding the limited time that we have owned these assets.
The valuation gain during the reporting period for the development portfolio, which excludes the pub portfolio, was flat but we fully expect positive gain over the next reporting period as we make progress on securing planning consents and pre-leasing agreements.
The portfolio and valuation gain recorded in the reported period reflects a combination of an increase in income and yield improvement. On a like for like basis, during the year the portfolio achieved net income growth of 1.6%, ERV growth of 1.4% and 18 bps of equivalent yield compression. Looking ahead, we expect our valuation gain to be predominately underpinned by income growth and progress on our development programme.
(1) The net initial yield assumes outstanding rent free periods are discharged and takes account of contracted stepped rents.
Financial review
Key Highlights
It has been an active year at NewRiver commencing quarterly dividends, raising GBP75 million of equity, GBP278 million of new debt facilities and investing in GBP330 million of income, producing acquisitions. EPRA adjusted profit more than doubled to GBP20.9 million (2014: GBP9.5 million). The Company considers EPRA adjusted profits to be a key performance metric as it includes EPRA earnings (recurring profit) plus any realised gains on the disposal of properties during the year. Revaluation gains/losses are excluded from the calculation. The Company has delivered a fully covered dividend of 17p per share this year which is 116% covered by EPRA adjusted profits.
Our equity placing in January 2015 raised GBP75 million enabling us to acquire the remaining 90% of the Camel II portfolio from our joint venture partner Bravo I (a fund advised or managed by Pacific Investment Management Company LLC) for GBP71.1 million increasing further our investment in assets on our balance sheet. This was a good deal for the Company because it immediately deployed the equity we raised and as part of the transaction the company shared the profits from the portfolio from 1 October 2014. In addition to this a GBP4.5m capital payment was received (GBP3m net of costs).
At the beginning of the financial year the Group had GBP90 million of surplus cash available from the prior year equity raise which was invested across a record number of acquisitions in the year, including the Swallowtail portfolio for GBP141 million alongside our joint venture partner Bravo II and a new venture into retail warehouses - building up a portfolio of nine assets valued at GBP48 million at the year-end.
The growth of our income-producing assets under management to GBP848 million has helped increase our EPRA adjusted profit to GBP20.9 million, more than double the previous year leading to an EPRA adjusted EPS of 19.8 pence (2014:15.7pence).
The Group continues to develop its close relationships with the core UK lenders including HSBC, Santander, Barclays, Lloyds and also Venn Capital. GBP278 million of new debt finance was made available during the year on competitive terms maintaining a low cost of debt across the portfolio of below 4%.
Our gearing measured by Loan to Value (LTV) at the balance sheet date net of cash is 39%. Consequently we are confident that overall returns to investors will be enhanced without exposing the Group to undue leverage.
Dividend
The Company commenced its quarterly dividend policy in the year and is committed to a growing, progressive, fully covered dividend. The Company achieved a 6.25% increase in the dividend per share this year to 17p per share (2014:16 pence). It is particularly pleasing that the dividend is more than fully covered by profits realised throughout the year during a period where 27 million new shares were issued as follows:
Cumulative Cumulative
Dividend Dividend
(GBP) Cover (GBP) Cover
DIVIDEND COVER Earnings
TABLE 31-Mar-15 Per Share 31-Mar-15 31-Mar-14 31-Mar-14
-------------------------- ---------- ---------- ---------- ---------- ----------
EPRA Recurring
Profit 18,522 17.6p 103% 7,276 75%
Profit on disposal
of investment Properties 1,740 1.5p 112% 2,032 96%
Other Adjustments 610 0.7p - 193 -
-------------------------- ---------- ---------- ---------- ---------- ----------
EPRA Adjusted Profit 20,872 19.8p 116% 9,501 98%
Revaluation Surplus
during the year 19,266 18.4p 224% 13,740 240%
Other Adjustments (610) (0.7) - (193) -
-------------------------- ---------- ---------- ---------- ---------- ----------
Profit before tax 39,528 37.5p 220% 23,048 238%
-------------------------- ---------- ---------- ---------- ---------- ----------
Dividend cover may be calculated on a per share basis or amount paid in sterling. The above table shows the dividend is fully covered in 2015 on both bases. The total dividend declared and paid for this year was 17p (2014:16p) which totalled GBP18,120 (2014:GBP10,733) as set out in note 11 to the Financial statements.
The EPRA net asset value (EPRA NAV) has increased 10.5% since the last financial year-end from 240 pence to 265 pence. During the year we have absorbed GBP1.7 million of fundraising costs and GBP9.0 million of purchase costs. These costs have been more than offset by our active asset management, risk-controlled development and improving market sentiment for regional shopping centres adding GBP19.8 million of revaluation surpluses during the year.
Highlights from the Statement of Comprehensive Income
Income
The Group financial statements are prepared under IFRS which includes profits from joint ventures on one line. The Board considers the performance of the Group on a proportionally consolidated basis and the report below therefore reflects this basis.
Year Year
ended ended
31 March 31 March
2015 2014
------------------------------ --------- --------- --------------- --------- --------- ---------------
FY15 FY15 FY14 FY14
FY15 Joint Proportionally FY14 Joint Proportionally
Group ventures consolidated Group ventures consolidated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- --------- --------------- --------- --------- ---------------
Gross rental income
and fees 28,195 18,486 46,681 18,197 6,956 25,153
------------------------------ --------- --------- --------------- --------- --------- ---------------
Property outgoings (3,864) (1,823) (5,686) (3,383) (721) (4,104)
------------------------------ --------- --------- --------------- --------- --------- ---------------
Net property income 24,332 16,663 40,995 14,814 6,235 21,049
------------------------------ --------- --------- --------------- --------- --------- ---------------
Operating expenses (10,089) (936) (11,024) (6,420) (406) (6,826)
------------------------------ --------- --------- --------------- --------- --------- ---------------
Net financing costs (7,132) (4,317) (11,449) (5,403) (1,533) (6,936)
------------------------------ --------- --------- --------------- --------- --------- ---------------
Profit on disposal
of investment properties 1,740 - 1,740 2,032 - 2,032
------------------------------ --------- --------- --------------- --------- --------- ---------------
Joint ventures net
income 11,411 (11,411) - 4,296 (4,296) -
------------------------------ --------- --------- --------------- --------- --------- ---------------
Tax and EPRA adjustments 610 _ 610 182 - 182
------------------------------ --------- --------- --------------- --------- --------- ---------------
EPRA adjusted profit 20,872 - 20,872 9,501 - 9,501
------------------------------ --------- --------- --------------- --------- --------- ---------------
Revaluation surplus/(deficit) 19,266 - 19,266 13,740 - 13,740
------------------------------ --------- --------- --------------- --------- --------- ---------------
Tax & EPRA adjustments (610) _ (610) (182) - (182)
------------------------------ --------- --------- --------------- --------- --------- ---------------
Profit for the year
before tax 39,528 - 39,528 23,059 - 23,059
------------------------------ --------- --------- --------------- --------- --------- ---------------
EPRA adjusted EPS 19.8 19.8 15.7 15.7
------------------------------ --------- --------- --------------- --------- --------- ---------------
Dividend per share 17.0 17.0 16.0 16.0
------------------------------ --------- --------- --------------- --------- --------- ---------------
Dividend Cover 116% 98%
------------------------------ --------- --------- --------------- --------- --------- ---------------
Property net income for the year including our share of joint ventures was GBP40.9 million - a 95% increase compared to GBP21.1 million in the prior year generated by the growing portfolio of assets across the Group. On a like-for-like basis, net rental income was stable with a 2% increase on the prior year.
Operating expenses totalled GBP11.0 million in 2015 compared to GBP6.8 million in 2014. This includes GBP1.5m of costs in respect of the acquisition of our interest from Bravo I. This also reflects the 25% increased headcount following the growth of the business which has seen an increase in assets under management of 40% from GBP600 million to GBP848 million. Management assesses operating efficiency by calculating operating costs net of asset management fees as a proportion of gross rental income. In 2015 this ratio fell to 18% from 22% in 2014 (when excluding the GBP1.5m of costs in respect of the acquisition of Bravo I).
Net finance costs totalled GBP11.4 million (2014: GBP6.9 million) for the year, GBP1.4 million of which was payable on convertible loan stock and GBP10.0 million for debt secured over property. Our hedging strategy remains prudent with 83% of Group debt hedged either on a fixed or capped basis. Interest cover is very positive at over three times at property level compared to banking covenants which range from 1.5 to 2.0 times.
As highlighted above in January 2015 we received a capital payment of GBP4.5 million from our joint venture partner Bravo I (GBP3.0m net of costs). This along with net profit on disposals of GBP1.7 million added GBP4.7 million to the EPRA adjusted profit for 2015 and ensures we continue to grow our bottom line year-on-year through a combination of rental profit growth, fee income and actual realised profit on sale of assets. In the year NewRiver achieved a respectable EPRA adjusted EPS of 19.8 pence per share, meaning the dividends for the year are 116% covered.
The total profit before tax, which also includes fair value movements on property was GBP39.5 million.
Financial review continued
Proportionally consolidated balance sheet
Year Year
ended ended
31 March 31 March
2015 2014
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
FY15 FY15 FY14 FY14
FY15 Joint Proportionally FY14 Joint Proportionally
Group ventures consolidated Group ventures consolidated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Properties at valuation 404,098 222,205 626,303 214,124 149,222 363,346
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Investment in joint
ventures 113,027 (113,027) - 74,851 (74,851) -
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Other non-current
assets 513 - 513 384 - 384
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Cash 15,412 5,696 21,108 89,555 3,010 92,565
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Other current assets 6,166 2, 698 8,864 3,595 2,567 6,162
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
539,216 117,572 656,788 382,509 79,948 462,457
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Other current liabilities (16,197) (4,596) (20,793) (10,421) (3,817) (14,238)
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Debt (157,921) (112,002) (269,923) (108,256) (76,566) (184,822)
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Convertible loan stock (23,420) - (23,420) (23,306) - (23,306)
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Other non-current
liabilities (1,983) (974) (2,957) (899) 435 (464)
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
IFRS net assets 339,695 - 339,695 239,627 - 239,627
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
EPRA adjustments 29,973 - 29,973 4,879 - 4,879
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
EPRA net assets 369,668 - 369,668 244,506 - 244,506
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
EPRA NAV pence per
share 265p 240p
-------------------------- --------- --------- ----------------- ---------- --------- ---------------
Investment properties
Investment properties total GBP626.3 million on a proportionally consolidated basis compared to GBP363 million, a 72% increase representing a significant investment made on the back of successful equity raise which led to the acquisition of the largest portfolio to date - the Swallowtail portfolio for GBP141 million in August 2014 through our joint venture with Bravo and in January 2015 to support the acquisition of the remaining 90% holding of the Camel II portfolio from Bravo I for GBP71.1 million. GBP330 million of assets, both on balance sheet and through joint ventures, were acquired during the year at an average net initial yield of 8.12%. There were also a number of disposals during the year totalling GBP40.0 million.
Strong occupancy, sustainable rentals and yield shift for regional retail assets provided a strong background for the year end valuation. The Group's investment portfolio was valued at GBP626 million at 31 March 2015. The valuation surplus for the year was GBP19.3 million. The underlying annual valuation uplift was 6%.
Cash
The Group held cash reserves of GBP21.1 million compared to GBP92.5 million in 2014. There are undrawn facilities of GBP40 million as at the year end.
Borrowings
The Company has a straight forward debt strategy focussed around conservative gearing at a low cost whilst maintaining close relationships with its corporate banks. The Company wants to generate strong sustainable returns for shareholders and to do that believes its Loan to Value ("LTV") ratio should be at or below 50%. The company may take on specific projects, acquisitions or joint ventures that justify a slightly higher LTV but on a proportionally consolidated basis (including joint ventures) the LTV target is below 55%. Even though we have seen a significant reduction in bank debt years from around 350bps to 175bps there are a few potential headwinds on the horizon in the banking market. Increased banking legislation in the UK and Europe could see a reverse in this trend albeit in the short to medium term we can be confident in maintaining our low borrowing cost.
Conditions in the debt market improved during the year due to increasing competition amongst lenders and as a result, margins being offered and facility fees have reduced which has enabled us to extend the weighted average maturity of our debt to 4.6 years with a reduction in the cost of debt to 3.8%. There are no secured debt facilities due for repayment in the next 12 months with the majority due for refinance from 2018 onwards.
New Facilities
The Company welcomed Lloyds Bank as a new lender during the year which added to our existing relationships with Santander, HSBC, Barclays and Venn Capital. During the year the Group, including joint ventures, originated GBP278 million of new senior debt facilities (2014: GBP154 million). The total interest cost (including fees) on the new senior debt facilities was 3.25% which helped reduce the cost of debt for the group.
Hedging
The Group continues to apply a hedging strategy which is aligned to the property strategy. Borrowings are currently 83% hedged against interest rate risk (2014: 74%), 35% of all borrowings are fixed whilst 48% are capped. This provides interest rate protection whilst the hedging strategy allows the company to benefit from the current low interest rate environment.
Gearing and Loan to Value
As at 31 March 2015 balance sheet gearing was 49% (2014: 18%) giving us firepower to draw existing undrawn facilitates or securing alternative sources of debt. More detail on the Group's borrowings is provided in Note 20. The groups LTV was 39% as at the year end.
Financial metrics
Earnings per share ('EPS')
EPRA EPS is an important performance indicator for the Company as it relates to recurring profits only. We have also included an EPRA adjusted EPS measure which incorporates realised profit on sale of investment properties as this is a true profit made during the year where assets are sold above cost/valuations. EPRA adjusted EPS of 19.8 (2014:15.7) pence per share is a good result during a year in which 27 million new shares were issued.
Basic EPS was 37.5 pence (2014: 38 pence) which includes the upward fair value property valuations during the year. In addition we disclose Funds from Operations ('FFO') as this is an important metric often used by the international investment community when comparing the performance of international REITs. Reported FFO this year was GBP18.8 million (2014: GBP7.1 million) which amounted to 17.8 pence per share (2014: 11.7 pence per share).
Net Asset Value
The Net Asset Value ('NAV') at 31 March 2015 increased by 40% to GBP340 million (2014: GBP240 million), this equals an EPRA NAV per share of 265 pence (2014: 240 pence). EPRA NAV per share increased by 10.5% during the year despite the absorption of GBP2.0 million of fundraising costs and GBP9.0 million of purchase costs due to the subsequent fair market upward valuations of assets in an improving economic outlook and a fully covered dividend.
Summary
This year has been the most profitable to date, delivering a profit before tax of GBP39.5 million (2014: GBP23.1 million), of which GBP20.9 million is EPRA adjusted profit and GBP19.3 million from fair value movements in property valuations. This has been a successful year for the Company highlighted by a strong set of results.
Mark Davies
FinanceDirector
Consolidated Income Statement
For the year ended 31 March 2015
Year ended 31 March 2015 Year ended 31 March 2014
--------------------------------------------- ---------------------------------------------
Operating and Fair value Operating and Fair value
Financing adjustments Total Financing adjustments Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Gross income 3 28,195 - 28,195 18,197 - 18,197
Property
operating
expenses 4 (3,863) - (3,863) (3,383) - (3,383)
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Net property
income 24,332 - 24,332 14,814 - 14,814
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Administrative
expenses 5 (10,089) - (10,089) (6,420) - (6,420)
Share of income
from
joint ventures 14 11,411 12,405 23,816 4,296 14,503 18,799
Net valuation
movement 12 - 6,861 6,861 - (763) (763)
Profit on
disposal
of investment
properties 6 1,740 - 1,740 2,032 - 2,032
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Operating profit 27,394 19,266 46,660 14,722 13,740 28,462
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Net finance
expense
Finance income 7 191 - 191 105 - 105
Finance costs 7 (7,323) - (7,323) (5,508) - (5,508)
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Profit for the
year
before taxation 20,262 19,266 39,528 9,319 13.740 23,059
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Current taxation
charge 8 - - - (11) - (11)
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Profit for the
year after
taxation 20,262 19,266 39,528 9,308 13,740 23,048
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
Earnings per
share
EPRA Adjusted
(pence) 9 19.8 15.7
EPRA basic
(pence) 9 17.6 12.0
Basic EPS (pence) 9 37.5 38.0
EPS diluted
(pence) 9 36.2 33.2
----------------- ----- ----------------- ---------------- -------- ----------------- ---------------- --------
All activities derive from continuing operations of the Group.
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2015
Year ended
Year ended 31 March 2015 31 March 2014
Notes GBP'000 GBP'000
--------------------------------------------------------------------- ----- ------------------------ --------------
Profit for the year after taxation 39,528 23,048
--------------------------------------------------------------------- ----- ------------------------ --------------
Other comprehensive income
Items that will be reclassified subsequently to profit or loss
Fair value (loss)/gain on interest rate derivatives designated in
cash flow hedges 20 (671) 2,254
Total comprehensive income for the year 38,857 25,302
--------------------------------------------------------------------- ----- ------------------------ --------------
Consolidated Balance Sheet
As at 31 March 2015
31 March 31 March
2015 2014
Notes GBP'000 GBP'000
--------------------------------- ----- -------- --------
Non-current assets
Investment properties 12 404,098 214,124
Investments in joint ventures 14 113,027 74,851
Property, plant and equipment 15 513 384
--------------------------------- ----- -------- --------
Total non-current assets 517,638 289,359
--------------------------------- ----- -------- --------
Current assets
Trade and other receivables 17 5,853 3,595
Derivative financial instruments 20 313 -
Cash and cash equivalents 18 15,412 89,555
--------------------------------- ----- -------- --------
Total current assets 21,578 93,150
--------------------------------- ----- -------- --------
Total assets 539,216 382,509
--------------------------------- ----- -------- --------
Equity and liabilities
Current liabilities
Trade and other payables 19 16,197 10,202
Current taxation liabilities 19 - 219
--------------------------------- ----- -------- --------
Total current liabilities 16,197 10,421
--------------------------------- ----- -------- --------
Non-current liabilities 23 - -
Derivative financial instruments 20 1,983 899
Borrowings 20 157,921 108,256
Debt instruments 20 23,420 23,306
--------------------------------- ----- -------- --------
Total non-current liabilities 183,324 132,461
--------------------------------- ----- -------- --------
Net assets 339,695 239,627
--------------------------------- ----- -------- --------
Equity
--------------------------------- ----- -------- --------
Share capital 23 - -
Retained earnings 58,254 26,107
Other reserves 273,582 212,981
Hedging reserve (690) (19)
Share Option reserve 1,063 453
Revaluation reserve 7,486 105
--------------------------------- ----- -------- --------
Total equity 339,695 239,627
--------------------------------- ----- -------- --------
Net Asset Value (NAV) per share
EPRA NAV (pence) 10 265 240
Basic (pence) 10 267 241
Basic diluted (pence) 10 264 240
--------------------------------- ----- -------- --------
The financial statements were approved by the Board of Directors on 13 May 2015 and were signed on its behalf by:
David Lockhart Mark Davies Chief Executive Finance Director
Consolidated Cash Flow Statement
As at 31 March 2015
31 March 2015 31 March 2014
Note GBP'000 GBP'000
---------------------------------------------------------------------------------- ---- ------------- -------------
Cash flows from operating activities
---------------------------------------------------------------------------------- ---- ------------- -------------
Profit before tax on ordinary activities for the year attributable to Shareholders 39,528 23,059
Adjustments for:
Profit on disposal of investment property 6 (1,740) (2,032)
Net movement from fair value adjustments on Investment Properties (6,861) 763
Net movement from fair value adjustments in joint ventures (12,405) (14,503)
Profits in joint ventures (11,411) (4,296)
Net finance costs 7,132 5,403
Rent free lease incentive adjustment (352) (645)
Provision for bad debts 114 26
Amortisation of legal and letting fees 151 199
Depreciation on property plant and equipment 76 60
Share Options 25 610 193
---------------------------------------------------------------------------------- ---- ------------- -------------
Operating profit before changes in working capital 14,842 8,227
---------------------------------------------------------------------------------- ---- ------------- -------------
Changes in working capital:
(Increase)/decrease in receivables and other financial assets (1,242) 218
Increase/(decrease) in payables and other financial liabilities 2,387 (2,725)
---------------------------------------------------------------------------------- ---- ------------- -------------
Cash generated from operations before interest 15,987 5,720
---------------------------------------------------------------------------------- ---- ------------- -------------
Net finance costs (7,603) (5,438)
Corporation tax paid (219) (424)
---------------------------------------------------------------------------------- ---- ------------- -------------
Net cash generated from operating activities 8,165 (142)
---------------------------------------------------------------------------------- ---- ------------- -------------
Cash flows from investing activities
Investment in joint ventures 14 (28,752) (42,400)
Purchase of investment properties (84,786) (5,096)
Properties acquired on business combinations 13 (68,460) -
Disposal of investment properties 6 30,575 7,990
Development and other capital expenditure (5,586) (9,351)
Purchase of plant and equipment 15 (205) (40)
Dividends received 14 6,450 1,668
---------------------------------------------------------------------------------- ---- ------------- -------------
Net cash used in investing activities (150,764) (47,229)
---------------------------------------------------------------------------------- ---- ------------- -------------
Cash flows from financing activities
Proceeds from issuance of new shares 73,320 148,481
Repayment of bank loans and other costs (125,680) (6,105)
New borrowings 133,032 -
Dividends paid 11 (12,216) (12,995)
---------------------------------------------------------------------------------- ---- ------------- -------------
Net cash generated from financing activities 68,456 129,381
---------------------------------------------------------------------------------- ---- ------------- -------------
Cash and cash equivalents at the beginning of the year 89,555 7,545
---------------------------------------------------------------------------------- ---- ------------- -------------
Net (decrease)/increase in cash and cash equivalents (74,143) 82,010
---------------------------------------------------------------------------------- ---- ------------- -------------
Cash and cash equivalents at the end of the year 15,412 89,555
---------------------------------------------------------------------------------- ---- ------------- -------------
Consolidated Statement of Changes in Equity
As at 31 March 2015
Share
capital and Share
Retained Share Other Hedging Option Revaluation
earnings premium reserves reserves reserves reserves Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----- --------- ------------ --------- --------- --------- ----------- --------
As at 1 April 2013 854 - 78,637 (2,273) 260 2,310 79,788
------------------------------ ----- --------- ------------ --------- --------- --------- ----------- --------
Net proceeds of issue from new
shares - 148,481 - - - - 148,481
Transfer of share premium - (148,481) 148,481 - - - -
Total comprehensive income for
the year 23,048 - - 2,254 - - 25,302
Realisation of fair value
movements 1,442 - - - - (1,442) -
Share-based payments - - - - 193 - 193
Dividend payments (1) 11 - - (14,137) - - - (14,137)
Revaluation movement 763 - - - - (763) -
------------------------------ ----- --------- ------------ --------- --------- --------- ----------- --------
As at 31 March 2014 23 26,107 - 212,981 (19) 453 105 239,627
------------------------------ ----- --------- ------------ --------- --------- --------- ----------- --------
Net proceeds of issue from new
shares 23 - 73,320 - - - - 73,320
Transfer of share premium - (73,320) 73,320 - - -
Total comprehensive income for
the year 39,528 - - (671) - - 38,857
Realisation of fair value
movements (520) - - - - 520 -
Share-based payments - - - - 610 - 610
Dividend payments (1) 11 - - (12,719) - - - (12,719)
Revaluation movement (6,861) - - - - 6,861 -
------------------------------ ----- --------- ------------ --------- --------- --------- ----------- --------
As at 31 March 2015 23 58,254 - 273,582 (690) 1,063 7,486 339,695
------------------------------ ----- --------- ------------ --------- --------- --------- ----------- --------
(1) Dividends paid in the prior year included a 10p special dividend. Dividends paid in the current year include three quarterly dividends of 4.25p per share as the final quarterly dividend of 4.25p was paid after the year end.
Notes to the financial statements
1 Accounting policies
General information
NewRiver Retail Limited (the 'Company') and its subsidiaries (together the 'Group') is a property investment group specialising in commercial real estate in the UK. NewRiver Retail Limited was incorporated on 4 June 2009 in Guernsey under the provisions of The Companies (Guernsey) Law, 2008. On 22 November 2010, the Company converted to a REIT and repatriated effective management and control to the UK. The Company's registered office is Old Bank Chambers, La Grande Rue, St Martin's, Guernsey GY4 6RT and the business address is 37 Maddox Street, London W1S 2PP. The Company is publicly traded on the AIM market under the symbol NRR. On 1 October 2013 NewRiver Retail Limited delisted from CISX.
The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, Section 244, not to prepare company only financial statements.
These consolidated financial statements have been approved for issue by the Board of Directors on 13 May 2015.
Going concern
The Directors of NewRiver Retail Limited 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, as well as profitable rental income streams and as a consequence the Directors believe the Group is well placed to manage its business risks. Whilst the Group has borrowing facilities in place it is currently well within prescribed financial covenants. Together with its cash resources the Group will arrange bank facilities to fund any future risk-controlled developments.
The Group has GBP25 million of Convertible Unsecured Loan Stock ("CULS") in issue which mature on 31 December 2015 and when they will be either converted or repaid. The Company expects the holders of the CULS to convert their interest to equity prior to the maturity date.
After making enquiries and examining major areas which could give rise to significant financial exposure, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue its operations for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparation of these financial statements.
Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
Basis of preparation
Statement of compliance
These financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards, as adopted by the European Union ('IFRS'). The financial statements are presented in GBP. These financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment and development properties, joint venture interests and derivatives which are stated of fair value.
Income and cash flow statement
NewRiver Retail Limited has elected to present a single statement of comprehensive income and presents its expenses by nature.
The Group has reported the cash flows from operating activities using the indirect method. Interest received is presented within investing cash flows; interest paid is presented within operating cash flows. The acquisitions of investment properties are disclosed as cash flows from investing activities because this most appropriately reflects the Group's business activities.
Preparation of the consolidated financial statements
The consolidated financial statements incorporate the financial statements of the Company, its subsidiaries and the Special Purpose Vehicles ('SPV's') controlled by the Company, made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Intra group transactions are eliminated in full.
Changes in accounting policy and disclosure
The Group has adopted all the Standards and Interpretations issued by the International Accounting Standards Board (the IASB) (as adopted in the EU) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning from April 1, 2014.
At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:
-- IFRS 9 - Financial Instruments (effective January 1, 2018)
-- IFRS 15 - Revenue Recognition (effective January 1, 2017)
The adoption of IFRS 9, which the Group plans to adopt for the year beginning April 1, 2018, may impact both the measurements and disclosures of financial instruments.
Consolidation
Subsidiaries are all entities over which the Group has control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
i. Business combinations
The Group applies the acquisition method to account for business combinations. The cost of the acquisition is measured at the aggregate of the fair values, at the date of completion, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquired. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition.
Whilst a corporate acquisition would normally be accounted for under IFRS 3, there are situations where these transfers may not qualify as business combinations. This is considered on a case by case basis by management in light of the substance of the acquisition.
The consideration payable in respect of each acquisition may be dependent upon certain future events. In calculating the cost of each acquisition the Group has assessed the most probable outcome as at the balance sheet date. These amounts are reconsidered annually at each year end and changes to consideration are taken to the income statement.
ii. Joint ventures
The Group's investment properties are typically held in property specific special purpose vehicles ('SPVs'), which may be legally structured as a joint venture.
In assessing whether a particular SPV is accounted for as a subsidiary or joint venture, the Group considers all of the contractual terms of the arrangement, including the extent to which the responsibilities and parameters of the venture are determined in advance of the joint venture agreement being agreed between the two parties. The Group will then consider whether it has the power to govern the financial and operating policies of the SPV, so as to obtain benefits from its activities, and the existence of any legal disputes or challenges to this control in order to conclude on the classification of the SPV as a joint venture or subsidiary undertaking. The Group considers this position with the evidence available at the time.
The consolidated financial statements account for interests in joint ventures using the equity method of accounting per IFRS 11. Any premium paid for an interest in a jointly controlled entity above the fair value of identifiable assets, liabilities and contingent liabilities is accounted for in accordance with the goodwill accounting policy.
Investment property
Property held to earn rentals and for capital appreciation is classified as investment property. Investment property comprises both freehold and leasehold land and buildings.
Investment property is recognised as an asset when:
-- It is probable that the future economic benefits that are associated with the investment property will flow to the Company;
-- There are no material conditions precedent which could prevent completion; and
-- The cost of the investment property can be measured reliably.
Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at fair value. The Group has appointed Colliers International as property valuers to prepare valuations on a semi-annual basis. Valuations are undertaken in accordance with the appropriate Sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Valuation - Professional Standards, (the 'Red Book'). This is an internationally accepted basis of valuation.
Gains or losses arising from changes in the fair value of investment property are included in the income statement in the period in which they arise.
When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property remains an investment property and is accounted for as such. When the Group begins to redevelop an existing investment property with a view to sell, the property is transferred to trading properties and held as a current asset. The property is re-measured to fair value as at the date of the transfer with any gain or loss being taken to the income statement. The re-measured amount becomes the deemed cost at which the property is then carried in trading properties.
In completing these valuations the valuer considers the following:
i. current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;
ii. recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and
iii. discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows.
Development property
The cost of properties in the course of development includes attributable interest and other associated outgoings. Interest is calculated on the development expenditure by reference to specific borrowings where relevant and otherwise on the average rate applicable to the term loans. A property ceases to be treated as a development property on practical completion.
Properties acquired with the intention of redevelopment are classified as development properties and stated at fair value, being market value determined by professionally qualified external valuers. Changes in fair value are included in the income statement. All costs directly associated with the purchase and construction of a development property are capitalised. When development properties are completed, they are reclassified as investment properties.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following bases:
Fixtures and equipment 10% - 25%
The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
Leasing (as lessors)
Properties leased out under operating leases are included in investment property in the balance sheet. The Group makes payments to agents for services in connection with lease contracts with the Group's lessees. The letting fees are capitalised within the carrying amount of the related investment property and amortised over the lease term.
Leasing (as lessees)
Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to income statement on a straight-line basis over the period of the lease.
Goodwill
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. Goodwill is reviewed for impairments annually.
Financial instruments
Financial assets
Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.
The Group's financial assets consist of loans and receivables and derivative instruments.
Cash and cash equivalents are also classified as loans and receivables. They are subsequently measured at amortised cost. Cash and cash equivalents include cash in hand.
The financial instruments classified as financial assets at fair value through profit or loss include interest rate swap arrangements. Recognition of the derivative financial instruments takes place when the economic hedging contracts are entered into. They are measured initially and subsequently at fair value, transaction costs are included directly in finance costs. Gains or losses on derivatives designated as cash flow hedges are recognised in the Statement of Comprehensive Income in net change in fair value of financial instruments at fair value through Other Comprehensive Income.
These financial instruments are classified as Level 2 fair value measurements, as defined by IFRS 7, being those derived from inputs other than quoted prices. There were no transfers between levels in the current period.
The fair values of derivative financial assets and financial liabilities are determined as follows:
Interest rate swaps, caps and swaptions contracts are measured using the Midpoint of the yield curve prevailing on the reporting date. The valuations have been made on a clean basis in that they do not include accrued interest from the previous settlement date to the reporting date. The fair value represents the net present value of the difference between the contracted rate and the valuation rate when applied to the projected balances for the period from the reporting date to the contracted expiry dates.
Financial assets are derecognised only when the contractual rights to the cash flows from the financial asset expire or the Group transfers substantially all risks and rewards of ownership.
The Group assesses at each financial position date whether there is objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence (such as significant financial difficulty of the obligor, breach of contract, or it becomes probable that the debtor will enter bankruptcy), the asset is tested for impairment. The amount of the loss is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows (that is the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in the Statement of Comprehensive Income.
In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. Impaired debts are derecognised when they are assessed as uncollectible.
If in a subsequent period the amount of the impairment loss decreased and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying value of the asset does not exceed its amortised costs at the reversal date. Any subsequent reversal of an impairment loss is recognised in the Statement of Comprehensive Income.
Financial liabilities
Liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss or other liabilities as appropriate.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
All loans and borrowings are classified as other liabilities. Initial recognition is at fair value less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised costs using the effective interest method.
Financial liabilities included in trade and other payables are recognised initially at fair value and subsequently at amortised cost. The fair value of a non-interest bearing liability is its discounted repayment amount. If the due date of the liability is less than one year, discounting is omitted.
Hedge accounting
Hedges of interest rate risk on firm commitments are accounted for as cash flow hedges where the hedge is expected to be highly effective.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instruments and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the 'other gains and losses' line item.
Amounts previously recognised in Other Comprehensive Income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognised in Other Comprehensive Income at that time is accumulated in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
Prepayments
Prepayments are carried at cost less any accumulated impairment losses.
Share capital
Shares are classified as equity when there is no obligation to transfer cash or other assets.
Convertible Unsecured Loan Stock
Convertible Unsecured Loan Stock consists of both a liability and equity element. On issue of convertible loan stock, management assess the fair value of the liability by reference to the cash flow to redemption associated with the instrument, discounted at a market rate of interest. The difference between the issue proceeds and the fair value of the liability is allocated to the equity element of the instrument.
Trade and other receivables
Trade and other receivables are initially recognised at fair value, and subsequently where necessary re-measured at amortised cost using the effective interest method. A provision for impairment of trade receivables is established when there is objective evidence the Group will not be able to collect all amounts due according to the original terms of the receivables.
Trade and other payables
Trade and other payables are initially recognised at fair value, and subsequently where necessary re-measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised as finance costs over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as non-current liabilities as the Group has a right to defer settlement of the liability for at least 12 months after the date of the Balance Sheet.
Tax
Income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the Balance Sheet. Tax is recognised in the income statement.
Value added tax
Revenues, expenses and assets are recognised net of the amount of value added tax except:
i. Where the value added tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the value added tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
ii. Receivables and payables that are stated with the amount of value added tax included. The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
REIT Status
The Company entered the REIT regime on 22 November 2010 and is not exposed to tax on qualifying UK property rental income and gains arising from disposal of exempt property assets, for this reason deferred tax has not been provided for on revaluations.
To continue to benefit from UK REIT tax regime, the Group is required to comply with certain conditions in respect of the principal company of the Group, the Group's qualifying activity and its balance of business. NewRiver Retail Limited is required to pay Property Income Distributions equal to at least 90% of the Group's exempted net income. The Group continues to meet these conditions and Management intends that the Group should continue as a UK REIT for the foreseeable future.
Employee benefits
Share-based payments
i. Share Options
Share Options have been granted to key management as set out in Note 25. The cost of equity settled transactions is measured with reference to the fair value at the date at which they were granted. The Group accounts for the fair value of these options at grant date over the vesting period in the Income Statement, with a corresponding increase to the share-based payment reserve. The fair value was calculated based on the Black Scholes Model using the following inputs:
Share price GBP2.35 - GBP2.50 Exercise GBP2.35 - GBP2.71 price Expected 25%* - 10%* volatility Risk free 1.39% - 2.60% rate Expected dividends* 6% - 3%
*based on quoted property sector average (not NewRiver Retail Limited's expected dividend).
ii. Performance Shares
Performance shares have been granted to Executive staff and Directors as set out in Note 25. These may only vest and be capable of exercise in accordance with the Performance Share Plan ('PSP') rules to the extent that the two performance conditions are met.
(1) The compound annual total shareholder return ('Compound TSR') for the Company must equal or exceed 10% over the period of three years commencing on the grant date; and
(2) the compound annual percentage growth in the adjusted EPRA earnings per share ('EPS') of the Company must equal or exceed 4% over the period of three years commencing on the first day of the relevant financial year in which the grant date falls.
The Compound TSR condition has been valued using a Monte Carlo valuation model. The Monte Carlo Option Pricing Model is a stochastic model that uses probability analysis to calculate the value of options subject to market vesting conditions.
The EPS condition has been valued using a Black-Scholes Model. The cost of equity settled transactions is measured with reference to the fair value at the date at which they were granted. The Group accounts for the fair value of these awards at grant date over the vesting period in the Income Statement, with a corresponding increase to the share-based payment reserve. The fair value was calculated based on the Black-Scholes Model using the following inputs:
Share price GBP2.13 - GBP3.05 Exercise GBPN/A price Expected 9.5% - 12.5% volatility Risk free 0.61% - 1.29% rate Expected 5.25% - 5.5% dividends* iii. Treasury Shares
Own equity instruments which are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in the Income Statement on the purchased, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration is recognised in the reserves.
The Group has issued a number of shares to an Employee Benefit Trust (EBT) as detailed in Note 24. As this EBT is controlled by the Group, it is consolidated in these financial statements and unallocated shares held by the EBT are shown as treasury shares.
Provisions
Provisions for legal claims are recognised when:
-- The amount can be reliably estimated;
-- The Group has a present legal or constructive obligation as a result of past events;
-- It is probable that an outflow of resources will be required to settle the obligation; and
-- Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as finance costs.
Revenue recognition
i. Rental income
Rental income is recognised on an accruals basis. A rent adjustment based on open market estimated rental value is recognised from the rent review date in relation to unsettled rent reviews. Where a rent free period is included in a lease, the rental income foregone is allocated evenly over the period from the date of lease commencement to the expiry date of the lease.
Rental income from fixed and minimum guaranteed rent reviews is recognised on a straight-line basis over the entire lease term. Where such rental income is recognised ahead of the related cash flow, an adjustment is made to ensure the carrying value of the related property including the accrued rent does not exceed the external valuation. Initial direct costs incurred in negotiating and arranging a new lease are amortised on a straight-line basis over the period from the date of lease commencement to the expiry date of the lease.
Where a lease incentive payment, or surrender premiums is paid to enhance the value of a property, it is amortised on a straight-line basis over the period from the date of lease commencement to the expiry date of the lease. Upon receipt of a surrender premium for the early determination of a lease, the profit, net of dilapidations and non-recoverable outgoings relating to the lease concerned, is immediately reflected in income.
ii. Asset management fees
Management fees are recognised in the income statement on an accruals basis.
iii. Promote payments
The Group is contractually entitled to receive a promote payment should the returns from a joint venture to the joint venture partner exceed a certain internal rate of return. This payment is only receivable by the Group on disposal of underlying properties held by the joint venture or other termination event. Any entitlements under these arrangements are only accrued for in the financial statements once the Group believes that crystallisation of the fee is virtually certain.
Dividends
Dividends to the Company's shareholders are recognised when they become legally payable. In the case of interim dividends, this is when paid. In the case of final dividends, this is when approved by the Board.
Finance income and costs
Finance income and costs are recognised within the finance income and finance costs in the Statement of Comprehensive Income using the effective interest rate method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument or a shorter period where appropriate to the net carrying amount of the financial asset or financial liability.
Service charge income and expense
Service income is recognised in the accounting period in which the services are rendered and the related property expenses are recognised in the period in which they are incurred.
Other expenses
Expenses include legal, auditing and other fees. They are recognised in the Statement of Comprehensive Income in the period in which they are incurred (on an accruals basis).
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors.
In the process of applying the Group's accounting policies, management is of the opinion that any instances of application of judgements did not have a significant effect on the amounts recognised in the financial statements.
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.
i. Investment properties
As described above, the Group's investment properties are stated at fair value, as accounted for by management based on an independent external appraisal. The estimated fair value may differ from the price at which the Group's assets could be sold at a particular time, since actual selling prices are negotiated between willing buyers and sellers. Also, certain estimates require an assessment of factors not within management's control, such as overall market conditions. As a result, actual results of operations and realisation of net assets could differ from the estimates set forth in these financial statements, and the difference could be significant.
ii. Valuation of joint venture properties
The valuation of the Group's development property portfolio contained within joint ventures is inherently subjective due to, amongst other factors, the individual nature of each property, forecast trading EBITDA, the status of planning consent, obtaining vacant possession, development cost projections and the expected future rental income, incorporating tenant credit risk. As a result, the valuations the Group places on its development property portfolio are subject to a degree of uncertainty and are made on the basis of current relevant information available at the date of valuation.
iii.Valuation of share-based payments
Management has relied on the services of external experts to determine the fair value of share-based payments. This requires significant estimates of a number of inputs which are used to model that fair value.
iv.Impairment in investments and joint ventures
Determining whether investments are impaired requires an estimation of the fair values less cost to sell and value in use of those investments. The process requires the Group to estimate the future cash flows expected from the cash-generating units and an appropriate discount rate in order to calculate the present value of the future cash flows. Management has evaluated the recoverability of those investments based on such estimates.
v. Property disposals
The Company has elected for REIT status. To continue to benefit from this regime, the Group is required to comply with certain conditions as defined in the REIT legislation. In particular, Management are required to determine whether each property acquisition should be included within the REIT rental property income business and whether on disposal of that property, any gain arising is capital or trading in nature, and therefore whether it has triggered a tax charge to be payable to HMRC. If HMRC were to challenge the tax treatment on the disposal of a property, particularly for properties for which redevelopment works have occurred and disposal is within a three year period since acquisition, and consider this to be trading in nature, this may give rise to a tax charge. The Group has determined that all property acquisitions during the year, including those within joint ventures should be included within the REIT ring-fence and therefore has not recognised any deferred tax on the revaluation movements since acquisition, and that all property disposals during the year generated a taxable loss. The Group has unrecognised tax losses carried forwards of GBP1.0 million at 31 March 2015 as detailed in Note 8.
vi. Accounting for acquisitions
Management must assess whether the acquisition of property through the purchase of a corporate vehicle should be accounted for as an asset purchase or a business combination. Where the acquired corporate vehicle contains processes and inputs in addition to property, the transaction is accounted for as a business combination. Where there are no such items, the transaction is treated as an asset purchase.
Business combinations are accounted for using the acquisition method any excess of the purchase consideration over the fair value of the net assets acquired is recognised as goodwill and reviewed annually for impairment. Any discount received or acquisition related costs are recognised in the income statement.
2 Segmental reporting
During the year the Group operated in one business segment, being property investment in the UK and as such no further information is provided.
3 Gross income
2015 2014
GBP'000 GBP'000
---------------------------------------------------------------------- -------- --------
Rental and related income 20,697 16,046
Asset management fees 1,881 1,699
Realised gain received from Joint Venture partnership during the year 4,779 -
Surrender premiums and commissions 838 452
---------------------------------------------------------------------- -------- --------
Gross income 28,195 18,197
---------------------------------------------------------------------- -------- --------
4 Property operating expenses
2015 2014
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Amortisation of tenant incentives and letting costs 627 465
Ground rent payments 761 717
Rates on vacant units 627 402
Other property operating expenses 727 703
---------------------------------------------------- -------- --------
Property operating expenses 2,742 2,287
---------------------------------------------------- -------- --------
Service charge income 4,133 2,830
Service charge expense (5,254) (3,926)
Net service charge expense 1,121 1,096
---------------------------------------------------- -------- --------
Total property operating expenses 3,863 3,383
---------------------------------------------------- -------- --------
5 Administrative expenses
2015 2014
GBP'000 GBP'000
---------------------------------------------------------------------------------------------- -------- --------
Group staff costs 6,871 4,270
Depreciation 76 60
Share Option and LTIP expense 610 193
Administration and other operating expenditure 2,532 1,897
---------------------------------------------------------------------------------------------- -------- --------
Administrative expenses(1) 10,089 6,420
---------------------------------------------------------------------------------------------- -------- --------
Asset management fees (1,881) (1,699)
---------------------------------------------------------------------------------------------- -------- --------
Net administrative expenses 8,208 4,721
---------------------------------------------------------------------------------------------- -------- --------
Net administrative expenses as a % of gross rental income (including share of joint ventures) 23% 22%
---------------------------------------------------------------------------------------------- -------- --------
(1) Administrative costs include GBP1.5m of costs that are linked directly to the gain on acquisition of interest from joint venture partnerships. Excluding these amounts the ratio would have been 18%.
2015 2014
GBP'000 GBP'000
------------------------------------------------------------------------ -------- --------
Auditor's remuneration
Fees payable to the Company's auditor for the year-end audit 172 147
Total audit fees 172 147
------------------------------------------------------------------------ -------- --------
Fees payable to the Company's auditor for reporting accountant services - -
------------------------------------------------------------------------ -------- --------
Fees payable to the Company's auditor for the interim review 28 25
------------------------------------------------------------------------ -------- --------
Total non-audit fees 28 25
------------------------------------------------------------------------ -------- --------
Total 200 172
------------------------------------------------------------------------ -------- --------
2015 2014
Number Number
------------------------------------------ ------- -------
Average staff numbers including Directors 32 23
------------------------------------------ ------- -------
6 Profit on disposal of investment properties
2015 2014
GBP'000 GBP'000
-------------------------------------------- -------- --------
Gross disposal proceeds 30,575 7,990
Costs of disposal (633) (120)
-------------------------------------------- -------- --------
Net disposal proceeds 29,942 7,870
Carrying value (28,202) (5,838)
-------------------------------------------- -------- --------
Profit on disposal of investment properties 1,740 2,032
-------------------------------------------- -------- --------
Profits on the disposal of investment properties are realised profits in the year of disposal of assets at a consideration above the carrying value of the asset.
7 Finance income and expense
2015 2014
GBP'000 GBP'000
----------------------------------------- -------- --------
(a) Finance income
Income from cash and short-term deposits 191 105
----------------------------------------- -------- --------
Total finance income 191 105
----------------------------------------- -------- --------
(b) Finance costs
Interest on bank loans 5,923 4,057
Interest on debt instruments 1,400 1,451
----------------------------------------- -------- --------
Total finance costs 7,323 5,508
----------------------------------------- -------- --------
Net finance cost 7,132 5,403
----------------------------------------- -------- --------
Interest on debt instruments relates to the Convertible Unsecured Loan Stock.
More details on the Group's borrowings are provided in Note 20.
8 Taxation
The tax expense for the year comprises:
2015 2014
GBP'000 GBP'000
-------------------------------------- -------- --------
Current taxation
UK Corporation Tax at 21% (2014: 23%) - 11
-------------------------------------- -------- --------
Tax charge for the year - 11
-------------------------------------- -------- --------
The charge for the year can be reconciled to the profit per the consolidated income statement as follows:
2015 2014
GBP'000 GBP'000
------------------------------------------- -------- --------
Profit before tax 39,528 23,059
Tax at the current rate of 21% (2014: 23%) 8,300 5,073
Tax effect of profit under REIT regime (8,300) (5,062)
------------------------------------------- -------- --------
Tax charge - 11
------------------------------------------- -------- --------
As at 31 March 2015, the Group had surplus UK revenue tax losses carried forward of GBP1.0 million (2014: GBP0.9 million) and surplus UK capital losses of GBPnil million (2014: GBP0.1 million).
9 Earnings per share
The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in 2014 and additional guidance in January 2015, which gives recommendations for performance measures. The EPRA earnings measure excludes investment property revaluations and gains on disposals, intangible asset movements and their related taxation. We have also disclosed an EPRA adjusted profit measure which includes realised gains on disposals and adds back Share Option expense as it is unrealised.
The National Association of Real Estate Investment Trusts (NAREIT) Funds From Operations (FFO) measure is similar to EPRA earnings and is a performance measure used by many property analysts. The main difference to EPRA earnings with respect to the Group is that it adds back the amortisation of leasing costs and tenant incentives and is based on US GAAP.
The calculation of basic and diluted earnings per share is based on the following data:
2015 2014
GBP'000 GBP'000
------------------------------------------------------------------------------- -------- --------
Earnings
Earnings for the purposes of basic and diluted EPS being profit after taxation 39,528 23,048
Adjustments to arrive at EPRA profit
Unrealised (gains)/deficit on revaluation of investment properties (6,861) 763
Unrealised (surplus) on revaluation of joint venture investment properties (12,405) (14,503)
Profit on disposal of investment properties (1,740) (2,032)
------------------------------------------------------------------------------- -------- --------
EPRA profit 18,522 7,276
Profit on disposal of investment properties 1,740 2,032
Share Option expense 610 193
------------------------------------------------------------------------------- -------- --------
EPRA adjusted profit 20,872 9,501
------------------------------------------------------------------------------- -------- --------
Adjustments to EPRA profit to arrive at NAREIT FFO
EPRA profit 18,522 7,276
Amortisation of tenant incentives and letting costs 153 465
Amortisation of rent-free periods (352) (645)
------------------------------------------------------------------------------- -------- --------
Amortisation of capitalised leasing costs 474 -
------------------------------------------------------------------------------- -------- --------
NAREIT FFO 18,797 7,096
------------------------------------------------------------------------------- -------- --------
2015 2014
Number of shares No. 000s No. 000s
-------------------------------------------------------------------------------------------- --------- ---------
Weighted average number of Ordinary Shares for the purposes of basic EPS and basic EPRA EPS 105,496 60,632
Effect of dilutive potential Ordinary Shares:
Options 984 228
Warrants 255 267
CULS - -
MSREI joint venture conversion 2,870 3,093
-------------------------------------------------------------------------------------------- --------- ---------
Weighted average number of Ordinary Shares for the purposes of basic diluted EPS
and basic diluted EPRA EPS 109,605 64,220
-------------------------------------------------------------------------------------------- --------- ---------
EPRA Adjusted EPS (pence) 19.8 15.7
EPRA EPS basic (pence) 17.6 12.0
EPRA diluted EPS (pence) 17.4 11.4
FFO EPS basic (pence) 17.8 11.7
EPS basic (pence) 37.5 38.0
Diluted EPS basic (pence) 36.2 33.2
-------------------------------------------------------------------------------------------- --------- ---------
Under the terms of the Limited Partnership Agreement relating to NewRiver Retail Investments LP dated 28 February 2010, MSREI has been granted the right to convert its interest in the JV or part thereof on a NAV for NAV basis into shares of NewRiver Retail Limited, up to 10% of the share capital of NewRiver Retail Limited during the joint venture period. This conversion would currently have a dilutive effect on the Group's EPS calculation of 4.6 pence (accretive effect in the prior year) and an accretive effect on the Group's EPRA EPS calculation of 0.5 pence (accretive effect in prior year). The value of MSREI's interest at 31 March 2015 is GBP7.5m.
10 Net asset value per share
2015 2014
------------------- -------- --------------- ------------------- -------- ---------------
Total equity Shares Total equity Shares
GBP'000s No'000s Pence per share GBP'000s No'000s Pence per share
-------------------- ------------------- -------- --------------- ------------------- -------- ---------------
Basic 339,695 127,078 267 239,627 99,379 241
Warrants in issue 933 569 164 1,488 865 172
Unexercised employee
awards 4,850 2,617 185 3,372 1,730 195
-------------------- ------------------- -------- --------------- ------------------- -------- ---------------
Convertible loan
stock (A CULS) 17,000 6,855 248 - - -
-------------------- ------------------- -------- --------------- ------------------- -------- ---------------
Convertible loan
stock (B CULS) 6,500 2,642 246 - - -
-------------------- ------------------- -------- --------------- ------------------- -------- ---------------
Diluted 368,978 139,761 264 244,487 101,974 240
-------------------- ------------------- -------- --------------- ------------------- -------- ---------------
Fair value
derivatives 690 - - 19 - -
-------------------- ------------------- -------- --------------- ------------------- -------- ---------------
EPRA 369,668 139,761* 265 244,506 101,974 240
-------------------- ------------------- -------- --------------- ------------------- -------- ---------------
* The number of shares in issue is adjusted under the EPRA calculation to assume conversion of the warrants, options, shares from the long-term incentive plan and the Convertible Unsecured Loan Stock converted to equity providing they have a dilutive effect.
11 Dividends
The following dividends are associated with the current and prior years:
Pence per 2015
Payment date Dividend PID Non-PID share GBP'000
--------------------------------------- ------------------------------ ----- ------- --------- -------- --------
Current year dividends
31 October 2014 First interim dividend 1.00 3.25 4.25 4,235
--------------------------------------- ------------------------------ ----- ------- --------- --------
30 January 2015 Second interim dividend 1.00 3.25 4.25 4,242
--------------------------------------- ------------------------------ ----- ------- --------- --------
30 January 2015 Third quarterly dividend 4.25 - 4.25 4,242
--------------------------------------- ------------------------------ ----- ------- --------- --------
18 May 2015 (1) Fourth quarterly dividend 4.25 - 4.25 5,401
--------------------------------------- ------------------------------ ----- ------- --------- --------
10.50 6.50 17.00 18,120
---------------------------------------------------------------------- ----- ------- --------- -------- --------
(1) Post balance sheet event
2014 2013
Prior year dividends GBP'000 GBP'000
--------------------------------------- ------------------------------ ----- ------- --------- -------- --------
28 March 2014 2014 Special interim dividend 10.0 - 10.0 6.730
31 January 2014 2014 interim dividend 6.0 - 6.0 4,003
--------------------------------------- ------------------------------ ----- ------- --------- -------- --------
16.0 16.0 10,733
---------------------------------------------------------------------- ----- ------- --------- -------- --------
25 July 2013 2013 Final dividend 10.0 - 10.0 - 3,404
--------------------------------------- ------------------------------ ----- ------- --------- -------- --------
2015 2014
GBP'000 GBP'000
Dividends in consolidated statement of changes in equity 12,719 14,137
Dividends settled in cash during the year 12,719 14,137
Timing difference related to payment of withholding tax on dividends (503) (1,142)
----------------------------------------------------------------------- ----- ------- --------- -------- --------
Dividends in cash flow statement 12,216 12,995
----------------------------------------------------------------------- ----- ------- --------- -------- --------
The Company announced that it was moving to a quarterly dividend policy last year and this policy has now been implemented.
During the year ended 31 March 2015 the Company declared total dividends of 17 pence per share of which 4.25 pence was paid after the year end. This is a 6.25% increase on the prior year dividend of 16 pence per share. The total dividend is fully covered by profits in the year.
Of the total dividend in respect to the year ended 31 March 2015, 10.5 pence was paid as a PID and 6.5 pence paid as a Non-PID.
12 Investment properties
2015 2014
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Fair value brought forward 214,124 206,278
Acquisitions and improvements in the year 89,815 14,447
Properties acquired on business combinations 121,500 -
Disposals in the year (28,202) (5,838)
----------------------------------------------------- -------- --------
397,237 214,887
----------------------------------------------------- -------- --------
Valuation movement gains/(losses) in profit and loss 6,861 (763)
----------------------------------------------------- -------- --------
Fair value at 31 March 2015 404,098 214,124
----------------------------------------------------- -------- --------
It is the Group's policy to carry investment properties at fair value in accordance with IAS 40 'Investment Property'. The fair value of the Group's investment property at 31 March 2015 has been determined on the basis of open market valuations carried out by Colliers International who are the external independent valuers to the Group.
The fair value at 2015 represents the highest and best use.
The properties are categorised as Level 3 in the IFRS 13 fair value hierarchy. There were no transfers of property between Levels 1, 2 and 3.
The Group's policy is to recognise transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer.
Valuation processes
The Group's investment properties have been valued at fair value on 31 March 2015 by independent valuers, Colliers International Valuation UK LLP, on the basis of fair value in accordance with the Current Practice Statements contained in The Royal Institution of Chartered Surveyors Valuation - Professional Standards, (the 'Red Book').
Information about fair value measurements for the investment property using significant unobservable inputs (Level 3)
Property Topped up
Equivalent Net Initial
Property ERV per sq ft (GBP) Property Rent per sq ft (GBP) Yield (%) Yield (%)
------------ ----------- ------------------------------- -------------------------------- ----------- -----------
Fair value
Segment (GBP'000) Min Max Average Min Max Average Average Average
------------ ----------- -------- -------- ----------- -------- --------- ----------- ----------- -----------
Shopping
centres 469,945 6.22 34.55 11.82 4.64 25.26 10.92 7.6 7.1
------------ ----------- -------- -------- ----------- -------- --------- ----------- ----------- -----------
High street 47,660 2.41 58.67 9.63 2.41 80.83 9.55 7.1 7.0
------------ ----------- -------- -------- ----------- -------- --------- ----------- ----------- -----------
Retail
Warehouse 50,655 8.64 22.35 11.29 7.47 21.36 10.70 7.7 7.9
------------ ----------- -------- -------- ----------- -------- --------- ----------- ----------- -----------
568,260
------------ ----------- -------- -------- ----------- -------- --------- ----------- ----------- -----------
Property Rent per sq ft (GBP) Net Initial Yield (%)
---------- --------------------------------- -------------------------
Fair value
Segment (GBP'000) Min Max Average Min Max Average
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
Pub portfolio 33,373 5.22 70.95 19.19 6.3 16.5 11.5
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
Convenience store development portfolio 24,670 15.75 31.16 24.71 6.0 7.5 6.0
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
58,043
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
Group Total
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
By Ownership 626,303
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
Wholly owned 404,098
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
Joint ventures 222,205
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
Group Total 626,303
---------------------------------------- ---------- --------- --------- ----------- ----- ------ ----------
Revenues are derived from a large number of tenants with no single tenant or group under common control contributing more than 5% of the Group's revenue.
There are interrelationships between all these unobservable inputs as they are determined by market conditions. The effect of an increase in more than one unobservable input would be to magnify the impact on the valuation. The impact on the valuation will be mitigated by the interrelationship of two unobservable inputs moving in opposite directions, e.g. an increase in rent may be offset by an increase in yield, resulting in no net impact on the valuation. Expected vacancy rates may impact the yield with higher vacancy rates resulting in higher yields.
Valuation techniques underlying the Group's estimation of fair value including joint ventures
The investments are several retail assets in the UK with a total carrying amount of GBP626 million. The valuation was determined using an income capitalisation method, which involves applying a yield to rental income streams. Inputs include yield, current rent and ERV.
Development properties are valued using a residual method, which involves valuing the completed investment property using an investment method and deducting estimated costs to complete, then applying an appropriate discount rate. The relationship of unobservable inputs to fair value are the higher the rental values and the lower the yield, the higher the fair value.In respect of the pub portfolio the Valuer makes judgements on whether to use residual value or a higher value to include development potential where appropriate. Where no conversion opportunity has been identified at present, the Valuer has not specifically considered an alternative use valuation.
These inputs include:
-- Rental value - total rental value pa
-- Equivalent yield - the discount rate of the perpetual cash flow to produce a net present value of zero assuming a purchase at the valuation
There were no changes in valuation techniques during the period.
The portfolio has been valued by external valuers biannually, on a fair value basis in accordance with the RICS Red Book. Valuation reports are based on both information provided by the Group, e.g. current rents and lease terms which is derived from the Company's financial and property management systems and is subject to the Group's overall control environment, and assumptions applied by the valuers, e.g. ERVs and yields. These assumptions are based on market observation and the valuer's professional judgement.
The fee payable to the valuers is on a fixed basis.
13 Acquisition of a subsidiary (Business combination)
On 14 January 2015, the Group acquired 90% of the units of NewRiver Retail Property Unit Trust, a Unit Trust registered in Jersey which is engaged in property investment, resulting in ownership of 100% and control of the underlying entity from its Joint Venture Partner Bravo I. Management determined that the acquisition of control should be accounted for as a business combination in accordance with IFRS 3 'Business Combinations'. The fair value of the Group's 10% equity interest in the NewRiver Retail Property Unit Trust held before the business combination amounted to GBP7.9 million. The acquired subsidiary has contributed net revenues of GBP2.6 million and profit of GBP1.6 million to the Group for the period from the date of acquisition to 31 March 2015. If the acquisition had occurred on 1 April 2014, with all other variables held constant, Group net revenue for 2015 would have increased by GBP9.0 million and underlying profit for 2015 would have increased by GBP6.0 million.
Details of the assets and bargain purchase arising are as follows:
Attributed fair value
GBP'000
------------------------------------------------------------ ---------------------
Investment property 121,500
Current assets 1,475
Other net current liabilities (3,877)
Cash and cash equivalents 2,642
Debenture and loans (42,313)
Fair value of acquired interest in net assets of subsidiary 79,427
Bargain purchase (negative goodwill) (385)
Total purchase consideration 79,042
Less: fair value previously held interest (7,942)
Total acquisition of NewRiver Retail Property Unit Trust 71,100
------------------------------------------------------------ ---------------------
The purchase consideration disclosed above comprises cash and cash equivalents paid to the acquiree's 90% owner of GBP71.1m. The bargain purchase is a result of assets acquired exceeding the purchase price. The gain on bargain purchase is recognised in the income statement as part of the realised gain received from Joint Venture partnership during the year. The fair value of cash and cash equivalents was considered equal to the carrying value representing the entity's bank deposits; fair value of borrowings and trade and other payables was calculated based on fair value. The acquired bank loans and overdrafts have no recourse to other companies or assets in the Group.
14 Investments in joint ventures
2015 2014
Note GBP'000 GBP'000
---------------------------------------------------------------------- ------------------------ --------- ---------
Opening balance 74,851 14,688
Additional joint venture interests acquired during the year(1) 72,470 42,400
Effective disposal of 10% investment 13 (7,942) -
Income from joint ventures 11,411 4,296
Net valuation movement 11,843 14,503
Distributions and dividends(1) (6,450) (1,668)
Loan repayment (45,567) (282)
Capital call 2,275 -
Hedging movements 136 914
---------------------------------------------------------------------- ------------------------ --------- ---------
Closing balance 113,027 74,851
---------------------------------------------------------------------- ------------------------ --------- ---------
% Holding % Holding
Name Country of incorporation 2015 2014
---------------------------------------------------------------------- ------------------------ --------- ---------
NewRiver Retail Investments LP and NewRiver Retail Investments (GP)
Ltd* Guernsey 50 50
NewRiver Retail Property Unit Trust Jersey 100 10
NewRiver Retail Property Unit Trust No.2 Jersey 50 50
NewRiver Retail Property Unit Trust No.3 Jersey 50 50
NewRiver Retail Property Unit Trust No.4 Jersey 50 50
NewRiver Retail Property Unit Trust No.5, No.6, No.7 Jersey 50 -
---------------------------------------------------------------------- ------------------------ --------- ---------
(1) The net cash outflow during the year was GBP66.02 million (2014: cash outflow GBP40.73 million).
* NewRiver Retail Investments (GP) Limited and its Limited partner (NewRiver Retail Investments LP) has a number of 100% owned subsidiaries which are NewRiver Retail (Finco No 1) Limited and NewRiver Retail (GP1) Limited, acting in its capacity as General Partner for NewRiver Retail (Holding No 1) LP and NewRiver Retail (Portfolio No 1) LP. These entities have been set up to facilitate the investment in retail properties in the UK by the Barley JV.
There are currently six joint ventures which are equity accounted for as set out below:
NewRiver Retail Property Unit Trust, NewRiver Retail Property Unit Trusts No 2, 3,4,5,6 and 7.
NewRiver Retail Property Unit Trust (the 'CAMEL II JV') is an established jointly controlled Jersey Property Unit Trust set up by NewRiver Retail Limited and PIMCO BRAVO Fund LP ('BRAVO') to invest in UK retail property. NewRiver Retail Property Unit Trusts No 2, 3 and 4 (the 'Middlesbrough, 'Camel III' and 'Trent' JVs) are established jointly controlled Jersey Property Unit Trusts set up by NewRiver Retail Limited and PIMCO BRAVO II Fund LP ('BRAVO II') to invest in UK retail property.
On 14 January 2015, the Group acquired 90% of the units of Camel II, resulting in ownership of 100% and control of the underlying entity from its Joint Venture Partner Bravo I. See note 13. The Middlesbrough, Camel IIII, Trent and Swallowtail JVs are owned 50% by NewRiver Retail Limited and 50% BRAVO II. NewRiver Retail (UK) Limited is the appointed asset manager on behalf of these JVs and receives asset management fees, development management fees and performance-related return promote payments.
Management have taken the decision to account for the equity interest in JVs as joint ventures as the Group has significant influence over decisions made by each joint venture but is not able to exert complete control over these joint ventures.
The JVs have an acquisition mandate to invest in UK retail property with an appropriate leverage with future respective equity commitments being decided on a transaction-by-transaction basis. In line with the existing NewRiver investment strategy, the JVs will target UK retail property assets with the objective of delivering added value and above average returns through NewRiver's proven skills in active and entrepreneurial asset management and risk-controlled development.
All JVs have a 31 December year end and the Group has applied equity accounting for its interest in each JV. The aggregate amounts recognised in the consolidated balance sheet and income statement eliminate intercompany transactions and are as follows:
2015
NewRiver Retail
Property Unit Trust, 2, 3, 31 March 2014 31 March
4, 5, 6,7 2015 NewRiver Retail Property 2014
Total Group's share Unit Trust, 2, 3, 4 Group's Share
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------------------------- -------------- --------------------------- --------------
Balance sheet
Non-current assets 417,560 208,780 346,560 131,060
Current assets 14,799 7,400 12,475 4,429
Current liabilities (8,372) (4,186) (9,152) (3,207)
Senior debt (211,252) (105,619) (164,666) (65,333)
Non-current
(liabilities)/assets (1,865) (939) 1,711 484
---------------------------- --------------------------- -------------- --------------------------- --------------
Net assets 210,870 105,436 186,928 67,433
---------------------------- --------------------------- -------------- --------------------------- --------------
Income statement*
Net income 34,702 15,705 17,046 5,078
Administration expenses (1,800) (804) (936) (271)
Finance costs (8,867) (4,021) (4,071) (1,230)
---------------------------- --------------------------- -------------- --------------------------- --------------
Recurring income 24,035 10,880 12,039 3,577
Fair value surplus on
property revaluations 25,616 12,807 45,443 16,963
Income from joint ventures 49,651 23,687 57,482 20,540
---------------------------- --------------------------- -------------- --------------------------- --------------
*Includes NewRiver Retail Ltd's share of NewRiver Retail Property Unit Trust from the period 1 April 2014 to 31 December 2014 prior to acquisition of the remaining 90%.
The Group's share of any contingent liabilities to the JPUTs is GBPnil (2014: GBPnil).
NewRiver Retail Investments LP
NewRiver Retail Investments LP (the 'Barley JV') is an established jointly controlled limited partnership set up by NewRiver Retail Limited and Morgan Stanley Real Estate Investing ('MSREI') to invest in UK retail property.
The Barley JV is owned equally by NewRiver Retail Limited and MSREI. NewRiver Retail (UK) Limited is the appointed asset manager on behalf of the Barley JV and receives asset management fees as well as performance-related return promote payments.
No promote payment has been recognised during the period and the Group is entitled to receive promote payments only after achieving the agreed hurdles. Under the terms of the Limited Partnership agreement relating to NewRiver Retail Investments LP dated 28 February 2010, MSREI has been granted the right to convert its interest in the Barley JV or part thereof on a NAV for NAV basis into shares of NewRiver Retail Limited, up to 10% of the share capital of NewRiver Retail Limited up until its fifth anniversary. This conversion would currently have a dilutive effect on the Group's EPS calculation of 0.84 pence. The value of MSREI's interest at 31 March 2015 is GBP7.6m.
In line with the existing NewRiver investment strategy, the Barley JV will target UK retail property assets with the objective of delivering added value and above average returns through NewRiver's proven skills in active and entrepreneurial asset management and risk-controlled development and refurbishment.
The Barley JV has a 31 December year end and the Group has applied equity accounting for its interest in the Barley JV. The aggregate amounts recognised in the consolidated balance sheet and income statement eliminate intercompany transactions and are as follows:
2015 2014
NewRiver NewRiver
Retail 2015 Retail 2014
Investments Group's Investments Group's
(GP) Ltd Share (GP) Ltd Share
Total 50% Total 50%
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------------ -------- ------------ --------
Balance sheet
Non-current assets 26,850 13,425 36,325 18,162
Current assets 1,990 995 2,294 1,147
Current liabilities (815) (408) (1,221) (610)
Senior debt (12,771) (6,387) (22,466) (11,233)
Non-current liabilities (70) (34) (97) (48)
---------------------------------------------- ------------ -------- ------------ --------
Net assets 15,184 7,591 14,835 7,418
---------------------------------------------- ------------ -------- ------------ --------
Income statement
Net income 1,916 957 2,314 1,157
Administration expenses (262) (131) (269) (134)
Finance costs (591) (295) (606) (303)
---------------------------------------------- ------------ -------- ------------ --------
Recurring income 1,063 531 1,439 720
Fair value (deficit) on property revaluations (804) (402) (4,921) (2,460)
---------------------------------------------- ------------ -------- ------------ --------
Income/ (Deficit) from joint ventures 259 129 (3,482) (1,740)
---------------------------------------------- ------------ -------- ------------ --------
The Group's share of any contingent liabilities to the Barley JV is GBPnil (2014: GBPnil).
15 Property, plant and equipment
Fixtures and
equipment
GBP'000
--------------------------------- ------------
Cost
At 1 April 2013 468
Additions 40
At 31 March 2014/1 April 2014 508
Additions 205
--------------------------------- ------------
At 31 March 2015 713
--------------------------------- ------------
Depreciation
At 1 April 2013 (64)
Depreciation charge for the year (60)
At 31 March 2014/1 April 2014 (124)
Depreciation charge for the year (76)
--------------------------------- ------------
At 31 March 2015 (200)
--------------------------------- ------------
Book value at 31 March 2015 513
--------------------------------- ------------
Book value at 31 March 2014 384
--------------------------------- ------------
16 Investment in subsidiary undertakings
Below is a list of the Group's principal subsidiaries
Proportion of
ownership
Country of interest
Name incorporation Activity 2015 Class of share
--------------------------------------------- -------------- ----------------------- ------------- ---------------
NewRiver Retail (Boscombe No. 1) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Carmarthen) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail CUL No. 1 Limited UK Finance Company 100% Ordinary Shares
NewRiver Retail Holdings Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Retail Holdings No. 2 Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Retail Holdings No. 3 Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Retail Holdings No. 4 Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Retail (Market Deeping No. 1) Guernsey Real estate investments 100% Ordinary Shares
Limited
NewRiver Retail (Morecambe) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Newcastle No. 1) Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Retail (Paisley) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Portfolio No. 1) Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Retail (Portfolio No. 2) Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Retail (Portfolio No. 3) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Portfolio No. 5) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Portfolio No. 6) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Skegness) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (UK) Limited UK Company operation and 100% Ordinary Shares
asset management
NewRiver Retail (Warminster) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Wisbech) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Witham) Limited UK Real estate investments 100% Ordinary Shares
NewRiver Retail (Wrexham No. 1) Limited Guernsey Real estate investments 100% Ordinary Shares
NewRiver Leisure Limited UK Real estate investments 100% Ordinary Shares
--------------------------------------------- -------------- ----------------------- ------------- ---------------
The Group's investment properties are held by its subsidiary undertakings.
In addition, the EBT is consolidated as disclosed in Note 24.
17 Trade and other receivables
2015 2014
GBP'000 GBP'000
------------------------------- -------- --------
Trade receivables 2,920 2,495
Prepayments and accrued income 2,933 1,100
------------------------------- -------- --------
5,853 3,595
------------------------------- -------- --------
All amounts fall due for payment in less than one year. No amounts are past due.
A provision of GBP0.7million (2014: GBP0.4 million) was made against trade receivables as at 31 March 2015.
18 Cash and cash equivalents
2015 2014
GBP'000 GBP'000
------------- -------- --------
Cash at bank 15,412 89,555
------------- -------- --------
19 Trade and other payables
2015 2014
GBP'000 GBP'000
--------------------------------- -------- --------
Trade payables 3,770 1,468
Other payables 1,409 617
Accruals 5,569 4,993
Rent received in advance 5,449 3,124
--------------------------------- -------- --------
16,197 10,202
Taxation - current - 219
--------------------------------- -------- --------
Current trade and other payables 16,197 10,421
--------------------------------- -------- --------
20 Borrowings
2015 2014
GBP'000 GBP'000
-------------------------------------------------------------- -------- --------
Secured bank loans 157,921 108,256
Convertible Unsecured Loan Stock 23,420 23,306
-------------------------------------------------------------- -------- --------
181,341 131,562
Maturity of borrowings:
Balance sheet borrowings
Less than one year - Convertible Unsecured Loan Stock 23,420 -
Between one and two years - 23,306
Between two and five years 85,556 40,373
Over five years 72,365 67,883
-------------------------------------------------------------- -------- --------
181,341 131,562
-------------------------------------------------------------- -------- --------
Maturity of borrowings:
Group's share of Joint Venture borrowings
Less than one year - 11,212
Between one and two years 6,386 -
Between two and five years 105,626 64,605
Over five years - -
-------------------------------------------------------------- -------- --------
112,012 75,817
-------------------------------------------------------------- -------- --------
Maturity of borrowings:
Total Group share of borrowings (Proportionally consolidated)
Less than one year - Convertible Unsecured Loan Stock 23,420 11,212
Between one and two years 6,386 23,306
Between two and five years 191,182 104,978
Over five years 72,365 67,883
-------------------------------------------------------------- -------- --------
Total 293,353 207,379
-------------------------------------------------------------- -------- --------
Debt maturity as at 31 March 2015
Secured bank loans
Bank loans are secured by way of legal charges on properties held by the Group and a hedging policy is adopted which is aligned with the property strategy on each of its assets.
2015 2014
----------------------------------------------------------- ------- -------
Weighted average debt maturity including extension options
Balance sheet secured borrowings 5.0 yrs 4.5 yrs
Joint Venture secured borrowings 3.9 yrs 4.3 yrs
Total Group share of borrowings 4.6 yrs 4.4 yrs
----------------------------------------------------------- ------- -------
2015 2014
----------------------------------------------------------- ------- -------
Effective interest rate during the year
Balance sheet secured borrowings 3.8% 3.9%
Joint Venture secured borrowings 3.9% 4.7%
Total Group share of borrowings 3.8% 4.2%
LTV (proportionally consolidated) 39% 25%
Interest cover x (proportionally consolidated) 3.9x 3.9x
----------------------------------------------------------- ------- -------
Facility and arrangement fees
2015
-------------------------------------------------------------------
Facility drawn Unamortised facility fees Balance
Current year Maturity date GBP'000 GBP'000 GBP'000
------------------------------------------------- -------------- -------------- ------------------------- --------
Secured balance sheet borrowings
------------------------------------------------- -------------- -------------- ------------------------- --------
Santander Feb 2021 33,990 269 33,721
HSBC May 2019 24,736 406 24,330
Barclays Mar 2020 39,174 530 38,644
Lloyds Sep 2019 19,165 149 19,016
Santander/HSBC Mar 2020 42,500 290 42,210
------------------------------------------------- -------------- -------------- ------------------------- --------
Subtotal 159,565 1,644 157,921
----------------------------------------------------------------- -------------- ------------------------- --------
Group's share of secured Joint Venture borrowings
Santander Feb 2017 6,400 14 6,386
Barclays Dec 2018 15,998 138 15,860
Barclays Aug 2018 13,585 115 13,470
HSBC Nov 2019 45,500 412 45,088
Venn Capital Dec 2018 31,500 293 31,207
------------------------------------------------- -------------- -------------- ------------------------- --------
Subtotal 112,983 972 112,012
----------------------------------------------------------------- -------------- ------------------------- --------
Convertible Unsecured Loan Stock Dec 2015 23,500 80 23,420
------------------------------------------------- -------------- -------------- ------------------------- --------
Total Group's share of borrowings 296,048 2,696 293,352
----------------------------------------------------------------- -------------- ------------------------- --------
The Company expects the Holders of the Convertible Unsecured Loan Stock to convert their interest to equity prior to the maturity date.
2014
-------------- ---------------------------------------------------
Facility drawn Unamortised facility fees Balance
Prior year Maturity date GBP'000 GBP'000 GBP'000
------------------------------------------------- -------------- -------------- ------------------------- --------
Secured balance sheet borrowings
------------------------------------------------- -------------- -------------- ------------------------- --------
HSBC Nov 2015 36,475 115 36,360
Clydesdale Aug 2016 40,645 272 40,373
Santander Feb 2021 31,891 - 31,523
------------------------------------------------- -------------- -------------- ------------------------- --------
109,011 755 108,256
Group's share of secured Joint Venture borrowings
Santander Feb 2015 11,253 20 11,233
Barclays Aug 2018 13,734 149 13,585
Santander/HSBC Dec 2017 4,290 40 4,250
Barclays Dec 2018 16,172 174 15,998
Venn Capital Dec 2018 31,866 366 31,500
------------------------------------------------- -------------- -------------- ------------------------- --------
Subtotal 77,315 749 76,566
----------------------------------------------------------------- -------------- ------------------------- --------
Convertible Unsecured Loan Stock 23,500 194 23,306
----------------------------------------------------------------- -------------- ------------------------- --------
209,826 1,698 208,128
---------------------------------------------------------------- -------------- ------------------------- --------
Group's Share of Borrowings: Hedging Profile
Fair value on interest rate swaps
The Group recognised a mark to market fair value loss of GBP0.7 million (2014: profit GBP2.3 million) on its interest rate swaps for the year ended 31 March 2015. The fair value of interest rate swap liabilities in the balance sheet as at 31 March 2015 was GBP1.9 million (2014: GBP0.9 million). The fair value of interest rate swap assets in the balance sheet as at 31 March 2015 was GBP0.3 million (2014: nil).All borrowings are due after more than one year and the derivative financial instruments are held as non-current liabilities.
Convertible Unsecured Loan Stock ('CULS')
On 22 November 2010 the Group issued GBP25 million of CULS, GBP17 million of A CULS and GBP8 million of B CULS. On issue, the stockholder was able to convert all or any of the stock into Ordinary Shares at the rate of one Ordinary Share for every GBP2.80. The conversion rate has subsequently been adjusted on the A CULS to GBP2.48 (2014: GBP2.51) and on the B CULS to GBP2.46 (2014: GBP2.49) as at 31 March 2015 as a result of new shares being issued and dividends paid in accordance with the terms of the agreement. Under the terms of the convertible, interest will accrue at 5.85% on the outstanding loan stock until 31 December 2015 when it will be either converted or repaid. The interest payable on the CULS is due biannually on the 30 June and 31 December.
On 18 February 2014 GBP1.5 million B CULS were converted at a conversion price of GBP2.59 representing 579,151 Ordinary shares.
Management was required to make estimates with the assistance of external experts to conclude on the valuation of the CULS at the date of issue. The issuance of the compound instrument was between two knowledgeable parties at arms length and at a market rate of 5.85% pa for five years. Management concluded that the value of the convertible option was negligible at that time and the value resided in the debt portion of the instrument at the date of issue.
21 Operating lease arrangements
The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases.
At the balance sheet date the Group had contracted with tenants for the following future minimum lease payments on its investment properties:
2015 2014
GBP'000 GBP'000
-------------------------------------- -------- --------
Within one year 30,030 28,586
Between one and two years 27,823 26,617
In the second to fifth year inclusive 66,803 33,482
After five years 95,311 109,443
-------------------------------------- -------- --------
219,967 198,128
-------------------------------------- -------- --------
Weighted Average Lease Expiry
Operating leases in NewRiver Retail Limited portfolio
The Group's weighted average lease length of operating leases at 31 March 2015 was 7.4 years (2014: 8.3 years).
22 Financial commitments and operating lease arrangements
2015 2014
GBP'000 GBP'000
----------------------------------- -------- --------
Rents payable on operating leases:
Within one year 387 195
One to two years 203 387
Two to five years 617 487
After five years 304 496
----------------------------------- -------- --------
1,511 1,565
----------------------------------- -------- --------
Operating lease payments represent rents payable by the Group for occupation of its office properties.
The current lease expires in November 2021 with a tenant break option in 2016.
23 Share capital and reserves
The authorised share capital is unlimited and there are 127,077,895 shares in issue which excludes treasury shares (2014: 99,378,507). The table below outlines the movement of shares in the year:
Number of Total number
Ordinary Shares Price per of shares
issued 000s pence 000s
--------------------------------- -------------------- ---------------- --------- ------------
Brought forward at 1 April 2014 99,379
April - September 2014 Warrant conversions 293 172 99,672
October 2014 Option exercise 89 235 99,761
October 2014 Warrant conversion 6 170 99,767
November 2014 Option exercise 38 235 99,805
January 2015 Equity issuance 27,273 275 127,078
--------------------------------- -------------------- ---------------- --------- ------------
Carried forward at 31 March 2015 127,078
------------------------------------------------------- ---------------- --------- ------------
During the year, the Group approved a transfer from the share premium account of GBP73.3million (2014: GBP148.5 million) to other reserves which may be distributed in the future. Other reserves being distributable reserves. The share premium arose from previous successful equity raises. The gross proceeds of GBP75m were received from the issue of 27,272,727 shares at 275 pence. Costs of GBP1.7million associated with the issue have been netted off against these proceeds.
Shareholders who subscribed for Placing Shares in the IPO received warrants, in aggregate, to subscribe for 3% of the Fully Diluted Share Capital exercisable at the subscription price per Ordinary Share of GBP2.50 and all such warrants shall be fully vested and exercisable upon issuance. The subscription price has subsequently been adjusted to GBP1.64 following subsequent dividend payments and share issues.
24 Treasury shares
The Company has established an Employee Benefit Trust (EBT) which is registered in Jersey.
The EBT, at its discretion, may transfer shares held by it to Directors and employees of the Company and its subsidiaries. The maximum number of Ordinary Shares that may be held by the Trustee of the EBT may not exceed 10% of the Company's issued share capital at that time. It is intended that the Trustee of the EBT will not hold more Ordinary Shares than are required in order to satisfy awards/options granted under share incentive plans.
There are currently 496,500 treasury shares held in the Employee Benefit Trust. As the EBT is consolidated, these shares are treated as treasury shares.
During the year, 127,500 were issued from the EBT to satisfy the exercise of options for employees from the EBT (2014: Nil).
2015 2014
000s 000s
-------------------------- ------ ------
Brought forward 624 624
Exercised during the year (127) -
-------------------------- ------ ------
Carried forward 497 624
-------------------------- ------ ------
25 Share-based payments
The Group provides share-based payments to employees in the form of Share Options and also in the form of performance shares. All share-based payment arrangements granted since the admission on 1 September 2009 have been recognised in the financial statements. Further details can be found in accounting policies Note 1.
(a) Terms
Share Options
The Group uses the Black-Scholes Model to value Share Options and the resulting value is amortised through the income statement over the vesting period of the share-based payments with a corresponding credit to the share-based payments reserve.
Exercise 2015 2014
price Number of Number of
GBP options options
------------------------------------------- -------- ---------- ----------
Awards brought forward 2,317,410 2,317,410
Awards made during the current year: - - -
Awards exercised during the current year: 235 (127,500) -
Awards lapsed during the prior year: - (7,500) -
------------------------------------------- -------- ---------- ----------
Exercisable options at the end of the year 2,182,410 2,317,410
------------------------------------------- -------- ---------- ----------
The awards granted during the year are based on a percentage of the total number of shares in issue. There have been no new Share Options issued in the current year.
Performance Shares
The Group uses the Black-Scholes Model and the Monte Carlo Pricing Model to value performance shares and the resulting value is amortised through the income statement over the vesting period of the share-based payments with a corresponding credit to the share-based payments reserve.
Exercise 2015 2014
price Number of Number of
GBP shares shares
-------------------------------------- --------- ---------- ----------
Awards brought forward 650,000 500,000
Awards made during the current year nil 607,000 150,000
-------------------------------------- --------- ---------- ----------
Awards lapsed during the current year (60,690)
------------------------------------------------- ---------- ----------
Issued shares at the end of the year 1,196,310 650,000
------------------------------------------------- ---------- ----------
(b) Share-based payment charge
2015 2014
GBP'000 GBP'000
-------------------------------------------- -------- --------
Share-based payment expense brought forward 453 260
Share-based payment expense in the year 610 193
-------------------------------------------- -------- --------
Cumulative share-based payment 1,063 453
-------------------------------------------- -------- --------
26 Financial instruments - risk management
The Group's activities expose it to a variety of financial risks in relation to the financial instruments it uses: market risk including cash flow interest rate risk, credit risk and liquidity risk. The financial risks relate to the following financial instruments: trade receivables, cash and cash equivalents, trade and other payables, borrowings and derivative financial instruments.
Risk management parameters are established by the Board on a project-by-project basis. Reports are provided to the Board formally on a quarterly basis and also when authorised changes are required.
(a) Market risk
Currency risk
As all material transactions are in GBP, the Group is not subject to any foreign currency risk.
Cash flow and fair value interest rate risk
The Group has significant interest-bearing cash resources, the majority of which are held in business accounts with its principal bankers. The Group's interest rate risk arises from long-term borrowings (Note 20), borrowings issued at variable rates expose the Group to cash flow interest rate risk, whilst borrowings issued at a fixed rate expose the Group to fair value risk.
The Group's cash flow and fair value risk is reviewed quarterly by the Board. The Group analyses its interest rate exposure on a dynamic basis. It takes on exposure to mitigate the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios the Group calculates the impact on profit and loss of a defined interest rate shift. The simulation is run on an ongoing basis to verify that the maximum potential impact is within the parameters expected by management. To date the Group has sought to fix its exposure to interest rate risk on borrowings through the use of a variety of interest rate derivatives. At 31 March 2015, the Group (including joint ventures) had GBP342.3million (2014: GBP220.1 million) of interest rate swaps and caps in place. This gives certainty over future cash flow but exposure to fair value movements, which amounted to an unrealised loss of GBP0.67million at 31 March 2015 (2014: Gain GBP2.3 million). Sensitivity analysis is carried out to assess the impact of an increase in interest rates on finance costs to the Group. The impact of a 200bps increase in interest rates for the year would increase the net interest payable in the Income Statement and reduce net assets by GBP1.3 million (2014: GBP1.4 million).
(b) Credit risk
The Group's principal financial assets are cash and short-term deposits, trade and other receivables.
The credit risk on the Group's trade and other receivables is considered low due to the Group having policies in place to ensure that rental contracts are made with tenants meeting appropriate balance sheet covenants, supplemented by rental deposits or bank guarantees from international banks. The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the receivables concerned.
The credit risk on the Group's cash and short-term deposits and derivative financial instruments is limited to the Group's policy of monitoring own and counterparty exposures.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Board and its advisers seek to have appropriate credit facilities in place on a project-by-project basis, either from available cash resources or from bank facilities.
Management monitor the Group's liquidity position on a weekly basis. Formal liquidity reports are issued on a weekly basis and are reviewed quarterly by the Board, along with cash flow forecasts. A summary table with maturity of financial liabilities is presented below:
2015
--------------------------------
Current Year 2 Years 3 to 5
GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- ------------
Interest bearing loans and borrowings - - 159,565*
CULS - 23,500 -
Trade and other payables 20,697 - -
-------------------------------------- -------- -------- ------------
Derivative financial instruments - - 690
-------------------------------------- -------- -------- ------------
20,697 23,500 160,255
-------------------------------------- -------- -------- ------------
2014
--------------------------------
Current Year 2 Years 3 to 5
GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- ------------
Interest bearing loans and borrowings - - 109,011
CULS - 23,500 -
Trade and other payables 10,420 - -
Derivative financial instruments - - 19
-------------------------------------- -------- -------- ------------
10,420 23,500 109,030
-------------------------------------- -------- -------- ------------
*Assumes all options to extend at the Group's option are exercised.
The Group monitors its risk to a shortage of funds by forecasting cash flow requirements for future years, including consideration of existing facilities and covenant requirements. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and other short-term borrowing facilities, bank loans and equity fundraisings.
(d) Capital risk management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
To maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including borrowings and trade and other payables as shown in the balance sheet) but excluding preference shares, which for capital risk management is considered to be capital rather than debt, less cash and short-term deposits.
Total capital is calculated as equity, as shown in the balance sheet, plus preference shares and net debt. The Group is not subject to any external capital requirements.
27 Contingencies and commitments
The Group has no material contingent liabilities or commitments (2014: None).
28 Related party transactions
Group
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Directors' shareholdings can be found in the Directors' report.
Total emoluments of Executive Directors during the period (excluding share-based payments) were GBP3.8 million (2014: GBP2.6 million).
Share-based payments of GBP0.6 million (2014: GBP0.1 million) accrued during the year.
During the year, no shares (2014: 137,580) were acquired on the open market by Directors.
29 Post balance sheet events
On 18 May 2015, NewRiver Retail Limited will pay dividends of GBP5.0 million to its shareholders. The total dividend of 4.25 pence per share was paid entirely as a PID. The total dividend for the year was 17 pence which was 116% fully covered.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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