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202. Bull, Bear & Beyond – NewRiver REIT: executive interview
8 Plays12 days ago
In this interview, we talk with Allan Lockhart, CEO of NewRiver REIT. NewRiver is a specialist in the UK retail real estate market, both as a direct investor and as an asset manager. The company’s scale, retailer relationships and access to market data place it in a strong position to understand the retail market, both the opportunities and the risks. While it is too early to assess the impact of the war in the Middle East, Allan describes a sector that entered the year in the strongest position he has seen for 10 years, underpinned by resilient consumers and leaner, smarter and more efficient retailers, delivering increasing rents, attracting investment demand and generating positive returns.
For those who would like to learn more about NewRiver, a wealth of useful videos and podcasts is available on its website, explaining the company’s strategy, investment case and market dynamics, and providing interesting insights.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
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Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction of Alan Lockhart and New River REIT
00:00:07
Speaker
I'm Martin King, property analyst at Edison Investment Research, and I'm joined today by Alan Lockhart, who is CEO of New River REIT. I arranged this interview because I think New River has got a very interesting story to tell in a sector that has evolved considerably in recent years.
00:00:23
Speaker
As the the date approached, I was conscious of Charles Dickens and the tale of two cities. It was the best of times and the worst of times. And with uncertainty swirling around the markets, what better time to discuss the opportunities and the risks?
00:00:36
Speaker
Alan, welcome. Great to be here, Martin. Looking forward to it. Thank you.
Overview of New River and its Retail Assets
00:00:41
Speaker
um Alan, for those who are less familiar with the company, perhaps we could just start with a ah short overview of of what New River is.
00:00:49
Speaker
Well, New River is a specialist retail REIT. We operate just in the UK. We're probably one of the leading retail REITs in the in the market. Today, we own and manage around about 2.3 billion of assets that comprises a portfolio of shopping centres and also retail parks. And we're invested in pretty much most regions in the UK.
00:01:11
Speaker
We have around about 3,500 tenants in our portfolio. And so the increasing amount of data that we're receiving around customers is giving us an incredible insight as to what's going on with the UK consumer.
00:01:25
Speaker
Today, um i ran about ah ah the portfolio that NeuroDirectly owns, which is about 800 million of assets. um Just over 40% of that is now invested in in London. So we have quite a significant investment into London retail. Around 20% is in UK retail parks. And then the balance is regional UK cities, um including places like Edinburgh and you know Glasgow.
00:01:54
Speaker
um Our other part of our business as well as our balance sheet is where we manage assets on behalf of investment partners, where we're providing high quality asset management services in return for fee income.
00:02:05
Speaker
And we have a range of partners from private equity to some UK banks to local authorities, as well as a major UK institution. And you know that's a part of our business where we can grow our earnings in a capital light way. And again, it adds to our insights and access ah to data.
00:02:24
Speaker
So, and as I said, the the sector has evolved a great deal in recent years.
State of Retail Market Pre-Middle East Conflict
00:02:29
Speaker
Could we just set the scene a little bit now in terms of how the market looks, occupiers and investors and the trends you're seeing?
00:02:39
Speaker
Sure. um And I think we should probably talk about our marketplace before the ah war in in the Middle East has ah erupted.
00:02:50
Speaker
But we would say our marketplace, certainly before the war, was was in the best position it's been for about a decade. And we think that's really encouraging. Clearly, it starts with the UK consumer.
00:03:01
Speaker
UK consumers have been broadly pretty resilient, perhaps more resilient than financial markets had anticipated. you know Unemployment levels are still relatively low or on a historical basis.
00:03:12
Speaker
Job vacancies are still elevated. Wage growth has been tracking higher than a CPI, which means that's supportive around rising living standards. House prices have been broadly stable, which is important for consumer confidence because a lot of consumers' net worth is tied up in the value of the house.
00:03:29
Speaker
And consumers are sitting on excess savings, a lot of excess savings, which built up during the pandemic period. And as a result of a pretty resilient yeah UK consumer that is fed through to you know good levels of spending um in the shops, you know whether that's in grocery, ah clothing, non-food.
Retailer Strategies and Impact on Demand
00:03:49
Speaker
And we'd say today our occupational market's in its best position for quite some time for a variety of reasons. you know Retailers today are very focused around margin and margin growth, not just volume growth. They've invested in technology in terms of improvement in the ah supply chain, their efficiencies. um We've seen the significant growth of omnichannel retailers taking market share away from pure play online operators. And of course, what that means is that the demand for retail space has been increasing over the last three to four years. And overall, we're seeing vacancies come down in shopping centers, come down in retail parks, driven by demand. And that is very, very positive, we think, for um future rental growth and future valuations.
00:04:41
Speaker
As a result of a broadly resilient consumer, an improving occupational market, investor demand has spotted that and investors are increasingly looking to acquire more retail in the market. So we're seeing that equity capital um come into the market. So liquidity is rising. And that's really positive, we think, for valuations, whether that's in shopping centers or in retail parks. And also today, the credit markets are much more supportive around retail. So the availability of credit to support and partly fund acquisitions has also been improving over the last two years.
00:05:20
Speaker
And when you put all of that together, it's perhaps unsurprising that, um you know, retail is probably last year one of the top performing commercial real estate sectors on a total return basis. And I think the most sort of leading market commentators are expecting retail to outperform over the next two years. Of course, that was pre ah the yeah war in in Iran.
00:05:43
Speaker
But that that comes after quite a long period of underperformance in retail, doesn't it? Does that mean that this isn't all in you know this isn't in the in in pricing? fit Look, retail's had gone through a period of very significant disruption and and a lot of that was in the 2010s and it's it's really as a result of technology.
00:06:03
Speaker
Obviously, the internet's been around a very long time, but what the internet did in many ways was to accelerate other ah technological advancement which converged together that created a significant disruption in retail. So I'm talking about things like faster broadband speed, the massive explosion in smart mobile phone technology, the huge growth in the big social media platforms which are out and out selling flattenwale platforms All of that came together, um and as as a result of that, a significant amount of consumer spending went from a physical store channel to an online channel, and therefore the demand for that reduced.
00:06:45
Speaker
and you know At the end of the day, Will Estates about supply and demand it's a demand. falls and the supplies remain constant, that can create challenges. And we saw that. We saw you know rents fall, valuations fall, investor confidence fall.
00:07:02
Speaker
um But the market's adapting. And you know particularly having come out of the pandemic, where the cost of capital has changed, ah there's been more inflation in the market. It has been those retailers that have a physical store channel um and indeed an online channel, which has now been fully integrated, have been better placed to manage that sort of higher cost environment, ah whether that's capital or um ah you know product prices um compared to the pure play online retailers. And I can show you data that shows the only channel retailers like Marks and Spencers and Next and and others are taking market share away from pure play online, i.e. those retailers that just have an online channel and no physical store channel. So the the market is improving.
00:07:50
Speaker
um It's still a market with an oversupply of of space overall UK terms. but the market will in time a adapt and that amount of oversupply space will will reduce.
00:08:01
Speaker
The key from an investor perspective is make sure you invest in the right places where the supply demand dynamics are very favorable for future rental growth. And what we would say to people is the best and the safest way to invest in UK retail real estate to deliver the best returns with the lowest risk profile is through a platform like New River because we've got 75 highly experienced people on our team with a tremendous amount of expertise.
00:08:28
Speaker
We know what we're doing. We operate in most regions in the UK. But most important of all, we've got incredible data that we're now applying to almost every decision that we made as an owner and or or a manager of a multi-tenanted retail real estate asset.
Financial Position and Growth Plans of New River
00:08:44
Speaker
Perhaps we can move on to talk in a bit more detail about New River and how well you are positioned for those trends. And also, you've got a number of opportunities which, if you like, are baked into future earnings. And you've got some very defensive parts to your portfolio. So perhaps you can go into that.
00:09:02
Speaker
Yeah, look, we think the growth potential for New River is very significant. um Today, we're in a very, very strong position. um Back at the end of 2025, we did our first major public M&A transaction where we bought a business called Capital Regional. They provided additional scale into our business. um You know, our gross assets increased by 65% from that transaction, our net assets by 35%, and it was ah always going to be a very earnings-accredited transaction. And you will have seen that in our half-year results, which we published in November, where our cash profits were effectively up by 31%.
00:09:41
Speaker
So, um you know, we we're looking to grow, but it's growing in the right way that is going to deliver um ah value for for our shareholders. Our balance sheet's and in a great place. You know, we have relatively conservative levels of of gearing. We've probably got over 100 million of of of cash in our bank, having just This year, and our financial year, which which finishes at the end of March, we completed about $110 million of disposals. So we're in a great position to ah continue to hunt down the very best deals in the market that will deliver very attractive returns for our shareholders. But equally, we think our portfolio is well set to deliver consistent rental growth.
00:10:27
Speaker
with rental growth that feeds into your your earnings per share. But normally when rents rise, valuations follow. And as values rise, our LTV comes down and it allows us to access some of our liquidity to deploy into other opportunities in the market to deliver even further earnings growth. So um the business is going to be super focused around delivering the the right results for our shareholders. And we think that through that, we will be able to you know continue to grow the business, but doing so in the right way.
Data-Driven Decision Making at New River
00:11:04
Speaker
Alan, I know the the message you're giving here is not just based on on a gut feel. you You've got an awful lot of data behind this. Could you just talk about that, the way you use data, what you've got and what it's telling you?
00:11:18
Speaker
Yeah, sure. I mean, we're we're really investing to ensure that we've got access to the best quality data that we can be confident around making decisions upon.
00:11:29
Speaker
But also we're investing in our systems to be able to handle increasing quantities of data. to be able to organize that data, to be able to analyze it and present it into our decision makers in a very clear and concise way. And in many ways, as a real estate company, we are doing what the retailers have been doing for years. i think it's really interesting that last year,
00:11:50
Speaker
Tesco Club Cards celebrated his 30th birthday and Tesco have been collecting data on their customers to be able to communicate their customers in a more personalized way and to ensure that the customers have got the right products at the right price in front of them.
00:12:07
Speaker
We're doing the same. So we're using data to help us make better decisions on a more consistent basis. Today, and across our portfolio, we can see where customers come from, where they don't come from, when do they typically typically come, how often do they come, what is their demographic profile in terms of sort of income profiles.
00:12:28
Speaker
um We can also see where customers would ah typically make their first purchase. Where would they typically go for the second purchase and third purchase and so on, average transaction value.
00:12:40
Speaker
And we would we think this data allows us to make decisions whether we buy an asset, hold, sell, it supports our leasing negotiations, it helps us in terms of how we spend our marketing budgets and we can work out that sort of return on investment.
00:12:57
Speaker
It supports us around our capital expenditure strategy, whole range of things, and it's definitely the way forward. And, you know, we yeah ah we we we are super confident around the quality of the data that we now have and the benefits that really flow from that. And it's definitely the future.
00:13:17
Speaker
Alan, that's great. I know you're working very hard to get this this message out there. And there's some very good material on your website for people who want to know more. And we'll put some links to this in the email that we send out so that people can go and find it themselves. Well, that's really kind of you, Martin. But also, um you know, we have a very active LinkedIn channel at New River and also my own channel. So anybody that wants to follow me, you're most welcome. Thank you. Thanks very much.