Newriver Reit Share Discussion Threads

[vow] 21/9/2020 11:45

Agreed on the commercial extension. The current situation encourages head in the sand mentality on behalf of tenants and landlords.

There are units out that that aren’t viable and retailers that aren’t viable. They’d be better served biting the bullet and moving on, rather than dragging it out.

Also if the unit and tenant are viable this would be a good time to negotiate their on going relationship so everyone knows where they stand, rather than hide behind this legislation.

[dhoult12] 21/9/2020 11:34

@Daffyjones, yes you are right the bad news of the government seemingly wanting rolling lockdowns till??? was not priced in. Keeps on coming. Will it last forever? who knows. The government seems intent on the Vietnam solution of saving the village by napalming it. Airlines etc have been hammered off the back of it as well.

The ability to actually chase national chains for rent due is key at the moment. The extension till December was poor in my view. Residential evictions have already started.

[spectoacc] 21/9/2020 11:15

Hmm I think we're due a bounce, I think there's so much in the price already.

But I agree re retail space - and all the "oh, just convert it to resi" simply won't work, in part due to where the resi market is about to go, and in part due, as you say, to cost.

Good luck with short, I bought some this morning, first in a little while :)

[hpcg] 21/9/2020 11:02

I'm short again. There is so much surplus space that potential renters control the market. A vast amount of retail space needs to be taken out of the market but a) that takes time, and b) that takes money. The cash required to redevelop will mostly come from the sidelines; those REITs without financial resources will have minimal participation.

Irrespective of fundamentals money flow is out. Until those that have decided to take their losses, or in reality preserve at least some of their capital, have exited, the share price will go down.

[fenners66] 21/9/2020 10:46

Just in case some think that I am newly negative on NRR just because of the covid situation - I'm not

I was looking to invest here for yield when the share price was about 360

When I thought it through , I got bearish on its prospects and decided against.

No , I did not short it - perhaps I should have

I did avoid an investment error though.

[fenners66] 21/9/2020 10:43

chucko1 - it does apply to lots of other companies and I have been calling out those I have noticed.

There is a reasonable correlation though

I call them out for spin
their share prices fall
sometimes to zero.

Is it just a coincidence or is there a desperation in the management speak that is forced on them by the underlying trading conditions ?

[fenners66] 21/9/2020 10:41

riverman77
a quick spreadsheet starting with 37% LTV and taking 12.3% off the assets
does not give us a 47% LTV it only explains 5% differential, 37% to 42%


So where did the other 5% loan to value rise come from ?

Ok if you no longer have the property in the portfolio - you don't have to show the "valuation" drop in the 12.3% fall

So maybe you sell at a loss and don't repay the borrowings..

[chucko1] 21/9/2020 10:30

Fenners66, that applies to all shares! So why the NRR diatribe? One of the best managements in the REIT universe (UK, at least), though they are having the kitchen sink thrown at them.

[riverman77] 21/9/2020 09:55

Fenners - you seen not to understand the basic fact that NRR is geared so a 12% fall in property values can lead to a 23% fall in NAV. Property valuations have not fallen by 23% (at least not so far).

[fenners66] 21/9/2020 09:45

chucko1
That's fine for you - but we know there are a lot who read the headlines only and do not read the details.

That's why the headlines are published with all the spin.

[fenners66] 21/9/2020 09:42

Go on explain the 23% fall in Net Asset Value then....

[debeege] 21/9/2020 07:30

Im assuming everyone on this board just has fenners ignored. Because the amount of times he's just blatantly factually wrong is unreal:

"Reading the accounts published June 20 the reduction of EPRA NAV per share
201p
261p
-23%

so yes a 22% valuation fall has been done before."

Thats a 22% drop in NET ASSET VALUE. Not a 22% fall in valuations. Can you even read?

"-12.3% like-for-like valuation decline"

Clown finally ignored.

[chucko1] 21/9/2020 07:27

Fenners66, you seem to have a phobia versus uncertainty! I, and many others I am sure, can assign probabilities to a variety of outcomes and determine a preferred level of overall risk. Not everyone in this world need be a bookkeeper.

[daffyjones] 21/9/2020 06:02

Down 17 % since dboult said the bad news was priced in two weeks ago

The problem with bad news is that there is an unlimited supply of it.

New restrictions on pub opening to be announced by BoZo tomorrow, likely a national 10pm curfew. Will be the final straw for a lot of struggling pubs that had just about got back on their feet.

[fenners66] 21/9/2020 00:38

Its not about the "facts" whatever the outcome comes out as , they stated in there after all that they had ONLY collected 52%

So if you are that tenant you can still use that as per your example above.

Its about the spin and when I read people - who are supposed to be investors - quoting the higher figures because they read and accepted headlines without looking closely - it winds me up that the BOD's have got away with exactly what they wanted.

Look at us we got 82% or whatever..... confirmed that one day it might get paid, so you can all forget about any risks , keep believing nothing can go wrong haven't we done a great job....

If I asked a credit controller how much money we got in and they gave me some spin about how it was 80+% when they had only actually collected 52% and decided that they would write off some of the rest - I would be wondering if I had the right credit controller.

[chucko1] 21/9/2020 00:14

So were NRR to say that they were only going to receive 52% (i.e. what they had actually received) of the rent and that was it, then an eventual receipt of, say, 66% (lower end of expectations) would indicate a management not in touch with the likelihood of the various scenarios - a picture they have made some effort to paint.

Even worse, were I a tenant, I would think that they are not expecting to ever receive my unpaid rent. So I would make no effort to pay it now or constructively negotiate. As a shareholder, I would think they were insane. 44% of the rent is due but unpaid; some will be, and some will not be as some tenants go bust. I can make my own assessment of that - not easy, but I know the answer is not zero!

Other REITs have been criticised in a similar manner by some on these boards for similar comments - and the outcome has been that they have generally being making accurate assessments. RGL (in particular), AEWU and AIRE come to mind. RLE to be determined tomorrow morning, maybe. Actually, this morning.

[fenners66] 20/9/2020 23:22

chucko1
actually it was more qualified than that

"Is just falling for the spin B/S"

It's the SPIN thats the B/S and I hate it.
They are not alone , I have seen the same style of statement elsewhere and challenged it on these boards.

Its clear to me that the intention at the time was to leave the reader with the impression that there was no risk to 75% of rents , at the time when they had only collected 52%.

But if a further 23% would not or more likely could not pay - no amount of soothing words about they are going to pay...... sometime.... cuts it for me.

Cash due and unpaid is always a risk and should be highlighted as such , not hidden under a pretty carpet.

[candid investor] 20/9/2020 22:12

Spectoacc...there is also a bear case as well, I agree...factors include.
.if share price is 46p now what price will it fall to when inevitable second full lockdown occurs..
..NRR's sector of the economy is less able to cope with second lockdown apart from 40% essential retail shops...pubs already reeling after first lockdown...a second lockdown could kill many of them off
..occupancy starting to fall quarter by quarter..risk over sustained reduction in renewals ...
...disposals all have low yield so they suggest safe assets although then again not much marginal loss of income resulting from their disposal
..asset valuations falls on the way..anyone's guesss...the higher they are the higher the ratio of debt to equity which is not good..
..time lag between loss of rent and converting to alternative purpose assets if that becomes required.
..Millenium International are slowly building up an increasing short position (never a good sign) ..they obviously think share price could fall to the 20p region
If I thought hard I could probably think of
more.
Two major advantages..no tax and as REIT any profit which is made will generate dividends which will prop up share price..
Secondly lots of cash should withhold the worst of storms..
It's worth noting that even a 50% fall in net revenue is about the break-even point in UFFO terms. Such is the benefit of running a high margin tax free business with at least 90% profits distributed to shareholders..
I will stay here for now but will be fastening my seatbelt for a bumpy ride..dyor..

[chucko1] 20/9/2020 18:52

So far as the NAV is concerned, NRR started at 37% which is not especially high. Over all US REITs, the average is 31%, but that includes some at near-zero owing to a far wider range of structures.

Now 47% for NRR and a further 21% fall in average asset values takes it to 60% LTV. However, if they succeed in selling 10% of their portfolio this year (reasonably close to current book value), then this 60% LTV becomes 51%. Repeat next year at a 10% discount to book, and the LTV becomes 42%. At this stage, (end 2021), a 2 for 5 equity raise in more benign conditions restores the LTV to 32%.

Does NRR get this far? - this is horrible in terms of wild events, but the finances for most REITs are far better than those experienced by REITs in 2007 etc. The required equity dilutions in that era were severe since the starting LTVs were more like 65%. Lenders had been falling over themselves to offer leverage and even monsters like RBS were being priced out of the market. Come the crash, you had to raise equity at any price as lenders could lend not a penny more in most circumstances.

This is not even considering a waiver for covenant breaches, which is pretty likely in any event. For nearly all REITs over a few decades, survival is the be-all and end-all. Price volatility even for the best (see PHP as a prime example) is extreme.

[chucko1] 20/9/2020 18:25

So Fenner, that would be quite a discrepancy between the anticipations of the management and the eventual reality. 52% minimum versus 96% maximum.

You regard it [management statements] as "B/S". I really cannot see the evidence for this at this stage. But each to their own with a view on the integrity of management.

But I do recall you making very similar comments regarding the oft-criticised management of PLUS, when they were not as clear as they could have been regarding the P&L breakdown. Except those who knew the company recognised the exaggeration of the importance of this issue (it was not important at all), whereupon PLUS has almost tripled (including dividends) in the meantime. A great risk-reward for true risk-takers as opposed to back-seat drivers.

On NRR itself, of course it is cheap now - assessing the degree of risk when it is being hit monthly by large events not within its control will prove too much for many. I see that as a far larger component of its overall risk as opposed to a poor (or worse) management.

[candid investor] 20/9/2020 18:22

Manouk2....tell your friend that this is the most insightful and intelligently written article I have read on this website for a long time...I agree with almost everything he has said...the big problem as he says is further significant declines in asset values with big increases in LTV resulting in covenant pressures ..good news is I think lenders will waive these covenants in the short term .
I would add that I would sell more assets and announce a share buy back to flush out shorters and put a floor under current share price.

[candid investor] 20/9/2020 18:02

Debeege....I went on the Hawthorne Leisure website and saw them all available there...even as you say they are coming up for lease renewal then presumably it means that the current tenants are moving out or am I missing something ?

[fenners66] 20/9/2020 15:37

Reading the accounts published June 20 the reduction of EPRA NAV per share
201p
261p
-23%

so yes a 22% valuation fall has been done before.

Whilst loan to value went from 37% to 47% in the same period.

Referring to
"Already collected or agreed re-gears with 84% of Q1 rents and 80% of Q2 rents"

Is just falling for the spin B/S
I have the annual accounts open right now - so by way of example at that time

"Total collected or alternative payments agreed 75%"
sounds similar to the 80% figures mentioned....

But actually - Collected was just 52% !
4% already having been written off.

[spectoacc] 20/9/2020 13:26

Thanks for sharing. Haven't time to go through it line by line but some good (& not so good) stuff in there. Quick points:

1. S/he's down 10% already
2. CAL certainly isn't a peer (or pier!)
3. Re NRR achieving March valuation with disposals - what are they selling? Is it what they can sell, ie the good stuff?
4. The pubs comment has been rapidly and painfully superceded. A page in the paper today on why 900,000 jobs are now at risk in the hospitality trade [with a plea for renewed furlough over the two week Oct total lockdown, VAT cut extending into next year, and - bizarrely - a cut to beer duty. Getting more people into pubs is the opposite of the govnt's policy right now!]
5. A 22% valuations fall is mentioned as being needed for any covenant breach - I'd suggest that can occur inside 2 quarters.
6. Not sure relevance of B&M entering FTSE100. Next is well up the FTSE100 & they're getting 50% average rent reduction on renewal (they claim).


Don't get me wrong, not anti-NRR, not down here, and credit to your friend for mentioning some downsides too. I just don't think s/he has included enough of them :)

[manouk2] 20/9/2020 11:39

a friend sent me this well written analysis:



Thought I’d let you know I’m buying into NRR again. The discount is too big to ignore. I believe the market is mis-pricing the risk/return due to:
• Headlines of physical retail decline and demise of other retail-focused REITs (see Hammerson, Intu)
• Covid 2nd lockdown of non-essential retail (unlikely – but watching hospitalisations and deaths carefully – not just cases)
• Lack of clarity on true occupier ability to pay due to the moratorium on eviction proceedings
• Suspending of the dividend
• Brexit uncertainty

Portfolio valuation
1. NAV / share 201p. Current share price 51p (75% discount to NAV from 31 Mar-20 – which reported in June and already accounted for Covid to some extent)
2. LTV 47% and the issue of debt-level now an issue that needs to be resolved by management which they are addressing with disposals of £100m this year (already achieved £52m by Aug-20 at Mar-20 valuations)
3. I expect future valuation decline to be relatively modest through the rest of the financial year given:
a) Disposals already achieved in line with Mar-20 valuations (see above)
b) Tenant mix is focused on convenience and value/discounters who have fared well during lockdown and vs general online migration. E.g. One of their biggest tenants - B&M - has now been admitted to the FTSE 100
c) Retail park valuations (19% of the portfolio) are holding up in a post-Covid world (e.g. RDI disposal of 6 retail parks at 3% below Feb-20 pre-lockdown book valuations)
d) Pubs (23% of the portfolio) are open and were on an upwards like-for-like EBITDA trajectory before Covid
e) Shopping centres (51% of the portfolio) are the most vulnerable to valuation decline but are underpinned by alternative use valuations as residential (8% below existing use) should provide some further support. The business is already underway gaining planning permissions on many of these sites
f) NEY across the portfolio is already much higher than other property asset classes at 8.9% and rents are low compared to piers meaning there is less vulnerability to further yield drift which has affected other retail (e.g. LandSec retail down 20.5% vs. NewRiver down 12.3% over same valuation period to Mar-20).
g) Lettings conducted so far in FY21 are in line with Mar-20 valuation (Aug-20 operational update)
h) Savills monthly yield tracker for retail is showing just a c25bps blended yield drift for their mix of portfolio (shopping centres, retail parks and pubs) since April 2020
i) Average lot size of retail parks (£13m) and shopping centres (£20m) low compared to piers providing great access to liquidity. Pubs more liquid again (average value c£350k)
4. NewRiver has better metrics than piers (e.g. Capital & Regional LTV 57% and has breached covenants on a number of asset-specific debt, much less liquid assets but trading at same 75% discount to NAV)
5. Debt covenants are at 60% and 65% on a group-wide basis which would require a further 22% decline in valuations across the entire portfolio and no disposals to breach
6. As yields are high they collect a lot of cash for the portfolio value so interest coverage ratios will hold up easily
7. UK is already amongst the highest levels of online shopping penetration in the western world so the pressure of future shift is less acute from here than other countries
1. Online only really works for high-margin / high-value goods given the cost of operating a delivery network. NRR isn’t particularly exposed to online migration

Rental income
1. Already collected or agreed re-gears with 84% of Q1 rents and 80% of Q2 rents
2. Lots of the remainder are big names taking advantage of the current government protection to conserve cash when they don’t actually need to
a) E.g. Boots, Superdrug, Sports Direct, etc. in the press
b) Just 1.2% of tenant rental income is currently subject to administrations or active CVA (agree likely to go up as furlough ends)
3. Portfolio is currently under-rented vs Mar-20 ERVs so there is some headroom to grow into
4. Net acquisitions in Mar-20 year are yet to see a full year of rent collection – meaning some further room to grow in FY21 vs. FY20 figures.

I expect the government to extend the commercial tenant eviction legislation to the end of 2020 or beyond. Some tenants will continue to take advantage in an unscrupulous way but NRR can simply match that by delaying the reinstatement of the (full) dividend. Ultimately the rents are simply deferred - tenants will have to pay later or do a CVA / go out of business.

I spoke with a couple of commercial agents selling retail property to gather their thoughts. Lots of tenants have taken advantage of the legislation to part-pay or refuse payment but are working out deals to bring themselves up to date over the next 6-9 months. This also allows them time to apply for business interruption insurance claims – the High Court has just ruled generally in tenants’ favour on this today in a landmark test case of business interruption insurance.

I’m also comforted by the other ways the business adds value beyond simply collecting rent on balance sheet assets, specifically through fees and profit shares of JV equity with BRAVO (PIMCO), active asset management and capital recycling capability (buy at 9-15% yields, sell at 5-7%), re-development capability, and asset management mandates.

I expect underlying cash flows from operations to be c8p in FY21 (starting at , rising to 16p in FY22 and NAV/share to fall to 150-170p over the course of the next two half year reporting dates. But I think that will be the bottom of the market.

The catalyst for a resurgence in the share price are:

- Re-instatement of the dividend and dividend guidance
- 1H21 results (Nov-20)
- Sales of assets and clear route to return to 40% LTV. [Given likely portfolio valuation declines against Mar-20 this will require a fair amount of selling and is probably the biggest risk to regaining a stabilised business]
- Covid-19 improvements:
o Realisation that ‘Covid 2nd wave’ is case-led and isn’t resulting in anything like the same level of hospitalisations and deaths even on a proportional basis
o Vaccine roll-out news / implementation

Although I do also expect further share price weakness on:
- The opposite or poor results on the above
- Extension of the commercial tenant eviction moratorium
- Retail business redundancies, CVA’s and administrations in the headlines
- Hammerson or other retail REIT administration / further equity raise / public distress / fire sales of assets

But I see those as opportunities to buy.